<PAGE> 1
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
ANNUAL REPORT
DECEMBER 31, 1999
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 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,
Capital Appreciation, Multiple Strategies, High Income, U.S. Treasury
Securities, 1999 Trust, 2000 Trust, 2005 Trust through 2010 Trust Divisions at
December 31, 1999 and 1998, and the U.S. Securities, 2019 Trust Division at
December 31, 1999, the U.S. Securities 1998 Trust Division at December 31, 1998,
(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, 1999, in conformity with
accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the
United States 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, 1999, by
correspondence with the custodians, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 2000
<PAGE> 3
VARIABLE ACCOUNT B
MONARCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1999
<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 $ 24,907,278 24,907,278 $ 24,907,278
Oppenheimer Bond Fund 5,845,367 489,950 5,644,221
Oppenheimer Aggresssive Growth Fund 23,607,080 409,194 33,680,780
Oppenheimer Capital Appreciation Fund 33,143,509 928,572 46,280,031
Oppenheimer Multiple Strategies Fund 39,658,171 2,683,028 46,845,671
Oppenheimer High Income Fund 8,685,047 816,075 8,748,318
---------------- ---------------
135,846,452 166,106,299
---------------- ---------------
Investment in The Merrill Lynch Fund of Stripped
U.S. Treasury Securities, at Market Value (Note 2):
2000 Trust 2,771,749 2,916,347 2,905,003
2005 Trust 1,855,663 2,433,140 1,766,411
2006 Trust 1,252,635 1,698,606 1,174,586
2007 Trust 143,553 205,705 132,463
2008 Trust 266,006 412,507 242,690
2009 Trust 31,134 51,302 28,207
2010 Trust 440,559 780,216 396,638
2019 Trust 57,216 200,945 55,577
---------------- ---------------
6,818,515 6,701,575
---------------- ---------------
Total Invested Assets $ 142,664,967 172,807,874
================
Dividends Receivable 52,773
Pending Trades 628,903
---------------
Total Assets 173,489,550
---------------
LIABILITIES
Payable to Monarch Life Insurance Company 1,472,682
---------------
Total Liabilities 1,472,682
---------------
Net Assets $ 172,016,868
===============
NET ASSETS
For Variable Life Insurance Policies $ 171,649,068
Unamortized Allocated Policy Loading (Note 6) 367,800
---------------
Total Net Assets $ 172,016,868
===============
</TABLE>
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, 1998
<TABLE>
<CAPTION>
ASSETS COST SHARES/UNITS MARKET VALUE
---------------- ---------------- ---------------
Investment in Oppenheimer Variable Account Funds,
at Market Value (Note 2):
<S> <C> <C> <C>
Oppenheimer Money Fund $ 24,693,955 24,693,955 $ 24,693,955
Oppenheimer Bond Fund 6,055,890 509,512 6,277,183
Oppenheimer Aggresssive 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, 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
================
Dividends 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>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
VARIABLE ACCOUNT B
MONARCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
TOTALS - ALL DIVISIONS
---------------------------------------------------------------------
1999 1998 1997
---------------- ---------------- ---------------
Investment Income:
<S> <C> <C> <C>
Dividends (Note 2) $ 8,046,746 $ 9,140,797 $ 9,179,780
Expenses:
Risk Charges and Administrative Expenses (Note 3) -1,022,450 -996,721 -1,027,845
Transaction Charges (Note 4) -23,669 -27,768 -34,178
---------------- ---------------- ---------------
Net Investment Income 7,000,627 8,116,308 8,117,757
---------------- ---------------- ---------------
Net Realized Gains 10,974,432 4,922,445 12,239,968
Net Unrealized Gains 16,876,894 2,446,941 881,888
---------------- ---------------- ---------------
Net Realized and Unrealized Gains 27,851,326 7,369,386 13,121,856
---------------- ---------------- ---------------
Net Increase in Net Assets
Resulting from Operations 34,851,953 15,485,694 21,239,613
---------------- ---------------- ---------------
Transfers of Net Premiums 310,106 977,164 1,174,323
Transfers of Policy Loading, Net -43,675 -242,069 -611,411
Transfers Due to Deaths -2,325,997 -2,473,487 -1,658,171
Transfers Due to Other Terminations -10,074,432 -11,534,142 -15,948,657
Transfers Due to Policy Loans -2,770,809 -1,098,416 -2,825,734
Transfers of Cost of Insurance -2,688,052 -2,619,332 -2,537,353
Transfers of Loan Processing Charges -324,496 -319,810 -341,397
Transfers Among Investment Divisions -- -- --
---------------- ---------------- ---------------
Net Decrease in Net Assets
Resulting from Principal Transactions -17,917,355 -17,310,092 -22,748,400
---------------- ---------------- ---------------
Total Increase (Decrease) in Net Assets 16,934,598 -1,824,398 -1,508,787
Net Assets - Beginning of Year 155,082,270 156,906,668 158,415,455
---------------- ---------------- ---------------
Net Assets - End of Year $ 172,016,868 $ 155,082,270 $ 156,906,668
================ ================ ===============
</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, 1999
<TABLE>
<CAPTION>
AGGRESSIVE CAPITAL
MONEY BOND GROWTH APPRECIATION
FUND FUND FUND FUND
TOTAL DIVISION DIVISION DIVISION DIVISION
------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 8,046,746 $ 1,267,781 $ 328,165 $ -- $ 1,528,328
Expenses:
Risk Charges and Administrative Expenses (Note 3) -1,022,450 -175,606 -38,412 -146,205 -243,594
Transaction Charges (Note 4) -23,669 -- -- -- --
------------- ----------- ---------- ----------- -----------
Net Investment Income (Loss) 7,000,627 1,092,175 289,753 -146,205 1,284,734
------------- ----------- ---------- ----------- -----------
Net Realized Gains (Losses) 10,974,432 -- -7,993 7,104,598 2,693,583
Net Unrealized Gains (Losses) 16,876,894 -- -422,439 8,106,867 9,523,937
------------- ----------- ---------- ----------- -----------
Net Realized and Unrealized Gains (Losses) 27,851,326 -- -430,432 15,211,465 12,217,520
------------- ----------- ---------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations 34,851,953 1,092,175 -140,679 15,065,260 13,502,254
------------- ----------- ---------- ----------- -----------
Transfers of Net Premiums 310,106 35,641 3,319 50,180 97,022
Transfers of Policy Loading, Net -43,675 -140,374 -2,990 -30,860 29,059
Transfers Due to Deaths -2,325,997 -549,431 -103,482 -489,957 -227,895
Transfers Due to Other Terminations -10,074,432 -3,948,691 -545,880 -1,420,338 -1,322,777
Transfers Due to Policy Loans -2,770,809 -664,720 -49,840 -126,602 -966,210
Transfers of Cost of Insurance -2,688,052 -472,673 -132,425 -360,079 -593,712
Transfers of Loan Processing Charges -324,496 -60,276 -19,855 -53,450 -76,496
Transfers Among Investment Divisions -- 4,546,499 358,870 310,020 -833,405
------------- ----------- ---------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions -17,917,355 -1,254,025 -492,283 -2,121,086 -3,894,414
------------- ----------- ---------- ----------- -----------
Total Increase (Decrease) in Net Assets 16,934,598 -161,850 -632,962 12,944,174 9,607,840
Net Assets - Beginning of Year 155,082,270 23,817,596 6,277,183 21,089,827 36,779,701
------------- ----------- ---------- ----------- -----------
Net Assets - End of Year $ 172,016,868 $ 23,655,746 $ 5,644,221 $ 34,034,001 $ 46,387,541
============= =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MULTIPLE HIGH
STRATEGIES INCOME
FUND FUND 1999
DIVISION DIVISION DIVISION
----------- ----------- -----------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 4,098,638 $ 823,834 $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) -307,576 -67,066 -251
Transaction Charges (Note 4) -- -- -143
----------- ----------- -----------
Net Investment Income (Loss) 3,791,062 756,768 -394
----------- ----------- -----------
Net Realized Gains (Losses) 1,468,455 -269,665 4,315
Net Unrealized Gains (Losses) -226,382 2,331 -2,626
----------- ----------- -----------
Net Realized and Unrealized Gains (Losses) 1,242,073 -267,334 1,689
----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations 5,033,135 489,434 1,295
----------- ----------- -----------
Transfers of Net Premiums 113,543 7,075 --
Transfers of Policy Loading, Net 118,240 -3,616 --
Transfers Due to Deaths -654,936 -239,043 --
Transfers Due to Other Terminations -2,172,760 -463,046 684
Transfers Due to Policy Loans -716,119 -132,640 -10,353
Transfers of Cost of Insurance -788,138 -215,631 834
Transfers of Loan Processing Charges -79,556 -23,756 387
Transfers Among Investment Divisions -3,491,326 -700,290 -353,871
----------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions -7,671,052 -1,770,947 -362,319
----------- ----------- -----------
Total Increase (Decrease) in Net Assets -2,637,917 -1,281,513 -361,024
Net Assets - Beginning of Year 49,483,588 10,029,831 361,024
----------- ----------- -----------
Net Assets - End of Year $ 46,845,671 $ 8,748,318 $ --
=========== =========== ===========
</TABLE>
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, 1999 (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 2005 2006 2007
DIVISION DIVISION DIVISION DIVISION
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) -17,974 -12,119 -7,871 -965
Transaction Charges (Note 4) -9,870 -6,374 -4,315 -485
------------- ------------- ------------- -------------
Net Investment Income (Loss) -27,844 -18,493 -12,186 -1,450
------------- ------------- ------------- -------------
Net Realized Gains (Losses) 4,118 -11,418 -5,741 -722
Net Unrealized Gains (Losses) 123,978 -71,462 -74,169 -10,448
------------- ------------- ------------- -------------
Net Realized and Unrealized Gains (Losses) 128,096 -82,880 -79,910 -11,170
------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 100,252 -101,373 -92,096 -12,620
------------- ------------- ------------- -------------
Transfers of Net Premiums -- 1,244 -- --
Transfers of Policy Loading, Net -885 -2,926 -3,508 -600
Transfers Due to Deaths -29,012 -25,689 -- --
Transfers Due to Other Terminations -78,554 -113,734 343 35
Transfers Due to Policy Loans -73,309 -11,011 -21,493 --
Transfers of Cost of Insurance -48,237 -34,671 -24,818 -3,528
Transfers of Loan Processing Charges -5,105 -3,228 -1,199 -91
Transfers Among Investment Divisions 173,289 -1,027 -55,657 -6,223
------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions -61,813 -191,042 -106,332 -10,407
------------- ------------- ------------- -------------
Total Increase (Decrease) in Net Assets 38,439 -292,415 -198,428 -23,027
Net Assets - Beginning of Year 2,866,488 2,058,777 1,372,983 155,482
------------- ------------- ------------- -------------
Net Assets - End of Year $ 2,904,927 $ 1,766,362 $ 1,174,555 $ 132,455
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
2008 2009 2010 2019
DIVISION DIVISION DIVISION DIVISION
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ -- $ -- $ -- $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) -1,558 -221 -2,874 -158
Transaction Charges (Note 4) -848 -102 -1,452 -80
------------- ------------- ------------- -------------
Net Investment Income (Loss) -2,406 -323 -4,326 -238
------------- ------------- ------------- -------------
Net Realized Gains (Losses) -1,120 -134 -3,814 -30
Net Unrealized Gains (Losses) -22,752 -3,082 -45,220 -1,639
------------- ------------- ------------- -------------
Net Realized and Unrealized Gains (Losses) -23,872 -3,216 -49,034 -1,669
------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Operations -26,278 -3,539 -53,360 -1,907
------------- ------------- ------------- -------------
Transfers of Net Premiums -- 2,082 -- --
Transfers of Policy Loading, Net -2,603 -286 -1,621 -705
Transfers Due to Deaths -6,552 -- -- --
Transfers Due to Other Terminations -234 -- -9,347 -133
Transfers Due to Policy Loans 5,694 90 -4,296 --
Transfers of Cost of Insurance -5,813 -558 -8,249 -354
Transfers of Loan Processing Charges -575 -92 -1,145 -59
Transfers Among Investment Divisions 8,133 -456 -13,287 58,731
------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions -1,950 780 -37,945 57,480
------------- ------------- ------------- -------------
Total Increase (Decrease) in Net Assets -28,228 -2,759 -91,305 55,573
Net Assets - Beginning of Year 270,906 30,963 487,921 --
------------- ------------- ------------- -------------
Net Assets - End of Year $ 242,678 $ 28,204 $ 396,616 $ 55,573
============= ============= ============= =============
</TABLE>
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, 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 (Losses) 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 28,817,596 $ 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 (Losses) 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>
*The Trust Divisions reflect the operations and changes in net assets of their
investments in both the Merrill Trust and the Oppenheimer Trust (See Note 1)
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, 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 (Losses) 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 (Losses) 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 Trust Divisions reflect the operations and changes in net assets of their
investments in both the Merrill Trust and the Oppenheimer Trust (See Note 1)
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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capital
Money Bond Appreciation Growth
Fund Fund Fund Fund
Total Division Division Division Division
------------ ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 9,179,780 $ 1,341,049 $ 407,637 $ 1,004,837 $ 1,586,036
Expenses:
Risk Charges and Administrative Expenses (Note 3) -1,027,845 -171,531 -38,448 -139,893 -196,798
Transaction Charges (Note 4) -34,178 -- -- -- --
------------ ------------ ---------- ----------- -----------
Net Investment Income (Loss) 8,117,757 1,169,518 369,189 864,944 1,389,238
------------ ------------ ---------- ----------- -----------
Net Realized Gains 12,239,968 -- 116,077 2,044,573 6,354,462
Net Unrealized Gains (Losses) 881,888 -- 27,012 -617,863 -728,115
------------ ------------ ---------- ----------- -----------
Net Realized and Unrealized Gains 13,121,856 -- 143,089 1,426,710 5,626,347
------------ ------------ ---------- ----------- -----------
Net Increase in Net Assets
Resulting from Operations 21,239,613 1,169,518 512,278 2,291,654 7,015,585
------------ ------------ ---------- ----------- -----------
Transfers of Net Premiums 1,174,323 244,593 40,441 217,048 237,523
Transfers of Policy Loading, Net -611,411 -135,232 -25,351 -77,953 -94,634
Transfers Due to Deaths -1,658,171 -182,693 -162,624 -119,796 -163,063
Transfers Due to Other Terminations -15,948,657 -3,344,904 -436,207 -1,604,255 -5,550,796
Transfers Due to Policy Loans -2,825,734 -1,071,149 -155,523 -672,449 -239,476
Transfers of Cost of Insurance -2,537,353 -430,113 -138,222 -298,433 -491,597
Transfers of Loan Processing Charges -341,397 -68,556 -25,417 -37,797 -73,694
Transfers Among Investment Divisions -- -749,079 204,386 -1,855,148 4,910,762
------------ ------------ ---------- ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions -22,748,400 -5,737,133 -698,517 -4,448,783 -1,464,975
------------ ------------ ---------- ----------- -----------
Total Increase (Decrease) in Net Assets -1,508,787 -4,567,615 -186,239 -2,157,129 5,550,610
Net Assets - Beginning of Year 158,415,455 24,753,830 6,594,941 24,300,295 26,119,140
------------ ------------ ---------- ----------- -----------
Net Assets - End of Year $156,906,668 $ 20,186,215 $6,408,702 $22,143,166 $31,669,750
============ ============ ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Multiple High
Strategies Income
Fund Fund 1997 1998
Division Division Division Division
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 3,757,621 $ 1,082,600 $ -- $ --
Expenses:
Risk Charges and Administrative Expenses (Note 3) -331,151 -85,498 -8,362 -4,937
Transaction Charges (Note 4) -- -- -4,364 -2,583
----------- ----------- ----------- ---------
Net Investment Income (Loss) 3,426,470 997,102 -12,726 -7,520
----------- ----------- ----------- ---------
Net Realized Gains 1,429,229 676,371 801,962 63,662
Net Unrealized Gains (Losses) 3,074,162 -117,236 -733,476 -21,221
----------- ----------- ----------- ---------
Net Realized and Unrealized Gains 4,503,391 559,135 68,486 42,441
----------- ----------- ----------- ---------
Net Increase in Net Assets
Resulting from Operations 7,929,861 1,556,237 55,760 34,921
----------- ----------- ----------- ---------
Transfers of Net Premiums 374,184 35,993 1,554 --
Transfers of Policy Loading, Net -193,971 -46,033 -8,101 -3,468
Transfers Due to Deaths -501,326 -134,686 -12,112 -44,961
Transfers Due to Other Terminations -3,442,970 -923,609 -233,016 -40,958
Transfers Due to Policy Loans -449,332 -78,045 23,187 -1,459
Transfers of Cost of Insurance -783,651 -241,622 -19,703 -10,401
Transfers of Loan Processing Charges -91,446 -30,743 -1,930 -881
Transfers Among Investment Divisions -165,889 -526,848 -2,034,153 -6,029
----------- ----------- ----------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions -5,254,401 -1,945,593 -2,284,274 -108,157
----------- ----------- ----------- ---------
Total Increase (Decrease) in Net Assets 2,675,460 -389,356 -2,228,514 -73,236
Net Assets - Beginning of Year 50,854,534 14,468,636 2,228,514 785,672
----------- ----------- ----------- ---------
Net Assets - End of Year $53,529,994 $14,079,280 $ -- $ 712,436
=========== =========== =========== =========
</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, 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.
10
<PAGE> 12
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 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. Eight divisions each invest solely in the units of the eight
corresponding series trusts of The Merrill Lynch Fund of Stripped ("Zero") U.S.
Treasury Securities (the Merrill Trust), which is registered under the 1940 Act
as a unit investment trust. The sponsor of the Merrill 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.
Effective July 22, 1999, a 2019 series trust was added to the Merrill Trust and
a corresponding investment division was added to the Account.
Prior to May 1, 1999, the Capital Appreciation Fund was named the Growth Fund.
Simultaneously with the fund name change, the corresponding investment division
of the Account was renamed.
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 (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
11
<PAGE> 13
VARIABLE ACCOUNT B
OF MONARCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1-ORGANIZATION (continued)
Oppenheimer Trust with the Merrill Trust. On June 17, 1998, the Securities and
Exchange Commission issued an order approving the substitution.
Prior to May 1, 1998, the Aggressive Growth Fund was named the Capital
Appreciation Fund. Simultaneously with the fund name change, the corresponding
investment division of the Account was renamed.
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
accounting principles generally accepted in the United States.
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.
12
<PAGE> 14
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 at $367,800 December 31, 1999
and $501,738 at December 31, 1998. Amounts provided for future policy benefits
on certain policies in the Account were $0 at December 31, 1999 and $90,263 at
December 31, 1998. The sum of these two items is presented as a net amount in
the Statement of Net Assets at December 31, 1998.
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 by the Account during the year ended December 31, 1999 are
shown below:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Oppenheimer Money Fund $ 57,633,067 $ 57,419,744
Oppenheimer Bond Fund 1,122,792 1,325,322
Oppenheimer Aggressive Growth Fund 33,913,973 36,853,036
Oppenheimer Capital Appreciation Fund 18,726,462 20,930,702
Oppenheimer Multiple Strategies Fund 4,834,040 8,714,030
Oppenheimer High Income Fund 17,845,873 18,860,052
1999 Trust 830 363,571
2000 Trust 161,226 250,883
2005 Trust 78,720 288,262
2006 Trust 3,618 122,141
2007 Trust -- 11,862
2008 Trust 9,349 13,714
2009 Trust 2,084 1,631
2010 Trust 12,635 54,898
2019 Trust 58,337 1,091
------------ ------------
TOTAL $134,403,006 $145,210,939
============ ============
</TABLE>
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.
13
