<PAGE> 1
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
ANNUAL REPORT
DECEMBER 31, 1998
This is a copy of the annual report of the variable account in which your
Monarch Life Insurance Company variable life insurance policy invests. We take
pride in our continued commitment to provide prompt, courteous service to our
policy owners. For inquiries regarding your policy, please call our Variable
Life Service Center at 1-800-544-0049.
[MONARCH LIFE INSURANCE LOGO]
The investment results presented in this report are historical and are no
indication of future performance.
<PAGE> 2
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, Aggressive Growth,
Growth, Multiple Strategies and High Income Divisions at December 31, 1998 and
1997, the U.S. Treasury Securities, Series B through G 1999 Trust through 2000
Trust and 2005 Trust through 2010 Trust Divisions at December 31, 1998, the U.S.
Treasuries Trust, Series D 1998 Series Division at December 31, 1998, and the
U.S. Treasuries Trust, Series A through F 1996 Series through 2000 Series and
2005 Series through 2010 Series Divisions at December 31, 1997 (constituting
Variable Account B of Monarch Life Insurance Company) 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, 1998, 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, 1998, by
correspondence with the Funds and the Trust, provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 22, 1999
<PAGE> 3
VARIABLE ACCOUNT B
MONARCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<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 $ 24,693,955 24,693,955 $ 24,693,955
Oppenheimer Bond Fund 6,055,890 509,512 6,277,183
Oppenheimer Aggressive Growth Fund* 19,441,545 477,546 21,408,378
Oppenheimer Growth Fund 32,654,166 989,003 36,266,751
Oppenheimer Multiple Strategies Fund 42,069,706 2,902,263 49,483,588
Oppenheimer High Income Fund 9,968,891 910,148 10,029,831
------------ ------------
134,884,153 148,159,686
------------ ------------
Investment in The Merrill Lynch Fund of
Stripped U.S. Treasury Securities,
Series B through G -
at Market Value (Note 2):
1999 Trust 358,426 362,713 361,052
2000 Trust 2,857,288 3,007,590 2,866,564
2005 Trust 2,076,623 2,718,398 2,058,833
2006 Trust 1,376,899 1,866,834 1,373,019
2007 Trust 156,137 223,730 155,495
2008 Trust 271,491 419,691 270,927
2009 Trust 30,815 50,796 30,970
2010 Trust 486,636 859,313 487,935
------------ ------------
7,614,315 7,604,795
------------ ------------
Total Invested Assets $142,498,468 155,764,481
============
Dividend Receivable 44,827
Pending Trades 221,232
------------
Total Assets 156,030,540
------------
LIABILITIES
Payable to Monarch Life Insurance Company 948,270
------------
Total Liabilities 948,270
------------
Net Assets $155,082,270
============
NET ASSETS
For Variable Life Insurance Policies $154,670,795
Unamortized Allocated Policy Loading, Net
of Amounts Provided for Future Policy Benefits (Note 6) 411,475
------------
Total Net Assets $155,082,270
============
</TABLE>
*Prior to May 1, 1998, this Fund was named Oppenheimer Capital Appreciation
Fund.
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
VARIABLE ACCOUNT B
MONARCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<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 $ 21,136,111 21,136,111 $ 21,136,111
Oppenheimer Bond Fund 6,225,880 538,094 6,408,702
Oppenheimer Capital Appreciation Fund 22,458,204 535,052 21,915,725
Oppenheimer Growth Fund 31,368,593 954,727 30,971,350
Oppenheimer Multiple Strategies Fund 44,479,330 3,146,972 53,529,994
Oppenheimer High Income Fund 13,946,626 1,222,160 14,079,279
------------ ------------
139,614,744 148,041,161
------------ ------------
Investment in Oppenheimer Zero Coupon
U.S. Treasuries Trust,
Series A through F --
at Market Value (Note 2):
1998 Series 631,982 728,148 713,956
1999 Series 257,833 333,994 309,579
2000 Series 2,328,199 3,903,624 3,369,218
2005 Series 1,536,524 3,124,593 2,052,264
2006 Series 806,259 2,100,389 1,313,352
2007 Series 114,108 295,051 173,700
2008 Series 273,005 633,545 336,850
2009 Series 29,365 68,458 35,312
2010 Series 521,409 1,193,188 587,108
------------ ------------
6,498,684 8,891,339
------------ ------------
Total Invested Assets $146,113,428 156,932,500
============
Dividend Receivable 43,051
Pending Trades 1,004,643
------------
Total Assets 157,980,194
------------
LIABILITIES
Payable to Monarch Life Insurance Company 1,073,526
------------
Total Liabilities 1,073,526
------------
Net Assets $156,906,668
============
NET ASSETS
For Variable Life Insurance Policies $156,278,970
Unamortized Allocated Policy Loading, Net of Amounts
Provided for Future Policy Benefits (Note 6) 627,698
------------
Total Net Assets $156,906,668
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
VARIABLE ACCOUNT B
MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998,1997, and 1996
<TABLE>
<CAPTION>
TOTALS-ALL DIVISIONS
------------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 9,140,797 $ 9,179,780 $ 10,079,958
Expenses:
Risk Charges and Administrative Expenses (Note 3) (996,721) (1,027,845) (1,042,599)
Transaction Charges (Note 4) (27,768) (34,178) (41,023)
------------- ------------- -------------
Net Investment Income (Loss) 8,116,308 8,117,757 8,996,336
Net Realized Gains 4,922,445 12,239,968 14,430,401
Net Unrealized Gains (Losses) 2,446,941 881,888 (3,059,189)
------------- ------------- -------------
Net Realized and Unrealized Gains 7,369,386 13,121,856 11,371,212
------------- ------------- -------------
Net Increase in Net Assets
Resulting from Operations 15,485,694 21,239,613 20,367,548
------------- ------------- -------------
Transfers of Net Premiums 977,164 1,174,323 1,303,170
Transfers of Policy Loading, Net (242,069) (611,411) (880,777)
Transfers Due to Deaths (2,473,487) (1,658,171) (1,489,263)
Transfers Due to Other Terminations (11,534,142) (15,948,657) (16,999,636)
Transfers Due to Policy Loans (1,098,416) (2,825,734) (2,996,570)
Transfers of Cost of Insurance (2,619,332) (2,537,353) (2,390,359)
Transfers of Loan Processing Charges (319,810) (341,397) (360,068)
Transfers Among Investment Divisions -- -- --
------------- ------------- -------------
Net Decrease in Net Assets
Resulting from Principal Transactions (17,310,092) (22,748,400) (23,813,503)
------------- ------------- -------------
Total Decrease in Net Assets (1,824,398) (1,508,787) (3,445,955)
Net Assets - Beginning of Year 156,906,668 158,415,455 161,861,410
------------- ------------- -------------
Net Assets - End of Year $ 155,082,270 $ 156,906,668 $ 158,415,455
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
VARIABLE ACCOUNT B
MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE
MONEY BOND GROWTH
FUND FUND FUND
TOTAL DIVISION DIVISION DIVISION*
-------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 9,140,797 $ 1,265,819 $ 200,920 $ 596,625
Expenses:
Risk Charges and Administrative Expenses (Note 3) (996,721) (164,797) (38,374) (127,253)
Transaction Charges (Note 4) (27,768) -- -- --
------------- ------------- ------------- -------------
Net Investment Income (Loss) 8,116,308 1,101,022 162,546 469,372
------------- ------------- ------------- -------------
Net Realized Gains (Losses) 4,922,445 -- 156,478 (176,020)
Net Unrealized Gains (Losses) 2,446,941 -- 38,471 2,509,312
------------- ------------- ------------- -------------
Net Realized and Unrealized Gains 7,369,386 -- 194,949 2,333,292
------------- ------------- ------------- -------------
Net Increase in Net Assets
Resulting from Operations 15,485,694 1,101,022 357,495 2,802,664
------------- ------------- ------------- -------------
Transfers of Net Premiums 977,164 311,935 29,159 138,372
Transfers of Policy Loading, Net (242,069) (95,216) (8,792) (41,663)
Transfers Due to Deaths (2,473,487) (342,541) (297,833) (442,273)
Transfers Due to Other Terminations (11,534,142) (3,524,009) (212,948) (1,598,266)
Transfers Due to Policy Loans (1,098,416) (241,550) (36,348) (125,984)
Transfers of Cost of Insurance (2,619,332) (454,342) (129,929) (303,815)
Transfers of Loan Processing Charges (319,810) (69,753) (20,719) (34,426)
Transfers Among Investment Divisions -- 6,945,835 188,396 (1,447,948)
------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (17,310,092) 2,530,359 (489,014) (3,856,003)
------------- ------------- ------------- -------------
Total Increase (Decrease) in Net Assets -1,824,398 3,631,381 (131,519) (1,053,339)
Net Assets - Beginning of Year 156,906,668 20,186,215 6,408,702 22,143,166
------------- ------------- ------------- -------------
Net Assets - End of Year $ 155,082,270 $ 23,817,596 $ 6,277,183 $ 21,089,827
============- ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
MULTIPLE HIGH
GROWTH STRATEGIES INCOME
FUND FUND FUND 1998
DIVISION DIVISION DIVISION DIVISION**
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 3,034,705 $ 3,386,909 $ 655,819 $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) (208,747) (328,652) (77,047) (1,704)
Transaction Charges (Note 4) -- -- -- (903)
------------- ------------- ------------- -------------
Net Investment Income (Loss) 2,825,958 3,058,257 578,772 (2,607)
------------- ------------- ------------- -------------
Net Realized Gains (Losses) 357,235 1,654,790 (297,283) 96,937
Net Unrealized Gains (Losses) 4,009,828 (1,636,782) (71,713) (81,974)
------------- ------------- ------------- -------------
Net Realized and Unrealized Gains 4,367,063 18,008 (368,996) 14,963
------------- ------------- ------------- -------------
Net Increase in Net Assets
Resulting from Operations 7,193,021 3,076,265 209,776 12,356
------------- ------------- ------------- -------------
Transfers of Net Premiums 166,924 294,947 19,087 --
Transfers of Policy Loading, Net (41,128) (59,762) (10,080) (591)
Transfers Due to Deaths (296,846) (846,730) (71,371) --
Transfers Due to Other Terminations (1,775,367) (2,775,187) (976,133) 1,402
Transfers Due to Policy Loans 92,570 (411,537) (300,414) (5,380)
Transfers of Cost of Insurance (532,474) (824,511) (233,254) (1,729)
Transfers of Loan Processing Charges (72,764) (84,237) (23,956) 44
Transfers Among Investment Divisions 376,015 (2,415,654) (2,663,104) (718,538)
------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (2,083,070) (7,122,671) (4,259,225) (724,792)
------------- ------------- ------------- -------------
Total Increase (Decrease) in Net Assets 5,109,951 (4,046,406) (4,049,449) (712,436)
Net Assets - Beginning of Year 31,669,750 53,529,994 14,079,280 712,436
------------- ------------- ------------- -------------
Net Assets - End of Year $ 36,779,701 $ 49,483,588 $ 10,029,831 $ --
============= ============= ============= =============
</TABLE>
* Prior to May 1, 1998, this Division was named Capital Appreciation Fund
Division
** The Division reflects the operations and changes in net assets of the
Oppenheimer Trust (See Note 1)
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
VARIABLE ACCOUNT B
MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 2000 2005 2006
DIVISION* DIVISION* DIVISION* DIVISION*
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) (2,117) (19,384) (12,996) (8,136)
Transaction Charges (Note 4) (1,187) (10,523) (6,907) (4,457)
----------- ----------- ----------- -----------
Net Investment Income (Loss) (3,304) (29,907) (19,903) (12,593)
----------- ----------- ----------- -----------
Net Realized Gains (Losses) 73,250 1,259,579 768,954 674,761
Net Unrealized Gains (Losses) (49,120) (1,031,743) (533,530) (510,973)
----------- ----------- ----------- -----------
Net Realized and Unrealized Gains 24,130 227,836 235,424 163,788
----------- ----------- ----------- -----------
Net Increase in Net Assets
Resulting from Operations 20,826 197,929 215,521 151,195
----------- ----------- ----------- -----------
Transfers of Net Premiums 5,586 1,249 1,235 991
Transfers of Policy Loading, Net (304) (7,108) 5,684 6,245
Transfers Due to Deaths -- (40,970) (40,478) (51,634)
Transfers Due to Other Terminations (35,335) (568,575) (48,652) (18,164)
Transfers Due to Policy Loans 5,614 (30,734) (8,315) (4,714)
Transfers of Cost of Insurance (6,598) (48,856) (36,498) (25,872)
Transfers of Loan Processing Charges (505) (5,067) (4,180) (2,230)
Transfers Among Investment Divisions 62,177 (508) (77,749) 3,849
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions 30,635 (700,569) (208,953) (91,529)
----------- ----------- ----------- -----------
Total Increase (Decrease) in Net Assets 51,461 (502,640) 6,568 59,666
Net Assets - Beginning of Year 309,563 3,369,128 2,052,209 1,313,317
----------- ----------- ----------- -----------
Net Assets - End of Year $ 361,024 $ 2,866,488 $ 2,058,777 $ 1,372,983
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
2007 2008 2009 2010
DIVISION* DIVISION* DIVISION* DIVISION*
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) (949) (2,277) (224) (4,064)
Transaction Charges (Note 4) (479) (1,176) (103) (2,033)
----------- ----------- ----------- -----------
Net Investment Income (Loss) (1,428) (3,453) (327) (6,097)
----------- ----------- ----------- -----------
Net Realized Gains (Losses) 79,207 114,350 10,029 150,178
Net Unrealized Gains (Losses) (60,234) (64,409) (5,792) (64,400)
----------- ----------- ----------- -----------
Net Realized and Unrealized Gains 18,973 49,941 4,237 85,778
----------- ----------- ----------- -----------
Net Increase in Net Assets
Resulting from Operations 17,545 46,488 3,910 79,681
----------- ----------- ----------- -----------
Transfers of Net Premiums 2,490 3,180 2,009 --
Transfers of Policy Loading, Net 567 1,197 517 8,365
Transfers Due to Deaths (42,811) -- -- --
Transfers Due to Other Terminations (672) (4) (3) (2,229)
Transfers Due to Policy Loans -- -- -- (31,624)
Transfers of Cost of Insurance (3,869) (7,376) (536) (9,673)
Transfers of Loan Processing Charges (254) (567) (95) (1,101)
Transfers Among Investment Divisions 8,796 (108,844) (10,149) (142,574)
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (35,753) (112,414) (8,257) (178,836)
----------- ----------- ----------- -----------
Total Increase (Decrease) in Net Assets (18,208) (65,926) (4,347) (99,155)
Net Assets - Beginning of Year 173,690 336,832 35,310 587,076
----------- ----------- ----------- -----------
Net Assets - End of Year $ 155,482 $ 270,906 $ 30,963 $ 487,921
=========== =========== =========== ===========
</TABLE>
* The Divisions reflect the operations and changes in net assets in the
Oppenheimer Trust through October 28, 1998 (See Note 1)
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 8
VARIABLE ACCOUNT B
MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY BOND
FUND FUND
TOTAL DIVISION DIVISION
------------- ------------- -------------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 9,179,780 $ 1,341,049 $ 407,637
Expenses:
Risk Charges and Administrative Expenses (Note 3) (1,027,845) (171,531) (38,448)
Transaction Charges (Note 4) (34,178) -- --
------------- ------------- -------------
Net Investment Income (Loss) 8,117,757 1,169,518 369,189
------------- ------------- -------------
Net Realized Gains 12,239,968 -- 116,077
Net Unrealized Gains (Losses) 881,888 -- 27,012
------------- ------------- -------------
Net Realized and Unrealized Gains 13,121,856 -- 143,089
------------- ------------- -------------
Net Increase in Net Assets
Resulting from Operations 21,239,613 1,169,518 512,278
------------- ------------- -------------
Transfers of Net Premiums 1,174,323 244,593 40,441
Transfers of Policy Loading, Net (611,411) (135,232) (25,351)
Transfers Due to Deaths (1,658,171) (182,693) (162,624)
Transfers Due to Other Terminations (15,948,657) (3,344,904) (436,207)
Transfers Due to Policy Loans (2,825,734) (1,071,149) (155,523)
Transfers of Cost of Insurance (2,537,353) (430,113) (138,222)
Transfers of Loan Processing Charges (341,397) (68,556) (25,417)
Transfers Among Investment Divisions -- (749,079) 204,386
------------- ------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (22,748,400) (5,737,133) (698,517)
------------- ------------- -------------
Total Increase (Decrease) in Net Assets (1,508,787) (4,567,615) (186,239)
Net Assets - Beginning of Year 158,415,455 24,753,830 6,594,941
------------- ------------- -------------
Net Assets - End of Year $ 156,906,668 $ 20,186,215 $ 6,408,702
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
CAPITAL MULTIPLE
APPRECIATION GROWTH STRATEGIES
FUND FUND FUND
DIVISION DIVISION DIVISION
-------------- ------------- --------------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 1,004,837 $ 1,586,036 $ 3,757,621
Expenses:
Risk Charges and Administrative Expenses (Note 3) (139,893) (196,798) (331,151)
Transaction Charges (Note 4) -- -- --
------------- ------------- -------------
Net Investment Income (Loss) 864,944 1,389,238 3,426,470
------------- ------------- -------------
Net Realized Gains 2,044,573 6,354,462 1,429,229
Net Unrealized Gains (Losses) (617,863) (728,115) 3,074,162
------------- ------------- -------------
Net Realized and Unrealized Gains 1,426,710 5,626,347 4,503,391
------------- ------------- -------------
Net Increase in Net Assets
Resulting from Operations 2,291,654 7,015,585 7,929,861
------------- ------------- -------------
Transfers of Net Premiums 217,048 237,523 374,184
Transfers of Policy Loading, Net (77,953) (94,634) (193,971)
Transfers Due to Deaths (119,796) (163,063) (501,326)
Transfers Due to Other Terminations (1,604,255) (5,550,796) (3,442,970)
Transfers Due to Policy Loans (672,449) (239,476) (449,332)
Transfers of Cost of Insurance (298,433) (491,597) (783,651)
Transfers of Loan Processing Charges (37,797) (73,694) (91,446)
Transfers Among Investment Divisions (1,855,148) 4,910,762 (165,889)
------------- ------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (4,448,783) (1,464,975) (5,254,401)
------------- ------------- -------------
Total Increase (Decrease) in Net Assets (2,157,129) 5,550,610 2,675,460
Net Assets - Beginning of Year 24,300,295 26,119,140 50,854,534
------------- ------------- -------------
Net Assets - End of Year $ 22,143,166 $ 31,669,750 $ 53,529,994
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
HIGH
INCOME
FUND 1997 1998
DIVISION DIVISION DIVISION
------------ ------------- -----------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 1,082,600 $ -- $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) (85,498) (8,362) (4,937)
Transaction Charges (Note 4) -- (4,364) (2,583)
------------- ------------- -------------
Net Investment Income (Loss) 997,102 (12,726) (7,520)
------------- ------------- -------------
Net Realized Gains 676,371 801,962 63,662
Net Unrealized Gains (Losses) (117,236) (733,476) (21,221)
------------- ------------- -------------
Net Realized and Unrealized Gains 559,135 68,486 42,441
------------- ------------- -------------
Net Increase in Net Assets
Resulting from Operations 1,556,237 55,760 34,921
------------- ------------- -------------
Transfers of Net Premiums 35,993 1,554 --
Transfers of Policy Loading, Net (46,033) (8,101) (3,468)
Transfers Due to Deaths (134,686) (12,112) (44,961)
Transfers Due to Other Terminations (923,609) (233,016) (40,958)
Transfers Due to Policy Loans (78,045) 23,187 (1,459)
Transfers of Cost of Insurance (241,622) (19,703) (10,401)
Transfers of Loan Processing Charges (30,743) (1,930) (881)
Transfers Among Investment Divisions (526,848) (2,034,153) (6,029)
------------- ------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,945,593) (2,284,274) (108,157)
------------- ------------- -------------
Total Increase (Decrease) in Net Assets (389,356) (2,228,514) (73,236)
Net Assets - Beginning of Year 14,468,636 2,228,514 785,672
------------- ------------- -------------
Net Assets - End of Year $ 14,079,280 $ -- $ 712,436
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 9
VARIABLE ACCOUNT B
MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 2000 2005 2006
DIVISION DIVISION DIVISION DIVISION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) (1,866) (21,907) (11,874) (7,796)
Transaction Charges (Note 4) (994) (11,677) (6,323) (4,249)
----------- ----------- ----------- -----------
Net Investment Income (Loss) (2,860) (33,584) (18,197) (12,045)
----------- ----------- ----------- -----------
Net Realized Gains 7,391 388,365 153,663 56,323
Net Unrealized Gains (Losses) 10,644 (153,545) 48,934 79,534
----------- ----------- ----------- -----------
Net Realized and Unrealized Gains 18,035 234,820 202,597 135,857
----------- ----------- ----------- -----------
Net Increase in Net Assets
Resulting from Operations 15,175 201,236 184,400 123,812
----------- ----------- ----------- -----------
Transfers of Net Premiums 5,586 1,256 3,096 897
Transfers of Policy Loading, Net (710) (15,436) (5,458) (4,255)
Transfers Due to Deaths -- (208,288) (91,411) (37,211)
Transfers Due to Other Terminations (19,746) (184,782) (53,446) (17,441)
Transfers Due to Policy Loans 4,215 (57,576) (68,431) (15,907)
Transfers of Cost of Insurance (4,856) (46,724) (29,413) (21,957)
Transfers of Loan Processing Charges (215) (4,261) (3,219) (1,449)
Transfers Among Investment Divisions 10,210 10,969 293,013 (294)
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (5,516) (504,842) 44,731 (97,617)
----------- ----------- ----------- -----------
Total Increase (Decrease) in Net Assets 9,659 (303,606) 229,131 26,195
Net Assets - Beginning of Year 299,904 3,672,734 1,823,078 1,287,122
----------- ----------- ----------- -----------
Net Assets - End of Year $ 309,563 $ 3,369,128 $ 2,052,209 $ 1,313,317
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
2007 2008 2009 2010
DIVISION DIVISION DIVISION DIVISION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) (1,106) (2,148) (752) (3,778)
Transaction Charges (Note 4) (544) (1,100) (400) (1,944)
----------- ----------- ----------- -----------
Net Investment Income (Loss) (1,650) (3,248) (1,152) (5,722)
----------- ----------- ----------- -----------
Net Realized Gains 1,825 62,588 20,002 63,475
Net Unrealized Gains (Losses) 16,960 (18,645) (5,883) 20,626
----------- ----------- ----------- -----------
Net Realized and Unrealized Gains 18,785 43,943 14,119 84,101
----------- ----------- ----------- -----------
Net Increase in Net Assets
Resulting from Operations 17,135 40,695 12,967 78,379
----------- ----------- ----------- -----------
Transfers of Net Premiums 2,490 7,045 2,617 --
Transfers of Policy Loading, Net (553) (702) 219 227
Transfers Due to Deaths -- -- -- --
Transfers Due to Other Terminations 6 (35,948) 245 (60,830)
Transfers Due to Policy Loans -- (31,758) -- (12,031)
Transfers of Cost of Insurance (3,398) (6,590) (1,606) (9,067)
Transfers of Loan Processing Charges (236) (645) 35 (943)
Transfers Among Investment Divisions (4) 37,022 (122,553) (6,365)
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,695) (31,576) (121,043) (89,009)
----------- ----------- ----------- -----------
Total Increase (Decrease) in Net Assets 15,440 9,119 (108,076) (10,630)
Net Assets - Beginning of Year 158,250 327,713 143,386 597,706
----------- ----------- ----------- -----------
Net Assets - End of Year $ 173,690 $ 336,832 $ 35,310 $ 587,076
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 10
VARIABLE ACCOUNT B
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>
Investment Income:
Dividends (Note 2) $ 10,079,958 $ 1,499,588 $ 446,626 $ 1,407,286
Expenses:
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 of Year 161,861,410 26,438,497 7,550,966 25,185,308
------------- ------------- ------------- -------------
Net Assets - End of Year $ 158,415,455 $ 24,753,830 $ 6,594,941 $ 24,300,295
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
MULTIPLE HIGH
GROWTH STRATEGIES INCOME
FUND FUND FUND 1996
DIVISION DIVISION DIVISION DIVISION
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 1,951,935 $ 3,580,457 $ 1,194,066 $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) (157,967) (318,275) (82,086) (1,106)
Transaction Charges (Note 4) -- -- -- (589)
------------- ------------- ------------- -------------
Net Investment Income (Loss) 1,793,968 3,262,182 1,111,980 (1,695)
------------- ------------- ------------- -------------
Net Realized Gains 4,849,715 2,790,520 657,828 489,283
Net Unrealized Gains (Losses) (1,359,420) 838,411 15,836 (479,806)
------------- ------------- ------------- -------------
Net Realized and Unrealized Gains (Losses) 3,490,295 3,628,931 673,664 9,477
------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 5,284,263 6,891,113 1,785,644 7,782
------------- ------------- ------------- -------------
Transfers of Net Premiums 220,671 402,155 39,498 --
Transfers of Policy Loading, Net (144,153) (267,549) (61,459) (369)
Transfers Due to Deaths (110,269) (354,383) (28,611) --
Transfers Due to Other Terminations (1,622,611) (3,467,715) (436,884) (3,973)
Transfers Due to Policy Loans (286,730) (890,719) (325,051) (9,669)
Transfers of Cost of Insurance (346,914) (728,886) (221,851) 349
Transfers of Loan Processing Charges (57,930) (104,049) (32,621) 867
Transfers Among Investment Divisions (1,905,172) (833,074) 767,657 (1,348,955)
------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (4,253,108) (6,244,220) (299,322) (1,361,750)
------------- ------------- ------------- -------------
Total Increase (Decrease) in Net Assets 1,031,155 646,893 1,486,322 (1,353,968)
Net Assets - Beginning of Year 25,087,985 50,207,641 12,982,314 1,353,968
------------- ------------- ------------- -------------
Net Assets - End of Year $ 26,119,140 $ 50,854,534 $ 14,468,636 $ --
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 11
VARIABLE ACCOUNT B
MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1998 1999 2000
DIVISION DIVISION DIVISION DIVISION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) (15,251) (5,298) (1,900) (25,073)
Transaction Charges (Note 4) (7,936) (2,739) (998) (13,342)
----------- ----------- ----------- -----------
Net Investment Income (Loss) (23,187) (8,037) (2,898) (38,415)
----------- ----------- ----------- -----------
Net Realized Gains 296,407 40,634 4,683 558,273
Net Unrealized Gains (Losses) (182,659) (5,298) 4,943 (454,670)
----------- ----------- ----------- -----------
Net Realized and Unrealized Gains (Losses) 113,748 35,336 9,626 103,603
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations 90,561 27,299 6,728 65,188
----------- ----------- ----------- -----------
Transfers of Net Premiums 2,720 3,839 5,586 6,714
Transfers of Policy Loading, Net (16,700) (5,561) (1,103) (21,432)
Transfers Due to Deaths (8,128) -- -- (227,409)
Transfers Due to Other Terminations (373,636) (96,187) (5,646) (433,324)
Transfers Due to Policy Loans (8,750) (4,949) (17,514) (70,674)
Transfers of Cost of Insurance (38,557) (9,687) (4,403) (52,418)
Transfers of Loan Processing Charges (4,444) (664) (257) (4,349)
Transfers Among Investment Divisions 3,427 16,994 41,772 5,805
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (444,068) (96,215) 18,435 (797,087)
----------- ----------- ----------- -----------
Total Increase (Decrease) in Net Assets (353,507) (68,916) 25,163 (731,899)
Net Assets - Beginning of Year 2,582,021 854,588 274,741 4,404,633
----------- ----------- ----------- -----------
Net Assets - End of Year $ 2,228,514 $ 785,672 $ 299,904 $ 3,672,734
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
2005 2006 2007 2008
DIVISION DIVISION DIVISION DIVISION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) (11,727) (8,192) (1,175) (2,717)
Transaction Charges (Note 4) (6,241) (4,406) (593) (1,353)
----------- ----------- ----------- -----------
Net Investment Income (Loss) (17,968) (12,598) (1,768) (4,070)
----------- ----------- ----------- -----------
Net Realized Gains 186,354 98,614 11,766 62,095
Net Unrealized Gains (Losses) (200,826) (85,607) (19,750) (72,758)
----------- ----------- ----------- -----------
Net Realized and Unrealized Gains (Losses) (14,472) 13,007 (7,984) (10,663)
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations (32,440) 409 (9,752) (14,733)
----------- ----------- ----------- -----------
Transfers of Net Premiums 3,210 938 2,490 7,776
Transfers of Policy Loading, Net (13,446) (6,635) (1,004) (879)
Transfers Due to Deaths (74,468) -- -- --
Transfers Due to Other Terminations (136,532) (34,416) (63,627) (61)
Transfers Due to Policy Loans (48,919) (35,184) -- (2,436)
Transfers of Cost of Insurance (28,773) (21,532) (3,108) (7,083)
Transfers of Loan Processing Charges (2,835) (1,629) (193) (511)
Transfers Among Investment Divisions 149,454 122,100 8,057 (89,890)
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (152,309) 23,642 (57,385) (93,084)
----------- ----------- ----------- -----------
Total Increase (Decrease) in Net Assets (184,749) 24,051 (67,137) (107,817)
Net Assets - Beginning of Year 2,007,827 1,263,071 225,387 435,530
----------- ----------- ----------- -----------
Net Assets - End of Year $ 1,823,078 $ 1,287,122 $ 158,250 $ 327,713
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 12
VARIABLE ACCOUNT B
MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2009 2010
DIVISION DIVISION
--------- ---------
<S> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) (882) (4,710)
Transaction Charges (Note 4) (476) (2,350)
--------- ---------
Net Investment Income (Loss) (1,358) (7,060)
--------- ---------
Net Realized Gains 1,168 79,766
Net Unrealized Gains (Losses) (5,877) (118,010)
--------- ---------
Net Realized and Unrealized Gains (Losses) (4,709) (38,244)
--------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Operations (6,067) (45,304)
--------- ---------
Transfers of Net Premiums 2,854 --
Transfers of Policy Loading, Net (351) (3,009)
Transfers Due to Deaths -- --
Transfers Due to Other Terminations (65) (226,287)
Transfers Due to Policy Loans (1,607) (60,965)
Transfers of Cost of Insurance (2,258) (8,868)
Transfers of Loan Processing Charges (84) (496)
Transfers Among Investment Divisions 92 86,574
--------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,419) (213,051)
--------- ---------
Total Increase (Decrease) in Net Assets (7,486) (258,355)
Net Assets - Beginning of Year 150,872 856,061
--------- ---------
Net Assets - End of Year $ 143,386 $ 597,706
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 13
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA
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 fourteen 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 eight divisions each invest solely in the units of the
corresponding series trusts of The Merrill Lynch Fund of Stripped ("Zero") U.S.
Treasury Securities, Series A through K (the Merrill Trust), which is registered
under the 1940 Act as a unit investment trust. The sponsor of the Merrill Lynch
Trust is Merrill Lynch, Pierce Fenner & Smith, 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 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.
Some Insurance Departments 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 Idaho
(1998), Louisiana (1994), Michigan (1995), Missouri (1994), Nevada (1997), and
Wyoming (1992).
Monarch Life currently limits its business to maintaining its existing blocks of
disability income insurance, variable life, and annuity businesses. 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.
Prior to October 29, 1998, certain investment divisions of the Account invested
solely in the units of designated series of the Oppenheimer Zero Coupon U.S.
Treasuries Trust, Series A through F (the Oppenheimer Trust) which is registered
under the 1940 Act as a unit investment trust. The sponsor of the Oppenheimer
Trust is Oppenheimer Funds Distributor, Inc. On February 18, 1998, Monarch Life
filed with the Securities and Exchange Commission, an application requesting an
order approving the substitution of the Oppenheimer Trust with the Merrill
Trust. On June 17, 1998, the Securities and Exchange Commission issued an order
approving the substitution.
12
<PAGE> 14
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
Merrill Trust and the Oppenheimer Trust are stated at market value which is
the net asset value per share and per unit of the respective Funds and
series trusts of the Merrill Trust and the Oppenheimer Trust. Investment
transactions are accounted for on the date the shares and units are
purchased or sold. The cost of shares and units redeemed is determined on
the first-in, first-out method. Dividend and capital gain distributions
received from the Funds and the Merrill Trust and the Oppenheimer Trust are
reinvested in additional shares and units, respectively, 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 Merrill Lynch, Pierce, Fenner &
Smith,Inc. and Oppenheimer Fund Distributor, Inc., on the sale of units of the
respective trusts 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
Baystate Capital Services, Inc. (BCSI), is the principal underwriter and
general distributor of the policies maintained in the Account. BCSI is a
wholly-owned subsidiary of Monarch Life.
13
<PAGE> 15
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 6-ALLOCATED POLICY LOADING/FUTURE POLICY BENEFITS
Unamortized allocated policy loading (note 3) was $501,738 at December 31, 1998
and $743,807 at December 31, 1997. Amounts provided for future policy benefits
on certain policies in the Account were $90,263 at December 31, 1998 and
$116,109 at December 31, 1997. The sum of these two items is presented as a net
amount in the Statement of Net Assets at both December 31, 1998 and 1997.
NOTE 7-PURCHASES AND SALES OF SECURITIES
Total cost of purchases and proceeds from sales of shares of the Funds and
units of the Merrill Trust and the Oppenheimer Trust by the Account during the
year ended December 31, 1998 are shown below:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Money Fund $ 80,073,252 $ 76,515,408
Oppenheimer Bond Fund 2,522,536 2,849,004
Oppenheimer Aggressive Growth Fund 40,644,798 43,485,436
Oppenheimer Growth Fund 37,566,952 36,638,613
Oppenheimer Multiple Strategies Fund 4,752,409 8,816,922
Oppenheimer High Income Fund 12,635,900 16,316,353
------------ ------------
Subtotal 178,195,947 184,621,736
------------ ------------
OPPENHEIMER TRUST (prior to October 29, 1998)
1998 Trust 78,334 807,306
1999 Trust 242,526 573,605
2000 Trust 143,199 3,731,007
2005 Trust 136,442 2,442,073
2006 Trust 3,217 1,484,321
2007 Trust 8,495 201,812
2008 Trust 3,023 390,999
2009 Trust 1,939 41,336
2010 Trust 601,456 1,274,453
------------ ------------
Subtotal 1,218,631 10,946,912
------------ ------------
MERRILL TRUST (commencing October 29, 1998)
1999 Series 359,414 982
2000 Series 2,914,135 56,817
2005 Series 2,083,950 7,174
2006 Series 1,384,647 7,665
2007 Series 156,537 397
2008 Series 374,578 102,455
2009 Series 30,920 103
2010 Series 630,542 142,495
------------ ------------
Subtotal 7,934,723 318,088
------------ ------------
TOTAL $187,349,301 $195,886,736
============ ============
</TABLE>
14
<PAGE> 16
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
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, the Merrill
Trust and the Oppenheimer Trust, that the Account satisfies the current
requirements of the regulations.
15
