<PAGE>
PROSPECTUS
- -------------------------------------------------------------------------------
SEPARATE ACCOUNT NO. 2
VARIABLE ACCUMULATION ANNUITY CONTRACT
Issued By
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
320 Park Avenue, New York, New York 10022
- -------------------------------------------------------------------------------
The group variable accumulation annuity contract ("Contract") offered by
Mutual of America Life Insurance Company (the "Insurance Company") and
described in this Prospectus is designed to aid employees of organizations in
the health and welfare and educational field in retirement and long-term
financial planning by providing monthly Annuity Payments which begin at a
selected future date. The Contract will be issued in conjunction with thrift
plans or arrangements which are qualified under either Section 401(a) or
403(a) or meet the requirements of Section 403(b) of the Internal Revenue Code
("Code") for the benefit of participating employees of organizations
qualifying for tax-exempt status under Section 501(c) of the Code.
The term "thrift plan or arrangement," as used in this Prospectus, is a plan
under which participating employees designate a percentage of salary as a
contribution thereto and the employer matches a fixed percentage up to a
specified limit, with additional employee contributions permitted, as well as
non-matched amounts by the employer if the Plan permits; however, certain
plans provide for employer contributions only.
Participating employees under this Contract are referred to in this Prospectus
as "Participants."
Under the Contract, Contributions made in accordance with the thrift plan or
arrangement may be accumulated on behalf of a Participant on a completely
variable basis, a completely fixed basis, or a combination variable and fixed
basis. The basic purpose of the variable accumulation aspect of the Contract
is to provide Participants with an opportunity to accumulate amounts toward
retirement, or for other purposes permitted by federal law, that will reflect
the investment experience of one or more of the distinct Funds comprising
Mutual of America Separate Account No. 2 ("Separate Account") to which
Contributions may be allocated. Contributions under the Contract may be
allocated in whole or in part to any of the Funds of the Separate Account or
to the General Account of the Insurance Company (the "Investment
Alternatives").
The assets in each Fund of the Separate Account are invested in shares of:
- -- one or more of the following eight Funds of Mutual of America Investment
Corporation (the "Investment Company"): Money Market Fund, All America Fund,
Equity Index Fund, Bond Fund, Short-Term Bond Fund, Mid-Term Bond Fund,
Composite Fund and Aggressive Equity Fund;
- -- one or more of the following three Fidelity Investments (R) portfolios:
Equity-Income Portfolio of the Variable Insurance Products Fund, and
Contrafund Portfolio and Asset Manager Portfolio of the Variable Insurance
Products Fund II (collectively, the "Fidelity Portfolios");
- -- one or more of the following three portfolios of Scudder Variable Life
Investment Fund (collectively, the "Scudder Portfolios"): Scudder Capital
Growth Portfolio, Scudder Bond Portfolio, and Scudder International
Portfolio;
- -- the American Century VP Capital Appreciation Fund of American Century
Variable Portfolios, Inc.; and
- -- the Calvert Social Balanced Portfolio of Calvert Variable Series, Inc.
(formerly called the Calvert Responsibly Invested Balanced Portfolio).
The respective prospectuses for the Investment Company, the Fidelity
Portfolios, the Scudder Portfolios, the American Century VP Capital
Appreciation Fund and the Calvert Social Balanced Portfolio, which are
attached to this Prospectus, describe the investment objectives and policies
of each of the variable accumulation Investment Alternatives, as well as the
risks relating to investments in each such Investment Alternative.
The value of a Participant's interest in the Separate Account will depend upon
the investment performance of the chosen Investment Alternative. THE INSURANCE
COMPANY DOES NOT GUARANTEE THE INVESTMENT PERFORMANCE OF ANY FUND OF THE
SEPARATE ACCOUNT. Accordingly, the Participant bears the entire investment
risk for any amounts allocated to the Separate Account.
Amounts accumulated under the Contract may be applied to provide monthly
Annuity Payments on a fixed basis commencing at a future date selected by the
Participant.
This Prospectus generally describes only the variable portion of the Contract.
For a brief summary of the fixed portion, see "The General Account."
This Prospectus sets forth the information that a prospective investor should
know before investing. A Statement of Additional Information about the
Contracts and the Separate Account is available free by writing the Insurance
Company at the address above or by calling (212) 224-1600. The Statement of
Additional Information, which has the same date as the Prospectus, has been
filed with the Securities and Exchange Commission and is incorporated herein
by reference. The table of contents of the Statement of Additional Information
is included at the end of this Prospectus.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Please read this Prospectus carefully for details on the Contract being
offered and retain it for the future reference. It is not valid unless
attached to the current prospectuses for the Investment Company, Fidelity
Portfolios, Scudder Variable Life Investment Fund, American Century VP Capital
Appreciation Fund and Calvert Social Balanced Portfolio.
Dated: May 1, 1998
<PAGE>
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Table of Annual Expenses............. 4
Unit Value Information............... 6
Definitions.......................... 8
Summary.............................. 10
Mutual of America Life Insurance
Company............................. 13
The Separate Account................. 14
Investments of the Separate Account.. 14
Charges.............................. 17
Administrative Charges.............. 17
Distribution Expense Charge......... 18
Mortality and Expense Risk Charge... 18
Portfolio Company Expenses.......... 18
Employer Charges.................... 20
The Group Annuity Contract........... 21
General............................. 21
Payment of Contributions............ 21
Allocations of Contributions........ 21
Accumulation Units.................. 21
Transfers Among Investment
Alternatives....................... 22
Withdrawals......................... 23
Specified Payments Option........... 24
Death Benefits...................... 24
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Discontinuance and Termination........................................ 25
Discontinuance....................................................... 25
Termination of Participation......................................... 25
Postponement of Payments.............................................. 26
The Annuity Period.................................................... 26
General.............................................................. 26
Annuity Commencement Date............................................ 26
Available Forms of Annuity........................................... 27
Amount of Annuity Payments........................................... 27
Small Benefit Payments............................................... 27
The General Account................................................... 28
General Matters....................................................... 29
Federal Tax Matters................................................... 32
Voting Rights......................................................... 34
Performance Information............................................... 35
Funding and Other Changes............................................. 35
Other Variable Annuity Contracts...................................... 36
Table of Contents of the Statement of Additional Information.......... 36
Obtaining a Copy of the Statement of Additional Information........... 37
Order Form for Statement of Additional Information.................... 37
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
3
<PAGE>
TABLE OF ANNUAL EXPENSES
<TABLE>
<CAPTION>
Investment
Company
All America,
Bond,
Investment Short-Term Investment Investment Fidelity Fidelity
Company Bond, Company Company VIP Fidelity VIP II Scudder
Money Mid-Term Bond, Equity Aggressive Equity- VIP II Asset Capital Scudder
Market and Composite Index Equity Income Contrafund Manager Growth Bond
---------- -------------- ---------- ---------- -------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Contractowner
Transaction
Expenses
Sales Load
Imposed on
Purchases...... None None None None None None None None None
Deferred Sales
Load......... None None None None None None None None None
Surrender Fees.. None None None None None None None None None
Exchange Fee.... None None None None None None None None None
Annual Contract
Fee(1).......... $24 $24 $24 $24 $24 $24 $24 $24 $24
==== ==== ==== ==== ==== ==== ==== ==== ====
Separate Account
Annual Expenses
(as a percentage
of average
account value)
Mortality and
Expense Risk
Fees(2)........ .50% .50% .50% .50% .50% .50% .50% .50% .50%
---- ---- ---- ---- ---- ---- ---- ---- ----
Account Fees and Expenses
Administrative Charges
(after
reimbursement)(2). .40% .40% .40% .40% .30% .30% .30% .40% .40%
Distribution
Expense
Charge(2)...... .35 .35 .35 .35 .35 .35 .35 .35 .35
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Account
Fees and
Expenses....... .75 .75 .75 .75 .65 .65 .65 .75 .75
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Separate
Account
Expenses....... 1.25% 1.25% 1.25% 1.25% 1.15% 1.15% 1.15% 1.25% 1.25%
==== ==== ==== ==== ==== ==== ==== ==== ====
Portfolio Company
Annual Expenses
(as a percentage
of portfolio
company average
net assets)(3)
Management Fees. .25% .50% .125% .85% .50% .60% .55% .47% .48%
Other Expenses
(after
reimbursement)(3). None None None None .08 .11 .10% .04% .14
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Portfolio
Company
Expenses....... .25% .50% .125% .85% .58%(4) .71%(4) .65%(4) .51% .62%
==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
American
Century VP Calvert
Scudder Capital Social
International Appreciation Balanced
------------- ------------ ----------
<S> <C> <C> <C>
Contractowner
Transaction
Expenses
Sales Load
Imposed on
Purchases...... None None None
Deferred Sales
Load......... None None None
Surrender Fees.. None None None
Exchange Fee.... None None None
Annual Contract
Fee(1).......... $24 $24 $24
============= ============ ==========
Separate Account
Annual Expenses
(as a percentage
of average
account value)
Mortality and
Expense Risk
Fees(2)........ .50% .50% .50%
------------- ------------ ----------
Account Fees and Expenses
Administrative Charges
(after
reimbursement)(2). .40% .20% .40%
Distribution
Expense
Charge(2)...... .35 .35 .35
------------- ------------ ----------
Total Account
Fees and
Expenses....... .75 .55 .75
------------- ------------ ----------
Total Separate
Account
Expenses....... 1.25% 1.05% 1.25%
============= ============ ==========
Portfolio Company
Annual Expenses
(as a percentage
of portfolio
company average
net assets)(3)
Management Fees. .83% 1.00% .69%
Other Expenses
(after
reimbursement)(3). .17 None .12
------------- ------------ ----------
Total Portfolio
Company
Expenses....... 1.00% 1.00% .81%(5)
============= ============ ==========
</TABLE>
- -------
(1) A monthly amount of $2.00 (but not to exceed 1/12 of 1% of the Account
Value in any month) is charged with respect to each Participant under a
Contract, regardless of the number of Investment Alternatives in which the
Participant is invested. Such amount is deducted from the net assets, if
any, in one or more of the Participant's Accounts or from such net assets
which have been allocated to one or more Funds of the Separate Account in
the order as described in "Charges--Administrative Charges" herein. The
above table reflects such amount for a full year for each fund or
portfolio as if no other Investment Alternatives were used. If the General
Account is used, the fee is deducted from it and there would be no fee
with respect to amounts allocated to any fund or portfolio. If the General
Account is not used, but more than one fund or portfolio is used, then the
second or additional fund(s) or portfolio(s) would not be charged. The
employer may elect to pay this Additional Amount in which case no amount
is deducted from the Participant's Account. See "Charges--Administrative
Charges." In addition, there is a monthly contract charge, payable by the
employer, which ranges up to $100 per group contract, and a monthly
employer participant charge of up to $4.00 per participant. See "Charges--
Employer Contract Charge".
(2) In accordance with a Fund Participation Agreement, the investment adviser
for American Century VP Capital Appreciation Fund reimburses the Insurance
Company at an annual rate of up to .20% for Administrative Expenses. If
the Fund Participation Agreement is terminated for sales of new Contracts,
the investment adviser's reimbursement obligation will terminate, and the
administrative charge to the American Century VP Capital Appreciation Fund
will be .40% instead of .20%. The transfer agent and the distributor for
the Fidelity Portfolios reimburse the Insurance Company at a total annual
rate of .10%, paid quarterly in arrears, for certain services provided by
the Insurance Company, and the administration expense for the Fidelity VIP
Funds would be an annual rate of .40% if these service agreements were
terminated. The Administrative Charges, Distribution Expense Charge and
Mortality and Expense Risk Fees items are more fully described under
"Charges--Administrative Charges"; "Charges--Distribution Expense Charge";
and "Charges--Mortality and Expense Risk Charge."
(3) The investment adviser for the Investment Company voluntarily limits the
expenses of each Investment Company Fund to its investment advisory fee.
The investment adviser for the American Century VP Capital Appreciation
Fund pays the expenses of that Fund other than the investment advisory
fee. The expenses of the Portfolio Companies are more fully described in
the prospectuses of the Portfolio Companies, which are attached to this
Prospectus.
(4) A portion of the brokerage commissions that these Portfolios pay was used
to reduce their expenses. In addition, the Portfolios have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce custodian and
transfer agent expenses. Including these reductions, total operating
expenses for the VIP Equity-Income Portfolio and the VIP II Contrafund and
Asset Manager Portfolios for 1997 would have been .57%, .68% and .64%,
respectively.
(5) Total Expenses are based on expenses for fiscal year 1997 and have been
restated to reflect an increase in transfer agency expenses of 0.01%
expected to be incurred in 1998. Management fees may be adjusted based on
performance by the Portfolio's advisors, which could cause the fee to be
as high as .85% or as low as .55%, depending on performance. The Portfolio
indirectly pays expenses of 0.03%, and the Portfolio's total operating
expenses for 1997 would have been .78% with reductions to reflect fees
paid indirectly.
4
<PAGE>
EXAMPLES
The examples below show the expenses that would be borne by a Participant,
assuming a $1,000 investment and a 5% annual rate of return on assets. No
surrender charge is imposed upon the surrender of a contract, and therefore
the expenses would be the same whether or not the contract is surrendered at
the end of the applicable time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Example for Investment Company Money Market
Fund
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $18.46 $59.99 $108.32 $264.76
Example for Investment Company All America,
Bond, Short-Term Bond, Mid-Term Bond and Com-
posite Funds
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $21.04 $68.19 $122.83 $298.44
Example for Investment Company Equity Index
Fund
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $17.17 $55.87 $101.00 $247.60
Example for Investment Company Aggressive Eq-
uity Fund
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $24.63 $79.57 $142.84 $344.19
Example for Fidelity VIP Equity-Income Fund
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $20.83 $67.54 $121.67 $295.77
Example for Fidelity VIP II Contra Fund
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $22.17 $71.78 $129.15 $312.99
Example for Fidelity VIP II Asset Manager Fund
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $21.55 $69.83 $125.71 $305.07
Example for Scudder Capital Growth Fund
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $21.14 $68.52 $123.40 $299.77
Example for Scudder Bond Fund
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $22.27 $72.11 $129.73 $314.31
Example for Scudder International Fund
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $26.17 $84.41 $151.30 $363.32
Example for American Century VP Capital Appre-
ciation Fund
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $24.12 $77.95 $140.00 $337.75
Example for Calvert Social Balanced Fund
You would pay the following expenses on a
$1,000 investment, assuming 5% annual return
on assets:................................... $24.22 $78.28 $140.57 $339.05
</TABLE>
The purpose of the above table is to assist the Participant in understanding
the various costs and expenses that a Participant will bear, directly or
indirectly, under a contract and the table reflects the expenses of the
Separate Account as well as the Investment Company Funds, the Fidelity VIP
Equity-Income Portfolio, the Fidelity VIP II Asset Manager and Contrafund
Portfolios, the Scudder Portfolios, the American Century VP Capital
Appreciation Fund (formerly known as the TCI Growth Fund) and the Calvert
Social Balanced Portfolio (formerly known as the Calvert Responsibly Invested
Balanced Portfolio) as they were for the year ended December 31, 1997. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE ON WHICH THE EXAMPLES WERE BASED.
The annual rate of return assumed in the examples is not an estimate or
guarantee of future investment performance. Each example also assumes an
annual contract fee of $2.79 per $1,000 of value in the Separate Account based
on an average account value of $8,595. See "Charges--Administrative Charges"
for a description of how such fee would be deducted from the Investment
Alternatives.
5
<PAGE>
UNIT VALUE INFORMATION
Shown below is condensed financial information for an Accumulation Unit
outstanding throughout the ten years during the period ended December 31,
1997. The information with respect to each of the years in the six year period
ended December 31, 1997, has been audited by the Funds' independent auditors,
Arthur Andersen LLP. Each of the years in the periods ended December 31, 1991
were audited by the Funds' previous auditors. THE ALL AMERICA FUND (PREVIOUSLY
CALLED THE "STOCK FUND") CHANGED ITS INVESTMENT OBJECTIVES AND POLICIES AND
ADDED SUBADVISERS ON MAY 1, 1994. Prior to January 1, 1998, the Calvert Social
Balanced Portfolio was known as the Calvert Responsibly Invested Balanced
Portfolio, and prior to May 1, 1995, the Portfolio was known as the Calvert
Socially Responsible Series. Prior to May 1, 1997, the American Century VP
Capital Appreciation Fund was known as the TCI Growth Fund.
<TABLE>
<CAPTION>
INVESTMENT COMPANY MONEY MARKET FUND
-------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
year/period............. $ 1.87 $ 1.80 $ 1.72 $ 1.68 $ 1.65 $ 1.62 $ 1.54 $ 1.44 $ 1.33 $ 1.25
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Unit value, end of
year/period............. $ 1.95 $ 1.87 $ 1.80 $ 1.72 $ 1.68 $ 1.65 $ 1.62 $ 1.54 $ 1.44 $ 1.33
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Thousands of
accumulation units
outstanding, end of
year/period............. 16,831 17,511 17,502 17,653 15,815 16,545 15,656 13,972 8,570 4,870
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
INVESTMENT COMPANY ALL AMERICA FUND
---------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
year/period............ $ 5.39 $ 4.52 $ 3.35 $ 3.36 $ 3.03 $ 2.97 $ 2.41 $ 2.47 $ 1.98 $ 1.82
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Unit value, end of
year/period............ $ 6.76 $ 5.39 $ 4.52 $ 3.35 $ 3.36 $ 3.03 $ 2.97 $ 2.41 $ 2.47 $ 1.98
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Thousands of
accumulation units
outstanding, end of
year/period............ 51,312 49,798 43,620 38,669 36,510 32,352 26,173 20,973 20,157 20,064
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
INVESTMENT COMPANY BOND FUND
---------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
year/period............. $ 2.75 $ 2.69 $ 2.28 $ 2.39 $ 2.13 $ 1.99 $ 1.73 $ 1.67 $ 1.49 $ 1.40
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Unit value, end of
year/period............. $ 3.00 $ 2.75 $ 2.69 $ 2.28 $ 2.39 $ 2.13 $ 1.99 $ 1.73 $ 1.67 $ 1.49
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Thousands of
accumulation units
outstanding, end of
year/period............. 12,671 12,548 12,083 10,601 12,244 9,203 6,152 5,235 4,164 3,057
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
INVESTMENT COMPANY COMPOSITE FUND
---------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
year/period............. $ 3.75 $ 3.39 $ 2.82 $ 2.95 $ 2.55 $ 2.43 $ 2.08 $ 2.04 $ 1.73 $ 1.60
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Unit value, end of
year/period............. $ 4.36 $ 3.75 $ 3.39 $ 2.82 $ 2.95 $ 2.55 $ 2.43 $ 2.08 $ 2.04 $ 1.73
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Thousands of
accumulation units
outstanding, end of
year/period............. 61,359 66,715 70,558 73,239 71,215 50,944 43,115 37,461 32,716 29,436
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT COMPANY INVESTMENT COMPANY INVESTMENT COMPANY INVESTMENT COMPANY
EQUITY INDEX FUND SHORT-TERM BOND FUND MID-TERM BOND FUND AGGRESSIVE EQUITY FUND
- ----------------------------------- -------------------------------- ---------------------------------- --------------------------
1997 1996 1995 1994 1993* 1997 1996 1995 1994 1993* 1997 1996 1995 1994 1993* 1997 1996 1995 1994*
- ------ ------ ------ ------ ------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.72 $ 1.42 $ 1.05 $ 1.05 $ 1.00 $1.14 $1.10 $ 1.03 $ 1.03 $ 1.00 $ 1.19 $ 1.16 $ 1.01 $ 1.06 $ 1.00 $ 1.80 $ 1.43 $ 1.05 $1.00
====== ====== ====== ====== ====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== =====
$ 2.26 $ 1.72 $ 1.42 $ 1.05 $ 1.05 $1.19 $1.14 $ 1.10 $ 1.03 $ 1.03 $ 1.26 $ 1.19 $ 1.16 $ 1.01 $ 1.06 $ 2.15 $ 1.80 $ 1.43 $1.05
====== ====== ====== ====== ====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== =====
68,462 35,660 17,109 4,644 2,135 2,355 2,129 1,447 1,132 747 4,478 3,828 2,848 1,444 1,411 71,468 49,800 20,858 9,145
====== ====== ====== ====== ====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== =====
<CAPTION>
SCUDDER BOND FUND SCUDDER CAPITAL GROWTH FUND
- ------------------------------------------------------------- --------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------ ------ ------ ------ ------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$11.48 $11.30 $ 9.69 $10.32 $ 9.30 $8.78 $7.54 $ 7.05 $ 6.39 $22.11 $18.64 $14.67 $16.46 $13.80 $13.09 $ 9.48 $10.35 $ 8.53
====== ====== ====== ====== ====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$12.37 $11.48 $11.30 $ 9.69 $10.32 $9.30 $8.78 $ 7.54 $ 7.05 $29.64 $22.11 $18.64 $14.67 $16.46 $13.80 $13.09 $ 9.48 $10.35
====== ====== ====== ====== ====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
1,484 1,362 1,269 1,169 1,277 1,053 600 354 221 11,094 9,266 8,556 8,121 6,582 3,698 2,138 1,103 844
====== ====== ====== ====== ====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
SCUDDER INTERNATIONAL FUND AMERICAN CENTURY VP CAPITAL APPRECIATION FUND
- ------------------------------------------------------------- --------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------ ------ ------ ------ ------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$13.43 $11.85 $10.80 $11.06 $ 8.13 $8.48 $7.68 $ 8.41 $ 6.14 $11.53 $12.18 $ 9.39 $ 9.61 $ 8.81 $ 9.01 $ 6.40 $ 6.53 $ 5.11
====== ====== ====== ====== ====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$14.46 $13.43 $11.85 $10.80 $11.06 $8.13 $8.48 $ 7.68 $ 8.41 $11.04 $11.53 $12.18 $ 9.39 $ 9.61 $ 8.81 $ 9.01 $ 6.40 $ 6.53
====== ====== ====== ====== ====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
8,205 7,688 7,269 8,610 5,400 2,262 1,849 1,644 721 4,510 7,264 8,061 6,361 5,946 5,280 3,056 1,518 791
====== ====== ====== ====== ====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
FIDELITY
FIDELITY VIP FIDELITY VIP II VIP II ASSET
CALVERT SOCIAL INVESTED BALANCED FUND EQUITY-INCOME FUND CONTRA FUND MANAGER FUND
- ----------------------------------------------- -------------------- -------------------- --------------------
1997 1996 1995 1994 1993 1992 1991* 1997 1996 1995* 1997 1996 1995* 1997 1996 1995*
- ------ ------ ------ ------ ------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2.23 $ 2.01 $ 1.57 $ 1.64 $ 1.54 $1.44 $1.32 $21.93 $19.43 $16.30 $16.59 $13.85 $11.43 $17.72 $15.66 $14.04
====== ====== ====== ====== ====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ====== ======
$ 2.65 $ 2.23 $ 2.01 $ 1.57 $ 1.64 $1.54 $1.44 $27.77 $21.93 $19.43 $20.36 $16.59 $13.85 $21.14 $17.72 $15.66
====== ====== ====== ====== ====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ====== ======
12,479 10,713 7,849 5,986 5,151 2,742 678 3,491 2,342 728 5,656 3,880 1,792 1,150 613 184
====== ====== ====== ====== ====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
*The dates the Funds of the Separate Account commenced operation are as
follows: Investment Company Money Market, All America (previously "Stock"),
Bond and Composite Funds--January 1, 1985; Scudder Capital Growth, Bond and
International Funds and American Century VP Capital Appreciation Fund
(previously "TCI Growth Fund")--January 3, 1989; Calvert Social Balanced
Fund--May 13, 1991; Investment Company Equity Index, Short-Term Bond and Mid-
Term Bond Funds--February 5, 1993; Investment Company Aggressive Equity Fund--
May 2, 1994; and Fidelity VIP Equity-Income Fund, and Fidelity VIP II Contra
and Asset Manager Funds--May 1, 1995.
7
<PAGE>
DEFINITIONS
Accumulation Period--For each Participant, the period from the date
Contributions are first made under a Contract to the Annuity Commencement
Date.
Accumulation Unit--A measure used to calculate the value of a Participant's
interest in each of the Funds of the Separate Account prior to the Annuity
Commencement Date. Each Fund of the Separate Account has its own distinct
Accumulation Unit value.
American Century VP Capital Appreciation Fund--The American Century VP Capital
Appreciation Fund of American Century Variable Portfolios, Inc. Prior to May
1, 1997, this Fund was known as the TCI Growth Fund of TCI Portfolios, Inc.
Annuitant--A person receiving or who will receive Annuity Payments under a
Contract. A Participant, or another person designated under a Contract to
receive Annuity Payments, a single sum payment or the commuted value of
remaining periodic payments, may be an Annuitant.
Annuity Commencement Date--The date on which annuity benefits become payable
with respect to a Participant, and as of which the amount of the first Annuity
Payment will be determined. The Annuity Commencement Date may be the date
elected by a Participant, or imposed by operation of law, or, if later, the
first Valuation Day as of which all required information and documentation
have been received by the Insurance Company. Sometimes referred to by the
Insurance Company as Benefit Commencement Date.
Annuity Payments--A series of payments under a Contract for life, for a
minimum period of time, or for the joint lifetime of the Annuitant and another
person and thereafter for the life of the survivor, or for such other period
provided for under options available from the Insurance Company.
Annuity Period--The period, beginning at the Annuity Commencement Date, during
which Annuity Payments are received by an Annuitant.
Calvert Social Balanced Portfolio--The Calvert Social Balanced Portfolio of
Calvert Variable Series, Inc. Prior to January 1, 1998, this Fund was known as
the Calvert Responsibly Invested Balanced Portfolio of Acacia Capital
Corporation.
Code--The Internal Revenue Code of 1986, as amended.
Contract--The group variable accumulation annuity contract described in this
Prospectus.
Contractholder--The entity to which the Insurance Company has issued a
Contract. The Contractholder may be an employer, an association representing
employers, or the trustee(s) of a Plan maintained by one or more employers.
Contributions--The amounts contributed from time to time under a Contract.
Eligible Spouse--The person to whom a Participant is legally married at the
earlier of the Participant's (a) Annuity Commencement Date, or (b) date of
death.
Fidelity Portfolios--The Fidelity VIP Equity-Income Portfolio and the Fidelity
VIP II Contrafund and Asset Manager Portfolios.
Fidelity VIP Equity-Income Portfolio--The Equity-Income Portfolio of the
Variable Insurance Products Fund.
Fidelity VIP II Contrafund and Asset Manager Portfolios--The Contrafund
Portfolio and the Asset Manager Portfolio of the Variable Insurance Products
Fund II.
Fund--According to the context, one of the sixteen subaccounts of the Separate
Account or one of the eight investment portfolios of the Investment Company.
General Account--All of the assets of the Insurance Company that are not in a
separate account, but rather are held as part of its general assets.
Insurance Company--Mutual of America Life Insurance Company.
8
<PAGE>
Investment Alternatives--The General Account and the sixteen distinct Funds
comprising the Separate Account, namely, the Funds which invest in the Money
Market, All America, Equity Index, Bond, Short-Term Bond, Mid-Term Bond,
Composite and Aggressive Equity Funds of the Investment Company, in the three
Fidelity Portfolios, in the three Scudder Portfolios, in American Century VP
Capital Appreciation Fund and in the Calvert Social Balanced Portfolio. Under
the Contract, a Participant may allocate Contributions among all of the
Investment Alternatives. The employer has the right to restrict allocations of
employer money to the General Account.
Investment Company--Mutual of America Investment Corporation.
Participant--An employee or former employee participating in a Plan and for
whom Contributions have been or are being made toward the purchase of an
annuity.
Participant's Account Balance (or Account Balance)--The sum of the dollar
values of the Accumulation Units credited to a Participant in the Separate
Account and the value of amounts accumulated for the benefit of that
Participant in the General Account.
Plan--The TDA Thrift Plan (sometimes referred to as a 403(b) Thrift Plan) and
the Thrift Plan, which are more fully described in the Summary immediately
following the definitions.
Plan Year--Generally, the twelve-month period beginning each January 1.
Portfolio Companies--The Investment Company, Variable Insurance Products Fund,
Variable Insurance Products Fund II, Scudder Variable Life Investment Fund,
American Century Variable Portfolios, Inc. and Calvert Variable Series, Inc.
Scudder Portfolios--The following three portfolios of Scudder Variable Life
Investment Fund, namely, the Scudder Capital Growth Portfolio, the Scudder
Bond Portfolio and the Scudder International Portfolio.
Separate Account--Mutual of America Separate Account No. 2, a separate
investment account established by the Insurance Company to receive and invest
Contributions made under variable accumulation annuity contracts and other
variable contracts. The Separate Account is set aside and kept separate from
the other assets of the Insurance Company.
Valuation Day--Each day that the New York Stock Exchange is open for business.
Valuation Period--The period beginning on the close of business of each
Valuation Day and ending on the close of business on the next Valuation Day.
9
<PAGE>
SUMMARY
The Following Summary Of Prospectus Information Should Be Read In Conjunction
With The Detailed Information Appearing Elsewhere In This Prospectus.
CONTRACT OFFERED
The group variable accumulation annuity contract offered by this Prospectus is
issued by the Insurance Company and designed to aid in retirement and long-
term financial planning. The Contract provides for the accumulation of
Contributions on a completely variable basis, a completely fixed basis or a
combination variable and fixed basis, unless otherwise restricted by the
employer. Annuity Payments under the Contract will be made on a fixed basis
only.
The two types of thrift plans or arrangements provided under which the
Contract described herein will be issued are:
1. Tax Deferred Annuity Thrift Plan ("TDA Thrift Plan"). The group contract is
used by the Employer to fund an annuity purchase arrangement meeting the
requirements of Section 403(b) of the Code by certain organizations that
qualify for tax-exempt status under Section 501(c)(3) of the Code or are
eligible public schools or colleges or universities. These Contractholders are
such tax-exempt organizations or associations representing such organizations
or its employees. Employee Contributions ordinarily are made through voluntary
salary reduction arrangements and the employer generally matches all or part
of such Contributions by applying a fixed matching formula to the amount of
employee Contributions. Additional employee Contributions may also be
permitted. An employer may make non-matched Contributions to be allocated to
employees, under a formula set forth in the Plan. Participants contributing to
a TDA Thrift Plan may obtain certain Federal income tax benefits provided
under Section 403(b) of the Code (see "Federal Tax Matters").
2. Voluntary Employee Contribution Thrift Plan ("Thrift Plan"). The group
contract is used to provide annuity benefits to employees participating in a
retirement plan qualified for special Federal income tax treatment under
Section 401(a) or 403(a) of the Code. Thrift Plans are adopted by
Contractholders, which are typically employers. Employee Contributions
ordinarily are made through voluntary payroll deduction arrangements and the
employer matches all or part of such Contributions by applying a fixed
matching formula to the amount of the employee Contributions. Additional
employee Contributions may also be permitted. In addition, under Section 401
an employer may declare a non-matched amount to be allocated to employees
under a formula set forth in the Plan. For information concerning the Federal
income tax treatment of annuities in general see "Federal Tax Matters."
The group contract also is used to fund benefits provided by defined
contribution pension and profit-sharing plans qualified under Code Section
401(a), including plans subject to Section 401(k), and plans meeting the
requirements of Section 403(b). Certain of these plans provide for employer
contributions only.
CONTRIBUTIONS
In general, Contributions under the Contract may be made in amounts specified
to and agreed upon with the employer at a frequency based on the employee's
pay cycle, or in such amounts and at such times as may be required or
permitted by the provisions of a Plan. The minimum Contribution that may be
made under the Contract is $200 on an annual basis. The maximum annual
Contributions are the amounts permitted under the Code for the types of Plans
or arrangements funded by this Contract (see "The Group Annuity Contract-
Payment of Contributions" and "Federal Tax Matters").
Participants under the Contract may, if the Plan permits, allocate
Contributions made on their behalf among the Investment Alternatives provided
in the Contract, which include the General Account and the sixteen distinct
Funds of the Separate Account.
This Prospectus is intended as a disclosure document for the variable portion
of the Contract only. See "The General Account" for a brief summary of the
fixed portion of the Contract.
THE SEPARATE ACCOUNT
Contributions made pursuant to the Contract and allocated on a variable basis
are deposited in the Separate Account. The Separate Account is divided into
sixteen Funds, or subaccounts, each one of which corresponds to one of the
eight Funds of the Investment Company, or one of the three Fidelity
Portfolios, or one of the three Scudder Portfolios, or the American Century VP
Capital Appreciation Fund or the Calvert Social Balanced Portfolio, in which
Separate Account assets are invested. The objective of the variable
accumulation aspect of the Contract is to provide a return on amounts
contributed
10
<PAGE>
that will reflect the investment experience of the chosen Funds. The value of
the Contributions accumulated for a Participant in the Separate Account prior
to the Annuity Commencement Date will vary with the investment experience of
the chosen Funds.
THE INVESTMENT ALTERNATIVES
The Investment Alternatives to which Contributions may be allocated are the
General Account and the sixteen Funds of the Separate Account, which invest in
the eight separate investment funds of Mutual of America Investment
Corporation: the Money Market Fund, which invests in money market instruments
and other short-term debt securities; the All America Fund, which invests
approximately 60% of its assets in publicly traded common stocks in the same
manner as the Equity Index Fund (see below) and approximately 40% of its
assets in other publicly traded common stocks; the Aggressive Equity Fund,
which also invests in publicly traded common stocks; the Bond Fund, which
invests in publicly traded debt securities; the Short-Term Bond Fund which
invests in publicly traded debt securities which will produce a portfolio with
an average maturity of one to three years; the Mid-Term Bond Fund which
invests in publicly traded debt securities which will produce a portfolio with
an average maturity of three to seven years; the Composite Fund, which invests
in all of the above types of investments; and the Equity Index Fund which
invests in publicly traded common stocks comparable to the Standard & Poor's
Composite Index of 500 Stocks* (the "S&P 500 Index"); the Fidelity VIP Equity-
Income Portfolio, which invests primarily in income-producing equity
securities, the Fidelity VIP II Contrafund Portfolio, which invests mainly in
securities that are undervalued or out-of-favor, and Fidelity VIP II Asset
Manager Portfolio, which allocates its assets among domestic and foreign
stocks, bonds and short-term fixed-income instruments; the following three
portfolios of Scudder Variable Life Investment Fund: the Scudder Capital
Growth Portfolio which invests primarily in publicly traded equity securities;
the Scudder Bond Portfolio which invests primarily in publicly traded debt
securities; and the Scudder International Portfolio which invests primarily in
marketable foreign equity securities; in the American Century VP Capital
Appreciation Fund of American Century Variable Portfolios, Inc., which invests
primarily in publicly traded common stocks; and in the Calvert Social Balanced
Portfolio of Calvert Variable Series, Inc., which invests in stocks, bonds and
money market instruments selected with a concern for the social impact of each
investment. (See "Investments of the Separate Account.")
REINVESTMENT
Distributions of the Portfolio Companies to the Separate Account are
automatically reinvested in additional Portfolio Company shares at net asset
value.
CHARGES
Certain charges will be deducted in connection with the operation of the
Contract and the Separate Account.
Administrative Charges. The Insurance Company will make a deduction each
Valuation Day from the net assets of each Fund of the Separate Account for
administrative expenses at an annual rate of .40%, except that in the case of
the Fund of the Separate Account which invests in the American Century VP
Capital Appreciation Fund, the annual rate shall be .20% (the Fund's
investment advisor reimburses the Insurance Company at an annual rate of up to
.20% for administrative expenses), and in the case of the Funds which invest
in the Fidelity Portfolios, the annual rate shall be approximately .30% (the
transfer agent and distributor for the Fidelity Portfolios reimburse the
Insurance Company at an aggregate annual rate of .10%, paid quarterly in
arrears, for administrative expenses). An additional deduction for
administrative expenses of $2.00 per month will also be made with respect to
each Participant under a Contract except that such charge shall not exceed
1/12 of 1% of the Account Value in any month. Such amount will be deducted
from the net assets, if any, in the Participant's Account which have been
allocated to the General Account. If no net assets have been allocated to such
Account, such amount will be deducted from the net assets which have been
allocated to one or more Funds of the Separate Account in the following order:
(a) Investment Company Money Market Fund, (b) Investment Company Short-Term
Bond Fund, (c) Investment Company Mid-Term Bond Fund, (d) Investment Company
Bond Fund, (e) Scudder Bond Fund, (f) Investment Company Composite Fund, (g)
Fidelity VIP II Asset Manager Fund, (h) Calvert Social Balanced Fund, (i)
Fidelity VIP Equity-Income Fund, (j) Investment Company All America Fund, (k)
Investment Company Equity Index Fund, (l) Fidelity VIP II Contrafund Fund, (m)
Investment Company Aggressive Equity Fund, (n) Scudder Capital Growth Fund,
(o) Scudder International Fund, and (p) American Century VP Capital
Appreciation Fund. An employer may elect to pay the $2.00 per month charge in
which case no amount would be deducted from a Participant's Account. These
daily and monthly charges may increase or decrease during the life of the
Contract (see "Charges--Administrative Charges").
- -------
* "Standard & Poor's 500," "S&P" and "S&P 500" are trademarks of Standard &
Poor's Corporation. The Fund is not sponsored, endorsed, sold or promoted
by Standard & Poor's Corporation. Refer to the Mutual of America Investment
Corporation Prospectus for a complete description of the disclaimers and
limitations relating to Standard & Poor's Corporation.
11
<PAGE>
Distribution Expense Charge. The Insurance Company will make a deduction each
Valuation Day from the net assets of each Fund of the Separate Account for
expenses associated with the distribution of the Contract at an annual rate of
.35% (see "Charges--Distribution Expense Charge").
Mortality and Expense Risk Charge. For assuming certain mortality risks under
the Contract, the Insurance Company will make a deduction each Valuation Day
at an annual rate of .35% of the net assets of each Fund of the Separate
Account. The Mortality Risk Charge is guaranteed not to increase during the
life of the Contract. For assuming certain expense risks under the Contracts
with respect to expenses it expects to incur over the life of the Contracts,
the Insurance Company will make a deduction each Valuation Day at an annual
rate of .15% of the net assets of each Fund of the Separate Account (see
"Charges--Mortality and Expense Risk Charge").
Portfolio Company Expenses. The value of the assets in the Separate Account
will reflect the value of the shares of the Portfolio Companies in which such
assets are invested, and therefore the fees and expenses paid by the
Investment Company, the Fidelity Portfolios, the Scudder Portfolios, American
Century VP Capital Appreciation Fund or Calvert Social Balanced Portfolio, as
the case may be. A complete description of the expenses and deductions from
the Investment Company Funds, the Fidelity Portfolios, the Scudder Portfolios,
the American Century VP Capital Appreciation Fund and Calvert Social Balanced
Portfolio is found in their respective prospectuses attached to this
Prospectus.
TRANSFERS AND WITHDRAWALS
At any time prior to the Annuity Commencement Date, a Participant under the
Contract may transfer any or all of the Participant's Account Balance from the
Separate Account to the General Account, or from the General Account to the
Separate Account, or among the Funds of the Separate Account (unless the Plan
restricts contributions to only the General Account). Withdrawals prior to the
Annuity Commencement Date are permitted upon the occurrence of certain
specified events provided for in the Contract and by the Code (see
"Withdrawals" and "The General Account"). Transfers or withdrawals from the
General Account may be restricted in the event a Participant has obtained a
loan under the Plan and such loan is secured by all or a portion of the
Participant's interest in the General Account (see "Loans"). No withdrawals
are permitted after the Annuity Commencement Date. The Insurance Company may
take up to seven days following receipt of a Participant's withdrawal request
to process the request and mail a check to the Participant.
No charge is currently assessed for transfers or withdrawals made under the
Contract. The Insurance Company reserves the right, however, to impose a
charge for transfers or withdrawals in the future. Certain withdrawals may be
subject to a tax penalty (see "Federal Tax Matters").
EMPLOYER CHARGES
A $100 per month contract charge is payable by the employer for certain
administrative expenses incurred by the Insurance Company in connection with
certain plan-related services. If separate records are maintained for
affiliated employers at different locations, an additional monthly contract
charge equal to 50% of the basic contract charge will be charged for each
additional affiliate. In addition, a separate charge will be made whenever an
employee who terminates employment is partially vested in Contributions made
by the employer. This charge, equal to the lesser of $50 and the nonvested
amount, will be deducted from the nonvested portion of such employee's
accounts before such amounts are processed according to the Plan. The
Insurance Company intends to increase the contract charge for certain plans
which it determines to be non-standard.
Employers who elect to use a modified (reduced) services arrangement under a
Contract will have the monthly contract charge waived. In addition, the charge
will be waived for an employer for each month in which its total Contract
assets exceed $1 million and the employer is using the Insurance Company's
Hotline system.
There is an active Participant fee payable each month by the employer. The
charge is: $4.00 for each of the first 50 Participants; $2.00 for each of the
next 50 Participants; $1.00 for each of the next 50 Participants; and no
charge for Participants in excess of 200. This charge will be waived for
employers who elect to use the modified services arrangement. In addition, the
charge will be waived for an employer for so long as its total Contract assets
exceed $1 million and the employer is using the Insurance Company's Hotline
system.
12
<PAGE>
CONTACTING THE INSURANCE COMPANY
All written requests and notices required by the Contract, and any questions
or inquiries, should be addressed to:
Mutual of America Life Insurance Company
Eldon Wonacott
Senior Vice President
320 Park Avenue
New York, New York 10022
or to your appropriate Regional Office. You can check the address for your
Regional Office by calling the following number: (800) 468-3785.
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
The Insurance Company is a mutual life insurance company organized under the
laws of the State of New York. It is authorized to transact business in 50
states and the District of Columbia. The address of the Insurance Company's
home office is 320 Park Avenue, New York, New York 10022.
The Insurance Company was incorporated in 1945 as a non-profit retirement
association to provide retirement and other benefits for non-profit
organizations and their employees in the health and welfare field. In 1978 the
Insurance Company reorganized as a mutual life insurance company. As a result
of federal tax legislation, effective January 1, 1998 the Insurance Company's
pension operations became subject to corporate income tax.
The Insurance Company provides group and individual annuities and related
services for the pension, retirement and long-range savings needs of non-
profit, social welfare, charitable, religious, educational and government
organizations and their employees. The Insurance Company invests the assets it
derives from its business in the manner permitted under applicable state law.
As of December 31, 1997, the Insurance Company had total assets, on a
consolidated basis, of over $9.5 billion. The Insurance Company is registered
as a broker-dealer under the Securities Exchange Act of 1934 and also is
registered as an investment adviser under the Investment Advisers Act of 1940.
The Insurance Company's operations as a life insurance company are reviewed
periodically by various independent rating agencies such as A.M. Best &
Company, Standard and Poor's Insurance Rating Service, Moody's Investor
Services and Duff & Phelps Credit Rating Company. Such agencies publish their
ratings. From time to time the Insurance Company reprints and distributes
these rating reports, in whole or in part or summaries of them, to be given to
the public. The ratings concern the Insurance Company's operation as a life
insurance company and do not imply any guarantees of performance of the
Separate Account.
13
<PAGE>
THE SEPARATE ACCOUNT
The Separate Account was established pursuant to a resolution adopted by the
Board of Directors of the Insurance Company on September 22, 1983. The
Separate Account is registered with the Securities and Exchange Commission
("Commission") as a unit investment trust under the Investment Company Act of
1940 ("1940 Act"). Registration with the Commission does not involve
supervision of management or investment practices or policies of the Separate
Account or the Insurance Company by the Commission.
The Separate Account is divided into sixteen distinct Funds corresponding to
the funds or portfolios of the Portfolio Companies in which the assets in such
Funds are invested, namely, the Money Market, All America, Equity Index, Bond,
Short-Term Bond, Mid-Term Bond, Composite and Aggressive Equity Funds of the
Investment Company; the Fidelity VIP Equity-Income Portfolio and the Fidelity
VIP II Contrafund and Asset Manager Portfolios; the Scudder Capital Growth,
Bond and International Portfolios; the American Century VP Capital
Appreciation Fund; and the Calvert Social Balanced Portfolio. The assets of
the Separate Account are the property of the Insurance Company. The Separate
Account assets attributable to the Contract and to other annuity contracts
funded by the Separate Account are not chargeable with liabilities arising out
of any other business the Insurance Company may conduct. The income, capital
gains and capital losses of each Fund of the Separate Account are credited to
or charged against the net assets held in that Fund, without regard to the
income, capital gains and capital losses arising out of the business conducted
by any of the other Funds of the Separate Account or out of any other business
that the Insurance Company may conduct.
The Insurance Company does not guarantee the investment performance of the
Separate Account as a whole, or any of the Funds. The amount credited to a
Participant in the Separate Account, and thus the amount available to provide
annuity benefits, will depend upon the value of the assets held in the Fund(s)
of the Separate Account selected by the Participant. Accordingly, the
Participant bears the full investment risk for all amounts allocated to the
Separate Account.
The Separate Account and the Insurance Company are subject to supervision and
regulation by the Superintendent of Insurance of the State of New York, and by
the insurance regulatory authorities of each State in which it is licensed to
do business.
INVESTMENTS OF THE SEPARATE ACCOUNT
Contributions will be allocated among one or more Funds of the Separate
Account for investment at net asset value in shares of the Funds of the
Investment Company, the Fidelity Portfolios, the Scudder Portfolios, the
American Century VP Capital Appreciation Fund or the Calvert Social Balanced
Portfolio, selected by the Participant. A summary of investment objectives of
the Portfolio Companies invested in by the Funds of the Separate Account
follows. More detailed information, including risks, charges and expenses, may
be found in the current prospectuses for Mutual of America Investment
Corporation, the Fidelity Portfolios, Scudder Variable Life Investment Fund,
American Century VP Capital Appreciation Fund and the Calvert Social Balanced
Portfolio, which are attached to this Prospectus. Each applicable prospectus
should be read for a complete evaluation of the Investment Alternatives.
Shares of the Portfolio Companies are sold to the separate accounts of
insurance companies and are not offered for sale to the general public.
Investments in the Money Market Fund and in the other Portfolio Companies are
neither insured nor guaranteed by the U.S. Government.
MONEY MARKET FUND OF THE INVESTMENT COMPANY
The investment objective of the Money Market Fund is the realization of high
current income to the extent consistent with the maintenance of liquidity,
investment quality and stability of capital. The Money Market Fund invests
only in money market instruments and other short-term debt securities.
Investments in the Money Market Fund are neither insured nor guaranteed by the
U.S. Government.
ALL AMERICA FUND OF THE INVESTMENT COMPANY
The investment objective of the All America Fund is to outperform the S&P 500
Index. The objective for approximately 60% of the assets of the All America
Fund (the "Indexed Assets") is to provide investment results that to the
extent practical correspond to the price and yield performance of publicly
traded common stocks in the aggregate, as represented by the S&P 500 Index.
The Indexed Assets will be invested in the same manner as the Equity Index
Fund.
14
<PAGE>
The investment objective for the remaining approximately 40% of the assets
(the "Active Assets") is to achieve a high level of total return, through both
appreciation of capital and, to a lesser extent, current income, by means of a
diversified portfolio of securities that may include common stocks, securities
convertible into common stocks, bonds and money market instruments. The Active
Assets are invested by three subadvisers and Mutual of America Capital
Management Corporation (the "Adviser"). The Adviser allocates the Active
Assets to maintain, to the extent practicable under current market conditions,
approximately equal amounts among the subadvisers and the Adviser. See
"Charges--Portfolio Company Expenses".
EQUITY INDEX FUND OF THE INVESTMENT COMPANY
The investment objective of the Equity Index Fund is to provide investment
results to the extent practical that correspond to the price and yield
performance of publicly traded common stocks in the aggregate, as represented
by the S&P 500 Index.
BOND FUND OF THE INVESTMENT COMPANY
The primary investment objective of the Bond Fund is to provide as high a
level of current income over time as is believed to be consistent with prudent
investment risk. A secondary objective is preservation of capital. The assets
of the Bond Fund will consist primarily of publicly-traded debt securities,
such as bonds, notes, debentures and equipment trust certificates. The Bond
Fund generally will invest primarily in securities rated in the four highest
categories by a nationally recognized rating service or in instruments of
comparable quality. The Bond Fund may also invest to a limited extent in
lower-rated or unrated securities, and these may be subject to greater market
and financial risk than higher quality (lower yield) issues.
SHORT-TERM BOND FUND OF THE INVESTMENT COMPANY
The primary investment objective of the Short-Term Bond Fund is to provide as
high a level of current income over time as is believed to be consistent with
prudent investment risk. A secondary objective is preservation of capital. The
assets of the Short-Term Bond Fund will consist primarily of publicly traded
debt securities, such as bonds, notes, debentures and equipment trust
certificates which will produce a portfolio with an average maturity of one to
three years. The Short-Term Bond Fund generally will invest primarily in
securities rated in the four highest categories by a nationally recognized
rating service or in instruments of comparable quality. The Short-Term Bond
Fund may also invest to a limited extent in lower-rated or unrated securities,
and these may be subject to greater market and financial risk than higher
quality (lower yield) issues.
MID-TERM BOND FUND OF THE INVESTMENT COMPANY
The primary investment objective of the Mid-Term Bond Fund is to provide as
high a level of current income over time as is believed to be consistent with
prudent investment risk. A secondary objective is preservation of capital. The
assets of the Mid-Term Bond Fund will consist primarily of publicly traded
debt securities, such as bonds, notes, debentures and equipment trust
certificates which will produce a portfolio with an average maturity of three
to seven years. The Mid-Term Bond Fund generally will invest primarily in
securities rated in the four highest categories by a nationally recognized
rating service or in instruments of comparable quality. The Mid-Term Bond Fund
may also invest to a limited extent in lower-rated or unrated securities, and
these may be subject to greater market and financial risk than higher quality
(lower yield) issues.
COMPOSITE FUND OF THE INVESTMENT COMPANY
The investment objective of the Composite Fund is to achieve as high a total
rate of return, through both appreciation of capital and current income, as is
consistent with prudent investment risk by means of a diversified Portfolio of
publicly-traded common stocks, publicly-traded debt securities and money
market instruments. The Fund will seek to achieve long-term growth of its
capital and increasing income by investments in common stock and other equity-
type securities, and a high level of current income through investments in
publicly-traded debt securities and money market instruments.
AGGRESSIVE EQUITY FUND OF THE INVESTMENT COMPANY
The Aggressive Equity Fund will be divided by the Adviser into two segments so
as to utilize two investment styles.
The investment objective for approximately 50% of the assets of the Fund (the
"Aggressive Growth Portfolio") is to achieve capital appreciation by investing
in companies believed to possess above-average growth potential. Growth can be
in the
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areas of earnings or gross sales which can be measured in either dollars or in
unit volume. Growth potential is often sought in smaller, less well-known
companies in new and emerging areas of the economy, but may also be found in
large companies in mature or declining industries that have been revitalized
and hold a strong industry or market position. See "Charges--Portfolio Company
Expenses".
The investment objective for the other approximately 50% of the assets of the
Fund (the "Aggressive Value Portfolio") is to achieve capital appreciation by
investing in companies believed to possess valuable assets or whose securities
are undervalued in the marketplace in relation to factors such as the
company's assets, earnings, or growth potential.
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Equity-Income Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the
Portfolio will also consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield on
the securities comprising the S&P 500 Index.
FIDELITY VIP II CONTRAFUND PORTFOLIO
Contrafund Portfolio is a growth fund. It seeks to increase the value of an
investment in the Portfolio over the long term by investing mainly in
securities of companies that are undervalued or out-of-favor. These securities
may be issued by domestic or foreign companies and many may not be well known.
The Portfolio usually invests primarily in common stock and securities
convertible into common stock, but it has the flexibility to invest in any
type of security that may produce capital appreciation.
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Asset Manager Portfolio seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed-income instruments. The Portfolio's adviser will normally
allocate the Portfolio's assets among the three asset classes within the
following investment parameters: 0-50% in short-term/money market instruments;
20-60% in bonds; and 30-70% in stocks. The expected "neutral mix", which the
Portfolio's adviser would expect over the long-term, is 10% in short-
term/money market instruments, 40% in bonds and 50% in stocks.
SCUDDER CAPITAL GROWTH PORTFOLIO
The Scudder Capital Growth Portfolio seeks to maximize long-term capital
growth through a broad and flexible investment program. The Portfolio invests
in marketable securities, principally common stocks and, consistent with its
objective of long-term capital growth, preferred stocks. However, in order to
reduce risk, as market or economic conditions periodically warrant, the
Portfolio may also invest up to 25% of its assets in short-term debt
instruments. It is impossible to accurately predict how long such alternate
strategies may be utilized.
SCUDDER BOND PORTFOLIO
The Scudder Bond Portfolio pursues a policy of investing for a high level of
income consistent with a high quality portfolio of debt securities. Under
normal circumstances, the Portfolio invests at least 65% of its assets in
bonds, including those of the U.S. Government and its agencies, and those of
corporations and other notes and bonds paying high current income. Under
normal market conditions, the Portfolio will invest at least 65% of its assets
in securities rated within the three highest quality rating categories of
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P"), or if unrated, in bonds judged by the Portfolio's adviser to be of
comparable quality at the time of purchase. The Portfolio may invest up to 20%
of its assets in debt securities rated lower than Baa or BBB or, if unrated,
of equivalent quality as determined by the Portfolio's adviser, but will not
purchase bonds rated below B3 by Moody's or B- by S&P or their equivalent.
SCUDDER INTERNATIONAL PORTFOLIO
The Scudder International Portfolio seeks long-term growth of capital
primarily through diversified holdings of marketable foreign equity
investments. The Portfolio invests primarily in equity securities of
established companies which do business primarily outside the United States
and which are listed on foreign exchanges. Investing in foreign securities may
involve a greater degree of risk than investing in domestic securities. The
Portfolio has no present intention of altering its general
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policy of being primarily invested under normal conditions in foreign
securities. However, in the event of exceptional conditions abroad, the
Portfolio may temporarily invest all or a portion of its assets in Canadian or
U.S. Government obligations or currencies, or securities of companies
incorporated in and having their principal activities in Canada or United
States. It is impossible to accurately predict how long such alternate
strategies may be utilized.
AMERICAN CENTURY VP CAPITAL APPRECIATION FUND
The American Century VP Capital Appreciation Fund seeks capital growth by
investing primarily in common stocks (including securities convertible into
common stock) and other securities that meet certain fundamental and technical
standards of selection and have, in the opinion of the Fund's manager, better-
than-average prospects for appreciation. It may purchase securities only of
companies that have a record of at least three years' continuous operation.
All securities must be listed on major stock exchanges or traded over-the-
counter. Prior to May 1, 1997, this Fund was known as the TCI Growth Fund.
CALVERT SOCIAL BALANCED PORTFOLIO
Calvert Social Balanced Portfolio seeks to achieve a total return above the
rate of inflation through an actively managed non-diversified portfolio of
common and preferred stocks, bonds and money market instruments which offer
income and capital growth opportunity and which satisfy the social concern
criteria established for the Portfolio. This Fund was called the Calvert
Responsibly Invested Balanced Portfolio prior to January 1, 1998.
SHARED FUND ARRANGEMENTS
Shares of the Fidelity Portfolios, the Scudder Portfolios, the American
Century VP Capital Appreciation Fund and the Calvert Social Balanced Portfolio
(together, the "Shared Funds") currently are available to the separate
accounts of a number of insurance companies. The Board of Directors of each
Shared Fund is responsible for monitoring that Fund for the existence of any
material irreconcilable conflict between the interests of the policyowners of
all separate accounts investing in the Fund and determining what action, if
any , should be taken in response. If the Insurance Company believes that a
Shared Fund's response to any of those events insufficiently protects Contract
holders, it will take appropriate action. If any material irreconcilable
conflict arises, the Investment Alternatives may be modified or reduced. See
"Charter--FMR and its Affiliates" in the Fidelity Portfolios prospectus,
"Investment Concept of the Fund" in the Scudder Variable Life Investment Fund
prospectus, "Shareholders of American Century Variable Portfolios, Inc." in
the American Century VP Capital Appreciation Fund prospectus and "Purchase and
Redemption of Shares" in the Calvert Social Balanced Portfolio prospectus for
a further discussion of the risks associated with the offering of Shared Fund
shares to the Separate Account and the separate accounts of other insurance
companies.
CHARGES
The values of Accumulation Units reflect a deduction on each Valuation Day for
administrative and distribution expenses, and the mortality and expense risk
assumed by the Insurance Company. The following charges will be deducted on a
daily basis (based on annual rates) in determining the Accumulation Unit value
of each of the Funds of the Separate Account.
ADMINISTRATIVE CHARGES
The Insurance Company performs all administrative functions in connection with
the Contract, including receiving and allocating Contributions in accordance
with the Contract, making Annuity Payments as they become due, and preparing
and filing all reports required to be filed by the Separate Account. Expenses
incurred by the Insurance Company in connection with its administrative
functions include, but are not limited to, items such as state or other taxes,
salaries, rent, postage, telephone, travel, office equipment, costs of outside
legal, actuarial, accounting and other outside professional services, and
costs associated with determining the net asset value of the Separate Account.
The Insurance Company will make a deduction each Valuation Day from the value
of the net assets in each Fund of the Separate Account for administrative
expenses (the provisions of the Contract include the amount of this charge
with the Distribution Expense Charge, described below) at an annual rate of
.40%, except that in the case of the Fund of the Separate Account which
invests in the American Century VP Capital Appreciation Fund, the annual rate
shall be .20% (the Fund's investment adviser reimburses the Insurance Company
at an additional annual rate of up to .20% for administrative expenses), and
in the case of the Funds which invest in the Fidelity Portfolios, the annual
rate shall be approximately .30%
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(the transfer agent and distributor for the Fidelity Portfolios reimburse the
Insurance Company at an aggregate annual rate of .10% paid quarterly in
arrears, for certain expenses). An additional deduction for administrative
expenses of $2.00 will be made on the next to last Valuation Day of the month
or on another Valuation Day on or about that time that is administratively
convenient from each Participant's Account except that such charge shall not
exceed 1/12 of 1% of the Account Value in any month. Such amount will be
deducted from the net assets, if any, in the Participant's Account which have
been allocated to the General Account. If no net assets have been allocated to
such Account, such amount will be deducted from the net assets which have been
allocated to one or more Funds of the Separate Account in the following order:
(a) Investment Company Money Market Fund, (b) Investment Company Short-Term
Bond Fund, (c) Investment Company Mid-Term Bond Fund, (d) Investment Company
Bond Fund, (e) Scudder Bond Fund, (f) Investment Company Composite Fund, (g)
Fidelity VIP II Asset Manager, (h) Calvert Social Balanced Fund, (i) Fidelity
VIP Equity-Income Fund, (j) Investment Company All America Fund, (k)
Investment Company Equity Index Fund, (l) Fidelity VIP II Contra Fund, (m)
Investment Company Aggressive Equity Fund, (n) Scudder Capital Growth Fund,
(o) Scudder International Fund, and (p) American Century VP Capital
Appreciation Fund. The employer may elect to pay this additional deduction in
which case no amount is deducted from the Participant's Account. THE INSURANCE
COMPANY MAY INCREASE OR DECREASE THESE DAILY AND MONTHLY CHARGES DURING THE
LIFE OF THE CONTRACT, BUT THESE CHARGES MAY NOT EXCEED COSTS.
DISTRIBUTION EXPENSE CHARGE
As principal underwriter, the Insurance Company performs all distribution and
sales functions and bears all distribution and sales expenses relative to the
Contract. These expenses include the payment of that portion of the salaries
of registered representatives of the Insurance Company attributable to the
sale and distribution of the Contract, as well as expenses for preparation of
sales literature and other promotional activities.
The Insurance Company will make a deduction each Valuation Day from the value
of the net assets in each Fund of the Separate Account at an annual rate of
.35% to cover anticipated distribution expenses, not to exceed, with respect
to any Participant, 9% of the total Contributions.
MORTALITY AND EXPENSE RISK CHARGE
The Insurance Company assumes certain mortality and expense risks under the
Contract. The mortality risks arise from the Insurance Company's guarantees in
the Contract to make Annuity Payments in certain instances in accordance with
annuity tables provided in the Contract, regardless of how long a Participant
lives and regardless of any improvement in life expectancy generally. Thus,
the Insurance Company assumes the risk that Participants, as a class, may live
longer than has been actuarially estimated, so that payments will continue for
longer than had been anticipated. This assumption of risk by the Insurance
Company relieves Participants of the risk that they will outlive the funds
that have been accumulated for their retirement.
For assuming the mortality risks associated with the Contract, the Insurance
Company will, each Valuation Day, make a deduction at an annual rate of .35%
of the value of the net assets in each Fund. This charge will apply with
respect to a Participant during the Accumulation Period. The Insurance Company
guarantees that the mortality risk charge will not increase during the life of
a Contract.
The Insurance Company assumes certain expense risks under the Contracts. The
expense risks arise from the Insurance Company's guarantees in the Contracts
to make Annuity Payments in certain instances in accordance with annuity
tables provided in the Contracts, regardless of whether its estimates of
expenses it expects to incur, over the lengthy period that Annuity Payments
may be made will turn out to be correct. Thus, the Insurance Company assumes
the risk that expenses will be higher than estimated.
For assuming the expense risks associated with the Contracts, the Insurance
Company will, each Valuation Day, make a deduction at an annual rate of .15%
of the value of the net assets in each Fund. This charge will apply with
respect to a Participant during the Accumulation Period.
PORTFOLIO COMPANY EXPENSES
The value of the assets in the Separate Account will reflect the value of the
shares of the Portfolio Companies in which such assets are invested, and
therefore will take into account the fees and expenses paid by the Investment
Company, Fidelity
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<PAGE>
Portfolios, Scudder Portfolios, American Century VP Capital Appreciation Fund
or Calvert Social Balanced Portfolio, as the case may be.
Each Fund of the Investment Company receives investment advice from Mutual of
America Capital Management Corporation (the "Adviser"), an indirect wholly-
owned subsidiary of the Insurance Company. The Adviser receives from each such
Fund a fee calculated as a daily charge at the annual rate of .25% of the
value of the net assets in the Money Market Fund; .125% of the value of the
net assets in the Equity Index Fund; .50% of the value of the net assets in
the All America, Bond, Short-Term Bond, Mid-Term Bond and Composite Funds; and
.85% of the value of the net assets in the Aggressive Equity Fund of the
Investment Company. For 1997, the Adviser paid all of the expenses of the
Investment Company Funds other than advisory fees, brokers' commissions,
transfer taxes and other fees relating to portfolio transactions. The Adviser
voluntarily limits the Investment Company Funds' expenses in this manner. See
"The Funds' Expenses" in the Investment Company prospectus.
The Adviser, with respect to three-quarters of the Active Assets of the All
America Fund, has entered into subadvisory agreements, (each a "Subadvisory
Agreement") with three professional advisers: Palley-Needelman Asset
Management, Inc. ("Palley-Needelman"); Oak Associates, Ltd. ("Oak Associates")
and Fred Alger Management, Inc. ("Alger Management"). The Adviser at its own
expense will pay to the Subadvisers an amount calculated as a daily charge at
the following annual rates: Palley-Needelman, .30%; Oak Associates, .30%; and
Alger Management, .45%; of the value of the net assets for which each
Subadviser is providing investment advisory services.
Fidelity VIP Equity-Income Portfolio, Fidelity VIP II Contrafund Portfolio and
Fidelity VIP II Asset Manager Portfolio receive investment advice from
Fidelity Management & Research Company ("FMR"). FMR receives from each
Portfolio a fee, calculated as a daily charge and payable monthly, that is a
sum of two components multiplied by average net assets. The components are a
group fee rate based on the monthly average net assets of all the mutual funds
advised by FMR, which cannot exceed .52% and declines as assets rise, and an
individual fund fee rate. The effective group fee rate as of December 31, 1997
was .30%, and the individual fund fee rates for the Equity-Income, Contrafund
and Asset Manager Portfolios are .20%, .30% and .25%, respectively. Pursuant
to service agreements, Fidelity Investments Institutional Operations Company,
Inc., the transfer agent for the Fidelity Portfolios, reimburses the Insurance
Company at an annual rate of .04%, and Fidelity Distributors Corporation
(directly or through Fidelity Management & Research Company) pays compensation
for distribution expenses at an annual rate of .06%, of the aggregate amount
of the Separate Accounts investment in the Fidelity Portfolios, with payment
made quarterly in arrears. The .04% reimbursement is limited to a maximum for
any calendar quarter of $1,000,000 payable to the Insurance Company and its
wholly-owned subsidiary, The American Life Insurance Company of New York
("American Life"). The .06% reimbursement will be made for a quarter so long
as the aggregate amount of the investments by the separate accounts of the
Insurance Company and American Life in the Fidelity Portfolios during that
quarter equals at least $100 million in average net assets. The Insurance
Company will reduce the administrative expense charge for the Separate Account
Funds that invest in the Fidelity Portfolios to the extent the Insurance
Company receives a reimbursement for such Funds.
Each Scudder Portfolio receives investment advice from Scudder, Kemper
Investments, and Scudder, Kemper Investments, Inc. receives from each such
Scudder Portfolio a fee calculated as a daily charge at the annual rate of
.475% of the average net assets in the Scudder Bond Portfolio, .475% of the
average net assets for the first $500,000,000 and .450% over $500,000,000 in
the Scudder Capital Growth Portfolio, and .875% of the average net assets in
the Scudder International Portfolio for the first $500,000,000 and .725% over
$500,000,000. Also, there may be deducted from each Scudder Portfolio up to an
additional .275% of the value of the assets in the Scudder Capital Growth
Portfolio and the Scudder Bond Portfolio, and up to .625% of the value of the
assets in the Scudder International Portfolio, for expenses incurred by such
Portfolio. Pursuant to a Participation Agreement between Scudder and the
Insurance Company, the Insurance Company will make a capital contribution to
the Scudder Portfolios in the amount of its pro rata portion, allocated among
insurance companies that purchase shares of the portfolios, of the expenses of
the Capital Growth and Bond Portfolios which exceed .75% of their average net
assets, and, for the International Portfolio, which exceed 1.5% of its average
net assets.
The American Century VP Capital Appreciation Fund receives investment advice
from American Century Investment Management, Inc., and American Century
Investment Management, Inc. receives from the American Century VP Capital
Appreciation Fund a fee calculated as a daily charge at the annual rate of
1.00% of the assets of the American Century VP Capital Appreciation Fund. Many
investment companies pay smaller management fees than the aforesaid fee paid
by the American Century VP Capital Appreciation Fund to American Century
Investment Management, Inc. However, American
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Century Variable Portfolios, Inc. has stated in the prospectus for the
American Century VP Capital Appreciation Fund, which is attached to this
Prospectus, that most, if not all, of such companies also pay, in addition,
certain of their own expenses, while all American Century VP Capital
Appreciation Fund's expenses except brokerage, taxes, interest, fees and
expenses of non-interested directors (including counsel fees) and
extraordinary expenses are paid by American Century Investment Management,
Inc.
Pursuant to the Fund Participation Agreement among the Insurance Company,
American Century Variable Portfolios, Inc. and American Century Investment
Management, Inc., American Century Investment Management, Inc. pays the
Insurance Company for certain administrative savings resulting from that
agreement. Currently, that payment is an amount equal to .20% per annum of the
average amount of the Separate Account's investment in American Century VP
Capital Appreciation Fund, provided the aggregate amount of the Separate
Account's investment and the investments of other separate accounts of the
Insurance Company in the American Century VP Capital Appreciation Fund for
that month exceeds $10 million. The administrative fees assessed against the
Separate Account Fund holding shares of American Century VP Capital
Appreciation Fund are reduced by the full amount of such payments to the
Insurance Company.
Calvert Social Balanced Portfolio receives investment advice from Calvert
Asset Management Company, Inc., and the Sub-Advisor to the Portfolio is NCM
Capital Management Group, Inc., which manages the equity portion of the
Portfolio. Calvert Asset Management Company, Inc. receives from Calvert Social
Balanced Portfolio a monthly base fee, computed on a daily basis at an annual
rate of 0.70% (subject to adjustment as described below) of average net assets
of the Portfolio. Calvert Asset Management Company, Inc. pays the Sub-
Advisor's fee. Calvert Asset Management Company, Inc. and the Sub-Advisor may
earn (or have their fees reduced by) performance fee adjustments based on the
extent to which the Portfolio exceeds or trails the Lipper Balanced Funds
Index. The performance adjustment could cause the annual rate to be as high as
.85% or as low as .55% of average net assets.
A complete description of the fees and expenses paid by the Investment Company
Funds, the Fidelity Portfolios, the Scudder Portfolios, the American Century
VP Capital Appreciation Fund and Calvert Social Balanced Portfolio is found in
the prospectuses of the Investment Company, Fidelity Portfolios, Scudder
Variable Life Investment Fund, American Century Variable Portfolios, Inc. and
Calvert Social Balanced Portfolio, which are attached to this Prospectus.
EMPLOYER CHARGES
A $100 per month contract charge is payable by the employer for various
administrative expenses incurred by the Insurance Company in connection with
certain plan-related services. If the Insurance Company maintains separate
records for affiliated employers at different locations, an additional monthly
contract charge equal to 50% of the basic contract charge will be charged for
each additional affiliate. Employers who elect to use a modified services
arrangement under a Contract (which includes allocation services provided by
the Insurance Company but excludes certain plan-related services, such as (1)
assistance with preparation of summary plan description documents, plan
documents or amendments, and (2) kits for 5500 filings and for non-
discrimination testing) will have the monthly contract charge waived. In
addition, the charge will be waived for an employer for so long as its total
Contract assets exceed $1 million and the employer is using the Insurance
Company's Hotline system.
There is an active Participant fee payable each month by the employer. The
charge is $4.00 for each of the first 50 Participants; $2.00 for each of the
next 50 Participants; $1.00 for each of the next 100 Participants; thereafter
no charge for Participants in excess of 200. This charge will be waived for
employers who elect to use a modified services arrangement under the Contract.
In addition, the charge will be waived for an employer for each month in which
its total Contract assets exceed $1 million and the employer is using the
Insurance Company's Hotline system.
A charge is made when a Participant (limited to a maximum of 50 Participants
per calendar year) terminates employment and has an Account Balance that is
not 100% vested. The charge is equal to the lesser of $50 or the value of the
nonvested Account Balance, and it is deducted from the nonvested portion of
the Participant's Account Balance before such amounts are processed according
to the Plan.
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THE GROUP ANNUITY CONTRACT
GENERAL
The Contract is issued by the Insurance Company to Contractholders as a
funding vehicle for Plans. Any employee of an employer which has adopted a
Plan to be funded by the Contract may be eligible to become a Participant
under the Plan upon satisfying the eligibility requirements (such as age and
service) specified in the Plan. Generally, remittances of all employer
Contributions to be paid under Plans must be made as required by the Plan, and
employee Contributions must be remitted by the employer to the Insurance
Company as soon as administratively reasonable but not later than 15 days
after the end of the month in which they were collected.
PAYMENT OF CONTRIBUTIONS
Employee contributions ordinarily are made, as elected by Participants,
pursuant to salary reduction arrangements under the TDA Thrift Plan, by either
payroll deductions or salary reductions under the 401(a)/403(a) qualified
Thrift Plan and, if permitted under the Plan, by payroll deductions under
defined contribution pension and profit-sharing plans. Employer contributions
(if any) are made as a fixed matching (25%, 50%, 100%, etc.) amount based on
all or part of the amount contributed by the employee or in a non-matching
amount determined by the Employer. A Contractholder may also remit to the
Insurance Company on behalf of a Participant in a single sum, an amount that
arises from a transfer from any Plan maintained by the Employer provided such
transfers are permitted by applicable law and the Contract.
The amount of any Contributions on behalf of a Participant may not be less
than $200 on an annual basis and total contributions may not exceed the
amounts permitted under applicable state or Federal law (see "Federal Tax
Matters").
No further Contributions may be made on behalf of Participants who have
terminated participation under the Plan or if a Contract has been
discontinued. Employer contributions may be subject to a vesting schedule
specified in the Plan.
Acceptance of Initial Contributions. If an initial Contribution is received
together with a completed application and other necessary information, it will
be accepted within two business days of receipt. If the application is not
duly completed, the Insurance Company will retain the Contribution for up to
five business days while attempting to obtain the information necessary to
complete the application; the Contribution will be accepted within two
business days of receipt of the completed application. If a completed
application is not received within five business days, however, the Insurance
Company will return the Contribution at the end of that period, unless the
Participant and the employer consent to the Insurance Company holding the
Contribution until additional information is provided.
ALLOCATIONS OF CONTRIBUTIONS
Employee Contributions under a Contract are allocated among the General
Account and the sixteen Funds of the Separate Account unless otherwise
restricted by the Plan. For information regarding permissible Investment
Alternatives of a particular Plan, Participants are urged to consult the Plan
itself. Contributions will be allocated on the basis of a request made to the
Insurance Company and currently on file at its home office (see "General
Matters--Contacting the Insurance Company"). A Participant's request for
allocation will specify the percentage, in any whole percentage from 0% to
100%, of each Contribution to be allocated to each of the Investment
Alternatives. The request for allocation of Contributions among the Investment
Alternatives may be changed from time to time, at any time, and amounts may be
transferred among those alternatives. A Participant should make periodic
reviews of all allocations in light of market conditions, the Participant's
plans for retirement, and overall estate planning considerations. The amount
contributed by the employer may be similarly allocated (using the same
allocation percentages as specified for the employee Contributions) by the
Participant. The Plan may, however, restrict such allocation of employer
and/or employee Contributions to the Insurance Company's General Account only,
in which case the transfer of such funds to the Separate Account will not be
permitted. Similarly, the Plan may restrict such allocation of employer and/or
employee Contributions to less than all Investment Alternatives of the
Separate Account, in which case the transfer of such funds to nonpermitted
Investment Alternatives of the Separate Account will not be allowed. For
information regarding permissible Investment Alternatives of a particular
Plan, Participants are urged to consult the Plan itself. Employer
Contributions may be restricted to the General Account until they become
vested in accordance with the Plan's vesting schedule.
ACCUMULATION UNITS
Contributions under the Contract, other than initial Contributions, which are
allocated to the Separate Account on behalf of a Participant, will be credited
to an individual accumulation account maintained for such Participant with
respect to each of the chosen Funds of the Separate Account in the form of
Accumulation Units as of the Valuation Period during which the Contributions
are received by the Insurance Company. The number of Accumulation Units in a
Fund of the Separate Account
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credited to the account of a Participant is determined by dividing the amount
allocated to that Fund of the Separate Account on behalf of such Participant
by the Accumulation Unit value for that Fund of the Separate Account for the
Valuation Period during which the Contribution is received. The value of the
Accumulation Units of each Fund of the Separate Account will vary with the
investment experience of that Fund.
The number of Accumulation Units in a Participant's individual account will
fluctuate in accordance with amounts allocated to or withdrawn from the Funds
of the Separate Account. The net change in Accumulation Units is determined by
adjusting the number of Accumulation Units in the Funds of the Separate
Account as of the end of the previous Valuation Period by adding or deducting
Accumulation Units with respect to Contributions made to or amounts withdrawn
from the respective Funds of the Separate Account during the Valuation Period.
The number of Accumulation Units to be so added or deducted is the number
obtained by dividing the amounts so allocated or withdrawn by the Accumulation
Unit Value for that Valuation Period.
The Accumulation Units in each Fund of the Separate Account are valued
separately. The value of an Accumulation Unit in each Fund of the Separate
Account corresponding to a Fund of the Investment Company originally was set
arbitrarily at one dollar. The value of an Accumulation Unit in the Fund of
the Separate Account corresponding to one of the Fidelity Portfolios, Scudder
Portfolios, American Century VP Capital Appreciation Fund or Calvert Social
Balanced Portfolio originally was established by deducting expenses of the
Separate Account applicable to that portfolio or fund from the applicable unit
value established by the respective Portfolio Company portfolio or fund as of
the end of the last Valuation Day immediately preceding the day when the first
investment was made by the Separate Account in the Portfolio Company portfolio
or fund. For any Valuation Period, the value of an Accumulation Unit in a Fund
of the Separate Account is the amount obtained by multiplying the value of an
Accumulation Unit in that Fund as of the preceding Valuation Period, by the
Fund's Accumulation Unit Change Factor (described below) for that Valuation
Period. The dollar value of an Accumulation Unit in each Fund of the Separate
Account, therefore, will vary from Valuation Period to Valuation Period,
depending on the investment experience of the Fund.
The Accumulation Unit Change Factor for each Fund of the Separate Account for
any Valuation Period is determined as:
(a) the ratio of (i) the asset value of that Fund at the end of the current
Valuation Period, before any amounts are allocated to or withdrawn from the
Fund with respect to that Valuation Period, to (ii) the asset value of the
Fund at the end of the preceding Valuation Period, after all allocations and
withdrawals are made for that period, divided by
(b) 1.000000 plus the component of the annual rate of mortality and expense
risk, distribution expense and administrative charges (which does not include
the monthly administrative charge per Participant which is $2.00 but in no
event to exceed 1/12 of 1% of the Account Value in any month) against a Fund's
assets for the number of days from the end of the preceding Valuation Period
to the end of the current Valuation Period (see "Charges").
The value of the Accumulation Units credited to the account of a Participant
in the Separate Account for any Valuation Period prior to the Annuity
Commencement Date is determined by multiplying the number of Accumulation
Units credited to such Participant in each chosen Fund of the Separate Account
by the Accumulation Unit value for each chosen Fund at the end of the
Valuation Period.
TRANSFERS AMONG INVESTMENT ALTERNATIVES
Prior to the Annuity Commencement Date, Participants may elect to transfer
amounts among Investment Alternatives, subject to Plan provisions and the
conditions described below. Thus, amounts may be transferred among Funds of
the Separate Account, and between the Separate Account and the General
Account. A Participant may express the amount sought to be transferred as a
dollar amount, or as a number of Accumulation Units, or as a percentage of the
value of the Participant's investment in the selected Investment Alternative.
Transfers may not be made after the Annuity Commencement Date. No charges are
currently imposed for transfers, but the Insurance Company reserves the right
to impose such charges in the future.
Any transfers from a Fund of the Separate Account will result in the
cancellation of Accumulation Units in that Fund on the basis of the current
Accumulation Unit value for the Valuation Period during which the request is
received. Transfers to a Fund of the Separate Account from either the General
Account or another Fund of the Separate Account will be credited to
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that Fund based on the current Accumulation Unit value for the Valuation
Period during which the transferred amount is received (see "Postponement of
Payments").
No request for a transfer will be binding on the Insurance Company until it
receives all information necessary to process the request. Transfers of
employer and/or employee contributions to the Plan from the General Account to
the Separate Account will only be permitted if the Plan so specifies.
WITHDRAWALS
A Participant may (unless a Plan or the Code provides otherwise--see the next
succeeding paragraph), prior to the Annuity Commencement Date, elect to
withdraw the Participant's Account Balance in whole or in part, except that,
in a Plan qualified under Section 401(a) or 403(a) of the Code, employer
Contributions may not be withdrawn unless the employee has completed at least
five years of participation in the Plan or age 59 1/2, in some plans. To be
valid, a partial withdrawal request must specify from which of the Investment
Alternatives the withdrawal is to be made. Generally, subject to applicable
federal tax law restrictions, partial withdrawals from an Investment
Alternative will be made first from employer contribution amounts. A
Participant may express the amount sought to be withdrawn as a dollar amount,
a number of Accumulation Units, or a percentage of the value of the
Participant's investment in the selected Investment Alternative. No
withdrawals are permitted after the Annuity Commencement Date.
The withdrawal or distribution of funds from a TDA Thrift Plan is subject to
restrictions. In general, a Participant under age 59 1/2 will not be able to
withdraw or receive a distribution of either Contributions made on or after
January 1, 1989 under a salary reduction agreement, or interest and investment
earnings credited on and after January 1, 1989 to any salary reduction
Contributions, except in specified circumstances. These circumstances
generally include death or disability, hardship, and termination of
employment. If a Participant makes a withdrawal for hardship, he may not
withdraw the post-1988 earnings on amounts which were contributed under a
salary reduction agreement. Also any amounts transferred from a Code Section
403(b)(7) Custodial Account to a Code Section 403(b) Thrift Plan would
continue to be subject to tax law withdrawal restrictions which apply to such
Custodial Accounts. (Transfers from such Custodial Accounts cannot be made to
a Code Section 401(a) Plan.)
In the case of either a partial or complete withdrawal from an Investment
Alternative of a TDA Thrift Plan, the Insurance Company will pay to the
requesting Participant the lesser of (a) the amount specified in the
withdrawal request or (b) the amount that, as of the date the Insurance
Company received the withdrawal request, represents the value of the
Accumulation Units credited to the account of the Participant in the Funds of
the Separate Account from which withdrawal is sought. With respect to each
Fund of the Separate Account for which it receives a partial or complete
withdrawal request, the Insurance Company will reduce the number of
Accumulation Units credited to the account of a Participant by the number of
Accumulation Units obtained by dividing the amount withdrawn from that Fund by
the Accumulation Unit value in effect for the Valuation Period during which
the request is received. Spousal consent generally is required for withdrawals
of amounts over $5,000. Spousal consent is required for other withdrawals, as
well. Generally, subject to applicable federal tax law restrictions, partial
withdrawals from an Investment Alternative will be made first from employer
contribution amounts.
Loans. The Insurance Company will make available to the Employer a loan
option. If the Employer elects to adopt the loan provision in the Contract,
Employees shall have the right to borrow funds utilizing Thrift Plan or TDA
Thrift Plan Account Balance as collateral. The amount of the loan permitted is
governed by Section 72(p) of the Code and the Regulations thereunder and the
Contract terms. An amount sufficient to serve as Loan Collateral will be
transferred from the Separate Account to the General Account, if appropriate,
and withdrawals and transfers of such collateral will not be permitted while
the loan is outstanding.
No request for withdrawal will be binding on the Insurance Company until it
receives all information necessary to process the request.
Other Considerations. Currently, withdrawals under the Contract, whether
complete or partial, are not subject to any contingent deferred sales charge,
or any other withdrawal charge. The Insurance Company reserves the right,
however, to impose such charges in the future.
Participants should consider the possible federal income tax consequences of
any withdrawal. Generally, a Participant will be taxed at ordinary income tax
rates on the amount withdrawn (except for nontaxable recovery of prior
nondeductible contributions). In addition, certain withdrawals may be subject
to a tax penalty (see "Federal Tax Matters").
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SPECIFIED PAYMENTS OPTION
A Participant may elect, prior to the Annuity Commencement Date permitted by
the Code, to specify an amount (which may not be less than $100) to be
withdrawn from the Participant's Account Balance and paid each month to the
Participant (see "General Matters--Contacting the Insurance Company"). The
withdrawals and payments will be made, as designated by the Participant, from
either the General or Separate Account, or both.
During the period that payments under the Specified Payments Option
("Specified Payments") are received by a Participant, Contributions may be
made on that Participant's behalf. In addition, transfers of amounts among
Investment Alternatives and other withdrawals from a Participant's account may
continue to be made (see "Transfers Among Investment Alternatives" and
"Withdrawals").
Specified Payments will continue until the earliest of (a) the death of the
Participant; (b) receipt by the Insurance Company of the Participant's written
request to modify or discontinue the specified payments; (c) depletion of the
Participant's Account Balance, or of any portion thereof so that the remaining
balance is insufficient to pay the next installment coming due; or (d) the
attainment of the Participant's Annuity Commencement Date.
Tax Consequences. Participants should consider the possible federal income tax
consequences of electing the Specified Payments Option. Generally, a
Participant will be taxed at ordinary income tax rates on each Specified
Payment subject to, in some instances, non-taxable recovery of prior non-
deductible Contributions (see "Federal Tax Matters").
A Participant receiving payments pursuant to the Specified Payments Option may
cancel those payments at any time and elect to receive the Participant's
Account Balance as a single sum payment or as an annuity.
DEATH BENEFITS
Death After Annuity Commencement. If a Participant dies on or after his or her
Annuity Commencement Date, the Participant's designated beneficiary will be
entitled to receive the death benefit (if any) provided by the form of annuity
in effect on the Participant's date of death (see "The Annuity Period--
Available Forms of Annuity" and "General Matters--Designation of
Beneficiary").
Death Prior to Annuity Commencement. If a Participant dies prior to the
Annuity Commencement Date, the Insurance Company will pay a death benefit to a
designated beneficiary (see "General Matters--Designation of Beneficiary"). If
the Participant is married at the time of death, the death benefit will be
paid to the spouse unless elected otherwise with spousal consent.
The death benefit will be paid by the Insurance Company after it has received
(1) due proof of death; (2) notification of an election by the beneficiary of
the form in which the death benefit is to be paid; and (3) all other
information and documentation necessary to process the death benefit request.
The amount of the death benefit will be the value of the Participant's Account
Balance as of the date on which the Insurance Company receives such
information. Until the Insurance Company receives the items in (1)-(3), the
Participant's Account Balance will remain allocated as it was on the date of
death of the Participant (unless the beneficiary is the spouse and special
rules apply).
The beneficiary may choose to receive the death benefit under any of the
following methods of payment: (1) a lump sum, (2) an annuity in a form offered
by the Insurance Company at the time the election is made, or (3) monthly
payments of a specified dollar amount (at least $100) as elected by the
beneficiary, such payments to continue until the death of the beneficiary or
until all benefits are paid; upon the death of the beneficiary, any amounts
remaining unpaid will be paid to the beneficiary's estate.
Any method of distribution selected by the beneficiary must comply with one of
the following rules:
(a) Five Year Rule. Unless (b), (c) or (d) below apply, the entire value of
the death benefit must generally be distributed to the beneficiary within
five years of the Participant's death. Special rules apply if the
beneficiary is the Participant's surviving spouse (see "Federal Tax
Matters--Obtaining Tax Advice").
(b) Life Annuity Rule. Unless (a), (c) or (d) apply, the entire value of the
death benefit must generally be distributed to the beneficiary in the form
of annuity payments commencing within one year of the Participant's death
and payable over a period of time that does not exceed the beneficiary's
life or life expectancy (whichever is longer). Special rules apply if the
beneficiary is the Participant's surviving spouse (see "Federal Tax
Matters--Obtaining Tax Advice").
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(c) Commencement of Minimum Distributions. If a Participant dies prior to the
Annuity Commencement Date, but after he or she has begun to receive required
minimum distributions from the Contract, the method of distribution selected
by the beneficiary after the Participant's death may not be slower than the
method of distribution that was in effect before the Participant died,
unless (d) applies (see "Federal Tax Matters--Other Matters").
(d) Alternative Method of Distribution. A beneficiary will not be required to
receive a distribution from a 403(b) Contract under (a), (b) or (c) to the
extent that the required distribution is withdrawn from another contract of
the same type in accordance with applicable IRS regulations (see "Federal
Tax Matters--Obtaining Tax Advice").
DISCONTINUANCE AND TERMINATION
DISCONTINUANCE
A Contractholder may discontinue a Contract, at its discretion, as of the
first day of a calendar month that is at least 31 days after notice of such
intention to discontinue is received by the Insurance Company. The Insurance
Company may discontinue a Contract, in whole or in part, if (1) the
Contractholder fails to abide by the terms or requirements of the Contract, or
(2) the Insurance Company determines that a modification of the Contract is
necessary to comply with Federal or state requirements, including the Employee
Retirement Income Security Act of 1974, and the Contractholder refuses to
accept a substantially similar contract offered by the Insurance Company that
incorporates that modification. Discontinuance of a Contract by the Insurance
Company will be effective as of a date specified by the Insurance Company,
provided that the Insurance Company must give a Contractholder at least 31
days' advance written notice in which to cure any remedial defaults.
Discontinuance of a Contract will not relieve the Contractholder of its
obligations under the Contract, nor will it deprive Participants of the
amounts accumulated on their behalf, which remain allocated to them, and all
provisions of the Contract will continue to apply, except that (1) no further
Contributions will be made by the Contractholder, and (2) the Insurance
Company may transfer to another insurance company or other financial
institution all amounts accumulated under the Contract and allocated to
Participants, and beneficiaries. Such transfer may be made in any manner to
which the Contractholder and the Insurance Company agree in writing, and to
the extent consented to by any Participants or beneficiaries. In the event
that no transfer of the type described in clause (2) above takes place, or in
the event that such a transfer occurs which is not consented to by a
Participant, or beneficiary, amounts accumulated for the benefit of a
Participant, or beneficiary, in the above instances may, as elected by that
person, be left on deposit with the Insurance Company, or withdrawn in whole
or in part (see "Withdrawals").
TERMINATION OF PARTICIPATION
If, during the Accumulation Period, a Participant is no longer eligible to
participate under the Contract for any reason other than death or retirement
(for example, due to termination of employment), or if notice is given that
the Participant no longer desires to participate under the Contract, a
termination with respect to that Participant will be deemed to have occurred.
In addition, if no Contributions are made by a Participant for three
consecutive years and the Participant's Account Balance is less than $2,000,
the Insurance Company, in its discretion, may deem that such a termination has
occurred. Upon receipt by the Insurance Company, or a Participant (where the
Insurance Company deems a termination to have occurred), of notice of
termination, Contributions may no longer be made on behalf of a Participant.
Termination will not deprive a Participant of the vested amounts accumulated
on the Participant's behalf, or the Participant's rights to make transfers or
withdrawals (see "Transfers Among Investment Alternatives" and "Withdrawals").
Termination also will not prevent a Participant from electing to receive
annuity benefits (see "The Annuity Period"), or having a death benefit paid on
the Participant's behalf (see "Death Benefits").
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POSTPONEMENT OF PAYMENTS
Payment of any amounts due from the Separate Account in connection with a
withdrawal, payment pursuant to the Specified Payment Option, death benefit,
termination, or transfer of any amount from the Separate Account to the
General Account will occur within seven days, unless:
1. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on that Exchange is restricted as determined by the
Securities and Exchange Commission; or
2. The Commission by order permits postponement for the protection of
Participants; or
3. An emergency exists, as determined by the Commission, as a result of which
disposal of securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the Separate Account's net assets.
THE ANNUITY PERIOD
GENERAL
As of the Annuity Commencement Date, the amount credited to a Participant in
the Separate Account will be transferred to the General Account and, together
with any amount previously credited to the Participant in the General Account,
will be applied to provide a monthly annuity benefit. The amount of each
Annuity Payment will be fixed and guaranteed by the Insurance Company in
accordance with the tables of annuity purchase rates contained in the
Contract.
The level of Annuity Payments made to Annuitants under the Contract will not
be affected by the mortality experience (death rate) of persons receiving such
payments, or of the general population. The Insurance Company assumes the
"mortality risk" by virtue of the annuity purchase rates incorporated in the
Contract. In addition, the Insurance Company guarantees that it will not
increase charges under the Contract with respect to Annuity Payments
regardless of its actual expenses.
Accordingly, Annuity Payments will be made in a fixed and guaranteed amount
that is in no way dependent upon the investment experience of the Separate
Account. The amount of monthly payments depends only on the form of annuity
chosen, the applicable annuity purchase rates contained in the Contract and
the total amount applied to purchase the annuity.
Once Annuity Payments have commenced with respect to a Participant, no further
Contributions may be made on behalf of that Participant. In addition, neither
transfers to the Separate Account, nor withdrawals of any kind, are permitted
on behalf of an Annuitant receiving Annuity Payments.
A Participant may elect to receive the Participant's Account Balance as of the
Annuity Commencement Date in a lump sum in lieu of receiving Annuity Payments.
The Insurance Company will issue to Contractholders for delivery to each
Participant an individual certificate setting forth the amount and terms of
payment of their annuity benefits.
Payments of benefits under the Contract will be made by the Insurance Company
directly to Annuitants at their last known address filed with the Insurance
Company by a Participant or Contractholder.
ANNUITY COMMENCEMENT DATE
The Annuity Period with respect to a Participant begins on the Annuity
Commencement Date selected in the following manner:
Participants may elect an Annuity Commencement Date that is either such
Participant's Normal Retirement Date (the first day of the calendar month
coincident with or next following such Participant's 65th birthday); Early
Retirement Date (the first day of any calendar month within the ten-year
period immediately preceding the Participant's Normal Retirement Date); or
Later Retirement Date (the first day of any calendar month following such
Participant's Normal Retirement Date, unless provided otherwise by applicable
Federal or State law).
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AVAILABLE FORMS OF ANNUITY
Annuity Payments will be made under one of the forms of annuity benefits
described below. Unless an election to the contrary is made prior to the
Annuity Commencement Date, a Participant who does not have an Eligible Spouse
at the Annuity Commencement Date will have annuity benefits paid in the Ten
Years Certain and Continuous Form described below, and a Participant who has
an Eligible Spouse will have annuity benefits paid on the Joint and Survivor
Form described below. If a Participant is married on the Annuity Commencement
Date, consent of the spouse is required if payment is to be made in any form
other than the Joint and Survivor Form.
The forms of annuity offered by the Insurance Company under the Contract are:
Ten Years Certain and Continuous Form. An annuity payable monthly until the
first day of the month in which the death of the Participant occurs, or the
end of the specified period of 120 months, whichever is later. If the
Participant dies prior to the end of the specified period, payments in the
same amount will be continued to the Participant's beneficiary until the end
of that period (see "General Matters--Designation of Beneficiary").
Joint and Survivor Ten Years Certain and Continuous Form. An annuity payable
monthly until the first day of the month in which the death of the survivor of
the Participant and the Participant's Eligible Spouse occurs or the end of a
period of 120 months, whichever is later. If the Participant dies during the
Annuity Period, and the Eligible Spouse is living, payments in the amount of
66 2/3% of those payable to the Participant will be made to the Eligible
Spouse. If the Eligible Spouse dies prior to the end of the specified period,
payments will be made to the Participant's beneficiary (see "General Matters--
Designation of Beneficiary"). A Participant who has an Eligible Spouse at the
Annuity Commencement Date will be presumed to have elected this annuity option
unless the Participant notifies the Insurance Company to the contrary within
ninety days prior to that date. If the Eligible Spouse dies before
Participant's Annuity Commencement Date, the election of this form of annuity
will be automatically cancelled and, unless a new election is made by the
Participant prior to the Annuity Commencement Date, the Ten Years Certain and
Continuous Form of Annuity will become applicable.
Full Cash Refund Form. An annuity payable monthly until the first day of the
month in which the death of the Participant occurs. If, at the date of the
Participant's death, the total amount of the annuity benefits received by the
Participant is less than the amount of the Participant's Account Balance as of
the Annuity Commencement Date, the difference between these two amounts will
become payable in cash as a death benefit to the Participant's beneficiary.
Such death benefit may be paid in lump sum, or as an annuity in the Ten Years
Certain and Continuous Form, or in a combination thereof, as elected by the
beneficiary (see "General Matters--Designation of Beneficiary").
Other Forms. In addition to the Forms of Annuity listed above, the Insurance
Company may be offering additional forms of annuity at the Annuity
Commencement Date. As of the date hereof, the Insurance Company also is
offering a Straight Life Annuity, a Fifteen Years Certain and Continuous Form
and a 66 2/3% Joint and Survivor Form without the 120-month Certain Feature.
AMOUNT OF ANNUITY PAYMENTS
The amount of monthly Annuity Payments under the Contract will be determined
on the basis of the application of the Participant's Account Balance to the
annuity purchase tables contained in the Contract in accordance with the form
of annuity benefit selected. The Insurance Company guarantees that the rates
used to determine the amount of Annuity Payments will never be less favorable
for an Annuitant than the guaranteed rate provided in the Contract.
SMALL BENEFIT PAYMENTS
If the initial monthly payment under an annuity benefit payable under the
Contract would be less than $20.00, or if any Participant terminates
employment and is eligible for a benefit determined to be less than $20.00 a
month under the Ten Years Certain and Continuous Form of Annuity (described
above), the Insurance Company will, in lieu of making the monthly Annuity
Payments which would otherwise be payable to the Participant commencing on the
Annuity Commencement Date, pay to the Participant on the Participant's Annuity
Commencement Date in a single sum the Participant's Account Balance, provided
that single sum does not exceed $5,000 (or such other maximum amount that may
hereafter be provided by law). The Insurance Company may make this payment as
of the date on which the first Annuity Payment under the Plan would otherwise
be payable.
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THE GENERAL ACCOUNT
Contributions allocated and transfers made to the Insurance Company's General
Account become part of the general assets of the Insurance Company, which
support insurance and annuity obligations. Because of exemptive and
exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 ("1933 Act") nor is the General
Account registered as an investment company under the 1940 Act. Accordingly,
neither the General Account nor any interests therein are subject generally to
the provisions of the 1933 or 1940 Acts, and the Insurance Company has been
advised that the staff of the Commission has not reviewed the disclosures in
this Prospectus which relate to the General Account. Disclosures regarding the
fixed portion of the Contract and the General Account, however, may be subject
to certain generally applicable provisions of the Federal securities laws
relating to the accuracy and completeness of statements made in prospectuses.
SCOPE OF PROSPECTUS
The Contract provides for accumulation of Contributions on a completely fixed
basis, a completely variable basis, or a combination fixed and variable basis,
and for the payment of annuity benefits on a fixed basis only. This
Prospectus, however, is generally intended to serve as a disclosure document
for the variable portion of the Contract only. For complete details regarding
the General Account, see the Contract itself.
GENERAL DESCRIPTION
The General Account consists of all of the general assets of the Insurance
Company, other than those in the Separate Account and other segregated asset
accounts. Amounts are allocated to the General Account at the election of
Participants in the form of Contributions, or as transfers from the Separate
Account. The Insurance Company bears the full investment risk for all amounts
allocated to the General Account (whereas Participants bear the investment
risk for amounts allocated to the Separate Account). The Insurance Company has
sole discretion to invest the assets of the General Account, subject to
applicable law. There are no limits on withdrawals or transfers to another
Investment Alternative from the General Account, subject to applicable federal
tax law restrictions, with respect to the amount a Participant can withdraw in
cash. The Insurance Company does, however, reserve the right to impose a 20%
restriction upon withdrawals from the General Account in any calendar year.
The Insurance Company guarantees that it will credit interest to amounts
accumulated for Participants in the General Account at an effective annual
rate of at least 3%. The Insurance Company may, at its sole discretion, credit
a higher rate of interest to amounts allocated to the General Account,
although the Insurance Company IS NOT OBLIGATED TO CREDIT INTEREST IN EXCESS
OF 3% PER YEAR. Under Contracts where employers elect to use electronic media,
such as a computer terminal, personal computer or other electronic device
located at the employer's place of business, to transmit and receive to and
from the Insurance Company, relevant and necessary information with respect to
the Contract, subject to the Insurance Company's established rules and
requirements with respect to accessing computer information, the Insurance
Company reserves the right to credit such Contracts with a different rate of
interest in the General Account than Contracts which do not use such
electronic computer processing. Any amount held in the General Account does
not entitle a Participant to share in the investment experience of the General
Account.
TRANSFERS AND WITHDRAWALS
Prior to a Participant's Annuity Commencement Date, amounts may be
transferred, if permitted by the Plan, from the Funds of the Separate Account
to the General Account, and from the General Account to the Funds of the
Separate Account. No charge is currently imposed for such transfers. The
Insurance Company reserves the right, however, to impose additional charges
for transfers in the future.
Partial or complete withdrawals may be made from the General Account prior to
a Participant's Annuity Commencement Date if permitted by the Plan. Generally,
employer contributions made to a Plan qualified under Section 401(a) or 403(a)
of the Code may not be withdrawn unless that employee has been a participant
for at least five years. In the case of such withdrawals, the Insurance
Company will pay the lesser of (a) the amount specified in the withdrawal
request, and (b) the amount that, as of the date of payment, then represents
the accumulation in the General Account credited to the Participant. No charge
is currently imposed on such transfers.
Transfers and withdrawals from the General Account may be delayed for up to
six months following the date that the Insurance Company receives such
requests. Withdrawals are subject to spousal consent.
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ANNUITY PAYMENTS
All Annuity Payments under the Contract are made in the form of a fixed
annuity from the General Account. The Insurance Company does not credit
discretionary interest in excess of the guaranteed rate of 3% to Annuity
Payments. The Annuitant must rely on the annuity purchase tables provided in
the Contract to determine the amount of Annuity Payments.
GENERAL MATTERS
CONTACTING THE INSURANCE COMPANY
Except as provided in the following paragraph, all notices, requests and
elections required to be given or made under the Contract must be in writing
and mailed or delivered to the Insurance Company's home office at the
following address:
Mutual of America Life Insurance Company Eldon Wonacott Senior Vice President
320 Park Avenue New York, New York 10022
or to your appropriate Regional Office. You can check the address for your
Regional Office by calling the following number: 800-468-3785.
TRANSFERS, WITHDRAWALS AND REALLOCATIONS BY TELEPHONE
Requests by Participants for transfers or withdrawals, or changes in the
formula for allocation of Contributions, may, if otherwise allowed by the
Plan, be made by telephone in lieu of the written procedure described above.
Requests by telephone, however, may be made only if a Participant has received
a Personal Identification Number, which the Insurance Company provides
automatically, and agreed to use it in accordance with the applicable rules
and requirements. Thereafter the Participant may contact the Insurance Company
by telephone (800-468-3785) and request the desired transaction or change.
Transfers requested by telephone will go into effect on the day on which the
request is made if received by 4 PM, Eastern Standard time (or Daylight
Savings time, as applicable), at the next calculated price. The Insurance
Company reserves the right to suspend or terminate the right to request
transfers, withdrawals or reallocations by telephone at any time. Where
spousal consent is required, telephone withdrawals are not permitted. Although
failure to follow reasonable procedures may result in the Insurance Company's
liability for any losses due to unauthorized or fraudulent telephone
transfers, it will not be liable for following instructions communicated by
telephone that it reasonably believes to be genuine. The Insurance Company
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Those procedures shall consist of confirming the
Participant's Social Security number, checking the Personal Identification
Number, tape recording all telephone transactions and providing written
confirmation thereof.
YEAR 2000 COMPLIANCE
Many of the services that the Company provides to Participants and
Contractholders depend on the proper functioning of its computer and computer-
based systems, as well as those of its outside service providers. Many
computers cannot distinguish the year 2000 from the year 1900, and this
inability could potentially have an adverse impact on the handling of
Participant and Contractholder purchase, exchange and redemption transactions,
the crediting of accumulation units, accounting and other recordkeeping
services. The Company has performed a comprehensive review of its computer
systems and is in the process of modifying or replacing any of its systems
that cannot recognize the year 2000. It expects to significantly complete
modifications and replacements by the end of 1998 and to perform appropriate
systems testing during the 1999 calendar year. It also is in the process of
confirming with its outside service providers that their systems will be
similarly modified or replaced to address the year 2000 issue. The Company
anticipates that its computer systems and those of its outside service
providers will be adapted in time for the year 2000.
DESIGNATION OF BENEFICIARY
Under the Contract, a Participant may designate (with the right to change such
designation from time to time) a beneficiary to receive any payments with
respect to a Participant becoming due to a beneficiary under the Contract. The
Participant may change the beneficiary while the Participant is living by
providing the Insurance Company (or the Participant's Employer where the
Employer has agreed to retain such information) with notice of such change.
Such designation or change in designation will take effect as of the date of
receipt of notice by the Insurance Company or the Participant's Employer where
the Employer has agreed to retain such information, whether or not the
Participant is living at the time of such receipt. The Insurance Company will
not be liable, however, as to any payment or settlement made prior to
receiving such notice.
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In the case of a married Participant, the beneficiary shall be the Eligible
Spouse unless, on the date of death, there is in effect a written consent
signed by the Eligible Spouse and witnessed by either a notary public or the
Plan representative waiving the spouse's rights as beneficiary.
If no designated beneficiary survives the Participant, the Insurance Company
will pay any single sum payment or the commuted value of any remaining
periodic payments to the first surviving class of the following classes of
successive preference beneficiaries: (a) the Participant's surviving spouse;
(b) the Participant's surviving children; (c) the Participant's surviving
parents; (d) the Participant's surviving brothers and sisters; and (e) the
executors or administrators of the Participant's estate. Any commuted value
will be determined on the basis of compound interest at a rate, determined by
the Insurance Company, that is consistent with the interest assumption of the
rate used to determine the amount payable under the annuity benefit (see
"Amount of Annuity Payments").
ASSIGNMENT OF CONTRACT
Except as otherwise required by law, no assignment nor transfer of any rights
conferred under a Contract is permitted.
THE INSURANCE COMPANY'S LIABILITY
The Insurance Company's liability for the payment of annuity benefits (see
"The Annuity Period"), death benefits (see "Death Benefits"), and withdrawals
(see "Withdrawals") is limited to the payments provided under the Contract
that arise from Participants' Account Balances.
Upon exhaustion of all amounts held under the Contract by withdrawals or by
transfers upon discontinuance of the Contract (see "Discontinuance and
Termination"), that Contract will terminate and the Insurance Company will be
relieved of all further liability thereunder, except with respect to any
annuity benefits provided on or before the date the Contract was terminated.
The Insurance Company may rely on the reports and other information furnished
by Contractholders or Participants as required under the Contract, and need
not inquire as to the accuracy or completeness of such reports and information
(see "Information and Determinations").
MODIFICATION OF CONTRACT
The Contract may not be modified as to the Insurance Company, nor may any of
the rights or requirements of the Insurance Company be waived, except in
writing by a duly authorized officer of the Insurance Company.
The Contract may be changed at any time by the Insurance Company by written
notice to the Contractholder without the consent of any Participant, or any
other person who is, or may become, entitled to benefits under the Contract,
provided that such change shall not affect the amount or the terms of the
annuity benefits provided thereunder before such change.
EVIDENCE OF SURVIVAL
When payment of an annuity is contingent upon the survival of any person,
evidence of that person's survival must be furnished to the Insurance Company,
either by personal endorsement of the check drawn for payment, or by other
means satisfactory to the Insurance Company.
MISSTATEMENT OF INFORMATION
If a benefit provided under one of the Contracts was based on information that
has been misstated, the benefit will not be invalidated, but the amount of the
benefit payments or the amount applied to provide the benefit, or both, will
be adjusted to the proper amount as determined on the basis of the corrected
information.
The amount of any underpayments by the Insurance Company due to any
misstatement shall be paid in full with the next payment due with respect to
the Participant under the Contract. The amount of any overpayments by the
Insurance Company due to any misstatement will be deducted to the extent
possible from the payments thereafter falling due with respect to the
Participant. Interest, based on an annual effective rate of 5%, will be
included in the amount of any underpayments or overpayments.
INFORMATION AND DETERMINATIONS
Contractholders and Participants, as appropriate, will furnish the Insurance
Company with the facts and information that the Insurance Company may require
for the operation of the Contract including, upon request, the original or
photocopy of any pertinent records held by the Contractholder or Participant.
Any determination that a Contractholder is to make under the Contract will be
made pursuant to the terms of the Contract and will be reported by the
Contractholder to the Insurance Company.
30
<PAGE>
NON-ALIENATION OF BENEFITS
To the extent permitted by law, no amount payable with respect to a
Participant under the Contract may be assigned (either at law or in equity),
alienated or be subject to attachment, garnishment, levy (other than a federal
tax levy made pursuant to Section 6331 of the Code or a Qualified Domestic
Relations Order under Section 401(a)(13)(B) of the Code), or other legal or
equitable process, and no such amount will in any way be subject to any legal
process which would subject it to the payment of any claim against the
Participant or beneficiary (see "Designation of Beneficiary").
ALTERNATE PAYMENTS OF BENEFITS
The Insurance Company may make payment due to a payee who is physically or
mentally incompetent to receive such payments, or is a minor, to certain other
persons in accordance with the Contract. Upon making these alternate payments,
the Insurance Company will be discharged from all liability with respect to
payments due to the payee. Payments to a minor will be limited to $250 a month
until either (a) a guardian is appointed or (b) the minor has attained
majority.
CLAIM PROCEDURES
In order to receive annuity benefits under the Contract, Participants or
beneficiaries thereunder must bring to the attention of the Insurance Company
or the Contractholder such person's right to claim such benefits. If the
Contractholder has received the claim directly, the Contractholder must notify
the Insurance Company of the claim on the prescribed form furnished to the
Contractholder for the purpose. The Insurance Company will have 90 days after
receipt of the claim within which to render a decision, and may extend this
period, upon written notice to the claimant, for an additional 90 days if
there are special circumstances that require such an extension.
In the event the claim is denied in whole or in part, the Insurance Company
will give notice to the Contractholder or claimant, as appropriate, of such
denial in sufficient detail so that the claimant may be informed of the reason
or reasons for the denial, the specific reference to the Contract or Plan
provision on which the denial was based, any additional information that may
be necessary to perfect the claim and the reasons therefor, and the procedure
for reviewing denied claims.
In the event a claim is denied in whole or in part, a claimant or the
claimant's representative has 60 days in which to appeal to the Insurance
Company for review thereof. The request for review must be made in writing,
either directly to the Insurance Company, or to the Contractholder for
transmission to the Insurance Company. A claimant will have the right to
review all pertinent documents and to contest the decision in writing. The
Insurance Company will render a decision on review no later than 60 days after
its receipt of the request for review unless special circumstances require
extension, in which case the decision may, upon written notice to the
claimant, be rendered within 120 days from the Insurance Company's receipt of
the request for review. The Insurance Company's decision on review will be in
writing and include specific reasons with specific reference to the Contract
or Plan provisions on which it is based.
PARTICIPATION IN DIVISIBLE SURPLUS
The Insurance Company is a mutual life insurance company and, therefore, has
no stockholders. The Contractholders or Participants share in the earnings of
the Insurance Company. No assurance can be given as to the amount of divisible
surplus, if any, that will be available for distribution under the Contract in
the future. The determination of such surplus is within the sole discretion of
the Company's Board of Directors. Under usual circumstances, separate accounts
receive little benefit from and contribute little to divisible surplus.
31
<PAGE>
FEDERAL TAX MATTERS
For federal income tax purposes, the Separate Account is not an entity
separate from the Insurance Company, and its operations are considered part of
the Insurance Company. Accordingly, it will not be taxed separately as a
"Regulated Investment Company" under Subchapter M of the Code. Under existing
Federal income tax law, no taxes are due on net investment income and realized
capital gains earned by the Separate Account. The Insurance Company reserves
the right to make a deduction for taxes if in the future the Insurance Company
must pay tax on the Separate Account's operations.
TAXATION OF ANNUITY PAYMENTS
The Contract offered by this Prospectus is intended to be an annuity contract
for purposes of Section 72 of the Code.
Under present law, any increase in value with respect to amounts accumulated
under an annuity contract are taxed to a Participant when distributed. When
Annuity Payments under a Thrift Plan and Contract begin, or a lump sum payment
of a Participant's Account Balance is received in lieu thereof, payments
generally are includable in the gross income of the individual recipient and
are taxed at ordinary income rates. Pursuant to the methods prescribed in
Section 72 of the Code, such recipient may exclude from gross income that
portion of Annuity Payments or a lump sum payment which in effect is a return
of capital, i.e., that portion attributable to nondeductible (for tax
purposes) Contributions (excluding any earnings thereon) made under the
Contract. Generally, in the case of withdrawals from an annuity contract
before Annuity Commencement Date, the basis recovery amount (non-taxable
amount) of a withdrawal will be calculated based on the ratio of the employee
contributions which were not excludable or deductible to the portion of the
total account balance at the time of withdrawal, excluding amounts not yet
vested, if any. Generally, employee contributions under a Thrift Plan which
meets the requirements of Code Section 403(b) are excludable (along with
employer contributions) within the applicable limits of that Code Section.
Employee contributions under a Thrift Plan which meets the requirements of
Code Section 401(a) are not excludable from the employee's gross income and
are not deductible, except that if the Plan is subject to Code Section 401(k),
employee contributions are excludable to the extent provided by that Section.
In the case of annuity payments made from such plans, such amounts are subject
to taxation on a pro-rata basis in the same ratio as the amount that employee
contributions which were not excludable or deductible have to the expected
return under the Contract on the Annuity Commencement Date. If the employee's
life span exceeds the predicted life span, the employee will eventually have
his or her total investment in the Contract returned tax free. Any payments
made after that point are fully taxable. If the employee dies before the basis
recovery occurs, the unrecovered amount may either be deducted on the final
income tax return for the employee's last taxable year or by the beneficiary.
In the case of permitted withdrawals from a TDA Thrift Plan, income taxation
rules described above apply.
A penalty may be imposed under the Code on certain distributions under a TDA
Thrift Plan or a plan qualified under Section 401(a) of the Code, currently
equal to ten percent of the amount which is includible in gross income for tax
purposes. The penalty tax generally is not imposed, however, on distributions
made (1) on or after age 59 1/2, death or disability; (2) as part of a series
of substantially equal periodic payments made over the life or life expectancy
of the Participant or the joint lives or life expectancy of the Participant
and his or her beneficiary; (3) on account of separation from service after
attainment of age 55; and (4) equal to deductible medical expenses under
Section 213 of the Code.
In addition, the Code restricts the withdrawal of salary reduction amounts
contributed to a TDA Thrift Plan on or after January 1, 1989 and post-1988
earnings on all salary reduction contributions to attainment of age 59 1/2,
termination of employment, death, disability and certain financial hardships.
In the case of hardship distributions after 1988, earnings on salary reduction
contributions may not be withdrawn. Also, any amounts which were transferred
from a Code Section 403(b)(7) custodial account are subject to additional tax
law withdrawal restrictions which apply to custodial accounts. The Code also
restricts withdrawals of employee contributions under a 401(a) plan that is
subject to the requirement of Section 401(k).
In general, a death benefit, consisting of amounts paid to a Participant's
beneficiary (see "Death Benefits") is includable in the Participant's estate
for federal tax purposes. (See "Obtaining Tax Advice.")
A Participant who receives aggregate retirement distributions for a calendar
year in excess of a certain amount may be subject to a penalty tax equal to
15% of the excess. This penalty generally does not apply to death benefits and
certain other distributions, and various special rules apply. (See "Obtaining
Tax Advice".)
32
<PAGE>
If the Contract is offered for use with a TDA Thrift Plan meeting the
requirements of Section 403(b) of the Code, contributions made under an
annuity contract by tax-exempt organizations meeting the requirements of the
Section 501(c)(3) of the Code are excludable from the gross income of
employees of such organizations. This exclusion, however, is limited to the
extent that the aggregate contributions per year on behalf of such employee do
not exceed the exclusion allowance set forth in Section 403(b)(2) of the Code
or the contribution limitation set forth in Section 415(c) of the Code.
Generally, except for a limited catch-up provision, the maximum amount that
may be excluded by an employee from gross income under a salary reduction
agreement is $10,000 for 1998 (indexed for inflation in subsequent years).
Generally, subject to the $10,000 maximum on salary reduction amounts, amounts
up to 20% of the taxable includable compensation received annually from the
employer which is applied to purchase annuities are excludable by a
Participant. Generally, the formula used in determining the excludable amount
for the current year takes into consideration the Participant's length of
employment and contributions to the Plan and to certain other plans, if any,
which were excluded from the Participant's taxable income for prior years.
Furthermore, annual employer and employee Contributions to the Plan (and to
certain other plans) may, in general, not exceed the lesser of $30,000, or 25%
of a Participant's includable compensation. Additional limits generally apply
if the employer makes matching contributions.
If the Contract is offered for use with a Thrift Plan designed to meet the
qualifications of Section 401(a) of the Code, annual contributions to all
qualified defined contribution Plans under Section 401(a) are limited to the
amounts provided for in Section 415, which generally are the lesser of $30,000
or 25% of a Participant's annual compensation. Additional limits apply to
employee contributions to such plans and, if the employer makes matching
contributions, to those matching contributions as well. If the limits on
employer matching contributions are exceeded, certain of those matching
contributions may be forfeited. For Thrift Plans subject to Code Section
401(k), employee contributions are limited to $10,000 for 1998 (indexed for
inflation in subsequent years).
Any amounts contributed in excess of the amounts described above would be
treated as excess contributions to the Plan and could result in additional
penalties and/or corrective distributions which are includible in income.
Distributions to Participants in both a TDA Thrift Plan, a Plan qualified
under Section 401(a) or 403(a) of the Code, including plans subject to Section
401(k) of the Code, and a Plan meeting the requirements of Section 403(b),
generally must begin no later than April 1 of the year following the year in
which the Participant attains age 70 1/2, unless the Participant has not
terminated employment. A Plan, however, may require a Participant who is still
employed to begin receiving minimum distributions at age 70 1/2. Federal tax
law also generally imposes certain specific provisions for distributions which
must be made upon the death of a Participant and which may reduce the period
over which distributions may otherwise be made and/or deferred.
If the Code requires in a particular tax year that distributions in specified
minimum amounts must commence because of the Participant's age or death, and
if a distribution is not made in an amount at least equal to the minimum
amount, the Code imposes a penalty tax equal to 50% of the difference between
the required minimum and the actual taxable distribution.
WITHHOLDING ON ANNUITY PAYMENTS AND OTHER DISTRIBUTIONS
Most withdrawals are subject to automatic 20% federal income tax withholding
unless the participant elects to have the withdrawal paid directly, as a tax-
free rollover, to another eligible plan or an IRA. The same rules generally
apply to payments of death benefits to a surviving spouse beneficiary, or to
payments to a spouse or former spouse in connection with a divorce or
separation decree or court order, except that a surviving spouse may only have
a direct rollover made to an IRA. The required 20% federal tax withholding
cannot be waived if a direct rollover is not elected.
The rules do not apply to all payments. The automatic 20% withholding does not
apply to any distribution that is (a) one of a series of substantially equal
periodic payments (not less frequently than annually) made (1) for the life
(or life expectancy) of the Participant or the joint lives (or joint life
expectancies) of the Participant and the Participant's designated beneficiary,
or (2) for a specified period of 10 years or more, or (b) a minimum
distribution required under Section 401(a)(9) of the Code. In general, tax
withholding at different rates (generally 10%) does apply to such payments but
payees can elect to have withholding waived. Death benefit payments to non-
spouse beneficiaries generally cannot be rolled over and are subject to tax
withholding at different rates, but payees generally can elect to have
withholding waived. Certain small payments may also be exempt from direct
rollover and tax withholding rules.
When withdrawals or benefit payments are to be made, participants (or
beneficiaries) will be given detailed information and advised of their
elections. That information should be carefully reviewed. Residents of certain
states will have state withholding apply if they have elected to have federal
withholding apply or if federal withholding is required.
33
<PAGE>
OBTAINING TAX ADVICE
The description in this Prospectus of the federal tax status of amounts
accumulated or received under the Contracts is not exhaustive and is for
information purposes only. The description does not purport to cover all
situations involving the purchase of an annuity or the election of an option
under the Contract. Tax results may vary depending upon individual situations
and special rules may apply in certain cases. State and local taxes may also
pertain. For these reasons a qualified tax advisor should be consulted for
complete tax information regarding any specific situation.
VOTING RIGHTS
In accordance with the Insurance Company's view of present applicable law, and
so long as the Commission continues to interpret the 1940 Act as requiring
pass-through voting privileges, the Insurance Company will vote the shares of
the Investment Company Funds, the Fidelity Portfolios, the Scudder Portfolios,
the American Century VP Capital Appreciation Fund and Calvert Social Balanced
Portfolio held in the Separate Account at regular and special meetings of the
shareholders of the Investment Company Funds, the Fidelity Portfolios, the
Scudder Portfolios, the American Century VP Capital Appreciation Fund and
Calvert Social Balanced Portfolio according to instructions received from
persons having the right to instruct the Insurance Company on how to vote the
shares, as defined below. The Insurance Company will vote shares for which it
has not received instructions in the same proportion as the Insurance Company
votes shares for which it has received instructions, except for shares owned
by the Insurance Company representing "seed" money, which will be voted in the
Insurance Company's discretion. The Insurance Company exercises discretion
with respect to less than 1% of the voting interest in the Separate Account.
If the Investment Company Act of 1940 should be amended, or if the present
interpretation thereof should change, and as a result the Insurance Company
determines that it is permitted to vote the shares of the Investment Company
Funds, the Fidelity Portfolios, the Scudder Portfolios, the American Century
VP Capital Appreciation Fund and Calvert Social Balanced Portfolio in its own
discretion, it may elect to do so.
The person having the right to give voting instructions to the Insurance
Company under a Contract is the following: under an individual Contract, the
person to whom the Contract is issued and for whom an amount is accumulated in
the Separate Account, and, under a group Contract, the individual for whom
amounts are accumulated in the Separate Account, i.e., the Participant.
Each person having the right to instruct the Insurance Company on how to vote
the shares of any of the Investment Company Funds, the Fidelity Portfolios,
the Scudder Portfolios, the American Century VP Capital Appreciation Fund and
Calvert Social Balanced Portfolio will receive periodic reports relating to
such funds or portfolios, including proxy material and a form with which to
give voting instructions.
34
<PAGE>
PERFORMANCE INFORMATION
MONEY MARKET FUND
From time to time, quotations of the "yield" and "effective yield" of the
Separate Account's Money Market Fund may be included in advertisements, sales
literature or shareholder reports. Both yield figures are based on the
historical performance of the Fund and show the performance of a hypothetical
investment and are not intended to indicate future performance. The yield of
the Money Market Fund refers to the net investment income generated by the
Fund over a specified seven-day period (the ending date of which will be
stated). This income is then annualized. That is, the amount of income
generated by the Fund during that week is assumed to be generated each week
during such 52-week period and is shown as a percentage. The effective yield
is expressed similarly but, when annualized, the income earned by an
investment in the Fund is assumed to be reinvested. The effective yield will
be slightly higher than the yield because of the compounding effect of this
assumed reinvestment. Yield and effective yield for the Money Market Fund will
vary based on, among other things, changes in the market conditions, the level
of interest rates and the level of the Money Market Fund's portfolio expenses.
OTHER FUNDS
From time to time, quotations of a Fund's "total return" may be included in
advertisements, sales literature or shareholder reports. Total return figures
are based on the historical performance of the Fund and show the performance
of a hypothetical investment and are not intended to indicate future
performance. The total return of a Fund refers to return assuming an
investment has been held in the Fund for one, five and ten years and for the
life of the Fund (the ending date of which will be stated). The total return
quotations are expressed in terms of average annual compounded rates of return
for all periods quoted and assume that all dividends and capital gains
distributions were reinvested. Total return for a Fund will vary based on,
among other things, changes in market conditions and the level of the Fund's
expenses.
For a detailed description of the methods used to determine yield and total
return for the Separate Account's Funds, see the Statement of Additional
Information.
FUNDING AND OTHER CHANGES
The Insurance Company reserves the right, subject to compliance with
applicable law, including approval of Participants if so required, (1) to
create new investment funds of the Separate Account at any time; (2) to
transfer assets determined by the Insurance Company to be associated with the
class of contracts to which the Contract belongs from the Separate Account to
another Separate Account of the Insurance Company by withdrawing the same
percentage of each investment in the Separate Account with appropriate
adjustments to avoid odd lots and fractions; (3) to create additional separate
investment accounts or combine any two or more accounts including the Separate
Account; (4) to operate the Separate Account as a diversified, open-end
management investment company under the 1940 Act, or in any other form
permitted by law, and to designate an investment adviser in connection
therewith, which may be the Insurance Company, an affiliate of the Insurance
Company or another person; (5) to deregister the Separate Account under the
1940 Act; and (6) to operate the Separate Account under the general
supervision of a committee any or all the members of which may be interested
persons (as defined in the 1940 Act) of the Insurance Company or an affiliate,
or to discharge the committee of one or more of the Separate Accounts.
35
<PAGE>
OTHER VARIABLE ANNUITY CONTRACTS
In addition to the Contract described in this Prospectus, the Insurance
Company offers other individual and group variable annuity contracts, some of
which are not described in this Prospectus, but which may also participate in
the Separate Account.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Distribution of the Contract
Money Market Yield Calculation
Performance Information
Safekeeping of Separate Account Assets
State Regulation
Periodic Reports
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Legal Proceedings
Legal Matters
Experts
Additional Information
Financial Statements
</TABLE>
36
<PAGE>
OBTAINING A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION
To receive a copy of the Statement of Additional Information at no charge, the
Participant may, as an alternative to calling (212) 224-1600, detach the Form
included below and mail it to Mutual of America Life Insurance Company, 320
Park Avenue, New York, New York 10022.
- -------------------------------------------------------------------------------
ORDER FORM FOR STATEMENT OF ADDITIONAL INFORMATION
To: Mutual of America Life Insurance Company
Please send me a copy of the Statement of Additional Information dated May 1,
1998 for the Thrift Plan Contract offered by Mutual of America. My name and
address are as follows:
---------------------------------------------------
Name
---------------------------------------------------
Street Address
---------------------------------------------------
City State Zip
37
<PAGE>
MUTUAL OF AMERICA SEPARATE ACCOUNT NO. 2
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
THRIFT PLAN CONTRACT
OFFERED BY
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
320 PARK AVENUE
NEW YORK NEW YORK 10022
---------------
This Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the Thrift Plan Contract ("Contract") offered by
Mutual of America Life Insurance Company. You may obtain a copy of the
Prospectus dated May 1, 1998, by calling (212) 224-1600, or writing to Mutual
of America Life Insurance Company, 320 Park Avenue, New York, New York 10022.
Terms used in the current Prospectus for the Contracts are incorporated in
this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACTS.
Dated: May 1, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DISTRIBUTION OF THE CONTRACTS.............................................. 2
MONEY MARKET YIELD CALCULATION............................................. 2
PERFORMANCE INFORMATION.................................................... 2
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS..................................... 5
STATE REGULATION........................................................... 5
PERIODIC REPORTS........................................................... 6
LEGAL PROCEEDINGS.......................................................... 6
LEGAL MATTERS.............................................................. 6
EXPERTS.................................................................... 6
ADDITIONAL INFORMATION..................................................... 6
FINANCIAL STATEMENTS....................................................... 6
</TABLE>
<PAGE>
DISTRIBUTION OF THE CONTRACTS
The Insurance Company offers the Contracts for sale on a continuous basis
through certain employees of the Insurance Company. The only compensation paid
for sales of the Contracts is in the form of salary. The Insurance Company is
registered with the Commission as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc. All persons engaged in
selling the Contracts are licensed agents of the Insurance Company and are
duly qualified registered representatives.
MONEY MARKET YIELD CALCULATION
In accordance with regulations adopted by the Securities and Exchange
Commission, the Insurance Company is required to disclose the current
annualized yield of the Money Market Fund of the Separate Account for a seven-
day period in a manner which does not take into consideration any realized or
unrealized gains on losses or shares of the Money Market Fund of the
Investment Company or on its portfolio securities. This current annualized
yield is computed by determining the net change (exclusive of realized gains
and losses on the sale of securities and unrealized appreciation and
depreciation) in the value of a hypothetical account having a balance of one
unit of the Money Market Fund of the Separate Account at the beginning of such
seven-day period, dividing such net change in account value by the value of
the account at the beginning of the period to determine the base period return
and annualizing this quotient on a 365-day basis. The net change in account
value reflects the deductions for administrative and distribution expenses or
services and the mortality and expense risk charge and income and expenses
accrued during the period. Because of these deductions, the yield for the
Money Market Fund of the Separate Account will be lower than the yield for the
Money Market Fund of the Investment Company.
The Securities and Exchange Commission also permits the Insurance Company to
disclose the effective yield of the Money Market Fund of the Separate Account
for the same seven-day period, determined on a compounded basis. The effective
yield is calculated by compounding the unannualized base period return by
adding one to the base period return, raising the sum to a power equal to 365
divided by seven, and subtracting one from the result.
The yield on amounts held in the Money Market Fund of the Separate Account
normally will fluctuate on a daily basis. Therefore, the disclosed yield for
any given past period is not an indication or representation of future yield
or rates of return. The Money Market Fund of the Separate Account's actual
yield is affected by changes in interest rates on money market securities,
average portfolio maturity of the Money Market Fund of the Investment Company,
the types and quality of portfolio securities held by the Money Market Fund of
the Investment Company, and its operating expenses.
PERFORMANCE INFORMATION
MONEY MARKET FUND
From time to time, quotations of the performance of the Separate Account's
Money Market Fund may be included in advertisements, sales literature or
shareholder reports. These performance figures are calculated in the following
manner:
A. Yield is the net annualized yield based on a specified seven calendar-days
calculated at simple interest rates. Yield is calculated by determining the
net change, exclusive of capital changes, in the value of a hypothetical
preexisting account having a balance of one share 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. The yield is
annualized by multiplying the base period return by 365/7. The yield figure
is stated to the nearest hundredth of one percent.
B. Effective yield is the net annualized yield for a specified seven calendar-
days assuming a reinvestment of the income or compounding. Effective yield
is calculated by the same method as yield except the yield figure is
compounded by adding 1, raising the sum to a power equal to 365 divided by
7, and subtracting one from the result, according to the following formula:
Effective Yield = [(Base Period Return +1) 365/7]-1.
The current yield of the Money Market Fund of the Separate Account for the
seven-day period ended December 31, 1997 was 4.39%.
As described above, yield and effective yield are based on historical earnings
and show the performance of a hypothetical investment and are not intended to
indicate future performance. Yield and effective yield will vary based on
changes in market conditions and the level of expenses.
SAI-2
<PAGE>
In connection with communicating its total return to current or prospective
Participants, the Money Market Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indices which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
BOND FUNDS
From time to time, quotations of the yield of the Separate Account's
Investment Company Bond Funds and Scudder Bond Fund may be included in
advertisements, sales literature or shareholder reports. Yield is computed by
annualizing net investment income, as determined by the Commission's formula,
calculated on a per accumulation unit basis, for a recent one month or 30-day
period and dividing that amount by the unit value of the Fund at the end of
the period.
FUNDS OTHER THAN MONEY MARKET
From time to time, quotations of a Fund's "total return" may be included in
advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
A. Average Annual Total Return is the average annual compounded rate of return
for the periods of one year, five years and ten years, if applicable, all
ended on the date of a recent calendar quarter. In addition, the total
return for the life of the Fund is given. Total return quotations reflect
changes in the price of a Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested
in Fund shares. Total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over such periods,
according to the following formula (total return is then expressed as a
percentage):
T = (ERV divided by P)to the 1st power divided by the Nth power - 1
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at the
beginning of the applicable period.
B. Cumulative Total Return is the compound rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total
return quotations reflect changes in the price of a Fund's shares and
assume that all dividends and capital gains distributions during the period
were reinvested in Fund shares. Cumulative total return is calculated by
finding the compound rates of return of a hypothetical investment over such
periods, according to the following formula (cumulative total return is
then expressed as a percentage):
C = (ERV divided by P) - 1.
C = Cumulative Total Return
P = hypothetical initial payment of $1,000
ERV = ending redeemable value: ERV is the value, at the end of the applicable
period, of a hypothetical $1,000 investment made at the beginning of the
applicable period.
SAI-3
<PAGE>
AVERAGE ANNUAL
TOTAL RETURN FOR PERIODS
ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FUND ONE YEAR FIVE YEARS TEN YEARS LIFE OF THE FUND
---- -------- ---------- --------- ----------------
Investment Company All America............ 24.9% 17.1% 13.6% 14.9%(1)
<S> <C> <C> <C> <C>
Investment Company Equity Index........... 31.1 N/A N/A 17.7 (2)
Investment Company Bond................... 8.7 6.8 7.5 7.9 (1)
Investment Company Short-Term Bond........ 4.4 N/A N/A 3.4 (2)
Investment Company Mid-Term Bond.......... 5.7 N/A N/A 4.6 (2)
Investment Company Composite.............. 15.9 11.0 10.1 11.1 (1)
Investment Company Aggressive Equity...... 19.4 N/A N/A 22.9 (3)
Fidelity VIP Equity-Income................ 26.3 18.5 15.2 13.3 (4)
Fidelity VIP II Contra.................... 22.5 N/A N/A 26.4 (5)
Fidelity VIP II Asset Manager............. 19.1 11.6 N/A 11.5 (6)
Scudder Capital Growth.................... 33.7 16.3 15.4 14.3 (7)
Scudder Bond.............................. 7.3 5.6 7.2 6.9 (7)
Scudder International..................... 7.5 12.1 10.4 8.5 (8)
American Century VP Capital Appreciation.. (4.5) 4.4 7.2 7.9 (9)
Calvert Responsibly Invested Balanced..... 18.3 11.2 10.2 9.5 (10)
CUMULATIVE TOTAL RETURN FOR PERIODS
ENDED DECEMBER 31, 1997
<CAPTION>
FUND ONE YEAR FIVE YEARS TEN YEARS LIFE OF THE FUND
---- -------- ---------- --------- ----------------
Investment Company All America............ 24.9% 119.9% 257.4% 505.1%(1)
<S> <C> <C> <C> <C>
Investment Company Equity Index........... 31.1 N/A N/A 123.0 (2)
Investment Company Bond................... 8.7 38.7 105.8 168.7 (1)
Investment Company Short-Term Bond........ 4.4 N/A N/A 17.9 (2)
Investment Company Mid-Term Bond.......... 5.7 N/A N/A 24.5 (2)
Investment Company Composite.............. 15.9 68.8 162.2 290.7 (1)
Investment Company Aggressive Equity...... 19.4 N/A N/A 112.8 (3)
Fidelity VIP Equity-Income................ 26.3 133.6 312.4 306.4 (4)
Fidelity VIP II Contra.................... 22.5 N/A N/A 102.1 (5)
Fidelity VIP II Asset Manager............. 19.1 72.8 N/A 121.9 (6)
Scudder Capital Growth.................... 33.7 112.9 320.5 429.1 (7)
Scudder Bond.............................. 7.3 31.1 99.6 130.7 (7)
Scudder International..................... 7.5 76.9 168.3 138.2 (8)
American Century VP Capital Appreciation.. (4.5) 23.8 101.1 115.2 (9)
Calvert Responsibly Invested Balanced..... 18.3 70.2 163.2 178.4 (10)
</TABLE>
- -------
(1) For the period beginning January 1, 1985 (commencement of operations)
(2) For the period beginning February 5, 1993 (commencement of operations)
(3) For the period beginning May 2, 1994 (commencement of operations)
(4) For the period beginning October 9, 1986 (commencement of operations)
(5) For the period beginning January 3, 1995 (commencement of operations)
(6) For the period beginning September 6, 1989 (commencement of operations)
(7) For the period beginning July 16, 1985 (commencement of operations)
(8) For the period beginning May 1, 1987 (commencement of operations)
(9) For the period beginning November 20, 1987 (commencement of operations)
(10) For the period beginning September 2, 1986 (commencement of operations)
The returns for the All America Fund (previously called the "Stock Fund")
prior to May 1, 1994 reflect the results of that Fund prior to a change in its
investment objectives and policies and the addition of subadvisers on that
date. The commencement dates for the Funds reflect the commencement dates for
the underlying fund or portfolio. Separate Account charges have been deducted
for funds or portfolios which commenced operations prior to the commencement
of operations of the corresponding Fund of the Separate Account.
SAI-4
<PAGE>
The above figures for the Money Market and other Funds, both for average
annual total return and cumulative total return, reflect charges made to the
Separate Account, including a monthly service charge (a $2.00 monthly contract
fee assessed as a cost per $1,000 based on the average account balance for all
individually allocated contracts). The monthly contract fee is deducted
initially from any net assets in the Participant's Account which have been
allocated to the General Account. If no net assets are allocated to such
Account, the monthly contract fee would be deducted from the net assets of the
Participant's Account which have been allocated to one of the Funds of the
Separate Account in the following order: (a) Investment Company Money Market,
(b) Investment Company Short-Term Bond, (c) Investment Company Mid-Term Bond,
(d) Investment Company Bond, (e) Scudder Bond, (f) Investment Company
Composite, (g) Fidelity VIP II Asset Manager, (h) Calvert Social Balanced
Portfolio, (i) Fidelity VIP Equity-Income, (j) Investment Company All America,
(k) Investment Company Equity Index, (l) Fidelity VIP II Contra, (m)
Investment Company Aggressive Equity, (n) Scudder Capital Growth, (o) Scudder
International, and (p) American Century VP Capital Appreciation. As such, the
allocation of the net assets of a Participant's Account would determine
whether any monthly contract fee would be charged against a Separate Account
Fund.
The actual treatment of the monthly contract fee and its effect on total
return would depend on the Participant's actual allocation. If a Participant
has net assets in the General Account, the monthly contract fee would be
deducted from the General Account, not any Separate Account Fund. Accordingly,
the illustration of such a Participant's net assets held in any of the Funds
of the Separate Account would experience a higher total return than shown
above. If a Participant has no assets allocated to the General Account, but
has net assets allocated to more than one Fund of the Separate Account, the
fee would only be deducted from one of the Funds so that an illustration of
total return figures of the other Funds would be higher than shown above and
the Separate Account Fund from which the fee was deducted would illustrate a
lower total return than shown above. If a Participant has no assets in the
General Account, but has net assets allocated only to one Fund of the Separate
Account, then after deduction of the monthly contract fee, an illustration of
such a total return figure would be lower than that shown above.
Performance figures, when used, are based on historical earnings and are not
guaranteed. They are not necessarily indicative of the future investment
performance of a particular Fund. Total return and yield for a Fund will vary
based on changes in market conditions and the level of the Fund's expenses.
Unit values will fluctuate so shares, when redeemed, may be worth more or less
than their original cost.
In connection with communicating its total return to current or prospective
Participants, a Fund also may compare these figures to the performance of
other variable annuity accounts tracked by mutual fund rating services or to
other unmanaged indices which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS
Title to assets of the Separate Account is held by the Insurance Company.
Records are maintained of all purchases and redemptions of eligible Portfolio
Companies shares held by each of the Funds of the Separate Account.
STATE REGULATION
The Insurance Company is subject to regulation by the New York State
Superintendent of Insurance ("Superintendent") as well as by the insurance
departments of all the other states and jurisdictions in which it does
business.
The Insurance Company must file with the Superintendent an annual statement on
a form promulgated by the National Association of Insurance Commissioners. It
must also file with New York and other states a separate statement with
respect to any separate accounts that it may maintain, including the Separate
Account. The Insurance Company's books and assets are subject to review and
examination by the Superintendent and the Superintendent's agents at all
times, and a full examination into the affairs of the Insurance Company is
made at least every five years. A full examination of the Insurance Company's
operations may also be conducted periodically by other states.
The laws of New York and of other states in which the Insurance Company is
licensed to transact business provide specifically for regulation and
supervision of the variable annuity activities of life insurance companies.
Included in such regulations are requirements relating to mandatory contract
provisions and approval of contract form. Such state regulation does not
involve any supervision or control over the investment policies of the
Separate Account, or the selection of investments therefor, except for
verification that any such investments are permissible under applicable law.
SAI-5
<PAGE>
Generally, the states in which the Insurance Company does business apply the
laws of New York in determining permissible investments for the Insurance
Company.
PERIODIC REPORTS
Prior to a Participant's Annuity Commencement Date, the Participant will be
provided by the Insurance Company, at least quarterly, with a statement as of
a specified date covering the period since the last statement. The statement
will set forth, for the covered period: (1) the Deferred Compensation deposits
made on behalf of the Participant under 457 Contracts, or Contributions made
for the purchase of an annuity under other Contracts, to the Separate and
General Accounts; the date such Deferred Compensation was deducted from the
Participant's salary or Contribution made and the date it was credited to the
Participant's account; (2) the interest accrued on amounts allocated for the
Participant to the General Account; (3) the number and dollar value of
Accumulation Units credited to the Participant in each Fund of the Separate
Account; and (4) the total amounts of all withdrawals and transfers from each
Account and each Fund. Employers have been informed that payment must be
remitted to the Insurance Company within seven days of the date it has been
withheld from the Participant's pay. The statement also will specify the
Participant's Account Balance available to provide a periodic benefit, cash
return, or death benefit with respect to the Participant. The Insurance
Company will transmit to Participants, at least semi-annually, reports showing
the financial condition of the Separate Account, and a schedule of investments
held in each Fund of the Investment Company.
LEGAL PROCEEDINGS
The Insurance Company is engaged in litigation of various kinds which in its
judgment is not of material importance in relation to its total assets. There
are no legal proceedings pending to which the Separate Account is a party.
LEGAL MATTERS
All matters of applicable state law pertaining to the Contracts, including the
Insurance Company's right to issue the Contracts thereunder, have been passed
upon by Patrick A. Burns, Senior Executive Vice President and General Counsel
of the Insurance Company. Legal matters relating to the Federal securities
laws have been passed upon by Stanley M. Lenkowicz, Senior Vice President and
Deputy General Counsel of the Insurance Company.
EXPERTS
The financial statements included in this Statement of Additional Information
have been audited by the Insurance Company's independent public accountants,
Arthur Andersen LLP, as indicated in their reports with respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
giving said reports.
ADDITIONAL INFORMATION
A registration statement has been filed with the Commission under the
Securities Act of 1933, as amended, with respect to the Contracts discussed in
this Statement of Additional Information. Not all of the information set forth
in the registration statement, amendments and exhibits thereto has been
included in this Statement of Additional Information or in the current
Prospectus for the Contracts. Statements contained herein concerning the
content of the Contracts and other legal instruments are intended to be
summaries. For a complete statement of the terms of those documents, reference
should be made to the materials filed with the Commission.
FINANCIAL STATEMENTS
To the extent that Participants under the Contracts are participating in the
investment performance of the Separate Account, the amounts of Participants'
Account Balances and annuity payments are affected primarily by the investment
results of the chosen Fund(s) of the Separate Account.
The financial statements of the Insurance Company that are included in this
Statement of Additional Information should be considered only as bearing on
the ability of the Insurance Company to meet its obligations under the
Contracts. They should not be considered as bearing on the investment
performance of the assets held in the Separate Account.
SAI-6
<PAGE>
Financial Statements of the Separate Account for 1997 are included as follows:
<TABLE>
<S> <C>
Statement of Assets and Liabilities................................... V
Statement of Operations............................................... VII
Statements of Changes in Net Assets................................... IX
Notes to Financial Statements......................................... XII
Report of Independent Public Accountants.............................. XVI
Financial Statements of the Insurance Company for 1997 are included as follows:
Report of Independent Public Accountants.............................. SAI-8
Consolidated Statements of Financial Condition........................ SAI-9
Consolidated Statements of Operations and Surplus..................... SAI-10
Consolidated Statements of Cash Flows................................. SAI-11
Notes to Consolidated Financial Statements............................ SAI-12
</TABLE>
SAI-7
<PAGE>
MUTUAL OF AMERICA SEPARATE ACCOUNT NO. 2
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INVESTMENT COMPANY
---------------------------------------------------
MONEY MARKET ALL AMERICA EQUITY INDEX BOND
FUND FUND FUND FUND
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Assets:
Investments in Mutual of
America Investment
Corporation at market
value
(Cost:
Money Market Fund --
$33,424,720
All America Fund --
$273,073,807
Equity Index Fund --
$120,918,440
Bond Fund --
$37,857,784)
(Notes 1 and 2)......... $32,847,132 $347,116,077 $153,966,219 $37,979,161
Due From (To) Mutual of
America General
Account................. 1,459 (427,556) 493,450 (8,060)
----------- ------------ ------------ -----------
Net Assets............... $32,848,591 $346,688,521 $154,459,669 $37,971,101
=========== ============ ============ ===========
Unit Value at December
31, 1997 (Note 5)....... $ 1.95 $ 6.76 $ 2.26 $ 3.00
====== ====== ====== ======
Number of Units
Outstanding at December
31, 1997 (Note 5)....... 16,831,293 51,312,383 68,461,583 12,671,471
=========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT COMPANY
-----------------------------------------------
AGGRESSIVE
SHORT-TERM MID-TERM COMPOSITE EQUITY
BOND FUND BOND FUND FUND FUND
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Investments in Mutual of
America Investment
Corporation at market value
(Cost:
Short-Term Bond Fund --
$2,823,723
Mid-Term Bond Fund --
$6,010,147
Composite Fund --
$277,684,362
Aggressive Equity Fund --
$145,068,534)
(Notes 1 and 2).............. $2,756,382 $5,638,323 $267,467,587 $153,734,203
Due From (To) Mutual of
America General Account...... 51,726 2,774 48,562 82,639
---------- ---------- ------------ ------------
Net Assets.................... $2,808,108 $5,641,097 $267,516,149 $153,816,842
========== ========== ============ ============
Unit Value at December 31,
1997 (Note 5)................ $ 1.19 $ 1.26 $ 4.36 $ 2.15
====== ====== ====== ======
Number of Units Outstanding at
December 31, 1997
(Note 5)..................... 2,354,989 4,478,213 61,359,153 71,468,257
========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
V
<PAGE>
MUTUAL OF AMERICA SEPARATE ACCOUNT NO. 2
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SCUDDER AMERICAN CENTURY CALVERT
--------------------------------------- ---------------- -------------
CAPITAL VP CAPITAL
BOND GROWTH INTERNATIONAL APPRECIATION RESPONSIBLY
FUND FUND FUND FUND INVESTED FUND
----------- ------------ ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in Scudder
Portfolios, American
Century VP Capital
Appreciation Fund and
Calvert Responsibly
Invested Portfolio at
market value
(Cost:
Scudder Bond Fund --
$18,341,309
Scudder Capital Growth
Fund -- $232,108,072
Scudder International
Fund -- $103,157,411
American Century VP
Capital Appreciation
Fund -- $49,903,872
Calvert Responsibly
Invested Fund --
$28,569,357)
(Notes 1 and 2)........ $18,301,206 $328,836,635 $118,904,168 $49,521,243 $32,998,938
Due From (To) Mutual of
America General
Account................ 46,687 (3,016) (224,195) 256,004 43,544
----------- ------------ ------------ ----------- -----------
Net Assets.............. $18,347,893 $328,833,619 $118,679,973 $49,777,247 $33,042,482
=========== ============ ============ =========== ===========
Unit Value at December
31, 1997 (Note 5)...... $ 12.37 $ 29.64 $ 14.46 $ 11.04 $ 2.65
======= ======= ======= ======= ======
Number of Units
Outstanding at
December 31, 1997 (Note
5)..................... 1,483,509 11,093,827 8,204,725 4,510,083 12,478,750
=========== ============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FIDELITY
----------------------------------------
VIP VIP II VIP II
EQUITY-INCOME CONTRA ASSET MANAGER
FUND FUND FUND
------------- ------------ -------------
<S> <C> <C> <C>
Assets:
Investments in Fidelity Portfolios at
market value
(Cost:
VIP Equity-Income Fund --
$80,156,668
VIP II Contra Fund -- $89,492,657
VIP II Asset Manager Fund --
$21,735,892)
(Notes 1 and 2)..................... $96,838,403 $115,077,349 $24,238,728
Due From (To) Mutual of America
General Account..................... 122,065 51,690 60,586
----------- ------------ -----------
Net Assets........................... $96,960,468 $115,129,039 $24,299,314
=========== ============ ===========
Unit Value at December 31, 1997 (Note
5).................................. $ 27.77 $ 20.36 $ 21.14
======= ======= =======
Number of Units Outstanding at
December 31, 1997 (Note 5).......... 3,491,209 5,655,675 1,149,512
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
VI
<PAGE>
MUTUAL OF AMERICA SEPARATE ACCOUNT NO. 2
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INVESTMENT COMPANY
---------------------------------------------------------
MONEY MARKET ALL AMERICA EQUITY INDEX BOND
FUND FUND FUND FUND
------------ ----------- ------------ -----------------
<S> <C> <C> <C> <C>
Investment Income and
Expenses:
Income (Notes 1 and 4):
Dividends.............. $2,049,430 $42,544,942 $ 3,236,502 $ 2,438,040
---------- ----------- ------------ -----------
Total income............ 2,049,430 42,544,942 3,236,502 2,438,040
---------- ----------- ------------ -----------
Expenses (Note 3):
Fees................... 408,624 3,929,915 1,385,683 429,987
Administrative
expenses.............. 78,791 186,667 75,353 62,095
---------- ----------- ------------ -----------
Total Expenses.......... 487,415 4,116,582 1,461,036 492,082
---------- ----------- ------------ -----------
Net Investment Income
(Loss)................. 1,562,015 38,428,360 1,775,466 1,945,958
---------- ----------- ------------ -----------
Net Realized and
Unrealized Gain (Loss)
on Investments (Note
1):
Net realized gain
(loss) on
investments........... 132,331 6,823,750 1,092,959 111,901
Net unrealized
appreciation
(depreciation) of
investments........... (446,463 ) 22,669,697 24,542,212 889,880
---------- ----------- ------------ -----------
Net Realized and
Unrealized Gain (Loss)
on Investments......... (314,132) 29,493,447 25,635,171 1,001,781
---------- ----------- ------------ -----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations........ $1,247,883 $67,921,807 $ 27,410,637 $ 2,947,739
========== =========== ============ ===========
<CAPTION>
INVESTMENT COMPANY
---------------------------------------------------------
SHORT-TERM MID-TERM COMPOSITE AGGRESSIVE EQUITY
BOND FUND BOND FUND FUND FUND
------------ ----------- ------------ -----------------
<S> <C> <C> <C> <C>
Investment Income and
Expenses:
Income (Notes 1 and 4):
Dividends.............. $ 172,696 $ 349,575 $ 59,200,271 $15,310,328
---------- ----------- ------------ -----------
Total income............ 172,696 349,575 59,200,271 15,310,328
---------- ----------- ------------ -----------
Expenses (Note 3):
Fees................... 31,767 61,348 3,220,012 1,614,189
Administrative
expenses.............. 7,591 9,891 254,611 64,978
---------- ----------- ------------ -----------
Total Expenses.......... 39,358 71,239 3,474,623 1,679,167
---------- ----------- ------------ -----------
Net Investment Income
(Loss)................. 133,338 278,336 55,725,648 13,631,161
---------- ----------- ------------ -----------
Net Realized and
Unrealized Gain (Loss)
on Investments (Note
1):
Net realized gain
(loss) on
investments........... 17,305 (98,969) 3,228,464 808,445
Net unrealized
appreciation
(depreciation) of
investments........... (40,822) 101,700 (20,441,501) 5,321,047
---------- ----------- ------------ -----------
Net Realized and
Unrealized Gain (Loss)
on Investments......... (23,517) 2,731 (17,213,037) 6,129,492
---------- ----------- ------------ -----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations........ $ 109,821 $ 281,067 $ 38,512,611 $19,760,653
========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
VII
<PAGE>
MUTUAL OF AMERICA SEPARATE ACCOUNT NO. 2
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
AMERICAN
SCUDDER CENTURY CALVERT
------------------------------------- ------------ -----------
CAPITAL VP CAPITAL RESPONSIBLY
BOND GROWTH INTERNATIONAL APPRECIATION INVESTED
FUND FUND FUND FUND FUND
---------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Investment Income and
Expenses:
Income (Notes 1 and 4):
Dividends.............. $1,026,890 $18,425,109 $ 2,549,505 $ 1,349,408 $2,295,190
---------- ----------- ----------- ----------- ----------
Total income............ 1,026,890 18,425,109 2,549,505 1,349,408 2,295,190
---------- ----------- ----------- ----------- ----------
Expenses (Note 3):
Fees................... 197,813 3,396,783 1,478,900 624,080 356,798
Administrative
expenses.............. 37,701 98,960 22,343 15,260 50,968
---------- ----------- ----------- ----------- ----------
Total Expenses.......... 235,514 3,495,743 1,501,243 639,340 407,766
---------- ----------- ----------- ----------- ----------
Net Investment Income
(Loss)................. 791,376 14,929,366 1,048,262 710,068 1,887,424
---------- ----------- ----------- ----------- ----------
Net Realized and
Unrealized Gain (Loss)
on Investments (Note
1):
Net realized gain
(loss) on
investments........... (87,907) 3,989,169 10,918,585 1,238,144 235,099
Net unrealized
appreciation
(depreciation) of
investments........... 447,914 53,719,471 (3,147,476) (4,227,421) 2,600,706
---------- ----------- ----------- ----------- ----------
Net Realized and
Unrealized Gain (Loss)
on Investments......... 360,007 57,708,640 7,771,109 (2,989,277) 2,835,805
---------- ----------- ----------- ----------- ----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations........ $1,151,383 $72,638,006 $ 8,819,371 $(2,279,209) $4,723,229
========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
FIDELITY
---------------------------------------
VIP VIP II VIP II
EQUITY-INCOME CONTRA ASSET MANAGER
FUND FUND FUND
------------- ----------- -------------
<S> <C> <C> <C>
Investment Income and Expenses:
Income (Notes 1 and 4):
Dividends............................ $ 5,695,825 $ 2,303,885 $1,433,986
----------- ----------- ----------
Total income.......................... 5,695,825 2,303,885 1,433,986
----------- ----------- ----------
Expenses (Note 3):
Fees................................. 886,449 1,111,011 204,162
Administrative expenses.............. 109,597 64,722 34,946
----------- ----------- ----------
Total Expenses........................ 996,046 1,175,733 239,108
----------- ----------- ----------
Net Investment Income (Loss).......... 4,699,779 1,128,152 1,194,878
----------- ----------- ----------
Net Realized and Unrealized Gain
(Loss) on Investments (Note 1):
Net realized gain (loss) on invest-
ments............................... 278,906 992,567 25,536
Net unrealized appreciation (depreci-
ation) of investments............... 11,806,259 16,333,421 1,637,367
----------- ----------- ----------
Net Realized and Unrealized Gain
(Loss) on Investments................ 12,085,165 17,325,988 1,662,903
----------- ----------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations............ $16,784,944 $18,454,140 $2,857,781
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
VIII
<PAGE>
MUTUAL OF AMERICA SEPARATE ACCOUNT NO. 2
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INVESTMENT COMPANY
-------------------------------------------------------------------------------
MONEY MARKET FUND ALL AMERICA FUND EQUITY INDEX FUND
------------------------ -------------------------- -------------------------
1997 1996 1997 1996 1997 1996
----------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets:
From Operations:
Net investment income
(loss)................ $ 1,562,015 $ 849,780 $ 38,428,360 $ 10,418,234 $ 1,775,466 $ 1,456,309
Net realized gain
(loss) on
investments........... 132,331 73,658 6,823,750 2,431,185 1,092,959 476,262
Net unrealized
appreciation
(depreciation) of
investments........... (446,463) 278,840 22,669,697 28,344,476 24,542,212 6,045,598
----------- ----------- ------------ ------------ ------------ -----------
Net Increase (Decrease)
in net assets resulting
from operations........ 1,247,883 1,202,278 67,921,807 41,193,895 27,410,637 7,978,169
----------- ----------- ------------ ------------ ------------ -----------
From Unit Transactions:
Contributions.......... 5,788,009 6,015,021 31,724,926 30,608,222 22,975,577 11,517,471
Withdrawals............ (4,229,179) (4,077,160) (21,956,687) (15,824,928) (6,932,093) (6,193,918)
Net transfers.......... (2,770,906) 1,853,101) 360,521 15,311,478 49,789,027 23,679,496
----------- ----------- ------------ ------------ ------------ -----------
Net Increase (Decrease)
from unit
transactions........... (1,212,076) 84,760 10,128,760 30,094,772 65,832,511 29,003,049
----------- ----------- ------------ ------------ ------------ -----------
Net Increase (Decrease)
in Net Assets.......... 35,807 1,287,038 78,050,567 71,288,667 93,243,148 36,981,218
Net Assets:
Beginning of Year....... 32,812,784 31,525,746 268,637,954 197,349,287 61,216,521 24,235,303
----------- ----------- ------------ ------------ ------------ -----------
End of Year............. $32,848,591 $32,812,784 $346,688,521 $268,637,954 $154,459,669 $61,216,521
=========== =========== ============ ============ ============ ===========
<CAPTION>
INVESTMENT COMPANY
-------------------------------------------------------------------------------
BOND FUND SHORT-TERM BOND FUND MID-TERM BOND FUND
------------------------ -------------------------- -------------------------
1997 1996 1997 1996 1997 1996
----------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets:
From Operations:
Net investment income
(loss)................ $ 1,945,958 $ 1,790,689 $ 133,338 $ 63,539 $ 278,336 $ 558,997
Net realized gain
(loss) on
investments........... 111,901 68,629 17,305 7,065 (98,969) (2,132)
Net unrealized
appreciation
(depreciation) of
investments........... 889,880 (1,221,188) (40,822) (1,966) 101,700 (455,047)
----------- ----------- ------------ ------------ ------------ -----------
Net Increase (Decrease)
in net assets resulting
from operations........ 2,947,739 638,130 109,821 68,638 281,067 101,818
----------- ----------- ------------ ------------ ------------ -----------
From Unit Transactions:
Contributions.......... 4,701,303 5,112,307 668,221 650,490 813,398 953,690
Withdrawals............ (4,020,196) (3,323,187) (647,104) (229,391) (586,994) (231,712)
Net transfers.......... (136,699) (435,017) 252,496 344,727 585,047 424,626
----------- ----------- ------------ ------------ ------------ -----------
Net Increase (Decrease)
from unit
transactions........... 544,408 1,354,103 273,613 765,826 811,451 1,146,604
----------- ----------- ------------ ------------ ------------ -----------
Net Increase (Decrease)
in Net Assets.......... 3,492,147 1,992,233 383,434 834,464 1,092,518 1,248,422
Net Assets:
Beginning of Year....... 34,478,954 32,486,721 2,424,674 1,590,210 4,548,579 3,300,157
----------- ----------- ------------ ------------ ------------ -----------
End of Year............. $37,971,101 $34,478,954 $ 2,808,108 $ 2,424,674 $ 5,641,097 $ 4,548,579
=========== =========== ============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
IX
<PAGE>
MUTUAL OF AMERICA SEPARATE ACCOUNT NO. 2
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
INVESTMENT COMPANY
-----------------------------------------------------
COMPOSITE FUND AGGRESSIVE EQUITY FUND
-------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets:
From Operations:
Net investment income
(loss)................ $ 55,725,648 $ 28,222,090 $ 13,631,161 $11,952,409
Net realized gain
(loss) on
investments........... 3,228,464 2,739,162 808,445 201,936
Net unrealized
appreciation
(depreciation) of
investments........... (20,441,501) (6,525,946) 5,321,047 547,221
------------ ------------ ------------ -----------
Net Increase (Decrease)
in net assets resulting
from operations........ 38,512,611 24,435,306 19,760,653 12,701,566
------------ ------------ ------------ -----------
From Unit Transactions:
Contributions.......... 23,905,684 28,326,960 29,301,342 16,800,622
Withdrawals............ (24,479,468) (22,088,981) (9,246,392) 506,734
Net transfers.......... (20,666,992) (19,948,521) 24,458,890 29,646,189
------------ ------------ ------------ -----------
Net Increase (Decrease)
from unit
transactions........... (21,240,776) (13,710,542) 44,513,840 46,953,545
------------ ------------ ------------ -----------
Net Increase (Decrease)
in Net Assets.......... 17,271,835 10,724,764 64,274,493 59,655,111
Net Assets:
Beginning of Year....... 250,244,314 239,519,550 89,542,349 29,887,238
------------ ------------ ------------ -----------
End of Year............. $267,516,149 $250,244,314 $153,816,842 $89,542,349
============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
SCUDDER
--------------------------------------------------------------------------------
BOND FUND CAPITAL GROWTH FUND INTERNATIONAL FUND
------------------------ -------------------------- --------------------------
1997 1996 1997 1996 1997 1996
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets:
From Operations:
Net investment income
(loss)................ $ 791,376 $ 1,097,001 $ 14,929,366 $ 13,273,666 $ 1,048,262 $ 850,382
Net realized gain
(loss) on
investments........... (87,907) (110,077) 3,989,169 1,971,672 10,918,585 3,882,634
Net unrealized
appreciation
(depreciation) of
investments........... 447,914 (788,323) 53,719,471 15,612,266 (3,147,476) 7,289,627
----------- ----------- ------------ ------------ ------------ ------------
Net Increase (Decrease)
in net assets resulting
from operations........ 1,151,383 198,601 72,638,006 30,857,604 8,819,371 12,022,643
----------- ----------- ------------ ------------ ------------ ------------
From Unit Transactions:
Contributions.......... 2,487,844 2,640,943 34,121,380 27,988,093 15,851,344 14,517,884
Withdrawals............ (1,538,662) (1,287,365) (19,076,131) (13,712,456) (9,604,601) (8,408,505)
Net transfers.......... 610,052 (259,197) 36,296,377 262,723 377,532 (1,008,537)
----------- ----------- ------------ ------------ ------------ ------------
Net Increase (Decrease)
from unit
transactions........... 1,559,234 1,094,381 51,341,626 14,538,360 6,624,275 5,100,842
----------- ----------- ------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets.......... 2,710,617 1,292,982 123,979,632 45,395,964 15,443,646 17,123,485
Net Assets:
Beginning of Year....... 15,637,276 14,344,294 204,853,987 159,458,023 103,236,327 86,112,842
----------- ----------- ------------ ------------ ------------ ------------
End of Year............. $18,347,893 $15,637,276 $328,833,619 $204,853,987 $118,679,973 $103,236,327
=========== =========== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
X
<PAGE>
MUTUAL OF AMERICA SEPARATE ACCOUNT NO. 2
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
AMERICAN CENTURY CALVERT
-------------------------- --------------------------
VP CAPITAL
APPRECIATION FUND RESPONSIBLY INVESTED FUND
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets:
From Operations:
Net investment income
(loss)................ $ 710,068 $ 9,827,488 $ 1,887,424 $ 1,505,706
Net realized gain
(loss) on
investments........... 1,238,144 3,898,097 235,099 72,424
Net unrealized
appreciation
(depreciation) of
investments........... (4,227,421) (18,669,322) 2,600,706 439,874
------------ ------------ ------------ ------------
Net Increase (Decrease)
in net assets resulting
from operations........ (2,279,209) (4,943,737) 4,723,229 2,018,004
------------ ------------ ------------ ------------
From Unit Transactions:
Contributions.......... 8,707,773 16,360,753 6,373,996 4,807,906
Withdrawals............ (6,920,015) (7,283,773) (2,497,692) (1,198,222)
Net transfers.......... (33,483,832) (18,548,118) 521,192 2,535,811
------------ ------------ ------------ ------------
Net Increase (Decrease)
from unit
transactions........... (31,696,074) (9,471,138) 4,397,496 6,145,495
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets.......... (33,975,283) (14,414,875) 9,120,725 8,163,499
Net Assets:
Beginning of Year....... 83,752,530 98,167,405 23,921,757 15,758,258
------------ ------------ ------------ ------------
End of Year............. $ 49,777,247 $ 83,752,530 $ 33,042,482 $ 23,921,757
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FIDELITY
-----------------------------------------------------------------------------
VIP VIP II VIP II
EQUITY-INCOME CONTRA ASSET MANAGER
FUND FUND FUND
------------------------ ------------------------- ------------------------
1997 1996 1997 1996 1997 1996
----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets:
From Operations:
Net investment income
(loss)................ $ 4,699,779 $ 465,381 $ 1,128,152 $ (316,979) $ 1,194,878 $ 147,067
Net realized gain
(loss) on
investments........... 278,906 36,749 992,567 106,747 25,536 17,488
Net unrealized
appreciation
(depreciation) of
investments........... 11,806,259 4,033,446 16,333,421 8,757,016 1,637,367 726,606
----------- ----------- ------------ ----------- ----------- -----------
Net Increase (Decrease)
in net assets resulting
from operations........ 16,784,944 4,535,576 18,454,140 8,546,784 2,857,781 891,161
----------- ----------- ------------ ----------- ----------- -----------
From Unit Transactions:
Contributions.......... 16,485,680 11,293,855 21,050,465 13,486,367 5,663,920 2,540,371
Withdrawals............ (5,431,923) (154,620) (6,172,824) 89,022 (1,306,235) (659,754)
Net transfers.......... 17,763,089 21,543,664 17,442,009 17,419,557 6,221,869 5,212,637
----------- ----------- ------------ ----------- ----------- -----------
Net Increase (Decrease)
from unit
transactions........... 28,816,846 32,682,899 32,319,650 30,994,946 10,579,554 7,093,254
----------- ----------- ------------ ----------- ----------- -----------
Net Increase (Decrease)
in Net Assets.......... 45,601,790 37,218,475 50,773,790 39,541,730 13,437,335 7,984,415
Net Assets:
Beginning of Year....... 51,358,678 14,140,203 64,355,249 24,813,519 10,861,979 2,877,564
----------- ----------- ------------ ----------- ----------- -----------
End of Year............. $96,960,468 $51,358,678 $115,129,039 $64,355,249 $24,299,314 $10,861,979
=========== =========== ============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
XI
<PAGE>
MUTUAL OF AMERICA SEPARATE ACCOUNT NO. 2
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
Separate Account No. 2 of Mutual of America Life Insurance Company ("the
Company") was established in conformity with New York Insurance Law and
commenced operations on June 4, 1984. On October 31, 1986, Separate Account
No. 2 was reorganized into a unit investment trust consisting of four Funds:
the Money Market Fund, the All America Fund, the Bond Fund and the Composite
Fund. These Funds invest in corresponding funds of Mutual of America
Investment Corporation ("Investment Company"). Prior to May 2, 1994, the All
America Fund was known as the Stock Fund and had different investment
objectives and no sub-advisors.
On January 3, 1989, the following Funds became available to Separate Account
No. 2 as investment alternatives: Scudder Bond, Scudder Capital Growth,
Scudder International and VP Capital Appreciation Fund (formerly TCI Growth).
The Scudder Funds invest in corresponding portfolios of Scudder Variable Life
Investment Fund ("Scudder"). The VP Capital Appreciation Fund invests in a
corresponding fund of American Century Variable Portfolios Inc. ("American
Century"). Effective May 13, 1991, the Calvert Responsibly Invested Balanced
Portfolio became available as an investment alternative. The Calvert
Responsibly Invested Fund invests in a corresponding fund of the Calvert
Responsibly Invested Balanced Portfolio of Acacia Capital Corporation
("Calvert").
On February 5, 1993 the Mutual of America Equity Index, Short-Term Bond and
Mid-Term Bond Funds became available to Separate Account No. 2 as investment
alternatives. On May 2, 1994 the Mutual of America Aggressive Equity Fund
became available as an investment option. These Funds invest in corresponding
funds of the Investment Company.
On May 1, 1995, Fidelity Investments Equity-Income, Contrafund and Asset
Manager Portfolios became available. The Fidelity Equity-Income Portfolio
invests in a corresponding portfolio of Fidelity Variable Insurance Products
Fund and the Contrafund and Asset Manager Portfolios invest in corresponding
portfolios of Fidelity Variable Insurance Products Fund II (collectively
"Fidelity").
Separate Account No. 2 was formed by the Company to support the operations
of the Company's group and individual variable accumulation annuity contracts
("Contracts"). The assets of Separate Account No. 2 are the property of the
Company. The portion of Separate Account No. 2's assets applicable to the
Contracts will not be charged with liabilities arising out of any other
business the Company may conduct.
The significant accounting policies of Separate Account No. 2 are as
follows:
Investment Valuation -- Investments are made in shares of the Investment
Company, Scudder, American Century, Calvert and Fidelity and are valued at the
reported net asset values of the respective funds or portfolios.
Investment Transactions -- Investment transactions are recorded on the trade
date. Realized gains and losses on sales of investments are determined based
on the average cost of the investment sold.
Federal Income Taxes -- Separate Account No. 2 and its operations are
treated as part of the Company which is exempt from federal income taxes under
Section 501(c)(4) of the Internal Revenue Code through 1997.
2. INVESTMENTS
The number of shares owned by Separate Account No. 2 and their respective
net asset values (rounded to the nearest cent) per share at December 31, 1997
are as follows:
<TABLE>
<CAPTION>
NUMBER OF NET ASSET
SHARES VALUE
----------- ---------
<S> <C> <C>
Investment Company Funds:
Money Market Fund................................. 27,914,026 $ 1.18
All America Fund.................................. 128,057,391 2.71
Equity Index Fund................................. 74,092,038 2.08
Bond Fund......................................... 26,610,232 1.43
Short-Term Bond Fund.............................. 2,699,652 1.02
Mid-Term Bond Fund................................ 6,245,148 0.90
Composite Fund.................................... 164,912,475 1.62
Aggressive Equity Fund............................ 95,652,782 1.61
</TABLE>
XII
<PAGE>
MUTUAL OF AMERICA SEPARATE ACCOUNT NO. 2
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF NET ASSET
SHARES VALUE
---------- ---------
<S> <C> <C>
Scudder Portfolios:
Bond Portfolio...................................... 2,663,931 $ 6.87
Capital Growth Portfolio--Class "A"................. 15,939,730 20.63
International Portfolio--Class "A".................. 8,426,943 14.11
American Century VP Capital Appreciation Fund........ 5,115,831 9.68
Calvert Responsibly Invested Balanced Portfolio...... 16,649,313 1.98
Fidelity Portfolios:
Equity-Income--"Initial" Class...................... 3,988,402 24.28
Contrafund--"Initial" Class......................... 5,771,181 19.94
Asset Manager--"Initial" Class...................... 1,345,848 18.01
</TABLE>
3. EXPENSES
Administrative Charges -- In connection with its administrative functions,
the Company deducts daily, at an annual rate of .40%, an amount from the value
of the net assets of all funds except the American Century VP Capital
Appreciation Fund for which the annual rate is .20% and, effective in 1997,
each Fidelity fund, for which the annual rate is .30%.
In addition, a deduction of up to $2.00 may be made at the end of each month
from a participant's account, except that such charge shall not exceed 1/12 of
1% of the balance in such account in any month.
Distribution Expense Charge -- As principal underwriter, the Company
performs all distribution and sales functions and bears all distribution and
sales expenses relative to the Contracts. For providing these services, the
Company deducts daily, at an annual rate of .35%, an amount from the value of
the net assets of each fund to cover such expenses.
Mortality and Expense Risk Charge -- The Company assumes the risk to make
annuity payments in accordance with annuity tables provided in the Contracts
regardless of how long a participant lives and also assumes certain expense
risks associated with such annuity payments. For assuming this risk, the
Company deducts daily, at an annual rate of .50%, an amount from the value of
the net assets of each fund.
4. DIVIDENDS
All dividend distributions are reinvested in additional shares of the
respective funds or portfolios at net asset value. On December 31, 1997 a
dividend distribution was made by the Investment Company to shareholders of
record as of December 30, 1997. Prior thereto, the Investment Company declared
and paid a dividend distribution on September 15, 1997. The combined amount of
these dividends was as follows:
<TABLE>
<S> <C>
Money Market Fund.............................................. $2,049,430
All America Fund............................................... 42,544,942
Equity Index Fund.............................................. 3,236,502
Bond Fund...................................................... 2,438,040
Short-Term Bond Fund........................................... 172,696
Mid-Term Bond Fund............................................. 349,575
Composite Fund................................................. 59,200,271
Aggressive Equity Fund......................................... 15,310,328
</TABLE>
On January 29, 1997, February 26, 1997, April 28, 1997, July 29, 1997 and
October 29, 1997, dividends were paid by the Scudder Bond Portfolio. The
combined amount of the dividends was $1,026,890.
On January 29, 1997, February 26, 1997, April 28, 1997, July 29, 1997 and
October 29, 1997, dividends were paid by the Scudder Capital Growth Portfolio.
The combined amount of the dividends was $18,425,109.
On February 26, 1997 a dividend was paid by the Scudder International
Portfolio. The amount of the dividend was $2,549,505.
On March 29, 1997 a dividend was paid by the American Century VP Capital
Appreciation Fund. The amount of the dividend was $1,349,408.
On December 31, 1997 a dividend was paid by the Calvert Responsibly Invested
Portfolio. The amount of the dividend was $2,295,190.
XIII
<PAGE>
MUTUAL OF AMERICA SEPARATE ACCOUNT NO. 2
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
On February 7, 1997 a dividend was paid by the Fidelity Equity-Income
Portfolio. The amount of the dividend was $5,695,825.
On February 7, 1997, a dividend was paid by the Fidelity Contrafund
Portfolio. The amount of the dividend was $2,303,885.
On February 7, 1997, a dividend was paid by the Fidelity Asset Manager
Portfolio. The amount of the dividend was $1,433,986.
5. FINANCIAL HIGHLIGHTS
Shown below are financial highlights for a Unit outstanding throughout each
of the five years ended December 31, 1997, or, if not in existence a full
year, the initial period ended December 31:
<TABLE>
<CAPTION>
INVESTMENT COMPANY MONEY MARKET FUND
---------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year......... $1.87 $1.80 $1.72 $1.68 $1.65
======= ======= ======= ======= =======
Unit value, end of year............... $1.95 $1.87 $1.80 $1.72 $1.68
======= ======= ======= ======= =======
Thousands of units outstanding, end of
year................................. 16,831 17,511 17,502 17,653 15,815
======= ======= ======= ======= =======
<CAPTION>
INVESTMENT COMPANY ALL AMERICA FUND
---------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year......... $5.39 $4.52 $3.35 $3.36 $3.03
======= ======= ======= ======= =======
Unit value, end of year............... $6.76 $5.39 $4.52 $3.35 $3.36
======= ======= ======= ======= =======
Thousands of units outstanding, end of
year................................. 51,312 49,798 43,620 38,669 36,510
======= ======= ======= ======= =======
<CAPTION>
INVESTMENT COMPANY EQUITY INDEX FUND
---------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year/period.. $1.72 $1.42 $1.05 $1.05 $1.00
======= ======= ======= ======= =======
Unit value, end of year/period........ $2.26 $1.72 $1.42 $1.05 $1.05
======= ======= ======= ======= =======
Thousands of units outstanding, end of
year/period.......................... 68,462 35,660 17,109 4,644 2,135
======= ======= ======= ======= =======
<CAPTION>
INVESTMENT COMPANY BOND FUND
---------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year......... $2.75 $2.69 $2.28 $2.39 $2.13
======= ======= ======= ======= =======
Unit value, end of year............... $3.00 $2.75 $2.69 $2.28 $2.39
======= ======= ======= ======= =======
Thousands of units outstanding, end of
year................................. 12,671 12,548 12,083 10,601 12,244
======= ======= ======= ======= =======
<CAPTION>
INVESTMENT COMPANY SHORT-TERM BOND FUND
---------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year/period.. $1.14 $1.10 $1.03 $1.03 $1.00
======= ======= ======= ======= =======
Unit value, end of year/period........ $1.19 $1.14 $1.10 $1.03 $1.03
======= ======= ======= ======= =======
Thousands of units outstanding, end of
year/period.......................... 2,355 2,129 1,447 1,132 747
======= ======= ======= ======= =======
<CAPTION>
INVESTMENT COMPANY MID-TERM BOND FUND
---------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year/period.. $1.19 $1.16 $1.01 $1.06 $1.00
======= ======= ======= ======= =======
Unit value, end of year/period........ $1.26 $1.19 $1.16 $1.01 $1.06
======= ======= ======= ======= =======
Thousands of units outstanding, end of
year/period.......................... 4,478 3,828 2,848 1,444 1,411
======= ======= ======= ======= =======
<CAPTION>
INVESTMENT COMPANY COMPOSITE FUND
---------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year......... $3.75 $3.39 $2.82 $2.95 $2.55
======= ======= ======= ======= =======
Unit value, end of year............... $4.36 $3.75 $3.39 $2.82 $2.95
======= ======= ======= ======= =======
Thousands of units outstanding, end of
year................................. 61,359 66,715 70,558 73,239 71,215
======= ======= ======= ======= =======
</TABLE>
XIV
<PAGE>
MUTUAL OF AMERICA SEPARATE ACCOUNT NO. 2
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
INVESTMENT COMPANY
AGGRESSIVE EQUITY FUND
--------------------------
1997 1996 1995 1994
------ ------ ------ -----
<S> <C> <C> <C> <C>
Unit value, beginning of
year/period............ $1.80 $1.43 $1.05 $1.00
====== ====== ====== =====
Unit value, end of
year/period............ $2.15 $1.80 $1.43 $1.05
====== ====== ====== =====
Thousands of units
outstanding, end of
year/period............ 71,468 49,800 20,858 9,145
====== ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
SCUDDER BOND FUND
----------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year.............. $11.48 $11.30 $9.69 $10.32 $9.30
====== ====== ====== ====== ======
Unit value, end of year.................... $12.37 $11.48 $11.30 $9.69 $10.32
====== ====== ====== ====== ======
Thousands of units outstanding, end of
year...................................... 1,484 1,362 1,269 1,169 1,277
====== ====== ====== ====== ======
<CAPTION>
SCUDDER CAPITAL GROWTH FUND
----------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year.............. $22.11 $18.64 $14.67 $16.46 $13.80
====== ====== ====== ====== ======
Unit value, end of year.................... $29.64 $22.11 $18.64 $14.67 $16.46
====== ====== ====== ====== ======
Thousands of units outstanding, end of
year...................................... 11,094 9,266 8,556 8,121 6,582
====== ====== ====== ====== ======
<CAPTION>
SCUDDER INTERNATIONAL FUND
----------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year.............. $13.43 $11.85 $10.80 $11.06 $8.13
====== ====== ====== ====== ======
Unit value, end of year.................... $14.46 $13.43 $11.85 $10.80 $11.06
====== ====== ====== ====== ======
Thousands of units outstanding, end of
year...................................... 8,205 7,688 7,269 8,610 5,400
====== ====== ====== ====== ======
<CAPTION>
AMERICAN CENTURY
----------------------------------
VP CAPITAL APPRECIATION FUND
----------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year.............. $11.53 $12.18 $9.39 $9.61 $8.81
====== ====== ====== ====== ======
Unit value, end of year.................... $11.04 $11.53 $12.18 $9.39 $9.61
====== ====== ====== ====== ======
Thousands of units outstanding, end of
year...................................... 4,510 7,264 8,061 6,361 5,946
====== ====== ====== ====== ======
<CAPTION>
CALVERT
----------------------------------
RESPONSIBLY INVESTED FUND
----------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year.............. $2.23 $2.01 $1.57 $1.64 $1.54
====== ====== ====== ====== ======
Unit value, end of year.................... $2.65 $2.23 $2.01 $1.57 $1.64
====== ====== ====== ====== ======
Thousands of units outstanding, end of
year...................................... 12,479 10,713 7,849 5,986 5,151
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FIDELITY
-----------------------------------------
EQUITY-INCOME FUND CONTRA FUND
-------------------- --------------------
1997 1996 1995 1997 1996 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
year/period........................ $21.93 $19.43 $16.30 $16.59 $13.85 $11.43
====== ====== ====== ====== ====== ======
Unit value, end of year/period...... $27.77 $21.93 $19.43 $20.36 $16.59 $13.85
====== ====== ====== ====== ====== ======
Thousands of units outstanding, end
of year/period..................... 3,491 2,342 728 5,656 3,880 1,792
====== ====== ====== ====== ====== ======
<CAPTION>
FIDELITY
--------------------
ASSET MANAGER FUND
--------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of year/period..................... $17.72 $15.66 $14.04
====== ====== ======
Unit value, end of year/period........................... $21.14 $17.72 $15.66
====== ====== ======
Thousands of units outstanding, end of year/period....... 1,150 613 184
====== ====== ======
</TABLE>
XV
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mutual of America Life Insurance Company:
We have audited the accompanying statement of assets and liabilities of
Mutual of America Separate Account No. 2 as of December 31, 1997, and 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 five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Separate Account's management. Our responsibility is to express an opinion
on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Mutual of America Separate Account No. 2 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 five years in the period then ended, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 20, 1998
XVI
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mutual of America Life Insurance Company:
We have audited the accompanying consolidated statements of financial
condition of Mutual of America Life Insurance Company and its subsidiaries as
of December 31, 1997 and 1996, and the related consolidated statements of
operations and 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 audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1, the accompanying statutory-basis financial statements
were prepared in conformity with the accounting practices prescribed or
permitted by the State of New York Insurance Department which practices differ
from generally accepted accounting principles. The variances between such
practices and generally accepted accounting principles and the effects on the
accompanying financial statements are described in Note 9.
In our opinion, because of the effects of the matter described in the third
paragraph and more fully discussed in Note 9, the financial statements
referred to above do not present fairly, in conformity with generally accepted
accounting principles, the financial position of Mutual of America Life
Insurance Company and its subsidiaries as of December 31, 1997 and 1996, or
the results of their operations or their cash flows for the years then ended.
Furthermore, in our opinion, the supplemental data included in Note 9
reconciling net income and surplus as shown in the financial statements to net
income and surplus as determined in conformity with generally accepted
accounting principles, present fairly, in all material respects, the
information shown therein.
However, in our opinion, the statutory-basis consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Mutual of America Life Insurance Company and its subsidiaries as
of December 31, 1997 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with accounting practices
prescribed or permitted by the State of New York Insurance Department.
/s/ Arthur Andersen LLP
New York, New York
February 20, 1998
SAI-8
<PAGE>
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
GENERAL ACCOUNT ASSETS
Bonds and notes................................ $4,795,022,564 $5,109,395,855
Common stocks.................................. 413,939,170 145,172,800
Preferred stocks............................... 59,466,239 --
Cash and short-term investments................ 67,164,422 60,485,338
Guaranteed funds transferable (Note 3)......... 121,130,991 130,203,690
Mortgage loans................................. 41,315,430 65,163,626
Real estate.................................... 331,991,341 335,968,808
Policy loans................................... 97,854,314 89,917,870
Other invested assets.......................... 20,137,960 11,045,421
Investment income accrued...................... 79,087,631 94,055,387
Receivables.................................... 9,307,851 9,580,928
Other assets................................... 31,266,929 19,007,108
-------------- --------------
Total general account assets................. 6,067,684,842 6,069,996,831
SEPARATE ACCOUNT ASSETS.......................... 3,456,072,983 2,627,081,163
-------------- --------------
TOTAL ASSETS..................................... $9,523,757,825 $8,697,077,994
============== ==============
LIABILITIES AND SURPLUS
GENERAL ACCOUNT LIABILITIES
Insurance and annuity reserves................. $4,929,073,256 $5,174,017,708
Other contract liabilities and reserves........ 11,303,835 11,951,980
Dividends payable to contract and policyhold-
ers........................................... 106,329 106,352
Note payable (Note 5).......................... 137,021,175 137,021,175
Interest maintenance reserve................... 253,944,200 145,613,609
Other liabilities.............................. 95,801,345 62,564,315
-------------- --------------
Total general account liabilities............ 5,427,250,140 5,531,275,139
SEPARATE ACCOUNT RESERVES AND OTHER LIABILITIES.. 3,456,072,983 2,627,081,163
-------------- --------------
Total liabilities............................ 8,883,323,123 8,158,356,302
-------------- --------------
ASSET VALUATION RESERVE.......................... 116,494,396 107,676,296
-------------- --------------
SURPLUS
Assigned surplus............................... 1,150,000 1,150,000
Unassigned surplus............................. 522,790,306 429,895,396
-------------- --------------
Total surplus................................ 523,940,306 431,045,396
-------------- --------------
TOTAL LIABILITIES AND SURPLUS.................... $9,523,757,825 $8,697,077,994
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
SAI-9
<PAGE>
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
INCOME
Annuity considerations and
deposits................. $ 740,959,658 $ 685,402,916
Life and disability
insurance premiums....... 28,214,541 30,154,993
-------------- --------------
Total considerations and
premiums............... 769,174,199 715,557,909
Net investment income
(Notes 2 and 3).......... 456,410,794 436,332,446
Other, net................ (336,265) (187,381)
-------------- --------------
Total income............ 1,225,248,728 1,151,702,974
-------------- --------------
DEDUCTIONS
Increase in insurance and
annuity reserves......... 5,924,707 80,297,961
Annuity and surrender
benefits................. 973,365,824 865,685,476
Death and disability
benefits................. 20,161,949 19,333,435
Operating expenses........ 162,523,520 142,394,578
-------------- --------------
Total deductions........ 1,161,976,000 1,107,711,450
-------------- --------------
Net gain before
dividends.............. 63,272,728 43,991,524
DIVIDENDS TO CONTRACT AND
POLICYHOLDERS.............. 147,104 108,611
-------------- --------------
NET GAIN FROM
OPERATIONS............. 63,125,624 43,882,913
FEDERAL INCOME TAX BENEFIT.. 367,818 1,745,523
NET REALIZED CAPITAL GAINS
(NOTE 2)................... 10,778,415 9,547,354
-------------- --------------
NET INCOME.............. 74,271,857 55,175,790
SURPLUS TRANSACTIONS
Change in asset valuation
reserve.................. (8,818,100) (19,382,401)
Change in net unrealized
capital gains............ 32,160,963 10,374,635
Change in non-admitted
assets and other, net.... (4,719,810) (12,611,478)
-------------- --------------
Net change in surplus... 92,894,910 33,556,546
SURPLUS, AT BEGINNING OF
YEAR....................... 431,045,396 397,488,850
-------------- --------------
SURPLUS, AT END OF YEAR..... $ 523,940,306 $ 431,045,396
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
SAI-10
<PAGE>
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
<S> <C> <C>
CASH PROVIDED
Premium and annuity funds received.......... $ 769,846,793 $ 715,557,893
Investment income received.................. 437,472,096 403,131,642
Other, net.................................. (1,619,142) 12,911,463
--------------- --------------
Total receipts............................ 1,205,699,747 1,131,600,998
--------------- --------------
Benefits paid............................... 989,719,884 885,558,323
Dividends paid to contract and
policyholders.............................. 147,127 129,824
Insurance and operating expenses paid....... 146,405,004 154,475,421
Net transfers to separate accounts.......... 251,401,753 156,282,807
--------------- --------------
Total payments............................ 1,387,673,768 1,196,446,375
--------------- --------------
Net cash used by operations............... (181,974,021) (64,845,377)
Proceeds from long-term investments sold,
matured or repaid.......................... 10,907,067,504 2,870,529,799
Proceeds from dollar roll transactions--
repurchase agreements...................... 700,714,763 --
Federal income tax benefit on securities
transactions............................... -- 7,961,776
Other, net.................................. 44,741,139 (3,279,684)
--------------- --------------
Total cash provided....................... 11,470,549,385 2,810,366,514
--------------- --------------
CASH APPLIED
Cost of long-term investments acquired...... 10,730,606,933 2,848,212,981
Repayment of dollar roll transactions--
repurchase agreements...................... 700,714,763 --
Other, net.................................. 32,548,605 1,681,098
--------------- --------------
Total cash applied........................ 11,463,870,301 2,849,894,079
--------------- --------------
Net change in cash and short-term
investments.............................. 6,679,084 (39,527,565)
CASH AND SHORT-TERM INVESTMENTS
Beginning of year........................... 60,485,338 100,012,903
--------------- --------------
End of year................................. $ 67,164,422 $ 60,485,338
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
SAI-11
<PAGE>
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying financial statements include the consolidated accounts of
Mutual of America Life Insurance Company ("Mutual of America") and its wholly
owned subsidiaries (collectively referred to as the "Company"). Significant
intercompany balances and transactions have been eliminated in consolidation.
Nature of Operations
Mutual of America provides retirement and employee benefit plans in the small
to medium size case area, principally to employees in the not-for-profit
social health and welfare field. In recent years, through a wholly owned
subsidiary, the Company has expanded the scope of the field it serves to
include for-profit organizations in the small to medium size case area. The
principal insurance companies in the group are licensed in all fifty states
and the District of Columbia. Operations are conducted primarily through a
network of regional field offices staffed by salaried consultants.
Basis of Presentation
The financial statements are presented in conformity with statutory accounting
practices prescribed or permitted by the State of New York Insurance
Department, which practices differ from generally accepted accounting
principles ("GAAP"). The variances between such practices and GAAP and the
effects on the accompanying financial statements are described in Note 9. The
ability of the Company to fulfill its obligations to contractholders and
policyholders is of primary concern to insurance regulatory authorities. As
such, the financial statements are oriented to the insuring public.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent liabilities at 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.
Certain 1996 amounts included in the accompanying consolidated financial
statements have been reclassified to conform with the 1997 presentation.
Accounting policies applied in the preparation and presentation of these
financial statements follow.
Asset Valuations
Investment valuations are prescribed by the National Association of Insurance
Commissioners ("NAIC"). Bonds qualifying for amortization are stated at
amortized cost; short-term investments in good standing are stated at cost.
Fair value for these securities (approximately $4.9 billion in 1997 and $5.2
billion in 1996) is determined by reference to market prices quoted by the
NAIC. If quoted market prices are not available, fair value is determined
using quoted prices for similar securities. All other bonds and short-term
notes are stated at market value which approximates fair value.
Common stocks and preferred stocks in good standing are stated at market
value, which approximates fair value. Market value is determined by reference
to valuations quoted by the NAIC. Unrealized gains and losses are applied
directly to unassigned surplus.
Mortgage loans are carried at amortized indebtedness. Fair value for these
loans (approximately $46.8 million in 1997 and $67.8 million in 1996) is
determined by discounting the expected future cash flows using the current
rate at which similar loans would be made to borrowers with similar credit
ratings and remaining maturities. Impairments of individual assets that are
considered other than temporary are recognized when incurred. There were no
impairments recorded during 1997 or 1996.
Real estate investments are carried at the lower of cost, including capital
improvements, net of accumulated depreciation, or market and are depreciated
on a straight line basis over 39 years. Tenant improvements on real estate
investments are depreciated over the shorter of the lease term or the
estimated life of the improvement. Company occupied real estate is carried at
cost, net of accumulated depreciation.
SAI-12
<PAGE>
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Policy loans are stated at the unpaid balance of the loan. The majority of
such loans are issued with variable interest rates which are periodically
adjusted based on changes in the rates credited to these policies and
therefore are considered to be stated at fair value.
Certain other assets, such as furniture and fixtures and prepaid expenses, are
excluded from the consolidated statements of financial condition ("non-
admitted assets").
Interest Maintenance and Asset Valuation Reserves
Realized gains and losses, net of applicable taxes, arising from changes in
interest rates are accumulated in the Interest Maintenance Reserve ("IMR") and
are amortized into net investment income over the estimated remaining life of
the investment sold. All other realized gains and losses are reported in the
consolidated statements of operations and surplus.
An Asset Valuation Reserve ("AVR") applying to the specific risk
characteristics of all invested asset categories excluding cash, policy loans
and investment income accrued has been established based on a statutory
formula. Realized and unrealized gains and losses arising from changes in the
creditworthiness of the borrower are included in the appropriate subcomponent
of the AVR. Changes in the AVR are applied directly to unassigned surplus.
Guaranteed Funds Transferable
Guaranteed funds transferable consist of funds held by a former reinsurer and
are stated at the total principal amount of future guaranteed transfers to
Mutual of America, which approximates fair value.
Separate Account Operations
Certain annuity considerations may be invested at the participant's discretion
in separate accounts; either a multifund account, which is managed by Mutual
of America Capital Management Corporation, or certain other funds, which are
managed by outside investment advisors. All of the funds' investment
experience, including net realized and unrealized capital gains in the
separate accounts (net of investment advisory fees and administration fees
assessed), is allocated to participants. Investments held in the separate
accounts are stated at market value, which approximates fair value.
Participants' corresponding equity in the separate accounts are reported as
liabilities in the accompanying statements. Premiums and benefits related to
the separate accounts are combined with the general account in the
accompanying statements. Net operating gains are offset by increases to
reserve liabilities in the respective separate accounts.
Insurance and Annuity Reserves
Reserves for annuity contracts are computed on the net single premium method
and represent the estimated present value of future retirement benefits. These
reserves are based on mortality and interest rate assumptions (ranging
predominately from 5.00% to 9.25%) which meet or exceed statutory
requirements. Reserves for contractual funds not yet used for the purchase of
annuities are accumulated at various interest rates which, during 1997 and
1996, ranged from 4.00% to 5.50% and 4.00% to 5.75%, respectively and are
deemed sufficient to provide for contractual surrender values of these funds.
Reserves for life and disability insurance are based on mortality, morbidity
and interest rate assumptions which meet statutory requirements.
Contractual funds not yet used to purchase retirement annuities and other
deposit liabilities are stated at their cash surrender value, which
approximates fair value ($7.0 billion and $6.3 billion), at December 31, 1997
and 1996, respectively. The fair value of annuity contracts (approximately
$1.5 billion and $1.4 billion at December 31, 1997 and 1996, respectively) was
determined by discounting expected future retirement benefits using current
mortality tables and interest rates based on the duration of expected future
benefits. Weighted average interest rates of 6.12% and 6.92% were used at
December 31, 1997 and 1996, respectively.
Premiums, Annuity Considerations, Investment Income and Expenses
Insurance premiums and annuity considerations derived from defined
contribution plans are recognized as income when due. Voluntary savings-type
and defined benefit considerations and other deposits are recognized as income
when received. Group life and disability insurance premiums are recognized as
income over the contract period.
SAI-13
<PAGE>
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
General account investment income is reported as earned and is presented net
of related investment expenses; operating expenses, including acquisition
costs for new business and income taxes, are charged to operations as
incurred.
Dividends
Dividends are based on formulas and scales approved by the Board of Directors
and are accrued currently for payment subsequent to plan anniversary dates.
2. FIXED MATURITY AND EQUITY SECURITIES
The statement values and NAIC market values of investments in fixed maturity
securities (bonds and notes) at December 31, 1997 are shown below. Excluding
U.S. government and government agency investments, the Company is not exposed
to any significant concentration of credit risk.
<TABLE>
<CAPTION>
GROSS GROSS NAIC
STATEMENT UNREALIZED UNREALIZED MARKET
CATEGORY VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies......... $2,414,115 $ 7,846 $ 412 $2,421,549
Obligations of states and political
subdivisions...................... 13,421 1,704 -- 15,125
Debt securities issued by foreign
governments....................... 101,186 4,624 28 105,782
Corporate securities............... 2,329,186 25,640 9,123 2,345,703
---------- ------- ------ ----------
Total............................ $4,857,908 $39,814 $9,563 $4,888,159
========== ======= ====== ==========
</TABLE>
Short-term fixed maturity securities with a statement value and NAIC market
value of $62.9 million at December 31, 1997 are included in the above table.
As of December 31, 1997, the Company had $6.2 million (par value $6.0 million)
of its long-term fixed maturity securities on deposit with various state
regulatory agencies.
The statement values and NAIC market values of investments in fixed maturity
securities by contractual maturity (except for mortgage-backed securities
which are stated at expected maturity) at December 31, 1997 are shown below.
Expected maturities may differ from contractual maturities because borrowers
may have the right to prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
NAIC
STATEMENT MARKET
VALUE VALUE
---------- ----------
(000'S OMITTED)
<S> <C> <C>
Due in one year or less............................. $ 243,500 $ 243,908
Due after one year through five years............... 1,230,723 1,238,587
Due after five years through ten years.............. 1,485,001 1,494,532
Due after ten years................................. 1,898,684 1,911,132
---------- ----------
Total $4,857,908 $4,888,159
========== ==========
</TABLE>
Proceeds from the sale of investments in fixed maturity securities during 1997
were $11.1 billion. Gross gains of $145.1 million and gross losses of $16.0
million were realized on these sales, of which $126.4 million of gains were
accumulated (net of applicable tax expense of $2.7 million) in the IMR. Such
amounts will be amortized into net investment income over the estimated
remaining life of the investment sold. During the year, $18.0 million of the
IMR was amortized and included in net investment income.
SAI-14
<PAGE>
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The statement values and NAIC market values of investments in fixed maturity
securities at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS NAIC
STATEMENT UNREALIZED UNREALIZED MARKET
CATEGORY VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies......... $2,136,817 $ 6,160 $ 3,955 $2,139,022
Obligations of states and political
subdivisions...................... 48,755 1,645 -- 50,400
Debt securities issued by foreign
governments....................... 159,543 7,479 1,812 165,210
Corporate securities............... 2,839,125 63,492 41,289 2,861,328
---------- ------- ------- ----------
Total............................ $5,184,240 $78,776 $47,056 $5,215,960
========== ======= ======= ==========
</TABLE>
Short-term fixed maturity securities with a statement value and NAIC market
value of $74.8 million at December 31, 1996, are included in the above table.
As of December 31, 1996, the Company had $6.2 million (par value $6.0 million)
of its long-term fixed maturity securities on deposit with various state
regulatory agencies.
Proceeds from the sale of investments in fixed maturity securities during 1996
were $2.9 billion. Gross gains of $29.5 million and gross losses of $28.1
million were realized on those sales, of which $3.2 million of gains were
accumulated (net of applicable tax benefits of $1.8 million) in the IMR. Such
amounts will be amortized into net investment income over the estimated
remaining life of the investment sold. During 1996, $20.9 million of the IMR
was amortized and included in net investment income.
Net realized capital gains (losses) reflected in the statements of operations
for the years ended December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(000'S OMITTED)
<S> <C> <C>
Equity securities (common and preferred stocks).......... $19,606 $11,217
Mortgage loans........................................... (8,828) (1,670)
------- -------
Net realized capital gains............................. $10,778 $ 9,547
======= =======
</TABLE>
At December 31, 1997 and 1996, net unrealized appreciation of equity
securities was $44.1 million and $14.1 million, respectively.
3. REINSURANCE AND RELATED TRANSACTIONS
In 1980, Mutual of America terminated a reinsurance arrangement and assumed
direct ownership of funds held by the reinsurer and direct liability for the
contractual obligations of the reinsurer. Such amounts are reported as
guaranteed funds transferable and as insurance and annuity reserves in the
consolidated statements of financial condition.
The guaranteed funds are transferable to Mutual of America over time and are
stated at the total principal amount of future guaranteed transfers to Mutual
of America of $121.1 million and $130.2 million at December 31, 1997 and 1996,
respectively.
The guaranteed interest and other allocated investment earnings on the funds
held by the reinsurer, amounting to $33.8 million and $12.3 million in 1997
and 1996, respectively, are included in net investment income. Such amounts
include participating dividends from a contingency fund that was previously
held by the reinsurer (but not recorded as an asset of Mutual of America) of
$25.9 million and $3.7 million in 1997 and 1996, respectively. The 1997 amount
includes the receipt of a $21.5 million special dividend related to the
termination of the contingency fund previously held by the reinsurer.
SAI-15
<PAGE>
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. REAL ESTATE
In October 1992, Mutual of America purchased an office building for its new
corporate headquarters. The purchase price of the building was fully financed.
During the reconstruction period, interest costs on the debt incurred to
acquire the building were deferred and capitalized as a construction cost as
permitted by the State of New York Insurance Department. The Company occupies
approximately one-third of this office building as its corporate headquarters
and leases the remaining space. Depreciation expense for 1997 and 1996 was
$5.2 million and $5.0 million, respectively.
During the initial lease-up period, pro-rated interest costs relating to the
portion of the building not yet leased were also deferred and capitalized as a
construction cost. During 1996, interest costs of $1.5 million were
capitalized. Real estate consists of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(000'S OMITTED)
<S> <C> <C>
Company occupied......................................... $110,912 $113,876
Investment real estate................................... 221,079 222,093
-------- --------
Total.................................................. $331,991 $335,969
======== ========
</TABLE>
5. NOTE PAYABLE
In connection with the acquisition of its new corporate headquarters, Mutual
of America obtained a $135.0 million, seven-year, 6.91% fixed rate secured
term note. Fair value of the note was approximately $137.0 million at December
31, 1997 and 1996. The note matures and is payable in full on October 15, 1999
and is not redeemable prior to that date. Interest on the note is payable
semiannually in April and October. The terms of the note require that Mutual
of America pledge collateral, consisting of securities issued by the United
States Government or its agencies. The aggregate book and market values of the
collateral must be maintained at a level greater than or equal to 100% and
110%, respectively, of the outstanding balance of the note. At December 31,
securities with a book and market value of approximately $167.9 million and
$167.5 million in 1997 and $165.5 million and $164.9 million in 1996,
respectively, were pledged as collateral.
6. PENSION PLAN AND POSTRETIREMENT BENEFITS
The Company has a qualified, non-contributory defined benefit pension plan
covering virtually all employees. Benefits are generally based on years of
service and final average salary. The Company's funding policy is to
contribute annually, at a minimum, the amount necessary to satisfy the funding
requirements under the Employee Retirement Income Security Act of 1974
("ERISA"). The Company also maintains two non-qualified defined benefit plans.
The first provides benefits to employees whose total compensation exceeds the
maximum allowable compensation limits for qualified retirement plans under
ERISA. The Company also maintains a non-qualified defined benefit pension plan
for non-employee members of the Board of Directors.
Pension expense for all pension plans in 1997 and 1996 was $5.4 million and
$3.7 million, respectively. Prior to 1997 pension plan expense was computed on
a modified GAAP basis. Effective January 1, 1997 the expense and liability
related to all of the Company's pension plans and its long term incentive
compensation plan (described below) are calculated in accordance with GAAP.
This change resulted in a charge to surplus, net of the change in the prepaid
pension cost, of $9.7 million at January 1, 1997.
The components of net pension expense related to all of the Company's pension
plans are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(000'S OMITTED)
<S> <C> <C>
Service cost............................................. $ 4,596 $ 3,347
Interest cost on projected benefit obligation............ 5,159 3,729
Return on plan assets.................................... (7,734) (5,164)
Asset gain deferred...................................... 2,265 883
Amortization of initial net asset........................ (211) (211)
Amortization of unrecognized loss........................ 1,291 1,146
------- -------
Net pension expense.................................... $ 5,366 $ 3,730
======= =======
</TABLE>
SAI-16
<PAGE>
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The assumptions used to calculate the net pension expense were:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Expected long-term rate of return on assets.................. 11.30% 11.30%
Discount rate................................................ 7.25% 7.75%
Rate of increase in compensation levels...................... 4.00% 4.00%
</TABLE>
The funded status of all of the Company's pension plans at December 31, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(000'S OMITTED)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $59,311 in 1997 and $43,563 in 1996..... $(62,753) $(52,113)
======== ========
Projected benefit obligation........................... $(77,027) $(60,351)
Plan assets at fair value.............................. 58,324 43,717
-------- --------
Projected benefit obligation in excess of plan assets.. (18,703) (16,634)
Remaining unrecognized initial net asset............... (841) (1,052)
Unrecognized prior service cost........................ 5,177 5,823
Unrecognized net loss from past experience different
from that assumed..................................... 17,546 30,625
-------- --------
Prepaid pension cost, end of year...................... $ 3,179 $ 18,762
======== ========
</TABLE>
The Company funds the qualified non-contributory defined benefit pension plan
in accordance with the requirements of ERISA. Plan assets at fair value for
the qualified pension plan were $47.1 million and $40.1 million at December
31, 1997 and 1996, respectively. The actuarial present value of accumulated
benefits for the qualified pension plan were $50.0 million and $43.9 million
at December 31, 1997 and 1996, respectively.
For financial reporting purposes, the prepaid pension cost at December 31,
1997 and 1996, has been classified as a non-admitted asset. At December 31,
1997 all of the qualified pension plan assets are invested in one of the
Company's separate accounts (consisting primarily of equity securities) and
participation in certain other funds managed by outside investment advisors.
Benefit payments from the plans made on behalf of retirees were approximately
$4.6 million in 1997 and $9.1 million in 1996. Periodic annuity benefits are
covered by annuities purchased by the plan from the Company. During 1997 and
1996, the Company made contributions to the qualified plan of $4.4 million and
$7.5 million, respectively.
In addition to the above noncontributory plans, all employees may participate
in a 401(k) savings plan under which the Company matches half of the
employees' basic contribution up to 6% of salary. The cost of this plan was
approximately $1.6 million and $1.5 million in 1997 and 1996, respectively.
The Company also has a long-term performance based incentive compensation plan
for certain employees. Shares are granted each year and generally vest over a
three-year period. The value of such shares is based upon increases in the
Company's statutory surplus and the maintenance of certain financial ratios.
Compensation expense accrued in 1997 related to this plan was $3.0 million.
The Company has two defined benefit postretirement plans covering
substantially all salaried employees. Employees may become eligible for such
benefits upon attainment of retirement age while in the employ of the Company
and upon satisfaction of service requirements. One plan provides medical and
dental benefits and the second plan provides life insurance benefits. The
postretirement plans are contributory for those individuals who retire with
less than twenty years of eligible service, with retiree contributions
adjusted annually and contain other cost-sharing features, such as deductibles
and coinsurance.
SAI-17
<PAGE>
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of net postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(000'S OMITTED)
<S> <C> <C>
Service cost.............................................. $ 600 $ 538
Interest cost on projected benefit obligation............. 1,175 1,101
------- -------
Net postretirement benefit cost........................... $ 1,775 $ 1,639
======= =======
</TABLE>
The following table shows the plans' combined status reconciled with the
amounts reported in the Company's consolidated statements of financial
condition:
<TABLE>
<CAPTION>
1997 1996
------- -------
(000'S OMITTED)
<S> <C> <C>
Accumulated postretirement
benefit obligation
("APBO"):
Retirees.................. $ 5,911 $ 5,242
Fully eligible active plan
participants............. 3,456 3,149
Other active plan
participants............. 6,239 5,280
------- -------
Total APBO.............. 15,606 13,671
Plan assets at fair value... -- --
------- -------
APBO in excess of plan
assets..................... 15,606 13,671
Unrecognized net loss....... (4,920) (3,825)
------- -------
Accrued postretirement
obligation................. $10,686 $ 9,846
======= =======
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) for the medical plan is
approximately 7.75% in 1997. The health care cost trend rate assumption has a
significant affect on the amounts reported. For example, increasing the
assumed health care cost trend rate by one percentage point in each year would
increase the accumulated postretirement obligation for the plan as of December
31, 1997 by $2.0 million and the aggregate of the service and interest cost
components of the net periodic benefit cost for 1997 by $.3 million.
The weighted average discount rate used in determining the APBO was 7.25% at
December 31, 1997 and 7.75% at December 31, 1996.
7. COMMITMENTS AND CONTINGENCIES
Rental expenses were $16.7 million and $17.0 million in 1997 and 1996,
respectively. The approximate minimum rental commitments under noncancellable
operating leases are as follows: 1998, $2.9 million, 1999, $2.3 million, 2000,
$1.6 million, 2001, $1.1 million, and 2002, $1.1 million. Such leases are
principally for leased office space, furniture and equipment. Certain office
space leases provide for adjustments to reflect changes in real estate taxes
and other operating expenses.
The Company is involved in various legal actions which have arisen in the
course of the Company's business. In the opinion of management, the ultimate
liability with respect to such lawsuits as well as other contingencies is not
considered to be material in relation to the Company's consolidated financial
statements.
8. FEDERAL INCOME TAXES
Mutual of America's pension business (the core of its operations) is exempt
from Federal income taxation under Section 501(a) of the Internal Revenue Code
("Code"). The tax benefit for the Company arises principally from the
operating results of its taxable life insurance subsidiary, The American Life
Insurance Company of New York, and is calculated in accordance with the Code
(as amended). Mutual of America and its life insurance subsidiary file federal
tax returns on a separate company basis. Mutual of America's non-insurance
subsidiaries file a consolidated tax return.
SAI-18
<PAGE>
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As a result of recent legislation, Mutual of America's pension business will
become subject to federal income tax beginning January 1, 1998. This tax
legislation provides for certain special transition rules which moderate the
impact of taxation going forward. In the opinion of management, this change
will not have a significant impact on the Company's financial strength.
9. RECONCILIATION OF STATUTORY BASIS FINANCIAL RESULTS TO A GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES BASIS
The accompanying financial statements are presented in conformity with
statutory accounting practices prescribed or permitted by the State of New
York Insurance Department which practices differ from GAAP. The variances
between such practices and GAAP and the effects on the accompanying financial
statements follow:
Asset Valuations and Investment Income Recognition
GAAP requires the Company's bonds and notes to be classified as either held to
maturity ("HTM") or available for sale ("AFS"); whereas for statutory
accounting no such classification is required. In addition, for GAAP, AFS
bonds and notes are carried at their fair market value with the unrealized
gains and losses applied directly to surplus; whereas for statutory accounting
all bonds and notes are carried at their amortized cost.
Realized capital gains and losses, net of applicable taxes, arising from
changes in interest rates are recognized in income currently for GAAP
accounting, rather than accumulated in the IMR and amortized into income over
the remaining life of the security sold for statutory accounting.
Additionally, capital gains and losses are not recognized when a security is
sold and the same or substantially the same security is repurchased, unless
the repurchase occurs after a reasonable exposure to market risk.
A general formula based Asset Valuation Reserve (AVR) is recorded for
statutory accounting purposes, whereas such reserves are established under
GAAP only when an asset's impairment is considered to be other than temporary.
Certain assets, principally furniture and fixtures and prepaid expenses, for
statutory accounting, are excluded from the statement of financial condition
by a charge to surplus; whereas under GAAP, such assets are carried at their
amortized cost.
Policy Acquisition Costs
Under GAAP, policy acquisition costs that are directly related to and vary
with the production of new business are deferred and amortized over the
estimated life of the applicable policies, rather than being expensed as
incurred.
Insurance and Annuity Reserves
Under statutory accounting practices the interest rates and mortality and
morbidity assumptions used are those which are prescribed or permitted by the
State of New York Insurance Department. Under GAAP, for annuities the interest
rate assumptions used are generally those assumed in the pricing of the
contract at issue; for disability benefits the interest rates assumed are
those anticipated to be earned over the duration of the benefit period.
Mortality and morbidity assumptions are based on Company experience.
Premium Recognition
Insurance contracts that do not subject the insurer to significant mortality
or morbidity risk are considered, under GAAP, to be primarily investment
contracts. GAAP requires all amounts received from policyholders under these
investment contracts to be recorded as a policyholder deposit rather than as
premium income.
Deferred Income Taxes
GAAP requires that a deferred tax asset or liability be established to provide
for temporary differences between the tax and financial reporting bases of
assets and liabilities. Deferred income taxes are not recorded for statutory
accounting purposes.
SAI-19
<PAGE>
MUTUAL OF AMERICA LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tables that follow provide a reconciliation of the 1997 and 1996 statutory
financial results reflected in the accompanying financial statements to a GAAP
basis (000's omitted):
<TABLE>
<CAPTION>
RECONCILIATION OF STATUTORY TO GAAP SURPLUS 1997 1996
------------------------------------------- -------- --------
<S> <C> <C>
Statutory Surplus....................................... $523,940 $431,045
Market value adjustment related to AFS bonds and
notes................................................ 160,980 84,569
Realized capital gains................................ 163,422 32,674
AVR................................................... 116,494 107,676
Deferred policy acquisition costs..................... 36,905 39,854
Policy reserve adjustments............................ (17,510) (21,290)
Non-admitted assets................................... 9,563 30,222
Federal income taxes.................................. (20,571) (6,915)
Other................................................. 1,135 555
-------- --------
GAAP Surplus............................................ $974,358 $698,390
======== ========
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF STATUTORY TO GAAP NET INCOME 1997 1996
---------------------------------------------- -------- --------
<S> <C> <C>
Statutory Net Income.................................... $ 74,272 $ 55,176
Investment income adjustments......................... (8,020) (14,562)
Realized capital gains................................ 145,791 33,555
Policy reserve adjustments............................ 3,781 (4,071)
Deferred acquisition costs............................ 2,518 2,393
Deferred income taxes................................. (6,559) (3,756)
Dividend related to termination of contingency fund
(Note 3)............................................. (20,920) --
Other................................................. (4,485) (3,370)
-------- --------
GAAP Net Income......................................... $186,378 $ 65,365
======== ========
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF GAAP TO STATUTORY PREMIUMS 1997 1996
-------------------------------------------- -------- --------
<S> <C> <C>
GAAP Premium Income...................................... $104,129 $ 63,372
Premiums from investment contracts..................... 665,045 652,186
-------- --------
Statutory Premium Income................................. $769,174 $715,558
======== ========
</TABLE>
SAI-20
