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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1998.
REGISTRATION NO. 333-65423
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
PRE-EFFECTIVE AMENDMENT NO. 1 UNDER THE
SECURITIES ACT OF 1933
MONY LIFE INSURANCE COMPANY
OF AMERICA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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ARIZONA 6719
(STATE OR OTHER JURISDICTION OF INCORPORATION (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION
OR ORGANIZATION) CODE NUMBER)
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86-0222062
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
1740 BROADWAY, NEW YORK, NEW YORK 10019
(PRINCIPAL EXECUTIVE OFFICES OF
REGISTRANT) (ZIP CODE)
EDWARD P. BANK, ESQ., VICE PRESIDENT AND DEPUTY GENERAL COUNSEL
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
1740 BROADWAY, NEW YORK, NEW YORK 10019
TELEPHONE: (212) 708-2000
(NAME, ADDRESS, ZIP CODE, TELEPHONE NUMBER OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: November 10, 1998
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED PROPOSED AMOUNT OF
TITLE OF EACH CLASS TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION
OF SECURITY TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE FEE
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Guaranteed Interest................... * * *$25,000,000 $7,375
Account with Market Value
Adjustment..........................
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* The maximum aggregate offering price is estimated for the purpose of
determining a registration fee. The amount to be registered and the proposed
maximum offering price per unit are not applicable since these securities are
not issued in specified amounts or units.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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MONY LIFE INSURANCE COMPANY OF AMERICA
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(b)
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CAPTION IN FORM S-1
ITEM NO. AND CAPTION PROSPECTUS
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1. Forepart of the Registration Statement and Outside
Front Cover of Prospectus........................... Outside Front Cover
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Table of Contents
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Summary Information (Not applicable with
respect to ratio of earnings to fixed
charges)
4. Use of Proceeds..................................... Investments
5. Determination of Offering Price..................... Not Applicable
6. Dilution............................................ Not Applicable
7. Selling Security Holders............................ Not Applicable
8. Plan of Distribution................................ Variable Annuity Contracts and the
Distribution of Guaranteed Interest
Account with Market Value Adjustment
9. Description of Securities to be Registered.......... Description of the Guaranteed Interest
Account with Market Value Adjustment
10. Interests of Named Experts and Counsel.............. Not Applicable
11. Information with Respect to Registrant.............. The Company
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
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PROSPECTUS
DATED NOVEMBER 10, 1998
GUARANTEED INTEREST ACCOUNT WITH MARKET VALUE ADJUSTMENT
UNDER FLEXIBLE PAYMENT VARIABLE ANNUITY CONTRACTS
ISSUED BY
MONY LIFE INSURANCE COMPANY OF AMERICA
This prospectus describes the Guaranteed Interest Account with Market Value
Adjustment offered by MONY Life Insurance Company of America ("Company") under
certain variable annuity contracts issued by the Company ("Contracts").
Generally, the Contracts offered by the Company provide an array of subaccounts
each with differing investment objectives which use purchase payments allocated
to the subaccounts to purchase shares of portfolios of underlying mutual funds
with corresponding investment objectives. A purchaser of the Contracts may also
allocate purchase payments to the Guaranteed Interest Account with Market Value
Adjustment which is a part of the Company's General Account.
The Guaranteed Interest Account with Market Value Adjustment provides for
guaranteed interest to be credited over specified maturity durations (referred
to as "Accumulation Periods"). Three (3), five (5), seven (7), and ten (10) year
Accumulation Periods are available. Unless a surrender of or transfer or
distribution from the Guaranteed Interest Account with Market Value Adjustment
occurs for any reason prior to the expiration of the Accumulation Period, the
interest rate (the "Specified Interest Rate") is guaranteed to be credited for
the duration of the Accumulation Period on a daily basis, resulting in a
guaranteed annual effective yield. Different rates apply to each Accumulation
Period and are determined by the Company from time to time in its sole
discretion.
An Accumulation Period of the Guaranteed Interest Account with Market Value
Adjustment elected under a Contract issued by the Company will produce a
guaranteed annual effective yield (at the Specified Interest Rate) SO LONG AS
AMOUNTS ALLOCATED ARE NEITHER SURRENDERED, TRANSFERRED, NOR DISTRIBUTED PRIOR TO
THE END OF THE ACCUMULATION PERIOD. IN THE EVENT OF A SURRENDER, TRANSFER, OR
DISTRIBUTION FROM THE GUARANTEED INTEREST ACCOUNT WITH MARKET VALUE ADJUSTMENT
TO ANOTHER ACCUMULATION PERIOD OF THE GUARANTEED INTEREST ACCOUNT WITH MARKET
VALUE ADJUSTMENT OR TO A SUBACCOUNT OF THE VARIABLE ACCOUNT PRIOR TO THE
EXPIRATION OF THE ACCUMULATION PERIOD, THE AMOUNT SURRENDERED, TRANSFERRED, OR
DISTRIBUTED WILL BE SUBJECT TO A MARKET VALUE ADJUSTMENT ("MVA"). LIKEWISE, IN
THE EVENT OF A SURRENDER, TRANSFER, OR DISTRIBUTION FOR ANY OTHER REASON PRIOR
TO THE EXPIRATION OF THE ACCUMULATION PERIOD, INCLUDING THE DEATH OF THE
CONTRACT OWNER, THE AMOUNT SURRENDERED, TRANSFERRED, OR DISTRIBUTED MAY BE
SUBJECT TO A MARKET VALUE ADJUSTMENT.
The prospectus for the Contracts describes certain charges and deductions
which may apply to the Guaranteed Interest Account with Market Value Adjustment.
A discussion of these charges is included in this prospectus insofar as such
charges and deductions relate to Guaranteed Interest Account with Market Value
Adjustment. A more detailed discussion of these charges and deductions, as they
relate to the Contract, is contained in the prospectus for the Contracts.
Certain minimum purchase payments may be required in connection with the
purchase of the Contracts issued by the Company. As an allocation option
available to the Owner under the Contract, the Guaranteed Interest Account with
Market Value Adjustment is subject to these minimum contractual amounts. There
is no minimum amount that must be allocated to Guaranteed Interest Account with
Market Value Adjustment, regardless of whether the source of the allocation is a
new purchase payment or transfer from a Subaccount of the Variable Account.
Cash Values allocated to the Guaranteed Interest Account with Market Value
Adjustment are held in the "General Account" of the Company. Amounts allocated
to the General Account of the Company are subject to the liabilities arising
from the business the Company conducts. The Company has sole investment
discretion over the investment of the assets of its General Account. Contract
Owners having allocated amounts to a particular Accumulation Period of the
Guaranteed Interest Account with Market Value Adjustment, however, will have no
claim against any particular assets of the Company.
THIS PROSPECTUS MUST BE READ ALONG WITH THE PROSPECTUS FOR THE VARIABLE
ANNUITY CONTRACT WHICH ACCOMPANIES THIS PROSPECTUS AND WITH THE PROSPECTUSES FOR
MONY SERIES FUND, INC. AND ENTERPRISE ACCUMULATION TRUST. ALL OF THESE
PROSPECTUSES SHOULD BE READ CAREFULLY AND MAINTAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 4
THE ACCUMULATION PERIODS FOR THE GUARANTEED INTEREST ACCOUNT WITH MARKET
VALUE ADJUSTMENT DESCRIBED IN THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATE
JURISDICTIONS AND, ACCORDINGLY, REPRESENTATIONS MADE IN THIS PROSPECTUS DO NOT
CONSTITUTE AN OFFERING IN SUCH JURISDICTIONS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements may be
found in the material set forth under "Summary", "Risk Factors", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business". Actual events or results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed under "Risk Factors" as well as
those discussed in the sections entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business" and in the
other sections of this Prospectus.
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TABLE OF CONTENTS
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DEFINITIONS................................................. 1
SUMMARY..................................................... 3
DESCRIPTION OF THE GUARANTEED INTEREST ACCOUNT WITH MARKET
VALUE ADJUSTMENT.......................................... 5
1. General................................................ 5
2. Allocations to the Guaranteed Interest Account with
Market Value Adjustment................................ 5
3. The Specified Interest Rate and the Accumulation
Periods................................................ 6
A. Specified Interest Rates............................ 6
B. Accumulation Periods................................ 6
4. Maturity of Accumulation Periods....................... 7
5. The Market Value Adjustment ("MVA").................... 7
A. General Information Regarding the MVA............... 7
B. The MVA Factor...................................... 8
6. Contract Charges....................................... 8
7. Guaranteed Interest Account at Annuitization........... 9
INVESTMENTS................................................. 9
CONTRACTS AND THE DISTRIBUTION (MARKETING) OF THE GUARANTEED
INTEREST ACCOUNT WITH MARKET VALUE ADJUSTMENT............. 9
RISK FACTORS................................................ 9
THE COMPANY................................................. 11
1. Business............................................... 11
A. Organization........................................ 11
B. Description of Business............................. 11
C. Regulation.......................................... 12
D. Competition......................................... 13
E. Employees........................................... 13
2. Properties............................................. 13
3. Legal Proceedings...................................... 13
4. Financial Statements and Supplementary Data............ 14
5. Selected Statutory-basis Financial Information......... 14
6. Management's Discussion and Analysis of Financial
Condition and Consolidated Results of Operations....... 15
7. Year 2000.............................................. 27
8. Potential Tax Legislation.............................. 28
9. Directors and Executive Officers....................... 28
10. Executive Compensation................................ 30
11. Exhibits, Financial Statements, Schedules and
Reports................................................ 30
Index to Statutory-Basis Financial Statements............... F-1
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DEFINITIONS
ACCUMULATION PERIOD -- A period of 3, 5, 7, or 10 years during which the
Company has guaranteed that it will pay a specified rate of interest (the
Specified Interest Rate) not less than 3.5% per year. Amounts allocated to an
Accumulation Period of the Guaranteed Interest Account with Market Value
Adjustment will be credited with the Specified Interest Rate declared by the
Company over the corresponding Accumulation Period, so long as such amounts are
not distributed from the Accumulation Period prior to the Maturity Date. Prior
to the end of the Accumulation Period selected, amounts allocated to a the
Guaranteed Interest Account with Market Value Adjustment will be subject, upon
distribution, to fluctuations in value in accordance with a Market Value
Adjustment.
ADMINISTRATIVE OFFICE -- The Company's administrative office at 1740
Broadway, New York, N.Y. 10019. "Administrative Office" also includes the
Company's Operations Center at 1 MONY Plaza, Syracuse, N.Y. 13221.
ANNUITANT -- The person upon whose continuation of life any annuity payment
depends.
ANNUITY STARTING DATE -- The date on which annuity payments are to begin.
BUSINESS DAY -- Each day that the New York Stock Exchange is open for
trading or any other day on which there is sufficient trading in the securities
of a Portfolio of the Fund on a national or international securities exchange to
affect materially the value of the Units of the corresponding Subaccount.
COMPANY -- MONY Life Insurance Company of America.
CONTRACT -- A variable annuity Contract issued by the Company, the terms of
which permit allocation to the Owner's choice of Accumulation Periods of the
Guaranteed Interest Account with Market Value Adjustment.
CASH VALUE -- The Fund Value of the Contract, less (1) any applicable
surrender charges, (2) any market value adjustments, and (3) outstanding loan
balance including accrued interest, if any.
FUND VALUE -- The aggregate dollar value as of any Business Day of all
amounts accumulated under each of the Subaccounts, the Guaranteed Interest
Account, and the Loan Account of the Contract. If the term Fund Value is
preceded or followed by the terms Subaccount(s), the Guaranteed Interest
Account, and the Loan Account, or any one of more of those terms, Fund Value
means only the Fund Value of the Subaccount, the Guaranteed Interest Account, or
the Loan Account, as the context requires.
GUARANTEED INTEREST ACCOUNT -- A part of the Company's general account, the
Guaranteed Interest Account pays interest at a rate declared by the Company,
which the Company guarantees will not be less than 3.5%.
INVESTMENT PERIOD -- A period of time during which a declared Specified
Interest Rate is available for allocations of new Purchase Payments received or
transfers of Fund Values from the Subaccounts become effective. Investment
Periods will typically last for one month, but may be longer or shorter
depending on interest rate fluctuations in financial markets.
LOAN ACCOUNT -- A part of the Company's general account, the Loan Account
pays interest at a rate not less than 3.5% per year. For those Contracts that
have a loan provision, an amount equal to the loan requested is transferred from
one or more of the Subaccounts and/or the Guaranteed Interest Account as
determined by the Owner, subject to the provisions of the Contract, to the Loan
Account as security for the loan.
MARKET VALUE ADJUSTMENT ("MVA") -- A Market Value Adjustment is the upward
or downward adjustment in value of amounts allocated to an Accumulation Period
of the Guaranteed Interest Account with Market Value Adjustment which prior to
the maturity date of the Accumulation Period are: (1) distributed pursuant to a
surrender; (2) reallocated to a Subaccount of the Variable Account available
under the Contract as a result of a transfer requested by the Owner; (3)
distributed as a result of the death of the Contract Owner; or (4) transferred
to the Loan Account at the request of the Owner. A Market Value Adjustment
generally reflects the relationship between the prevailing interest rates at the
time of investment, prevailing interest rates
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at the time of distribution, and the amount of time remaining in the
Accumulation Period selected. Generally, if the Specified Interest Rate is lower
than prevailing interest rates, application of the Market Value Adjustment will
result in a downward adjustment of amounts allocated to an Accumulation Period.
If the Specified Interest Rate is higher than prevailing interest rates,
application of the Market Value Adjustment will result in an upward adjustment
of amounts allocated to an Accumulation Period. The Market Value Adjustment is
applied only when amounts allocated to an Accumulation are distributed prior to
the end of the Accumulation Period.
MVA FACTOR -- The MVA Factor reflects the relationship among the following
items: (1) the rate for the Accumulation Period; (2) the rate currently declared
for an accumulation period equal to the time remaining in the Accumulation
Period from which the surrender, transfer or loan occurs, plus 0.25%; (3) the
Accumulation Period from which the surrender, transfer or loan occurs in months;
and (4) the number of elapsed months (or portion thereof) in the Accumulation
Period from which the surrender or transfer occurs. The formula is set forth on
page 8.
MATURITY DATE -- The Maturity Date is the date on which a particular
Accumulation Period of the Guaranteed Interest Account with Market Value
Adjustment matures.
MATURITY PERIOD -- The Maturity Period is the period of time during which
the value of amounts allocated to an Accumulation Period of the Guaranteed
Interest Account with Market Value Adjustment may be distributed without any
Market Value Adjustment. The Maturity Period will begin on the day following the
Maturity Date and will end on the thirtieth day after the Maturity Date.
OUTSTANDING DEBT -- Total loan balance plus any accrued loan interest.
OWNER(S) -- The owner(s) of variable annuity Contracts (which offer
Accumulation Periods of the Guaranteed Interest Account with Market Value
Adjustment) issued by the Company.
PURCHASE PAYMENT (PAYMENT) -- An amount paid to the Company by the Owner or
on the Owner's behalf as consideration for the benefits provided by the
Contract.
SPECIFIED INTEREST RATE -- The Specified Interest Rate is the interest rate
guaranteed to be credited to amounts allocated to an Accumulation Period of the
Guaranteed Interest Account with Market Value Adjustment so long as such
allocations are not distributed prior to the Maturity Period or Maturity Date
for any reason. Each Accumulation Period has its own Specified Interest Rate
which is guaranteed for that Accumulation Period. The Company, however, reserves
the right to change the Specified Interest Rate at any time at the Maturity Date
or offer other Specified Interest Rates for other Accumulation Periods.
SPECIFIED VALUE -- The Specified Value is the amount of the initial
allocation of Purchase Payments to an Accumulation Period of the Guaranteed
Interest Account with Market Value Adjustment, plus interest accrued at the
Specified Interest Rate minus surrenders, transfers and any other amounts
distributed. The Specified Value is subject to a Market Value Adjustment at all
times other than during the Maturity Period, at the Maturity Date, and upon
distribution as a result of the death of the Annuitant.
SUBACCOUNT -- A subdivision of the Variable Account.
VARIABLE ACCOUNT -- A separate investment account of the Company,
designated as MONY America Variable Account A, to which Net Purchase Payments
will be allocated at the direction of the Owner.
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SUMMARY
The Guaranteed Interest Account with Market Value Adjustment is available
to Owners of certain variable annuity Contracts issued by the Company. Owners
may elect to allocate Purchase Payments for and Fund Values of the Contracts to
their choice of Accumulation Periods made available by the Company. This
prospectus describes the Guaranteed Interest Account with Market Value
Adjustment, and must be read along with the prospectus for the Contract in the
same manner that prospectuses for MONY Series Fund, Inc. and Enterprise
Accumulation Trust must be read with the variable annuity prospectus. Copies of
the prospectuses for the Contract, MONY Series Fund, Inc., and Enterprise
Accumulation Trust and this prospectus may be obtained without charge from the
Company by calling 1-800-487-6669 or writing to MONY Life Insurance Company of
America, Mail Drop 8-27, 1740 Broadway, New York, New York 10019.
There are 4 different Accumulation Periods currently available
continuously: a 3 year Accumulation Period, a 5 year Accumulation Period, a 7
year Accumulation Period, and a 10 year Accumulation Period. Initial or
additional purchase payments made under Contracts issued by the Company, or Fund
Values in the Subaccounts of the Variable Account may be allocated at the
election of the Owner to an available Accumulation Period. There is no minimum
allocation to an Accumulation Period. (See "Allocations to the Guaranteed
Interest Account" at page 5.)
Each Accumulation Period will have a Maturity Date which will be 3, 5, 7,
or 10 years from the beginning of the month during which allocations are made
and Purchase Payments are received or Fund Values are transferred. Therefore the
Accumulation Period will end on the last day of a calendar month (the "Maturity
Date") during which the third, fifth, seventh or tenth anniversary of the
allocation to the Accumulation Period (as applicable) occurs. This means that
the Maturity Date for a 3, 5, 7, or 10 year Accumulation Period may be up to 30
days shorter than 3, 5, 7 or 10 years, respectively. For amounts which are
allocated to an Accumulation Period on, and as to which Purchase Payments are
received or transfers are effective on the first day of a calendar month will be
exactly 3, 5, 7, or 10 years, depending on the Accumulation Period selected.
(See "Specified Interest Rates and Accumulation Periods" at page 6.)
Amounts allocated to an Accumulation Period will be credited with the
Specified Interest Rate for the duration of the Accumulation Period, unless an
intervening surrender, transfer or other distribution occurs prior to the end of
the Accumulation Period. Specified Interest Rates for each Accumulation Period
are declared periodically in the sole discretion of the Company. A declared
Specified Interest Rate is available for new allocation during an Investment
Period. Investment Periods will typically last for one month, but may be longer
or shorter depending on interest rate fluctuations in financial markets. During
any particular Investment Period, any allocation of a new purchase payment or a
transfer of Fund Values previously allocated to a Subaccount to an Accumulation
Period will earn the Specified Interest Rate effective for that Investment
Period from the date on which the purchase payment is received or allocation of
Fund Values previously allocated to a Subaccount is effective for the duration
of the Accumulation Period. (See "Specified Interest Rates and Allocation
Periods" at page .)
The Specified Interest Rate will be credited to amounts allocated to an
Accumulation Period, so long as such allocations are neither surrendered nor
transferred prior to the Maturity Date for the Allocation Period. The Specified
Interest Rate is credited daily, providing an annual effective yield. (See
"Specified Interest Rates and Allocation Period" at page .)
Amounts that are surrendered, transferred or otherwise distributed from an
Accumulation Period prior to the Maturity Date of that Accumulation Period, will
be subject to a Market Value Adjustment ("MVA"). The MVA is accomplished through
the use of a factor (the "MVA Factor"), which is multiplied by that part of the
Specified Value being surrendered, transferred (including transfer to the Loan
Account as a result of a request by the Owner for a Loan), or distributed,
resulting in either an increase or a decrease in the amount of the surrender,
transfer, or distribution. The MVA Factor reflects the relationship among the
following items: (1) the rate for the Accumulation Period; (2) the rate
currently declared for an accumulation period equal to the time remaining in the
Accumulation Period from which the surrender, transfer, or distribution occurs,
plus 0.25%; (3) the Accumulation Period from which the surrender, transfer, or
distribution occurs in months; and (4) the number of elapsed months (or portion
thereof) in the Accumulation Period from which the surrender,
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transfer, or distribution occurs. Generally, the MVA Factor approximates the
relationship among prevailing interest rates at the time of the allocation,
prevailing interest rates at time of surrender, transfer, or distribution and
the amount of time remaining in an Accumulation Period. (See "The Market Value
Adjustment -- The MVA Factor" at page .)
At least 15 days and at most 45 days prior to the Maturity Date of an
Accumulation Period, Contract Owners having Fund Values allocated to such
Accumulation Periods will be notified of the impending Maturity Date. Contract
Owners will then have the option of directing the surrender, transfer, or
distribution of the Fund Value (during the Maturity Period) without application
of any MVA. Surrenders, transfers, or distributions during the Maturity Period
(which begins the day after the Maturity Date and ends thirty days after the
Maturity Date), will not be subject to an MVA. An Owner may elect to: (1)
transfer the Fund Values of the maturing Accumulation Period to another
accumulation period of the same or different duration; or (2) transfer the Fund
Values of the maturing Accumulation Period to a Subaccount then available to the
Owner of the Contract (an Owner may also elect a Surrender or Loan). If no
election is made, the Fund Value will automatically reinvest in another period
of the same duration. If that period will extend beyond the Annuity Starting
Date or if that period is no longer offered, the Fund Value will be transferred
into the Money Market Subaccount. For the period commencing with the first day
after the Maturity Date and ending on the later of the effective date of a
surrender, transfer, or distribution or the thirtieth day following the Maturity
Date, the Fund Values allocated to the maturing Accumulation Period will be
credited with the same Specified Interest Rate in effect before the Maturity
Date. Fund Values allocated to the Accumulation Period of the Guaranteed
Interest Account with Market Value Adjustment which are surrendered during the
Maturity Period are not subject to an MVA, but may be subject to contingent
deferred sales charges under the Contract. (See "Maturity of Accumulation
Periods" at page 7.)
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DESCRIPTION OF THE GUARANTEED INTEREST ACCOUNT
WITH MARKET VALUE ADJUSTMENT
1. GENERAL
The Guaranteed Interest Account with Market Value Adjustment is an
allocation option available under certain variable annuity contracts issued by
the Company. Not all of the variable annuity contracts issued by the Company
offer the Guaranteed Interest Account with Market Value Adjustment, nor is the
Guaranteed Interest Account with Market Value Adjustment available in every
state jurisdiction. The variable annuity prospectuses describing variable
annuity contracts that offer the Guaranteed Interest Account with Market Value
Adjustment clearly disclose whether the Guaranteed Interest Account with Market
Value Adjustment is available as an allocation choice to the Owner. If the
Guaranteed Interest Account with Market Value Adjustment is available under a
variable annuity issued by the Company, the prospectus for the variable annuity
contract ("Contract") and this prospectus must be read carefully together in the
same manner that prospectuses for underlying mutual funds must be read with the
prospectus for the Contracts.
The guarantees associated with the Guaranteed Interest Account with Market
Value Adjustment are borne exclusively by the Company. The guarantees associated
with the Guaranteed Interest Account with Market Value Adjustment are legal
obligations of the Company. Fund Values allocated to the Guaranteed Interest
Account with Market Value Adjustment are held in the "General Account" of the
Company. Amounts allocated to the General Account of the Company are subject to
the liabilities arising from the business the Company conducts. The Company has
sole investment discretion over the investment of the assets of its General
Account. Contract Owners having allocated amounts to a particular Accumulation
Period of the Guaranteed Interest Account with Market Value Adjustment, however,
will have no claim against any particular assets of the Company.
The Guaranteed Interest Account with Market Value Adjustment provides for a
guaranteed interest rate (the "Specified Interest Rate"), to be credited as long
as any amount allocated to the Guaranteed Interest Account with Market Value
Adjustment is not distributed for any reason prior to the Maturity Date of the
particular accumulation period chosen by the Owner. Generally, a 3 year
Accumulation Period offers guaranteed interest at a Specified Interest Rate over
3 years, a 5 year Accumulation Period offers guaranteed interest at a Specified
Interest Rate over 5 years, and so on. Because every Accumulation will mature on
the last day of a calendar month, the Accumulation Period may terminate up to 30
days less than the 3, 5, 7, or 10 year Accumulation Period.
Although the Specified Interest Rate will continue to be credited as long
as Fund Values remain in an Accumulation Period of the Guaranteed Interest
Account with Market Value Adjustment prior to the Maturity Date, surrenders,
transfers (including transfers to the Loan Account as a result of a request by
the Contract Owner for a Loan), or distributions except upon the death of
Annuitant for any other reason will be subject to an MVA, as described below.
2. ALLOCATIONS TO THE GUARANTEED INTEREST ACCOUNT WITH MARKET VALUE ADJUSTMENT
There are three sources from which allocations to the Guaranteed Interest
Account with Market Value Adjustment may be made:
(1) an initial purchase payment made under a Contract may be wholly or
partially allocated to the Guaranteed Interest Account with Market
Value Adjustment;
(2) a subsequent or additional purchase payment made under a Contract may
be partially or wholly allocated to the Guaranteed Interest Account
with Market Value Adjustment; and
(3) amounts transferred from Subaccounts available under the Contract may
be wholly or partially allocated to the Guaranteed Interest Account
with Market Value Adjustment.
There is no minimum amount of any allocation of either Purchase Payments or
transfers of Fund Value to the Guaranteed Interest Account with Market Value
Adjustment. The Contract provides that the prior
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approval of the Company is required before it will accept a Purchase Payment
where, with that Payment, cumulative Purchase Payments made under any one or
more Contracts held by the Owner, less the amount of any prior partial
surrenders and their Surrender Charges, exceed $1,500,000. This limit applies to
the aggregate of Fund Values in the Guaranteed Interest Account with Market
Value Adjustment and in each of the Subaccounts of the Contract
3. THE SPECIFIED INTEREST RATE AND THE ACCUMULATION PERIODS
A. SPECIFIED INTEREST RATES
The Specified Interest Rate, at any given time, is the rate of interest
guaranteed by the Company to be credited to allocations made to the Accumulation
Period for the Guaranteed Interest Account with Market Value Adjustment chosen
by the Owner, so long as no portion of the allocation is distributed for any
reason prior to the Maturity Date. Different Specified Interest Rates may be
established for the 4 different Accumulation Periods which are currently
available: 3, 5, 7, and 10 years.
The Company declares Specified Interest Rates for each of the available
Accumulation Periods from time to time. Normally, new Specified Interest Rates
will be declared monthly; however, depending on interest rate fluctuations,
declarations of new Specified Interest Rates may occur more or less frequently.
The Company observes no specific method in the establishment of the Specified
Interest Rates, but generally will attempt to declare Specified Interest Rates
which are related to interest rates associated with fixed-income investments
available at the time and having durations and cash flow attributes compatible
with the Accumulation Periods then available for the Guaranteed Interest Account
with Market Value Adjustment. In addition, the establishment of Specified
Interest Rates may be influenced by other factors, including competitive
considerations, administrative costs and general economic trends. The Company
has no way of predicting what Specified Interest Rates may be declared in the
future and there is no guarantee that the Specified Interest Rate for any of the
Accumulation Periods will exceed the guaranteed minimum effective annual
interest rate of 3.5%.
The period of time during which a particular Specified Interest Rate is in
effect for new allocations to the then available Accumulation Periods is
referred to as the Investment Period. All allocations made to an Accumulation
Period during an Investment Period are credited with the Specified Interest Rate
in effect. An Investment Period ends only when a new Specified Interest Rate
relative to the Accumulation Period in question is declared. Subsequent
declarations of new Specified Interest Rates have no effect on allocations made
to Accumulation Periods during prior Investment Periods. All such prior
allocations will be credited with the Specified Interest Rate in effect when the
allocation was made for the duration of the Accumulation Period selected.
Information concerning the Specified Interest Rates in effect for the
various Accumulation Periods can be obtained by contacting an agent of the
Company who is also a registered representative of MONY Securities Corp. or by
calling the following toll free telephone number: 1-800-736-0133.
The Specified Interest Rate is credited to allocations made to an
Accumulation Period elected by the Owner on a daily basis, resulting in an
annual effective yield which is guaranteed by the Company, unless amounts are
surrendered or transferred from that Accumulation Period for any reason prior to
the Maturity Date. The Specified Interest Rate will be credited for the entire
Accumulation Period. If amounts are surrendered or transferred from the
Accumulation Period for any reason prior to the Maturity Date, an MVA will be
applied to the amount surrendered or transferred.
B. ACCUMULATION PERIODS
For each Accumulation Period, the Specified Interest Rate in effect at the
time of the allocation to that Accumulation Period is guaranteed. An
Accululation Period always expires on a Maturity Date which will be the last day
of a calendar month; therefore, the Specified Interest Rate may be credited for
up to 30 days less than the Accumulation Period.
6
<PAGE> 12
For example, if an allocation is made to a 10 year Accumulation period on
August 10, 1998 and the funds for a new Purchase Payment are received on that
day, the Specified Interest Rate for that Accumulation Period will be credited
beginning on that day until July 31, 2008; however, the Accumulation Period will
begin on August 1, 1998 and will end on July 31, 2008.
All Accumulation Periods for the 3, 5, 7, and 10 year Accumulation Periods,
respectively, will be determined in a manner consistent with the foregoing
example. Accumulation Periods will be exactly 3, 5, 7, or 10 years only when an
allocation to an Accumulation Period occurs (or the Purchase Payment is received
or the transfer of Fund Values from a Subaccount is effective) on the first day
of a calendar month.
4. MATURITY OF ACCUMULATION PERIODS
At least fifteen days and at most forty-five days prior to the end of an
Accumulation Period, the Company will send notice to the Contract Owner of the
impending Maturity Date (always the last day of a calendar month). The notice
will include the projected Fund Value held in the Accumulation Period on the
Maturity Date and will specify the various options Contract Owners may exercise
with respect to the Accumulation Period:
(1) During the thirty day period following the Maturity Date (the
"Maturity Period"), the Contract Owner may wholly or partially surrender
the Fund Value held in that Accumulation Period without an MVA; however,
surrender charges under the variable annuity Contract, if applicable, will
be assessed.
(2) During the thirty day period following the Maturity Date, the
Contract Owner may wholly or partially transfer the Fund Value held in that
Accumulation Period, without an MVA, to any Subaccount then available under
the Contract or may elect that the Fund Value held in that Accumulation
Period be held for an additional Accumulation Period of the same number of
years or for another Accumulation Period of a different number of years
which may at the time be available. A confirmation of any such transfer or
election will be sent immediately after the transfer or election is
processed.
(3) If the Contract Owner does not make an election within the
Maturity Period, the entire Fund Value held in the maturing Accumulation
Period will be transferred to an Accumulation Period of the same number of
years as the Accumulation Period which matured. However, if that period
would extend beyond the Annuity Starting Date of the Contract or if that
period is not then made available by the Company, the Fund Value held in
the maturing Accumulation Period will be automatically transferred to the
Money Market Subaccount at the end of the Maturity Period. A confirmation
will be sent immediately after the automatic transfer is executed.
During the thirty day period following the Maturity Date, and prior to any
of the transactions set forth in (1), (2), or (3) above, the Specified Value
held in the maturing Accumulation Period will continue to be credited with the
Specified Interest Rate in effect before the Maturity Date.
5. THE MARKET VALUE ADJUSTMENT ("MVA")
A. GENERAL INFORMATION REGARDING THE MVA
A surrender, transfer (including a transfer to the Loan Account as a result
of a request by the Owner for a Loan), or distribution of Specified Value of the
Guaranteed Interest Account with Market Value Adjustment held in an Accumulation
Period which are surrendered, transferred, or distributed for any reason prior
to the Maturity Date of that particular Accumulation Period, will be subject to
an MVA. The MVA is determined by the multiplication of an MVA Factor by the
Specified Value, or the portion of the Specified Value being surrendered,
transferred or distributed. The Specified Value is the amount of the allocation
of Purchase Payments and transfers of Fund Value to an Accumulation Period of
the Guaranteed Interest Account with Market Value Adjustment, plus interest
accrued at the Specified Interest Rate minus prior distributions. The MVA may
either increase or decrease the amount of the distribution.
The MVA is intended to approximate, without duplicating, the experience of
the Company when it liquidates assets in order to satisfy contractual
obligations. Such obligations arise when Contract Owners
7
<PAGE> 13
request surrenders (including transfers for the purpose of obtaining a Loan), or
distributions. When liquidating assets, the Company may realize either a gain or
a loss.
If prevailing interest rates are higher than the Specified Interest Rate in
effect at the time the Accumulation Period commences, the Company will realize a
loss when it liquidates assets in order to process a surrender, loan, or
transfer; therefore, application of the MVA under such circumstances will
decrease the amount of the distribution or loan.
Generally, if prevailing interest rates are lower than the Specified
Interest Rate in effect at the time the Accumulation Period commences, the
Company will realize a gain when it liquidates assets in order to process a
surrender, loan, or transfer; therefore, application of the MVA under such
circumstances will increase the amount of the distribution or loan.
The Company measures the relationship between prevailing interest rates and
the Specified Interest Rates it declares through the MVA Factor. The MVA Factor
is described more fully below.
B. THE MVA FACTOR
The formula for determining the MVA Factor is:
[(1+a)/(1+b)](n-t)/12)-1
Where:
<TABLE>
<S> <C> <C>
a = the Specified Interest Rate for the Accumulation Period from
which the surrender, transfer or loan is to be taken;
b = the Specified Interest Rate declared at the time a surrender
or transfer is requested for an Accumulation Period equal to
the time remaining in the Accumulation Period from which the
surrender, transfer (including transfer to the Loan Account
as a result of a request by the Owner for a Loan), or
distribution is requested, plus 0.25%;
n = the Accumulation Period from which the surrender, transfer,
or distribution occurs in months; and
t = the number of elapsed months (or portion thereof) in the
Accumulation Period from which the surrender, transfer, or
distribution occurs.
</TABLE>
The MVA Factor shown above also accounts for some of the administrative and
processing expenses incurred when fixed-interest investments are liquidated.
This is represented in the addition of 0.25% in the MVA Factor.
The MVA Factor will either be greater, less than or equal to 0 and will be
multiplied by the Specified Value or that portion of the Specified Value being
surrendered, transferred, or distributed for any other reason. If the result is
greater than 0, a gain will be realized by the Contract Owner; if less than 0, a
loss will be realized. If the MVA Factor is exactly 0, no gain or loss will be
realized.
Examples of how to calculate MVAs are provided in the Appendix of this
prospectus.
6. CONTRACT CHARGES.
The Contracts under which the Guaranteed Interest Account with Market Value
Adjustment are made available have various fees and charges, some of which may
be assessed against allocations made to the Guaranteed Interest Account with
Market Value Adjustment.
Contingent deferred sales charges, if applicable, will be assessed against
full or partial surrenders from the Guaranteed Interest Account with Market
Value Adjustment. If any such surrender occurs prior to the Maturity Date for
any particular Accumulation Period elected by the Owner, the amount surrendered
will be subject to an MVA in addition to contingent deferred sales charges. The
variable annuity prospectus fully describes the contingent deferred sales
charges. Please refer to the variable annuity prospectus for complete details
regarding the contingent deferred sales charges under the Contracts.
8
<PAGE> 14
Mortality and expense risk charges which may be assessed under variable
annuity Contracts will not be assessed against any allocation to the Guaranteed
Interest Account with Market Value Adjustment. Such charges apply only to the
Fund Value allocated to the Subaccounts of the Variable Account.
7. GUARANTEED INTEREST ACCOUNT AT ANNUITIZATION
On the Annuity Starting Date, the Contract's Cash Value, including the
Specified Value of all Accumulation Periods of the Guaranteed Interest Account
with Market Value Adjustment, will be applied to provide an annuity or any other
option previously chosen by the Owner and permitted by the Company. If the Owner
elected Settlement Option 3 (Single Life Income) or 3A (Joint Life Income) the
Fund Value of the Contract will be applied. Therefore, if Settlement Options 3
or 3A were to be elected by the Owner, no surrender charge or MVA would be
applied to the Specified Value. However, if any other settlement option is
elected, or if no election is in effect on the Annuity Starting Date, a lump sum
payment will be deemed to have been elected and a MVA will apply.
INVESTMENTS
Amounts allocated to the Guaranteed Interest Account with Market Value
Adjustment are transferred to the Company's General Account. Amounts allocated
to the General Account of the Company are subject to the liabilities arising
from the business the Company conducts. This is unlike amounts allocated to the
Subaccounts of the Variable Account, which are not subject to the liabilities
arising from the business the Company conducts. The Company has sole investment
discretion over the investment of the assets of its General Account. Variable
annuity Contract Owners having allocated amounts to a particular Accumulation
Period of the Guaranteed Interest Account with Market Value Adjustment, however,
will have no claim against any particular assets of the Company. The Specified
Interest Rates declared by the Company for the various Accumulation Periods will
not necessarily correspond to the performance of any group of assets of the
General Account.
CONTRACTS AND THE DISTRIBUTION (MARKETING) OF THE GUARANTEED INTEREST ACCOUNT
WITH MARKET VALUE ADJUSTMENT
The Guaranteed Interest Account with Market Value Adjustment is available
only as an allocation option under the Contracts issued by the Company. The
appropriate variable annuity prospectus and statement of additional information
should be consulted for information regarding the distribution of the Contracts.
RISK FACTORS
Potential purchasers should carefully consider the factors described in
"Risk Factors" as well as the other information contained in this Prospectus
before allocating purchase payments or Fund Values to the Guaranteed Interest
Account with Market Value Adjustment offered hereby. Such "Risk Factors"
include:
<TABLE>
<C> <S>
(i) the risk of losses on real estate and commercial mortgage
loans,
(ii) other risks relating to the Company's investment portfolio,
(iii) the risk that interest rate changes could make certain of
the Company's products less profitable to the Company or
less attractive to customers,
(iv) risks with respect to certain sales practice litigation,
(v) the risk of increased surrenders of certain annuities as the
surrender charges with respect to such annuities expire,
(vi) risks associated with certain economic and market factors,
(vii) the risk of variations in claims experience,
(viii) risks related to certain insurance regulatory matters,
</TABLE>
9
<PAGE> 15
<TABLE>
<C> <S>
(ix) risks of competition,
(x) risks with respect to claims paying ability ratings and
financial strength ratings,
(xi) risks with respect to Year 2000 computer programming issues,
and
(xii) risks of potential adoption of new Federal income tax
legislation and the effect of such adoption on certain of
the Company's life and annuity products.
</TABLE>
10
<PAGE> 16
THE COMPANY
1. BUSINESS
A. ORGANIZATION
MONY Life Insurance Company of America (the "Company") is a stock life
insurance company organized in the state of Arizona. The Company is currently
licensed to sell life insurance and annuities in 49 states (not including New
York), the District of Columbia, the U.S. Virgin Islands and Puerto Rico. The
Company is the corporate successor of VICO Credit Life Insurance Company,
incorporated in Arizona on March 6, 1969.
The Company is a wholly owned subsidiary of The Mutual Life Insurance
Company of New York ("MONY"), organized under the laws of the State of New York
in 1842 as a mutual life insurance company. The principal offices of MONY and
the Company are at 1740 Broadway, New York, New York 10019. MONY Securities
Corp., an affiliate of the Company and MONY, is the principal underwriter for
the Contracts described in this Prospectus. The Company may purchase certain
administrative services from MONY under a services agreement, to enable the
Company to administer the Contracts.
In September 1997, MONY announced that it had begun the process of
demutualization. In September 1998, MONY received approval from the Insurance
Department of the State of New York to present the Plan of Demutualization to
MONY policyholders and to request the approval of those policyholders of that
Plan. If completed, it is not expected that demutualization will have any
material effect on the Company. At December 31, 1997, MONY had approximately
$133.2 million invested in the Company to support its insurance operations.
The Company offers a variety of forms of variable annuities, fixed
annuities, and variable universal life insurance and universal life insurance
policies on a non-participating basis. The Company is a registered investment
adviser providing investment management and administration services.
B. DESCRIPTION OF BUSINESS
The Company offers variable annuities, fixed annuities, and variable
universal life insurance and universal life insurance policies. Recently, it
began to offer term life insurance as well. Its products are distributed largely
through the career agent field force of MONY. Together with MONY and its
affiliates MONY Securities Corp. and Enterprise Funds Distributors, Inc., the
Company is a part of an organization that also markets mutual funds and
investment management services.
The Company's universal life insurance policies are offered to individuals
to meet a variety of needs as well as to businesses desiring to provide payroll
deduction life insurance to their employees. The Company's universal life
insurance policies permit the policyowner to vary the amount and frequency of
periodic cash premiums they pay, depending upon the needs of the policyowner and
the availability of value within the policy necessary to keep the policy in
force by paying the various charges, including, without limitation, the cost of
insurance charges.
The Company's variable life and variable annuity products are also offered
to individuals and allow the customer to choose from among subaccounts pursuing
a wide variety of investment objectives which reflect the investment objectives
of the underlying mutual funds managed by premier mutual fund managers. These
products are attractive to customers seeking to meet a variety of objectives,
including life insurance protection and retirement accumulations, respectively.
The Company's survivorship life products insure several lives and provide
for the payment of death benefits upon the death of the last surviving insured.
The Company also offers a Corporate Sponsored Variable Universal Life
Insurance policy to corporations to meet needs which can be met by the death
benefit and cash value accumulation provisions of the policy.
11
<PAGE> 17
The Company's recently introduced term life insurance product is a level
term life insurance policy. It is largely distributed through the career agent
field force of MONY.
The Company also offers a variety of policy riders designed to provide
additional benefits or flexibility at the option of the policyowner. These
riders include riders that waive premium payments upon disability, pay higher
benefits in the event of accidental death, allow purchase of additional coverage
without evidence of insurability, and permit the addition of term insurance to
provide additional death benefit protection.
The Company's variable life insurance and variable annuity business has
grown substantially in recent years. In part, this growth is due to the
development of variable life insurance policies for both the individual as well
as the corporate sponsored life insurance markets. The Company also believes
that the growth of these products has been further enhanced by favorable
demographic trends, the growing tendency of Americans to supplement traditional
sources of retirement income with variable annuity products which provide the
purchaser with some ability to direct the investment strategy, and the
performance of the financial markets, particularly the U.S. stock markets, in
recent years.
C. REGULATION
The Company, as with other insurance companies, is subject to extensive
regulation and supervision in the jurisdictions in which it does business. Such
regulations impose restrictions on the amount and type of investments insurance
companies may hold. These regulations also affect many other aspects of
insurance companies businesses, including licensing of insurers and their
products and agents, risk-based capital requirements and the type and amount of
required asset valuation reserve accounts. These regulations are primarily
intended to protect policyholders. The Company can not predict the effect that
any proposed or future legislation may have on the financial condition or
results of operations of the Company.
Insurance companies are required to file detailed annual and quarterly
financial statements with state insurance regulators in each of the states in
which they do business, and their business and accounts are subject to
examination by such agencies at any time. In addition, insurance regulators
periodically examine an insurer's financial condition, adherence to statutory
accounting practices and compliance with insurance department rules and
regulations. Applicable state insurance laws, rather than federal bankruptcy
laws, apply to the liquidation or the restructuring of insurance companies.
As part of their routine regulatory oversight process, state insurance
departments conduct detailed examinations periodically (generally once every
three to four years) of the books, records and accounts of insurance companies
domiciled in their states. Such examinations are generally conducted in
cooperation with the departments of two or three other states under guidelines
promulgated by the National Association of Insurance Commissioners (NAIC). The
operations of the Company were examined by the Arizona Insurance Department for
each of the three years ended December 31, 1996. The report did not deal with
any matter which may reasonably be expected to result in a material effect on
the Company's financial condition or results of operations.
In recent years, a number of life and annuity insurers have been the
subject of regulatory proceedings and litigation relating to alleged improper
life insurance pricing and sales practices. Some of these insurers have incurred
or paid substantial amounts in connection with the resolution of such matters.
See "-- Legal Proceedings". In addition, state insurance regulatory authorities
regularly make inquiries, hold investigations and administer market conduct
examinations with respect to insurers' compliance with applicable insurance laws
and regulations.
The Company and MONY continuously monitor sales, marketing and advertising
practices, and related activities of their agents and personnel and provide
continuing education and training in an effort to ensure compliance with
applicable insurance laws and regulations. There can be no assurance that any
non-compliance with such applicable laws and regulations would not have a
material adverse effect on the Company.
12
<PAGE> 18
D. COMPETITION
The Company believes that competition in the Company's lines of business is
based on price, product features, commission structure, perceived financial
strength, claims-paying ratings, service and name recognition. The Company
competes with a large number of other insurers as well as non-insurance
financial services companies, such as banks, broker/dealers and mutual funds,
many of whom have greater financial resources, offer alternative products or
more competitive pricing and, with respect to other insurers, have higher
ratings than the Company. Competition exists for individual consumers, employer
groups, and agents and with other distributors of insurance products. National
banks, with their preexisting customer bases for financial services products,
may pose increasing competition as a result of the United States Supreme Court's
1994 decision in NationsBank of North Carolina v. Variable Annuity Life
Insurance Company which permits national banks to sell annuity products of life
insurance companies in certain circumstances.
Several proposals to repeal or modify the Glass-Steagall Act of 1933, as
amended, and the Bank Holding Company Act of 1956, as amended, have been made by
members of Congress and the Clinton Administration. Currently, the Bank Holding
Company Act generally restricts banks from being affiliated with insurance
companies. None of these proposals has yet been enacted, and it is not possible
to predict whether any of these proposals will be enacted, or, if enacted, their
potential effect on the Company.
E. EMPLOYEES
The Company has no employees. The Company has entered into a Services
Agreement with MONY, pursuant to which MONY provides the services necessary to
operate the business of the Company.
2. PROPERTIES
The Company's administrative offices are located at 1740 Broadway, New
York, New York 10019. MONY's principal executive offices are also located there.
MONY's administrative operations offices are located in Syracuse, New York, and
the administrative services, principally related to the underwriting, issuance,
and service of the Company's policies and policyholders, as well as the
administration of claims, is conducted from those offices. MONY leases these
offices.
3. LEGAL PROCEEDINGS
In late 1995 and during 1996 a number of purported class actions were
commenced in various state and federal courts against the Company and MONY
alleging that the Company and MONY engaged in deceptive sales practices in
connection with the sale of whole and universal life insurance policies from the
early 1980s through the mid 1990s. Although the claims asserted in each case are
not identical, they seek substantially the same relief under essentially the
same theories of recovery (i.e., breach of contract, fraud, negligent
misrepresentation, negligent supervision and training, breach of fiduciary duty,
unjust enrichment and violation of state insurance and/or deceptive business
practice laws). Plaintiffs in these cases (including the Goshen case discussed
below) seek primarily equitable relief (e.g., reformation, specific performance,
mandatory injunctive relief prohibiting the Company and MONY from canceling
policies for failure to make required premium payments, imposition of a
constructive trust and creation of a claims resolution facility to adjudicate
any individual issues remaining after resolution of all class-wide issues) as
opposed to compensatory damages, although they also seek compensatory damages in
unspecified amounts. The Company and MONY have answered the complaints in each
action (except for one being voluntarily held in abeyance), has denied any
wrongdoing and has asserted numerous affirmative defenses.
On June 7, 1996, the New York State Supreme Court certified the Goshen
case, being the first of the aforementioned class actions filed, as a nationwide
class consisting of all persons or entities who have, or at the time of the
policy's termination had, an ownership interest in a whole or universal life
insurance policy issued by the Company and sold on an alleged "vanishing
premium" basis during the period January 1, 1982 to December 31, 1995. On March
27, 1997, the Company and MONY filed a motion to dismiss or, alternatively, for
summary judgment on all counts of the complaint. All of the other putative class
actions have been consolidated and transferred by the Judicial Panel on
Multidistrict Litigation to the United States District
13
<PAGE> 19
Court for the District of Massachusetts, or are being voluntarily held in
abeyance pending the outcome of the Goshen case. The Massachusetts District
Court in the Multidistrict Litigation has entered an order essentially holding
all of the federal cases in abeyance pending the outcome of the Goshen case.
On October 21, 1997, the New York State Supreme Court granted the motion
for summary judgment and dismissed all claims filed in the Goshen case against
the Company and MONY on the merits. The order by the New York State Supreme
Court has been appealed by plaintiffs and all actions before the United States
District Court for the District of Massachusetts are still pending. There can be
no assurance, however, that the present or any future litigation relating to
sales practices will not have a material adverse effect on the Company.
In addition to the foregoing, from time to time the Company is a party to
litigation and arbitration proceedings in the ordinary course of its business,
none of which is expected to have a material adverse effect on the Company.
4. STATUTORY-BASIS FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The statutory-basis financial statements of the Company are included in a
separate section of this prospectus.
Semi-annual and annual reports are sent to contract owners of the variable
annuity and life insurance contracts issued through registered Separate Accounts
of the Company.
The statutory-basis financial statements of the Company included in this
prospectus, other than the unaudited interim condensed statutory-basis financial
statements, have been audited by PricewaterhouseCoopers LLP, independent
accountants, and are included herein in reliance upon the report of said firm
given on the authority of said firm as experts in accounting and auditing.
PricewaterhouseCoopers LLP's office is located at 1301 Avenue of the Americas,
New York, New York 10019.
5. SELECTED STATUTORY-BASIS FINANCIAL INFORMATION
SELECTED STATUTORY-BASIS FINANCIAL INFORMATION
The following table sets forth selected historical statutory-basis
financial information for the Company prepared in conformity with the accounting
practices prescribed or permitted by the Insurance Department of the State of
Arizona ("statutory basis" or "SAP"). The selected statutory-basis financial
information for each of the three years in the period ended December 31, 1997,
and at December 31, 1997 and 1996, has been derived from statutory-basis
financial statements audited by PricewaterhouseCoopers LLP, independent
accountants, included elsewhere herein. The selected statutory-basis financial
information as of December 31, 1995, 1994 and 1993 and for the years ended
December 31, 1994 and 1993 have been derived from statutory-basis financial
statements, not included elsewhere herein. The selected statutory-basis
financial information for the six-month periods ended June 30, 1998 and 1997,
and at June 30, 1998, has been derived from unaudited interim condensed
statutory-basis financial statements included elsewhere herein. The selected
statutory-basis financial information at June 30, 1997 has been derived from
unaudited interim statutory-basis financial statements not included elsewhere
herein. In the opinion of the Company's management, all unaudited interim
statutory-basis financial information presented in the table below reflects all
adjustments (consisting of normal, recurring accruals) necessary for a fair
statement of the Company's admitted assets, liabilities, capital and surplus and
results of operations for such periods in accordance with SAP. The results of
operations for the six month period ended June 30, 1998 are not necessarily
indicative of the results to be expected for the full year. This selected
statutory-basis financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", the Company's statutory-basis financial statements and the notes
thereto and the other statutory-basis financial information included elsewhere
in this Prospectus.
14
<PAGE> 20
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS
ENDED JUNE 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (STATUTORY-BASIS)
REVENUES:
Premiums, Annuity Considerations, and Fund
Deposits......................................... $ 442.8 $ 395.3 $ 799.0 $ 741.9 $ 607.1 $ 500.3 $ 528.9
Net Investment Income.............................. 48.2 49.7 99.0 102.1 104.9 96.3 107.6
Other Income, net.................................. 0.0 0.1 0.3 0.0 2.5 0.0 0.3
-------- -------- -------- -------- -------- -------- --------
Total Income............................... 491.0 445.1 898.3 844.0 714.5 596.6 636.8
BENEFITS & EXPENSES:
Policyholder and Contractholder Benefits........... 263.8 191.9 407.3 336.7 309.3 246.1 227.4
Change in Policy and Contract Reserves............. (25.9) (21.8) (42.9) (35.0) 38.6 42.1 5.7
Commissions........................................ 19.1 17.8 40.9 36.8 32.3 24.7 21.6
Operating Expenses................................. 44.1 30.0 64.9 53.2 44.7 34.4 32.6
Transfers to Separate Accounts..................... 175.1 206.4 397.5 428.1 275.6 237.6 331.1
-------- -------- -------- -------- -------- -------- --------
Total Benefits and Expenses................ 476.2 424.3 867.7 819.8 700.5 584.9 618.4
Net Gain from Operations Before Federal Income
Taxes............................................ 14.8 20.8 30.6 24.2 14.0 11.7 18.4
Federal Income Taxes............................... 7.5 10.4 17.4 14.4 8.0 3.3 1.6
-------- -------- -------- -------- -------- -------- --------
Net Gain from Operations........................... 7.3 10.4 13.2 9.7 6.0 8.4 16.8
Net Realized Capital Losses........................ (0.1) (1.9) (3.5) (1.7) (1.4) (2.3) (2.3)
-------- -------- -------- -------- -------- -------- --------
Net Income......................................... $ 7.2 $ 8.5 $ 9.7 $ 8.0 $ 4.6 $ 6.1 $ 14.5
======== ======== ======== ======== ======== ======== ========
SUMMARY OF ADMITTED ASSETS, LIABILITIES, CAPITAL &
SURPLUS
ASSETS:
General Account.................................... $1,348.2 $1,391.7 $1,354.7 $1,411.9 $1,452.3 $1,395.2 $1,378.7
Separate Account................................... 4,211.9 3,104.6 3,606.7 2,530.0 1,685.8 998.1 736.4
-------- -------- -------- -------- -------- -------- --------
Total...................................... $5,560.1 $4,496.3 $4,961.4 $3,941.9 $3,138.1 $2,393.3 $2,115.1
======== ======== ======== ======== ======== ======== ========
Capital and Surplus................................ $ 141.8 $ 130.5 $ 133.1 $ 121.8 $ 115.6 $ 104.9 $ 102.2
Asset Valuation Reserve ("AVR").................... 15.0 17.7 16.3 17.9 14.0 13.9 13.2
Capital and Surplus & AVR/General Account Assets... 11.6% 10.7% 11.0% 9.9% 8.9% 8.5% 8.4%
COMPOSITION OF GENERAL ACCOUNT INVESTED ASSETS
Bonds.............................................. $1,095.5 $1,069.1 $1,074.7 $1,048.0 $1,017.6 $ 992.1 $ 986.9
Cash & Short Term Investments...................... 26.0 61.5 46.0 90.2 125.2 78.7 36.9
Mortgage Loans..................................... 138.0 150.7 134.8 158.8 173.2 175.7 220.5
Real Estate........................................ 9.5 28.9 22.6 40.7 58.4 69.9 65.9
Other.............................................. 56.2 53.1 53.9 51.2 46.7 39.9 39.9
-------- -------- -------- -------- -------- -------- --------
Total...................................... $1,325.2 $1,363.3 $1,332.0 $1,388.9 $1,421.1 $1,356.3 $1,350.1
======== ======== ======== ======== ======== ======== ========
Bonds.............................................. 83% 78% 81% 75% 72% 73% 73%
Cash & Short Investments........................... 2 5 3 7 9 6 3
Mortgage Loans..................................... 10 11 10 11 12 13 16
Real Estate........................................ 1 2 2 3 4 5 5
Other.............................................. 4 4 4 4 3 3 3
-------- -------- -------- -------- -------- -------- --------
Total...................................... 100% 100% 100% 100% 100% 100% 100%
======== ======== ======== ======== ======== ======== ========
</TABLE>
15
<PAGE> 21
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's discussion and analysis of financial condition and results of
operations contains forward-looking statements that are intended to enhance the
reader's ability to assess the future financial performance of the Company.
These forward-looking statements are not based on historical information and are
being made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include, but are not
limited to, statements which represent the Company's beliefs concerning future
levels of sales and redemptions of the Company's products, investment yields and
interest spread, or the earnings or profitability of the Company's activities.
Because these statements are subject to numerous assumptions, risks, and
uncertainties, actual results could be materially different. The following
factors, among others, may have such an impact: changes in economic conditions;
movements in interest rates and the stock markets; competitive pressures on
product pricing and services; success and timing of business strategies; and the
nature and extent of legislation and regulatory actions and reforms. Readers are
directed to consider these and other risks and uncertainties described in more
detail elsewhere in documents filed by the Company with the Securities and
Exchange Commission. The Company undertakes no obligation to update or revise
any forward-looking information, whether as a result of new information, future
events, or otherwise.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion addresses the statutory-basis financial condition
and results of operations of MONY Life Insurance Company of America ("MLOA" or
the "Company") for the periods indicated. This discussion should be read in
conjunction with the Company's statutory-basis financial statements, notes to
statutory-basis financial statements and other statutory-basis financial
information included elsewhere in this prospectus.
The following summarizes the Company's statutory-basis results of
operations for the years indicated:
<TABLE>
<CAPTION>
FOR THE SIX
MONTH PERIODS FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
---------------- --------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
REVENUES:
Premiums, Annuity Considerations, and
Fund Deposits............................... $442.8 $395.3 $799.0 $741.9 $607.1
Net Investment Income......................... 48.2 49.7 99.0 102.1 104.9
Other Income, net............................. 0.0 0.1 0.3 0.0 2.5
------ ------ ------ ------ ------
Total Income........................ 491.0 445.1 898.3 844.0 714.5
BENEFITS & EXPENSES:
Policyholder and Contractholder Benefits...... 263.8 191.9 407.3 336.7 309.3
Change in Policy and Contract Reserves........ (25.9) (21.8) (42.9) (35.0) 38.6
Commissions................................... 19.1 17.8 40.9 36.8 32.3
Operating Expenses............................ 44.1 30.0 64.9 53.2 44.7
Transfers to Separate Accounts................ 175.1 206.4 397.5 428.1 275.6
------ ------ ------ ------ ------
Total Benefits and Expenses......... 476.2 424.3 867.7 819.8 700.5
Net Gain from Operations Before Federal
Income Taxes................................ 14.8 20.8 30.6 24.2 14.0
Federal Income Taxes.......................... 7.5 10.4 17.4 14.4 8.0
------ ------ ------ ------ ------
Net Gain from Operations...................... 7.3 10.4 13.2 9.7 6.0
Net Realized Capital Losses................... (0.1) (1.9) (3.5) (1.7) (1.4)
------ ------ ------ ------ ------
Net Income.................................... $ 7.2 $ 8.5 $ 9.7 $ 8.0 $ 4.6
====== ====== ====== ====== ======
</TABLE>
16
<PAGE> 22
SIX MONTH PERIOD ENDED JUNE 30, 1998 COMPARED TO SIX MONTH PERIOD ENDED JUNE 30,
1997:
Net gain from operations before federal income taxes was $14.8 million for
the six month period ended June 30, 1998 as compared to $20.8 million for the
six months ending June 30, 1997, a decrease of $6.0 million. The principal
reason for the decrease was higher operating expenses.
Premiums, Annuity Considerations, and Fund Deposits were $442.8 million for
the six month period ended June 30, 1998, an increase of $47.5 million, from
$395.3 million recorded for the six month period ended June 30, 1997. The
principal reasons for the change from period to period are as follows:
Total premiums and annuity considerations were $127.2 million for the
six month period ended June 30, 1998 compared to $65.8 million for the six
month period ended June 30, 1997, an increase of $61.4 million. The new
Corporate Sponsored Variable Universal Life (CSVUL) product, introduced in
1997, accounted for most of the change in premiums with an increase of
$51.6 million as compared to the prior year six month period. Premiums for
the Variable Universal Life (VUL) product, introduced in 1995, increased
$15.4 million for the first six months of 1998 as compared to 1997.
Annuity and other fund deposits decreased from $316.0 million for the
six month period ending June 30, 1997 to $303.1 million for the six month
period ended June 30, 1998, a decrease of $12.9 million. Flexible premium
variable annuity sales declined by $11.5 million and single premium
deferred annuity sales decreased by $1.4 million between the periods.
Net investment income decreased by $1.5 million, to $48.2 million for the
six month period ended June 30, 1998 from $49.7 million for the six month period
ended June 30, 1997 due primarily to lower interest rates on new investments.
Policyholder and Contractholder Benefits were $263.8 million for the six
month period ended June 30, 1998, an increase of $71.9 million, from $191.9
million recorded for the six month period ended June 30, 1997. The principal
reasons for the change from period to period are as follows:
Death benefits for the six month period ending June 30, 1998 were
$11.6 million compared to $11.2 million for the six month period ended June
1997, an increase of $0.4 million due to less death benefits covered by
reinsurance.
Annuity benefits of $15.7 million for the six month period ended June
30, 1998 are $3.8 million higher than the $11.9 million for the comparable
six month period in 1997 due primarily to increased payouts on FPVA
contracts resulting from death claims.
Surrenders for the six month period ended June 30, 1998 were $217.8
million compared to $148.4 million for the six month period ended June 30,
1997. This increase was due to increased withdrawals of FPVA contracts
partially offset by lower withdrawals of single premium deferred annuities
("SPDA's").
The reserve for life policies increased $14.8 million for the six
month period ended June 30, 1998 compared to an increase of $11.9 million
for the six month period ended June 30, 1997 due primarily to the
introduction of the new level term product and growth in the universal life
fund balance.
The change in liability for premiums and other deposit funds had a
decrease of $34.4 million for the six month period ended June 30, 1997
compared to a decrease of $40.8 million for the six month period ended June
30, 1998. The decrease in both years reflects consumer preference for
equity participation products.
Transfers to separate accounts decreased from $206.4 million for the six
month period ended June 30, 1997 to $175.1 million the six month period ended
June 30, 1998 due to higher FPVA withdrawals and asset charges for the first six
months of 1998 compared to the similar period in 1997.
Federal income taxes decreased from $10.4 million for the six month period
ended June 30, 1997 to $7.5 million for the six month period ended June 30, 1998
due primarily to lower operating income.
17
<PAGE> 23
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996:
Net gain from operations before federal income taxes was $30.6 million for
the year ended December 31, 1997 compared to $24.2 million in 1996, an increase
of $6.4 million. The principal reason for the increase was higher gains
generated by the growth in the FPVA block of business.
Premiums, Annuity Considerations, and Fund Deposits were $799.0 million for
the year ended December 31, 1997, an increase of $57.1 million, from $741.9
million recorded for the year ended December 31, 1996. The principal reasons for
the change from period to period are as follows:
Total premiums and annuity considerations were $141.9 million in 1997
compared to $112.2 million for 1996, an increase of $29.7 million. Premiums
for the VUL product, introduced in 1995, increased $26.5 million over the
prior year. The new CSVUL product, introduced in 1997, had $2.1 million of
first year premiums. Group Universal Life (GUL) premiums were up slightly
at $14.5 million in 1997 compared to $13.7 million in 1996 resulting from
increased renewal premiums.
Annuity and other fund deposits increased from $601.0 million in 1996
to $628.7 million in 1997, an increase of $27.7 million. FPVA sales were
$624.5 million in 1997, up from $594.5 million in 1996, reflecting
consumers' preference for equity participation in the favorable stock
market.
Net investment income decreased from $102.1 million for the year ended
December 31, 1996 to $99.0 million for the year ended December 31, 1997, a
decrease of $3.1 million due primarily to a $45.0 million decrease in average
invested assets. The decrease is due to the timing of operating cash flow
primarily resulting from the fact that many of the new sales are related to
separate account products while the field expenses and commissions are absorbed
in the general account. Operating cash flow or fees derived from separate
account business, including mortality, administrative fees and surrender charges
will be reflected in the general account over the duration of the contracts.
Policyholder and Contractholder Benefits were $407.3 million for the year
ended December 31, 1997, an increase of $70.6 million, from $336.7 million
recorded for the year ended December 31, 1996. The principal reasons for the
change from period to period are as follows:
Death benefits in 1997 were $27.6 million compared to $20.8 million in
1996 due to higher cash value payments released upon death (which is offset
in changes in reserves) and lower recoveries of death benefits from
reinsurers.
Annuity benefits of $25.0 million for 1997 are $4.5 million higher
than the $20.5 million in 1996 due primarily to increased payouts on FPVA
and SPDA contracts resulting from death claims.
Surrenders in 1997 were $312.7 million compared to $256.9 million in
1996. This increase was due to increased surrenders of FPVA contracts
partially offset by lower SPDA and COA withdrawals.
The reserve for life policies increased $27.1 million in 1997 compared
to an increase of $35.3 million in 1996 due primarily to lower universal
life ("UL") premiums, reflecting consumers' preference for equity
participation products generating a shift in growth to the separate
accounts.
The change in liability for premiums and other deposit funds remained
basically flat with a decrease of $69.7 million in 1997 compared to a
decrease of $70.6 million in 1996. This decrease in both years reflects
consumer preference for equity participation products.
Transfers to separate accounts decreased from $428.1 million in 1996 to
$397.5 million in 1997 due to higher FPVA withdrawals and asset charges.
Federal income taxes increased from $14.4 million in 1996 to $17.4 million
in 1997 due primarily to higher operating income.
18
<PAGE> 24
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:
Net gain from operations before federal income taxes was $24.2 million for
the year ended December 31, 1996 compared to $14.0 million in 1995, an increase
of $10.2 million. The principal reasons for the increase were improved mortality
and higher gains generated by the growth in the FPVA block of business.
Premiums, Annuity Considerations, and Fund Deposits were $741.9 million for
the year ended December 31, 1996, an increase of $134.8 million, from $607.1
million recorded for the year ended December 31, 1995. The principal reasons for
the change from period to period are as follows:
In 1996, MLOA's new life and annuity sales, as measured by first year
premiums and deposits, increased 22% from $451.5 million in 1995 to $549.4
million. Sales of the Company's VUL product, introduced in 1995, aggregated
$32.1 million of first year premium compared with $12.3 million the prior
year. FPVA sales were $494.7 million of new deposits in 1996, up from
$370.3 million in 1995. This continued strong performance of variable
products combined with decreased UL sales reflects customer preference for
equity participation products.
Total premiums and annuity considerations were $112.2 million in 1996
compared to $111.6 million for 1995. VUL production increased $23.0 million
over the prior year and was partially offset by the decrease in UL sales as
the mix of business continued to shift to equity participation products.
Annuity and other fund deposits increased from $464.7 million in 1995
to $601.0 million in 1996 as a result of increased FPVA sales primarily due
to consumers' preference for equity participation in the favorable stock
market.
Net investment income decreased from $104.9 million for the year ended
December 31, 1995 to $102.1 million for the year ended December 31, 1996, a
decrease of $2.8 million due to a decrease in the yield from 7.7% to 7.4% as a
result of the reinvestment of maturing assets at lower rates, and a shift in
assets from general to separate account.
Policyholder and Contractholder Benefits were $336.7 million for the year
ended December 31, 1996, an increase of $27.4 million, from $309.3 million
recorded for the year ended December 31, 1995. The principal reasons for the
change from period to period are as follows --
Death benefits in 1996 were $20.8 million compared to $25.1 million in
1995 due to favorable mortality.
Annuity benefits at $20.5 million for 1996 are $0.9 million higher
than the $19.6 million in 1995 due primarily to increased payouts on FPVA
and COA contracts resulting from death claims offset by lower SPDA death
claims.
Surrenders in 1996 were $256.9 million compared to $231.9 million in
1995. This increase was due to increased surrenders of FPVA and COA
contracts partially offset by lower SPDA withdrawals.
The reserve for life policies increased $35.3 million in 1996 compared
to an increase of $51.2 million in 1995 due to lower UL premiums and
consumers' preference for equity participation products generating a shift
in growth to the separate accounts, and a corresponding release in
reserves.
The liability for premiums and other deposit funds decreased $70.6
million in 1996 compared to a decrease of $20.8 million in 1995 as a result
of FPVA contractholders moving to the variable separate account from the
fixed option in the general account.
Transfers to separate accounts increased from $275.6 million in 1995 to
$428.1 million in 1996 due to contractholders electing variable equity
participation options which are available in FPVA and VUL products.
Federal income taxes increased from $8.0 million in 1995 to $14.4 million
in 1996 due to higher operating income and higher DAC taxes.
19
<PAGE> 25
REALIZED CAPITAL GAINS (LOSSES)
Following is a summary of realized capital gains and (losses) for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------- --------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Bonds.............................................. $ 1.2 $(0.6) $(3.1) $ 0.9 $ 0.2
Common stock....................................... 0.2 0.0 0.7 0.0 0.0
Real estate and mortgage loans..................... 0.9 (0.5) 0.4 (0.1) (0.4)
Other invested assets.............................. 0.0 (0.2) (0.2) 0.0 0.0
Derivative instruments............................. 0.0 0.0 0.0 (0.8) (0.0)
----- ----- ----- ----- -----
Subtotal...................................... 2.3 (1.3) (2.2) 0.0 (0.2)
Taxes.............................................. (1.4) (0.2) (0.5) (0.8) (0.7)
Transferred to Interest Maintenance Reserve (IMR),
net of taxes..................................... (1.0) (0.4) (0.8) (0.9) (0.5)
----- ----- ----- ----- -----
Net realized capital losses................... $(0.1) $(1.9) $(3.5) $(1.7) $(1.4)
===== ===== ===== ===== =====
</TABLE>
Net realized losses increased from $1.4 million in 1995 to $1.7 million in
1996 mostly due to losses on derivative instruments upon settlement, offset by
higher gains on bonds. Realized losses on bonds in 1997 account for most of the
increase in realized losses between 1996 and 1997. During 1997, 1996 and 1995,
realized capital losses resulting from changes in interest rates on fixed income
securities of $0.8 million (net of $0.5 million tax), $0.9 million (net of $0.5
million tax) and $0.5 million (net of $0.2 million tax), respectively, were
transferred to the Company's IMR for future amortization into net income.
The change in net realized capital losses for the first six months of 1998
as compared to the first six months of 1997 is primarily the result of higher
gains on the sale of real estate properties and higher bond and mortgage
prepayment gains in the first six months of 1998, as well as the disposal of a
defaulted bond in the first six months of 1997 at a loss. During the first six
months of 1998 and 1997, realized capital gains resulting from changes in
interest rates on fixed income securities of $1.0 million (net of $0.5 million
tax) and $0.4 million (net of $0.2 million tax), respectively, were transferred
to the Company's IMR for future amortization into net income.
FINANCIAL POSITION
The asset mix of the Company as of June 30, 1998, December 31, 1997 and
December 31, 1996 continues to reflect management's commitment to provide
adequate liquidity and limit new investments to investment grade bonds, with
some selective purchases of National Association of Insurance Commissioners
("NAIC") category 3 bonds and agricultural mortgages.
20
<PAGE> 26
The Company's assets as of June 30, 1998 and December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
----------------- ----------------- -----------------
1998 % 1997 % 1996 %
-------- ----- -------- ----- -------- -----
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Bonds.............................. $1,095.5 82.7 $1,074.7 80.7 $1,048.0 75.5
Cash and short-term investments.... 26.0 2.0 46.0 3.5 90.2 6.5
Common stocks...................... 0.1 0.0 1.0 0.1 1.2 0.1
Mortgage loans on real estate
Commercial mortgages............. 29.6 2.2 35.3 2.6 41.1 2.9
Agricultural mortgages........... 108.4 8.2 99.5 7.5 117.7 8.5
Policy loans....................... 48.7 3.7 45.9 3.4 41.4 3.0
Real estate
Foreclosed....................... 4.2 0.3 14.9 1.1 26.4 1.9
For investment................... 5.3 0.4 7.7 0.6 14.3 1.0
Other invested assets.............. 7.4 0.5 7.0 0.5 8.6 0.6
-------- ----- -------- ----- -------- -----
Total invested assets.............. 1,325.2 100.0 1,332.0 100.0 1,388.9 100.0
Other.............................. 23.0 22.7 23.0
-------- -------- --------
Total General Accounts Assets...... 1,348.2 1,354.7 1,411.9
Separate Accounts.................. 4,211.9 3,606.7 2,530.0
-------- -------- --------
Total Assets....................... $5,560.1 $4,961.4 $3,941.9
======== ======== ========
</TABLE>
Bonds eligible for amortization under rules promulgated by the NAIC are
carried at amortized cost, while all other bonds are carried at values adopted
by the NAIC, which approximate fair market value. Loan backed bonds and
structured securities are valued at amortized cost using the effective interest
method considering anticipated prepayments at the date of purchase; significant
changes in the estimated cash flows from the original purchase assumptions are
accounted for using the retrospective method.
Real estate acquired through foreclosure is carried at the lower of cost or
the estimated fair value at the time of foreclosure, less cumulative
depreciation and encumbrances. Mortgage loans in process of foreclosure are also
carried at the lower of cost or the estimated fair value. Fair value is
determined by using the estimated discounted cash flows expected from the
underlying real estate properties. These projected cash flows are based on
estimates regarding future operating expenses, lease rates, occupancy levels and
investors' targeted yields.
The Company provides, through a direct charge to surplus, an investment
valuation reserve for permanent impairment of real estate investments, joint
venture partnerships in real estate, mortgage loans delinquent for more than 60
days and restructured mortgage loans. This reserve reflects, in part, the excess
of the carrying value of such assets over the estimated undiscounted cash flows
expected from the underlying real estate properties. These projected cash flows
are based on estimates similar to those described in the preceding paragraph. As
of June 30, 1998, December 31, 1997 and 1996, the Company's investment reserve
for its mortgage loan and real estate investments was $6 million, $6 million and
$4 million, respectively.
Cash and short-term investment balances were $26.0 million, $46.0 million,
and $90.2 million at June 30, 1998 and December 31, 1997 and 1996, respectively,
and have decreased each period as cash proceeds were reinvested in long term
bonds.
The increase in separate account assets from $2,530.0 million at December
31, 1996 to $3,606.7 million at December 31, 1997 and $4,211.9 million at June
30, 1998 is primarily a result of FPVA production and favorable stock market
performance.
21
<PAGE> 27
BONDS
The Securities Valuation Office (SVO) of the NAIC evaluates the investments
of insurers for regulatory reporting purposes and assigns securities to one of
six investment categories called "NAIC Designations". The NAIC Designations
closely mirror the nationally recognized securities rating organizations'
definitions for marketable bonds. NAIC Designations 1 and 2 include bonds
considered investment grade (Baa or higher by Moody's or BBB or higher by
Standard and Poors) by such rating organizations. NAIC Designations 3 through 6
are referred to as below investment grade (Ba or lower by Moody's or BB or lower
by Standard and Poors).
The following tables show the Company's bond investments by NAIC
designation at June 30, 1998, December 31, 1997 and December 31, 1996.
JUNE 30, 1998
<TABLE>
<CAPTION>
TOTAL TOTAL
NAIC PUBLICLY PRIVATELY
RATINGS TRADED % PUBLIC PLACED % PRIVATE TOTAL % TOTAL
- ------- -------- -------- --------- --------- -------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Class 1.......................... $373.1 62.6% $150.7 30.2% $ 523.8 47.8%
Class 2.......................... 202.3 33.9 301.7 60.4 504.0 46.0
------ ----- ------ ----- -------- -----
Subtotal............... 575.4 96.5 452.4 90.6 1,027.8 93.8
Class 3.......................... 20.9 3.5 38.7 7.8 59.6 5.4
Class 4.......................... 0.0 0.0 7.5 1.5 7.5 0.7
Class 5.......................... 0.0 0.0 0.0 0.0 0.0 0.0
Class 6.......................... 0.0 0.0 0.6 0.1 0.6 0.1
------ ----- ------ ----- -------- -----
Totals................. $596.3 100.0% $499.2 100.0% $1,095.5 100.0%
====== ===== ====== ===== ======== =====
</TABLE>
DECEMBER 31, 1997
<TABLE>
<CAPTION>
TOTAL TOTAL
NAIC PUBLICLY PRIVATELY
RATINGS TRADED % PUBLIC PLACED % PRIVATE TOTAL % TOTAL
- ------- -------- -------- --------- --------- -------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Class 1.......................... $390.6 63.0% $162.7 35.8% $ 553.3 51.5%
Class 2.......................... 203.3 32.8 238.4 52.4 441.7 41.1
------ ----- ------ ----- -------- -----
Subtotal............... 593.9 95.8 401.1 88.2 995.0 92.6
Class 3.......................... 21.0 3.4 45.6 10.0 66.6 6.2
Class 4.......................... 5.0 0.8 7.5 1.7 12.5 1.1
Class 5.......................... 0.0 0.0 0.0 0.0 0.0 0.0
Class 6.......................... 0.0 0.0 0.6 0.1 0.6 0.1
------ ----- ------ ----- -------- -----
Totals................. $619.9 100.0% $454.8 100.0% $1,074.7 100.0%
====== ===== ====== ===== ======== =====
</TABLE>
22
<PAGE> 28
DECEMBER 31, 1996
<TABLE>
<CAPTION>
TOTAL TOTAL
NAIC PUBLICLY PRIVATELY
RATINGS TRADED % PUBLIC PLACED % PRIVATE TOTAL % TOTAL
- ------- -------- -------- --------- --------- -------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Class 1.......................... $379.5 67.6% $162.4 33.4% $ 541.9 51.7%
Class 2.......................... 165.2 29.4 281.5 57.9 446.7 42.6
------ ----- ------ ----- -------- -----
Subtotal............... 544.7 97.0 443.9 91.3 988.6 94.3
Class 3.......................... 17.2 3.0 33.3 6.9 50.5 4.8
Class 4.......................... 0.0 0.0 4.7 1.0 4.7 0.5
Class 5.......................... 0.0 0.0 0.8 0.1 0.8 0.1
Class 6.......................... 0.0 0.0 3.4 0.7 3.4 0.3
------ ----- ------ ----- -------- -----
Totals................. $561.9 100.0% $486.1 100.0% $1,048.0 100.0%
====== ===== ====== ===== ======== =====
</TABLE>
Total public and private bonds increased to $1,095.5 million at June 30,
1998 from $1,074.7 million at December 31, 1997 and $1,048.0 million at December
31, 1996. Bonds represented approximately 82.7%, 80.7% and 75.5% of total
general account invested assets at June 30, 1998, December 31, 1997 and December
31, 1996, respectively. MLOA selectively invests in privately placed bonds to
enhance the overall value of the portfolio, increase diversification and obtain
higher yields than are possible with comparable public market securities.
Private placement investments are made after extensive analysis of the financial
condition of the borrower and include protective covenants to assure future
quality of the Company's investments. A significant portion of bond investments
is in high quality publicly traded bonds in order to maintain and manage
liquidity and reduce the risk of default in the portfolio. The bond portfolio
was comprised of 54.4% public bonds and 45.6% private placements at June 30,
1998, 57.7% in public bonds and 42.3% in private placements at December 31, 1997
and 53.6% in public bonds and 46.4% in private placements at December 31, 1996.
At June 30, 1998, approximately 93.8% of the bond portfolio is held in NAIC
category 1 and 2 bonds and 100% of its publicly traded bonds were rated in the
top three quality categories. There were $0.6 million, $0.6 million and $3.4
million of non-performing bonds (NAIC category 6) held at June 30, 1998,
December 31, 1997 and December 31, 1996, respectively.
23
<PAGE> 29
MLOA's bond portfolio by industry is as follows:
INDUSTRY EXPOSURE OF BONDS
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- ------------------- -------------------
INDUSTRY CLASS BOOK VALUE % BOOK VALUE % BOOK VALUE %
- -------------- ---------- ----- ---------- ----- ---------- -----
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Consumer Goods & Services....... $ 137.8 12.6 $ 112.5 10.5 $ 100.4 9.6
Other Manufacturing............. 130.5 11.9 106.0 9.9 116.9 11.2
Public Utilities................ 127.2 11.6 123.8 11.5 129.0 12.3
Non-Government-Asset Backed..... 126.8 11.6 128.3 11.9 133.5 12.7
Energy.......................... 121.7 11.1 128.3 11.9 119.7 11.4
Mortgage Backed-Government &
Agency........................ 119.6 10.9 123.9 11.5 126.7 12.1
Financial Services.............. 117.7 10.7 133.5 12.4 102.6 9.8
Transportation/Aerospace........ 74.8 6.8 82.5 7.7 78.5 7.5
Bank Holding Companies.......... 49.2 4.5 39.4 3.7 32.6 3.1
Nat Res/Manuf (non-energy)...... 40.2 3.7 40.4 3.8 45.2 4.3
Banks........................... 19.2 1.8 19.2 1.8 25.5 2.4
Cable Television................ 11.8 1.1 12.2 1.1 16.7 1.6
Media/Advertising............... 8.1 0.7 13.8 1.3 14.8 1.4
Government & Agency............. 5.9 0.5 5.9 0.5 5.9 0.6
Other........................... 5.0 0.5 5.0 0.5 -- 0.0
-------- ----- -------- ----- -------- -----
Total................. $1,095.5 100.0% $1,074.7 100.0% $1,048.0 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
MLOA's long-term bond portfolio is well diversified among industry types.
The largest industry classification is Consumer Good and Services which
represents 12.6% of the total portfolio at June 30, 1998.
The Company held $246.4 million of mortgage and asset-backed securities as
of June 30, 1998, which represents 18.6% of the total invested assets. Of that
amount, $119.6 million (48.5%) are agency-issued pass throughs and
collateralized mortgage obligations (CMO's) secured by GNMA, FNMA and FHLMC, and
$126.8 million (51.5%) were other types of mortgage and asset-backed securities.
The Company actively monitors prepayment risk using quantitative and qualitative
methods. MLOA believes that its active monitoring of its portfolio of
mortgage-backed securities and the limited extent of its holdings of more
volatile types of mortgage-backed securities mitigate exposure to losses from
prepayment risks associated with rate fluctuations for this portfolio.
MATURITIES OF BONDS
The amortized cost and estimated market value of bonds by final maturity
date (excluding scheduled sinking funds) as of June 30, 1998, December 31, 1997
and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31,1997 DECEMBER 31, 1996
---------------------- ---------------------- ----------------------
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- --------- --------- --------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Due one year or less....... $ 68.1 $ 68.6 $ 23.2 $ 23.3 $ 16.6 $ 16.8
Due after one year through
five years............... 376.9 383.7 411.4 418.1 437.5 443.1
Due after five years
through ten years........ 355.0 367.2 380.4 391.3 351.1 355.0
Due after ten years........ 295.5 303.1 259.7 266.7 242.8 245.0
-------- -------- -------- -------- -------- --------
$1,095.5 $1,122.6 $1,074.7 $1,099.4 $1,048.0 $1,059.9
======== ======== ======== ======== ======== ========
</TABLE>
24
<PAGE> 30
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
MORTGAGE LOANS
As of June 30, 1998, the mortgage loan portfolio is comprised of $29.6
million in commercial loans and $108.4 million in agricultural mortgages. Total
mortgage loans represent 10% of the general account invested assets.
The Company has followed a strategy of reducing its commercial mortgage
portfolio through sales to third parties, encouraging prepayments, paydowns, and
repayments. Since 1991, the Company has not actively made any new commercial
loans (other than refinancing existing mortgages and a limited number of
purchase money mortgages on selected sales of real estate).
The Company reduced its commercial mortgage loan portfolio to $29.6 million
as of June 30, 1998, from $35.3 million as of December 31, 1997 and $41.1
million as of December 31, 1996.
The agricultural loan balance was $108.4 million, $99.5 million and $117.7
million at June 30, 1998, December 31, 1997 and December 31, 1996, respectively.
The increase from December 31, 1997 to June 30, 1998 is explained by $13.5
million of new loans offset with dispositions of $4.6 million. The decrease in
the agricultural loan balance from December 31, 1996 to December 31, 1997 is
mostly explained by dispositions of $12.7 million, repayments and prepayments of
$17.7 million, offset with new loans of $12.2 million.
The average yield on agricultural loans was 8.1% at June 30, 1998 and 99.4%
of the portfolio was current as to interest and principal repayments.
A schedule of commercial and agricultural mortgage loan maturities as of
June 30, 1998, December 31, 1997 and 1996 is as follows:
MORTGAGE LOAN MATURITY SCHEDULE
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------------------------------------------
TOTAL
COMMERCIAL % AGRICULTURAL % MORTGAGES %
---------- ----- ------------ ----- --------- -----
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
One year or less................ $ 5.5 18.6 $ 0.1 0.1 $ 5.6 4.1
Over 1 to 3 years............... 13.5 45.6 4.8 4.4 18.3 13.3
Over 3 to 5 years............... 1.0 3.4 11.4 10.5 12.4 9.0
Over 5 to 10 years.............. 7.5 25.3 26.8 24.7 34.3 24.9
Over 10 years................... 2.1 7.1 65.3 60.3 67.4 48.7
----- ----- ------ ----- ------ -----
Total................. $29.6 100.0 $108.4 100.0 $138.0 100.0
===== ===== ====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------------------
TOTAL
COMMERCIAL % AGRICULTURAL % MORTGAGES %
---------- ----- ------------ ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
One year or less................ $ 4.6 13.1 $ 0.0 0.0 $ 4.6 3.4
Over 1 to 3 years............... 13.7 38.6 3.1 3.1 16.8 12.5
Over 3 to 5 years............... 5.4 15.4 12.5 12.6 17.9 13.3
Over 5 to 10 years.............. 9.5 26.9 26.5 26.6 36.0 26.7
Over 10 years................... 2.1 6.0 57.4 57.7 59.5 44.1
----- ----- ------ ----- ------ -----
Total................. $35.3 100.0 $ 99.5 100.0 $134.8 100.0
===== ===== ====== ===== ====== =====
</TABLE>
25
<PAGE> 31
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------
TOTAL
COMMERCIAL % AGRICULTURAL % MORTGAGES %
---------- ----- ------------ ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
One year or less................ $ 3.6 8.7 $ 0.2 0.2 $ 3.8 2.4
Over 1 to 3 years............... 17.0 41.3 1.2 1.0 18.2 11.5
Over 3 to 5 years............... 10.5 25.6 9.3 7.9 19.8 12.5
Over 5 to 10 years.............. 7.8 19.1 33.3 28.3 41.1 25.9
Over 10 years................... 2.2 5.3 73.7 62.6 75.9 47.7
----- ----- ------ ----- ------ -----
Total................. $41.1 100.0 $117.7 100.0 $158.8 100.0
===== ===== ====== ===== ====== =====
</TABLE>
The table below provides the problem loan balance at June 30, 1998,
December 31, 1997 and 1996.
PROBLEM MORTGAGE LOANS
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- ------------------------- -------------------------
COMMERCIAL AGRICULTURAL COMMERCIAL AGRICULTURAL COMMERCIAL AGRICULTURAL
---------- ------------ ---------- ------------ ---------- ------------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Over 90 days.................. $ 0.0 $0.7 $ 0.0 $0.0 $ 0.0 $0.0
In Process of Foreclosure..... 0.6 0.0 0.6 0.0 0.0 0.0
Restructured loans in Good
Standing.................... 14.1 0.0 14.1 0.0 15.0 0.5
----- ---- ----- ---- ----- ----
Total............... $14.7 $0.7 $14.7 $0.0 $15.0 $0.5
===== ==== ===== ==== ===== ====
</TABLE>
The following table shows the diversification of the total mortgage
portfolio by region and property type:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
--------------- --------------- ---------------
BY REGION % % %
- --------- ----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
West.................................... $ 57.7 41.9 $ 52.6 39.0 $ 59.5 37.4
Mountain................................ 29.1 21.0 29.1 21.6 36.1 22.7
Southwest............................... 16.5 12.0 15.2 11.3 19.3 12.2
Northeast............................... 15.0 10.8 19.0 14.1 19.3 12.2
Midwest................................. 12.4 9.0 11.5 8.5 13.7 8.6
Southeast............................... 7.3 5.3 7.4 5.5 10.9 6.9
------ ----- ------ ----- ------ -----
Total......................... $138.0 100.0 $134.8 100.0 $158.8 100.0
====== ===== ====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
--------------- --------------- ---------------
BY TYPE % % %
- ------- ----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Agricultural............................ $108.4 78.6 $ 99.5 73.8 $117.7 74.1
Office.................................. 14.8 10.7 16.9 12.5 20.0 12.6
Industrial.............................. 4.8 3.5 6.3 4.7 8.3 5.2
Retail.................................. 4.7 3.4 4.7 3.5 6.7 4.2
Other................................... 3.9 2.8 4.0 3.0 4.1 2.6
Apartments.............................. 1.4 1.0 3.4 2.5 2.0 1.3
------ ----- ------ ----- ------ -----
Total......................... $138.0 100.0 $134.8 100.0 $158.8 100.0
====== ===== ====== ===== ====== =====
</TABLE>
26
<PAGE> 32
EQUITY REAL ESTATE:
Equity real estate is made up of investment real estate, foreclosed
commercial properties and real estate partnerships (included in other assets of
$7.0 million, $7.0 million and $8.1 million at June 30, 1998, December 31, 1997
and 1996, respectively). Real estate investments are 1.2% of general account
invested assets as of June 30, 1998.
Below is a table of the carrying values at June 30, 1998 and December 31,
1997 and 1996 for these investments:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
-------- ------------ ------------
($ IN MILLIONS)
<S> <C> <C> <C>
Real Estate for Investment............................... $ 5.3 $ 7.7 $14.3
Foreclosed Urban Properties.............................. 4.2 14.9 26.4
----- ----- -----
Subtotal Real Estate................................ 9.5 22.6 40.7
Real Estate Partnerships................................. 7.0 7.0 8.1
----- ----- -----
Grand Total Real Estate........................ $16.5 $29.6 $48.8
===== ===== =====
</TABLE>
Total real estate decreased from $48.8 million at December 31, 1996 to
$29.6 million at December 31, 1997 to $16.5 million at June 30, 1998 primarily
due to sales of real estate properties.
COMMITMENTS
At June 30, 1998, the Company had commitments to issue $5.0 million of
fixed rate farm loans with periodic interest rate reset dates. The initial
interest rates on such loans range from approximately 7.38% to 7.85%. There were
no outstanding commercial mortgage or bond commitments as of June 30, 1998.
LIQUIDITY
Net cash used by operations was $23.4 million for the six months ended June
30, 1998, $18.1 million for the six months ended June 30, 1997, $68.8 million
for the year ended December 31, 1997 and $40.4 million for the year ended
December 31, 1996. The increase in uses of $5.3 million for the six months ended
June 30, 1998 as compared to the six months ended June 30, 1997, is due to
higher operating expenses. The increase of $28.4 million for the year ended
December 31, 1997 as compared to the year ended December 31, 1996, is primarily
the result of a $27.5 million payment of Federal income tax by the Company to
its parent during 1997. The negative cash flow from operations for the six
months ended June 30, 1998 and the years ended December 31, 1997 and 1996 is
primarily due to the fact that many of the new product sales are related to
separate account products while the field expenses and commissions are absorbed
in the general account. Operating cash flow or fees derived from Separate
account business, including mortality, administrative fees and surrender charges
will be reflected in the general account over the duration of the contracts.
As of June 30, 1998, MLOA had highly liquid assets of approximately $1.1
billion comprised of public ($575.4 million) and private bonds ($452.4 million)
in categories 1 and 2 and cash and short term investments of $26.0 million.
7. YEAR 2000
The Year 2000 issue is the result of the widespread use of computer
programs being written using two digits (rather than four) to define the
applicable year. Such programming was a common industry practice designed to
avoid the significant costs associated with additional mainframe capacity
necessary to accommodate a four digit year field. As a result, any of the
Company's computer systems that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a major system failure or miscalculations. The Company has conducted a
comprehensive review of its computer systems to identify the systems that could
be affected by the "Year 2000" problem and has developed and implemented a plan
to resolve the issue. The Company currently believes that, with modifications to
existing
27
<PAGE> 33
software and converting to new software, the Year 2000 problem will not pose
significant operational problems for the Company's computer systems. However, if
such modifications and conversions are not completed on a timely basis, the Year
2000 problem may have a material impact on the operations of the Company.
Further, even if the Company completes such modifications and conversions on a
timely basis, there can be no assurance that the failure by vendors or other
third parties to solve the Year 2000 problem will not have a material impact on
the operations of the Company. The Company estimates the total cost to resolve
its Year 2000 problem to be approximately $1.1 million, of which $0.6 million
has been incurred through June 30, 1998; however, there can be no assurance that
the actual cost incurred will not be materially higher than such estimate.
8. POTENTIAL TAX LEGISLATION
Congress has, from time to time, considered possible legislation that would
eliminate the deferral of taxation on the accretion of value within certain
annuities and life insurance products. The 1994 United States Supreme Court
ruling in NationsBank of North Carolina v. Variable Annuity Life Insurance
Company that annuities are not insurance for purposes of the National Bank Act
may cause Congress to consider legislation that would eliminate such tax
deferral at least for certain annuities. Other possible legislation, including a
simplified "flat tax" income tax structure with an exemption from taxation for
investment income, could also adversely affect purchases of annuities and life
insurance if such legislation were to be enacted. There can be no assurance as
to whether legislation will be enacted which would contain provisions with
possible adverse effects on the Company's annuity and life insurance products.
9. DIRECTORS AND EXECUTIVE OFFICERS
The directors and officers of the Company are listed below. The business
address for all directors and officers of MONY Life Insurance Company of America
is 1740 Broadway, New York, New York 10019.
Current Officers and Directors of MONY America are:
<TABLE>
<CAPTION>
NAME POSITION AND OFFICES WITH DEPOSITOR
- ---- -----------------------------------
<S> <C>
Michael I. Roth..................... Director, Chairman and Chief
Executive Officer
Samuel J. Foti...................... Director, President and Chief
Operating Officer
Richard E. Connors.................. Director
Richard Daddario.................... Director, Vice President and
Controller
Phillip A. Eisenberg................ Director, Vice President and Actuary
Margaret G. Gale.................... Director and Vice President
Stephen J. Hall..................... Director
Charles P. Leone.................... Director, Vice President and Chief
Compliance Officer
Kenneth M. Levine................... Director and Executive Vice
President
David S. Waldman.................... Secretary
David V. Weigel..................... Treasurer
</TABLE>
No officer or director listed above receives any compensation from the
Company in addition to compensation paid by MONY.
Biographical information for each of the individuals listed in the above
table is set forth below.
DIRECTORS AND EXECUTIVE OFFICERS. Set forth below is a description of the
business positions during at least the past five years for the directors and the
executive officers of the Company.
Michael I. Roth is Director, Chairman of the Board and Chief Executive
Officer of the Company. He is Chairman of the Board (since July 1993) and Chief
Executive Officer (since January 1993) of MONY and has been a Trustee since May
1991. Mr. Roth is also a director of the following subsidiaries of MONY: 1740
28
<PAGE> 34
Advisers, Inc. (since December 1992) and MONY CS, Inc. (since December 1989). He
has also served as MONY's President and Chief Executive Officer (from January
1993 to July 1993), President and Chief Operating Officer (from January 1991 to
January 1993) and Executive Vice President and Chief Financial Officer (from
March 1989 to January 1991). Mr. Roth has been with MONY for 9 years. Mr. Roth
also served on the board of directors of the American Council of Life Insurance
and serves on the boards of directors of the Life Insurance Council of New York,
Insurance Marketplace Standards Association, Enterprise Foundation (a charitable
foundation not affiliated with the Enterprise Group of Funds which develops
housing), Metropolitan Development Association of Syracuse and Central New York,
Enterprise Group of Funds, Inc., Enterprise Accumulation Trust, Pitney Bowes,
Inc. and Promus Hotel Corporation.
Samuel J. Foti is Director, President and Chief Operating Officer of the
Company. He is President and Chief Operating Officer (since February 1994) of
MONY and has been a Trustee since January 1993. Mr. Foti is also a director of
the following subsidiaries of MONY: MONY Brokerage, Inc. (since January 1990),
MONY International Holdings, Inc. (since October 1994), MONY Life Insurance
Company of the Americas, Ltd., (since December 1994) and MONY Bank & Trust
Company of the Americas, Ltd. (since December 1994). He has also served as
MONY's Executive Vice President (from January 1991 to February 1994) and Senior
Vice President (from April 1989 to January 1991). Mr. Foti has been with MONY
for 10 years. Mr. Foti also serves on the board of directors of the Life
Insurance Marketing and Research Association, where he served as Chairman from
October 1996 through October 1997, Enterprise Group of Funds, Inc., Enterprise
Accumulation Trust and The American College.
Richard Daddario is Director, Vice President and Controller of the Company.
He is Executive Vice President and Chief Financial Officer (since April 1994) of
MONY. Mr. Daddario is also a director of the following subsidiaries of MONY:
MONY Brokerage, Inc. (since June 1997) and MONY Life Insurance Company of the
Americas, Ltd. (since December 1997). He has also served as MONY's Chief
Financial Officer (from January 1991 to present) and Senior Vice President (from
July 1989 to April 1994). Mr. Daddario has been with MONY for 9 years.
Kenneth M. Levine is Director and Executive Vice President of the Company.
He is Executive Vice President (since February 1990) and Chief Investment
Officer (since January 1991) of MONY and has been a Trustee since May 1994. Mr.
Levine is also a director of the following subsidiaries of MONY: 1740 Advisers,
Inc. (since December 1989), MONY Funding, Inc. (since October 1991), MONY Realty
Partners, Inc. (since October 1991) and 1740 Ventures, Inc. (since October
1991). He has also served as MONY's Senior Vice President -- Pensions (from
January 1988 to February 1990). Prior to that time, Mr. Levine held various
management positions within MONY. Mr. Levine has been with MONY for 25 years.
Richard E. Connors is Director of the Company; Senior Vice President of
MONY (since February 1994). Mr. Connors is also a director of the following
subsidiary of MONY: MONY Brokerage, Inc. (since May 1994). He has also served as
MONY's Regional Vice President -- Western Region (from June 1991 to February
1994), Vice President -- Small Business Marketing (from January 1990 to June
1991) and Vice President -- Manpower Development (from March 1988 to January
1990). Mr. Connors has been with MONY for 10 years.
Phillip A. Eisenberg is Director, Vice President and Actuary of the
Company; Senior Vice President and Chief Actuary of MONY (since April 1993). He
has also served as MONY's Vice President -- Individual Financial Affairs (from
January 1989 to March 1993). Prior to that time, Mr. Eisenberg held various
positions within MONY. Mr. Eisenberg has been with MONY for 34 years.
Margaret G. Gale is Director and Vice President of the Company; Vice
President of MONY (since February 1991). She has also served as Vice
President -- Policyholder Services (from 1988 to 1991). Ms. Gale has been with
MONY for 20 years.
Stephen J. Hall is Director of the Company; Senior Vice President of MONY
(since February 1994). Mr. Hall is also a director of the following subsidiary
of MONY: MONY Brokerage, Inc. (since October 1991). He has also served as MONY's
Vice President & Chief Marketing Officer (from Novem-
29
<PAGE> 35
ber 1990 to February 1994) and prior to that time was manager of MONY's Boise,
Idaho insurance agency. Mr. Hall has been with MONY for 24 years.
Charles P. Leone is Director, Vice President and Chief Compliance Officer
of the Company; Vice President and Chief Corporate Compliance Officer of MONY
(since 1996). He has also served as Vice President of MONY (from 1987 to 1996).
Mr. Leone has been with MONY for 35 years.
David S. Waldman is Secretary of the Company; Assistant Vice President and
Senior Counsel -- Operations (since 1992). He has also served as Assistant
General Counsel of MONY (from 1986 to 1992). Mr. Waldman has been with MONY for
16 years.
David V. Weigel is Treasurer of the Company; Vice President -- Treasurer of
MONY (since 1994). He has also served as Assistant Treasurer of MONY (from 1986
to 1994). Mr. Weigel has been with MONY for 25 years.
10. EXECUTIVE COMPENSATION
None of the directors, officers, or other personnel receives any
compensation from the Company. All compensation is being paid by MONY, with an
allocation of their compensation to be made for services rendered to the Company
pursuant to a cost allocation agreement.
11. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
(1) Financial Statements:
Report of Independent Accountants
Statements of Admitted Assets, Liabilities, Capital and
Surplus -- Statutory Basis as of December 31, 1997, and 1996
Statements of Operations -- Statutory Basis for the years
ended December 31, 1997, 1996 and 1995
Statements of Capital and Surplus -- Statutory Basis for the
years ended December 31, 1997, 1996 and 1995
Statements of Cash Flows -- Statutory Basis for the years
ended December 31, 1997, 1996 and 1995
Notes to Statutory-Basis Financial Statements
Unaudited Interim Statement of Admitted Assets, Liabilities,
Capital and Surplus for the six months ended June 30, 1998
Unaudited Interim Statements of Operations -- Statutory
Basis for the six months ended June 30, 1998 and 1997
Unaudited Interim Statements of Capital and
Surplus -- Statutory Basis for the six months ended June 30,
1998 and 1997
Unaudited Interim Statements of Cash Flows -- Statutory
Basis for the six months ended June 30, 1998 and 1997
Notes to Unaudited Interim Statutory-Basis Financial
Statements
30
<PAGE> 36
STATUTORY-BASIS FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS
INDEX TO STATUTORY-BASIS FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
With respect to MONY Life Insurance Company of America
Report of Independent Accountants......................... F-2
Statements of admitted assets, liabilities, capital and
surplus as of December 31, 1997, and 1996.............. F-3
Statements of operations for the years ended December 31,
1997, 1996 and 1995.................................... F-4
Statements of capital and surplus for the years ended
December 31, 1997, 1996 and 1995....................... F-5
Statements of cash flows for the years ended December 31,
1997, 1996 and 1995.................................... F-6
Notes to statutory-basis financial statements............. F-7
Unaudited interim statement of admitted assets,
liabilities, capital and surplus for the six months
ended June 30, 1998.................................... F-22
Unaudited interim statements of operations for the six
months ended June 30, 1998 and 1997.................... F-23
Unaudited interim statements of capital and surplus for
the six months ended June 30, 1998 and 1997............ F-24
Unaudited interim statements of cash flows for the six
months ended June 30, 1998 and 1997..................... F-25
Notes to unaudited interim statutory-basis financial
statements............................................. F-26
</TABLE>
F-1
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
MONY Life Insurance Company of America:
We have audited the accompanying statutory statements of admitted assets,
liabilities, capital and surplus of MONY Life Insurance Company of America ("the
Company") as of December 31, 1997 and 1996 and the related statutory statements
of operations, capital and surplus, and cash flows for each of the three years
in the period ended December 31, 1997. These statutory financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The Company presents its financial statements in conformity with the accounting
practices prescribed or permitted by the Insurance Department of the State of
Arizona ("statutory"), which is a comprehensive basis of accounting other than
generally accepted accounting principles ("GAAP"). As explained in Note 2 to the
financial statements, the accounting practices used by the Company vary from
generally accepted accounting principles, and the effects of these variances are
material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the statutory financial statements referred to above do not present
fairly, in conformity with GAAP, the financial position of the Company as of
December 31, 1997 and 1996, or the results of its operations and its cash flows,
for each of the three years in the period ended December 31, 1997.
In our opinion, however, the statutory financial statements referred to above
present fairly, in all material respects, the admitted assets, liabilities,
capital and surplus of the Company as of December 31, 1997 and 1996 and the
results of its operations and its cash flows for the three year period ended
December 31, 1997 on the basis of accounting described in Note 2.
Our audits were conducted for the purpose of expressing an opinion on the
financial statements taken as a whole. The Supplemental Schedule of Selected
Financial Data is presented to comply with the National Association of Insurance
Commissioners' Annual Statement Instructions and is not a required part of the
basic financial statements. The Supplemental Schedule of Selected Financial Data
has been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
PricewaterhouseCoopers LLP
New York, New York
February 27, 1998
except for Note 1, as to which
the date is August 14, 1998.
F-2
<PAGE> 38
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF ADMITTED ASSETS, LIABILITIES, CAPITAL
AND SURPLUS -- STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash and invested assets:
Cash and short-term investments........................... $ 45,956 $ 90,207
Bonds..................................................... 1,074,724 1,047,957
Common stocks............................................. 981 1,235
Mortgage loans............................................ 134,828 158,847
Real estate............................................... 22,627 40,725
Policy loans.............................................. 45,892 41,464
Other invested assets..................................... 7,001 8,518
---------- ----------
Total cash and invested assets.................... 1,332,009 1,388,953
Investment income due and accrued........................... 22,402 20,401
Other assets................................................ 247 2,511
Separate account assets..................................... 3,606,711 2,529,992
---------- ----------
Total assets...................................... $4,961,369 $3,941,857
========== ==========
LIABILITIES, CAPITAL AND SURPLUS
Liabilities:
Life insurance and annuity reserves....................... $1,241,979 $1,284,529
Deposits left with the Company............................ 23,197 23,525
Policy claims in process of settlement.................... 8,331 6,085
Federal income taxes due or accrued....................... 17,837 29,077
Transfers from separate accounts.......................... (128,943) (97,477)
Other liabilities......................................... 32,869 18,842
Separate account liabilities.............................. 3,606,711 2,529,992
Interest maintenance reserve.............................. 3,965 3,583
Investment reserves....................................... 6,000 4,000
Asset valuation reserve................................... 16,272 17,887
---------- ----------
Total liabilities................................. 4,828,218 3,820,043
Capital and surplus:
Capital stock, $1.00 par value; authorized, 5,000,000
shares
Issued and outstanding, 2,500,000 shares............... 2,500 2,500
Additional paid-in capital................................ 133,500 133,500
Unassigned funds.......................................... (2,849) (14,186)
---------- ----------
Total capital and surplus......................... 133,151 121,814
---------- ----------
Total liabilities, capital and surplus............ $4,961,369 $3,941,857
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 39
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Premiums, annuity considerations and fund deposits......... $799,035 $741,870 $607,099
Net investment income...................................... 99,006 102,092 104,923
Other income (net)......................................... 332 22 2,557
-------- -------- --------
898,373 843,984 714,579
Policyholder and contractholder benefits................... 407,381 336,731 309,335
Change in policy and contract reserves..................... (42,879) (35,010) 38,633
Commissions................................................ 40,860 36,793 32,257
Operating expenses......................................... 64,866 53,212 44,713
Transfer to separate accounts.............................. 397,492 428,101 275,600
-------- -------- --------
867,720 819,827 700,538
Net gain from operations before federal income taxes....... 30,653 24,157 14,041
Federal income taxes....................................... 17,390 14,407 7,984
-------- -------- --------
Net gain from operations................................... 13,263 9,750 6,057
Net realized capital losses (See Note 7)................. (3,544) (1,720) (1,410)
-------- -------- --------
Net Income................................................. $ 9,719 $ 8,030 $ 4,647
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 40
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CAPITAL AND SURPLUS -- STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Capital and surplus, beginning of year..................... $121,814 $115,630 $104,915
-------- -------- --------
Net income................................................. 9,719 8,030 4,647
Change in net unrealized capital gains..................... 2,774 1,618 (3,846)
Change in non-admitted assets.............................. (771) 384 53
Change in asset valuation reserve.......................... 1,615 (3,848) (139)
Increase in Paid in Capital................................ 0 0 10,000
(Increase)/Decrease in investment reserve.................. (2,000) 0 0
-------- -------- --------
Net change in capital and surplus for the year............. 11,337 6,184 10,715
-------- -------- --------
Capital and surplus, end of year........................... $133,151 $121,814 $115,630
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 41
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash from Operations:
Premiums, annuity considerations and fund deposits.... $ 799,751 $ 741,905 $ 607,410
Investment income, net of investment expenses......... 97,589 104,606 107,636
Other income.......................................... 833 985 2,225
Policy benefits paid.................................. (405,289) (336,206) (307,108)
Transfers to separate accounts........................ (428,958) (460,502) (292,082)
Commissions, other expenses and taxes paid............ (105,188) (91,150) (76,337)
Federal income taxes (excluding tax on capital
gains)............................................. (27,516) 0 0
--------- --------- ---------
Net cash from operations...................... (68,778) (40,362) 41,744
--------- --------- ---------
Cash from Investments:
Proceeds from investments sold, matured or repaid:
Bonds.............................................. 130,649 134,846 148,517
Stocks............................................. 1,050 0 5
Mortgage loans..................................... 37,670 53,226 20,465
Real estate........................................ 18,453 19,790 19,751
Other invested assets.............................. 1,512 18 162
Other.............................................. 361 88 0
Taxes paid on net capital gains.................... (1,564) 0 0
--------- --------- ---------
Total investment proceeds..................... 188,131 207,968 188,900
--------- --------- ---------
Cost of investments acquired:
Bonds.............................................. 157,583 163,792 177,057
Stocks............................................. 68 40 400
Mortgage loans..................................... 13,641 38,651 23,813
Real estate........................................ 1,180 3,392 5,530
Other invested assets.............................. 574 1,388 807
Change in policy loans............................. 4,428 3,339 5,761
--------- --------- ---------
Total investments acquired.................... 177,474 210,602 213,368
--------- --------- ---------
Net cash from investments..................... 10,657 (2,634) (24,468)
--------- --------- ---------
Cash from Financing and Miscellaneous Sources:
Cash provided:
Increase in paid capital........................... 0 0 10,000
Other sources...................................... 13,870 8,041 19,224
--------- --------- ---------
Net cash from financing and miscellaneous
sources..................................... 13,870 8,041 29,224
--------- --------- ---------
Net change in cash and short-term investments......... (44,251) (34,955) 46,500
Cash and short-term investments, beginning of year...... 90,207 125,162 78,662
--------- --------- ---------
Cash and short-term investments, end of year............ $ 45,956 $ 90,207 $ 125,162
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 42
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
MONY Life Insurance Company of America (the "Company"), an Arizona
corporation, is a wholly owned subsidiary of The Mutual Life Insurance Company
of New York ("MONY"), a mutual life insurance company. The Company's primary
business is to provide interest-sensitive life insurance and asset accumulation
products to business owners, growing families, and pre-retirees. The Company's
insurance and financial products are marketed and distributed directly to
individuals primarily through MONY's career agency sales force. These products
are sold throughout the United States (except New York) and Puerto Rico.
On August 14, 1998, the Board of Trustees of MONY adopted, pursuant to the
New York Insurance Law, a plan of reorganization (the "Plan) pursuant to which
MONY proposes to convert from a mutual life insurance company to a stock life
insurance company (the "Demutualization") subject to approval from the Insurance
Department of the State of New York as well as approval by MONY's policyholders.
In accordance with the Plan, subject to the approvals indicated above,
among other things, MONY will convert from a New York mutual life insurance
company to a New York stock life insurance company (the "Plan of
Demutualization") and become a wholly owned subsidiary of the MONY Group, Inc.
(the "Holding Company"), a holding company organized in Delaware for the purpose
of becoming the parent holding company of MONY.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying statutory financial statements have been prepared in
conformity with accounting practices prescribed or permitted by the Insurance
Department of the State of Arizona ("statutory"), which is a comprehensive basis
of accounting other than generally accepted accounting principles ("GAAP").
The preparation of statutory financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of results of operations and
changes in surplus during the reporting period. Actual results could differ
significantly from those estimates. The most significant estimates made in
conjunction with the preparation of the Company's financial statements include
those used in determining (i) valuation reserves for mortgage loans and real
estate investments, and (ii) the liability for future policy benefits.
In financial statements prepared in conformity with statutory accounting,
the accounting treatment of certain items is different than for financial
statements prepared in conformity with GAAP. Some of the general differences
include:
- Policy acquisition costs, such as commissions and other costs incurred in
connection with acquiring new and renewal business, are expensed when
incurred; under GAAP, such costs are deferred and amortized over the
expected life of the contracts as a constant percentage based on the
present value of estimated gross profits.
- Premiums for universal life and investment-type products are recognized
as revenue when due; under GAAP, they are reported as deposits to
policyholders' account balances. Revenues from these contracts under GAAP
consist of amounts assessed during the period against policyholders'
account balances for mortality, policy administration and surrender
charges.
- Policy reserves are based on statutory mortality and interest
requirements, without consideration of withdrawals, and are reported net
of reinsurance reserve credits; under GAAP, the reserves for interest
sensitive life and annuity products are equal to the fund value and are
reported gross of reinsurance reserve credits.
F-7
<PAGE> 43
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- No provision is made for deferred income taxes; under GAAP, deferred
income taxes result from temporary differences between the tax bases of
assets and liabilities and their reported amounts in the financial
statements.
- An interest maintenance reserve ("IMR") is established as a liability to
capture realized investment gains and losses, net of tax, on the sale of
fixed maturities and mortgage loans resulting from changes in the general
level of interest rates, and is amortized into income over the remaining
years to expected maturity of the assets sold; under GAAP, assets are
carried on the balance sheet, net of appropriate valuation allowances.
- An asset valuation reserve ("AVR"), based upon a formula prescribed by
the NAIC, is established as a liability to offset potential non-interest
related investment losses, and changes in the AVR are charged or credited
to surplus; under GAAP, no such reserve is required.
- Bonds in good standing are generally carried at amortized cost; under
GAAP, bonds which are classified as available for sale are carried at
fair value and the related change in unrealized gains and losses, net of
related deferred taxes and an adjustment for deferred policy acquisition
costs, is reported as a component of other comprehensive income in
equity.
- Certain assets designated as "non-admitted," are excluded from assets by
a direct charge to surplus; under GAAP, such assets are carried on the
balance sheet, net of appropriate valuation allowances.
- Methods used for calculating real estate and mortgage loan values and
real estate depreciation under statutory reporting are different from
those used for GAAP.
- Cash equivalents are defined as all highly liquid debt securities with
original maturities of twelve months or less; under GAAP, cash
equivalents are defined as short-term, highly liquid investments, which
generally have original maturities of three months or less.
The following is a description of the Company's principal statutory
accounting policies:
a. Premiums and Insurance Expenses
Premiums are included in revenue over the premium payment periods of the
related policies. Annuity considerations and fund deposits are included in
revenue as received.
The costs of acquiring new business, primarily commissions, underwriting,
agency and other costs related to issuance, maintenance and settlement of
policies are charged to operations in the year incurred.
b. Investments
Bonds are stated at amortized cost, except those bonds not in good
standing, which are carried at NAIC-designated values, which approximate fair
value. Loan-backed bonds and structured securities are valued at amortized cost
using the effective interest method considering anticipated prepayments at the
date of purchase; significant changes in the estimated cash flows from the
original purchase assumptions are accounted for using the retrospective method.
Common stocks are carried at fair value. Policy loans are carried at their
unpaid principal balances. Short-term investments are carried at amortized cost
and consist of securities with original maturities of twelve months or less.
Mortgage loans other than those in process of foreclosure are carried at
their unpaid principal balances adjusted for unamortized premium or discount.
Real estate owned for investment is carried at depreciated cost, less
encumbrances, if any. There were no encumbrances in 1997, 1996 or 1995. Joint
ventures in real estate are included in Other Invested Assets and are carried
principally at their equity value. Other investments are generally carried at
cost.
F-8
<PAGE> 44
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Real estate acquired through foreclosure is carried at the lower of cost,
less accumulated depreciation and encumbrances, if any, or estimated fair value
at the time of foreclosure. There were no encumbrances in 1997, 1996 or 1995.
Mortgage loans in process of foreclosure are carried at the lower of the current
carrying value or estimated fair value. Fair value is determined by using the
estimated discounted cash flows expected from the underlying real estate
properties. These projected cash flows are based on estimates regarding future
operating expenses, lease rates, occupancy levels and investors' targeted
yields.
The Company provides, through a direct charge to surplus, an investment
valuation reserve for permanent impairment of real estate investments, joint
ventures in real estate, mortgage loans delinquent for more than 60 days and
restructured mortgage loans. This reserve reflects, in part, the excess of the
carrying value of such assets over the estimated undiscounted cash flows
expected from the underlying real estate properties. These projected cash flows
are based on estimates similar to those described in the preceding paragraph. As
of December 31, 1997, 1996 and 1995 the Company's investment valuation reserve
was $6 million, $4 million and $4 million, respectively.
Derivative instruments are valued consistently with the items being hedged.
Hedges of fixed income assets and/or liabilities are valued at amortized cost.
Derivatives that cease to be effective hedges are valued at market value.
Realized capital gains and losses on sales of investments are determined on
the basis of specific identification. Unrealized capital gains and losses are
recorded directly to surplus. Investment income is recognized as earned.
Investment income earned includes the amortization of premium and accretion of
discount relative to bonds acquired at other than their par value and excludes
certain overdue due and accrued interest income.
c. Interest Maintenance Reserve and Asset Valuation Reserve
Realized investment gains and losses (net of tax) for bonds and mortgage
loans resulting from changes in interest rates are deferred, and credited or
charged to the IMR. These amounts are amortized into net income over the
remaining years to expected maturity of the assets sold.
The AVR is based upon a formula prescribed by the NAIC and functions as a
reserve for potential non-interest related investment losses. In addition,
realized investment gains and losses (not subject to the IMR) and unrealized
gains and losses result in changes in the AVR which are recorded directly to
surplus.
d. Policy Reserves
Policy reserves for deferred annuity contracts are computed by using the
Commissioners' Annuity Reserve Valuation Method by using the 1971 IAM Table for
contracts issued before 1984 and the 1983 Table A for contracts issued since
1983 and prescribed statutory interest rates. Policy reserves for universal life
and single premium whole life contracts are computed by using the Commissioners'
Reserve Valuation Method and by using the 1958 and 1980 CSO Tables, and
prescribed statutory interest rates.
e. Non-admitted Assets
Certain assets designated as "non-admitted" assets (principally
miscellaneous receivables) are excluded from the statements of admitted assets,
liabilities, capital and surplus.
f. Separate Account Assets and Liabilities
Separate account assets and liabilities represent primarily segregated
funds administered and invested by the Company for the benefit of certain
contractholders. Assets consist of securities reported at market value.
F-9
<PAGE> 45
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Premiums, benefits and expenses of the separate accounts are included in the
Company's statements of operations.
g. Depreciation
The Company uses the constant-yield method of depreciation for
substantially all investments in real estate and real estate joint ventures and
limited partnerships acquired prior to January 1, 1991. Acquisitions subsequent
to January 1, 1991 and foreclosed real estate are depreciated on the
straight-line method. Real estate assets and improvements are generally
depreciated over ten to forty-year periods and leasehold improvements are
depreciated over the lives of the leases. Depreciation expense related to
investments in real estate was $1.1 million and $1.4 million and $1.7 million in
1997, 1996 and 1995, respectively; accumulated depreciation was $4.4 million at
December 31, 1997 and 1996, and $4.6 million at December 31, 1995.
h. Cash Flows
Short-term investments are characterized as cash equivalents for purposes
of the statements of cash flows.
Certain amounts for 1995 and 1996 have been reclassified to conform to the
1997 presentation.
3. CAPITAL AND SURPLUS:
MONY guaranteed to the states who requested it, pursuant to conditions
imposed by such states as a prerequisite for the licensing of new subsidiaries,
that the Company's capital and surplus would be maintained at a level at least
equivalent to the minimum capital and surplus required for admission to conduct
business in those states. As of December 31, 1997, 1996 and 1995, this guarantee
was outstanding in the state of New Jersey.
4. RELATED PARTY TRANSACTIONS:
At both December 31, 1997 and 1996, approximately 26 percent of the
Company's investments in mortgages were held through joint participation with
MONY. In addition, approximately 100 percent and 87 percent of the Company's
real estate and joint venture investments were held through joint participation
with MONY at December 31, 1997 and 1996, respectively.
In 1997 the New York City Industrial Development Agency issued bonds in the
total amount of $16.0 million for the benefit of MONY related to MONY's
consolidation of site locations to New York City. Debt service under the bonds
is funded by lease payments by MONY to the bond trustee for the benefit of the
Company, which is the sole bondholder. The bonds are held by the Company and are
listed as affiliated bonds on Schedule D.
The Company and MONY are parties to an agreement whereby MONY agrees to
reimburse the Company to the extent that the Company's recognized loss as a
result of mortgage loan default or foreclosure or subsequent sale of the
underlying collateral exceeds 75 percent of the appraised value of the loan at
origination for each such mortgage loan. Pursuant to the agreement, the Company
received payments from MONY totaling $0.1 million in both 1997 and 1996, and
$2.1 million in 1995.
The Company has a service agreement with MONY whereby MONY provides
personnel services, facilities, supplies and equipment to the Company to conduct
its business. Services rendered by MONY under these agreements are provided on a
cost reimbursable basis. The Company also has a service agreement with MONY
whereby MONY provides personnel services, facilities, supplies and equipment to
provide services to MONY Series Fund, Inc. ("the Fund"), an affiliate of the
Company, as an investment advisor. MONY shall be compensated for such services
in amounts as agreed to by the parties in the Service Agreement.
F-10
<PAGE> 46
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has an investment advisory agreement with the Fund with respect
to the investment and management of the Fund's invested assets. The Company is
compensated for such services with an investment management fee computed in
accordance with the terms of the agreement.
The Company has three underwriting agreements with the Fund and MONY
Securities Corporation ("MSC"). The agreements provide for MSC to act as the
principal underwriter for the sale of the Company's flexible premium variable
annuity and life insurance contracts and as the broker for the sale of the
Fund's shares.
In addition, the Company has an investment advisory agreement with MONY
whereby MONY provides investment advisory services with respect to the
investment and management of the Company's investment portfolio.
5. FIXED MATURITY SECURITIES AND COMMON STOCKS:
Fixed Maturity Securities by Investment Type and Common Stocks:
The cost and estimated fair value (see Note 8) of investments in fixed
maturity securities (including short-term investments and bonds) and common
stocks as of December 31, 1997 and December 31, 1996 are presented in the table
below. Cost is amortized cost for fixed maturity securities and original cost
for common stocks.
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST VALUE VALUE FAIR VALUE
------------------- ------------- ----------- -------------------
1997 1996 1997 1996 1997 1996 1997 1996
-------- -------- ----- ----- ---- ---- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities &
obligations of U.S. government
agencies......................... $ 5.9 $ 5.9 $ 0.0 $ 0.0 $0.0 $0.0 $ 5.9 $ 5.9
Collateralized mortgage
obligations:
Government agency backed......... 123.7 126.4 2.2 1.3 0.1 1.0 125.8 126.7
Non-agency backed................ 34.5 35.0 2.0 1.5 0.0 0.2 36.5 36.3
Other asset backed securities:
Government agency backed......... 0.2 0.2 0.0 0.0 0.0 0.0 0.2 0.2
Non-agency backed................ 93.8 98.5 2.1 1.3 0.2 0.7 95.7 99.1
Public utilities................... 123.8 129.0 3.1 2.3 0.2 1.0 126.7 130.3
Corporate bonds.................... 676.8 653.0 18.0 13.2 2.2 4.8 692.6 661.4
Affiliates......................... 16.0 0.0 0.0 0.0 0.0 0.0 16.0 0.0
-------- -------- ----- ----- ---- ---- -------- --------
Total bonds...................... 1,074.7 1,048.0 27.4 19.6 2.7 7.7 1,099.4 1,059.9
Commercial paper................... 25.7 86.5 0.0 0.0 0.0 0.0 25.7 86.5
-------- -------- ----- ----- ---- ---- -------- --------
Total bonds and short-term
Investments.................... $1,100.4 $1,134.5 $27.4 $19.6 $2.7 $7.7 $1,125.1 $1,146.4
======== ======== ===== ===== ==== ==== ======== ========
Common stocks...................... $ 0.8 $ 1.1 $ 0.2 $ 0.1 $0.0 $0.0 $ 1.0 $ 1.2
======== ======== ===== ===== ==== ==== ======== ========
</TABLE>
Amortized cost represents the principal amount of the fixed maturity
securities adjusted by unamortized premium or discount and reduced by writedowns
of $0.4 million, $3.4 million and $4.4 million at December 31, 1997, 1996 and
1995, respectively, as required by the NAIC for securities which are in or near
default.
At December 31, 1997, 78.2% of the Company's Collateralized Mortgage
Obligation (CMO) portfolio was held in U.S. government and government
agency-backed securities. The remainder of the CMO portfolio consisted of NAIC
category 1 investment grade securities.
F-11
<PAGE> 47
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of Fixed Maturity Securities:
The amortized cost and estimated fair value of fixed maturity securities by
maturity date as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less................... $ 48.9 $ 49.0 $ 103.1 $ 103.3
Due after one year through five years..... 411.4 418.1 437.5 443.1
Due after five years through ten years.... 380.4 391.3 351.1 355.0
Due after ten years....................... 259.7 266.7 242.8 245.0
-------- -------- -------- --------
$1,100.4 $1,125.1 $1,134.5 $1,146.4
======== ======== ======== ========
</TABLE>
Fixed maturity securities that are not due at a single maturity date have
been included in the preceding table in the year of final maturity. Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Proceeds from sales of investments in fixed maturity securities during
1997, 1996 and 1995 were $31.3 million, $13.3 million and $40 million,
respectively. Gross gains of $0.5 million in 1997, $0.2 million in 1996 and $0.6
million in 1995 and gross losses of $4.3 million in 1997, $0.3 million in 1996,
and $1.4 million in 1995 were realized on these sales.
Proceeds from sales of investments in common stocks during 1997, 1996, and
1995 were $1.0 million, $0, and $0 respectively. Gross gains of $0.7 million in
1997, $0 in 1996 and $0 in 1995 and gross losses of $0 in 1997, $0 in 1996 and
$0 in 1995 were realized on these sales.
There were no non-income producing bonds and redeemable preferred stocks
for the twelve months preceding December 31, 1997. The carrying values of fixed
maturity securities which were non-income producing for the twelve months
preceding December 31, 1996 were $1.0 million.
6. MORTGAGE LOANS AND REAL ESTATE:
The Company invests in mortgage loans collateralized by commercial and
agricultural real estate. Such mortgage loans consist primarily of first
mortgage liens on completed income-producing properties, including agricultural
properties. As of December 31, 1997, $55.3 million of mortgage loans have terms
that require amortization, and $79.5 million of mortgage loans require partial
amortization or are non-amortizing. Mortgage loans delinquent over 90 days or in
process of foreclosure were $0.6 million at December 31, 1997 and there were no
mortgage loans delinquent over 90 days or in process of foreclosure at December
31, 1996. There were no properties acquired through foreclosure during 1997 or
1996.
The Company has performing restructured mortgage loans of $14.1 million as
of December 31, 1997 and $15.0 million as of December 31, 1996. The new terms
typically reduce the contract rate of interest. Interest is recognized in income
based on the modified rate of the loan. Gross interest income on restructured
loans that would have been recorded in accordance with the loans' original terms
was approximately $1.4 million in 1997 and $1.5 million in 1996 and $1.5 million
in 1995. Gross interest income recognized in net income for the period from
these loans was $1.0 million in 1997, $1.1 million in 1996 and $1.0 million in
1995. There are no commitments to lend additional funds to any debtor involved
in a restructuring.
At both December 31, 1997 and 1996, there were no mortgage loans that were
non-income producing for the preceding twelve months.
F-12
<PAGE> 48
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At both December 31, 1997 and 1996, there were no real estate properties
that were non-income producing for the preceding twelve months.
7. INVESTMENT INCOME, REALIZED AND UNREALIZED CAPITAL GAINS (LOSSES):
Net investment income for the years ended December 31, 1997, 1996 and 1995
was derived from the following sources:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
Net Investment Income Bonds and common stock...... $79.0 $ 77.5 $ 79.0
Mortgage loans.................................... 12.0 14.4 14.6
Real estate (net of property expenses)............ 1.2 3.0 3.1
Policy loans...................................... 3.5 2.7 2.9
Other investments (including cash & short-term
investments).................................... 6.6 7.5 7.9
----- ------ ------
Total investment income...................... 102.3 105.1 107.5
Investment expenses............................... 3.3 3.0 2.6
----- ------ ------
Net investment income........................ $99.0 $102.1 $104.9
===== ====== ======
</TABLE>
Net realized capital gains (losses) on investments for the years ended
December 31, 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C>
Realized Capital Gains (Losses)..................... $(2.4) $ 0.9 $ 0.2
Bonds and common stock Real estate and mortgage
loans............................................. 0.4 (0.1) (0.4)
Derivative instruments.............................. 0.0 (0.8) (0.0)
Other............................................... (0.2) 0.0 0.0
----- ----- -----
Subtotal:...................................... (2.2) 0.0 (0.2)
Taxes............................................... (0.5) (0.8) (0.7)
Transferred to IMR, net of taxes.................... (0.8) (0.9) (0.5)
----- ----- -----
Net realized capital losses.................... $(3.5) $(1.7) $(1.4)
===== ===== =====
</TABLE>
During 1997, 1996 and 1995 realized capital losses resulting from changes
in interest rates on fixed income securities of $0.8 million (net of $0.5
million tax), $0.9 million (net of $0.5 million tax), and $0.5 million (net of
$.2 million tax) respectively, were transferred to the Company's IMR for future
amortization into net income.
Net unrealized capital gains (losses) were $2.8 million in 1997 and $1.6
million in 1996 and $(3.8) million in 1995. The 1997, 1996 and 1995 net
unrealized gains (losses) include writedowns of approximately $(0.2) million in
1997, $0 in 1996 and $(1.2) million on real estate acquired through foreclosure
and mortgage loans in process of foreclosure. These unrealized gains and losses
are detailed by asset type in the table below.
F-13
<PAGE> 49
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- -----
($ IN MILLIONS)
<S> <C> <C> <C>
Unrealized Capital Gains (Losses) Bonds and stocks.... $3.0 $1.6 $(2.6)
Real estate and mortgage loans........................ (0.2) 0.0 (1.2)
---- ---- -----
Total net unrealized capital gains
(losses).................................. $2.8 $1.6 $(3.8)
==== ==== =====
</TABLE>
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of mortgage loans, common stocks, cash,
short-term investments, separate account assets and liabilities, and
investment-type contracts approximate their carrying amounts. The carrying
values of bonds were $1,074.7 million and $1,048.0 million at December 31, 1997
and 1996, respectively. The estimated fair values of bonds were $1,099.4 million
and $1,059.9 million at December 31, 1997 and 1996, respectively.
The methods and assumptions utilized in estimating these fair values of
financial instruments are summarized as follows:
Fixed maturity securities (See Note 5)
The estimated fair values of fixed maturity securities are based upon
quoted market prices, where available. The fair values of fixed maturity
securities not actively traded and other non-publicly traded securities are
estimated using values obtained from independent pricing services or, in the
case of private placements, by discounting expected future cash flows using a
current market interest rate commensurate with the credit quality and term of
the investments.
Mortgage loans
The fair value of mortgage loans is estimated by discounting expected
future cash flows, using current interest rates for similar loans to borrowers
with similar credit risk. Loans with similar characteristics are aggregated for
purposes of the calculations. The fair value of mortgage loans in process of
foreclosure is the estimated fair value of the underlying collateral.
Policy loans
Policy loans are an integral component of insurance contracts and have no
maturity dates. Management has determined that it is not practicable to estimate
the fair value of policy loans.
Separate account assets and liabilities
The estimated fair value of assets held in separate accounts is based
principally on quoted market prices. The fair value of liabilities related to
separate accounts is the amount payable on demand, net of surrender charges.
Investment-type Contract Liabilities
The fair values of annuities are based on estimates of the value of
payments available upon full surrender. The fair values of the Company's
liabilities under guaranteed investment contracts are estimated by discounting
expected cash outflows using interest rates currently offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued, where appropriate.
F-14
<PAGE> 50
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. OFF BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK:
Financial Instruments with Off-Balance Sheet Risk:
In 1992, the Company entered into an agreement with a bank to lend
securities to approved borrowers. There were $65,000 of loaned securities as of
December 31, 1997. The minimum collateral on securities loaned is 102% of the
market value of loaned securities. Such securities are marked to market on a
daily basis, adjusting required collateral values accordingly.
Concentrations of Credit Risk:
As of December 31, 1997 and 1996, the Company had no single investment or
series of investments with a single issuer (excluding U.S. Government Agency
securities) exceeding 1.4 percent and 1.3 percent, respectively, of total cash
and invested assets.
The bond portfolio is diversified by industry type. The industries
comprising 10 percent or more of the carrying value of the bond portfolio at
December 31, 1997 are Financial Services of $133.5 million (12.4 percent),
Government and Agencies of $129.8 million (12.1 percent), Energy of $128.3
million (11.9 percent), Non-Government Asset/Mortgage-Backed of $128.3 million
(11.9 percent), Public Utilities of $123.8 million (11.5 percent), and Consumer
Goods and Services of $112.5 million (10.5 percent). At December 31, 1996, the
industries comprising 10 percent or more of the carrying value of the bond
portfolio were Government and Agencies of $132.5 million (12.7 percent),
Non-Government Asset/Mortgage-Backed of $133.5 million (12.7 percent), Public
Utilities of $129.0 million (12.3 percent), Energy of $119.7 million (11.4
percent), and Other Manufacturing of $116.9 million (11.2 percent).
The Company holds below investment grade bonds of $79.7 million at December
31, 1997. Below, investment grade bonds are defined as those securities rated in
categories 3 through 6 by the NAIC, which are approximately equivalent to bonds
rated below BBB by rating agencies. These bonds consist mostly of privately
issued bonds, which are monitored by the Company through extensive internal
analysis of the financial condition of the borrowers, and which include
protective debt covenants. Of these bonds, $66.6 million are in category 3,
which is considered to be medium quality by the NAIC. At December 31, 1996, the
Company's investments in below investment grade bonds were $59.4 million.
The Company has investments in commercial and agricultural mortgage loans
and real estate (including joint ventures). The locations of property
collateralizing mortgage loans and real estate investment carrying values at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
$ % $ %
----- ----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Geographic Region West...................... 54.0 32.9 71.3 34.3
Mountain.................................... 41.2 25.1 48.3 23.3
Northeast................................... 25.3 15.4 25.6 12.3
Southwest................................... 16.8 10.2 20.9 10.1
Midwest..................................... 14.7 8.9 25.5 12.3
Southeast................................... 12.4 7.5 16.1 7.7
----- ----- ----- -----
Total.................................. 164.4 100.0 207.7 100.0
===== ===== ===== =====
</TABLE>
The states with the largest concentrations of mortgage loans and real
estate investments at December 31, 1997 are: California, $33.8 million (20.6%);
New York, $19.1 million (11.6%); Texas, $16.2 million (9.9%); Arizona, $13.6
million (8.3%); Washington, $11.6 million (7.1%) and Idaho, $10.7 million
(6.5%).
F-15
<PAGE> 51
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1997 and 1996, the real estate and mortgage loan
portfolio was also diversified as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
$ % $ %
----- ----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Property Type Agriculture................... 99.5 60.5 117.8 56.7
Office Building............................. 24.5 14.9 34.9 16.8
Hotel....................................... 15.0 9.1 21.5 10.4
Retail...................................... 10.3 6.3 12.3 5.9
Industrial.................................. 7.3 4.5 9.4 4.5
Other....................................... 4.4 2.6 4.4 2.1
Apartments.................................. 3.4 2.1 7.4 3.6
----- ----- ----- -----
Total.................................. 164.4 100.0 207.7 100.0
===== ===== ===== =====
</TABLE>
10. RESERVES:
The withdrawal characteristics of the Company's annuity actuarial reserves
and deposit liabilities as of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
($ IN MILLIONS)
<S> <C> <C>
Not subject to discretionary withdrawal provision.......... $ 77 $ 75
Subject to discretionary withdrawal -- with adjustment:
- at book value less surrender charges of 5% or more..... 181 222
- at market value........................................ 3,403 2,402
------ ------
Subtotal......................................... 3,584 2,624
Subject to discretionary withdrawal -- without adjustment:
- at book value (minimal or no charge or adjustment)..... 475 504
------ ------
Total annuity actuarial reserves and deposit..........
Liabilities -- gross and net of reinsurance........... $4,136 $3,203
====== ======
</TABLE>
The amounts above are included in the Company's statements of admitted
assets, liabilities, capital and surplus as life insurance and annuity reserves
($0.7) billion and ($0.8) billion and separate account liabilities ($3.4)
billion and ($2.4) billion at December 31, 1997 and 1996, respectively.
11. REINSURANCE:
Life insurance business is ceded on a yearly renewable term basis to MONY
and other insurance companies under various reinsurance contracts. The Company's
general practice is to retain no more than $0.5 million of risk on any one
person. The total amount of reinsured life insurance in force on this basis was
$2.7 billion and $2.6 billion at December 31, 1997 and 1996, respectively.
Premiums ceded under these contracts were $16.1 million and $14.6 million;
benefit payments recovered were $11.6 million and $17.3 million; policy reserve
credits recorded were $11.1 million and $10.6 million; and recoverable amounts
on paid and unpaid losses were $2.4 million and $3.5 million in 1997 and 1996,
respectively.
The Company is contingently liable with respect to ceded insurance should
any reinsurer be unable to meet its obligations under these agreements. To limit
the possibility of such losses, the Company evaluates the financial condition of
its reinsurers and monitors concentration of credit risk.
F-16
<PAGE> 52
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. FEDERAL INCOME TAXES:
The Company is included in the consolidated federal income tax return with
its parent, MONY, and the parent's non-life subsidiaries. The allocation of
federal income taxes is based upon separate return calculations with current
credit for net losses and other federal income tax credits provided to the life
insurance members of the affiliated group. Intercompany tax balances are settled
annually in the fourth quarter.
The Company's federal income tax returns for years through 1991 have been
examined with no proposed material adjustments. In the opinion of management,
adequate provision has been made for any additional taxes that may become due
with respect to open years.
Pre-tax operating gains and pre-tax realized gains, as reported in the
accompanying statements of operations, differ from taxable income reported for
tax purposes. Significant differences include the deferral and amortization of
policy acquisition costs for tax purposes, the difference between statutory and
tax reserves, depreciation expense and related recapture, capital gains deferred
to the IMR, and equity in joint ventures.
13. COMMITMENTS AND CONTINGENCIES:
In late 1995 and during 1996, a number of purported class actions were
commenced in various state and federal courts against the Company and MONY ("the
Companies") alleging that the Companies engaged in deceptive sales practices in
connection with the sale of whole and universal life insurance policies during
the period 1980 to the present. Although the claims asserted in each case are
not identical, they seek substantially the same relief under essentially the
same theories of recovery (i.e. breach of contract, fraud, negligent
misrepresentation, negligent supervision and training, breach of fiduciary duty,
unjust enrichment and violation of state insurance and/or deceptive business
practice laws). The Companies have answered the complaints in each action
(except for one being voluntarily held in abeyance), have denied any wrongdoing,
and have asserted numerous affirmative defenses.
On June 7, 1996, the New York State Supreme Court certified the Goshen
case, being the first of the aforementioned class actions filed, as a nationwide
class consisting of all persons or entities who have, or at the time of the
policy's termination, had an ownership interest in a whole or universal life
insurance policy issued by the Companies and sold on an alleged "vanishing
premium" basis during the period January 1, 1982 to December 31, 1995. On March
27, 1997, the Companies filed a motion to dismiss or, alternatively, motion for
summary judgment on all counts of the complaint.
The Massachusetts District Court in the Multidistrict Litigation has
entered an order recognizing the Goshen case as the lead case and essentially
holding all of the federal cases in abeyance pending the action of the Goshen
case. Consequently, all other putative class actions have been either
consolidated and transferred by the Judicial Panel on Multidistrict Litigation
to the United States District Court for the District of Massachusetts, or are
being voluntarily held in abeyance pending the outcome of the Goshen case.
On October 21, 1997, the New York State Supreme Court granted the
Companies' motion for summary judgment and dismissed all claims filed in the
Goshen case against the Companies. The order by the New York State Supreme Court
has been appealed to the Appellate Division by plaintiffs and all actions before
the United States District Court for the District of Massachusetts are still
pending.
In addition to the matters discussed above, the Company is involved in
various other legal actions and proceedings in connection with its businesses.
The claimants in certain of these actions and proceedings seek damages of
unspecified amounts. In addition, insurance companies are subject to
assessments, up to statutory limits, by state guaranty funds for losses of
policyholders of insolvent insurance companies.
In the opinion of management of the Company, resolution of contingent
liabilities arising from litigation, income taxes and other matters will not
have a material adverse effect on the Company's statutory surplus or results of
operations.
F-17
<PAGE> 53
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997, the Company had a commitment to issue a $1.9 million
fixed rate farm loan with an interest rate of 7.8% and a duration of 10 years.
There were no outstanding bond commitments as of December 31, 1997.
14. YEAR 2000:
The Year 2000 issue is the result of the widespread use of computer
programs written using two digits (rather than four) to define the applicable
year. Such programming was a common industry practice designed to avoid the
significant costs associated with additional mainframe capacity necessary to
accommodate a four-digit year field. As a result, any of the Company's computer
systems that have time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a major systems
failure or miscalculations. The Company has conducted a comprehensive review of
its computer systems to identify the systems that could be affected by the Year
2000 issue and has developed and implemented a plan to resolve the issue. The
Company currently believes that, with modifications to existing software and
converting to new software, the Year 2000 issue will not pose significant
operational problems for the Company's computer systems. However, if such
modifications and conversions are not completed on a timely basis, the Year 2000
issue may have a material impact on the operations of the Company. Furthermore,
even if the Company completes such modifications and conversions on a timely
basis, there can be no assurance that the failure by vendors or other third
parties to solve the Year 2000 problem will not have a material impact on the
operations of the Company.
F-18
<PAGE> 54
MONY LIFE INSURANCE COMPANY OF AMERICA
SUPPLEMENTAL SCHEDULE OF SELECTED FINANCIAL DATA
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
(AMOUNTS IN $ THOUSANDS)
The following is a summary of certain financial data from the Company's
Annual Statement included in other exhibits and schedules subjected to audit
procedures by independent accountants and utilized by the Company's actuaries in
the determination of reserves:
<TABLE>
<CAPTION>
DEC. 1997 DEC. 1996
---------- ----------
<S> <C> <C>
INVESTMENT INCOME EARNED:
U.S. Government bonds..................................... 387 750
Other bonds (unaffiliated)................................ 77,378 75,641
Bonds of affiliates....................................... 602 0
Preferred stocks (unaffiliated)........................... 0 0
Preferred stocks of affiliates............................ 0 0
Common stocks (unaffiliated).............................. 1 0
Common stocks of affiliates............................... 0 0
Mortgage loans............................................ 12,097 14,566
Real estate............................................... 8,565 11,934
Premium notes, policy loans and liens..................... 3,465 2,696
Collateral loans.......................................... 0 0
Cash on hand and on deposit............................... 117 5
Short-term investments.................................... 4,652 5,813
Other invested assets..................................... 571 605
Derivative instruments.................................... 0 0
Aggregate write-ins for investment income................. 1,355 1,560
---------- ----------
Gross investment income................................ 109,190 113,570
========== ==========
REAL ESTATE OWNED -- BOOK VALUE LESS ENCUMBRANCES........... 22,627 40,725
MORTGAGE LOANS -- BOOK VALUE:
Farm mortgages............................................ 99,492 117,753
Residential mortgages..................................... 0 0
Commercial mortgages...................................... 35,336 41,094
---------- ----------
Total mortgage loans................................... 134,828 158,847
========== ==========
MORTGAGE LOANS BY STANDING -- BOOK VALUE:
Good standing............................................. 120,120 143,806
Good standing with restructured terms..................... 14,126 15,041
Interest overdue more than three months, not in
foreclosure............................................ 0 0
Foreclosure in process.................................... 582 0
---------- ----------
Total mortgage loans................................... 134,828 158,847
========== ==========
OTHER LONG TERM ASSETS -- STATEMENT VALUE................... 52,824 49,548
COLLATERAL LOANS............................................ 0 0
BONDS AND STOCKS OF PARENTS, SUBSIDIARIES AND
AFFILIATES -- BOOK VALUE:
Bonds..................................................... 16,000 0
Preferred Stocks.......................................... 0 0
Common Stocks............................................. 0 0
</TABLE>
F-19
<PAGE> 55
<TABLE>
<CAPTION>
DEC. 1997 DEC. 1996
---------- ----------
<S> <C> <C>
BONDS AND SHORT-TERM INVESTMENTS BY CLASS AND MATURITY:
BONDS AND SHORT-TERM INVESTMENTS BY MATURITY -- STATEMENT
VALUE:
Due within one year or less............................... 84,300 141,708
Over 1 year through 5 years............................... 573,903 597,973
Over 5 years through 10 years............................. 344,927 327,701
Over 10 years through 20 years............................ 68,716 47,620
Over 20 years............................................. 28,578 19,511
---------- ----------
Total by Maturity...................................... 1,100,424 1,134,513
========== ==========
BONDS AND SHORT-TERM INVESTMENTS BY MATURITY -- STATEMENT
VALUE:
Class 1................................................... 579,042 628,500
Class 2................................................... 441,677 446,612
Class 3................................................... 66,571 50,495
Class 4................................................... 12,524 4,735
Class 5................................................... 0 779
Class 6................................................... 610 3,392
---------- ----------
Total by Class......................................... 1,100,424 1,134,513
========== ==========
TOTAL BONDS AND SHORT-TERM INVESTMENTS -- PUBLICLY TRADED... 645,558 648,442
TOTAL BONDS AND SHORT-TERM INVESTMENTS -- PRIVATELY
PLACED.................................................... 454,866 486,071
PREFERRED STOCKS -- STATEMENT VALUE......................... 0 0
COMMON STOCKS -- MARKET VALUE............................... 981 1,235
SHORT-TERM INVESTMENTS -- BOOK VALUE........................ 25,700 86,555
FINANCIAL OPTIONS OWNED -- STATEMENT VALUE.................. 0 0
FINANCIAL OPTIONS WRITTEN AND IN FORCE -- STATEMENT VALUE... 0 0
FINANCIAL FUTURES CONTRACTS OPEN -- CURRENT PRICE........... 0 0
CASH ON HAND AND ON DEPOSIT................................. 20,256 3,652
LIFE INSURANCE IN FORCE:
Industrial................................................ 0 0
Ordinary.................................................. 11,744,853 10,043,153
Credit Life............................................... 0 0
Group Life................................................ 1,875,204 1,630,758
AMOUNT OF ACCIDENTAL DEATH INSURANCE IN FORCE UNDER ORDINARY
POLICIES.................................................. 158,466 148,880
LIFE INSURANCE POLICIES WITH DISABILITY PROVISIONS IN FORCE:
Industrial................................................ 0 0
Ordinary.................................................. 3,671,469 3,184,431
Credit Life............................................... 0 0
Group Life................................................ 199,912 188,695
SUPPLEMENTARY CONTRACTS IN FORCE:
Ordinary -- Not Involving Life Contingencies
Amount on Deposit...................................... 19,131 20,552
Income Payable......................................... 969 742
Ordinary -- Involving Life Contingencies
Income Payable......................................... 2,996 2,699
Group -- Not Involving Life Contingencies
Amount on Deposit...................................... 28 0
Income Payable......................................... 0 0
</TABLE>
F-20
<PAGE> 56
<TABLE>
<CAPTION>
DEC. 1997 DEC. 1996
---------- ----------
<S> <C> <C>
Group -- Involving Life Contingencies
Income Payable......................................... 15 15
ANNUITIES:
Ordinary
Immediate -- Amount of Income Payable
Deferred -- Fully Paid -- Account Balance.............. 0 0
Deferred -- Not Fully Paid -- Account Balance.......... 0 0
Group
Amount of Income Payable............................... 0 0
Fully Paid -- Account Balance.......................... 61,031 65,540
Not Fully Paid -- Account Balance...................... 0 0
ACCIDENT AND HEALTH INSURANCE -- PREMIUMS IN FORCE:
Ordinary.................................................. 0 0
Group..................................................... 0 0
Credit.................................................... 0 0
DEPOSIT FUNDS AND DIVIDEND ACCUMULATIONS:
Deposit Funds -- Account Balance.......................... 632,579 700,798
Dividend Accumulations -- Account Balance................. 0 0
CLAIM PAYMENTS 1997:
Group Accident and Health................................. 0 0
1997................................................... 0 0
1996................................................... 0 0
1995................................................... 0 0
1994................................................... 0 0
1993................................................... 0 0
Prior.................................................. 0 0
CLAIM PAYMENTS 1997:
Other Accident and Health
1997................................................... 0 0
1996................................................... 0 0
1995................................................... 0 0
1994................................................... 0 0
1993................................................... 0 0
Prior.................................................. 0 0
Other coverages that use developmental methods to
calculate claims reserves
1997................................................... 0 0
1996................................................... 0 0
1995................................................... 0 0
1994................................................... 0 0
1993................................................... 0 0
Prior.................................................. 0 0
</TABLE>
F-21
<PAGE> 57
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM STATEMENT OF
ADMITTED ASSETS, LIABILITIES, CAPITAL
AND SURPLUS -- STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C>
ASSETS
Cash and invested assets:
Cash and short-term investments........................... $ 25,974
Bonds..................................................... 1,095,489
Common stocks............................................. 76
Mortgage loans............................................ 138,017
Real estate............................................... 9,536
Policy loans.............................................. 48,674
Other invested assets..................................... 7,443
----------
Total cash and invested assets.................... 1,325,209
Investment income due and accrued........................... 23,042
Other assets................................................ 6
Separate account assets..................................... 4,211,883
----------
Total assets...................................... $5,560,139
==========
LIABILITIES, CAPITAL AND SURPLUS
Liabilities:
Life insurance and annuity reserves....................... $1,216,022
Deposits left with the Company............................ 23,292
Policy claims in process of settlement.................... 7,268
Federal income taxes due or accrued....................... 26,802
Transfers from separate accounts.......................... (140,762)
Other liabilities......................................... 48,211
Separate account liabilities.............................. 4,211,883
Interest maintenance reserve.............................. 4,579
Investment reserves....................................... 6,000
Asset valuation reserve................................... 15,042
----------
Total liabilities................................. 5,418,335
Capital and surplus:
Capital stock, $1.00 par value; authorized, 5,000,000
shares Issued and outstanding, 2,500,000 shares........ 2,500
Additional paid-in capital................................ 133,500
Unassigned funds.......................................... 5,804
----------
Total capital and surplus......................... 141,804
----------
Total liabilities, capital and surplus............ $5,560,139
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 58
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM STATEMENTS OF
OPERATIONS -- STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Premiums, annuity considerations and fund deposits.......... $442,820 $395,251
Net investment income....................................... 48,222 49,739
Other income (net).......................................... (14) 118
-------- --------
491,028 445,108
Policyholder and contractholder benefits.................... 263,826 191,858
Change in policy and contract reserves...................... (25,861) (21,816)
Commissions................................................. 19,101 17,868
Operating expenses.......................................... 44,066 30,022
Transfer to separate accounts............................... 175,055 206,408
-------- --------
Subtotal: 476,187 424,340
Net gain from operations before federal income taxes........ 14,842 20,768
Federal income taxes........................................ 7,587 10,390
-------- --------
Net gain from operations.................................... 7,255 10,378
Net realized capital losses............................... (79) (1,897)
-------- --------
Net Income.................................................. $ 7,176 $ 8,481
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 59
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM STATEMENTS OF
CAPITAL AND SURPLUS -- STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Capital and surplus, beginning of period.................... $133,151 $121,814
-------- --------
Net income.................................................. 7,176 8,481
Change in net unrealized capital gains...................... (124) (37)
Change in non-admitted assets............................... 371 143
Change in asset valuation reserve........................... 1,230 149
Increase in investment reserve.............................. 0 0
-------- --------
Net change in capital and surplus for the period............ 8,653 8,736
-------- --------
Capital and surplus, end of period.......................... $141,804 $130,550
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 60
MONY LIFE INSURANCE COMPANY OF AMERICA
UNAUDITED INTERIM STATEMENTS OF
CASH FLOWS-- STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FROM OPERATIONS:
Premiums, annuity considerations and fund deposits........ $442,792 $395,248
Investment income, net of investment expenses............. 47,250 45,364
Other income.............................................. (14) 141
Policy benefits paid...................................... (264,718) (191,539)
Transfers to separate accounts............................ (186,874) (220,565)
Commissions, other expenses and taxes paid................ (61,795) (46,757)
Federal income taxes (excluding tax on capital gains)..... 0 0
-------- --------
Net cash from operations.......................... (23,359) (18,108)
-------- --------
CASH FROM INVESTMENTS:
Proceeds from investments sold, matured or repaid:
Bonds.................................................. 89,714 66,670
Stocks................................................. 955 0
Mortgage loans......................................... 10,704 14,640
Real estate............................................ 14,017 11,451
Other invested assets.................................. 358 1,356
Other.................................................. (2) 3,318
Taxes paid on net capital gains........................ 0 0
-------- --------
Total investment proceeds......................... 115,746 97,435
-------- --------
Cost of investments acquired:
Bonds.................................................. 109,189 88,935
Stocks................................................. 0 68
Mortgage loans......................................... 13,517 6,378
Real estate............................................ 355 777
Other invested assets.................................. 800 6,517
Change in policy loans................................. 2,782 2,865
-------- --------
Total investments acquired........................ 126,643 105,540
-------- --------
Net cash from investments......................... (10,897) (8,105)
-------- --------
CASH FROM FINANCING AND MISCELLANEOUS SOURCES:
Cash provided:
Increase in paid capital............................... 0 0
Other sources.......................................... 14,274 (2,453)
-------- --------
Net cash from financing and miscellaneous
sources......................................... 14,274 (2,453)
-------- --------
Net change in cash and short-term investments.......... (19,982) (28,666)
Cash and short-term investments, beginning of period........ 45,956 90,207
-------- --------
Cash and short-term investments, end of period.............. $ 25,974 $ 61,541
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 61
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. ORGANIZATION:
MONY Life Insurance Company of America (the "Company"), an Arizona
corporation, is a wholly owned subsidiary of The Mutual Life Insurance Company
of New York ("MONY"), a mutual life insurance company. The Company's primary
business is to provide interest-sensitive life insurance and asset accumulation
products to business owners, growing families, and pre-retirees. The Company's
insurance and financial products are marketed and distributed directly to
individuals primarily through MONY's career agency sales force. These products
are sold throughout the United States (except New York) and Puerto Rico.
On August 14, 1998, the Board of Trustees of MONY adopted, pursuant to the
New York Insurance Law, a plan of reorganization (the "Plan") pursuant to which
MONY proposes to convert from a mutual life insurance company to a stock life
insurance company (the "Demutualization") subject to approval from the Insurance
Department of the State of New York as well as approval by MONY's policyholders.
In accordance with the Plan, subject to the approvals indicated above,
among other things, MONY will convert from a New York mutual life insurance
company to a New York stock life insurance company (the "Plan of
Demutualization") and become a wholly owned subsidiary of The MONY Group (the
"Holding Company"), a holding company organized in Delaware for the purpose of
becoming the parent holding company of MONY.
2. COMMITMENTS AND CONTINGENCIES:
In late 1995 and during 1996, a number of purported class actions were
commenced in various state and federal courts against the Company and MONY ("the
Companies") alleging that the Companies engaged in deceptive sales practices in
connection with the sale of whole and universal life insurance policies during
the period 1980 to the present. Although the claims asserted in each case are
not identical, they seek substantially the same relief under essentially the
same theories of recovery (i.e. breach of contract, fraud, negligent
misrepresentation, negligent supervision and training, breach of fiduciary duty,
unjust enrichment and violation of state insurance and/or deceptive business
practice laws). The Companies have answered the complaints in each action
(except for one being voluntarily held in abeyance), have denied any wrongdoing,
and have asserted numerous affirmative defenses.
One June 7, 1996, the New York State Supreme Court certified the Goshen
case, being the first of the aforementioned class actions filed, as a nationwide
class consisting of all persons or entities who have, or at the time of the
policy's termination, had an ownership interest in a whole or universal life
insurance policy issued by the Companies and sold on an alleged "vanishing
premium" basis during the period January 1, 1982 to December 31, 1995. On March
27, 1997, the Companies filed a motion to dismiss or, alternatively, motion for
summary judgment on all counts of the complaint.
The Massachusetts District Court in the Multidistrict Litigation has
entered an order recognizing the Goshen case as the lead case and essentially
holding all of the federal cases in abeyance pending the action of the Goshen
case. Consequently, all other putative class actions have been either
consolidated and transferred by the Judicial Panel on Multidistrict Litigation
to the United States District Court for the District of Massachusetts, or are
being voluntarily held in abeyance pending the outcome of the Goshen case.
On October 21, 1997, the New York State Supreme Court granted the
Companies' motion for summary judgment and dismissed all claims filed in the
Goshen case against the Companies. The order by the New York State Supreme Court
has been appealed to the Appellate Division by plaintiffs and all actions before
the United States District Court for the District of Massachusetts are still
pending.
In addition to the matters discussed above, the Company is involved in
various other legal actions and proceedings in connection with its businesses.
The claimants in certain of these actions and proceedings seek
F-26
<PAGE> 62
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
damages of unspecified amounts. In addition, insurance companies are subject to
assessments, up to statutory limits, by state guaranty funds for losses of
policyholders of insolvent insurance companies.
In the opinion of management of the Company, resolution of contingent
liabilities arising from litigation, income taxes and other matters will not
have a material adverse effect on the Company's statutory surplus or results of
operations.
At June 30, 1998, the Company had a commitment to issue $5.0 million fixed
rate farm loans with an interest rate of 7.38% to 7.85%. There were no
outstanding bond or commercial mortgage commitments as of June 30, 1998.
3. RELATED PARTY TRANSACTIONS:
During 1998, the Company made effective two additional investment advisory
and service agreements with related parties.
The Company has an Investment Advisory Agreement with MONY Private Assets
Trust to act as investment advisors to and manager for the Trust. The fees are
in accordance with the terms of the agreement.
The Company has a service agreement with MONY (the Parent), whereby MONY
makes available services for the conduct of the Company's business as investment
advisor to MONY Private Assets Trust. The fees are in accordance with the terms
of the agreement.
F-27
<PAGE> 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not Applicable
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The By-Laws of MONY Life Insurance Company of America provide, in Article
VI as follows:
SECTION 1. The Corporation shall indemnify any existing or former
director, officer, employee or agent of the Corporation against all expenses
incurred by them and each of them which may arise or be incurred, rendered or
levied in any legal action brought or threatened against any of them for or on
account of any action or omission alleged to have been committed while acting
within the scope of employment as director, officer, employee or agent of the
Corporation, whether or not any action is or has been filed against them and
whether or not any settlement or compromise is approved by a court, all subject
and pursuant to the provisions of the Articles of Incorporation of this
Corporation.
SECTION 2. The indemnification provided in this By-Law shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification for such
liabilities (other than the payment by the Registrant of expense incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant, will (unless in the opinion of its counsel the
matter has been settled by controlling precedent) submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During December 1997, the Company issued $37,000,000 of its corporate
sponsored variable universal life insurance policies to a corporate purchaser in
a private placement transaction.
Through September 1, 1998, the Company issued $50,000,000 of its corporate
sponsored variable universal life insurance policies to corporate purchasers in
4 private placement transactions.
The issuance of these insurance policies are exempt from registration under
the Securities Act pursuant to Section 4(2) thereof.
II-1
<PAGE> 64
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S> <C>
1 -- Form of Underwriting Agreement
Distribution Agreement among MONY Life Insurance Company of
America, MONY Securities Corp., and MONY Series Fund, Inc.,
filed as Exhibit 3(a) of Post-Effective Amendment No. 3,
dated February 28, 1991, to Registration Statement No.
33-20453, is incorporated herein by reference.
3 -- Articles of Incorporation and By-Laws of MONY Life Insurance
Company of America
Articles of Incorporation and By-Laws of the Company, filed
as Exhibits 6(a) and 6(b), respectively, of Registration
Statement No. 33-13183, dated April 6, 1987, is incorporated
herein by reference.
4 -- Form of Policy
Proposed forms of Flexible Payment Variable Annuity
Contracts, filed as Exhibit 4 of Registration Statement No.
333-59717, dated July 23, 1998, is incorporated herein by
reference.
5 -- Opinion of Counsel
Opinion and consent of Edward P. Bank, Vice President and
Deputy General Counsel, The Mutual Life Insurance Company of
New York, as to legality of the securities being registered,
is filed herewith as Exhibit (a)5.
10 -- Material Contracts
Services Agreement between The Mutual Life Insurance Company
of New York and MONY Life Insurance Company of America filed
as Exhibit 5(ii) to Pre-Effective Amendment to Registration
Statement (Registration Nos. 2-95501 and 811-4209) dated
July 19, 1985, is incorporated herein by reference.
23 -- Consent of experts and counsel
Consent of PricewaterhouseCoopers LLP, is filed herewith as
Exhibit (a)23.
Consent of Edward P. Bank, Esq., is filed herewith as
Exhibit (a)5.
27 -- Financial Data Schedule
Financial Data Schedule is filed herewith as Exhibit(a) 27.
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement, including (but not limited to) any addition or deletion of a
managing underwriter;
II-2
<PAGE> 65
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(5) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(6) The undersigned registrant undertakes to provide to the
underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
II-3
<PAGE> 66
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
MONY Life Insurance Company of America, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and the State of New York, on this 5th day
of November 1998.
MONY LIFE INSURANCE
COMPANY OF AMERICA
By: /s/ MICHAEL I. ROTH
------------------------------------
Michael I. Roth, Director,
Chairman of
the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been duly signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE DATE
--------- ----
<C> <S> <C>
/s/ MICHAEL I. ROTH Director, Chairman of the November 5, 1998
- ------------------------------------------------ Board and Chief Executive
Michael I. Roth Officer
/s/ SAMUEL J. FOTI Director, President and Chief November 5, 1998
- ------------------------------------------------ Operating Officer
Samuel J. Foti
/s/ RICHARD DADDARIO Director, Vice President and November 5, 1998
- ------------------------------------------------ Controller (Principal
Richard Daddario Financial and Accounting
Officer)
/s/ KENNETH M. LEVINE Director and Executive Vice November 5, 1998
- ------------------------------------------------ President
Kenneth M. Levine
/s/ PHILLIP A. EISENBERG Director, Vice President and November 5, 1998
- ------------------------------------------------ Actuary
Phillip A. Eisenberg
/s/ MARGARET G. GALE Director and Vice President November 5, 1998
- ------------------------------------------------
Margaret G. Gale
/s/ CHARLES P. LEONE Director, Vice President and November 5, 1998
- ------------------------------------------------ Chief Compliance Officer
Charles P. Leone
/s/ RICHARD E. CONNORS Director November 5, 1998
- ------------------------------------------------
Richard E. Connors
/s/ STEPHEN J. HALL Director November 5, 1998
- ------------------------------------------------
Stephen J. Hall
</TABLE>
II-4
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
(a)5 Consent and Opinion of Edward P. Bank, Vice President and
Deputy General Counsel of The Mutual Life Insurance Company
of New York
(a)23 Consent of PricewaterhouseCoopers LLP, Independent
Accountants for MONY Life Insurance Company of America
(a)27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit (a)5
November 3, 1998
MONY Life Insurance Company of America
1740 Broadway
New York, New York 10019
Gentlemen:
In my capacity as Vice President and Deputy General Counsel of The Mutual
Life Insurance Company of New York, I have supervised the preparation and review
of the Registration Statement on Form S-1 (Registration No. 333-65423) filed by
MONY Life Insurance Company of America ("MONY America") with the Securities and
Exchange Commission under the Securities Act of 1933 for the registration of
guaranteed interest account with market value adjustment available under
flexible payment variable annuity contracts ("Contracts") to be issued by MONY
America. The variable portion of the Contracts was registered with the
Commission under Registration No. 333-59717.
My opinion is as follows:
1. MONY America has been duly organized under the laws of the State of Arizona,
is a validly existing corporation, and has been duly authorized to issue the
Contracts.
2. The Contracts, when issued as contemplated by the Registration Statement,
will be legal, validly issued, and binding obligations of MONY America in
accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law
and examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the
Pre-Effective Amendment No. 1 to the Registration Statement.
Very truly yours,
/s/ EDWARD P. BANK
Edward P. Bank
Vice President and Deputy General Counsel
<PAGE> 1
Exhibit (a)23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of
our report dated February 27, 1998 except for Note 1, as to which the date is
August 14, 1998, on our audits of the statutory-basis financial statements of
MONY Life Insurance Company of America.
We also consent to the references to our Firm under the captions "Selected
Statutory-Basis Financial Information" and "Statutory-Basis Financial
Statements" in the Prospectus.
PricewaterhouseCoopers LLP
New York, New York
November 4, 1998
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MONY
LIFE INSURANCE COMPANY OF AMERICA AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<DEBT-HELD-FOR-SALE> 1,074,724,000 1,095,489,000
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 981,000 76,000
<MORTGAGE> 134,828,000 138,017,000
<REAL-ESTATE> 22,627,000 9,536,000
<TOTAL-INVEST> 1,286,053,000 1,299,235,000
<CASH> 45,956,000 25,974,000
<RECOVER-REINSURE> 249,000 78,000
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 4,961,369,000 5,560,139,000
<POLICY-LOSSES> 1,241,979,000 1,216,022,000
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 31,528,000 30,560,000
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
0 0
<COMMON> 2,500,000 2,500,000
<OTHER-SE> 130,651,000 139,304,000
<TOTAL-LIABILITY-AND-EQUITY> 4,961,369,000 5,560,139,000
799,035,000 442,820,000
<INVESTMENT-INCOME> 99,006,000 48,222,000
<INVESTMENT-GAINS> (3,544,000) (79,000)
<OTHER-INCOME> 332,000 (14,000)
<BENEFITS> 364,502,000 237,965,000
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 105,726,000 63,167,000
<INCOME-PRETAX> 27,109,000 14,763,000
<INCOME-TAX> 17,390,000 7,587,000
<INCOME-CONTINUING> 9,719,000 7,176,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,719,000 7,176,000
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
