VARIABLE ACCOUNT C
OF MONARCH LIFE INSURANCE COMPANY
ANNUAL REPORT
DECEMBER 31, 1996
The investment results presented in this report are historical and are no
indication of future performance.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Receiver of Monarch Life Insurance Company
and Policyholders of Variable Account C 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 Market, Equity-Income,
Growth, Asset Manager, High Income, Overseas, and Investment Grade Bond
Divisions (constituting Variable Account C of Monarch Life Insurance Company) at
December 31, 1996 and 1995 and the results of each of their operations and
changes in their net assets for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Monarch Life Insurance
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments at December 31, 1996, by correspondence with the
Funds, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 21, 1997
<PAGE>
VARIABLE ACCOUNT C
OF MONARCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
ASSETS Cost Shares Market Value
============ ============ ============
<S> <C> <C> <C>
Investment in Variable Insurance Product Fund and Fund II,
at Market Value (Note 2):
Money Market Portfolio $ 6,811,399 6,811,399 $ 6,811,399
Equity-Income Portfolio 11,455,123 590,273 12,413,451
Growth Portfolio 15,556,221 517,816 16,124,802
Asset Manager Portfolio 3,204,405 196,786 3,331,591
High Income Portfolio 3,343,128 282,121 3,532,159
Overseas Portfolio 4,460,304 255,261 4,809,113
Investment Grade Bond Portfolio 1,053,712 88,712 1,085,837
------------ ------------
Total Invested Assets $ 45,884,292 48,108,352
============
Pending Trades 1,311
------------
Total Assets 48,109,663
------------
LIABILITIES
Payable to Monarch Life Insurance Company 94,052
------------
Total Liabilities 94,052
------------
Net Assets $ 48,015,611
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
VARIABLE ACCOUNT C
OF MONARCH LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS AT DECEMBER 31, 1995
================================================================================
<TABLE>
<CAPTION>
ASSETS Cost Shares Market Value
============ ============ ============
<S> <C> <C> <C>
Investment in Variable Insurance Product Fund and Fund II,
at Market Value (Note 2):
Money Market Portfolio $ 6,178,709 6,178,709 $ 6,178,709
Equity-Income Portfolio 11,221,362 676,052 13,027,514
Growth Portfolio 14,757,744 521,170 15,218,167
Asset Manager Portfolio 3,423,644 234,424 3,701,549
High Income Portfolio 3,000,836 256,477 3,090,544
Overseas Portfolio 3,771,886 233,585 3,982,514
Investment Grade Bond Portfolio 1,090,299 94,354 1,177,535
------------ ------------
Total Invested Assets $ 43,444,480 46,376,532
============
Pending Trades 1,264
------------
Total Assets 46,377,796
------------
LIABILITIES
Payable to Monarch Life Insurance Company 98,482
------------
Total Liabilities 98,482
------------
Net Assets $ 46,279,314
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
VARIABLE ACCOUNT C
OF MONARCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
================================================================================
<TABLE>
<CAPTION>
TOTALS - ALL DIVISIONS
==========================================
1996 1995 1994
============ ============ ============
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 2,675,734 $ 1,565,274 $ 2,385,047
Risk Charges and Administrative Expenses (Note 3) (472,460) (437,975) (484,619)
------------ ------------ ------------
Net Investment Income 2,203,274 1,127,299 1,900,428
------------ ------------ ------------
Net Realized Gains 3,464,550 4,523,946 545,970
Net Unrealized Gains (Losses) (707,998) 2,863,538 (2,478,224)
------------ ------------ ------------
Net Realized and Unrealized Gains (Losses) 2,756,552 7,387,484 (1,932,254)
------------ ------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 4,959,826 8,514,783 (31,826)
------------ ------------ ------------
Transfers of Net Premiums 2,750 28,000 18,750
Transfers Due to Deaths (11,874) (45) (34,019)
Transfers Due to Other Terminations (1,964,558) (2,792,130) (2,961,781)
Transfers Due to Policy Loans (934,471) (25,920) (524,999)
Transfers of Cost of Insurance (219,457) (203,219) (203,162)
Transfers of Loan Processing Charges (95,919) (95,068) --
Transfers Among Investment Divisions -- -- --
------------ ------------ ------------
Net Decrease in Net Assets
Resulting from Principal Transactions (3,223,529) (3,088,382) (3,705,211)
------------ ------------ ------------
Total Increase (Decrease) in Net Assets 1,736,297 5,426,401 (3,737,037)
Net Assets - Beginning Balance 46,279,314 40,852,913 44,589,950
------------ ------------ ------------
Net Assets - Ending Balance $ 48,015,611 $ 46,279,314 $ 40,852,913
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
VARIABLE ACCOUNT C
OF MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Money Equity Asset High
Market Income Growth Manager Income
Total Division Division Division Division Division
============ =========== ============ ============ =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 2,675,734 $ 330,714 $ 565,198 $ 1,069,454 $ 234,749 $ 289,717
Risk Charges and Administrative Expenses
(Note 3) (472,460) (62,714) (125,490) (161,744) (30,806) (31,119)
------------ ----------- ------------ ------------ ----------- -----------
Net Investment Income 2,203,274 268,000 439,708 907,710 203,943 258,598
------------ ----------- ------------ ------------ ----------- -----------
Net Realized Gains 3,464,550 -- 1,905,900 858,806 337,872 17,689
Net Unrealized Gains (Losses) (707,998) -- (847,825) 108,153 (150,718) 99,323
------------ ----------- ------------ ------------ ----------- -----------
Net Realized and Unrealized Gains (Losses) 2,756,552 -- 1,058,075 966,959 187,154 117,012
------------ ----------- ------------ ------------ ----------- -----------
Net Increase in Net Assets
Resulting from Operations 4,959,826 268,000 1,497,783 1,874,669 391,097 375,610
------------ ----------- ------------ ------------ ----------- -----------
Transfers of Net Premiums 2,750 1,750 1,000 -- -- --
Transfers Due to Deaths (11,874) -- -- -- (11,874) --
Transfers Due to Other Terminations (1,964,558) (543,798) (413,390) (693,513) (72,587) (137,054)
Transfers Due to Policy Loans (934,471) (486,411) (69,169) (241,668) (130,585) (8,961)
Transfers of Cost of Insurance (219,457) (30,268) (58,335) (74,111) (14,208) (13,795)
Transfers of Loan Processing Charges (95,919) (27,628) (14,488) (28,302) (6,206) (5,051)
Transfers Among Investment Divisions -- 978,418 (1,312,971) 305,340 (452,631) 231,698
------------ ----------- ------------ ------------ ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (3,223,529) (107,937) (1,867,353) (732,254) (688,091) 66,837
------------ ----------- ------------ ------------ ----------- -----------
Total Increase (Decrease) in Net Assets 1,736,297 160,063 (369,570) 1,142,415 (296,994) 442,447
Net Assets - Beginning Balance 46,279,314 6,114,487 12,897,739 15,225,827 3,721,498 3,090,544
------------ ----------- ------------ ------------ ----------- -----------
Net Assets - Ending Balance $ 48,015,611 $ 6,274,550 $ 12,528,169 $ 16,368,242 $ 3,424,504 $ 3,532,991
============ =========== ============ ============ =========== ===========
</TABLE>
Investment
Grade
Overseas Bond
Division Division
=========== ===========
Investment Income:
Dividends (Note 2) $ 122,802 $ 63,100
Risk Charges and Administrative Expenses
(Note 3) (50,779) (9,808)
----------- -----------
Net Investment Income 72,023 53,292
----------- -----------
Net Realized Gains 331,648 12,635
Net Unrealized Gains (Losses) 138,181 (55,112)
----------- -----------
Net Realized and Unrealized Gains (Losses) 469,829 (42,477)
----------- -----------
Net Increase in Net Assets
Resulting from Operations 541,852 10,815
----------- -----------
Transfers of Net Premiums -- --
Transfers Due to Deaths -- --
Transfers Due to Other Terminations (78,678) (25,538)
Transfers Due to Policy Loans 14,771 (12,448)
Transfers of Cost of Insurance (24,007) (4,733)
Transfers of Loan Processing Charges (13,534) (710)
Transfers Among Investment Divisions 394,900 (144,754)
----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions 293,452 (188,183)
----------- -----------
Total Increase (Decrease) in Net Assets 835,304 (177,368)
Net Assets - Beginning Balance 3,974,514 1,254,705
----------- -----------
Net Assets - Ending Balance $ 4,809,818 $ 1,077,337
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
VARIABLE ACCOUNT C
OF MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Money Equity Asset High
Market Income Growth Manager Income
Total Division Division Division Division Division
============ =========== ============ ============ =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 1,565,274 $ 492,917 $ 669,369 $ 57,205 $ 85,736 $ 192,214
Risk Charges and Administrative Expenses
(Note 3) (437,975) (85,634) (103,031) (129,969) (37,298) (30,796)
------------ ----------- ------------ ------------ ----------- -----------
Net Investment Income (Loss) 1,127,299 407,283 566,338 (72,764) 48,438 161,418
------------ ----------- ------------ ------------ ----------- -----------
Net Realized Gains (Losses) 4,523,946 -- 796,207 3,462,908 95,842 254,978
Net Unrealized Gains 2,863,538 -- 1,612,696 228,243 393,764 116,403
------------ ----------- ------------ ------------ ----------- -----------
Net Realized and Unrealized Gains 7,387,484 -- 2,408,903 3,691,151 489,606 371,381
------------ ----------- ------------ ------------ ----------- -----------
Net Increase in Net Assets
Resulting from Operations 8,514,783 407,283 2,975,241 3,618,387 538,044 532,799
------------ ----------- ------------ ------------ ----------- -----------
Transfers of Net Premiums 28,000 10,000 2,500 500 -- --
Transfers Due to Deaths (45) 896 (285) (230) (426) --
Transfers Due to Other Terminations (2,792,130) (1,592,948) (217,943) (144,189) (85,005) (534,454)
Transfers Due to Policy Loans (25,920) (53,638) 768 59,937 (55,401) 159,875
Transfers of Cost of Insurance (203,219) (37,909) (48,847) (59,660) (17,620) (15,079)
Transfers of Loan Processing Charges (95,068) (22,969) (20,908) (29,273) (5,088) (7,612)
Transfers Among Investment Divisions -- (3,074,421) 2,435,480 2,152,893 (1,065,240) 615,992
------------ ----------- ------------ ------------ ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (3,088,382) (4,770,989) 2,150,765 1,979,978 (1,228,780) 218,722
------------ ----------- ------------ ------------ ----------- -----------
Total Increase (Decrease) in Net Assets 5,426,401 (4,363,706) 5,126,006 5,598,365 (690,736) 751,521
Net Assets - Beginning Balance 40,852,913 10,478,193 7,771,733 9,627,462 4,412,234 2,339,023
------------ ----------- ------------ ------------ ----------- -----------
Net Assets - Ending Balance $ 46,279,314 $ 6,114,487 $ 12,897,739 $ 15,225,827 $ 3,721,498 $ 3,090,544
============ =========== ============ ============ =========== ===========
</TABLE>
Investment
Grade
Overseas Bond
Division Division
=========== ===========
Investment Income:
Dividends (Note 2) $ 35,248 $ 32,585
Risk Charges and Administrative Expenses
(Note 3) (40,565) (10,682)
----------- -----------
Net Investment Income (Loss) (5,317) 21,903
----------- -----------
Net Realized Gains (Losses) (85,618) (371)
Net Unrealized Gains 374,134 138,298
----------- -----------
Net Realized and Unrealized Gains 288,516 137,927
----------- -----------
Net Increase in Net Assets
Resulting from Operations 283,199 159,830
----------- -----------
Transfers of Net Premiums -- 15,000
Transfers Due to Deaths -- --
Transfers Due to Other Terminations (140,005) (77,586)
Transfers Due to Policy Loans (142,751) 5,290
Transfers of Cost of Insurance (18,640) (5,464)
Transfers of Loan Processing Charges (7,459) (1,759)
Transfers Among Investment Divisions (1,302,248) 237,544
----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,611,103) 173,025
----------- -----------
Total Increase (Decrease) in Net Assets (1,327,904) 332,855
Net Assets - Beginning Balance 5,302,418 921,850
----------- -----------
Net Assets - Ending Balance $ 3,974,514 $ 1,254,705
=========== ===========
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
VARIABLE ACCOUNT C
OF MONARCH LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Money Equity Asset High
Market Income Growth Manager Income
Total Division Division Division Division Division
============ =========== ============ ============ =========== ===========
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 2,385,047 $ 385,752 $ 574,002 $ 753,498 $ 256,498 $ 373,170
Risk Charges and Administrative Expenses
(Note 3) (484,619) (107,357) (81,200) (112,639) (60,754) (32,113)
------------ ----------- ------------ ------------ ----------- -----------
Net Investment Income (Loss) 1,900,428 278,395 492,802 640,859 195,744 341,057
------------ ----------- ------------ ------------ ----------- -----------
Net Realized Gains (Losses) 545,970 -- 428,203 (605,942) 277,504 (123,281)
Net Unrealized Losses (2,478,224) -- (530,743) (294,624) (833,998) (278,488)
------------ ----------- ------------ ------------ ----------- -----------
Net Realized and Unrealized Gains (Losses) (1,932,254) -- (102,540) (900,566) (556,494) (401,769)
------------ ----------- ------------ ------------ ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations (31,826) 278,395 390,262 (259,707) (360,750) (60,712)
------------ ----------- ------------ ------------ ----------- -----------
Transfers of Net Premiums 18,750 -- 8,750 7,500 -- --
Transfers Due to Deaths (34,019) (7,117) (13,668) (9,524) (97) (51)
Transfers Due to Other Terminations (2,961,781) (1,427,053) (119,435) (719,084) (89,894) (220,926)
Transfers Due to Policy Loans (524,999) (163,200) (97,897) (159,262) 153,592 (229,743)
Transfers of Cost of Insurance (203,162) (42,411) (36,315) (48,382) (24,006) (13,188)
Transfers of Loan Processing Charges -- -- -- -- -- --
Transfers Among Investment Divisions -- 5,851,112 (119,505) (2,115,350) (597,265) (1,140,318)
------------ ----------- ------------ ------------ ----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (3,705,211) 4,211,331 (378,070) (3,044,102) (557,670) (1,604,226)
------------ ----------- ------------ ------------ ----------- -----------
Total Increase (Decrease) in Net Assets (3,737,037) 4,489,726 12,192 (3,303,809) (918,420) (1,664,938)
Net Assets - Beginning Balance 44,589,950 5,988,467 7,759,541 12,931,271 5,330,654 4,003,961
------------ ----------- ------------ ------------ ----------- -----------
Net Assets - Ending Balance $ 40,852,913 $10,478,193 $ 7,771,733 $ 9,627,462 $ 4,412,234 $ 2,339,023
============ =========== ============ ============ =========== ===========
</TABLE>
Investment
Grade
Overseas Bond
Division Division
=========== ===========
Investment Income:
Dividends (Note 2) $ 38,662 $ 3,465
Risk Charges and Administrative Expenses
(Note 3) (78,926) (11,630)
----------- -----------
Net Investment Income (Loss) (40,264) (8,165)
----------- -----------
Net Realized Gains (Losses) 561,290 8,196
Net Unrealized Losses (482,023) (58,348)
----------- -----------
Net Realized and Unrealized Gains (Losses) 79,267 (50,152)
----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations 39,003 (58,317)
----------- -----------
Transfers of Net Premiums 2,500 --
Transfers Due to Deaths (3,542) (20)
Transfers Due to Other Terminations (272,740) (112,649)
Transfers Due to Policy Loans (26,435) (2,054)
Transfers of Cost of Insurance (33,621) (5,239)
Transfers of Loan Processing Charges -- --
Transfers Among Investment Divisions (1,629,050) (249,624)
----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions (1,962,888) (369,586)
----------- -----------
Total Increase (Decrease) in Net Assets (1,923,885) (427,903)
Net Assets - Beginning Balance 7,226,303 1,349,753
----------- -----------
Net Assets - Ending Balance $ 5,302,418 $ 921,850
=========== ===========
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
VARIABLE ACCOUNT C
OF MONARCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1-ORGANIZATION
Variable Account C of Monarch Life Insurance Company (the Account), is a
segregated account of Monarch Life Insurance Company (Monarch Life) and is
registered as, The Fidelity Variable Account, a unit investment trust registered
under the Investment Company Act of 1940, as amended (1940 Act), and is
currently comprised of seven investment divisions. Five of the divisions invest
solely in the shares of the five corresponding portfolios of the Variable
Insurance Products Fund, and the remaining two divisions invest solely in the
shares of the two corresponding portfolios of the Variable Insurance Products
Fund II (the Funds), both are no-load, open-end, diversified, series management
investment companies registered under the 1940 Act. The Funds' investment
advisor is Fidelity Management & Research Company. 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.
Monarch Life is a wholly-owned subsidiary of Regal Reinsurance Company (Regal
Re). On June 9, 1994, the Insurance Commissioner of the Commonwealth of
Massachusetts (the Commissioner) was appointed receiver (the Receiver) of
Monarch Life in a rehabilitation proceeding pending before the Supreme Judicial
Court for Suffolk County, Massachusetts (the Court). A term sheet dated July 19,
1994 (the Term Sheet) among the Commissioner (in her capacity as Commissioner
and Receiver) and certain of Regal Re shareholders and noteholders and holders
of Monarch Life's surplus notes (representing approximately 85% of both the
total outstanding Regal Re notes and common stock) (the Holders) was approved by
the Court on September 1, 1994. Pursuant to the Term Sheet, the Holders
transferred their notes and stock into voting trusts for which the Commissioner
is the sole trustee, which effectively vests control of Monarch Life and Regal
Re in the Commissioner.
On January 31, 1997, the Receiver, with Court approval, appointed a Special
Deputy Receiver for Monarch Life. The Special Deputy Receiver is responsible for
the management of Monarch Life's operations and reports to the Receiver as has
been the case with Monarch Life's President, who recently announced plans to
retire at the end of the first quarter of 1997. The Receiver's active
involvement in the rehabilitation of Monarch Life will not change.
Insurance departments of various jurisdictions have either suspended Monarch
Life's certificate of authority, ordered Monarch Life to cease writing new
business, or have requested a voluntary suspension of sales. In addition,
Monarch Life's certificate of authority has been revoked by the insurance
departments of the states of Louisiana (1994), Michigan (1995), Missouri (1994),
and Wyoming (1992).
Monarch Life currently limits its business to maintaining its existing
disability income insurance, variable life, and annuity business. Monarch Life
ceased issuing new variable life insurance policies and new annuity contracts
effective May 1, 1992, and new disability income insurance policies effective
June 15, 1993.
The assets of the Account are not available to meet the general obligations of
Monarch Life or Regal Re and are held for the exclusive benefit of the
policyholders participating in the Account.
8
<PAGE>
VARIABLE ACCOUNT C
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 are stated at the net
asset value per share of the respective portfolios of the Funds.
Investment transactions are accounted for on the date the shares are
purchased or sold. The cost of shares sold and redeemed is determined on
the first-in, first-out method. Dividends and capital gain distributions
received from the Funds are reinvested in additional shares of the Funds
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, minimum death benefit
guarantee risks and annual administrative expenses related to the operations of
the Account. Monarch Life deducts a daily charge from the assets of the Account
to cover these risks. The charge is equal to a rate of 1% (on an annual basis)
of the policyholders' investment base.
During each of the first ten policy years, Monarch Life deducts a charge for the
first year administrative expenses and state premium taxes. It is deducted each
quarter and is equal to 0.0815% of the policyholder's investment base as of the
previous quarter. This charge is designed to be approximately .35% annually of
the policyholder's investment base.
NOTE 4-PRINCIPAL UNDERWRITER AND GENERAL DISTRIBUTOR
Since June 13, 1995, Baystate Capital Services, Inc. (BCSI), has been the
principal underwriter and general distributor of the contracts maintained in the
Account. BCSI is a wholly-owned subsidiary of Monarch Life. Prior to June 13,
1995, the function of principal underwriter and general distributor was
performed by First Variable Capital Services, Inc., a wholly-owned subsidiary of
First Variable Life Insurance Company (FVL). Prior to September 22, 1994, FVL
was a wholly-owned subsidiary of Monarch Life. Effective September 22, 1994, FVL
is no longer an affiliate of Monarch Life.
NOTE 5-PURCHASES AND SALES OF SECURITIES
Total cost of purchases and proceeds from sales of Funds shares by the Account
during the year ended December 31, 1996, are shown below:
Purchases Sales
----------- -----------
Money Market Portfolio $26,255,257 $25,622,566
Equity-Income Portfolio 8,940,840 10,612,978
Growth Portfolio 24,524,295 24,584,624
Asset Manager Portfolio 4,337,693 4,894,805
High Income Portfolio 3,887,266 3,562,663
Overseas Portfolio 4,937,636 4,580,866
Investment Grade Bond Portfolio 1,062,001 1,111,223
----------- -----------
Totals $73,944,988 $74,969,725
=========== ===========
9
<PAGE>
VARIABLE ACCOUNT C
OF MONARCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 6-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, that the
Account satisfies the current requirements of the regulations.
10
