<PAGE> 1
FIDELITY VIP PLUS
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA1
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 VA1:
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, Investment Grade
Bond, Equity Income, Growth, Asset Manager, High Income and Overseas Divisions
(constituting Monarch Life Insurance Company Separate Account VA1) 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 VA1
STATEMENT OF NET ASSETS AT DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS Cost Shares Market Value
---------- ---------- ------------
<S> <C> <C> <C>
Investment in Variable
Insurance Products Fund and Fund II,
at Market Value (Note 2):
Money Market Portfolio $ 279,806 279,806 $ 279,806
Investment Grade Bond Portfolio 190,613 16,103 195,813
Equity Income Portfolio 931,868 47,475 1,220,577
Growth Portfolio 1,407,671 47,876 2,629,805
Asset Manager Portfolio 442,155 28,676 535,372
High Income Portfolio 73,847 6,305 71,310
Overseas Portfolio 168,723 9,141 250,821
---------- ----------
Total Invested Assets $3,494,683 5,183,504
==========
LIABILITIES
Total Liabilities --
----------
Net Assets $5,183,504
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA1
STATEMENT OF NET ASSETS AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS Cost Shares Market Value
---------- ---------- ------------
<S> <C> <C> <C>
Investment in Variable
Insurance Products Fund and Fund II,
at Market Value (Note 2):
Money Market Portfolio $ 356,648 356,648 $ 356,648
Investment Grade Bond Portfolio 182,481 15,460 200,365
Equity Income Portfolio 935,490 50,644 1,287,379
Growth Portfolio 1,085,901 42,508 1,907,347
Asset Manager Portfolio 373,050 25,593 464,776
High Income Portfolio 137,490 11,197 129,107
Overseas Portfolio 163,162 8,862 177,680
---------- ----------
Total Invested Assets $3,234,222 4,523,302
==========
LIABILITIES
Total Liabilities --
----------
Net Assets $4,523,302
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA1
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
---------- ---------- ----------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 357,740 $ 428,341 $ 314,105
Expenses:
Risk Charges and Administrative Expenses (Note 5) -47,826 -44,339 -44,583
---------- ---------- ----------
Net Investment Income 309,914 384,002 269,522
---------- ---------- ----------
Net Realized Gains 211,558 331,007 214,326
Net Unrealized Gains 399,741 68,153 295,033
---------- ---------- ----------
Net Realized and Unrealized Gains 611,299 399,160 509,359
---------- ---------- ----------
Net Increase in Net Assets
Resulting from Operations 921,213 783,162 778,881
---------- ---------- ----------
Transfers of Net Premiums -- -- 4,000
Transfers Due to Terminations -261,011 -865,793 -749,412
Transfers Among Investment Divisions -- -- --
---------- ---------- ----------
Net Decrease in Net Assets
Resulting from Principal Transactions -261,011 -865,793 -745,412
---------- ---------- ----------
Total Increase (Decrease) in Net Assets 660,202 -82,631 33,469
Net Assets - Beginning of Year 4,523,302 4,605,933 4,572,464
---------- ---------- ----------
Net Assets - End of Year $5,183,504 $4,523,302 $4,605,933
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA1
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT
MONEY GRADE EQUITY
MARKET BOND INCOME GROWTH
TOTAL DIVISION DIVISION DIVISION DIVISION
---------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 357,740 $ 14,859 $ 10,348 $ 61,727 $ 217,010
Expenses:
Risk Charges and Administrative Expenses (Note 5) -47,826 -2,967 -1,974 -12,949 -21,988
---------- ------------ ------------ ---------- ----------
Net Investment Income 309,914 11,892 8,374 48,778 195,022
---------- ------------ ------------ ---------- ----------
Net Realized Gains (Losses) 211,558 -- 237 85,541 115,408
Net Unrealized Gains (Losses) 399,741 -- -12,684 -63,180 400,688
---------- ------------ ------------ ---------- ----------
Net Realized and Unrealized Gains (Losses) 611,299 -- -12,447 22,361 516,096
---------- ------------ ------------ ---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations 921,213 11,892 -4,073 71,139 711,118
---------- ------------ ------------ ---------- ----------
Transfers of Net Premiums -- -- -- -- --
Transfers Due to Terminations -261,011 -48,297 -479 -34,198 -112,840
Transfers Among Investment Divisions -- -40,437 -- -103,743 124,180
---------- ------------ ------------ ---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions -261,011 -88,734 -479 -137,941 11,340
---------- ------------ ------------ ---------- ----------
Total Increase (Decrease) in Net Assets 660,202 -76,842 -4,552 -66,802 722,458
Net Assets - Beginning of Year 4,523,302 356,648 200,365 1,287,379 1,907,347
---------- ------------ ------------ ---------- ----------
Net Assets - End of Year $5,183,504 $ 279,806 $ 195,813 $1,220,577 $2,629,805
========== ============ ============ ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ASSET HIGH
MANAGER INCOME OVERSEAS
DIVISION DIVISION DIVISION
---------- ------------ ----------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 36,773 $ 9,852 $ 7,171
Expenses:
Risk Charges and Administrative Expenses (Note 5) -5,079 -911 -1,958
---------- ------------ ----------
Net Investment Income 31,694 8,941 5,213
---------- ------------ ----------
Net Realized Gains (Losses) 16,579 -6,620 413
Net Unrealized Gains (Losses) 1,491 5,846 67,580
---------- ------------ ----------
Net Realized and Unrealized Gains (Losses) 18,070 -774 67,993
---------- ------------ ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations 49,764 8,167 73,206
---------- ------------ ----------
Transfers of Net Premiums -- -- --
Transfers Due to Terminations -26,198 -38,934 -65
Transfers Among Investment Divisions 47,030 -27,030 --
---------- ------------ ----------
Net Increase (Decrease) in Net Assets
Resulting from Principal Transactions 20,832 -65,964 -65
---------- ------------ ----------
Total Increase (Decrease) in Net Assets 70,596 -57,797 73,141
Net Assets - Beginning of Year 464,776 129,107 177,680
---------- ------------ ----------
Net Assets - End of Year $ 535,372 $ 71,310 $ 250,821
========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA1
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT
MONEY GRADE EQUITY
MARKET BOND INCOME GROWTH
TOTAL DIVISION DIVISION DIVISION DIVISION
---------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 428,341 $ 15,506 $ 12,103 $ 94,081 $ 218,664
Expenses:
Risk Charges and Administrative Expenses (Note 5) -44,339 -2,930 -2,318 -14,034 -17,211
---------- ---------- ---------- ---------- ----------
Net Investment Income 384,002 12,576 9,785 80,047 201,453
---------- ---------- ---------- ---------- ----------
Net Realized Gains 331,007 -- 9,776 156,539 140,891
Net Unrealized Gains (Losses) 68,153 -- -3,022 -103,542 212,085
---------- ---------- ---------- ---------- ----------
Net Realized and Unrealized Gains (Losses) 399,160 -- 6,754 52,997 352,976
---------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations 783,162 12,576 16,539 133,044 554,429
---------- ---------- ---------- ---------- ----------
Transfers of Net Premiums -- -- -- -- --
Transfers Due to Terminations -865,793 -282,698 -73,524 -272,937 -123,313
Transfers Among Investment Divisions -- 116,077 63,008 -72,608 -124,877
---------- ---------- ---------- ---------- ----------
Net Decrease in Net Assets
Resulting from Principal Transactions -865,793 -166,621 -10,516 -345,545 -248,190
---------- ---------- ---------- ---------- ----------
Total Increase (Decrease) in Net Assets -82,631 -154,045 6,023 -212,501 306,239
Net Assets - Beginning of Year 4,605,933 510,693 194,342 1,499,880 1,601,108
---------- ---------- ---------- ---------- ----------
Net Assets - End of Year $4,523,302 $ 356,648 $ 200,365 $1,287,379 $1,907,347
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ASSET HIGH
MANAGER INCOME OVERSEAS
DIVISION DIVISION DIVISION
---------- ------------ ----------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 58,805 $ 15,534 $ 13,648
Expenses:
Risk Charges and Administrative Expenses (Note 5) -4,553 -1,372 -1,921
---------- ------------ ----------
Net Investment Income 54,252 14,162 11,727
---------- ------------ ----------
Net Realized Gains 15,428 3,629 4,744
Net Unrealized Gains (Losses) -8,480 -26,394 -2,494
---------- ------------ ----------
Net Realized and Unrealized Gains (Losses) 6,948 -22,765 2,250
---------- ------------ ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations 61,200 -8,603 13,977
---------- ------------ ----------
Transfers of Net Premiums -- -- --
Transfers Due to Terminations -56,193 -29,783 -27,345
Transfers Among Investment Divisions -5,000 19,864 3,536
---------- ------------ ----------
Net Decrease in Net Assets
Resulting from Principal Transactions -61,193 -9,919 -23,809
---------- ------------ ----------
Total Increase (Decrease) in Net Assets 7 -18,522 -9,832
Net Assets - Beginning of Year 464,769 147,629 187,512
---------- ------------ ----------
Net Assets - End of Year $ 464,776 $ 129,107 $ 177,680
========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 8
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA1
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment
Money Grade Equity
Market Bond Income Growth
Total Division Division Division Division
---------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 314,105 $ 28,061 $ 11,323 $ 138,411 $ 54,226
Expenses:
Risk Charges and Administrative Expenses (Note 5) -44,583 -5,260 -2,047 -14,023 -15,129
---------- ---------- ---------- ---------- ----------
Net Investment Income 269,522 22,801 9,276 124,388 39,097
---------- ---------- ---------- ---------- ----------
Net Realized Gains 214,326 -- 8,560 68,219 82,036
Net Unrealized Gains (Losses) 295,033 -- -2,467 131,477 169,134
---------- ---------- ---------- ---------- ----------
Net Realized and Unrealized Gains 509,359 -- 6,093 199,696 251,170
---------- ---------- ---------- ---------- ----------
Net Increase in Net Assets
Resulting from Operations 778,881 22,801 15,369 324,084 290,267
---------- ---------- ---------- ---------- ----------
Transfers of Net Premiums 4,000 -- -- 2,000 2,000
Transfers Due to Terminations -749,412 -287,078 -94,665 -111,175 -72,397
Transfers Among Investment Divisions -- 269,902 -13,563 -117,282 -89,377
---------- ---------- ---------- ---------- ----------
Net Decrease in Net Assets
Resulting from Principal Transactions -745,412 -17,176 -108,228 -226,457 -159,774
---------- ---------- ---------- ---------- ----------
Total Increase (Decrease) in Net Assets 33,469 5,625 -92,859 97,627 130,493
Net Assets - Beginning of Year 4,572,464 505,068 287,201 1,402,253 1,470,615
---------- ---------- ---------- ---------- ----------
Net Assets - End of Year $4,605,933 $ 510,693 $ 194,342 $1,499,880 $1,601,108
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Asset High
Manager Income Overseas
Division Division Division
---------- --------- ----------
<S> <C> <C> <C>
Investment Income:
Dividends (Note 2) $ 51,985 $ 9,022 $ 21,077
Expenses:
Risk Charges and Administrative Expenses (Note 5) -4,535 -1,277 -2,312
---------- ---------- ----------
Net Investment Income 47,450 7,745 18,765
---------- ---------- ----------
Net Realized Gains 28,473 7,523 19,515
Net Unrealized Gains (Losses) 5,599 4,177 -12,887
---------- ---------- ----------
Net Realized and Unrealized Gains 34,072 11,700 6,628
---------- ---------- ----------
Net Increase in Net Assets
Resulting from Operations 81,522 19,445 25,393
---------- ---------- ----------
Transfers of Net Premiums -- -- --
Transfers Due to Terminations -80,404 -46,140 -57,553
Transfers Among Investment Divisions -25,000 15,863 -40,543
---------- ---------- ----------
Net Decrease in Net Assets
Resulting from Principal Transactions -105,404 -30,277 -98,096
---------- ---------- ----------
Total Increase (Decrease) in Net Assets -23,882 -10,832 -72,703
Net Assets - Beginning of Year 488,651 158,461 260,215
---------- ---------- ----------
Net Assets - End of Year $ 464,769 $ 147,629 $ 187,512
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 9
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA1
NOTES TO FINANCIAL STATEMENTS
NOTE 1-ORGANIZATION
Monarch Life Insurance Company Separate Account VA1 (the Account), is a
segregated account of Monarch Life Insurance Company (Monarch Life) and is
registered as, The Fidelity Variable Account II, a unit investment trust under
the Investment Company Act of 1940, as amended (1940 Act). Five investment
divisions of the Account are invested solely in the shares of the five
corresponding portfolios of the Variable Insurance Products Fund and the
remaining two investment divisions are invested solely in the shares of the two
corresponding portfolios of the Variable Insurance Products Fund II (the Funds),
both are no-load, diversified, open-end, 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 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.
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 are stated at
market value which is 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 redeemed
is determined on the first-in, first-out method. Dividend 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.
8
<PAGE> 10
MONARCH LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA1
NOTES TO FINANCIAL STATEMENTS
NOTE 3-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, 1999, are shown below:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
Money Market Portfolio $ 57,805 $ 134,647
Investment Grade Bond Portfolio 10,348 2,453
Equity Income Portfolio 117,446 206,609
Growth Portfolio 393,101 186,739
Asset Manager Portfolio 114,631 62,105
High Income Portfolio 48,734 105,757
Overseas Portfolio 7,224 2,076
-------------
Totals $ 749,289 $ 700,386
-------------
</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>
Money Market Division 19,213.8662 $ 14.562712 $ 279,806
Investment Grade Bond Division 11,199.0645 17.484764 195,813
Equity Income Division 32,215.6190 37.887740 1,220,577
Growth Division 47,887.2883 54.916557 2,629,805
Asset Manager Division 17,761.3762 30.142484 535,372
High Income Division 2,446.1821 29.151550 71,310
Overseas Division 10,621.6737 23.614075 250,821
-------------
Totals $ 5,183,504
-------------
</TABLE>
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 1.0% (0.85% for mortality and 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 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.
9
