VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
ANNUAL REPORT
DECEMBER 31, 1996
The investment results presented in this report are historical and are no
indication of future performance.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Receiver of Monarch Life Insurance Company
and Policyholders of Variable Account B of Monarch Life Insurance Company
In our opinion, the accompanying statements of net assets and the related
statements of operations and changes in net assets present fairly, in all
material respects, the financial position of the Money, Bond, Capital
Appreciation, Growth, Multiple Strategies, High Income, and U.S. Treasuries
Trust, Series A through F 1994 Series through 2000 Series and 2005 Series
through 2010 Series Divisions (constituting Variable Account B of Monarch Life
Insurance Company) at December 31, 1996 and 1995 and the results of each of
their operations and changes in their net assets for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Monarch Life Insurance Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments at December 31, 1996, by
correspondence with the Funds and the Trust, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 21, 1997
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
ASSETS Cost Shares/Units Market Value
================ ============= ================
<S> <C> <C> <C>
Investment in Oppenheimer Variable Account Funds,
at Market Value (Note 2):
Oppenheimer Money Fund $ 25,740,554 25,740,554 $ 25,740,554
Oppenheimer Bond Fund 6,439,131 567,063 6,594,940
Oppenheimer Capital Appreciation Fund 21,909,147 567,959 21,984,532
Oppenheimer Growth Fund 25,652,139 953,855 25,983,013
Oppenheimer Multiple Strategies Fund 44,878,030 3,253,649 50,854,535
Oppenheimer High Income Fund 14,250,749 1,302,842 14,500,637
------------- --------------
138,869,750 145,658,211
------------- --------------
Investment in Oppenheimer Zero Coupon U.S. Treasuries Trust,
Series A through F - at Market Value (Note 2):
1997 Series 1,495,100 2,303,104 2,228,575
1998 Series 682,499 848,911 785,693
1999 Series 258,835 344,141 299,936
2000 Series 2,478,268 4,558,788 3,672,833
2005 Series 1,356,321 3,087,691 1,823,127
2006 Series 859,598 2,292,190 1,287,156
2007 Series 115,639 301,665 158,272
2008 Series 245,232 704,688 327,722
2009 Series 131,561 319,341 143,390
2010 Series 552,649 1,403,926 597,722
------------- --------------
8,175,702 11,324,426
------------- --------------
Total Invested Assets $ 147,045,452 156,982,637
=============
Dividend Receivable 43,703
Pending Trades 2,418,373
-------------
Total Assets 159,444,713
-------------
LIABILITIES
Payable to Monarch Life Insurance Company 1,029,258
-------------
Total Liabilities 1,029,258
-------------
Net Assets $ 158,415,455
=============
NET ASSETS
For Variable Life Insurance Policies $ 157,197,152
Retained in the Account by Monarch Life Insurance Company (Note 6) 1,218,303
-------------
Total Net Assets $ 158,415,455
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1995
================================================================================
<TABLE>
<CAPTION>
ASSETS Cost Shares/Units Market Value
============ ============ ============
<S> <C> <C> <C>
Investment in Oppenheimer Variable Account Funds,
at Market Value (Note 2):
Oppenheimer Money Fund $ 27,228,317 27,228,317 $ 27,228,317
Oppenheimer Bond Fund 7,239,593 637,750 7,550,966
Oppenheimer Capital Appreciation Fund 21,738,873 660,403 22,592,392
Oppenheimer Growth Fund 23,614,056 1,074,495 25,304,350
Oppenheimer Multiple Strategies Fund 45,069,548 3,450,697 50,207,641
Oppenheimer High Income Fund 12,704,994 1,217,220 12,939,046
------------ ------------
137,595,381 145,822,712
------------ ------------
Investment in Oppenheimer Zero Coupon U.S. Treasuries Trust,
Series A through F - at Market Value (Note 2):
1996 Series 874,198 1,362,287 1,354,004
1997 Series 1,665,958 2,804,397 2,582,092
1998 Series 746,120 964,857 854,612
1999 Series 238,606 326,859 274,764
2000 Series 2,770,516 5,632,982 4,419,750
2005 Series 1,340,248 3,380,385 2,007,881
2006 Series 749,939 2,259,175 1,263,105
2007 Series 163,023 430,581 225,405
2008 Series 280,319 912,238 435,566
2009 Series 133,177 326,179 150,884
2010 Series 693,002 1,947,595 856,085
------------ ------------
9,655,106 14,424,148
------------ ------------
Total Invested Assets $147,250,487 160,246,860
============
Dividend Receivable 70,020
Pending Trades 2,420,237
------------
Total Assets 162,737,117
------------
LIABILITIES
Payable to Monarch Life Insurance Company 875,707
------------
Total Liabilities 875,707
------------
Net Assets $161,861,410
============
NET ASSETS
For Variable Life Insurance Policies $159,795,152
Retained in the Account by Monarch Life Insurance Company (Note 6) 2,066,258
------------
Total Net Assets $161,861,410
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
================================================================================
<TABLE>
<CAPTION>
TOTALS - ALL DIVISIONS
=============================================
1996 1995 1994
============= ============= =============
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 10,079,958 $ 7,714,831 $ 8,965,323
Risk Charges and Administrative Expenses (Note 3) (1,042,599) (1,034,211) (1,425,787)
Transaction Charges (Note 4) (41,023) (49,804) (59,796)
------------- ------------- -------------
Net Investment Income 8,996,336 6,630,816 7,479,740
------------- ------------- -------------
Net Realized Gains 14,430,401 14,401,920 688,465
Net Unrealized Gains (Losses) (3,059,189) 8,176,697 (12,078,556)
------------- ------------- -------------
Net Realized and Unrealized Gains (Losses) 11,371,212 22,578,617 (11,390,091)
------------- ------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 20,367,548 29,209,433 (3,910,351)
------------- ------------- -------------
Transfers of Net Premiums 1,303,170 1,426,698 1,814,769
Transfers of Policy Loading, Net (880,777) (1,222,644) (1,324,850)
Transfers Due to Deaths (1,489,263) (1,741,121) (756,225)
Transfers Due to Other Terminations (16,999,636) (16,000,236) (17,645,894)
Transfers Due to Policy Loans (2,996,570) (1,929,060) (4,119,289)
Transfers of Cost of Insurance (2,390,359) (2,236,351) (2,272,880)
Transfers of Loan Processing Charges (360,068) (356,916) (24,069)
Transfers Among Investment Divisions -- -- --
------------- ------------- -------------
Net Decrease in Net Assets
Resulting from Principal Transactions (23,813,503) (22,059,630) (24,328,438)
------------- ------------- -------------
Total Increase (Decrease) in Net Assets (3,445,955) 7,149,803 (28,238,789)
Net Assets - Beginning Balance 161,861,410 154,711,607 182,950,396
------------- ------------- -------------
Net Assets - Ending Balance $ 158,415,455 $ 161,861,410 $ 154,711,607
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Capital
Money Bond Appreciation
Fund Fund Fund
Total Division Division Division
============= ============ =========== ============
<S> <C> <C> <C> <C>
Dividends (Note 2) $ 10,079,958 $ 1,499,588 $ 446,626 $ 1,407,286
Risk Charges and Administrative Expenses (Note 3) (1,042,599) (201,405) (43,143) (161,692)
Transaction Charges (Note 4) (41,023) -- -- --
------------- ------------ ----------- ------------
Net Investment Income (Loss) 8,996,336 1,298,183 403,483 1,245,594
------------- ------------ ----------- ------------
Net Realized Gains 14,430,401 -- 23,934 4,279,361
Net Unrealized Gains (Losses) (3,059,189) -- (155,563) (778,135)
------------- ------------ ----------- ------------
Net Realized and Unrealized Gains (Losses) 11,371,212 -- (131,629) 3,501,226
------------- ------------ ----------- ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 20,367,548 1,298,183 271,854 4,746,820
------------- ------------ ----------- ------------
Transfers of Net Premiums 1,303,170 295,769 45,108 263,842
Transfers of Policy Loading, Net (880,777) (144,629) (48,273) (144,225)
Transfers Due to Deaths (1,489,263) (508,452) (83,396) (94,147)
Transfers Due to Other Terminations (16,999,636) (5,815,334) (507,075) (3,776,263)
Transfers Due to Policy Loans (2,996,570) (209,536) (187,686) (836,181)
Transfers of Cost of Insurance (2,390,359) (484,508) (139,301) (292,561)
Transfers of Loan Processing Charges (360,068) (88,117) (27,924) (34,832)
Transfers Among Investment Divisions -- 3,971,957 (279,332) (717,466)
------------- ------------ ----------- ------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (23,813,503) (2,982,850) (1,227,879) (5,631,833)
------------- ------------ ----------- ------------
Total Increase (Decrease) in Net Assets (3,445,955) (1,684,667) (956,025) (885,013)
Net Assets - Beginning Balance 161,861,410 26,438,495 7,550,966 25,185,308
------------- ------------ ----------- ------------
Net Assets - Ending Balance $ 158,415,455 $ 24,753,828 $ 6,594,941 $ 24,300,295
============= ============ =========== ============
<CAPTION>
Multiple High
Growth Strategies Income
Fund Fund Fund
Division Division Division
============ ============ ============
<S> <C> <C> <C>
Dividends (Note 2) $ 1,951,935 $ 3,580,457 $ 1,194,066
Risk Charges and Administrative Expenses (Note 3) (157,967) (318,275) (82,086)
Transaction Charges (Note 4) -- -- --
------------ ------------ ------------
Net Investment Income (Loss) 1,793,968 3,262,182 1,111,980
------------ ------------ ------------
Net Realized Gains 4,849,715 2,790,520 657,828
Net Unrealized Gains (Losses) (1,359,420) 838,411 15,836
------------ ------------ ------------
Net Realized and Unrealized Gains (Losses) 3,490,295 3,628,931 673,664
------------ ------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 5,284,263 6,891,113 1,785,644
------------ ------------ ------------
Transfers of Net Premiums 220,671 402,155 39,498
Transfers of Policy Loading, Net (144,153) (267,549) (61,459)
Transfers Due to Deaths (110,269) (354,383) (28,611)
Transfers Due to Other Terminations (1,622,611) (3,467,715) (436,884)
Transfers Due to Policy Loans (286,730) (890,719) (325,051)
Transfers of Cost of Insurance (346,914) (728,886) (221,851)
Transfers of Loan Processing Charges (57,930) (104,049) (32,621)
Transfers Among Investment Divisions (1,905,172) (833,074) 767,657
------------ ------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (4,253,108) (6,244,220) (299,322)
------------ ------------ ------------
Total Increase (Decrease) in Net Assets 1,031,155 646,893 1,486,322
Net Assets - Beginning Balance 25,087,985 50,207,641 12,982,314
------------ ------------ ------------
Net Assets - Ending Balance $ 26,119,140 $ 50,854,534 $ 14,468,636
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997 1998 1999
Division Division Division Division
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ --
Risk Charges and Administrative Expenses (Note 3) (1,106) (15,251) (5,298) (1,900)
Transaction Charges (Note 4) (589) (7,936) (2,739) (998)
----------- ----------- --------- ---------
Net Investment Income (Loss) (1,695) (23,187) (8,037) (2,898)
----------- ----------- --------- ---------
Net Realized Gains 489,283 296,407 40,634 4,683
Net Unrealized Gains (Losses) (479,806) (182,659) (5,298) 4,943
----------- ----------- --------- ---------
Net Realized and Unrealized Gains (Losses) 9,477 113,748 35,336 9,626
----------- ----------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Operations 7,782 90,561 27,299 6,728
----------- ----------- --------- ---------
Transfers of Net Premiums -- 2,720 3,839 5,586
Transfers of Policy Loading, Net (369) (16,700) (5,561) (1,103)
Transfers Due to Deaths -- (8,128) -- --
Transfers Due to Other Terminations (3,973) (373,636) (96,187) (5,646)
Transfers Due to Policy Loans (9,669) (8,750) (4,949) (17,514)
Transfers of Cost of Insurance 349 (38,557) (9,687) (4,403)
Transfers of Loan Processing Charges 867 (4,444) (664) (257)
Transfers Among Investment Divisions (1,348,955) 3,427 16,994 41,772
----------- ----------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,361,750) (444,068) (96,215) 18,435
----------- ----------- --------- ---------
Total Increase (Decrease) in Net Assets (1,353,968) (353,507) (68,916) 25,163
Net Assets - Beginning Balance 1,353,968 2,582,021 854,588 274,741
----------- ----------- --------- ---------
Net Assets - Ending Balance $ -- $ 2,228,514 $ 785,672 $ 299,904
=========== =========== ========= =========
<CAPTION>
2000 2005 2006
Division Division Division
----------- ----------- -----------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ --
Risk Charges and Administrative Expenses (Note 3) (25,073) (11,727) (8,192)
Transaction Charges (Note 4) (13,342) (6,241) (4,406)
----------- ----------- -----------
Net Investment Income (Loss) (38,415) (17,968) (12,598)
----------- ----------- -----------
Net Realized Gains 558,273 186,354 98,614
Net Unrealized Gains (Losses) (454,670) (200,826) (85,607)
----------- ----------- -----------
Net Realized and Unrealized Gains (Losses) 103,603 (14,472) 13,007
----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations 65,188 (32,440) 409
----------- ----------- -----------
Transfers of Net Premiums 6,714 3,210 938
Transfers of Policy Loading, Net (21,432) (13,446) (6,635)
Transfers Due to Deaths (227,409) (74,468) --
Transfers Due to Other Terminations (433,324) (136,532) (34,416)
Transfers Due to Policy Loans (70,674) (48,919) (35,184)
Transfers of Cost of Insurance (52,418) (28,773) (21,532)
Transfers of Loan Processing Charges (4,349) (2,835) (1,629)
Transfers Among Investment Divisions 5,805 149,454 122,100
----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (797,087) (152,309) 23,642
----------- ----------- -----------
Total Increase (Decrease) in Net Assets (731,899) (184,749) 24,051
Net Assets - Beginning Balance 4,404,633 2,007,827 1,263,071
----------- ----------- -----------
Net Assets - Ending Balance $ 3,672,734 $ 1,823,078 $ 1,287,122
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2007 2008 2009 2010
Division Division Division Division
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ --
Risk Charges and Administrative Expenses (Note 3) (1,175) (2,717) (882) (4,710)
Transaction Charges (Note 4) (593) (1,353) (476) (2,350)
--------- --------- --------- ---------
Net Investment Income (Loss) (1,768) (4,070) (1,358) (7,060)
--------- --------- --------- ---------
Net Realized Gains 11,766 62,095 1,168 79,766
Net Unrealized Gains (Losses) (19,750) (72,758) (5,877) (118,010)
--------- --------- --------- ---------
Net Realized and Unrealized Gains (Losses) (7,984) (10,663) (4,709) (38,244)
--------- --------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Operations (9,752) (14,733) (6,067) (45,304)
--------- --------- --------- ---------
Transfers of Net Premiums 2,490 7,776 2,854 --
Transfers of Policy Loading, Net (1,004) (879) (351) (3,009)
Transfers Due to Deaths -- -- -- --
Transfers Due to Other Terminations (63,627) (61) (65) (226,287)
Transfers Due to Policy Loans -- (2,436) (1,607) (60,965)
Transfers of Cost of Insurance (3,108) (7,083) (2,258) (8,868)
Transfers of Loan Processing Charges (193) (511) (84) (496)
Transfers Among Investment Divisions 8,057 (89,890) 92 86,574
--------- --------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (57,385) (93,084) (1,419) (213,051)
--------- --------- --------- ---------
Total Increase (Decrease) in Net Assets (67,137) (107,817) (7,486) (258,355)
Net Assets - Beginning Balance 225,387 435,530 150,872 856,061
--------- --------- --------- ---------
Net Assets - Ending Balance $ 158,250 $ 327,713 $ 143,386 $ 597,706
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capital
Money Bond Appreciation
Fund Fund Fund
Total Division Division Division
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 7,714,831 $ 1,756,317 $ 493,182 $ 105,826
Risk Charges and Administrative Expenses (Note 3) (1,034,211) (224,437) (49,079) (136,284)
Transaction Charges (Note 4) (49,804) -- -- --
------------- ------------ ----------- ------------
Net Investment Income (Loss) 6,630,816 1,531,880 444,103 (30,458)
------------- ------------ ----------- ------------
Net Realized Gains 14,401,920 -- 34,051 5,574,922
Net Unrealized Gains (Losses) 8,176,697 -- 748,555 472,020
------------- ------------ ----------- ------------
Net Realized and Unrealized Gains 22,578,617 -- 782,606 6,046,942
------------- ------------ ----------- ------------
Net Increase in Net Assets
Resulting from Operations 29,209,433 1,531,880 1,226,709 6,016,484
------------- ------------ ----------- ------------
Transfers of Net Premiums 1,426,698 424,595 52,508 253,578
Transfers of Policy Loading, Net (1,222,644) (452,365) (65,584) (98,411)
Transfers Due to Deaths (1,741,121) (63,237) (189,057) (295,497)
Transfers Due to Other Terminations (16,000,236) (5,531,910) (574,336) (1,767,002)
Transfers Due to Policy Loans (1,929,060) (548,719) 29,666 (233,460)
Transfers of Cost of Insurance (2,236,351) (488,449) (144,798) (247,512)
Transfers of Loan Processing Charges (356,916) (87,927) (31,942) (36,423)
Transfers Among Investment Divisions -- (2,948,958) (764,115) 2,681,981
------------- ------------ ----------- ------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (22,059,630) (9,696,970) (1,687,658) 257,254
------------- ------------ ----------- ------------
Total Increase (Decrease) in Net Assets 7,149,803 (8,165,090) (460,949) 6,273,738
Net Assets - Beginning Balance 154,711,607 34,603,585 8,011,915 18,911,570
------------- ------------ ----------- ------------
Net Assets - Ending Balance $ 161,861,410 $ 26,438,495 $ 7,550,966 $ 25,185,308
============= ============ =========== ============
<CAPTION>
Multiple High
Growth Strategies Income
Fund Fund Fund
Division Division Division
------------ ------------ ------------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 474,021 $ 3,666,551 $ 1,218,934
Risk Charges and Administrative Expenses (Note 3) (137,193) (317,749) (75,789)
Transaction Charges (Note 4) -- -- --
------------ ------------ ------------
Net Investment Income (Loss) 336,828 3,348,802 1,143,145
------------ ------------ ------------
Net Realized Gains 4,487,053 1,692,041 143,948
Net Unrealized Gains (Losses) 1,483,726 4,344,360 906,748
------------ ------------ ------------
Net Realized and Unrealized Gains 5,970,779 6,036,401 1,050,696
------------ ------------ ------------
Net Increase in Net Assets
Resulting from Operations 6,307,607 9,385,203 2,193,841
------------ ------------ ------------
Transfers of Net Premiums 180,951 431,646 37,261
Transfers of Policy Loading, Net (112,581) (320,489) (72,893)
Transfers Due to Deaths (175,944) (536,227) (178,711)
Transfers Due to Other Terminations (1,415,529) (4,281,505) (794,287)
Transfers Due to Policy Loans (319,502) (521,629) (186,017)
Transfers of Cost of Insurance (295,121) (679,883) (196,548)
Transfers of Loan Processing Charges (54,218) (102,592) (32,684)
Transfers Among Investment Divisions 3,463,148 (2,386,322) 1,498,218
------------ ------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions 1,271,204 (8,397,001) 74,339
------------ ------------ ------------
Total Increase (Decrease) in Net Assets 7,578,811 988,202 2,268,180
Net Assets - Beginning Balance 17,509,174 49,219,439 10,714,134
------------ ------------ ------------
Net Assets - Ending Balance $ 25,087,985 $ 50,207,641 $ 12,982,314
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995 (Continued)
================================================================================
<TABLE>
<CAPTION>
1995 1996 1997 1998
Division Division Division Division
=========== =========== =========== =========
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ --
Risk Charges and Administrative Expenses (Note 3) (6,101) (8,956) (16,542) (5,017)
Transaction Charges (Note 4) (3,596) (4,789) (8,590) (2,536)
----------- ----------- ----------- ---------
Net Investment Income (Loss) (9,697) (13,745) (25,132) (7,553)
----------- ----------- ----------- ---------
Net Realized Gains 1,008,433 86,856 220,736 109,575
Net Unrealized Gains (Losses) (943,283) 19,874 77,493 (12,609)
----------- ----------- ----------- ---------
Net Realized and Unrealized Gains 65,150 106,730 298,229 96,966
----------- ----------- ----------- ---------
Net Increase in Net Assets
Resulting from Operations 55,453 92,985 273,097 89,413
----------- ----------- ----------- ---------
Transfers of Net Premiums (4) (5) 4,367 8,000
Transfers of Policy Loading, Net (11,438) (7,490) (18,805) (7,072)
Transfers Due to Deaths -- -- -- (9,148)
Transfers Due to Other Terminations (172,925) (70,530) (315,334) (225,889)
Transfers Due to Policy Loans (12,446) (21,554) (32,798) (25,312)
Transfers of Cost of Insurance (3,722) (16,062) (33,736) (11,919)
Transfers of Loan Processing Charges 2,506 (720) (3,401) (1,169)
Transfers Among Investment Divisions (2,791,617) (6,227) 125,778 332,766
----------- ----------- ----------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (2,989,646) (122,588) (273,929) 60,257
----------- ----------- ----------- ---------
Total Increase (Decrease) in Net Assets (2,934,193) (29,603) (832) 149,670
Net Assets - Beginning Balance 2,934,193 1,383,571 2,582,853 704,918
----------- ----------- ----------- ---------
Net Assets - Ending Balance $ -- $ 1,353,968 $ 2,582,021 $ 854,588
=========== =========== =========== =========
<CAPTION>
1999 2000 2005
Division Division Division
========= =========== ===========
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ --
Risk Charges and Administrative Expenses (Note 3) (1,836) (27,455) (12,018)
Transaction Charges (Note 4) (965) (14,741) (6,383)
--------- ----------- -----------
Net Investment Income (Loss) (2,801) (42,196) (18,401)
--------- ----------- -----------
Net Realized Gains 24,185 618,924 199,704
Net Unrealized Gains (Losses) 20,906 184,568 327,361
--------- ----------- -----------
Net Realized and Unrealized Gains 45,091 803,492 527,065
--------- ----------- -----------
Net Increase in Net Assets
Resulting from Operations 42,290 761,296 508,664
--------- ----------- -----------
Transfers of Net Premiums 5,586 10,643 3,338
Transfers of Policy Loading, Net (1,634) (29,747) (9,891)
Transfers Due to Deaths (86,358) (93,072) --
Transfers Due to Other Terminations (373) (729,708) (99,183)
Transfers Due to Policy Loans (2,349) (5,574) 7,437
Transfers of Cost of Insurance (4,170) (49,476) (26,527)
Transfers of Loan Processing Charges (22) (2,746) (2,675)
Transfers Among Investment Divisions 51,686 120,190 (4,252)
--------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (37,634) (779,490) (131,753)
--------- ----------- -----------
Total Increase (Decrease) in Net Assets 4,656 (18,194) 376,911
Net Assets - Beginning Balance 270,085 4,422,827 1,630,916
--------- ----------- -----------
Net Assets - Ending Balance $ 274,741 $ 4,404,633 $ 2,007,827
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995 (Continued)
================================================================================
<TABLE>
<CAPTION>
2006 2007 2008 2009 2010
Division Division Division Division Division
=========== ========= ========= ========= =========
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ -- $ --
Risk Charges and Administrative Expenses (Note 3) (7,442) (1,596) (2,339) (366) (4,012)
Transaction Charges (Note 4) (4,030) (809) (1,176) (187) (2,002)
----------- --------- --------- --------- ---------
Net Investment Income (Loss) (11,472) (2,405) (3,515) (553) (6,014)
----------- --------- --------- --------- ---------
Net Realized Gains 92,538 55,775 14,371 1,615 37,193
Net Unrealized Gains (Losses) 243,207 20,323 94,672 18,299 170,477
----------- --------- --------- --------- ---------
Net Realized and Unrealized Gains 335,745 76,098 109,043 19,914 207,670
----------- --------- --------- --------- ---------
Net Increase in Net Assets
Resulting from Operations 324,273 73,693 105,528 19,361 201,656
----------- --------- --------- --------- ---------
Transfers of Net Premiums 981 2,490 5,088 2,750 2,925
Transfers of Policy Loading, Net (6,305) (4,349) (2,171) (390) (1,029)
Transfers Due to Deaths (2,514) (111,356) -- -- --
Transfers Due to Other Terminations (605) (205) (13,327) (2,670) (4,918)
Transfers Due to Policy Loans (41,945) (6,162) (6,375) 0 (2,321)
Transfers of Cost of Insurance (20,463) (3,395) (6,031) (1,198) (7,341)
Transfers of Loan Processing Charges (1,224) (100) (576) (224) (779)
Transfers Among Investment Divisions (24,540) 256 118,471 113,957 419,580
----------- --------- --------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (96,615) (122,821) 95,079 112,225 406,117
----------- --------- --------- --------- ---------
Total Increase (Decrease) in Net Assets 227,658 (49,128) 200,607 131,586 607,773
Net Assets - Beginning Balance 1,035,413 274,515 234,923 19,286 248,288
----------- --------- --------- --------- ---------
Net Assets - Ending Balance $ 1,263,071 $ 225,387 $ 435,530 $ 150,872 $ 856,061
=========== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
================================================================================
<TABLE>
<CAPTION>
Capital
Money Bond Appreciation
Fund Fund Fund
Total Division Division Division
============= ============ ============ ============
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 8,965,323 $ 1,466,312 $ 505,223 $ 2,779,945
Risk Charges and Administrative Expenses (Note 3) (1,425,787) (338,217) (85,117) (146,927)
Transaction Charges (Note 4) (59,796) -- -- --
------------- ------------ ------------ ------------
Net Investment Income 7,479,740 1,128,095 420,106 2,633,018
------------- ------------ ------------ ------------
Net Realized Gains (Losses) 688,465 -- 121,324 (3,931,058)
Net Unrealized Losses (12,078,556) -- (819,785) (348,573)
------------- ------------ ------------ ------------
Net Realized and Unrealized Gains (Losses) (11,390,091) -- (698,461) (4,279,631)
------------- ------------ ------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (3,910,351) 1,128,095 (278,355) (1,646,613)
------------- ------------ ------------ ------------
Transfers of Net Premiums 1,814,769 370,374 180,855 272,086
Transfers of Policy Loading, Net (1,324,850) (378,485) (88,725) (113,414)
Transfers Due to Deaths (756,225) (126,392) (98,495) (38,604)
Transfers Due to Other Terminations (17,645,894) (5,837,424) (959,077) (1,585,695)
Transfers Due to Policy Loans (4,119,289) (1,104,940) (480,277) (370,403)
Transfers of Cost of Insurance (2,272,880) (495,428) (154,193) (224,752)
Transfers of Loan Processing Charges (24,069) (9,002) (1,673) (2,221)
Transfers Among Investment Divisions -- 11,443,559 (1,686,247) (4,042,715)
------------- ------------ ------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (24,328,438) 3,862,262 (3,287,832) (6,105,718)
------------- ------------ ------------ ------------
Total Increase (Decrease) in Net Assets (28,238,789) 4,990,357 (3,566,187) (7,752,331)
Net Assets - Beginning Balance 182,950,396 29,613,228 11,578,102 26,663,901
------------- ------------ ------------ ------------
Net Assets - Ending Balance $ 154,711,607 $ 34,603,585 $ 8,011,915 $ 18,911,570
============= ============ ============ ============
<CAPTION>
Multiple High
Growth Strategies Income
Fund Fund Fund
Division Division Division
============ ============ ============
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 218,673 $ 2,742,919 $ 1,252,251
Risk Charges and Administrative Expenses (Note 3) (151,831) (440,782) (130,654)
Transaction Charges (Note 4) -- -- --
------------ ------------ ------------
Net Investment Income 66,842 2,302,137 1,121,597
------------ ------------ ------------
Net Realized Gains (Losses) 543,912 2,602,466 (654,479)
Net Unrealized Losses (795,392) (6,443,534) (885,203)
------------ ------------ ------------
Net Realized and Unrealized Gains (Losses) (251,480) (3,841,068) (1,539,682)
------------ ------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (184,638) (1,538,931) (418,085)
------------ ------------ ------------
Transfers of Net Premiums 221,891 668,577 52,441
Transfers of Policy Loading, Net (128,562) (372,870) (110,580)
Transfers Due to Deaths (117,374) (212,783) (92,293)
Transfers Due to Other Terminations (1,879,311) (4,123,337) (1,607,562)
Transfers Due to Policy Loans (603,552) (1,097,882) (493,068)
Transfers of Cost of Insurance (242,868) (700,545) (210,911)
Transfers of Loan Processing Charges (2,766) (3,423) (1,098)
Transfers Among Investment Divisions (83,866) (808,500) (3,464,902)
------------ ------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (2,836,408) (6,650,763) (5,927,973)
------------ ------------ ------------
Total Increase (Decrease) in Net Assets (3,021,046) (8,189,694) (6,346,058)
Net Assets - Beginning Balance 20,530,220 57,409,133 17,060,192
------------ ------------ ------------
Net Assets - Ending Balance $ 17,509,174 $ 49,219,439 $ 10,714,134
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994 (CONTINUED)
================================================================================
<TABLE>
<CAPTION>
1994 1995 1996 1997
Division Division Division Division
========= =========== =========== ===========
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ --
Risk Charges and Administrative Expenses (Note 3) (4,806) (23,805) (10,951) (21,190)
Transaction Charges (Note 4) (1,886) (10,774) (4,862) (9,135)
--------- ----------- ----------- -----------
Net Investment Income (6,692) (34,579) (15,813) (30,325)
--------- ----------- ----------- -----------
Net Realized Gains (Losses) 181,753 400,474 90,326 230,059
Net Unrealized Losses (159,821) (304,523) (79,034) (296,173)
--------- ----------- ----------- -----------
Net Realized and Unrealized Gains (Losses) 21,932 95,951 11,292 (66,114)
--------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations 15,240 61,372 (4,521) (96,439)
--------- ----------- ----------- -----------
Transfers of Net Premiums 30 2,721 861 2,954
Transfers of Policy Loading, Net (8,204) (30,440) (10,821) (22,082)
Transfers Due to Deaths -- (13,320) (27,377) (7,835)
Transfers Due to Other Terminations (46,358) (618,601) (96,766) (136,681)
Transfers Due to Policy Loans (7,857) 205,051 15,415 (61,381)
Transfers of Cost of Insurance (7,584) (53,514) (17,674) (33,860)
Transfers of Loan Processing Charges (47) (1,778) (47) (786)
Transfers Among Investment Divisions (660,774) (13,501) 35,654 (1,839)
--------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (730,794) (523,382) (100,755) (261,510)
--------- ----------- ----------- -----------
Total Increase (Decrease) in Net Assets (715,554) (462,010) (105,276) (357,949)
Net Assets - Beginning Balance 715,554 3,396,203 1,488,847 2,940,802
--------- ----------- ----------- -----------
Net Assets - Ending Balance $ -- $ 2,934,193 $ 1,383,571 $ 2,582,853
========= =========== =========== ===========
<CAPTION>
1998 1999 2000
Division Division Division
=========== ========= ===========
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ --
Risk Charges and Administrative Expenses (Note 3) (6,170) (2,053) (34,526)
Transaction Charges (Note 4) (2,958) (1,057) (16,387)
----------- --------- -----------
Net Investment Income (9,128) (3,110) (50,913)
----------- --------- -----------
Net Realized Gains (Losses) 140,482 23,740 535,165
Net Unrealized Losses (176,290) (42,652) (881,296)
----------- --------- -----------
Net Realized and Unrealized Gains (Losses) (35,808) (18,912) (346,131)
----------- --------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations (44,936) (22,022) (397,044)
----------- --------- -----------
Transfers of Net Premiums 6,537 5,586 13,258
Transfers of Policy Loading, Net (5,812) (1,128) (28,581)
Transfers Due to Deaths (853) (327) (16,409)
Transfers Due to Other Terminations (107,222) (16) (275,567)
Transfers Due to Policy Loans (96,208) (506) 8,767
Transfers of Cost of Insurance (11,089) (4,164) (58,502)
Transfers of Loan Processing Charges (46) (4) (544)
Transfers Among Investment Divisions (75,352) (73,402) (384,676)
----------- --------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (290,045) (73,961) (742,254)
----------- --------- -----------
Total Increase (Decrease) in Net Assets (334,981) (95,983) (1,139,298)
Net Assets - Beginning Balance 1,039,899 366,068 5,562,125
----------- --------- -----------
Net Assets - Ending Balance $ 704,918 $ 270,085 $ 4,422,827
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994 (CONTINUED)
================================================================================
<TABLE>
<CAPTION>
2005 2006 2007 2008 2009 2010
Division Division Division Division Division Division
=========== =========== ========= ========= ========= =========
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ -- $ -- $ --
Risk Charges and Administrative Expenses (Note 3) (13,053) (7,763) (2,316) (2,178) (616) (2,832)
Transaction Charges (Note 4) (5,749) (3,667) (962) (910) (319) (1,130)
----------- ----------- --------- --------- --------- ---------
Net Investment Income (18,802) (11,430) (3,278) (3,088) (935) (3,962)
----------- ----------- --------- --------- --------- ---------
Net Realized Gains (Losses) 146,901 48,784 113,318 44,877 39,304 11,117
Net Unrealized Losses (329,632) (165,317) (149,706) (84,380) (59,435) (57,810)
----------- ----------- --------- --------- --------- ---------
Net Realized and Unrealized Gains (Losses) (182,731) (116,533) (36,388) (39,503) (20,131) (46,693)
----------- ----------- --------- --------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Operations (201,533) (127,963) (39,666) (42,591) (21,066) (50,655)
----------- ----------- --------- --------- --------- ---------
Transfers of Net Premiums 4,520 995 2,495 5,088 2,815 685
Transfers of Policy Loading, Net (9,395) (6,029) (3,891) (1,193) (1,290) (3,348)
Transfers Due to Deaths (1,972) (1,251) (332) (284) (23) (301)
Transfers Due to Other Terminations (31,727) (14,666) (181,323) (14) (100,569) (43,978)
Transfers Due to Policy Loans 1,851 (36,084) 188 -- 93 1,504
Transfers of Cost of Insurance (23,156) (18,341) (4,925) (5,370) (1,984) (4,020)
Transfers of Loan Processing Charges (271) (30) (217) (112) -- (4)
Transfers Among Investment Divisions (72,845) 13,182 73,476 (87,046) (10,393) (99,813)
----------- ----------- --------- --------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (132,995) (62,224) (114,529) (88,931) (111,351) (149,275)
----------- ----------- --------- --------- --------- ---------
Total Increase (Decrease) in Net Assets (334,528) (190,187) (154,195) (131,522) (132,417) (199,930)
Net Assets - Beginning Balance 1,965,444 1,225,600 428,710 366,445 151,703 448,218
----------- ----------- --------- --------- --------- ---------
Net Assets - Ending Balance $ 1,630,916 $ 1,035,413 $ 274,515 $ 234,923 $ 19,286 $ 248,288
=========== =========== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1 - ORGANIZATION
Variable Account B of Monarch Life Insurance Company (the Account) is a
segregated account of Monarch Life Insurance Company (Monarch Life) and is
registered as a unit investment trust under the Investment Company Act of 1940,
as amended (1940 Act), and is currently comprised of seventeen investment
divisions. Six of the divisions each invest solely in the shares of the six
corresponding separate funds of the Oppenheimer Variable Account Funds (the
Funds), a no-load, open-end, diversified, management investment company
registered under the 1940 Act. The Funds' investment advisor is Oppenheimer
Funds, Inc. The other eleven divisions each invest solely in the units of
designated series of the Oppenheimer Zero Coupon U.S. Treasuries Trust, Series A
through F (the Trust), which is registered under the 1940 Act as a unit
investment trust. The sponsor of the Trust is Oppenheimer Funds Distributor,
Inc. Under applicable insurance law, the assets and liabilities of the Account
are clearly identified and distinguished from the other assets and liabilities
of Monarch Life. The portion of the Account's assets applicable to the variable
life insurance policies is not chargeable with liabilities arising out of any
other business Monarch Life may conduct.
The change in net assets maintained in the Account provides the basis for the
periodic determination of the amount of increased or decreased benefits under
the policies. The net assets may not be less than the amount required under
state insurance law to provide for death benefits (without regard to the minimum
death benefit guarantee) and other policy benefits. Additional assets are held
in Monarch Life's general account to cover the contingency that the guaranteed
minimum death benefit might exceed the death benefit which would have been
payable in the absence of such guarantee.
Monarch Life is a wholly-owned subsidiary of Regal Reinsurance Company (Regal
Re). On June 9, 1994, the Insurance Commissioner of the Commonwealth of
Massachusetts (the Commissioner) was appointed receiver (the Receiver) of
Monarch Life in a rehabilitation proceeding pending before the Supreme Judicial
Court for Suffolk County, Massachusetts (the Court). A term sheet dated July 19,
1994 (the Term Sheet) among the Commissioner (in her capacity as Commissioner
and Receiver) and certain of Regal Re shareholders and noteholders and holders
of Monarch Life's surplus notes (representing approximately 85% of both the
total outstanding Regal Re notes and common stock) (the Holders) was approved by
the Court on September 1, 1994. Pursuant to the Term Sheet, the Holders
transferred their notes and stock into voting trusts for which the Commissioner
is the sole trustee, which effectively vests control of Monarch Life and Regal
Re in the Commissioner.
On January 31, 1997, the Receiver, with Court approval, appointed a Special
Deputy Receiver for Monarch Life. The Special Deputy Receiver is responsible for
the management of Monarch Life's operations and reports to the Receiver as has
been the case with Monarch Life's President, who recently announced plans to
retire at the end of the first quarter of 1997. The Receiver's active
involvement in the rehabilitation of Monarch Life will not change.
Insurance departments of various jurisdictions have either suspended Monarch
Life's certificate of authority, ordered Monarch Life to cease writing new
business, or have requested a voluntary suspension of sales. In addition,
Monarch Life's certificate of authority has been revoked by the insurance
departments of the states of Louisiana (1994), Michigan (1995), Missouri (1994),
and Wyoming (1992).
Monarch Life currently limits its business to maintaining its existing
disability income insurance, variable life, and annuity business. Monarch Life
ceased issuing new variable life insurance policies and new annuity contracts
effective May 1, 1992, and new disability income insurance policies effective
June 15, 1993.
The assets of the Account are not available to meet the general obligations of
Monarch Life or Regal Re and are held for the exclusive benefit of the
policyholders participating in the Account.
14
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Account in preparation of its financial statements. Preparation
of financial statements requires the use of estimates made by management. Actual
results may differ from these estimates. The policies are in conformity with
generally accepted accounting principles.
INVESTMENTS: The investments in shares of the Funds and in units of the
Trust are stated at the net asset value per share and per unit of the
respective Funds and the Trust. Investment transactions are accounted for
on the date the shares and units are purchased or sold. The cost of shares
and units sold and redeemed is determined on the first-in, first-out
method. Dividend and capital gain distributions received from the Funds
and the Trust are reinvested in additional shares and units of the Funds
and the Trust and are recorded as income by the Account on the ex-dividend
date. Capital gains distributions are included in dividend income in the
statements of operations and changes in net assets.
FEDERAL INCOME TAXES: For federal income tax purposes, operations of the
Account are combined with those of Monarch Life which is taxed as a life
insurance company. Under existing federal income tax law, investment
income (dividends) and capital gains attributable to the Account are not
taxed.
NOTE 3 - EXPENSES
Monarch Life assumes mortality and expense risks related to the operations of
the Account and deducts a daily charge from the assets of the Account to cover
these risks. The daily charge varies by policy form and is currently equal to a
rate of .50% to .75% (on an annual basis) of the policyholders' investment base.
Monarch Life makes certain deductions from the premium before such amounts are
transferred to the Account. The deductions are for (1) premiums for optional
benefits, (2) additional premiums for extra mortality risks, (3) sales load, and
(4) state premium taxes.
For certain single premium policies, the sum of deductions (3) and (4) is
included in the investment base of a policyholder in the Account on the policy
issue date. Thereafter, this allocated policy loading is subtracted from that
policyholder's investment base in equal installments at the beginning of the
second through eleventh policy years.
NOTE 4 - TRANSACTION CHARGES
Monarch Life pays all transaction charges to Oppenheimer Fund Distributor, Inc.,
on the sale of units of the Trust to the Account and deducts a daily asset
charge against the assets of each series trust division in the Account for
reimbursement of these transaction charges. The daily charge is currently equal
to a rate of .34% (on an annual basis) of the policyholders' investment base.
NOTE 5 - PRINCIPAL UNDERWRITER AND GENERAL DISTRIBUTOR
Since June 13, 1995, Baystate Capital Services, Inc. (BCSI), has been the
principal underwriter and general distributor of the contracts maintained in the
Account. BCSI is a wholly-owned subsidiary of Monarch Life. Prior to June 13,
1995, the function of principal underwriter and general distributor was
performed by First Variable Capital Services, Inc., a wholly-owned subsidiary of
First Variable Life Insurance Company (FVL). Prior to September 22, 1994, FVL
was a wholly-owned subsidiary of Monarch Life. Effective September 22, 1994, FVL
is no longer an affiliate of Monarch Life.
15
<PAGE>
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 6 - AMOUNTS RETAINED
The amount retained by Monarch Life in the Account includes unamortized
allocated policy loading (see Note 3), in part and may be transferred in future
periods by Monarch Life to its general account. The total unamortized allocated
policy loading ($1,355,219 at December 31, 1996 and $2,235,996 at December 31,
1995) is in excess of the amount retained by Monarch Life because of amounts
provided for future policy benefits ($136,916 at December 31, 1996 and $169,738
at December 31, 1995) which are included in the net assets for variable life
policies at December 31, 1996 and December 31, 1995.
NOTE 7 - PURCHASES AND SALES OF SECURITIES
Total cost of purchases and proceeds from sales of shares of the Funds and units
of the Trust by the Account during the year ended December 31, 1996 are shown
below:
Purchases Sales
------------ ------------
Oppenheimer Money Fund $191,619,858 $193,107,622
Oppenheimer Bond Fund 1,021,212 1,845,608
Oppenheimer Capital Appreciation Fund 169,571,075 173,680,161
Oppenheimer Growth Fund 75,223,322 78,034,954
Oppenheimer Multiple Strategies Fund 10,161,919 13,143,957
Oppenheimer High Income Fund 19,202,580 18,314,652
1996 Series 3,002 1,366,484
1997 Series 98,923 566,189
1998 Series 35,725 139,980
1999 Series 47,679 32,133
2000 Series 107,294 957,814
2005 Series 238,757 409,038
2006 Series 221,166 210,120
2007 Series 10,691 69,840
2008 Series 13,124 110,306
2009 Series 2,850 5,634
2010 Series 216,772 436,890
------------ ------------
Totals $467,795,949 $482,431,382
============ ============
NOTE 8 - DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code (the Code),
a variable life insurance policy, other than a policy issued in connection with
certain types of employee benefit plans, will not be treated as a life insurance
policy for federal tax purposes for any period for which the investments of the
segregated asset account, on which the policy is based, are not adequately
diversified. The Code provides that the "adequately diversified" requirement may
be met if the underlying investments satisfy either a statutory safe harbor test
or diversification requirements set forth in regulations issued by the Secretary
of the Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of the
Code. Monarch Life believes, based on assurances from the Funds and the Trust,
that the Account satisfies the current requirements of the regulations.
16
