<PAGE> 1
MILESTONE
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA
ANNUAL REPORT
DECEMBER 31, 1999
This is a copy of the annual report of the separate account in which your
Monarch Life Insurance Company variable annuity contract invests. We take pride
in our continued commitment to provide prompt, courteous service to our contract
owners. For inquiries regarding your contract, please call our Annuity Service
Center at 1-800-654-0050.
[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 Contract Owners of Monarch Life Insurance Company Separate Account VA:
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 Domestic Money Market,
Government Bond, High Current Income, Quality Equity, Special Value Focus,
Global Strategy Focus, and Basic Value Focus Divisions (constituting Monarch
Life Insurance Company Separate Account VA) at December 31, 1999 and 1998 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 custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 2000
<PAGE> 3
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA
STATEMENT OF NET ASSETS AT DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS Cost Shares Market Value
---------- ---------- ------------
<S> <C> <C> <C>
Investment in Merrill Lynch
Variable Series Funds, Inc.,
at Market Value (Notes 1 and 2):
Domestic Money Market Fund $ 646,166 646,166 $ 646,166
Government Bond Fund 182,624 17,293 173,448
High Current Income Fund 166,131 14,973 143,594
Quality Equity Fund 930,940 25,539 1,019,778
Special Value Focus Fund 1,105,131 50,571 1,180,832
Global Strategy Focus Fund 724,680 51,991 734,632
Basic Value Focus Fund 654,921 47,855 650,824
---------- ----------
Total Invested Assets $4,410,593 4,549,274
==========
Pending Trades 190
----------
Total Assets 4,549,464
----------
LIABILITIES
Total Liabilities --
----------
Net Assets $4,549,464
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA
STATEMENT OF NET ASSETS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS Cost Shares Market Value
---------- ---------- ------------
<S> <C> <C> <C>
Investment in Merrill Lynch
Variable Series Funds, Inc.,
at Market Value (Notes 1 and 2):
Domestic Money Market Fund $ 460,819 460,819 $ 460,819
Government Bond Fund 220,252 20,820 226,526
High Current Income Fund 318,417 27,918 282,250
Quality Equity Fund 977,352 26,374 1,005,361
Special Value Focus Fund 1,312,588 51,540 1,028,214
Global Strategy Focus Fund 931,373 65,492 878,244
Basic Value Focus Fund 726,825 48,986 718,630
----------
Total Invested Assets $4,947,626 4,600,044
LIABILITIES
Pending Trades 5,155
----------
Total Liabilities 5,155
----------
Net Assets $4,594,889
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA
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) $ 688,903 $ 811,309 $ 95,337
Expenses:
Risk Charges and Administrative Expenses (Note 5) -62,024 -70,045 -85,385
---------- ---------- ----------
Net Investment Income 626,879 741,264 9,952
---------- ---------- ----------
Net Realized Gains (Losses) -260,701 -181,765 1,479,312
Net Unrealized Gains (Losses) 486,263 -314,447 -682,353
---------- ---------- ----------
Net Realized and Unrealized Gains (Losses) 225,562 -496,212 796,959
---------- ---------- ----------
Net Increase in Net Assets
Resulting from Operations 852,441 245,052 806,911
---------- ---------- ----------
Transfers of Net Premiums 3,051 3,951 8,137
Transfers Due to Terminations -900,917 -1,045,334 -2,216,235
Transfers Among Investment Divisions -- -- --
---------- ---------- ----------
Net Decrease in Net Assets
Resulting from Principal Transactions -897,866 -1,041,383 -2,208,098
---------- ---------- ----------
Total Decrease in Net Assets -45,425 -796,331 -1,401,187
Net Assets - Beginning of Year 4,594,889 5,391,220 6,792,407
---------- ---------- ----------
Net Assets - End of Year $4,549,464 $4,594,889 $5,391,220
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Domestic Gov't High Current Quality
Money Market Bond Income Equity
Total Division Division Division Division
---------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 688,903 $ 24,605 $ 12,832 $ 23,329 $ 215,222
Expenses:
Risk Charges and Administrative Expenses (Note 5) -62,024 -7,273 -2,869 -2,951 -13,650
---------- ---------- ------------ ------------ ----------
Net Investment Income 626,879 17,332 9,963 20,378 201,572
---------- ---------- ------------ ------------ ----------
Net Realized Losses -260,701 -- -1,446 -24,928 -15,745
Net Unrealized Gains (Losses) 486,263 -- -15,450 13,630 60,829
---------- ---------- ------------ ------------ ----------
Net Realized and Unrealized Gains (Losses) 225,562 -- -16,896 -11,298 45,084
---------- ---------- ------------ ------------ ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations 852,441 17,332 -6,933 9,080 246,656
---------- ---------- ------------ ------------ ----------
Transfers of Net Premiums 3,051 800 -- 665 --
Transfers Due to Terminations -900,917 -56,460 -36,560 -132,353 -279,024
Transfers Among Investment Divisions -- 224,234 -8,037 -12,691 46,802
---------- ---------- ------------ ------------ ----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions -897,866 168,574 -44,597 -144,379 -232,222
---------- ---------- ------------ ------------ ----------
Total Increase (Decrease) in Net Assets -45,425 185,906 -51,530 -135,299 14,434
Net Assets - Beginning of Year 4,594,889 460,528 224,989 278,895 1,005,367
---------- ---------- ------------ ------------ ----------
Net Assets - End of Year $4,549,464 $ 646,434 $ 173,459 $ 143,596 $1,019,801
========== ========== ============ ============ ==========
</TABLE>
<TABLE>
<CAPTION>
Special Global Basic
Value Focus Strategy Focus Value Focus
Division Division Division
----------- -------------- -----------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 140,429 $ 97,481 $ 175,005
Expenses:
Risk Charges and Administrative Expenses (Note 5) -14,905 -10,328 -10,048
---------- ---------- ----------
Net Investment Income 125,524 87,153 164,957
---------- ---------- ----------
Net Realized Losses -158,518 -21,678 -38,386
Net Unrealized Gains (Losses) 360,075 63,081 4,098
---------- ---------- ----------
Net Realized and Unrealized Gains (Losses) 201,557 41,403 -34,288
---------- ---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations 327,081 128,556 130,669
---------- ---------- ----------
Transfers of Net Premiums 681 665 240
Transfers Due to Terminations -84,632 -163,845 -148,043
Transfers Among Investment Divisions -90,420 -108,742 -51,146
---------- ---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions -174,371 -271,922 -198,949
---------- ---------- ----------
Total Increase (Decrease) in Net Assets 152,710 -143,366 -68,280
Net Assets - Beginning of Year 1,028,231 878,247 718,632
---------- ---------- ----------
Net Assets - End of Year $1,180,941 $ 734,881 $ 650,352
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Domestic Gov't High Current Quality
Money Market Bond Income Equity
Total Division Division Division Division
------------ ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 811,309 $ 25,618 $ 15,521 $ 32,546 $ 149,520
Expenses:
Risk Charges and Administrative Expenses (Note 5) -70,045 -7,083 -3,706 -4,541 -13,872
------------ ---------- ---------- ------------ ----------
Net Investment Income 741,264 18,535 11,815 28,005 135,648
------------ ---------- ---------- ------------ ----------
Net Realized Gains (Losses) -181,765 -- 1,626 -3,400 -20,761
Net Unrealized Gains (Losses) -314,447 -- 5,179 -38,056 28,816
------------ ---------- ---------- ------------ ----------
Net Realized and Unrealized Gains (Losses) -496,212 -- 6,805 -41,456 8,055
------------ ---------- ---------- ------------ ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations 245,052 18,535 18,620 -13,451 143,703
------------ ---------- ---------- ------------ ----------
Transfers of Net Premiums 3,951 600 -- 698 250
Transfers Due to Terminations -1,045,334 -120,706 -71,298 -66,183 -206,030
Transfers Among Investment Divisions -- 28,114 -14,259 -9,012 -9,208
------------ ---------- ---------- ------------ ----------
Net Decrease in Net Assets
Resulting from Principal Transactions -1,041,383 -91,992 -85,557 -74,497 -214,988
------------ ---------- ---------- ------------ ----------
Total Decrease in Net Assets -796,331 -73,457 -66,937 -87,948 -71,285
Net Assets - Beginning of Year 5,391,220 533,985 291,926 366,843 1,076,652
------------ ---------- ---------- ------------ ----------
Net Assets - End of Year $ 4,594,889 $ 460,528 $ 224,989 $ 278,895 $1,005,367
============ ========== ========== ============ ==========
</TABLE>
<TABLE>
<CAPTION>
Special Global Basic
Value Focus Strategy Focus Value Focus
Division Division Division
------------ -------------- ----------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 285,035 $ 165,981 $ 137,088
Expenses:
Risk Charges and Administrative Expenses (Note 5) -15,716 -13,190 -11,937
------------ ------------ ----------
Net Investment Income 269,319 152,791 125,151
------------ ------------ ----------
Net Realized Gains (Losses) -90,210 -29,868 -39,152
Net Unrealized Gains (Losses) -260,366 -53,819 3,799
------------ ------------ ----------
Net Realized and Unrealized Gains (Losses) -350,576 -83,687 -35,353
------------ ------------ ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations -81,257 69,104 89,798
------------ ------------ ----------
Transfers of Net Premiums 1,215 948 240
Transfers Due to Terminations -120,770 -186,668 -273,679
Transfers Among Investment Divisions 1,353 -19,474 22,486
------------ ------------ ----------
Net Decrease in Net Assets
Resulting from Principal Transactions -118,202 -205,194 -250,953
------------ ------------ ----------
Total Decrease in Net Assets -199,459 -136,090 -161,155
Net Assets - Beginning of Year 1,227,690 1,014,337 879,787
------------ ------------ ----------
Net Assets - End of Year $ 1,028,231 $ 878,247 $ 718,632
============ ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 8
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Domestic Gov't High Current Quality
Money Market Bond Income Equity
Total Division Division Division Division
---------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 95,337 $ 30,572 $ 3,055 $ 2,962 $ 9,455
Expenses:
Risk Charges and Administrative Expenses (Note 5) -85,385 -8,305 -5,970 -6,539 -17,250
---------- ---------- ---------- ---------- ------------
Net Investment Income (Loss) 9,952 22,267 -2,915 -3,577 -7,795
---------- ---------- ---------- ---------- ------------
Net Realized Gains 1,479,312 -- 10,226 65,704 360,682
Net Unrealized Gains (Losses) -682,353 -- 23,802 -8,394 -142,568
---------- ---------- ---------- ---------- ------------
Net Realized and Unrealized Gains 796,959 -- 34,028 57,310 218,114
---------- ---------- ---------- ---------- ------------
Net Increase in Net Assets
Resulting from Operations 806,911 22,267 31,113 53,733 210,319
---------- ---------- ---------- ---------- ------------
Transfers of Net Premiums 8,137 703 -- 571 600
Transfers Due to Terminations -2,216,235 -262,714 -309,061 -240,631 -442,719
Transfers Among Investment Divisions -- 65,008 8,416 8,202 -41,713
---------- ---------- ---------- ---------- ------------
Net Decrease in Net Assets
Resulting from Principal Transactions -2,208,098 -197,003 -300,645 -231,858 -483,832
---------- ---------- ---------- ---------- ------------
Total Decrease in Net Assets -1,401,187 -174,736 -269,532 -178,125 -273,513
Net Assets - Beginning of Year 6,792,407 708,721 561,458 544,968 1,350,165
---------- ---------- ---------- ---------- ------------
Net Assets - End of Year $5,391,220 $ 533,985 $ 291,926 $ 366,843 $ 1,076,652
========== ========== ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
Special Global Basic
Value Focus Strategy Focus Value Focus
Division Division Division
------------ -------------- ----------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 15,227 $ 14,798 $ 19,268
Expenses:
Risk Charges and Administrative Expenses (Note 5) -17,472 -16,739 -13,110
---------- ------------ ----------
Net Investment Income (Loss) -2,245 -1,941 6,158
---------- ------------ ----------
Net Realized Gains 406,445 358,676 277,579
Net Unrealized Gains (Losses) -174,551 -266,470 -114,172
---------- ------------ ----------
Net Realized and Unrealized Gains 231,894 92,206 163,407
---------- ------------ ----------
Net Increase in Net Assets
Resulting from Operations 229,649 90,265 169,565
---------- ------------ ----------
Transfers of Net Premiums 1,792 1,175 3,296
Transfers Due to Terminations -369,043 -316,679 -275,388
Transfers Among Investment Divisions 98,832 -99,005 -39,740
---------- ------------ ----------
Net Decrease in Net Assets
Resulting from Principal Transactions -268,419 -414,509 -311,832
---------- ------------ ----------
Total Decrease in Net Assets -38,770 -324,244 -142,267
Net Assets - Beginning of Year 1,266,460 1,338,581 1,022,054
---------- ------------ ----------
Net Assets - End of Year $1,227,690 $ 1,014,337 $ 879,787
========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
The Divisions reflect the operations and changes in net assets of their
investments in both the Trust and the ML Funds (see Note 1).
7
<PAGE> 9
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1-ORGANIZATION
Monarch Life Insurance Company Separate Account VA (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). Each of the seven investment divisions of the Account are invested solely
in the shares of the seven corresponding separate funds of the Merrill Lynch
Variable Series Funds, Inc. (the ML Funds), a no-load, diversified, open-end,
management investment company registered under the 1940 Act. Merrill Lynch Asset
Management, L.P., an indirect, wholly-owned subsidiary of Merrill Lynch & Co.,
Inc., is the investment advisor for the ML Funds. 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 Account
cannot be charged with liabilities arising out of any other business of Monarch
Life.
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 contract
owners participating in the Account.
Prior to December 3, 1997, the seven investment divisions of the Account
invested solely in the shares of the seven corresponding portfolios of the
Variable Investors Series Trust (the Trust), a no-load, diversified, open-end,
series management investment company registered under the 1940 Act. First
Variable Advisory Services Corp., managed the business and affairs of the Trust
and served as investment advisor to all portfolios of the Trust, subject to the
authority and direction of the Board of Trustees of the Trust. On October 11,
1996, Monarch Life filed with the Securities and Exchange Commission, an
application requesting an order approving the substitution of shares of certain
funds of the ML Funds, for shares of each of the portfolios of the Trust held in
the Account. On September 24, 1997, the Securities and Exchange Commission
issued an order approving the substitution.
Simultaneously with the substitution of certain ML Funds for the portfolios of
the Trust, the investment divisions of the Account were renamed for the
corresponding funds of the ML Funds.
8
<PAGE> 10
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA
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
accounting principles generally accepted in the United States.
INVESTMENTS: The investments in shares of the ML Funds are stated at
market value which is the net asset value per share of the respective
funds. Investment transactions are accounted for on the date the shares
are purchased or sold. The cost of shares redeemed is determined on the
first-in, first-out method. Dividend and capital gain distributions
received from the ML Funds are reinvested in additional shares 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-PURCHASES AND SALES OF SECURITIES
Total cost of purchases and proceeds from sales of ML Funds shares by the
Account during the year ended December 31, 1999, are shown below:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------- --------------
<S> <C> <C>
Domestic Money Market Fund $ 385,739 $ 200,392
Government Bond Fund 19,529 55,711
High Current Income Fund 24,422 151,780
Quality Equity Fund 272,587 303,254
Special Value Focus Fund 349,233 398,172
Global Strategy Focus Fund 150,778 335,793
Basic Value Focus Fund 241,566 275,084
-------------- --------------
Totals $ 1,443,854 $ 1,720,186
============== ==============
</TABLE>
NOTE 4-CONTRACT OWNERS' EQUITY
Contract owners' equity at December 31, 1999, consists of the following:
<TABLE>
<CAPTION>
ACCUMULATION
ACCUMULATION UNIT
UNITS VALUE EQUITY
------------ ------------- -------------
<S> <C> <C> <C>
Domestic Money Market Division 48,090.3182 13.442082 $ 646,434
Government Bond Division 10,131.9539 17.119995 173,459
High Current Income Division 8,037.2199 17.866377 143,596
Quality Equity Division 25,816.4070 39.502050 1,019,801
Special Value Focus Division 12,895.2701 91.579392 1,180,941
Global Value Focus Division 30,772.3339 23.881224 734,881
Basic Value Focus Division 18,639.2204 34.891588 650,352
--------------
Totals $ 4,549,464
==============
</TABLE>
9
<PAGE> 11
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5-EXPENSES
Monarch Life assumes mortality and expense risks and 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. This charge is, on an
annual basis, equal to a rate of 1.4% (0.85% for mortality risks, 0.40% for
expense risks, and 0.15% for administrative charges) of the daily net assets of
the Account.
NOTE 6-DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code (the Code),
a variable annuity contract, other than a contract issued in connection with
certain types of employee benefits plans, will not be treated as an annuity
contract for federal tax purposes for any period for which the investments of
the segregated asset account, on which the contract 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 ML Funds, that the
Account satisfies the current requirements of the regulations.
NOTE 7-PRINCIPAL UNDERWRITER AND GENERAL DISTRIBUTOR
Baystate Capital Services, Inc. (BCSI), is the principal underwriter and general
distributor of the contracts maintained in the Account. BCSI is a wholly-owned
subsidiary of Monarch Life.
10
