<PAGE>
As filed with the Securities and Exchange Commission on 28 April 1998
Registration No. 33-27242
811-5382
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 10
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
SEPARATE ACCOUNT A OF PARAGON LIFE INSURANCE COMPANY
(Exact Name of Registrant)
PARAGON LIFE INSURANCE COMPANY
100 South Brentwood Boulevard
St. Louis, MO 63105
(Address of Principal Executive Office)
Matthew P. McCauley, Esquire
Paragon Life Insurance Company
700 Market Street
St. Louis, MO 63101
(Name and Address of Agent for Service of Process)
Copy to:
Stephen E. Roth, Esquire
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Ave., N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective (check appropriate space)
[ ] immediately upon filing pursuant to paragraph (b), of Rule 485
[X] 1 April 1998 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date), pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (d) pursuant to paragraph (a)(2) of Rule 485
33-27242
Title of securities being registered: Group and Individual Flexible Premium
Variable Life Insurance Policies
<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
Item No. of
Form N-8B-2 Caption in Prospectus
1. Cover Page
2. Cover Page
3. Not Applicable
4. Distribution of the Policies
5. The Company and the Separate Account
6. The Separate Account
7. Not Required
8. Not Required
9. Legal Proceedings
10. Summary; American Variable Insurance
Series; Charges and Deductions; Policy
Benefits; Policy Rights; Voting Rights;
General Matters Relating to the Policy
11. Summary; American Variable Insurance
Series
12. Summary; American Variable Insurance
Series
13. Summary; Charges and Deductions; American
Variable Insurance Series
14. Summary; Payment and Allocation of
Premiums
15. Payment and Allocation of Premiums
16. Payment and Allocation of Premiums;
American Variable Insurance Series
17. Summary; Charges and Deductions; Policy
Rights; American Variable Insurance
Series
18. American Variable Insurance Series;
Payment and Allocation of Premiums
19. General Matters Relating to the Policy;
Voting Rights
20. Not Applicable
21. Policy Rights; General Matters Relating to
the Policy
22. Not Applicable
23. Safekeeping of the Separate Account's
Assets
24. General Matters Relating to the Policy
25. The Company and the Separate Account
26. Not Applicable
27. The Company and the Separate Account
28. Management of the Company
29. The Company and the Separate Account
30. Not Applicable
31. Not Applicable
-i-
<PAGE>
Item No. of
Form N-8B-2 Caption in Prospectus
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. The Company and the Separate Account
36. Not Required
37. Not Applicable
38. Summary; Distribution of the Policies
39. Summary; Distribution of the Policies
40. Not Applicable
41. The Company and the Separate Account;
Distribution of the Policies
42. Not Applicable
43. Not Applicable
44. Payment and Allocation of Premiums
45. Not Applicable
46. Policy Rights
47. American Variable Insurance Series
48. Not Applicable
49. Not Applicable
50. The Separate Account
51. Cover Page; Summary; Charges and
Deductions; Policy Rights; Policy
Benefits; Payment and Allocation of
Premiums
52. American Variable Insurance Series
53. Federal Tax Matters
54. Not Applicable
55. Not Applicable
56. Not Required
57. Not Required
58. Not Required
59. Not Required
- ii -
<PAGE>
[LOGO - PARAGON LIFE INSURANCE COMPANY]
[LOGO - GROUP AMERICAN PLUS]
GROUP FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
Prospectus dated May 1, 1998
50405
<PAGE>
FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICIES
ISSUED BY
PARAGON LIFE INSURANCE COMPANY
100 SOUTH BRENTWOOD
ST. LOUIS, MO 63105
(314) 862-2211
This Prospectus describes flexible premium variable life insurance policies
offered by Paragon Life Insurance Company (the "Company") Internal Revenue
Service Employer Identification Number 43-1235869 which are designed for use
in group insurance programs. Certificates setting forth the rights of the
Owners and/or Insureds will be issued under a Group Contract issued to a
Contractholder. Certificates are referred to in this Prospectus as "Policy" or
"Policies."
The Policies are designed to provide lifetime insurance protection to age 95
and at the same time provide flexibility to vary premium payments and change
the level of death benefits payable under the Policies. This flexibility
allows an Owner to provide for changing insurance needs under a single
insurance policy. An Owner also has the opportunity to allocate net premiums
among several investment portfolios with different investment objectives.
The Policy provides for: (1) a Cash Surrender Value that can be obtained by
surrendering the Policy; (2) Policy Loans; and (3) a death benefit payable at
the Insured's death. As long as a Policy remains in force, the death benefit
payable on the Insured's death will not be less than the current Face Amount
of the Policy. The insurance under a Policy will remain in force so long as
its Cash Surrender Value is sufficient to pay certain monthly charges imposed
in connection with the Policy.
The Owner may allocate net premiums to one or more of the Divisions of the
Separate Account A (the "Separate Account"). The duration of the Policy and
the amount of the Cash Value will vary to reflect the investment performance
of the Divisions of the Separate Account selected by the Owner, and, depending
on the death benefit option elected, the amount of the death benefit above the
minimum may also vary with that investment performance. Thus, the Owner bears
the entire investment risk under the Policies; there is no minimum guaranteed
Cash Value.
Each Division of the Separate Account will invest in the following
corresponding investment portfolio of American Variable Insurance Series, an
investment company currently consisting of ten separate investment portfolios,
or "Funds":
Cash Management Fund International Fund
High-Yield Bond Fund Bond Fund
Growth-Income Fund Global Growth Fund
Growth Fund U.S. Government/AAA Rated Securities
Asset Allocation Fund Fund
Global Small Capitalization Fund
The accompanying prospectus for American Variable Insurance Series describes
the investment objectives and policies, and the risks of the Funds.
It may not be advantageous to purchase a Policy as a replacement for another
type of life insurance or as a means to obtain additional insurance protection
if the purchaser already owns another flexible premium variable life insurance
policy.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR
AMERICAN VARIABLE INSURANCE SERIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Please Read This Prospectus Carefully And Retain It For Future Reference.
The Date Of This Prospectus Is May 1, 1998.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions................................................................ 3
Summary.................................................................... 4
The Company and the Separate Account....................................... 9
The Company.............................................................. 9
The Separate Account..................................................... 10
American Variable Insurance Series....................................... 10
Addition, Deletion, or Substitution of Investments....................... 12
Payment and Allocation of Premiums......................................... 13
Issuance of a Policy..................................................... 13
Premiums................................................................. 13
Allocation of Net Premiums and Cash Value................................ 14
Policy Lapse and Reinstatement........................................... 15
Policy Benefits............................................................ 16
Death Benefit............................................................ 16
Cash Value............................................................... 20
Policy Rights and Privileges............................................... 22
Exercising Rights and Privileges Under the Policies...................... 22
Loans.................................................................... 22
Surrender and Partial Withdrawals........................................ 23
Transfers................................................................ 24
Right to Examine Policy.................................................. 25
Conversion Right to a Fixed Benefit Policy............................... 25
Eligibility Change Conversion............................................ 26
Payment of Benefits at Maturity.......................................... 26
Payment of Policy Benefits............................................... 26
Charges and Deductions..................................................... 27
Sales Charges............................................................ 27
Premium Tax Charge....................................................... 28
Monthly Deduction........................................................ 28
Partial Withdrawal Transaction Charge.................................... 30
Separate Account Charges................................................. 30
General Matters Relating to the Policy..................................... 31
Distribution of the Policies............................................... 33
General Provisions of the Group Contract................................... 33
Federal Tax Matters........................................................ 35
Safekeeping of the Separate Account's Assets............................... 38
Voting Rights.............................................................. 38
State Regulation of the Company............................................ 39
Management of the Company.................................................. 39
Legal Matters.............................................................. 40
Legal Proceedings.......................................................... 40
Experts.................................................................... 40
Additional Information..................................................... 41
Financial Statements....................................................... 41
Appendix A................................................................. A-1
</TABLE>
THE POLICIES ARE NOT AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
2
<PAGE>
DEFINITIONS
Attained Age--The Issue Age of the Insured plus the number of completed
Policy Years.
Associated Companies--Those companies listed in a Group Group Contract's
specifications pages that are under common control through stock ownership,
contract or otherwise, with the Contractholder.
Beneficiary--The person(s) named in an application for Individual Insurance
or by later designation to receive Policy proceeds in the event of the
Insured's death. A Beneficiary may be changed as set forth in the Policy and
this Prospectus.
Cash Value--The total amount that a Policy provides for investment at any
time. It is equal to the total of the amounts credited to the Owner in the
Separate Account and in the Loan Account.
Cash Surrender Value--The Cash Value of a Policy on the date of surrender,
less any Indebtedness, and any contingent deferred sales charges.
Certificate--A document issued to Owners of Policies issued under Group
Group Group Contracts, setting forth or summarizing the Owner's rights and
benefits.
Contractholder--The entity that is issued a Group Contract, which may be a
broker-dealer engaged in the distribution of the Policies.
Division--A subaccount of the Separate Account. Each Division invests
exclusively in the shares of a Fund of American Variable Insurance Series.
Face Amount--The minimum death benefit under the Policy so long as the
Policy remains in force.
Fund--A separate investment portfolio of the American Variable Insurance
Series, a mutual fund in which the Separate Account's assets are invested.
Group Contract--A group flexible premium variable life insurance contract
issued to the Contractholder by the Company.
Guideline Annual Premium--The annual amount of premium that would be payable
through the Maturity Date of a Policy for the specified Face Amount and Death
Benefit Option, if premiums were fixed by the Company as to both timing and
amount, and were based on the guaranteed mortality rates of 125% of the 1980
Commissioners Standard Ordinary Mortality Table C, net investment earnings at
an annual effective rate of five percent, and fees and charges as set forth in
the Policy.
Home Office--The service office of the Company, the mailing address of which
is 100 South Brentwood, St. Louis, Missouri 63105.
Indebtedness--The sum of all unpaid Policy Loans and accrued interest
charged on loans.
Individual Insurance--Insurance provided under a Group Contract.
Insured--The person whose life is insured under a Policy.
Investment Start Date--The date the initial premium is applied to the
Divisions of the Separate Account. This date is the later of the Issue Date or
the date the initial premium is received at the Company's Home Office.
Issue Age--The Insured's Age at his or her last birthday as of the date the
Policy is issued.
Issue Date--The effective date of coverage under a Policy. The Issue Date is
the date from which Policy Anniversaries, Policy Years, and Policy Months are
measured.
3
<PAGE>
Loan Account--The account of the Company to which amounts securing Policy
Loans are allocated. It is a part of the Company's general assets.
Loan Value--The maximum amount that may be borrowed under a Policy after the
first Policy Anniversary.
Maturity Date--The Policy Anniversary on which the Insured reaches Attained
Age 95.
Monthly Anniversary--The same date in each succeeding month as the Issue
Date except that whenever the Monthly Anniversary falls on a date other than a
Valuation Date, the Monthly Anniversary will be deemed the next Valuation
Date. If any Monthly Anniversary would be the 29th, 30th, or 31st day of a
month that does not have that number of days, then the Monthly Anniversary
will be the last day of that month.
Net Premium--The premium less any sales charge and any charge for premium
taxes.
Owner--The Owner of a Policy, as designated in the application or as
subsequently changed.
Policy--The Certificate offered by the Company and described in this
Prospectus.
Policy Anniversary--The same date each year as the Issue Date.
Policy Month--A month beginning on the Monthly Anniversary.
Policy Year--A period beginning on a Policy Anniversary and ending on the
day immediately preceding the next Policy Anniversary.
Separate Account--Separate Account A, a separate investment account
established by the Company to receive and invest the net premiums paid under
the Policy.
Valuation Date--Each day that the New York Stock Exchange is open for
trading, except on the day after Thanksgiving when the Company is closed.
Valuation Period--The period between two successive Valuation Dates,
commencing at the close of business of a Valuation Date and ending at the
close of business of the next succeeding Valuation Date.
SUMMARY
The following summary of Prospectus information should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated, the description of the Policies
contained in this Prospectus assumes that a Policy is in effect and that there
is no outstanding Indebtedness.
The Policy. The Policies described in this Prospectus are issued in
connection with group insurance programs pursuant to Group Contracts entered
into between the Company and Contractholders. (See "General Provisions of the
Group Contract.") The group must exist for purposes other than to obtain
insurance. Provided there is sufficient Cash Surrender Value, Individual
Insurance under a Policy will continue should the Group Contract or the
Owner's eligibility under the Group Contract terminate. (See "Payment and
Allocation of Premiums--Issuance of a Policy.")
The Policies are life insurance contracts with death benefits, cash values,
surrender rights, policy loan privileges, and other features traditionally
associated with life insurance. The Policies are "variable" policies because,
unlike the fixed benefits under an ordinary life insurance contract, the Cash
Value and, under certain circumstances, the death benefit under a Policy may
increase or decrease depending upon the investment performance of the
Divisions of the Separate Account to which the Owner has allocated net premium
payments. However, so long as a Policy's Cash Surrender Value continues to be
sufficient to pay the monthly deduction, an Owner is guaranteed a minimum
death benefit equal to the Face Amount of his or her Policy.
4
<PAGE>
The Separate Account. The Owner may allocate the net premiums to one or more
Divisions of the Separate Account. The Separate Account currently consists of
ten Divisions, each of which invests in shares of a corresponding Fund of
American Variable Insurance Series. The ten Funds currently available are the
Cash Management Fund, the High-Yield Bond Fund, the Growth-Income Fund, the
Growth Fund, the Asset Allocation Fund, the International Fund, the Bond Fund,
the Global Growth Fund, the U.S. Government Guaranteed/AAA Rated Securities
Fund and the Global Small Capitalization Fund. Each Fund has a different
investment objective. (See "The Company and the Separate Account--American
Variable Insurance Series.") An Owner may change future allocations of net
premiums at any time by notifying the Company directly.
Subject to certain restrictions, an Owner may transfer Cash Values among the
Divisions of the Separate Account. Currently, no charge is assessed for
transfers. The Company reserves the right to modify the transfer privilege.
(See "Policy Rights and Privileges--Transfers.")
Premiums. An Owner has flexibility concerning the amount and frequency of
premium payments. An initial premium equal to one-twelfth ( 1/12) of the
planned annual premium set forth in the specifications page of a Policy is
necessary to place a Policy in force. The planned annual premium is an amount
specified for each Policy based on the requested initial Face Amount and
certain other factors. The initial premium and subsequent planned premiums
generally will be remitted by the Contractholder on behalf of the Owner at
intervals agreed to by the Contractholder, typically monthly. However, as is
discussed below, planned premiums need not be paid so long as there is
sufficient Cash Surrender Value to keep the Policy in force. Subject to
certain limitations, additional premium payments in any amount and at any
frequency may be made directly by the Owner. Some Contractholders may offer a
cash management or financial services account where amounts may be held in a
money market mutual fund. If the Owner has such an account, subject to the
Contractholder's approval, planned premium payments may be made from this
account. (See "Payment and Allocation of Premiums--Issuance of a Policy--
Premiums.")
A Policy will lapse (and terminate without value) when the Cash Surrender
Value is insufficient to pay the next monthly deduction and a grace period of
62 days expires without an adequate payment being made by the Owner (see
"Payment and Allocation of Premiums--Policy Lapse and Reinstatement.") The
Policies, therefore, differ in two important respects from conventional life
insurance policies. First, the failure to make planned premium payments
following the initial premium payment will not itself cause a Policy to lapse.
Second, under the circumstances described above, a Policy can lapse even if
planned premiums have been paid. Thus, the payment of premiums in any amount
does not guarantee that the Policy will remain in force until the Maturity
Date. (See "Payment and Allocation of Premiums--Policy Lapse and
Reinstatement.")
Death Benefit. Death benefit proceeds are payable to the named Beneficiary
when the Insured under a Policy dies. Two death benefit options are available.
Under the "Level Type" death benefit, the death benefit is the Face Amount of
the Policy or, if greater, the applicable percentage of Cash Value. Under the
"Increasing Type" death benefit, the death benefit is the Face Amount of the
Policy plus the Cash Value or, if greater, the applicable percentage of Cash
Value. So long as a Policy remains in force, the minimum death benefit under
either option will be at least equal to the current Face Amount. The death
benefit proceeds will be increased by the amount of the cost of insurance for
the portion of the month from the date of death to the end of the month, and
reduced by any outstanding Indebtedness. (See "Policy Benefits--Death
Benefit.")
The minimum initial Face Amount is generally $25,000 under the Company's
current rules. The Owner may generally change the Face Amount and the death
benefit option, but in certain cases evidence of insurability may be required.
(See "Policy Benefits--Death Benefit.")
Benefits under the Policy may be paid in a single sum or under one of the
settlement options set forth in the Policy. (See "Policy Benefits--Death
Benefit," and "Policy Rights and Privileges--Payment of Policy Benefits.")
5
<PAGE>
Cash Value. The Policies provide for a Cash Value equal to the total of the
Policy's Cash Value in the Separate Account and the Loan Account (securing
Policy Loans). A Policy's Cash Value will reflect the amount and frequency of
premium payments, the investment performance of any selected Divisions of the
Separate Account, transfers, any Policy Loans, loan account interest rate
credited, any partial withdrawals, and the charges imposed in connection with
the Policy. (See "Policy Benefits--Cash Value.") There is no minimum
guaranteed Cash Value.
Charges and Deductions. The sales charges imposed will consist of a front-
end sales charge of 2.5 percent, which is deducted from premiums paid
("premium expense charge"), and a contingent deferred sales charge.
The contingent deferred sales charge will be assessed against the Cash Value
under a Policy upon a surrender, lapse, or decrease in Face Amount during the
first ten Policy Years. Assuming that no increases in Face Amount have become
effective, the charge will be 25 percent of premiums actually received by the
Company in the first Policy Year up to the guideline annual premium for the
initial Face Amount. The amount of the charge will decrease each year after
the first Policy Year by one-tenth of the total charge until it reaches zero
at the end of ten Policy Years. The timing of premium payments may affect the
amount of the charge under a Policy, because the contingent deferred sales
charge is based only on premiums actually received by the Company in the first
Policy Year.
For any increase in the Face Amount an additional contingent deferred sales
charge will be calculated equal to a percentage of premiums associated with
the increase up to the guideline premium for the increase. See "Charges and
Deductions--Sales Charges," for a discussion of the manner in which premiums
are associated with an increase. The additional charge calculated for the
increase will also decrease by one-tenth of the total charge each year after
the first year following the effective date of the increase until it reaches
zero after ten years. For any decrease in the initial Face Amount or in an
increase in Face Amount during the first ten years such insurance coverage is
in force, a charge will be assessed that is proportionate to the charge that
would apply to a full surrender of initial Face Amount or increase. The
contingent deferred sales charge will apply to a partial withdrawal only if
the partial withdrawal decreases the Face Amount. (See "Policy Rights and
Privileges--Surrender and Partial Withdrawals," "Policy Benefits--Death
Benefit," and "Charges and Deductions--Sales Charges--Contingent Deferred
Sales Charge.")
A charge of 2 percent to cover state premium taxes will be deducted from
premiums paid.
A monthly deduction will be made from a Policy's Cash Value in the Divisions
of the Separate Account. The monthly deduction includes an administrative
charge, and a cost of insurance charge. The administrative charge will
ordinarily be $3.00 per month during all policy years.
The cost of insurance charge is calculated on each Monthly Anniversary. (See
"Charges and Deductions--Monthly Deduction--Cost of Insurance.") Monthly cost
of insurance rates will be determined by the Company based upon its
expectations as to future mortality experience. The Company currently
underwrites Policies on a simplified issue basis. However, the Company
reserves the right to issue Policies on a guaranteed issue basis or on another
basis which is determined by the Company to be appropriate to a particular
group. The current cost of insurance rates are based on the Attained Age and
rate class of the Insured as well as on the gender mix of the group insured,
which is the proportion of men and women covered under a particular Group
Contract. For a discussion of the factors affecting the rate class of the
Insured, see "Charges and Deductions--Monthly Deduction--Cost of Insurance."
Cost of insurance rates are guaranteed not to exceed 125 percent of the
maximum rates that could be charged based on the 1980 Commissioners Standard
Ordinary Mortality Table C ("1980 CSO Table"). Generally, the rates currently
charged do not exceed 100% of the 1980 CSO Table. However, instances in which
the Company's current rates may exceed 100% of the 1980 CSO Table are
generally limited to particular Policies issued to Insureds in small groups
(i.e. generally less than 250 eligible employees) and/or groups that are
predominantly male. The guaranteed rates are higher than the 1980 CSO Table
because, under simplified underwriting, the Insured is not required to submit
to a medical or paramedical examination.
6
<PAGE>
Because the Company gathers less health information about these individuals,
it is exposed to additional insurance risks. Although the circumstances in
which the Company could raise its current mortality charges are limited, such
an increase is permitted under the Policy. To the extent that the current cost
of insurance rates exceed or are raised so that they exceed 100% of the 1980
CSO Table, the monthly cost of insurance charge would, in effect, be a
substandard risk charge for healthy Insureds. In this event, healthy insureds
may be able to obtain coverage elsewhere with lower cost of insurance charges.
Cost of insurance charges are only one element of an insurance policy.
A daily charge of .0024547% (an annual rate of .90%) of the net assets of
each Division of the Separate Account will be imposed for the Company's
assumption of certain mortality and expense risks incurred in connection with
the Policies. (See "Charges and Deductions--Separate Account Charges.")
No charges are currently made from the Separate Account for Federal or state
income taxes. However, if it is determined that such taxes may be incurred,
then the Company may make deductions from the Separate Account to pay these
taxes. (See "Federal Tax Matters.")
The value of the assets of the Divisions of the Separate Account will
reflect the investment advisory fee and other expenses incurred by American
Variable Insurance Series because the Separate Account purchases the shares of
American Variable Insurance Series. (See "Charges and Deductions--Separate
Account Charges.") The total annual investment advisory fee and fund expenses
for the funds available during the last fiscal year as a percentage of net
assets are as follows: Cash Management Fund .47%; High-Yield Bond Fund .51%;
Growth-Income Fund .38%; Growth Fund .42%; Asset Allocation Fund .47%;
International Fund .67%; Bond Fund .55%; Global Growth Fund .44%; U.S.
Government/AAA Rated Securities Fund .52%; and Global Small Capitalization
Fund (not available).
A transaction charge equal to the lesser of $25 or two percent of the amount
withdrawn will be assessed on each partial withdrawal of amounts from the
Separate Account. Currently, there are no transaction charges imposed for
transfers of amounts between Divisions of the Separate Account. In addition,
transfers and withdrawals are subject to restrictions relative to amount and
frequency. (See "Payment and Allocation of Premiums--Allocation of Net
Premiums and Cash Value," and "Policy Rights and Privileges--Surrender and
Partial Withdrawals--Transfers," and "Charges and Deductions--Partial
Withdrawal Transaction Charge.")
Policy Loans. After the first Policy Anniversary an Owner may borrow against
the Cash Value of a Policy. The Loan Value is (a) minus (b) minus (c), where
(a) is 85 percent of the Cash Value of the Policy on the date the loan request
is received, (b) is any outstanding Indebtedness and (c) is any contingent
deferred sales charges. Loan interest is due and payable in arrears on each
Policy Anniversary or on a pro rata basis for such shorter period as the
Policy Loan may exist. All outstanding Indebtedness will be deducted from
proceeds payable at the Insured's death, upon maturity, or upon surrender.
A Policy Loan will be allocated among the various Divisions of the Separate
Account. A portion of the Policy's Cash Value in each Division of the Separate
Account to which the loan is allocated will be transferred to the Loan Account
as security for the loan. Therefore, a Policy Loan may have a permanent impact
on the Policy's Cash Value even if it is repaid. A Policy Loan may be repaid
in whole or in part at any time while the Policy is in force. (See "Policy
Rights and Privileges--Loans.") Loans taken from, or secured by, a Policy may
in certain circumstances be treated as taxable distributions from the Policy.
Moreover, with certain exceptions, a ten percent additional income tax would
be imposed on the portion of any loan that is included in income. (See
"Federal Tax Matters.")
Surrender and Partial Withdrawals. At any time that a Policy is in effect,
an Owner may elect to surrender the Policy and receive its Cash Surrender
Value. An Owner may also request a partial withdrawal of the Cash Value of the
Policy. When the death benefit under either death benefit option is not based
on an applicable percentage of the Cash Value, a partial withdrawal reduces
the death benefit payable under the Policy by an amount equal to the reduction
in the Policy's Cash Value. If Option A is in effect and the death
7
<PAGE>
benefit equals the Face Amount, the death benefit will also be reduced by an
amount equal to the contingent deferred sales charge deducted, if any. (See
"Policy Rights and Privileges--Surrender and Partial Withdrawals.") Surrenders
and partial withdrawals may have federal income tax consequences. (See
"Federal Tax Matters.")
Right to Examine Policy. The Owner has a limited right to return a Policy
for cancellation within 20 days after the delivery of the Policy to the Owner,
within 45 days after the Owner signs the application, or within 10 days after
the Company mails a notice of this cancellation right to the Owner. If a
Policy is cancelled within this time period, a refund will be paid which will
equal all premiums paid under the Policy. The Owner also has a right to cancel
a requested increase in Face Amount. Upon cancellation of an increase, the
Owner may request that the Company refund the amount of the additional charges
deducted in connection with the increase, or have the amount of the additional
charges added to the Cash Value. (See "Policy Rights and Privileges--Right to
Examine Policy.")
Eligibility Change Conversion. In the event that the Owner is no longer
eligible under the Group Contract, either because the Owner leaves the group
or otherwise fails to satisfy the eligibility requirements set forth in a
particular Group Contract or because the Contract terminates, the Individual
Insurance provided by the Policy issued in connection with the Group Contract
will continue unless the Policy is cancelled or surrendered by the Owner or
there is insufficient Cash Surrender Value to prevent the Policy from lapsing.
The Certificate issued in connection with the Group Contract will be amended
automatically to continue in force as an Individual Policy. The Individual
Policy will provide benefits which are identical to those provided under the
Certificate. (See "Policy Right and Privileges--Eligibility Change
Conversion.")
Conversion Right to a Fixed Benefit Policy. During the first 24 Policy
Months following a Policy's Issue Date, the Owner may convert the Policy to a
life insurance policy that provides for benefits that do not vary with the
investment return of the Divisions of the Separate Account. The Owner also has
a similar right with respect to requested increases in the Face Amount. (See
"Policy Rights and Privileges--Conversion Right to a Fixed Benefit Policy.")
Exercising Rights and Privileges Under the Policies. Owners may exercise
their rights and privileges under the Policies (i.e., make transfers, change
premium allocations, borrow, etc.) by notifying the Company in writing at its
Home Office. Likewise, the Company will send all reports and other notices
described herein or in the Policy directly to the Owner. (See "Policy Rights
and Privileges--Exercising Rights and Privileges Under the Policies.")
Illustrations of Death Benefits and Cash Surrender Values. Illustrations on
pages A-2 to A-13 in Appendix A show how death benefits and Cash Surrender
Values may vary based on certain hypothetical rate of return assumptions.
These illustrations also show how these benefits compare with amounts which
would accumulate if premiums were invested to earn interest (after taxes) at
5% compounded annually. If a Policy is surrendered in the early Policy Years,
the Cash Surrender Value payable will be low as compared with premiums
accumulated with interest, and consequently the insurance protection provided
prior to surrender will be costly.
Tax Consequences of the Policy. While guidance is limited, the Company
believes that the Policy should be treated as a life insurance contract for
Federal income tax purposes. Assuming that a Policy qualifies as a life
insurance contract for Federal income tax purposes, a Policy owner should not
be deemed to be in constructive receipt of Cash Surrender Value under a Policy
until there is a distribution from the Policy. Moreover, death benefits
payable under a Policy should be completely excludable from the gross income
of the Beneficiary. As a result, the Beneficiary generally should not be taxed
on these proceeds.
Under certain circumstances, a Policy may be treated as a "modified
endowment contract." If the Policy is a modified endowment contract, then all
pre-death distributions, including Policy loans, will be treated
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first as a distribution of taxable income and then as a return of basis or
investment in the contract. In addition, prior to age 59 1/2 any such
distributions generally will be subject to a 10% penalty tax.
If the Policy is not a modified endowment contract, distributions generally
will be treated first as a return of basis or investment in the contract and
then as disbursing taxable income. Loans will not be treated as distributions.
Neither distributions nor loans from a Policy that is not a modified endowment
contract are subject to the 10% penalty tax. (See "Federal Tax Matters.")
Specialized Uses of the Policy. Because the Policy provides for an
accumulation of Cash Value as well as a death benefit, the Policy can be used
for various individual and business financial planning purposes. Purchasing
the Policy in part for such purposes entails certain risks. For example, if
the investment performance of Divisions to which Cash Value is allocated is
poorer than expected or if sufficient premiums are not paid, the Policy may
lapse or may not accumulate sufficient Cash Value to fund the purpose for
which the Policy was purchased. Partial withdrawals and Policy loans may
significantly affect current and future Cash Value, Cash Surrender Value, or
death benefit proceeds. Depending upon Division investment performance and the
amount of a Policy loan, the loan may cause a Policy to lapse. Because the
Policy is designed to provide benefits on a long-term basis, before purchasing
a Policy for a specialized purpose a purchaser should consider whether the
long-term nature of the Policy is consistent with the purpose for which it is
being considered. Using a Policy for a specialized purpose may have tax
consequences. (See "Federal Tax Matters.")
THE COMPANY AND THE SEPARATE ACCOUNT
THE COMPANY
Paragon Life Insurance Company (the "Company") is a stock life insurance
company incorporated under the laws of Missouri. The Company was organized in
1981 as General American Insurance Company and on December 31, 1987, its name
was changed. No change in operations or ownership took place in connection
with the name change. The Company is principally engaged in writing individual
and group life insurance policies and annuity contracts. As of December 31,
1997, it had assets in excess of $240 million. The Company is admitted to do
business in 49 states and the District of Columbia. The principal offices of
the Company are at 100 South Brentwood, St. Louis, Missouri 63105 ("Home
Office").
The Company is a wholly-owned subsidiary of General American Life Insurance
Company (the "Parent Company"), a Missouri life insurance company. The Parent
Company is wholly owned by GenAmerica Corporation, a Missouri general business
corporation, which is wholly owned by General American Mutual Holding Company,
a Missouri mutual insurance holding company. The Parent Company has agreed
that until March 23, 1999, it will maintain capital and surplus within the
Company sufficient to satisfy the capital requirements of the states in which
the Company is authorized to do business.
In addition, the Parent Company agrees to guarantee that the Company will
have sufficient funds to meet all of its contractual obligations. In the event
a policyholder presents a legitimate claim for payment on a Paragon insurance
policy, the Parent Company will pay such claim directly to the policyholder if
Paragon is unable to make such payment. This guarantee, which does not have a
predetermined termination date, can be modified or ended only as to policies
not yet issued. The guarantee agreement is binding on the Parent Company, its
successor or assignee and shall cease only if the guarantee is assigned to an
organization having a financial rating from Standard & Poor's equal to or
better than the Parent Company's rating. The Parent Company does not intend
this guarantee to be a guarantee with regard to the investment experience or
cash values of the Policy.
The Company may from time to time publish in advertisements, sales
literature, and reports to Owners or Contractholders, the ratings and other
information assigned to it by one or more independent rating organizations
such as A. M. Best Company, Standard & Poor's Corporation, and Duff & Phelps.
The purpose of the ratings is to reflect the financial strength and/or claims
paying ability of the Company and should not be considered as bearing on the
investment performance of assets held in the Separate Account. Each year the
A. M. Best
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Company reviews the financial status of thousands of insurers, culminating in
the assignment of Best's ratings. These ratings reflect Best's current opinion
of the relative financial strength and operating performance of an insurance
company in comparison to the norms of the life/health insurance industry. In
addition, the claims paying ability of the Company as measured by Standard &
Poor's Insurance Ratings Services or Duff & Phelps may be referred to in
advertisements or sales literature or in reports to Owners or Contractholders.
These ratings are opinions of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. These ratings do not reflect the investment performance of the
Separate Account or the degree of risk associated with an investment in the
Separate Account.
The Company also may include in advertisements and other literature certain
rankings assigned to the Company by the National Association of Insurance
Commissioners ("NAIC"), and the Company's analyses of statistical information
produced by the NAIC. These rankings and analyses of statistical information
may describe, among other things, the Company's growth, premium income,
investment income, capital gains and losses, policy reserves, policy claims,
and life insurance in force. The Company's use of such rankings and
statistical information is not an endorsement by the NAIC.
Advertisements and literature prepared by the Company also may include
discussions of taxable and tax-deferred investment programs (including
comparisons based on selected tax brackets), alternative investment vehicles,
and general economic conditions.
THE SEPARATE ACCOUNT
Separate Account A (the "Separate Account") was established by the Company
as a separate investment account on October 30, 1987 under Missouri law. The
Separate Account receives and invests the net premiums paid under the
Policies. In addition, the Separate Account may receive and invest net
premiums for other flexible premium variable life insurance policies that
might be issued by the Company.
The Separate Account currently is divided into ten Divisions. Each Division
invests exclusively in shares of a single fund of American Variable Insurance
Series. Income and both realized and unrealized gains or losses from the
assets of each Division of the Separate Account are credited to or charged
against that Division without regard to income, gains, or losses from any
other Division of the Separate Account or arising out of any other business
the Company may conduct.
Although the assets of the Separate Account are the property of the Company,
the assets in the Separate Account equal to the reserves and other liabilities
of the Separate Account are not chargeable with liabilities arising out of any
other business which the Company may conduct. The assets of the Separate
Account are available to cover the general liabilities of the Company only to
the extent that the Separate Account's assets exceed its liabilities arising
under the Policies. From time to time, these excess assets may be transferred
out of the Separate Account and included in the Company's general assets.
Before making any such transfers, the Company will consider any possible
adverse impact the transfer may have on the Separate Account.
The Separate Account has been registered with the Securities and Exchange
Commission ("SEC" or "Commission") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act") and meets the definition of a
"separate account" under federal securities laws. Registration with the SEC
does not involve supervision of the management or investment practices or
policies of the Separate Account or the Company by the Commission.
AMERICAN VARIABLE INSURANCE SERIES
The Separate Account invests in shares of American Variable Insurance Series
(the "American Series"), a series-type mutual fund registered with the SEC as
an open-end, diversified management investment company. Only the Funds
described in this section of the prospectus are currently available as
investment choices of the Policies even though additional Funds may be
described in the prospectus for the American Series. The assets of
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each Fund are held separate from the assets of the other Funds, and each Fund
has investment objectives and policies which are different from those of the
other Funds. Thus, each Fund operates as a separate investment vehicle, and
the income or losses of one Fund generally have no effect on the investment
performance of any other Fund.
The investment objectives and policies of each Fund are summarized below:
The Cash Management Fund seeks high current yield while preserving capital
by investing in a diversified selection of money-market instruments including:
corporate bonds and notes; commercial bank and savings association
obligations; securities of the U.S. Government, its agencies and
instrumentalities; and commercial paper. These securities mature in one year
or less. The Cash Management Fund also may enter into repurchase agreements.
The High-Yield Bond Fund seeks high current income and secondarily seeks
capital appreciation by investing primarily in intermediate and Long-term
corporate obligations, with emphasis on higher yielding, higher risk, lower
rated or unrated securities. In addition to other risks, high-yield, high-risk
bonds (also known as "junk bonds") are subject to greater fluctuations in
value and risk of loss of income and principal due to default by the Issuer
than are investments in lower yielding, higher rated bonds.
The Growth-Income Fund seeks growth of capital and income. In the selection
of securities for investment, the possibilities of appreciation and potential
dividends are given more weight than current yield. Ordinarily, the assets of
the Growth-Income Fund consist principally of a diversified group of common
stocks, but may invest in other types of securities including other equity-
type securities (such as preferred stocks and corporate bonds), bonds (and
other types of fixed income securities), and money market-instruments
consistent with its investment objective.
The Growth Fund seeks growth of capital. By investing primarily in common
stocks or securities with common stock characteristics such as Convertible
Preferred Stocks, which demonstrate the potential for appreciation. When the
outlook for common stocks is not considered promising, for temporary defensive
purposes a substantial portion of the assets may be invested in securities of
the U.S. Government, its agencies and instrumentalities, cash and money market
instruments in any combination.
The Asset Allocation Fund seeks high total return (including income and
capital gains) and preservation of capital over the long-term through a
diversified portfolio that can include common stocks and other equity-type
securities, bonds and other intermediate and long-term fixed-income securities
and money market instruments in any combination.
The International Fund seeks long-term growth of capital by investing
primarily in common stocks or securities with common stock characteristics of
issuers domiciled outside the United States. A major premise of the Fund's
investment approach is the belief that economic and political developments
have helped create new opportunities outside the U.S. In addition to investing
directly in equity securities, the Fund may invest in American Depository
Receipts and European Depository Receipts. When prevailing market, economic,
political or currency conditions warrant, the Fund may purchase fixed-income
securities of issuers domiciled outside the U.S. Under normal circumstances,
the Fund will invest at least 65% of its assets in equity securities of
issuers domiciled outside the U.S.
The Bond Fund seeks to provide as high a level of current income as is
consistent with the preservation of capital by investing primarily in fixed-
income securities. The fund invests in a broad variety of fixed-income
securities, including marketable corporate debt securities, loan
participations, U.S. Government securities, mortgage-related securities, other
asset-backed securities, and cash or money market instruments.
The Global Growth Fund seeks long-term growth of capital by investing
primarily in common stocks or securities of issuers domiciled around the
world. Under normal market conditions, the fund will invest primarily
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in common stocks, but may also invest in securities through depositary
receipts, both of which may be denominated in various currencies. When
prevailing market, economic, political or currency conditions warrant, the
fund may invest in other securities such as preferred stock, debt securities,
and securities convertible into common stock. Under normal market conditions,
the fund will invest in issuers domiciled in at least three countries, with no
more than 40% of its assets in any one country.
The U.S. Government/AAA-Rated Securities Fund (the "Government/AAA Fund")
seeks a high level of income consistent with prudent investment risk and
preservation of capital. It seeks to achieve its objective by investing
primarily in a combination of (i) securities guaranteed by the U.S. Government
(backed by the full faith and credit of the U.S.), and (ii) other debt
securities (including corporate bonds) rated AAA by Standard and Poor's
Corporation or Aaa by Moody's Investors Service, Inc. (or that have not
received a rating but are determined to be of comparable quality by the
investment adviser, Capital Research and Management Company). Except when the
Government/AAA Fund is in a temporary defensive investment position, at least
65% of assets will be invested in such securities, including those held
subject to repurchase agreements.
The Global Small Capitalization Fund seeks long-term growth of capital by
investing primarily in equity securities of issuers domiciled around the world
with relatively small market capitalizations (share price times the number of
equity securities outstanding).
There is no assurance that any of the Funds will achieve its stated
objective. More detailed information, including a description of risks, is in
the prospectus for American Series, which must accompany or precede this
Prospectus and which should be read carefully.
Capital Research and Management Company ("Capital") provides investment
advisory services to American Series in accordance with the terms of the
current prospectus for the American Series. For its advisory services to the
Funds, American Series pays Capital an investment advisory fee as part of
their expenses. See the American Series prospectus for details regarding these
fees.
American Series is registered with the SEC as an open-end diversified
management company. Registration with the SEC does not involve supervision of
the management or investment practices or policies of American Series by the
Commission.
Resolving Material Conflicts. All of the Funds of American Series are also
available to registered separate accounts of other insurance companies
offering variable annuity and variable life insurance products. As a result,
there is a possibility that a material conflict may arise between the
interests of Owners of Policies and of owners of policies whose cash values
are allocated to other separate accounts investing in the Funds. In the event
a material conflict arises, the Company will take any necessary steps,
including removing the assets of the Separate Account from one or more of the
Funds, to resolve the matter. See the American Series prospectus for further
details.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to compliance with applicable law,
to make additions to, deletions from, or substitutions for the shares that are
held by the Separate Account or that the Separate Account may purchase. The
Company reserves the right to eliminate the shares of any of the Funds of
American Series and to substitute shares of another Fund of American Series or
of another registered open-end investment company, if the shares of a Fund are
no longer available for investment, or if in the Company's judgment further
investment in any Fund becomes inappropriate in view of the purposes of the
Separate Account. The Company will not substitute any shares attributable to
an Owner's interest in a Division of the Separate Account without notice to
the Owner and prior approval of the SEC, to the extent required by the 1940
Act or other applicable law. Nothing contained in this Prospectus shall
prevent the Separate Account from purchasing other securities for other series
or classes of policies, or from permitting a conversion between series or
classes of policies on the basis of requests made by Owners.
The Company also reserves the right to establish additional Divisions of the
Separate Account, each of which would invest in a new Fund of American Series,
or in shares of another investment company, with a specified investment
objective. New Divisions may be established when, in the sole discretion of
the Company,
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marketing needs or investment conditions warrant, and any new Division will be
made available to existing Owners on a basis to be determined by the Company.
To the extent approved by the SEC, the Company may also eliminate or combine
one or more Divisions, substitute one Division for another Division, or
transfer assets between Divisions if, in its sole discretion, marketing, tax,
or investment conditions warrant.
In the event of a substitution or change, the Company may, if it considers
it necessary, make such changes in the Policy by appropriate endorsement. The
Company will notify all Owners of any such changes.
If deemed by the Company to be in the best interests of persons having
voting rights under the Policy, and to the extent any necessary SEC approvals
or Owner votes are obtained, the Separate Account may be: (a) operated as a
management company under the 1940 Act; (b) deregistered under that Act in the
event such registration is no longer required; or (c) combined with other
separate accounts of the Company. To the extent permitted by applicable law,
the Company may also transfer the assets of the Separate Account associated
with the Policy to another separate account.
The Company cannot guarantee that the shares of American Series will always
be available. American Series sells its shares to the Separate Account in
accordance with the terms of a participation agreement between American Series
and the Company. Should this agreement terminate or should shares become
unavailable for any other reason, the Separate Account will not be able to
purchase American Series shares. Should this occur, the Company will be unable
to honor Owner requests to allocate their cash values or premium payments to
the Divisions of the Separate Account investing in shares of the American
Series. In the event that the American Series is no longer available, the
Company will, of course, take reasonable steps to obtain alternative
investment options.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
A Group Contract will be issued upon receipt of an application for the Group
Contract signed by a duly authorized officer of the entity wishing to enter
into a Group Contract and acceptance by a duly authorized officer of the
Company at its Home Office. (See "General Provisions of the Group Contract--
Issuance," page 33.) Individuals wishing to purchase a Policy issued under a
Group Contract must complete the appropriate application for Individual
Insurance and submit it to the Company's Home Office. An individual must be
eligible to be a member of the group covered by a Group Contract in order to
purchase a Policy under that Group Contract. The eligibility requirements for
a particular group are set forth in the Group Contract's specifications pages.
The Company will issue to each Contractholder a Certificate to give to each
Owner.
A Policy generally will be issued only to Insureds of Issue Ages 17 through
70 who supply evidence of insurability satisfactory to the Company. The
Company may, at its sole discretion, issue Policies to individuals falling
outside those Issue Ages or decline to issue Policies to individuals within
those Issue Ages.
An individual satisfying the group eligibility requirements under a
particular Group Contract may be required to submit to a simplified
underwriting procedure which requires satisfactory responses to certain health
questions in the application. Acceptance of an application is subject to the
Company's underwriting rules, and the Company reserves the right to reject an
application for any reason.
The Issue Date is the effective date for all coverage provided in the
original application for Individual Insurance. The Issue Date is used to
determine Policy Anniversaries, Policy Years, and Policy Months. A Policy will
not take effect until the appropriate application for Individual Insurance is
signed, the initial premium has been paid prior to the Insured's death, the
Insured is eligible for it, and the information in the application is
determined to be acceptable to the Company.
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PREMIUMS
The initial premium is due on the Issue Date, and may be remitted by the
Contractholder on behalf of the Owner. The Company requires that the initial
premium for a Policy be at least equal to one-twelfth ( 1/12) of the planned
annual premium for the Policy set forth in the specifications pages. The
planned annual premium is an amount specified for each Policy based on the
requested initial Face Amount, the Issue Age of the Insured and the charges
under the Policy. (See "Charges and Deductions.") However, the Owner is not
required to pay premiums equal to the planned annual premium.
Premiums remitted by a Contractholder or designated payor shall be applied
to a Policy when received by the Company. Should supporting documentation to
enable the determination of the amount of premium per Policy not be received
prior to or coincident with the cash premium, the premiums shall be promptly
returned to the entity remitting such premiums.
Following the initial premium, subject to the limitations described below,
premiums may be paid in any amount and at any interval. The planned annual
premium may be remitted by the Contractholder on behalf of the Owner pursuant
to a planned premium payment schedule which will provide for premium payments
in a level amount at fixed intervals agreed to by the Contractholder and the
Company (usually monthly). The amount of the premiums remitted by the
Contractholder will be that amount authorized by the Owner. Some
Contractholders may offer cash management or financial service accounts where
amounts may be held in a money market mutual fund. If the Owner has such an
account, subject to the Contractholder's approval, planned premium payments
may be paid from such account. If the Owner elects to make planned premium
payments from such an account, these will be deducted automatically from the
account by the Contractholder and paid to the Company. To participate in such
an account and to make payments from such accounts, the Owner must satisfy any
criteria established by the Contractholder for such accounts. In addition, if
the Group Contract terminates, the Owner will no longer be able to make
planned premium payments in this manner. However, the Policy will continue on
an individual basis unless cancelled or surrendered by the Owner. (See
"General Provisions of the Group Contract--Termination.")
Under the Policy, the Owner may skip planned premium payments. Failure to
pay one or more planned premium payments will not cause the Policy to lapse
until such time as the Cash Surrender Value is insufficient to cover the next
Monthly Deduction. (See "Payment and Allocation of Premiums--Policy Lapse and
Reinstatement.")
In addition to any planned payments made, an Owner may make unscheduled
premium payments at any time in any amount, subject to the minimum and maximum
premium limitations described below. The payment of an unscheduled premium
payment may have Federal income tax consequences. (See "Federal Tax Matters.")
Unscheduled premium payments may not be made from a cash management or
financial services account, if available. Moreover, as mentioned above, an
Owner may also skip planned premium payments. Therefore, unlike conventional
insurance policies, a Policy does not obligate the Owner to pay premiums in
accordance with a rigid and inflexible premium schedule.
Failure of the Contractholder to remit the authorized planned premium
payments may cause the Group Contract to terminate. (See "General Provisions
of the Group Contract--Termination.") Nonetheless, provided that there is
sufficient Cash Surrender Value to prevent the Policy from lapsing, the
Individual Insurance provided will automatically continue in the event of such
termination. (See "Policy Rights and Privileges--Eligibility Change
Conversion.") Individual Insurance will also continue if the Owner's
eligibility under the Group Contract terminates because the Owner is no longer
a part of the group or otherwise fails to satisfy the eligibility requirements
set forth in the Group Contract. In either circumstance, an Owner of an
Individual Policy (or a Certificate converted by amendment to an Individual
Policy) will establish a new schedule of planned premiums which will have the
same planned annual premium, but ordinarily the payment intervals will be no
more frequent than quarterly.
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Premium Limitations. Every premium payment remitted by or on behalf of an
Owner must be at least $20. In no event may the total of all premiums paid
under a Policy in any Policy Year exceed the current maximum premium
limitations for that year established by Federal tax laws. The maximum premium
limitation for a Policy Year is the most premium that can be paid in that
Policy Year such that the sum of the premiums paid under the Policy will not
at any time exceed the premium limitation referred to in section 7702(c) of
the Internal Revenue Code of 1986, or any successor provision. If at any time
a premium is paid which would result in total premiums exceeding the current
maximum premium limitation, the Company will accept only that portion of the
premium which will make total premiums equal the maximum. Any part of the
premium in excess of that amount will be returned to the Owner within 60 days
of the end of the Policy Year in which the payment is received or applied as
otherwise agreed and no further premiums will be accepted until allowed by the
current maximum premium limitations prescribed by Federal tax law. See
"Federal Tax Matters", for further explanation of premium limitations. Section
7702A creates an additional premium limitation, which, if exceeded, can change
the tax status of a Policy to that of a "modified endowment contract." A
modified endowment contract is a life insurance contract, withdrawals from
which are, for tax purposes, treated first as a distribution of any taxable
income under the contract, and then as a distribution of nontaxable investment
in the contract. Additionally, such withdrawals may be subject to a 10%
federal income tax penalty. The Company has adopted administrative steps
designed to notify an Owner when it is believed that a premium payment will
cause a Policy to become a modified endowment contract. The Owner will be
given a limited amount of time to request that the premium be reversed in
order to avoid the Policy's being classified as a modified endowment contract.
(See "Federal Tax Matters.")
ALLOCATION OF NET PREMIUMS AND CASH VALUE
Net Premiums. The net premium equals the premium paid less the premium
expense charge less any charge to compensate the Company for anticipated
higher corporate income taxes resulting from the sale of a Policy less the
premium tax charge. (See "Charges and Deductions--Sales Charges.")
Allocation of Net Premiums. In the application for a Policy, the Owner
indicates how net premiums are to be allocated among the Divisions of the
Separate Account. The initial premium payment will be allocated in accordance
with the Owner's instructions on the later of the day received by the Company
at its Home
Office or the Issue Date of the Policy. All subsequent premiums, irrespective
of whether payments are made through a cash management or financial services
account, will be allocated in accordance with the Owner's instructions upon
receipt of the premiums at the Company's Home Office. However, the minimum
percentage, other than zero ("0"), that may be allocated to a Division is 10
percent of the net premium, and fractional percentages may not be used.
The allocation for future net premiums may be changed without charge at any
time by providing notice in writing directly to the Company. Any change in
allocation will take effect immediately upon receipt by the Company of the
written notification. No charge is imposed for changing the allocations of
future net premiums.
The Policy's Cash Value also may be transferred between the Divisions of the
Separate Account. (See "Policy Rights and Privileges--Transfers.")
The value of amounts allocated to Divisions of the Separate Account will
vary with the investment performance of the chosen Divisions and the Owner
bears the entire investment risk. This will affect the Policy's Cash Value,
and may affect the death benefit as well. Owners should periodically review
their allocations of premiums and values in light of market conditions and
overall financial planning requirements.
POLICY LAPSE AND REINSTATEMENT
Lapse. Unlike conventional life insurance policies, the failure to make a
premium payment following the initial premium will not itself cause a Policy
to lapse. Lapse will occur only when the Cash Surrender Value is insufficient
to cover the monthly deduction, and a grace period expires without a
sufficient payment being made. (See also "General Provisions of the Group
Contract--Grace Period--Termination.")
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The grace period, which is 62 days, begins on the Monthly Anniversary on
which the Cash Surrender Value becomes insufficient to meet the next monthly
deduction. The Company will notify the Owner at the beginning of the grace
period by mail addressed to the last known address on file with the Company.
The notice will specify the amount of premium required to keep the Policy in
force and the date the payment is due. Subject to minimum premium
requirements, the amount of the premium required to keep the Policy in force
will be the amount of the current monthly deduction, premium expense charge,
and premium tax charge. (See "Charges and Deductions.") If the Company does
not receive the required amount within the grace period, the Policy will lapse
and terminate without Cash Value. If the Insured dies during the grace period,
any overdue monthly deductions will be deducted from the death benefit
otherwise payable.
Reinstatement. The Owner may reinstate a lapsed Policy by written
application any time within five years after the date of lapse and before the
Maturity Date. The right to reinstate a lapsed Policy will not be affected by
the termination of a Group Contract or the termination of an Owner's
eligibility under the Group Contract during the reinstatement period.
Reinstatement is subject to the following conditions:
1. Evidence of the insurability of the Insured satisfactory to the
Company.
2. Payment of a premium that, after the deduction of premium expense
charges, is large enough to cover: (a) the monthly deductions due at the
time of lapse, and (b) two times the monthly deduction due at the time of
reinstatement.
3. Payment or reinstatement of any Indebtedness. Any Indebtedness
reinstated will cause a Cash Value of an equal amount also to be
reinstated. Any loan paid at the time of reinstatement will cause an
increase in Cash Value equal to the amount of the repaid loan.
4. The Policy cannot be reinstated if it has been surrendered.
The amount of Cash Value on the date of reinstatement will be equal to the
amount of any Indebtedness reinstated, increased by the net premiums paid at
reinstatement and any loans paid at the time of reinstatement.
The effective date of reinstatement will be the date of approval by the
Company of the application for reinstatement. There will be a full monthly
deduction for the Policy Month that includes that date.
POLICY BENEFITS
DEATH BENEFIT
As long as the Policy remains in force, the Company will, upon proof of the
Insured's death, pay the death benefit proceeds of a Policy in accordance with
the death benefit option in effect at the time of the Insured's death. Payment
of death benefit proceeds will not be affected by termination of the Group
Contract or by termination of an Owner's eligibility after issue.
If a rider permitting the accelerated payment of death benefit proceeds has
been added to the Policy, the death benefit may be paid in a single sum prior
to the death of the Insured and may be less than otherwise would be paid upon
the death of the Insured. (See "Payment of Policy Benefits.")
The amount of the death benefit proceeds payable will be determined at the
end of the Valuation Period during which the Insured's death occurred. The
proceeds may be paid in a single sum or under one or more of the settlement
options set forth in the Policy. (See "Policy Rights and Privileges--Payment
of Policy Benefits.") Death benefit proceeds will be paid to the surviving
Beneficiary or Beneficiaries specified in the application or as subsequently
changed.
The Policy provides two death benefit options: a "Level Type" death benefit
("Option A") and an "Increasing Type" death benefit ("Option B"). Option B
generally will be the only option presented. The death benefit under either
option will never be less than the current Face Amount of the Policy as long
as the Policy remains in force. (See "Payment and Allocation of Premiums--
Policy Lapse and Reinstatement.") The minimum Face Amount currently is
$25,000.
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Option A. Under Option A, the death benefit is the current Face Amount of
the Policy or, if greater, the applicable percentage of Cash Value on the date
of death. The applicable percentage is 250 percent for an Insured Attained Age
40 or below on the Policy Anniversary prior to the date of death. For Insureds
with an Attained Age over 40 on that Policy Anniversary, the percentage is
lower and declines with age as shown in the Applicable Percentage Table on
page 16. Accordingly, under Option A the death benefit will remain level at
the Face Amount unless the applicable percentage of Cash Value exceeds the
current Face Amount, in
which case the amount of the death benefit will vary as the Cash Value varies.
Owners who prefer to have favorable investment performance reflected in higher
Cash Value for the same Face Amount, rather than increased death benefit,
generally should select Option A.
Option A Example. For purposes of this example, assume that the Insured's
Attained Age is between 0 and 40 and that there is no outstanding
Indebtedness. Under Option A, a Policy with a $50,000 Face Amount will
generally pay $50,000 in death benefits. However, because the death benefit
must be equal to or greater than 250 percent of Cash Value, any time the Cash
Value of the Policy exceeds $20,000, the death benefit will exceed the $50,000
Face Amount. Each additional dollar added to Cash Value above $20,000 will
increase the death benefit by $2.50. Thus, if the Cash Value exceeds $20,000
and increases by $100 because of investment performance or premium payments,
the death benefit will increase by $250. A Policy with a Cash Value of $30,000
will provide a death benefit of $75,000 ($30,000 x 250%); a Cash Value of
$40,000 will provide a death benefit of $100,000 ($40,000 x 250%); a Cash
Value of $50,000 will provide a death benefit of $125,000 ($50,000 x 250%).
Similarly, so long as Cash Value exceeds $20,000, each dollar taken out of
Cash Value will reduce the death benefit by $2.50. If, for example, the Cash
Value is reduced from $25,000 to $20,000 because of partial withdrawals,
charges, or negative investment performance, the death benefit will be reduced
from $62,500 to $50,000. If at any time, however, the Cash Value multiplied by
the applicable percentage is less than the Face Amount, the death benefit will
equal the current Face Amount of the Policy.
The applicable percentage becomes lower as the Insured's Attained Age
increases. If the Attained Age of the Insured in the example above were, for
example, 50 (rather than between 0 and 40), the applicable
percentage would be 185 percent. The death benefit would not exceed the
$50,000 Face Amount unless the Cash Value exceeded approximately $27,028
(rather than $20,000), and each dollar then added to or taken from the Cash
Value would change the death benefit by $1.85 (rather than $2.50).
APPLICABLE PERCENTAGE TABLE
<TABLE>
<CAPTION>
APPLICABLE
ATTAINED AGE PERCENTAGE
- ------------ ----------
<S> <C>
40 or younger........... 250%
41...................... 243
42...................... 236
43...................... 229
44...................... 222
45...................... 215
46...................... 209
47...................... 203
48...................... 197
49...................... 191
50...................... 185
51...................... 178
52...................... 171
53...................... 164
54...................... 157
55...................... 150
56...................... 146
57...................... 142
58...................... 138
59...................... 134
60...................... 130
</TABLE>
<TABLE>
<CAPTION>
APPLICABLE
ATTAINED AGE PERCENTAGE
------------- ----------
<S> <C>
61........................ 128%
62........................ 126
63........................ 124
64........................ 122
65........................ 120
66........................ 119
67........................ 118
68........................ 117
69........................ 116
70........................ 115
71........................ 113
72........................ 111
73........................ 109
74........................ 107
75 to 90.................. 105
91........................ 104
92........................ 103
93........................ 102
94........................ 101
95 or older............... 100
</TABLE>
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<PAGE>
The applicable percentages in the foregoing table are based on Federal tax
law requirements described in Section 7702(d) of the Code. The Company
reserves the right to alter the applicable percentage to the extent necessary
to comply with changes to Section 7702(d) or any successor provision thereto.
Option B. Under Option B, the death benefit is equal to the current Face
Amount plus the Cash Value of the Policy or, if greater, the applicable
percentage of the Cash Value on the date of death. The applicable percentage
is the same as under Option A: 250 percent for an Insured with an Attained Age
of 40 or below on the Policy Anniversary prior to the date of death, and for
Insureds with an Attained Age over 40 on that Policy Anniversary the
percentage declines as shown in the Applicable Percentage Table above.
Accordingly, under Option B the amount of the death benefit will always vary
as the Cash Value varies (but will never be less than the Face Amount). Owners
who prefer to have favorable investment performance reflected in higher death
benefits for the same Face Amount generally should select Option B. All other
factors equal, for the same premium dollar, Option B provides lower initial
Face Amount resulting in earlier cash accumulation.
Option B Example. For purposes of this example, assume that the Insured's
Attained Age is 40 or below and that there is no outstanding Indebtedness.
Under Option B, a Policy with a Face Amount of $50,000 will generally provide
a death benefit of $50,000 plus Cash Value. Thus, for example, a Policy with a
Cash Value of $5,000 will have a death benefit of $55,000 ($50,000 + $5,000);
a Cash Value of $10,000 will provide a death benefit of $60,000 ($50,000 +
$10,000). The death benefit, however, must be at least 250 percent of Cash
Value. As a result, if the Cash Value of the Policy exceeds $33,333, the death
benefit will be greater than the Face Amount plus Cash Value. Each additional
dollar of Cash Value above $33,333 will increase the death benefit by $2.50.
Thus, if the Cash Value exceeds $33,333 and increases by $100 because of
investment performance or premium payments, the death benefit will increase by
$250. A Policy with a Cash Value of $40,000 will provide a death benefit of
$100,000 ($40,000 x 250%); a Cash Value of $50,000 will provide a death
benefit of $125,000 ($50,000 x 250%).
Similarly, any time Cash Value exceeds $33,333, each dollar taken out of
Cash Value will reduce the death benefit by $2.50. If, for example, the Cash
Value is reduced from $45,000 to $40,000 because of partial withdrawals,
charges, or negative investment performance, the death benefit will be reduced
from $112,500 to $100,000. If at any time, however, Cash Value multiplied by
the applicable percentage is less than the Face Amount plus the Cash Value,
then the death benefit will be the current Face Amount plus Cash Value of the
Policy.
The applicable percentage becomes lower as the Insured's Attained Age
increases. If the Attained Age of the Insured in the example above were, for
example, 50 (rather than under 40), the applicable percentage would be 185
percent. The amount of the death benefit would be the sum of the Cash Value
plus $50,000 unless the Cash Value exceeded $58,824 (rather than $33,333), and
each dollar then added to or taken from the Cash Value would change the death
benefit by $1.85 (rather than $2.50).
Change in Death Benefit Option. After the first Policy Anniversary, the
Owner may change the death benefit option in effect. The Company reserves the
right to limit the number of changes in death benefit options to one each
Policy Year. A request for change must be made directly to the Company in
writing. The effective date of such a change will be the Monthly Anniversary
on or following the date the Company receives the change request.
If the death benefit option is changed from Option A to Option B, the Face
Amount after the change will equal the Face Amount before the change less the
Cash Value on the effective date of the change. Satisfactory evidence of
insurability must be submitted directly to the Company in connection with a
request for a change from Option A to Option B. This change may not be made if
it would result in a Face Amount of less than $25,000.
If the death benefit option is changed from Option B to Option A, the Face
Amount after the change will equal the Face Amount before the change plus the
Cash Value on the effective date of change.
18
<PAGE>
A change in death benefit option will not in itself result in an immediate
change in the amount of a Policy's death benefit or Cash Value. No charges
will be imposed upon a change from death benefit Option B to Option A.
Changing from Option A to Option B, however, will result in a decrease in the
Face Amount which may, in turn, result in a contingent deferred sales charge.
This contingent deferred sales charge will be assessed on the decrease in Face
Amount in the same manner as it would be assessed on a requested decrease in
Face Amount, as discussed below. In addition, if, prior to or accompanying a
change in the death benefit option, there has been an increase in the Face
Amount, the cost of insurance charge may be different for the increased
amount. (See "Charges and Deductions--Monthly Deduction--Cost of Insurance.")
No change in death benefit option will be permitted that results in the
death benefit under a Policy being included in gross income due to not
satisfying the requirements of Federal tax law. (See "Federal Tax Matters.")
Change in Face Amount. Subject to certain limitations set forth below, an
Owner may increase or decrease the Face Amount of a Policy (without changing
the death benefit option) after the first Policy Anniversary. A written
request for a change in the Face Amount must be sent directly to the Company.
A change in Face Amount may affect the cost of insurance rate and the net
amount at risk, both of which affect an Owner's cost of insurance charge. (See
"Charges and Deductions--Monthly Deduction--Cost of Insurance.") In addition,
a change in Face Amount may have Federal income tax consequences. (See
"Federal Tax Matters.")
Any decrease in the Face Amount will become effective on the Monthly
Anniversary on or following receipt of the written request by the Company. The
amount of the requested decrease must be at least $5,000
and the Face Amount remaining in force after any requested decrease may not be
less than $25,000. If, following a decrease in Face Amount, the Policy would
not comply with the maximum premium limitations required by Federal tax law
(see "Payment and Allocation of Premiums," page 12), the decrease may be
limited or Cash Value may be returned to the Owner (at the Owner's election),
to the extent necessary to meet these requirements. A decrease in the Face
Amount will reduce the Face Amount in the following order:
(a) The Face Amount provided by the most recent increase;
(b) The next most recent increases successively; and
(c) The initial Face Amount.
This order of reduction will be used to determine the amount of subsequent
cost of insurance charges (see "Charges and Deductions--Monthly Deduction--
Cost of Insurance"), and whether and in what amount a contingent deferred
sales charge will be deducted. If the decrease in Face Amount is made against
coverage that has been in effect for less than ten years and if the Policy
provides for a contingent deferred sales charge, then such charge will be
assessed against all Divisions proportionately. (See "Charges and Deductions--
Sales Charges--Contingent Deferred Sales Charge.")
For an increase in the Face Amount, the Company requires that satisfactory
evidence of insurability be submitted. If approved, the increase will become
effective on the Monthly Anniversary on or following receipt of the
satisfactory evidence of insurability. In addition, the Insured must have an
Attained Age of not greater than 80 on the effective date of the increase. The
increase may not be less than $5,000. Although an increase need not
necessarily be accompanied by an additional premium (unless it is required to
meet the next monthly deduction), the Cash Surrender Value in effect
immediately after the increase must be sufficient to cover the next monthly
deduction. (See "Charges and Deductions--Monthly Deduction.") An increase in
the Face Amount may result in certain additional charges. (See "Charges and
Deductions.")
An increase in Face Amount may be cancelled within the later of 20 days from
the date the Owner received the new Policy specifications page for the
increase, within 10 days of mailing the right to cancellation notice to the
Owner, or within 45 days after the application for an increase was signed.
Upon cancellation, any additional charges, which would not have been assessed
without the increase, will be refunded to the Owner if requested. If a request
for a refund is not made, the charges will be restored to the Policy's Cash
Value and allocated to
19
<PAGE>
Divisions of the Separate Account in the same manner as they were deducted.
Any contingent deferred sales charge will also be reduced to the amount that
would have been in effect absent the increase. Premiums paid following an
increase in Face Amount and prior to the time the right to cancel the increase
expires will become part of the Policy's Cash Value and will not be subject to
refund. (See "Policy Rights and Privileges--Right to Examine Policy.")
Methods of Affecting Insurance Protection. An Owner may increase or decrease
the pure insurance protection provided by a Policy--the difference between the
death benefit and the Cash Value--in several ways as insurance needs change.
These ways include increasing or decreasing the Face Amount, changing the
level of premium payments, and, to a lesser extent, making partial withdrawals
from the Policy. Although the consequences of each of these methods will
depend upon the individual circumstances, they may be generally summarized as
follows:
(a) A decrease in the Face Amount will, subject to the applicable
percentage limitations (see "Policy Benefits--Death Benefit"), decrease the
pure insurance protection and the cost of insurance charges under the
Policy without reducing the Cash Value.
(b) An increase in the Face Amount may increase the amount of pure
insurance protection, depending on the amount of Cash Value and the
resultant applicable percentage limitation. If the insurance protection is
increased, the Policy charges generally will increase as well.
(c) An increased level of premium payments will reduce the pure insurance
protection if Option A is in effect. However, when the applicable
percentage of Cash Value exceeds either the Face Amount (if Option A is in
effect) or the Cash Value plus the Face Amount (if Option B is in effect),
increased premium payments will increase the pure insurance protection.
Increased premiums should also increase the amount of funds available to
keep the Policy in force.
(d) A reduced level of premium payments generally will increase the
amount of pure insurance protection, depending on the applicable percentage
limitations. If the reduced level of premium payments is insufficient to
cover monthly deductions or to offset negative investment performance, Cash
Value may also decrease, which in turn will increase the possibility that
the Policy will lapse. (See "Payment and Allocation of Premiums--Policy
Lapse and Reinstatement.")
(e) A partial withdrawal will reduce the death benefit. (See "Policy
Rights and Privileges--Surrender and Partial Withdrawals.") However, it
only affects the amount of pure insurance protection and cost of insurance
charges if the death benefit before or after the withdrawal is based on the
applicable percentage of Cash Value, because otherwise the decrease in the
death benefit is offset by the amount of Cash Value withdrawn. The primary
use of a partial withdrawal is to withdraw Cash Value.
Payment of Death Benefit Proceeds. Death benefit proceeds under the Policy
ordinarily will be paid within seven days after the Company receives all
documentation required for such a payment at its Home Office. Payment may,
however, be postponed in certain circumstances. (See "General Matters Relating
to the Policy--Postponement of Payments.") The Owner may decide the form in
which the proceeds will be paid. During the Insured's lifetime, the Owner may
arrange for the death benefit proceeds to be paid in a single sum or under one
or more of the optional methods of settlement described below. The death
benefit will be increased by the amount of the monthly cost of insurance for
the portion of the month from the date of death to the end of the month, and
reduced by any outstanding Indebtedness. (See "Charges and Deductions.")
When no election for an optional method of settlement is in force at the
death of the Insured, the Beneficiary may select one or more of the optional
methods of settlement at any time before death benefit proceeds are paid. (See
"Policy Rights and Privileges--Payment of Policy Benefits.")
An election or change of method of settlement must be in writing. A change
in Beneficiary revokes any previous settlement election. Once payments have
begun, the settlement option may not be changed.
20
<PAGE>
CASH VALUE
The Cash Value of the Policy is equal to the total of the Policy's Cash
Value in the Separate Account and the Loan Account. The Policy's Cash Value in
the Separate Account will reflect the investment performance of the chosen
Divisions of the Separate Account, the frequency and amount of net premiums
paid, transfers, partial withdrawals, Policy Loans, loan account interest rate
credited, and the charges assessed in connection with the Policy. An Owner may
at any time surrender the Policy and receive the Policy's Cash Surrender
Value. (See "Policy Rights and Privileges--Surrender and Partial
Withdrawals.") There is no guaranteed minimum Cash Value.
Determination of Cash Value. Cash Value is determined on a daily basis. On
the Investment Start Date, the Cash Value in a Division will equal the portion
of any net premium allocated to the Division, reduced by the portion of the
monthly deductions due from the Issue Date through the Investment Start Date
allocated to that Division. Depending upon the length of time between the
Issue Date and the Investment Start Date, this amount may be more than the
amount of one monthly deduction. (See "Payment and Allocation of Premiums.")
Thereafter, on each Valuation Date, the Cash Value in a Division of the
Separate Account will equal:
(1) The Cash Value in the Division on the preceding Valuation Date,
multiplied by the Division's Net Investment Factor (defined below) for
the current Valuation Period; plus
(2) Any net premium payments received during the current Valuation Period
which are allocated to the Division; plus
(3) Any loan repayments allocated to the Division during the current
Valuation Period; plus
(4) Any amounts transferred to the Division from another Division during
the current Valuation Period; plus
(5) That portion of the interest credited on outstanding Policy Loans which
is allocated to the Division during the current Valuation Period; minus
(6) Any amounts transferred from the Division during the current Valuation
Period plus transfer charges if any; minus
(7) Any partial withdrawals plus any partial withdrawal transaction charge,
from the Division during the current Valuation Period; minus
(8) Any contingent deferred sales charges incurred during the current
Valuation Period in connection with a partial withdrawal or decrease in
Face Amount allocated to the Division; minus
(9) If a Monthly Anniversary occurs during the current Valuation Period,
the portion of the monthly deduction allocated to the Division during
the current Valuation Period to cover the Policy Month which starts
during that Valuation Period. (See "Charges and Deductions.")
The Policy's Cash Value in the Separate Account equals the sum of the Policy's
Cash Values in each Division.
Net Investment Factor. The Net Investment Factor measures the investment
performance of a Division during a Valuation Period. The Net Investment Factor
for each Division for a Valuation Period is calculated as follows:
(1) The value of the assets at the end of the preceding Valuation Period;
plus
(2) The investment income and capital gains--realized or unrealized--
credited to the assets in the Valuation Period for which the Net
Investment Factor is being determined; minus
(3) The capital losses, realized or unrealized, charged against those
assets during the Valuation Period; minus
21
<PAGE>
(4) Any amount charged against each Division for taxes, or other economic
burden resulting from the application of tax laws, determined by the
Company to be properly attributable to the Divisions of the Separate
Account or the Policy or any amount set aside during the Valuation
Period as a reserve for taxes attributable to the operation or
maintenance of each Division; minus
(5) A charge not to exceed .0024547% of the net assets for each day in the
Valuation Period. This corresponds to 0.90% per year for mortality and
expense risks; divided by
(6) The value of the assets at the end of the preceding Valuation Period.
The Company may use an equivalent method to determine Cash Value in each
Division on each Valuation Date in lieu of the Net Investment Factor method.
This method directly determines the units of Cash Value in each Division and
the corresponding unit value. Unit value is obtained as follows:
(1) The value of assets in a Division are obtained by multiplying shares
outstanding by the net asset value as of the Valuation Date; minus
(2) A reduction based upon a charge not to exceed .0024547% of the net
assets for each day in the Valuation Period is made (This corresponds
to 0.90% per year for mortality and expense risk charge); divided by
(3) Aggregate units outstanding in the Division at the end of the preceding
Valuation Period.
Valuation Date and Valuation Period. A Valuation Date is each day that the
New York Stock Exchange is open for trading except for the day after
Thanksgiving, when the Company is closed. A Valuation Period is the period
between two successive Valuation Dates, commencing at the close of trading,
currently 4:00 p.m. (New York time) each Valuation Date and ending at the
close of trading, currently 4:00 p.m. on the next succeeding Valuation Date.
POLICY RIGHTS AND PRIVILEGES
EXERCISING RIGHTS AND PRIVILEGES UNDER THE POLICIES
Owners may exercise their rights and privileges under the Policies (i.e.,
make transfers, change premium allocations, borrow, etc.) by directly
notifying the Company in writing at its Home Office. The Company will send all
reports and other notices described herein or in the Policy directly to the
Owner.
LOANS
Loan Privileges. After the first Policy Anniversary, the Owner may, by
written request directly to the Company, borrow an amount up to the Loan Value
of the Policy, with the Policy serving as sole security for such loan. The
Loan Value is equal to (a) minus (b) minus (c), where (a) is 85 percent of the
Cash Value of the Policy on the date the Policy Loan is requested, (b) is the
amount of any outstanding Indebtedness, and (c) is any contingent deferred
sales charges. Loan interest is due and payable in arrears on each Policy
Anniversary or on a pro rata basis for such shorter period as the loan may
exist. The minimum amount that may be borrowed is $100. The loan may be
completely or partially repaid at any time while the Insured is living. Any
amount due to an Owner under a Policy Loan ordinarily will be paid within
seven days after the Company receives the loan request at its Home Office,
although payments may be postponed under certain circumstances. (See "General
Matters Relating to the Policy--Postponement of Payments.")
When a Policy Loan is made, Cash Value equal to the amount of the loan will
be transferred to the Loan Account as security for the loan. Unless the Owner
requests a different allocation, amounts will be transferred from the
Divisions of the Separate Account in the same proportion that the Policy's
Cash Value in each Division bears to the Policy's total Cash Value, less the
Cash Value in the Loan Account, at the end of the Valuation Period during
which the request for a Policy Loan is received. This will reduce the Policy's
Cash Value in the Separate Account. These transactions will not be considered
transfers for purposes of the limitations on transfers between Divisions.
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<PAGE>
Loan Account Interest Rate Credited. Cash Value transferred to the Loan
Account to secure a Policy Loan will accrue interest daily at an annual rate
not less than five percent. The rate is declared by action of Company
management as authorized by the Board of Directors of the Company. The Loan
Account interest credited will be transferred to the Divisions of the Separate
Account: (1) each Policy Anniversary; (2) when a new loan is made; (3) when a
loan is partially or fully repaid; and (4) when an amount is needed to meet a
monthly deduction.
Interest Rate Charged for Policy Loans. The interest rate charged will be at
an annual rate of eight percent. Interest charged will be due and payable
annually in arrears on each Policy Anniversary or for such shorter period as
the Policy Loan may exist. If the Owner does not pay the interest charged when
it is due, an amount of Cash Value equal to that which is due will be
transferred to the Loan Account. (See "Effect of Policy Loans," below.) The
amount transferred will be deducted from the Divisions of the Separate Account
in the same proportion that the portion of the Cash Value in each Division
bears to the total Cash Value of the Policy minus the Cash Value in the Loan
Account.
Effect of Policy Loans. A loan taken from, or secured by, a Group Contract
may have Federal income tax consequences (See "Federal Tax Matters.")
Whether or not a Policy Loan is repaid, it will permanently affect the Cash
Value of a Policy, and may permanently affect the amount of the death benefit,
even if the loan is repaid. This is because the collateral for the Policy Loan
(the amount held in the Loan Account) does not participate in the performance
of the Separate Account while the loan is outstanding. If the Loan Account
interest credited is less than the investment performance of the selected
Division, the Policy values will be lower as a result of the loan. Conversely,
if the Loan Account interest credited is higher than the investment
performance of the Division, the Policy values may be higher.
In addition, if the Indebtedness exceeds the Cash Value minus any contingent
deferred sales charges on any Monthly Anniversary, the Policy may lapse,
subject to a grace period. (See "Charges and Deductions.") A sufficient
payment must be made within the later of the grace period of 62 days from the
Monthly Anniversary immediately before the date Indebtedness exceeds the Cash
Value less any contingent deferred surrender charges, or 31 days after notice
that the Policy will terminate without a sufficient payment has been mailed,
or the Policy will lapse and terminate without value. A lapsed Policy,
however, may later be reinstated. (See "Payment and Allocation of Premiums--
Policy Lapse and Reinstatement.")
All outstanding Indebtedness will be deducted from the proceeds payable upon
the death of the Insured, surrender, or the maturity of the Policy.
Repayment of Indebtedness. A Policy Loan may be repaid in whole or in part
at any time prior to the death of the Insured and as long as a Policy is in
effect. All repayments should be made directly to the Company at its Home
Office. Amounts paid while a Policy Loan is outstanding will be treated as
premiums unless the Owner requests in writing that they be treated as
repayment of Indebtedness. When a loan repayment is made, an amount securing
the Indebtedness in the Loan Account equal to the loan repayment will be
transferred to the Divisions of the Separate Account in the same proportion
that Cash Value in the Loan Account bears to the Cash Value in each Loan
Subaccount. A Loan Subaccount exists for each Division of the Separate
Account. Amounts transferred to the Loan Account to secure Indebtedness are
allocated to the appropriate Loan Subaccount to reflect their origin.
SURRENDER AND PARTIAL WITHDRAWALS
During the lifetime of the Insured and while a Policy is in force, the Owner
may surrender, or make a partial withdrawal under, the Policy by sending a
written request to the Company. Any restrictions are deemed below. The amount
available upon surrender is the Cash Surrender Value (described below) at the
end of the Valuation Period during which the surrender request is received at
the Company's Home Office. Amounts payable upon
23
<PAGE>
surrender or a partial withdrawal ordinarily will be paid within seven days of
receipt of the written request. (See "General Matters Relating to the Policy--
Postponement of Payments.") Surrenders and partial withdrawals may have
Federal income tax consequences. (See "Federal Tax Matters.")
Surrender. To effect a surrender, the Policy itself must be returned to the
Company along with the request or the request must be accompanied by a
completed affidavit of lost policy, which is available from the Company. Upon
surrender, the Company will pay the Cash Surrender Value to the Owner. The
Cash Surrender Value equals the Cash Value on the date of surrender, less any
Indebtedness and any contingent deferred sales charge. (See "Charges and
Deductions--Sales Charges--Contingent Deferred Sales Charge.") Surrender
proceeds will be paid in a single sum. If the request is received on a Monthly
Anniversary, the monthly deduction otherwise deductible will be included in
the amount paid. Coverage under a Policy will terminate as of the date of
surrender.
Partial Withdrawals. After the first Policy Year, an Owner may make up to
one partial withdrawal each Policy Month from the Separate Account. The
minimum amount of a partial withdrawal, net of any transaction charges and any
applicable contingent deferred sales charges, is at least $500. The minimum
amount that can be withdrawn from a Division is $50, or the Policy's Cash
Value in a Division, if smaller. The maximum amount that may be withdrawn,
including the partial withdrawal transaction charge, is the Loan Value. The
partial withdrawal transaction charge is equal to the lesser of $25 or two
percent of the amount withdrawn.
The Owner may allocate the amount withdrawn, subject to the above
conditions, among the Divisions of the Separate Account. If no allocation is
specified, then the partial withdrawal will be allocated among the Divisions
of the Separate Account in the same proportion that the Policy's Cash Value in
each Division bears to the total Cash Value of the Policy, less the Cash Value
in the Loan Account, on the date the request for the partial withdrawal is
received.
A contingent deferred sales charge may be imposed on a partial withdrawal if
the partial withdrawal results in a decrease in the Face Amount and if the
decrease is made against coverage that has been in effect for less than ten
years. A partial withdrawal will decrease the Face Amount in two situations.
First, if the death benefit Option A is in effect and the death benefit equals
the Face Amount then the partial withdrawal will decrease the Face Amount,
and, thus, the death benefit by an amount equal to the partial withdrawal plus
the partial withdrawal transaction charge and any applicable contingent
deferred sales charge. Second, if the death benefit equals a percentage of
Cash Value (whether Option A or Option B is in effect), then a partial
withdrawal will decrease the Face Amount by the amount that the partial
withdrawal plus the partial
withdrawal transaction charge and any applicable contingent deferred sales
charge exceeds the difference between the death benefit and the Face Amount.
The death benefit also will be reduced in this circumstance. If Option B is in
effect and the death benefit equals the Face Amount plus the Cash Value, the
partial withdrawal will not reduce the Face Amount, but it will reduce the
Cash Value and, thus, the death benefit by the amount of the partial
withdrawal plus the partial withdrawal transaction charge. In this last
situation, no contingent deferred sales charge will be deducted.
The Face Amount will be decreased in the following order: (i) the Face
Amount at issue; and (2) any increases in the same order in which they were
issued. Where the decrease causes a partial reduction in an increase or the
Face Amount at issue, a proportionate share of the contingent deferred sales
charge for that increase or the Face Amount at issue will be deducted. This
charge is described in more detail under "Charges and Deductions--Sales
Charges--Contingent Deferred Sales Charge."
Generally, the partial withdrawal transaction charge and any contingent
deferred sales charge imposed in connection with a partial withdrawal will be
allocated among the Divisions of the Separate Account in the same proportion
as the partial withdrawal is allocated. If, following a partial withdrawal,
insufficient funds remain in a Division to pay the partial withdrawal
transaction charge and any contingent deferred sales charges allocated to a
Division, the unpaid charges will be allocated equally among the remaining
Divisions. In addition, an Owner may request that the partial withdrawal
transaction charge and any contingent deferred sales charges applicable
24
<PAGE>
to an amount withdrawn from a Division be paid from the Owner's Cash Value in
another Division. No amount may be withdrawn that would result in there being
insufficient Cash Value to meet any contingent deferred sales charges that
would be payable upon the surrender of the remaining Cash Value immediately
following the partial withdrawal.
The Face Amount remaining in force after a partial withdrawal may not be
less than $25,000. Any request for a partial withdrawal that would reduce the
Face Amount below this amount will not be executed.
Partial withdrawals may affect the way in which the cost of insurance charge
is calculated and the amount of pure insurance protection afforded under a
Policy. (See "Policy Benefits--Death Benefit--Methods of Affecting Insurance
Protection.")
TRANSFERS
Under the Company's current rules, a Policy's Cash Value, except amounts
credited to the Loan Account, may be transferred among the Divisions of the
Separate Account. Requests for transfers from or among Divisions of the
Separate Account must be made in writing directly to the Company and may be
made once each Policy Month. Transfers must be in amounts of at least $250 or,
if smaller, the Policy's Cash Value in a Division. The Company will effectuate
transfers and determine all values in connection with transfers as of the end
of the Valuation Period during which the transfer request is received.
All requests received on the same Valuation Day will be considered a single
transfer request. Each transfer must meet the minimum requirement of $250 or
the entire Cash Value in a Division. Where a single transfer request calls for
more than one transfer, and not all of the transfers would meet the minimum
requirements, the Company will effectuate those transfers that do meet the
requirements. Transfers resulting from Policy Loans will not be counted for
purposes of the limitations on the amount or frequency of transfers allowed in
each month or year.
Although the Company currently intends to continue to permit transfers for
the foreseeable future, the Policy provides that the Company may modify the
transfer privilege, by changing the minimum amount transferable, by altering
the frequency of transfers, by imposing a transfer charge, by prohibiting
transfers, or in such other manner as the Company may determine at its
discretion.
RIGHT TO EXAMINE POLICY
The Owner may cancel a Policy within 10 days after receiving it or such
longer period required by state law. If a Policy is cancelled within this time
period, a refund will be paid. The refund will equal all premiums paid under
the Policy.
To cancel the Policy, the Owner should mail or deliver the Policy directly
to the Company. A refund of premiums paid by check may be delayed until the
check has cleared the Owner's bank. (See "General Matters Relating to the
Policy--Postponement of Payments.")
A request for an increase in Face Amount (see "Policy Benefits--Death
Benefit") also may be cancelled. The request for cancellation must be made
within the latest of 20 days from the date the Owner received the new Policy
specifications pages for the increase, 10 days of mailing the right to
cancellation notice to the Owner, or 45 days after the Owner signed the
application for the increase.
Upon cancellation of an increase, the Owner may request that the Company
refund the amount of the additional charges deducted in connection with the
increase. This will equal the amount by which the monthly deductions since the
increase went into effect exceeded the monthly deductions which would have
been made absent the increase (see "Charges and Deductions--Monthly
Deduction"). If no request is made, the Company will increase the Policy's
Cash Value by the amount of these additional charges. This amount will be
allocated
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<PAGE>
among the Divisions of the Separate Account in the same manner as it was
deducted. The contingent deferred sales charge also will be reduced to the
amount that would have been in effect absent the increase (see "Charges and
Deductions--Sales Charges--Contingent Deferred Sales Charge").
CONVERSION RIGHT TO A FIXED BENEFIT POLICY
Once during the first 24 Policy Months following the Issue Date of the
Policy, the Owner may, upon written request, convert a Policy still in force
to a life insurance policy that provides for benefits that do not vary with
the investment return of the Divisions of the Separate Account. In the event a
Certificate has been amended to operate as an Individual Policy following an
Owner's change in eligibility under a Group Contract, the conversion right
will be measured from the Issue Date of the original Certificate. (See "Policy
Rights and Privileges--Eligibility Change Conversion.") No evidence of
insurability will be required when this right is exercised. However, the
Company will require that the Policy be in force and that the Owner repay any
existing Indebtedness. At the time of the conversion, the new Policy will
have, at the Owner's option, either the same death benefit or the same net
amount at risk as the original Policy. The new Policy will also have the same
Issue Date and Issue Age as the original Policy. The premiums for the new
Policy will be based on the Company's rates in effect for the same Issue Age
and rate class as the original Policy.
ELIGIBILITY CHANGE CONVERSION
If an Owner's eligibility under a Group Contract ends, the Insured's
coverage will continue nevertheless unless the Policy is no longer in force.
An Owner's eligibility will end if the Group Contract is terminated or
if the Owner leaves the group or otherwise fails to satisfy the eligibility
requirements set forth in a particular Group Contract. Even if the Policy is
not in force due to lapse, the right to reinstate and thus to convert a lapsed
Policy will not be affected by the change in the Owner's eligibility during
the reinstatement period.
The Certificate issued in connection with the Group Contract will be amended
automatically so that it will continue in force as an Individual Policy. The
rights, benefits, and guaranteed charges will not be altered by this
amendment. The amendment will be mailed to the Owner within 31 days after the
Company receives written notice that (a) the Owner leaves the group or
otherwise fails to satisfy the eligibility requirements under a Group Contract
or (b) after the termination of the Group Contract. If, at the time the
conversion occurs, the Policy is in a grace period (see "Payment and
Allocation of Premiums--Policy Lapse and Reinstatement,") any premium
necessary to prevent the Policy from lapsing must be received by to the
Company at its Home Office before the new Individual Policy will be mailed. A
new planned premium schedule will be established which will have the same
planned annual premium utilized under the Group Contract, but, ordinarily, the
planned payment intervals will be no more frequent than quarterly. Of course,
unscheduled premium payments can be made at any time. (See "Payment and
Allocation of Premiums--Premiums.")
PAYMENT OF BENEFITS AT MATURITY
If the Insured is living and the Policy is in force, the Company will pay
the Cash Surrender Value of the Policy to the Owner on the Maturity Date. An
Owner may elect to have amounts payable on the Maturity Date paid in a single
sum or under a settlement option. (See "Policy Rights and Privileges--Payment
of Policy Benefits.") Amounts payable on the Maturity Date ordinarily will be
paid within seven days of that date, although payment may be postponed under
certain circumstances. (See "General Matters Relating to the Policy--
Postponement of Payments.") A Policy will mature if and when the Insured
reaches Attained Age 95.
PAYMENT OF POLICY BENEFITS
A lump sum payment will be made. Provisions for settlement of proceeds
different from a lump sum payment may only be made upon written agreement with
the Company.
Settlement Options. The Company may offer settlement options that apply to
the payment of death benefit proceeds, as well as to benefits payable at
maturity. Once a settlement option is in effect, there will no longer be value
in the Separate Account.
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<PAGE>
Accelerated Death Benefits. The Company offers certain riders which permit
the Owner to elect to receive an accelerated payment of the Policy's death
benefit in a reduced amount under certain circumstances. (See "General Matters
Relating to the Policy--Additional Insurance Benefits.")
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policies to compensate the
Company for providing the insurance benefits set forth in the Policies,
administering the Policies, incurring expenses in distributing the Policies,
and assuming certain risks in connection with the Policies. The Company may
realize a profit on one or more of these charges, such as the morality and
expense risk charge. We may use any such profits for any corporate purpose,
including, among other things, payments of sales expenses.
SALES CHARGES
The sales charges assessed under the Policies consist of a front-end charge
("premium expense charge") and a deferred charge ("contingent deferred sales
charge"). In no event will the total sales charges on premiums paid up to 20
times the guideline annual premium for the Face Amount at issue (or for any
increase in Face Amount) exceed 9 percent of those premiums. The guideline
annual premium will be fixed and determined on the Issue Date or the effective
date of any requested increase in Face Amount and will be set forth in the
Policy's specifications pages and in the new specifications pages issued upon
an increase. The sales charges will not change in the event that an Owner is
no longer eligible under a Group Contract but continues coverage on an
individual basis.
Premium Expense Charge. Prior to allocation of net premiums among the
Divisions of the Separate Account, premium payments will be reduced by a
premium expense charge of 2.5%. The premium payment less the premium expense
charge less any charge to compensate the Company for anticipated higher
corporate income taxes resulting from the sale of a Policy less the premium
tax charge equals the net premium.
Contingent Deferred Sales Charge. During the first ten Policy Years, the
Company assesses a charge upon surrender or lapse of the Policy, a requested
decrease in Face Amount, or a partial withdrawal that causes the Face Amount
to decrease. The contingent deferred sales charge is calculated separately for
the initial Face Amount and for any increase in Face Amount.
Assuming no increases in Face Amount have yet become effective, the
contingent deferred sales charge will be equal to 25 percent of premiums
received by the Company during the first Policy Year up to the guideline
annual premium for the initial Face Amount. The amount of the charge will
decrease each year after the first Policy Year by one-tenth of the total
charge until it reaches zero at the end of ten Policy Years as shown in the
table below.
If an increase in Face Amount has gone into effect and the Policy is
surrendered within the first 12 Policy Months after the effective date of
increase, the additional charge associated with the increase will equal 25
percent of premiums "associated with the increase" (explained below) which are
received by the Company within the 12 Policy Months of the effective date of
the increase, up to the guideline annual premium for the increase. The charge
applicable to an increase in Face Amount will decrease by one-tenth of the
total charge each year after the first year that the increase is in effect
until it reaches zero at the end of ten years, as shown below.
The timing of premium payments may affect the amount of the contingent
deferred sales charge under a Policy, as the charge is based only on premiums
actually received by the Company in the first Policy Year or in the first 12
Policy Months after an increase in Face Amount.
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<PAGE>
CONTINGENT DEFERRED SALES CHARGE (CDSC) PERCENTAGE TABLE
<TABLE>
<CAPTION>
PERCENTAGE OF THE CDSC
POLICY YEAR:* PAYABLE:
------------- ----------------------
<S> <C>
1.................................................. 100%
2.................................................. 90%
3.................................................. 80%
4.................................................. 70%
5.................................................. 60%
6.................................................. 50%
7.................................................. 40%
8.................................................. 30%
9.................................................. 20%
10................................................. 10%
11 and later....................................... 0%
</TABLE>
- --------
* For requested increases, years are measured from the effective date of the
increase.
Because additional premium payments are not required to fund a requested
increase in Face Amount, a special rule applies to determine the amount of
premiums "associated with the increase." In general, the premiums associated
with the increase will equal the sum of a proportionate share of the Cash
Surrender Value on the effective date of the increase, before any deductions
are made, plus a proportionate share of any premium payments actually made on
or after the effective date of the increase. This means that, in effect, a
portion of the existing Cash Value will be deemed to be a premium payment for
the increase, and subsequent premium payments will be prorated. The proportion
of existing Cash Value and subsequent premium payments associated with the
increase will be based on the relative guideline annual premium payments for
the increase and for the Policy's initial Face Amount.
Assuming there has been no prior requested increase in Face Amount, the
amount of the contingent deferred sales charge deducted upon a decrease in
Face Amount will equal a fraction of the charge that would be deducted if the
Policy were surrendered at that time. The fraction will be determined by
dividing the amount of the decrease by the Policy's Face Amount before the
decrease and multiplying the result by the charge.
If there has been a prior increase in Face Amount, the amount of the charge
will depend on whether the initial Face Amount or subsequent increases in Face
Amount are being decreased, which in turn will depend on whether the decrease
arises from a partial withdrawal or a requested decrease in Face Amount. (See
"Policy Rights and Privileges--Surrender and Partial Withdrawals," and "Policy
Benefits--Death Benefit--Change in Face Amount.") Where the decrease causes a
partial reduction in an increase or in the initial Face Amount a proportionate
share of the contingent deferred sales charge for that increase or the initial
Face Amount will be deducted.
PREMIUM TAX CHARGE
Various states and subdivisions impose a tax on premiums received by
insurance companies. Premium taxes vary from jurisdiction to jurisdiction. To
cover these premium taxes, premium payments will be reduced by a premium tax
charge of 2 percent of premium paid from all Policies.
MONTHLY DEDUCTION
Charges will be deducted monthly from the Cash Value of each Policy
("monthly deduction") to compensate the Company for (a) certain administrative
costs; (b) insurance underwriting and acquisition
expenses in connection with issuing a Policy; (c) the cost of insurance; and
(d) the cost of optional benefits added by rider. The monthly deduction will
be deducted on the Investment Start Date and on each succeeding Monthly
Anniversary. It will be allocated among each Division of the Separate Account
in the same proportion that a
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<PAGE>
Policy's Cash Value in each Division bears to the total Cash Value of the
Policy, less the Cash Value in the Loan Account, on the date the deduction is
made. Because portions of the monthly deduction, such as the cost of
insurance, can vary from month to month, the monthly deduction itself will
vary in amount from month to month.
Monthly Administrative Charge. The Company has responsibility for the
administration of the Policies and the Separate Account. Administrative
expenses include premium billing and collection, recordkeeping, processing
death benefit claims, cash surrenders, partial withdrawals, Policy changes,
reporting and overhead costs, processing applications, and establishing Policy
records. As reimbursement for administrative expenses related to the
maintenance of each Policy and the Separate Account, the Company deducts a
monthly administration charge of $3.00 per month from each Policy.
This charge is guaranteed not to increase over the life of the Policy. Nor
will the administrative charge change in the event that the Owner is no longer
eligible for group coverage, but continues coverage on an individual basis. In
addition, where the Company believes that lower administrative costs will be
incurred in connection with a particular Group Contract due to the number of
eligible Owners or administrative support required, the Company may deduct a
lower charge from Policies issued under that Group Contract.
Cost of Insurance. The cost of insurance is deducted on each Monthly
Anniversary for the following Policy Month. Because the cost of insurance
depends upon a number of variables, the cost will vary for each Policy Month.
The cost of insurance is determined separately for the initial Face Amount and
for any subsequent increases in Face Amount. The Company will determine the
monthly cost of insurance charge by multiplying the applicable cost of
insurance rate or rates by the net amount at risk for each Policy Month.
The cost of insurance rates are determined at the beginning of each Policy
Year for the initial Face Amount and each increase in Face Amount. The current
cost of insurance rates will be determined by the Company based on its
expectations as to future mortality experience. The Company currently issues
the Policies on a simplified underwriting basis without regard to the sex or
smoker/non-smoker status of the Insured. If the Policies were issued on a
guaranteed issue underwriting basis, the current cost of insurance rates might
increase. The Company also reserves the right to issue Policies on another
basis which is determined by the Company to be appropriate for the group and
which may include guaranteed issue.
The current cost of insurance rates will be based on the Attained Age of the
Insured, the rate class of the Insured, and the gender mix (i.e., the
proportion of men and women covered under a particular Group Contract). The
cost of insurance rates generally increase as the Insured's Attained Age
increases. An Insured's rate class is generally based on the expected number
of potential Insureds as well as other factors that may affect the mortality
risks assumed by the Company in connection with a particular Group Contract.
All other factors being equal, the cost of insurance rates generally decrease
by rate class as the expected number of potential Insureds in the rate class
increase. The Company reserves the right to change criteria on which a rate
class will be based in the future. The Company will estimate the gender mix of
the pool of Insureds under a Group Contract upon issuance of the Group
Contract. Each year on the Group Contract's anniversary, the Company may
adjust the rate to reflect the actual gender mix for the particular group.
Currently, in the event that the Owner's eligibility under a Group Contract
ceases, the cost of insurance rate will continue to reflect the gender mix of
the pool of Insureds at the time the Insured's eligibility ceased. However, at
some time in the future, the Company reserves the right to base the gender mix
and rate class on the group consisting of those Insureds who are no longer
under a Group Contract.
The current cost of insurance rates will not be greater than the guaranteed
cost of insurance rates set forth in the Policy. These guaranteed rates are
125 percent of the maximum rates that could be charged based on the 1980
Commissioners Standard Ordinary Mortality Table C ("1980 CSO Table"). The 1980
CSO Table assumes a blending of sixty percent male and forty percent female.
The guaranteed rates are higher than 100 percent of the maximum rates in the
1980 CSO Table because the Company uses simplified underwriting procedures
whereby the insured is not required to submit to a medical or paramedical
examination. The current cost of insurance rates are generally lower than 100
percent of the 1980 CSO Table. Any change in the current cost of
29
<PAGE>
insurance rates, except those changes made to adjust for changes in the gender
mix of the pool of Insureds under a particular Group Contract, will apply to
all persons of the same Attained Age and rate class whose initial Face Amounts
or increases in Face Amount have been in force for the same length of time.
(For purposes of computing guideline premiums under Section 7702 of the
Internal Revenue Code of 1986, as amended, the Company will use 100 percent of
the 1980 CSO Table.)
The net amount at risk for a Policy Month is (a) the death benefit at the
beginning of the Policy Month divided by 1.0040741 (which reduces the net
amount at risk, solely for purposes of computing the cost of insurance, by
taking into account assumed monthly earnings at an annual rate of five
percent), less (b) the Cash Value at the beginning of the Policy Month.
The net amount at risk may be affected by changes in the Cash Value or
changes in the Face Amount of the Policy. If there is an increase in the Face
Amount and the rate class applicable to the increase is different from that
for the initial Face Amount, the net amount at risk will be calculated
separately for each rate class. If Option A is in effect, for purposes of
determining the net amounts at risk for each rate class, Cash Value will first
be considered a part of the initial Face Amount. If the Cash Value is greater
than the initial Face Amount, the excess Cash Value will then be considered a
part of each increase in order, starting with the first increase. If Option B
is in effect, the net amount at risk for each rate class will be determined by
the Face Amount associated with that rate class. In calculating the cost of
insurance charge, the cost of insurance rate for a Face Amount is applied to
the net amount at risk for the corresponding rate class.
Because the calculation of the net amount at risk is different under Option
A and Option B when more than one rate class is in effect, a change in the
death benefit option may result in a different net amount at risk for each
rate class than would have occurred had the death benefit option not been
changed. Since the cost of insurance is calculated separately for each rate
class, any change in the net amount at risk resulting from a change in the
death benefit option may affect the total cost of insurance paid by the Owner.
Partial withdrawals and decreases in Face Amount will affect the manner in
which the net amount at risk for each rate class is calculated. (See "Policy
Benefits--Death Benefit," and "Policy Rights and Privileges--Surrender and
Partial Withdrawals.")
PARTIAL WITHDRAWAL TRANSACTION CHARGE
A transaction charge which is the lesser of $25 or two percent of the amount
withdrawn will be assessed on each partial withdrawal to cover the
administrative costs incurred in processing the partial withdrawal.
SEPARATE ACCOUNT CHARGES
Mortality and Expense Risk Charge. The Company will deduct a daily charge
from the Separate Account at the rate of .0024547% of the net assets of each
Division of the Separate Account, which equals an annual rate of .90% of those
net assets. This deduction is guaranteed not to increase for the duration of
the Policy. The Company may realize a profit from this charge.
The mortality risk assumed by the Company is that Insureds may die sooner
than anticipated and that therefore the Company will pay an aggregate amount
of death benefits greater than anticipated. The expense risk assumed is that
expenses incurred in issuing and administering the Policy will exceed the
amounts realized from the administrative charges assessed against the Policy.
Federal Taxes. Currently no charge is made to the Separate Account for
Federal income taxes that may be attributable to the Separate Account. The
Company may, however, make such a charge in the future. Charges for other
taxes, if any, attributable to the Account may also be made. (See "Federal Tax
Matters.")
Expenses of American Series Fund. The value of the net assets of the
Separate Account will reflect the investment advisory fee and other expenses
incurred by American Series Fund. (See "The Company and the Separate Account--
American Variable Insurance Series.")
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<PAGE>
GENERAL MATTERS RELATING TO THE POLICY
POSTPONEMENT OF PAYMENTS
Payment of any amount due from the Separate Account upon surrender, partial
withdrawals, election of an accelerated death benefit under a rider, death of
the Insured, or the Maturity Date, as well as payments of a Policy loan and
transfers, may be postponed whenever: (i) the New York Stock Exchange is
closed other than customary weekend and holiday closings, or trading on the
New York Stock Exchange is restricted as determined by the SEC; (ii) the SEC
by order permits postponement for the protection of Owners; or (iii) an
emergency exists, as determined by the SEC, as a result of which disposal of
securities is not reasonably practicable or it is not reasonably practicable
to determine the value of the Separate Account's net assets.
Payments under the Policy of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared the Owner's bank.
THE GROUP CONTRACT
The Policy, the attached application, endorsements, any application for an
increase in Face Amount, and any application for reinstatement constitute the
entire contract between the Owner and the Company. Apart from the rights and
benefits described in the Certificate and incorporated by reference into the
Group Contract, the Owner has no rights under the Group Contract. All
statements made by the Owner or Insured in the application are considered
representations and not warranties, except in the case of fraud. Only
statements in the application and any supplemental applications can be used to
contest a claim or the validity of the Policy. Any change to the Policy must
be approved in writing by the President, a Vice President, or the Secretary of
the Company. No agent has the authority to alter or modify any of the terms,
conditions, or agreements of the Policy or to waive any of its provisions.
CONTROL OF POLICY
The Insured will be considered Owner of the Policy unless another person is
shown as the Owner in the application. Ownership may be changed, however, as
described below. The Owner is entitled to all rights provided by the Policy,
prior to its Maturity Date. After the Maturity Date, the Owner cannot change
the payee nor the mode of payment, unless otherwise provided in the Policy.
Any person whose rights of ownership depend upon some future event will not
possess any present rights of ownership. If there is more than one Owner at a
given time, all must exercise the rights of ownership. If the Owner should
die, and the Owner is not the Insured, the Owner's interest will go to his or
her estate unless otherwise provided.
BENEFICIARY
The Beneficiary(ies) is (are) the person(s) specified in the application or
by later designation. Unless otherwise stated in the Policy, the Beneficiary
has no rights in a Policy before the death of the Insured. If there is more
than one Beneficiary at the death of the Insured, each will receive equal
payments unless otherwise provided by the Owner. If no Beneficiary is living
at the death of the Insured, the proceeds will be payable to the Owner or, if
the Owner is not living, to the Owner's estate.
CHANGE OF OWNER OR BENEFICIARY
The Owner may change the ownership and/or Beneficiary designation by written
request in a form acceptable to the Company at any time during the Insured's
lifetime. The Company may require that the Policy be returned for endorsement
of any change. The change will take effect as of the date the request is
signed, whether or not the Insured is living when the request is received at
the Company's Home Office. The Company will not be liable for any payment made
or action taken before the Company received the written request for change. If
the Owner is also a Beneficiary of the Policy at the time of the Insured's
death, the Owner may, within 60 days of the Insured's death, designate another
person to receive the Policy proceeds.
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<PAGE>
POLICY CHANGES
The Company reserves the right to limit the number of Policy changes to one
per Policy Year and to restrict such changes in the first Policy Year.
Currently, no change may be made during the first Policy Year. For this
purpose, changes include increases or decreases in Face Amount and changes in
the death benefit option. No change will be permitted that would result in the
death benefit under a Policy being included in gross income due to not
satisfying the requirements of Section 7702 of the Internal Revenue Code or
any applicable successor provision.
CONFORMITY WITH STATUTES
If any provision in a Policy is in conflict with the laws of the state
governing the Policy, the provision will be deemed to be amended to conform to
such laws.
CLAIMS OF CREDITORS
To the extent permitted by law, neither the Policy nor any payment
thereunder will be subject to the claims of creditors or to any legal process.
INCONTESTABILITY
The Policy is incontestable after it has been in force for two years from
the Issue Date during the lifetime of the Insured. An increase in Face Amount
or addition of a rider after the Issue Date is incontestable after such
increase or addition has been in force for two years from its effective date
during the lifetime of the Insured. Any reinstatement of a Policy is
incontestable, except for nonpayment of premiums, only after it has been in
force during the lifetime of the Insured for two years after the effective
date of the reinstatement.
ASSIGNMENT
The Company will be bound by an assignment of a Policy only if: (a) it is in
writing; (b) the original instrument or a certified copy is filed with the
Company at its Home Office; and (c) the Company sends an acknowledged copy to
the Owner. The Company is not responsible for determining the validity of any
assignment. Payment of Policy proceeds is subject to the rights of any
assignee of record. If a claim is based on an assignment, the Company may
require proof of the interest of the claimant. A valid assignment will take
precedence over any claim of a Beneficiary.
SUICIDE
Suicide within two years of the Issue Date is not covered by the Policy. If
the Insured dies by suicide, while sane or insane, within two years from the
Issue Date (or within the maximum period permitted by the laws of the state in
which the Policy was delivered, if less than two years), the amount payable
will be limited to premiums paid, less any partial withdrawals and outstanding
Indebtedness. If the Insured, while sane or insane, dies by suicide within two
years after the effective date of any increase in Face Amount, the death
benefit for that increase will be limited to the amount of the monthly
deductions for the increase.
If the Insured is a Missouri citizen when the Policy is issued, this
provision does not apply on the Issue Date of the Policy, or on the effective
date of any increase in Face Amount, unless the Insured intended suicide at
the time of application for the Policy or any increase in Face Amount.
MISSTATEMENT OF AGE AND CORRECTIONS
If the age of the Insured has been misstated in the application, the amount
of the death benefit will be that which the most recent cost of insurance
charge would have purchased for the correct age.
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Any payment or Policy changes made by the Company in good faith, relying on
its records or evidence supplied with respect to such payment, will fully
discharge the Company's duty. The Company reserves the right to correct any
errors in the Policy.
ADDITIONAL INSURANCE BENEFITS
Subject to certain requirements, one or more of the following additional
insurance benefits may be added to a Policy by rider. However, some Group
Contracts or employer-sponsored insurance programs may not offer each of the
additional benefits described below. Certain riders may not be available in
all states. In addition, should it be determined that the tax status of a
Policy as life insurance is adversely affected by the addition of any of these
riders, the Company will cease offering such riders. The descriptions below
are intended to be general; the terms of the Policy riders providing the
additional benefits may vary from state to state, and the Policy should be
consulted. The cost of any additional insurance benefits will be deducted as
part of the monthly deduction. (See "Changes and Deductions--Monthly
Deduction.")
Waiver of Monthly Deductions Rider. Provides for the waiver of the monthly
deductions while the Insured is totally disabled, subject to certain
limitations described in the rider. The Insured must have become disabled
before age 65.
Accidental Death Benefit Rider. Provides additional insurance if the
Insured's death results from accidental bodily injury, as defined in the
rider. Under the terms of the rider, the additional benefits provided in the
Policy will be paid upon receipt of proof by the Company that death resulted
directly from accidental injury and independently of all other causes;
occurred within 120 days from the date of injury; and occurred before the
Policy Anniversary nearest age 70 of the Insured.
Children's Life Insurance Rider. Provides for term insurance on the
Insured's children, as defined in the rider. To be eligible for insurance
under the rider, the child to be insured must not be confined in a hospital at
the time the application is signed. Under the terms of the rider, the death
benefit will be payable to the named Beneficiary upon the death of any insured
child. Upon receipt of proof of the Insured's death before the rider
terminates, the rider will be continued on a fully paid-up term insurance
basis.
HIV Acceleration of Death Benefits Rider. Provides for the Owner's election
for the Company to make an accelerated payment, prior to the death of the
Insured upon receipt of satisfactory evidence that the Insured has tested
seropositive for the human immunodeficiency virus ("HIV") after both the
Policy and rider are issued. The Company will pay the Policy's death benefit
(less any Indebtedness and any term insurance added by riders), calculated on
the date that the Company receives satisfactory evidence that the Insured has
tested seropositive for HIV, reduced by a $100 administrative processing fee.
The Company will pay the accelerated benefit to the Owner in a single payment
in full settlement of the Company's obligations under the Policy. The rider
may be added to the Policy only after the Insured satisfactorily meets certain
underwriting requirements which will generally include a negative HIV test
result to a blood or other screening test acceptable to the Company.
The Federal income tax consequences associated with (i) adding the HIV
Acceleration of Death Benefit Rider or (ii) receiving the benefit provided
under the rider are uncertain. Accordingly, we urge you to consult a tax
adviser about such consequences before adding the HIV Acceleration of Death
Benefit Rider to your Policy or requesting a benefit under the rider.
Accelerated Death Benefit Settlement Option Rider. Provides for the
accelerated payment of a portion of death benefit proceeds in a single sum to
the Owner if the Insured is terminally ill or permanently confined to a
nursing home. Under the rider, which is available at no additional cost, the
Owner may make a voluntary election to completely settle the Policy in return
for the Company's accelerated payment of a reduced death benefit. The Owner
may make such an election under the rider if evidence, including a
certification from a licensed physician, is provided to the Company that the
Insured (1) has a life expectancy of 12 months or less or (2) is permanently
confined to a qualified nursing home and is expected to remain there until
death. Any irrevocable beneficiary
33
<PAGE>
and assignees of record must provide written authorization in order for the
Owner to receive the accelerated benefit. The Accelerated Death Benefit
Settlement Option Rider is not available with Corporate Programs.
The amount of the death benefit payable under the rider will equal the cash
surrender value under the Policy on the date the Company receives satisfactory
evidence of either (1) or (2), above, (less any Indebtedness and any term
insurance added by other riders) plus the product of the applicable "benefit
factor" multiplied by the difference of (a) minus (b), where (a) equals the
Policy's death benefit proceeds, and (b) equals the Policy's cash surrender
value. The "benefit factor," in the case of terminal illness, is 0.85 and, in
the case of permanent nursing home confinement, is 0.70.
RECORDS AND REPORTS
The Company will maintain all records relating to the Separate Account and
will mail to the Owner once each Policy Year, at the last known address of
record, a report which shows the current Policy values, premiums paid,
deductions made since the last report, and any outstanding Policy Loans. The
Owner will also be sent without comment periodic reports for the American
Series and a list of the portfolio securities held in each Fund. Receipt of
premium payments directly from the Owner, transfers, partial withdrawals,
Policy Loans, loan repayments, changes in death benefit options, increases or
decreases in Face Amount, surrenders and reinstatements will be confirmed
promptly following each transaction.
An Owner may request in writing a projection of illustrated future Cash
Surrender Values and death benefits. This projection will be furnished by the
Company for a nominal fee.
DISTRIBUTION OF THE POLICIES
Walnut Street Securities, Inc. ("Walnut Street") acts as principal
underwriter of the Policies pursuant to a Sales Agreement with the Company.
Walnut Street is a wholly-owned subsidiary of General American Holding
Company, which is an affiliate of the Company. Walnut Street is registered
with the SEC under the Securities Exchange Act of 1934 as a broker-dealer and
is a member of the National Association of Securities Dealers. The Policies
will be sold by broker-dealers who have entered into written sales agreements
with Walnut Street. Walnut Street's Internal Revenue Service Employer
Identification Number is 43-1333368. It is a Missouri corporation and was
formed May 4, 1984.
Agents will receive commissions based on a commission schedule in the sales
agreements. Agent first-year commissions are based on a percentage of first-
year premiums. The commission rates will generally be no more than 27.5
percent of first-year premiums paid up to the guideline annual premium. No
renewal commissions are paid.
Walnut Street received $117,437 in commissions on the Policies during the
year ended December 31, 1997; $242,031 for the year ended December 31, 1996;
and $260,132 for the year ended December 31, 1995.
GENERAL PROVISIONS OF THE GROUP CONTRACT
ISSUANCE
The Group Contract will be issued upon receipt of a signed application for
Group Insurance signed by a duly authorized officer of the Contractholder and
acceptance by a duly authorized officer of the Company at its Home Office.
PREMIUM PAYMENTS
The Contractholder may remit planned premium payments for Owners in an
amount authorized by the Owner. All planned premiums under a Group Contract
must be remitted in advance to the Company. The planned premium payment
interval is agreed to by the Contractholder and the Company. Prior to each
planned payment interval, the Company will furnish the Contractholder with a
statement of the planned premium payments to be
34
<PAGE>
made under the Group Contract or such other notification as has been agreed to
by the Contractholder and the Company. If the Contractholder offers cash
management or financial services accounts and an Owner has such an account,
the Contractholder may make planned premium payments from the Owner's account
if authorized to do so by the Owner.
GRACE PERIOD
If the Contractholder does not remit planned premium payments in a timely
fashion, the Group Contract will be in default. A grace period of 31 days
begins on the date that the planned premiums were scheduled to be remitted. If
the Contractholder does not remit premiums prior to the end of the grace
period, the Group Contract will terminate. However, the Individual Insurance
will continue following the Group Contract's termination, provided such
insurance is not surrendered or cancelled by the Owner. (See "Policy Rights
and Privileges--Eligibility Change Conversion.") If the Contractholder fails
to remit premiums to the Company for a particular Owner because that Owner
does not have sufficient funds in his or her cash management account, the
Contractholder will not be deemed to be in default.
TERMINATION
Except as described in "Grace Period" above, the Contract will be terminated
immediately upon default. In addition, the Company may end a Group Contract or
any of its provisions on 31 days notice. If the Group Contract terminates, any
Policies in effect will remain in force on an individual basis, unless such
insurance is surrendered or cancelled by the Owner. New Policies will be
issued as described in "Policy Rights and Privileges--Eligibility Change
Conversion." In addition, if the Group Contract terminates, the Owner will no
longer be able to make planned premium payments from a cash management or
financial services account offered by the Contractholder.
RIGHT TO EXAMINE GROUP CONTRACT
The Contractholder may terminate the Group Contract within 20 days after
receiving it, within 45 days after the application was signed or within 10
days of mailing a notice of the cancellation right, whichever is latest. To
cancel the Group Contract, the Contractholder should mail or deliver the Group
Contract to the Company.
ENTIRE GROUP CONTRACT
The Group Contract, with the attached copy of the Contractholder's
application and other attached papers, if any, is the entire contract between
the Contractholder and the Company. All statements made by the Contractholder,
any Owner or any Insured will be deemed representations and not warranties.
Misstatements will not be used in any contest or to reduce claim under the
Group Contract, unless it is in writing. A copy of the application containing
such misstatement must have been given to the Contractholder or to the Insured
or to his Beneficiary, if any.
INCONTESTABILITY
The Company cannot contest the Group Contract after it has been in force for
two years from the date of issue.
OWNERSHIP OF GROUP CONTRACT
The Contractholder owns the Group Contract. The Group Contract may be
changed or ended by agreement between the Company and the Contractholder
without the consent of, or notice to, any person claiming rights or benefits
under the Group Contract. However, the Contractholder does not have any
ownership interest in the Policies issued under the Group Contract. The rights
and benefits under the Policies inure to the benefit of the Owners, Insureds,
and Beneficiaries as set forth herein and in the Policies.
35
<PAGE>
FEDERAL TAX MATTERS
INTRODUCTION
The following summary provides a general description of the Federal income
tax considerations associated with the Policy and does not purport to be
complete or to cover all situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisers should be consulted for more
complete information. This discussion is based upon the Company's
understanding of the present Federal income tax laws as they are currently
interpreted by the Internal Revenue Service. No representation is made as to
the likelihood of continuation of the present Federal income tax laws or of
the current interpretations by the Internal Revenue Service.
TAXATION OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code")
sets forth a definition of a life insurance contract for Federal tax purposes.
Although the Secretary of the Treasury (the "Treasury") is authorized to
prescribe regulations implementing Section 7702, while proposed regulations
and other interim guidance has been issued, final regulations have not been
adopted. In short, guidance as to how Section 7702 is to be applied is
limited. The Company nonetheless believes (largely in reliance on IRS Notice
88-128 and the proposed regulations under Section 7702, issued on July 5,
1991) that the Policy should meet the Section 7702 definition of a life
insurance contract. If a Policy were determined not to be a life insurance
contract for purposes of Section 7702, such Policy would not provide the tax
advantages normally provided by a life insurance policy. Therefore, if it is
subsequently determined that a Policy does not satisfy Section 7702, the
Company will take whatever steps are appropriate and necessary to attempt to
cause such Policy to comply with Section 7702, including possibly refunding
any premiums paid that exceed the limitations allowable under Section 7702
(together with interest or other earnings on any such premiums refunded as
required by law). For these reasons, the Company reserves the right to modify
the Policy as necessary to attempt to qualify it as a life insurance contract
under Section 7702.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of each Division of the Separate
Account to be "adequately diversified" in order for the Policy to be treated
as a life insurance contract for Federal tax purposes. Although the Company
does not control the American Series or its investments, the Series has
represented that it intends to comply with the diversification requirements
prescribed by the Treasury in Treas. Reg. section 1.817-5. Thus, the Company
believes that each Division of the Separate Account, through the American
Series, will be in compliance with the requirements prescribed by the
Treasury.
The IRS has stated in published rulings that a variable contract owner will
be considered the owner of separate account assets, for federal income tax
purposes, if the contract owner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. If
that were to be determined to be the case, income and gains from the separate
account assets would be includible in the variable contract owner's gross
income. The Treasury Department has also announced, in connection with the
issuance of regulations concerning diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor (i.e.,
the Owner), rather than the insurance company, to be treated as the owner of
the assets in the account." This announcement also stated that guidance would
be issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular subaccounts without
being treated as owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Owner has additional flexibility in allocating Premium payments
and Policy Values. These differences could result in an Owner being treated as
the owner of a pro rata portion of the assets of the Separate Account. In
addition, the Company does not know what standards will be set forth, if any,
in the regulations or
36
<PAGE>
rulings which the Treasury Department has stated it expects to issue. The
Company therefore reserves the right to modify the Policy as necessary to
attempt to prevent an Owner from being considered the owner of a pro rata
share of the assets of the Separate Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
1. In general. As a life insurance contract, the proceeds and cash value
increases of a Policy should be treated in a manner consistent with a fixed-
benefit life insurance policy for Federal income tax purposes. Thus, the death
benefit under the Policy should be excludable from the gross income of the
Beneficiary under section 101(a)(1) of the Code.
The exchange of a Policy, a change in the Policy's death benefit option
(e.g., a change from Option B to Option A), a change in the Policy's Face
Amount, a conversion to a fixed policy, a Policy loan, an unscheduled premium
payment, a Policy lapse with an outstanding loan, a partial withdrawal, a
surrender, or an assignment of the Policy may have Federal income tax
consequences depending on the circumstances. In addition, Federal estate and
state and local estate, inheritance, and other tax consequences of ownership
or receipt of Policy proceeds depend on the circumstances of each Policy owner
or Beneficiary. A competent tax adviser should be consulted for further
information.
Pursuant to the recently enacted Health Insurance Portability and
Accountability Act of 1996, the Company believes that for federal income tax
purposes an accelerated death benefit payment made under the Accelerated Death
Benefit Settlement Option Rider should be fully excludable from the gross
income of the Beneficiary, as long as the Beneficiary is the Insured under the
Policy. However, you should consult a qualified tax adviser about the
consequences of adding this Rider to a Policy or requesting an accelerated
death benefit payment under this Rider. In recent years, Congress has adopted
new rules relating to life insurance owned by businesses. Any business
contemplating the purchase of a new Policy or a change in an existing Policy
should consult a tax advisor.
Generally, the Owner will not be deemed to be in constructive receipt of the
cash value, including increments thereof, under the Policy until there is a
distribution. The tax consequences of distributions from, and loans taken from
or secured by, a Policy depend on whether the Policy is classified as a
"modified endowment contract." Whether a Policy is or is not classified as a
modified endowment contract, upon a complete surrender or lapse of the Policy
or when benefits are paid at the maturity date, if the amount received plus
the amount of indebtedness exceeds the total investment in the Policy, the
excess will generally be treated as ordinary income subject to tax.
2. Policies classified as modified endowment contracts. In general, a Policy
will be a modified endowment contract if the accumulated premiums paid at any
time during the first seven policy years exceeds the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. Further, a Policy that is not otherwise a modified endowment
contract may become a modified endowment contract if it is "materially
changed." The determination whether a Policy will be a modified endowment
contract after a material change generally depends upon the relationship of
the death benefit and the cash value at the time of such change and the
additional premiums paid in the seven years following the material change.
Due to the Policy's flexibility, classification as a modified endowment
contract will depend on the individual circumstances of each Policy. Moreover,
the rules relating to whether a Policy will be treated as a modified endowment
contract are extremely complex. Therefore, a current or prospective Policy
owner is strongly advised to retain and consult with a competent advisor
before purchasing a Policy, making an unscheduled premium payment on an
existing Policy, or making any change in an existing Policy, to determine
whether the Policy will be treated as a modified endowment contract.
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<PAGE>
The Company has adopted administrative steps designed to protect a
Policyowner against inadvertently having the Policy become a modified
endowment contract. Although the Company cannot provide complete assurance at
this time that a Policy will not inadvertently become a modified endowment
contract, it is continuing its efforts to enhance its administrative systems
to monitor potential modified endowment classifications automatically.
3. Distributions from Policies Classified as Modified Endowment Group
Contracts. Policies classified as modified endowment contracts will be subject
to the following new tax rules: First, all distributions, including
distributions upon surrender and benefits paid at maturity, from such a Policy
are treated as ordinary income subject to tax up to the amount equal to the
excess (if any) of the cash value immediately before the distribution over the
investment in the Policy (described below) at such time. Second, loans taken
from, or secured by, such a Policy (as well as due but unpaid interest that is
added to the loan amount) are treated as distributions from such a Policy and
taxed accordingly. Third, a 10 percent additional income tax is imposed on the
portion of any distribution from, or loan taken from or secured by, such a
Policy that is included in income except where the distributions or loan is
made on or after the Policy owner attains age 59 1/2, is attributable to the
Policy owner's becoming disabled, or is part of a series of substantially
equal periodic payments for the life (or life expectancy) of the Policy owner
or the joint lives (or joint life expectancies) of the Policy owner and the
Policy owner's Beneficiary.
If a Policy becomes a modified endowment contract after it is issued,
distributions made during the policy year in which it becomes a modified
endowment contract, distributions in any subsequent policy year and
distributions within two years before the Policy becomes a modified endowment
contract will be subject to the tax treatment described above. This means that
a distribution from a Policy that is not a modified endowment contract could
later become taxable as a distribution from a modified endowment contract.
4. Distributions From Policies Not Classified as Modified Endowment Group
Contracts. Distributions from a Policy that is not a modified endowment
contract, and which is not materially changed, or, if materially changed, is
not classified as a modified endowment contract after such material change,
are generally treated as first recovering the investment in the Policy
(described below) and then, only after the return of all such investment in
the Policy, as distributing taxable income. An exception to this general rule
occurs in the case of a decrease in the Policy's death benefit (e.g., partial
withdrawal or a change from Option B to Option A) or any other change that
reduces benefits under the Policy in the first 15-years after the Policy is
issued and that results in a cash distribution to the Policy owner in order
for the Policy to continue complying with the section 7702 definitional
limits. Such a cash distribution will be taxed in whole or in part as ordinary
income (to the extent of any gain in the Policy) under rules prescribed in
section 7702.
Loans from, or secured by, a Policy that is not a modified endowment
contract are not treated as distributions. Instead, such loans are treated as
indebtedness of the Owner.
Finally, neither distributions (including distributions upon surrender or
lapse) nor loans from, or secured by, a Policy that is not a modified
endowment contract are subject to the 10 percent additional income tax.
5. Policy loan interest. If there is any borrowing against a Policy, the
interest paid on the loan generally will not be tax deductible. A Policyowner
should consult a qualified tax adviser before deducting interest on a policy
loan.
6. Investment in the Policy. Investment in the Policy means (i) the
aggregate amount of any premiums or other consideration paid for a Policy,
minus (ii) the aggregate amount received under the Policy which is excluded
from gross income of the Policy owner (except that the amount of any loan
from, or secured by, a Policy that is a modified endowment contract, to the
extent such amount is excluded from gross income, will be disregarded), plus
(iii) the amount of any loan from, or secured by, a Policy that is a modified
endowment contract to the extent that such amount is included in the gross
income of the Owner.
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<PAGE>
7. Multiple Policies. All modified endowment contracts that are issued by
the Company (or its affiliates) to the same Policy owner during any calendar
year are treated as one modified endowment contract for purposes of
determining the amount includible in gross income.
POSSIBLE CHARGE FOR TAXES
At the present time, the Company makes no charge to the Separate Account for
any Federal, state or local taxes the Company incurs that may be attributable
to the Separate Account or to the Policies. The Company, however, reserves the
right in the future to make a charge for any such tax or other economic burden
resulting from the application of the tax laws that it determines to be
properly attributable to the Separate Account or to the Policies.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative changes is uncertain, there is always
the possibility that the tax treatment of the Policy could change by
legislation or otherwise. For instance, the President's 1999 Budget Proposal
recommended legislation that, if enacted, would adversely modify the federal
taxation of this Policy. It is possible that any legislative change could be
retroactive (that is, effective prior to the date of the change). A tax
adviser should be consulted with respect to legislative developments and their
effect on the Policy.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
The Company holds assets of the Separate Account. The assets are kept
physically segregated and held separate and apart from the Company's general
assets. The Company maintains records of all purchases and redemptions of Fund
shares by each of the Divisions. Additional protection for the assets of the
Separate Account is afforded by a blended executive risk insurance program,
including blanket fidelity coverage issued by CNA and Chubb Insurance
Companies with a limit of $25 million, covering all officers and employees of
the Company who have access to the assets of the Separate Account.
VOTING RIGHTS
To the extent required by law, the Company will vote the shares of American
Series held in the Separate Account at regular and special shareholder
meetings of American Series in accordance with instructions received from
persons having voting interests in the corresponding Divisions of the Separate
Account. If, however, the 1940 Act or any regulation thereunder should be
amended or if the present interpretation thereof should change, and as a
result the Company determines that it is permitted to vote shares of American
Series in its own right, it may elect to do so.
The Owners of Policies ordinarily are the persons having a voting interest
in the Divisions of the Separate Account. The number of votes which an Owner
has the right to instruct will be calculated separately for each Division. The
number of votes which each Owner has the right to instruct will be determined
by dividing a Policy's Cash Value in a Division by the net asset value per
share of the corresponding Fund in which the Division invests. Fractional
shares will be counted. The number of votes of the Fund which the Owner has
right to instruct will be determined as of the date coincident with the date
established by that Fund for determining shareholders eligible to vote at the
meeting of American Series. Voting instructions will be solicited by written
communications prior to such meeting in accordance with procedures established
by American Series.
39
<PAGE>
Because the Funds of the American Series serve as investment vehicles for
this Policy as well as for other variable life insurance policies sold by
insurers other than the Company and funded through other separate investment
accounts, persons owning the other policies will enjoy similar voting rights.
The Company will vote Fund shares held in the Separate Account for which no
timely voting instructions are received and Fund shares that it owns as a
consequence of accrued charges under the Policies, in proportion to the voting
instructions which are received with respect to all Policies participating in
a Fund. Each person having a voting interest in a Division will receive proxy
material, reports, and other materials relating to the appropriate Fund.
Disregard of Voting Instructions. The Company may, when required by state
insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
subclassification or investment objective of one or more of the Funds or to
approve or disapprove an investment advisory contract for a Fund. In addition,
the Company itself may disregard voting instructions in favor of changes
initiated by an Owner in the investment policy or by the investment adviser or
sub-adviser of a Fund of American Series if the Company reasonably disapproves
of such changes. A proposed change would be disapproved only if the proposed
change is contrary to state law or prohibited by state regulatory authorities,
or the Company determined that the change would have an adverse effect on its
general assets in that the proposed investment policy for a Fund may result in
overly speculative or unsound investments. In the event the Company does
disregard voting instructions, a summary of that action and the reasons for
such action will be included in the next annual report to Owners.
STATE REGULATION OF THE COMPANY
The Company, a stock life insurance company organized under the laws of
Missouri, is subject to regulation by the Missouri Division of Insurance. An
annual statement is filed with the Director of Insurance on or before March 1
each year covering the operations and reporting on the financial condition of
the Company as of December 31 of the preceding year. Periodically, the
Director of Insurance examines the liabilities and reserves of the Company and
the Separate Account and certifies their adequacy, and a full examination of
the Company's operations is conducted by the National Association of Insurance
Commissioners at least once every three years.
In addition, the Company is subject to the insurance laws and regulations of
other states within which it is licensed or may become licensed to operate.
Generally, the insurance departments of other states apply the laws of the
state of domicile in determining permissible investments.
PREPARING FOR YEAR 2000
Like all financial services providers, the Company utilizes systems that may
be affected by Year 2000 transition issues and it relies on service providers,
including the Funds, that also may be affected. The Company has developed, and
is in the process of implementing a Year 2000 transition plan, and is
confirming that its service providers are also so engaged. The resources that
are being devoted to this effort is substantial. It is difficult to predict
with precision whether the amount of resources ultimately devoted, or the
outcome of these efforts, will have any negative impact on the Company.
However, as of the date of this prospectus, it is not anticipated that Policy
owners will experience negative effects on their investment, or on the
services provided in connection therewith, as a result of Year 2000 transition
implementation. The Company curently anticipates that its systems will be Year
2000 compliant on or about December 1, 1998, but there can be no assurance
that the Company will be successful, or that interaction with other service
providers will not impair the Company's services at that time.
40
<PAGE>
MANAGEMENT OF THE COMPANY
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME DURING PAST FIVE YEARS*
---- -----------------------
<C> <S>
EXECUTIVE OFFICERS**
Carl H. Anderson@ President and Chief Executive Officer since
June, 1986. Vice President, New Ventures, since
June, 1986, General American Life Insurance
Co., St. Louis, Mo. (GenAm).
Matthew K. Duffy Vice President and Chief Financial Officer
since July, 1996. Formerly, Director of Ac-
counting, Prudential Insurance Company of Amer-
ica, March, 1987-June, 1996.
E. Thomas Hughes, Jr.@ Treasurer since December, 1994. Corporate Actu-
General American Life ary and Treasurer, GenAm since October, 1994.
Insurance Company Executive Vice President-Group Pensions, GenAm
700 Market Street January, 1990-October, 1994.
St. Louis, MO 63101
Matthew P. McCauley@ Vice President and General Counsel since 1984.
General American Life Secretary since August 1981. Vice President and
Insurance Company Associate General Counsel, GenAm, since
700 Market Street December 30, 1995.
St. Louis, MO 63101
Craig K. Nordyke@ Executive Vice President and Chief Actuary
since November, 1996. Vice President and Chief
Actuary August, 1990-November, 1996.
Second Vice President and Chief Actuary, May,
1987-August, 1990.
George E. Phillips Vice President--Operations and System Develop-
ment since January, 1995. Formerly, Senior Vice
President, Fortis, Inc. July, 1991-August,
1994. Vice President, Mutual Benefit prior to
July, 1991.
DIRECTORS***
Richard A. Liddy Chairman, President and Chief Executive Offi-
cer, GenAm, since May, 1992. President and
Chief Operating Officer, GenAm, May, 1988-May,
1992.
Leonard M. Rubenstein Chairman and Chief Executive Officer--Conning
Corporation and
Conning Asset Management Company since January,
1997. Executive Vice President--Investments,
GenAm, February, 1991-January, 1997.
Warren J. Winer Executive Vice President--Group, GenAm, since
September, 1995.
Formerly, Managing Director, Wm. M. Mercer, Ju-
ly, 1993--August, 1995; President, W. F.
Corroon, September, 1990--July, 1993.
Bernard H Wolzenski Executive Vice President--Individual, GenAm,
since November, 1991. Vice President--Life
Product Management, GenAm, May, 1989-November,
1991.
A. Greig Woodring President, Reinsurance Group of America, Inc.,
since May, 1993, and Executive Vice President--
Reinsurance, GenAm, since January, 1990.
</TABLE>
- --------
* All positions listed are with the Company unless otherwise indicated.
** The principal business address of each person listed is Paragon Life
Insurance Company, 100 South Brentwood, St. Louis, Missouri 63105 unless
otherwise noted.
*** The principal business address of each person listed is General American
Life Insurance Company, 700 Market Street, St. Louis, MO 63101, except A.
Greig Woodring--Reinsurance Group of America, 660 Mason Ridge Center
Drive, St. Louis, MO 63141.
@Indicates Executive Officers who are also Directors.
41
<PAGE>
LEGAL MATTERS
Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain legal matters relating to aspects of Federal securities laws. All
matters of Missouri law pertaining to the Policies, including the validity of
the Policies and the Company's right to issue the Policies and the Group
Contract under Missouri insurance law, and all legal matters relating to the
Parent Company's resolution concerning policies issued by Paragon have been
passed upon by Matthew P. McCauley, Esquire, General Counsel of Paragon Life
Insurance Company.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or
to which the assets of the Separate Account are subject. The Company is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Account.
EXPERTS
The financial statements of the Company and the Separate Account included in
this Prospectus and in the registration statement have been included in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
Actuarial matters included in this Prospectus have been examined by Craig K.
Nordyke, FSA, MAAA, Executive Vice President and Chief Actuary of the Company,
as stated in the opinion filed as an exhibit to the registration statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This Prospectus does not contain all the information
set forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Separate Account, the Company and the Policy
offered hereby. Statements contained in this Prospectus as to the contents of
the Policy and other legal instruments are summaries. For a complete statement
of the terms thereof reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of the Company which are included in this
Prospectus should be distinguished from the financial statements for the
Separate Account included in this Prospectus, and should be considered only as
bearing on the ability of the Company to meet its obligations under the
Policy. They should not be considered as bearing on the investment performance
of the assets held in the Separate Account.
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LOGO
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Paragon Life Insurance Company:
We have audited the accompanying balance sheets of Paragon Life Insurance
Company as of December 31, 1997 and 1996, and the related statements of
operations, stockholder's equity, and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paragon Life Insurance
Company as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
February 6, 1998
F-1
<PAGE>
PARAGON LIFE INSURANCE COMPANY
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale, at fair value............ $ 75,704 65,472
Policy loans................................................... 11,487 9,564
Cash and cash equivalents...................................... 5,733 9,106
-------- -------
Total cash and invested assets............................. 92,924 84,142
Reinsurance recoverables....................................... 1,733 841
Deposits relating to reinsured policyholder account balances... 6,416 6,074
Accrued investment income...................................... 1,377 1,298
Deferred policy acquisition costs.............................. 17,980 15,776
Fixed assets and leasehold improvements, net................... 2,609 1,365
Other assets................................................... 179 143
Separate account assets........................................ 118,051 76,995
-------- -------
Total assets............................................... $241,269 186,634
======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Policyholder account balances.................................. 85,152 78,120
Policy and contract claims..................................... 1,085 1,108
Federal income taxes payable................................... 163 811
Other liabilities and accrued expenses......................... 3,486 2,704
Payable to affiliates.......................................... 1,620 2,289
Due to separate account........................................ 61 95
Deferred tax liability......................................... 4,394 2,781
Separate account liabilities................................... 118,051 76,995
-------- -------
Total liabilities.......................................... $214,012 164,903
-------- -------
Stockholder's equity:
Common stock, par value $25; 100,000 shares authorized;
82,000 shares issued and outstanding........................ 2,050 2,050
Additional paid-in capital................................... 17,950 17,950
Net unrealized gain on investments, net...................... 1,958 322
Retained earnings............................................ 5,299 1,409
-------- -------
Total stockholder's equity................................. $ 27,257 21,731
-------- -------
Total liabilities and stockholder's equity................. $241,269 186,634
======== =======
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
PARAGON LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Revenues:
Policy contract charges................................ $16,417 13,719 9,931
Net investment income.................................. 6,288 5,663 4,888
Commissions and expense allowances on reinsurance
ceded................................................. 10 114 96
Net realized investment gains.......................... 69 72 1
------- ------ ------
Total revenues....................................... 22,784 19,568 14,916
======= ====== ======
Benefits and expenses:
Policy benefits........................................ 3,876 3,326 2,873
Interest credited to policyholder account balances..... 4,738 4,126 3,833
Commissions, net of capitalized costs.................. 227 79 57
General and administration expenses, net of capitalized
costs................................................. 7,744 6,798 5,528
Amortization of deferred policy acquisition costs...... 424 285 369
------- ------ ------
Total benefits and expenses.......................... 17,009 14,614 12,660
======= ====== ======
Income before federal income tax expense............. 5,775 4,954 2,256
Federal income tax expense............................... 1,885 1,738 781
------- ------ ------
Net income............................................... $ 3,890 3,216 1,475
======= ====== ======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PARAGON LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONAL NET UNREALIZED RETAINED TOTAL
COMMON PAID-IN GAIN (LOSS) ON EARNINGS STOCKHOLDER'S
STOCK CAPITAL INVESTMENTS (DEFICIT) EQUITY
------ ---------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... $2,050 17,950 (1,824) (3,282) 14,894
Net income............ -- -- -- 1,475 1,475
Change in net
unrealized gain
(loss) on
investments.......... -- -- 3,407 -- 3,407
------ ------ ------ ------ ------
Balance at December 31,
1995................... $2,050 17,950 1,583 (1,807) 19,776
Net income............ -- -- -- 3,216 3,216
Change in net
unrealized gain
(loss) on
investments.......... -- -- (1,261) -- (1,261)
------ ------ ------ ------ ------
Balance at December 31,
1996................... $2,050 17,950 322 1,409 21,731
Net income............ -- -- -- 3,890 3,890
Change in net
unrealized gain
(loss) on
investments.......... -- -- 1,636 -- 1,636
------ ------ ------ ------ ------
Balance at December 31,
1997................... $2,050 17,950 1,958 5,299 27,257
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PARAGON LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 3,890 3,216 1,475
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in:
Reinsurance recoverables...................... (892) 407 297
Deposits relating to reinsured policyholder
account balances............................. (342) (378) (139)
Accrued investment income..................... (79) (257) (156)
Federal income tax recoverable/payable........ (648) 811 --
Other assets.................................. (1,280) (1,019) (145)
Policy and contract claims.................... (23) 12 387
Other liabilities and accrued expenses........ 782 741 313
Payable to affiliates......................... (669) 397 526
Due to separate account....................... (34) (108) (14)
Deferred tax expense.............................. 732 615 897
Policy acquisition costs deferred................. (2,972) (2,447) (2,263)
Amortization of deferred policy acquisition costs. 424 285 369
Interest credited to policyholder accounts........ 4,738 4,126 3,833
Net gain on sales and calls of fixed maturities... (69) (72) (1)
-------- ------- ------
Net cash provided by operating activities........... 3,558 6,329 5,379
Cash flows from investing activities:
Purchase of fixed maturities...................... (12,557) (15,290) (8,423)
Sale or maturity of fixed maturities.............. 5,255 6,860 3,082
Increase in policy loans, net..................... (1,923) (2,358) (1,788)
-------- ------- ------
Net cash used in investing activities............... (9,225) (10,788) (7,129)
-------- ------- ------
Cash flows from financing activities:
Net policyholder account deposits................. 2,294 6,509 5,764
-------- ------- ------
Net increase (decrease) in cash and cash
equivalents........................................ (3,373) 2,050 4,014
Cash and cash equivalents at beginning of year...... 9,106 7,056 3,042
-------- ------- ------
Cash and cash equivalents at end of year............ $ 5,733 9,106 7,056
======== ======= ======
Income taxes received (paid)........................ $ (1,801) (198) 93
======== ======= ======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PARAGON LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Paragon Life Insurance Company (Paragon or the Company) is a wholly owned
subsidiary of General American Life Insurance Company (General American or the
Parent). Paragon markets universal life and variable Universal Life Insurance
products through the sponsorship of major companies and organizations. Paragon
is licensed to do business in the District of Columbia and all states except
New York.
General American has guaranteed that Paragon will have sufficient funds to
meet all of its contractual obligations. In the event a policyholder presents
a legitimate claim for payment on a Paragon insurance policy, General American
will pay such claim directly to the policyholder if Paragon is unable to make
such payment. The guarantee agreement is binding on General American, its
successor or assignee and shall cease only if the guarantee is assigned to an
organization having a financial rating from Standard & Poor's equal to or
better than General American's rating.
The accompanying financial statements are prepared on the basis of generally
accepted accounting principles. The preparation of financial statements
requires the use of estimates by management which affect the amounts reflected
in the financial statements. Actual results could differ from those estimates.
Accounts that the Company deems to be sensitive to changes in estimates
include deferred policy acquisition costs and contract claims.
The significant accounting policies of the Company are as follows:
(a) Recognition of Policy Revenue and Related Expenses
Revenues for universal life products consist of policy charges for the cost
of insurance, administration and surrender charges during the period. Revenues
for variable universal life products also include policy charges for mortality
and expense risks assumed by Paragon. Policy benefits and expenses include
interest credited to policy account balances on universal life products and
death benefit payments made in excess of policy account balances.
Policy acquisition costs, such as commissions and certain costs of policy
issuance and underwriting, are deferred and amortized in relation to the
present value of expected gross profits over the estimated life of the
policies.
(b) Invested Assets
Investment securities are accounted for at fair value. At December 31, 1997
and 1996, fixed maturity securities are classified as available-for-sale and
are carried at fair value with the unrealized gain or loss, net of taxes,
being reflected as a separate component of stockholder's equity. Policy loans
are valued at aggregate unpaid balances.
Realized gains or losses on the sale of securities are determined on the
basis of specific identification and include the impact of any related
amortization of premiums or accretion of discounts which is generally computed
consistent with the interest method.
Amortization of the premium or discount on mortgage-backed securities is
recognized using a level-yield method which considers the estimated timing and
amount of prepayments of underlying mortgage loans. Actual prepayment
experience is periodically reviewed and effective yields are recalculated when
differences arise between the prepayments originally anticipated and the
actual prepayments received and currently anticipated. When such differences
occur, the net investment in the mortgage-backed security is adjusted to the
amount that would have existed had the new effective yield been applied since
the acquisition of the security with a corresponding charge or credit to
interest income.
F-6
<PAGE>
PARAGON LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(c) Policyholder Account Balances
Policyholder account balances are equal to the policyholder account value
before deduction of any surrender charges. The policyholder account value
represents an accumulation of gross premium payments plus credited interest
less expense and mortality charges and withdrawals. These expense charges are
recognized in income as earned. Certain variable life policies allow
policyholders to exchange accumulated assets from the variable rate separate
accounts to a fixed-interest general account policy. The fixed-interest
general account guaranteed minimum crediting rates of 4% in 1997, 1996 and
1995. The actual crediting rate was 6.5% in 1997, ranged from 6.5% to 7.0% in
1996, and was 7.0% in 1995.
(d) Federal Income Taxes
The Company establishes deferred taxes under the asset and liability method,
and deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
The Company files its federal income tax return on a consolidated basis with
its Parent and other subsidiaries. In accordance with a tax allocation
agreement between Paragon and General American, taxes are computed as if
Paragon was filing its own income tax return, and tax expense (benefit) is
paid to, or received from, General American. Paragon recognizes a tax benefit
to the extent that its tax losses are utilized by other members of the General
American consolidated tax group.
(e) Reinsurance
Balances resulting from agreements which transfer funds relating to
policyholder account balances have been accounted for as deposits. Other
reinsurance activities are accounted for consistent with terms of the risk
transfer reinsurance contracts. Premiums for reinsurance ceded to other
companies have been reported as a reduction of policy contract charges.
Amounts applicable to reinsurance ceded for future policy benefits and claim
liabilities have been reported as assets for these items, and commissions and
expense allowances received in connection with reinsurance ceded have been
accounted for in income as earned. Reinsurance does not relieve the Company
from its primary responsibility to meet claim obligations.
(f) Deferred Policy Acquisition Costs
The costs of acquiring new business which vary with, and are primarily
related to, the production of new business have been deferred to the extent
that such costs are deemed recoverable from future gross profits. Such costs
include commissions, premium taxes, as well as certain costs of policy
issuance and underwriting. Deferred policy acquisition costs are adjusted for
the impact on estimated gross margins of net unrealized gains and losses on
investment securities. The estimates of expected gross margins are evaluated
regularly and are revised if actual experience or other evidence indicates
that revision is appropriate. Upon revision, total amortization recorded to
date is adjusted by a charge or credit to income.
(g) Separate Account Business
The assets and liabilities of the separate accounts represent segregated
funds administered and invested by the Company for purposes of funding
variable life insurance contracts for the exclusive benefit of variable life
insurance contract holders. The Company charges the separate accounts for
risks it assumes in issuing a policy and retains varying amounts of withdrawal
charges to cover expenses in the event of early withdrawals by contract
holders. The assets and liabilities of the separate account are carried at
fair value.
F-7
<PAGE>
PARAGON LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(h) Fair Value of Financial Instruments
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Although fair value estimates are calculated using
assumptions that management believes are appropriate, changes in assumption
could significantly affect the estimates and such estimates should be used
with care. The following assumptions were used to estimate the fair value of
each class of financial instrument for which it was practicable to estimate
fair value:
Fixed maturities--Fixed maturities are valued using quoted market prices,
if available. If quoted market prices are not available, fair value is
estimated using quoted market prices of similar securities.
Policy loans--Policy loans are carried at their unpaid balances which
approximates fair value.
Separate account assets and liabilities--The separate account assets are
carried at fair value as determined by quoted market prices. Accordingly,
the carrying value of separate account liabilities is equal to their fair
value since it represents the contractholders' interest in the separate
account assets.
Cash and cash equivalents--The carrying amount is a reasonable estimate
of fair value.
(i) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents represent
demand deposits and highly liquid short-term investments, which include U.S.
Treasury bills, commercial paper, and repurchase agreements with original or
remaining maturities of 90 days or less when purchased.
(j) Reclassifications
The Company has reclassified the presentation of certain prior period
information to conform to the 1997 presentation.
(2) INVESTMENTS
The amortized cost and estimated fair value of fixed maturities at December
31, 1997 and 1996 are as follows (000's):
<TABLE>
<CAPTION>
1997
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities........ $ 4,472 131 -- 4,603
Corporate securities............ 56,973 3,098 (142) 59,929
Mortgage-backed securities...... 9,124 233 (48) 9,309
Asset-backed securities......... 1,762 101 -- 1,863
------- ----- ---- ------
$72,331 3,563 (190) 75,704
======= ===== ==== ======
<CAPTION>
1996
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities........ $ 4,410 129 (5) 4,534
Corporate securities............ 51,489 1,161 (844) 51,806
Mortgage-backed securities...... 7,547 137 (110) 7,574
Asset-backed securities......... 1,513 45 -- 1,558
------- ----- ---- ------
$64,959 1,472 (959) 65,472
======= ===== ==== ======
</TABLE>
F-8
<PAGE>
PARAGON LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and estimated fair value of fixed maturities at December
31, 1997, by contractual maturity, are shown below (000's). Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED COST FAIR VALUE
-------------- ----------
<S> <C> <C>
Due in one year or less......................... $ 3,092 3,124
Due after one year through five years........... 10,443 10,846
Due after five years through ten years.......... 15,444 15,890
Due after ten years through twenty years........ 34,228 36,535
Mortgage-backed securities...................... 9,124 9,309
------- ------
$72,331 75,704
======= ======
</TABLE>
Proceeds from sales of fixed maturities during 1997, 1996 and 1995 were
$1,328,585, $4,129,254 and $264,750 respectively. Gross gains of $68,876,
$71,604 and $1,338 were realized on those sales in 1997, 1996 and 1995,
respectively.
The sources of net investment income follow (000s):
<TABLE>
<CAPTION>
1997 1996 1995
------- ----- -----
<S> <C> <C> <C>
Fixed Maturities...................................... $ 4,941 4,626 4,109
Short-term investments................................ 608 449 338
Policy loans and other................................ 807 680 480
------- ----- -----
$ 6,356 5,755 4,927
Investment expenses................................... (68) (92) (39)
======= ===== =====
Net investment income............................. $ 6,288 5,663 4,888
======= ===== =====
</TABLE>
A summary of the components of the net unrealized appreciation
(depreciation) on invested assets carried at fair value is as follows (in
000's):
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Unrealized appreciation (depreciation):
Fixed maturities available-for-sale....................... $3,373 513
Deferred policy acquisition costs......................... (361) (17)
Deferred income taxes....................................... (1,054) (174)
------ ----
Net unrealized appreciation (depreciation).................. $1,958 322
====== ====
</TABLE>
The Company has fixed maturities on deposit with various state insurance
departments with an amortized cost of approximately $3,982,000 and $3,909,000
at December 31, 1997 and 1996, respectively.
(3) REINSURANCE
The Company reinsures certain risks with other insurance companies above a
maximum retention amount (currently $50,000) to help reduce the loss on any
single policy.
Premiums and related reinsurance amounts for the years ended December 31,
1997, 1996 and 1995 as they relate to transactions with affiliates are
summarized as follows (000's):
F-9
<PAGE>
PARAGON LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Reinsurance transactions with affiliates:
Premiums for reinsurance ceded................ $13,001 10,264 8,607
Policy benefits ceded......................... 14,070 6,274 6,881
Commissions and expenses ceded................ 195 114 94
Reinsurance recoverables...................... 1,661 774 1,183
Ceded premiums and benefits to nonaffiliates for 1997, 1996 and 1995 were
insignificant.
(4) DEFERRED POLICY ACQUISITION COSTS
A summary of the policy acquisition costs deferred and amortized is as
follows (000's):
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Balance at beginning of year.................... $15,776 13,006 12,496
Policy acquisition costs deferred............... 2,972 2,447 2,263
Policy acquisition costs amortized.............. (424) (285) (369)
Deferred policy acquisition costs relating to
change in unrealized (gain) loss on investments
available for sale............................. (344) 608 (1,384)
------- ------ ------
Balance at end of year.......................... $17,980 15,776 13,006
======= ====== ======
(5) FEDERAL INCOME TAXES
The Company is taxed as a life insurance company. A summary of Federal income
tax expense is as follows (000s):
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Current tax (benefit) expense................... $ 1,153 1,123 (116)
Deferred tax expense............................ 732 615 897
------- ------ ------
Federal income tax expense...................... $ 1,885 1,738 781
======= ====== ======
A reconciliation of the Company's "expected" federal income tax expense,
computed by applying the federal U.S. corporate tax rate of 35% to income from
operations before federal income tax, is as follows (000s):
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense................. $ 2,022 1,734 790
Other, net...................................... (137) 4 (9)
------- ------ ------
Federal income tax expense...................... $ 1,885 1,738 781
======= ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1997 and 1996
are presented below (000's):
<TABLE>
<CAPTION>
1997 1996
------- -----
<S> <C> <C>
Deferred tax assets:
Unearned reinsurance allowances........................... $ 217 153
Policy and contract liabilities........................... 1,031 1,305
Tax capitalization of acquisition costs................... 1,755 1,386
Other, net................................................ 76 69
------- -----
Total deferred tax assets............................... $ 3,079 2,913
======= =====
Deferred tax liabilities:
Unrealized gain on investments............................ $ 1,054 174
Deferred policy acquisition costs......................... 6,419 5,520
------- -----
Total gross deferred tax liabilities.................... $ 7,473 5,694
======= =====
Net deferred tax liabilities............................ $ 4,394 2,781
======= =====
</TABLE>
F-10
<PAGE>
PARAGON LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company believes that a valuation allowance with respect to the
realization of the total gross deferred tax asset is not necessary. In
assessing the realization of deferred tax assets, the Company considers
whether it is more likely than not that the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary differences become deductible. The Company files a consolidated tax
return with its Parent. Realization of the gross tax asset will not be
dependent solely on the Company's ability to generate its own taxable income.
General American has a proven history of earnings and it appears more likely
than not that the Company's gross deferred tax asset will ultimately be fully
realized.
(6) RELATED-PARTY TRANSACTIONS
Paragon purchases certain administrative services from General American.
Charges for services performed are based upon personnel and other costs
involved in providing such service. Charges for services during 1997, 1996 and
1995 were $1,348,198, $1,250,396 and $1,103,028, respectively. See Note 3 for
reinsurance transactions with affiliates.
(7) PENSION PLAN
Associates of Paragon participate in a non-contributory multi-employer
defined benefit pension plan jointly sponsored by Paragon and General
American. The benefits are based on years of service and compensation level.
No pension expense was recognized in 1997, 1996 or 1995 due to overfunding of
the plan.
In addition, Paragon has adopted an associate incentive plan applicable to
full-time salaried associates with at least one year of service. Contributions
to the plan are determined annually by General American and are based on
salaries of eligible associates. Full vesting occurs after five years of
continuous service. Total expenses to the company for the incentive plan were
$198,972, $80,434 and $149,747 for 1997, 1996 and 1995, respectively.
Paragon provides for certain health care and life insurance benefits for
retired employees. The Company accounts for these benefits in accordance with
SFAS No. 106--Employer's Accounting for Postretirement Benefits Other Than
Pensions. The amounts involved are not material.
(8) STATUTORY FINANCIAL INFORMATION
The Company is subject to financial statement filing requirements of the
State of Missouri Department of Insurance, its state of domicile, as well as
the states in which it transacts business. Such financial statements,
generally referred to as statutory financial statements, are prepared on a
basis of accounting which varies in some respects from generally accepted
accounting principles (GAAP). Statutory accounting principles include: (1)
charging of policy acquisition costs to income as incurred; (2) establishment
of policy and contract liabilities computed using required valuation standards
which may vary in methodology utilized; (3) nonprovision of deferred federal
income taxes resulting from temporary differences between financial reporting
and tax bases of assets and liabilities; (4) recognition of statutory
liabilities for asset impairments and yield stabilization on fixed maturity
dispositions prior to maturity with asset valuation reserves based on
statutory determined formulae and interest stabilization reserves designed to
level yields over their original purchase maturities; (5) valuation of
investments in fixed maturities at amortized cost; (6) net presentation of
reinsurance balances; and (7) recognition of deposits and withdrawals on
universal life policies as revenues and expenses.
The stockholder's equity (surplus) and net income (loss) of the Company at
December 31, 1997, 1996 and 1995, as determined using statutory accounting
practices, is summarized as follows (000's):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Statutory surplus as reported to regulatory
authorities..................................... $10,848 10,751 10,778
Net income (loss) as reported to regulatory
authorities..................................... $ 1,452 982 (920)
</TABLE>
F-11
<PAGE>
PARAGON LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(9) DIVIDEND RESTRICTIONS
Dividend payments by Paragon are restricted by state insurance laws as to
the amount that may be paid without prior notice or approval of the Missouri
Department of Insurance. The maximum amount of dividends which can be paid
without prior approval of the insurance commissioner is limited to the maximum
of (1) 10% of statutory surplus or (2) net gain from operations. The maximum
dividend distribution that can be paid by Paragon during 1998 without prior
notice or approval is $1,452,000. Paragon did not pay dividends in 1997, 1996
or 1995.
(10) RISK-BASED CAPITAL
The insurance departments of various states, including the Company's
domiciliary state of Missouri, impose risk-based capital (RBC) requirements on
insurance enterprises. The RBC calculation serves as a benchmark for the
regulation of life insurance companies by state insurance regulators. The
requirements apply various weighted factors to financial balances or activity
levels based on their perceived degree of risk.
The RBC guidelines define specific capital levels where action by the
Company or regulators is required based on the ratio of a company's actual
total adjusted capital to control levels determined by the RBC formula. At
December 31, 1997, the Company's actual total adjusted capital was in excess
of minimum levels which would require action by the Company or regulatory
authorities under the RBC formula.
(11) COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment under
noncancellable leases which expire March 2001. The future minimum lease
obligations under the terms of the leases are summarized as follows (000s):
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31:
1998............................ $ 503
1999............................ 490
2000............................ 486
2001............................ 189
------
$1,668
======
</TABLE>
Rent expense totaled $433,864, $388,976 and $256,631 in 1997, 1996 and 1995,
respectively.
F-12
<PAGE>
[KPMG Peat Marwick LLP LOGO]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Paragon Life Insurance Company and
Policyholders of Separate Account A:
We have audited the accompanying statements of net assets, including the
schedule of investments, of the Cash Management, High-Yield Bond, Growth-
Income, Growth, U.S. Government/AAA-Rated, Asset Allocation, International,
Global Growth, and Bond Divisions of Paragon Separate Account A as of December
31, 1997, and the related statements of operations and changes in net assets
for the periods presented. These financial statements are the responsibility
of Paragon Separate Account A's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. Our
procedures included confirmation of investments owned at December 31, 1997 by
correspondence with the American Variable Insurance Series Mutual Funds. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Cash Management, High-
Yield Bond, Growth-Income, Growth, U.S. Government/AAA-Rated, Asset
Allocation, International, Global Growth, and Bond Divisions of Paragon
Separate Account A as of December 31, 1997, and the results of their
operations and changes in their net assets for each of the periods presented,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
April 4, 1998
F-13
<PAGE>
PARAGON SEPARATE ACCOUNT A
STATEMENTS OF NET ASSETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
CASH HIGH-YIELD GROWTH- U.S. GOV/ ASSET GLOBAL
MANAGEMENT BOND INCOME GROWTH AAA-RATED ALLOCATION INTERNATIONAL GROWTH BOND
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
---------- ---------- ---------- ---------- --------- ---------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSETS:
Investments in
American Variable
Insurance Series, at
Market Value (See
Schedule of
Investments)......... $1,483,880 3,355,616 19,812,898 25,830,645 2,344,588 5,399,091 8,811,323 5,473 64,816
Receivable (payable)
from/to Paragon Life
Insurance Company.... 3,112 801 22,483 (18,502) 147 3,792 (57,294) (267) (9)
---------- --------- ---------- ---------- --------- --------- --------- ----- ------
Total Net Assets..... 1,486,992 3,356,417 19,835,381 25,812,143 2,344,735 5,402,883 8,754,029 5,206 64,807
========== ========= ========== ========== ========= ========= ========= ===== ======
Group Variable
Universal Life Cash
Value Invested in
Separate Account..... 1,486,992 3,356,417 19,835,381 25,812,143 2,344,735 5,402,883 8,754,029 5,206 64,807
---------- --------- ---------- ---------- --------- --------- --------- ----- ------
$1,486,992 3,356,417 19,835,381 25,812,143 2,344,735 5,402,883 8,754,029 5,206 64,807
========== ========= ========== ========== ========= ========= ========= ===== ======
Total Units Held...... 98,099 113,501 331,524 376,533 127,226 216,803 470,502 481 6,055
Net Asset Value Per
Unit................. $ 15.16 29.57 59.83 68.55 18.43 24.92 18.61 10.82 10.70
Cost of Investments... $1,529,996 3,196,459 16,025,070 21,213,352 2,371,750 4,627,051 8,556,785 5,628 66,390
========== ========= ========== ========== ========= ========= ========= ===== ======
</TABLE>
See Accompanying Notes to Financial Statements.
F-14
<PAGE>
PARAGON SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 EXCEPT FOR THE GLOBAL
GROWTH DIVISION AND THE BOND DIVISION
WHICH ARE FOR THE PERIOD FROM MAY 1, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
CASH HIGH-YIELD GROWTH-
MANAGEMENT BOND INCOME
DIVISION DIVISION DIVISION
--------------------------- ------------------------ ------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- -------- ------- ------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Income... $ 74,007 55,304 43,559 264,042 198,702 152,192 350,104 276,437 222,840
Expenses:
Mortality and Ex-
pense Charge...... 10,690 9,781 6,200 22,441 19,133 13,618 133,938 109,341 75,855
-------- -------- ------- ------- ------- ------- --------- --------- ---------
Net Investment
Income (Ex-
pense).......... 63,317 45,523 37,359 241,601 179,569 138,574 216,166 167,096 146,985
Net Realized Gain
on Investments
Realized Gain from
Distributions..... -- -- -- 34,716 -- -- 1,872,910 1,039,674 412,716
Proceeds from
Sales............. 443,594 213,927 366,213 274,962 201,934 262,793 1,769,273 914,886 1,182,822
Cost of Invest-
ments Sold........ 412,545 201,797 350,096 212,893 166,162 239,767 1,078,967 646,528 970,013
-------- -------- ------- ------- ------- ------- --------- --------- ---------
Net Realized
Gain (Loss) on
Investments..... 31,049 12,130 16,117 96,785 35,777 23,026 2,563,216 1,308,032 625,525
Net Unrealized Gain
(Loss) on
Investments:
Unrealized Gain
(Loss) Beginning
of Year........... (11,937) 719 22,697 173,880 134,098 16,730 2,714,233 2,155,815 635,009
Unrealized Gain
(Loss) End of
Year.............. (46,116) (11,937) 719 159,157 178,880 134,098 3,787,828 2,714,233 2,155,815
-------- -------- ------- ------- ------- ------- --------- --------- ---------
Net Unrealized
Gain (Loss) on In-
vestments......... (34,179) (12,656) (21,978) (14,723) 39,782 117,368 1,073,595 558,418 1,520,806
-------- -------- ------- ------- ------- ------- --------- --------- ---------
Net Gain (Loss)
on Investments.. (3,130) (526) (5,861) 82,062 75,554 140,394 3,636,811 1,866,450 2,146,331
Increase (Decrease)
in Assets Resulting
from Operations.... $ 60,187 44,997 31,498 323,663 255,123 278,968 3,852,977 2,033,546 2,293,316
======== ======== ======= ======= ======= ======= ========= ========= =========
<CAPTION>
U.S. GOVERNMENT/ ASSET
AAA-RATED ALLOCATION INTERNATIONAL
DIVISION DIVISION DIVISION
--------------------------- ------------------------ ------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- -------- ------- ------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Income... $147,633 143,559 114,860 174,754 137,430 99,842 175,293 119,621 110,422
Expenses:
Mortality and Ex-
pense Charge...... 16,289 16,656 13,792 36,970 31,646 22,027 66,681 54,616 37,376
-------- -------- ------- ------- ------- ------- --------- --------- ---------
Net Investment
Income (Ex-
pense).......... 131,344 126,903 101,068 137,784 105,784 77,815 108,612 65,005 73,046
Net Realized Gain
on Investments
Realized Gain from
Distributions..... -- -- -- 288,742 267,989 103,383 895,572 290,389 101,999
Proceeds from
Sales............. 363,960 312,394 327,158 593,825 352,789 373,568 1,324,190 531,338 887,260
Cost of Invest-
ments Sold........ 314,641 279,505 303,064 405,749 266,045 316,509 980,764 439,212 803,578
-------- -------- ------- ------- ------- ------- --------- --------- ---------
Net Realized
Gain (Loss) on
Investments..... 49,319 32,889 24,094 476,818 354,733 160,442 1,238,998 382,515 185,681
Net Unrealized Gain
(Loss) on Invest-
ments:
Unrealized Gain
(Loss) Beginning
of Year........... (6,315) 110,048 28,910 527,649 487,196 117,576 959,525 458,570 240,898
Unrealized Gain
(Loss) End of
Year.............. (27,162) (6,315) 110,048 772,040 527,649 487,196 254,538 959,525 458,570
-------- -------- ------- ------- ------- ------- --------- --------- ---------
Net Unrealized
Gain (Loss) on In-
vestments......... (20,847) (116,363) 81,138 244,391 40,453 369,620 (704,987) 500,955 217,672
-------- -------- ------- ------- ------- ------- --------- --------- ---------
Net Gain (Loss)
on Investments.. 28,472 (83,474) 105,232 721,209 395,186 530,062 534,011 883,470 403,353
Increase (Decrease)
in Assets Resulting
from Operations.... $159,816 43,429 206,300 858,993 500,970 607,877 642,623 948,475 476,399
======== ======== ======= ======= ======= ======= ========= ========= =========
<CAPTION>
GROWTH
DIVISION
--------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Investment Income:
Dividend Income... 134,259 101,379 104,997
Expenses:
Mortality and Ex-
pense Charge...... 173,987 147,017 107,470
---------- ---------- ----------
Net Investment
Income (Ex-
pense).......... (39,728) (45,638) (2,473)
Net Realized Gain
on Investments
Realized Gain from
Distributions..... 3,088,079 1,349,173 1,184,507
Proceeds from
Sales............. 2,854,025 1,374,499 1,678,564
Cost of Invest-
ments Sold........ 1,752,513 1,000,273 1,321,909
---------- ---------- ----------
Net Realized
Gain (Loss) on
Investments..... 4,189,591 1,723,399 1,541,162
Net Unrealized Gain
(Loss) on
Investments:
Unrealized Gain
(Loss) Beginning
of Year........... 2,937,160 2,599,504 1,007,900
Unrealized Gain
(Loss) End of
Year.............. 4,617,293 2,937,160 2,599,504
---------- ---------- ----------
Net Unrealized
Gain (Loss) on In-
vestments......... 1,680,133 337,656 1,591,604
---------- ---------- ----------
Net Gain (Loss)
on Investments.. 5,869,724 2,061,055 3,132,766
Increase (Decrease)
in Assets Resulting
from Operations.... 5,829,996 2,015,417 3,130,293
========== ========== ==========
<CAPTION>
GLOBAL
GROWTH BOND
DIVISION DIVISION
---------- ----------
1997 1997
---------- ----------
<S> <C> <C> <C>
Investment Income:
Dividend Income... 29 926
Expenses:
Mortality and Ex-
pense Charge...... 12 9
---------- ----------
Net Investment
Income (Ex-
pense).......... 17 917
Net Realized Gain
on Investments
Realized Gain from
Distributions..... 20 739
Proceeds from
Sales............. 5,402 --
Cost of Invest-
ments Sold........ 5,506 --
---------- ----------
Net Realized
Gain (Loss) on
Investments..... (84) 739
Net Unrealized Gain
(Loss) on Invest-
ments:
Unrealized Gain
(Loss) Beginning
of Year........... -- --
Unrealized Gain
(Loss) End of
Year.............. (155) (1,574)
---------- ----------
Net Unrealized
Gain (Loss) on In-
vestments......... (155) (1,574)
---------- ----------
Net Gain (Loss)
on Investments.. (239) (835)
Increase (Decrease)
in Assets Resulting
from Operations.... (222) 82
========== ==========
</TABLE>
See Accompanying Notes to Financial Statements.
F-15
<PAGE>
PARAGON SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 EXCEPT FOR THE GLOBAL
GROWTH DIVISION AND THE BOND DIVISION WHICH ARE FOR THE PERIOD
FROM MAY 1, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
CASH HIGH-YIELD GROWTH-
MANAGEMENT BOND INCOME
DIVISION DIVISION DIVISION
-------------------------------- ------------------------------ ---------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---------- --------- --------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment
Income (expense).. $ 63,317 45,523 37,359 241,601 179,569 138,574 216,166 167,096 146,985
Net Realized Gain
(Loss) on
Investment........ 31,049 12,130 16,117 96,785 35,772 23,026 2,563,216 1,308,032 625,525
Net Unrealized
Gain (Loss) on
Investment........ (34,179) (12,656) (21,978) (14,723) 39,782 117,368 1,073,595 558,418 1,520,806
---------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Increase
(Decrease) in Net
Assets Resulting
from Operations... 60,187 44,997 31,498 323,663 255,123 278,968 3,852,977 2,033,546 2,293,316
Net Deposits into
Separate Account.. 69,053 415,143 298,894 459,664 484,080 365,882 1,497,701 2,038,628 1,616,708
---------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Increase in Net
Assets.......... 129,240 460,140 330,392 783,327 739,203 644,850 5,350,678 4,072,174 3,910,024
Net Assets,
Beginning of Year.. 1,357,752 897,612 567,220 2,573,090 1,833,887 1,189,037 14,484,703 10,412,529 6,502,505
---------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Net Assets, End of
Year............... $1,486,992 1,357,752 897,612 3,356,417 2,573,090 1,833,887 19,835,381 14,484,703 10,412,529
========== ========= ========= ========= ========= ========= ========== ========== ==========
<CAPTION>
U.S. GOV/ ASSET
AAA-RATED ALLOCATION INTERNATIONAL
DIVISION DIVISION DIVISION
-------------------------------- ------------------------------ ---------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---------- --------- --------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment
Income (expense).. $ 131,344 126,903 101,068 137,784 105,784 77,815 108,612 65,005 73,046
Net Realized Gain
(Loss) on
Investment........ 49,319 32,889 24,094 476,818 354,733 160,442 1,238,998 382,515 185,681
Net Unrealized
Gain (Loss) on
Investments....... (20,847) (116,363) 81,138 244,391 40,453 369,620 (704,987) 500,955 217,672
---------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Increase
(Decrease) in Net
Assets Resulting
from Operations... 159,816 43,429 206,300 858,993 500,970 607,877 642,623 948,475 476,399
Net Deposits into
Separate Account.. 158,596 224,208 263,499 389,338 629,631 531,105 722,256 1,513,635 1,191,219
---------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Increase in Net
Assets.......... 318,412 267,637 469,799 1,248,331 1,130,601 1,138,982 1,364,879 2,462,110 1,667,618
Net Assets,
Beginning of Year.. 2,026,323 1,758,686 1,288,887 4,154,552 3,023,951 1,884,969 7,389,150 4,927,040 3,259,422
---------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Net Assets, End of
Year............... $2,344,735 2,026,323 1,758,686 5,402,883 4,154,552 3,023,951 8,754,029 7,389,150 4,927,040
========== ========= ========= ========= ========= ========= ========== ========== ==========
<CAPTION>
GROWTH
DIVISION
-----------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operations:
Net Investment
Income (expense).. (39,728) (45,638) (2,473)
Net Realized Gain
(Loss) on
Investment........ 4,189,591 1,723,399 1,541,162
Net Unrealized
Gain (Loss) on
Investment........ 1,680,133 337,656 1,591,604
----------- ----------- -----------
Increase
(Decrease) in Net
Assets Resulting
from Operations... 5,829,995 2,015,417 3,130,293
Net Deposits into
Separate Account.. 864,930 2,702,827 2,454,090
----------- ----------- -----------
Increase in Net
Assets.......... 6,694,925 4,718,244 5,584,383
Net Assets,
Beginning of Year.. 19,117,218 14,398,974 8,814,591
----------- ----------- -----------
Net Assets, End of
Year............... 25,812,143 19,117,218 14,398,974
=========== =========== ===========
<CAPTION>
GLOBAL
GROWTH BOND
DIVISION DIVISION
----------- -----------
1997 1997
----------- -----------
<S> <C> <C> <C>
Operations:
Net Investment
Income (expense).. 17 917
Net Realized Gain
(Loss) on
Investment........ (84) 739
Net Unrealized
Gain (Loss) on
Investments....... (155) (1,574)
----------- -----------
Increase
(Decrease) in Net
Assets Resulting
from Operations... (222) 82
Net Deposits into
Separate Account.. 5,428 64,725
----------- -----------
Increase in Net
Assets.......... 5,206 64,807
Net Assets,
Beginning of Year.. -- --
----------- -----------
Net Assets, End of
Year............... 5,206 64,807
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-16
<PAGE>
PARAGON SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION
Paragon Life Insurance Company (Paragon) established Paragon Separate
Account A on October 30, 1987. Paragon Separate Account A (the Separate
Account) commenced operations on October 24, 1989 and is registered under the
Investment Company Act of 1940 as a unit investment trust. The Separate
Account receives and invests net premiums for flexible premium group variable
life insurance policies that are issued by Paragon. The Separate Account is
divided into divisions, eight of which invest exclusively in shares of a
single fund of American Variable Insurance Series (American Series), an open-
end, diversified management investment company. These funds are the Cash
Management Fund, High-Yield Bond Fund, Growth Income Fund, Growth Fund, U.S.
Government AAA-Rated Fund, Asset Allocation Fund, International Fund, Global
Growth Fund and Bond Fund (the Funds). Policyholders have the option of
directing their premium payments into any or all of the Divisions.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Separate Account in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Investments
The Separate Account's investments in the Funds of the American Series are
valued daily based on the net asset values of the respective fund shares held.
The average cost method is used in determining the cost of shares sold on
withdrawals by the Separate Account. Share transactions are recorded
consistent with trade date accounting. All dividends received are immediately
reinvested on the ex-dividend date.
Federal Income Taxes
The operations of the Separate Account are treated as part of Paragon for
income tax purposes. Under existing Federal income tax law, capital gains from
sales of investments of the Separate Account are not taxable. Therefore, no
Federal income tax has been provided.
Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions with respect to amounts reported in the financial
statements. Actual results could differ from those estimates.
Reclassifications
The Separate Account has reclassified the presentation of certain prior
period information to conform to the 1997 presentation.
(3) POLICY CHARGES
Charges are deducted from the policies and the Separate Account to
compensate Paragon for providing the insurance benefits set forth in the
contracts and any additional benefits added by rider, administering the
policies, incurring expenses in distributing the policies, and assuming
certain risks in connection with the policy.
F-17
<PAGE>
PARAGON SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Premium Expense Charge
Certain policies include a provision that premium payments may be reduced by
a premium expense charge. The premium expense charge, if any, is determined by
the costs associated with distributing the policy and is equal to 1%, 2.5% or
3.5% of the premium paid. The premium expense charge compensates Paragon for
providing the insurance benefits set forth in the policies, incurring expenses
of distributing the policies, and assuming certain risks in connection with
the policies. In addition, some polices have a premium tax assessment equal to
2% to 2.25% to reimburse Paragon for premium taxes incurred. The premium
payment less premium expense and premium tax charges equals the net premium
that is invested in the underlying separate account.
Monthly Expense Charge
Paragon has responsibility for the administration of the policies and the
Separate Account. As reimbursement for expenses related to the acquisition and
maintenance of each policy and the Separate Account, Paragon assesses a
monthly administration charge to each policy. This charge, which varies due to
the size of the group, has a maximum of $6.00 per month during the first 12
policy months and $3.50 per month thereafter.
Cost of Insurance
The cost of insurance is deducted on each monthly anniversary for the
following policy month. Because the cost of insurance depends upon a number of
variables, the cost varies for each policy month. The cost of insurance is
determined separately for the initial face amount and for any subsequent
increase in face amount. Paragon determines the monthly cost of insurance
charge by multiplying the applicable cost of insurance rate or rates by the
net amount at risk for each policy month.
Optional Rider Benefits Charge
The monthly deduction charge for any additional benefits provided by rider.
Surrender or Contingent Deferred Sales Charge
During the first policy years, certain policies include a provision for a
charge upon surrender or lapse of the policy, a requested decrease in face
amount, or a partial withdrawal that causes the face amount to decrease. The
amount assessed under the policy terms, if any, depends upon the cost
associated with distributing the particular policies. The amount of any charge
depends on a number of factors, including whether the event is a full
surrender or lapse or only a decrease in face amount, the amount of premiums
received by Paragon, and the policy year in which the surrender or other event
takes place.
Mortality and Expense Charge
In addition to the above contract charges, a daily charge is made against
the operations of each division for the mortality and expense risks assumed by
Paragon. Paragon deducts a daily charge from the Separate Account at the rate
of .0024547% of the net assets of each division of the Separate Account which
equals an annual rate of .90% of those net assets. The mortality risk assumed
by Paragon is that insureds may die sooner than anticipated and that,
therefore, Paragon will pay an aggregate amount of death benefits greater than
anticipated. The expense risk assumed is that expenses incurred in issuing and
administering the policy will exceed the amounts realized from the
administrative charges assessed against the policy.
F-18
<PAGE>
PARAGON SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) PURCHASES AND SALES OF AMERICAN SERIES SHARES
For the years ended December 31, 1997, 1996, and 1995, except for the Global
Growth Division and the Bond Division which are for the period from May 1,
1997 (Inception) to December 31, 1997, purchases and proceeds from the sales
of the American Series were as follows:
<TABLE>
<CAPTION>
HIGH-YIELD BOND
CASH MANAGEMENT DIVISION DIVISION GROWTH-INCOME DIVISION GROWTH DIVISION
------------------------ ----------------------- ----------------------------- -----------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- ------- ------- ------- ------- ------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases....... $501,797 612,010 658,908 716,910 667,675 615,057 3,148,883 2,821,380 2,723,675 3,567,101 3,931,562 4,025,185
Sales........... $443,594 213,927 366,213 274,962 201,934 262,793 1,769,273 914,886 1,182,822 2,854,025 1,374,498 1,678,564
======== ======= ======= ======= ======= ======= ========= ========= ========= ========= ========= =========
<CAPTION>
GLOBAL
U.S. GOVERNMENT/AAA- ASSET ALLOCATION GROWTH BOND
RATED DIVISION DIVISION INTERNATIONAL DIVISION DIVISION DIVISION
------------------------ ----------------------- ----------------------------- --------- ---------
1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1997
-------- ------- ------- ------- ------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases....... $512,847 518,994 576,865 934,034 966,183 882,647 2,043,240 1,985,341 2,041,103 11,085 64,725
Sales........... $363,960 312,394 327,158 593,825 352,789 373,568 1,324,190 531,338 887,260 5,402 0
======== ======= ======= ======= ======= ======= ========= ========= ========= ========= =========
</TABLE>
F-19
<PAGE>
PARAGON SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) ACCUMULATION OF UNIT ACTIVITY
The following is a reconciliation of the accumulation of unit activity for
the years ended December 31, 1997, 1996, and 1995 except for the Global Growth
Division and the Bond Division which are for the period from May 1, 1997
(Inception) to December 31, 1997:
<TABLE>
<CAPTION>
HIGH-YIELD BOND
CASH MANAGEMENT DIVISION DIVISION GROWTH-INCOME DIVISION GROWTH DIVISION
-------------------------- ----------------------- ----------------------- -------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in
Units
Deposits........ 34,468 43,267 48,507 25,785 26,882 28,691 59,235 65,173 77,194 59,854 80,355 96,181
Withdrawals..... 29,861 14,126 26,913 9,362 7,385 11,838 30,135 18,457 31,705 43,445 24,887 37,756
-------- -------- -------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Increase in
Units........... 4,607 29,141 21,594 16,423 19,497 16,853 29,100 46,716 45,489 16,409 55,468 58,425
Outstanding
Units, Beginning
of Year.......... 93,492 64,351 42,757 97,078 77,581 60,728 302,424 255,708 210,219 360,124 304,656 246,231
-------- -------- -------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Outstanding
Units, End of
Year............. 98,099 93,492 64,351 113,501 97,078 77,581 331,524 302,424 255,708 376,533 360,124 304,656
======== ======== ======== ======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
GLOBAL
U.S. GOVERNMENT/AAA-RATED ASSET ALLOCATION BOND GROWTH
DIVISION DIVISION INTERNATIONAL DIVISION DIVISION DIVISION
-------------------------- ----------------------- ----------------------- -------- --------
1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1997
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in
Units
Deposits........ 29,124 31,366 37,276 41,817 50,208 55,350 110,855 126,059 149,241 6,056 1,004
Withdrawals..... 20,299 17,918 20,140 24,483 17,275 21,956 70,268 29,988 61,703 1 523
-------- -------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Net Increase in
Units........... 8,825 13,448 17,136 17,334 32,933 33,394 40,587 96,071 87,538 6,055 481
Outstanding
Units, Beginning
of Year.......... 118,401 104,953 87,817 199,469 166,536 133,142 429,915 333,844 246,306 -- --
-------- -------- -------- ------- ------- ------- ------- ------- ------- ------- -------
Outstanding
Units, End of
Year............. 127,226 118,401 104,953 216,803 199,469 166,536 470,502 429,915 333,844 6,055 481
======== ======== ======== ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
F-20
<PAGE>
PARAGON SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) RECONCILIATION OF GROSS AND NET DEPOSITS INTO THE SEPARATE ACCOUNT
Deposits into the Separate Account purchase shares in the American Series.
Net deposits represent the amount available for investment in such shares
after deduction of premium expense charges, monthly expense charges, cost of
insurance and the cost of optional benefits added by rider. The following is a
summary of net deposits made for the years ended December 31, 1997, 1996, and
1995 except for the Global Growth Division and the Bond Division which are for
the period from May 1, 1997 (Inception) to December 31, 1997.
<TABLE>
<CAPTION>
CASH MANAGEMENT DIVISION HIGH-YIELD BOND DIVISION GROWTH-INCOME DIVISION
--------------------------- ----------------------------- --------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- -------- ------- --------- --------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross
Deposits.......... $480,549 552,000 370,512 851,440 830,869 714,456 4,234,060 3,924,233 3,069,549
Surrenders and
Withdrawals....... (255,218) (59,019) (44,103) (164,731) (50,109) (54,263) (1,323,100) (437,815) (427,978)
Transfers Between
Funds and General
Account........... 103,215 152,979 172,787 34,786 (29,486) (78,833) (135,707) (279,077) (84,335)
-------- -------- ------- --------- --------- ------- ---------- --------- ---------
Total Gross
Deposits net of
Surrenders,
Withdrawals, and
Transfers....... 328,546 645,960 499,196 721,495 751,274 581,360 2,775,253 3,207,341 2,557,236
Deductions:
Premium Expense
Charges.......... 12,315 13,980 9,386 21,821 21,043 18,099 108,510 99,389 77,759
Monthly Expense
Charges.......... 5,351 4,198 8,129 9,481 8,202 9,039 47,147 46,339 43,162
Cost of Insurance
and Optional
Benefits......... 241,827 212,639 182,787 230,529 237,949 188,340 1,121,895 1,022,985 819,607
-------- -------- ------- --------- --------- ------- ---------- --------- ---------
Total
Deductions...... 259,493 230,817 200,302 261,831 267,194 215,478 1,277,552 1,168,713 940,528
-------- -------- ------- --------- --------- ------- ---------- --------- ---------
Net Deposits from
Policyholders..... $ 69,053 415,143 298,894 459,664 484,080 365,882 1,497,701 2,038,628 1,616,708
======== ======== ======= ========= ========= ======= ========== ========= =========
<CAPTION>
GROWTH DIVISION
---------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Total Gross
Deposits.......... $5,579,506 5,503,055 4,466,543
Surrenders and
Withdrawals....... (2,433,049) (697,754) (518,645)
Transfers Between
Funds and General
Account........... (680,220) (587,547) (241,620)
----------- ---------- ----------
Total Gross
Deposits net of
Surrenders,
Withdrawals, and
Transfers....... 2,466,237 4,217,754 3,706,278
Deductions:
Premium Expense
Charges.......... 142,991 139,376 113,148
Monthly Expense
Charges.......... 62,129 62,381 55,599
Cost of Insurance
and Optional
Benefits......... 1,396,187 1,313,170 1,083,441
----------- ---------- ----------
Total
Deductions...... 1,601,307 1,514,927 1,252,188
----------- ---------- ----------
Net Deposits from
Policyholders..... 864,930 2,702,827 2,454,090
=========== ========== ==========
<CAPTION>
U.S. GOVERNMENT/
AAA-RATED DIVISION ASSET ALLOCATION DIVISION INTERNATIONAL DIVISION
--------------------------- ----------------------------- --------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- -------- ------- --------- --------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross
Deposits.......... $604,392 733,741 645,709 1,203,831 1,113,363 934,273 2,486,717 2,348,721 2,169,672
Surrenders and
Withdrawals....... (253,307) (60,672) (79,292) (368,203) (136,639) (70,577) (825,714) (251,775) (169,223)
Transfers Between
Funds and General
Account........... 17,632 (216,253) (83,942) (92,300) (28,327) (69,060) (286,533) (25,778) (336,376)
-------- -------- ------- --------- --------- ------- ---------- --------- ---------
Total Gross
Deposits net of
Surrenders,
Withdrawals, and
Transfers....... 368,717 456,816 482,475 743,328 948,397 794,636 1,374,470 2,071,168 1,664,073
Deductions:
Premium Expense
Charges.......... 15,489 18,583 16,357 30,852 28,198 23,667 63,729 59,486 54,964
Monthly Expense
Charges.......... 6,730 7,045 9,296 13,405 13,361 11,865 27,690 22,923 20,606
Cost of Insurance
and Optional
Benefits......... 187,902 206,980 193,323 309,733 277,207 227,999 560,795 475,124 397,284
-------- -------- ------- --------- --------- ------- ---------- --------- ---------
Total
Deductions...... 210,121 232,608 218,976 353,990 318,766 263,531 652,214 557,533 472,854
-------- -------- ------- --------- --------- ------- ---------- --------- ---------
Net Deposits from
Policyholders..... $158,596 224,208 263,499 389,338 629,631 531,105 722,256 1,513,635 1,191,219
======== ======== ======= ========= ========= ======= ========== ========= =========
<CAPTION>
GLOBAL
BOND GROWTH
DIVISION DIVISION
----------- ----------
1997 1997
----------- ----------
<S> <C> <C>
Total Gross
Deposits.......... -- 2,352
Surrenders and
Withdrawals....... -- (133)
Transfers Between
Funds and General
Account........... 64,725 3,026
----------- ----------
Total Gross
Deposits net of
Surrenders,
Withdrawals, and
Transfers....... 64,725 5,245
Deductions:
Premium Expense
Charges.......... -- 60
Monthly Expense
Charges.......... -- 26
Cost of Insurance
and Optional
Benefits......... -- (269)
----------- ----------
Total
Deductions...... -- (183)
----------- ----------
Net Deposits from
Policyholders..... 64,725 5,428
=========== ==========
</TABLE>
F-21
<PAGE>
PARAGON SEPARATE ACCOUNT A
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE COST
--------- ----------- -----------
<S> <C> <C> <C>
AMERICAN VARIABLE INSURANCE SERIES:
Cash Management Division................... 134,776 $ 1,483,880 $ 1,529,996
High-Yield Bond Division................... 228,896 3,355,616 3,196,459
Growth-Income Division..................... 544,011 19,812,898 16,025,070
Growth Division............................ 574,270 25,830,645 21,213,352
U.S. Government/AAA-Rated Division......... 211,224 2,344,588 2,371,750
Asset Allocation Division.................. 352,421 5,399,091 4,627,051
International Division..................... 608,517 8,811,323 8,556,785
Global Growth Division..................... 508 5,473 5,628
Bond Division.............................. 6,214 64,816 66,390
</TABLE>
See Accompanying Independent Auditors' Report.
F-22
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES
The following tables illustrate how the Cash Value, Cash Surrender Value and
Death Benefit of a Policy change with the investment experience of a Division
of the Separate Account. The tables show how the Cash Value, Cash Surrender
Value, and Death Benefit of a Policy issued to an Insured of a given age and
at a given premium would vary over time if the investment return on the assets
held in each Division of the Separate Account were a uniform, gross, after-tax
annual rate of 0%, 6% or 12%. The tables illustrate a Policy issued to
Insureds, age 30 and 50, in a group that is 70% male, 30% female. The Cash
Values, Cash Surrender Values and Death Benefits would be different from those
shown if the gross annual investment rates of return averaged 0%, 6%, and 12%
over a period of years, but fluctuated above and below those averages for
individual Policy years.
The Cash Value column under the "Guaranteed" heading shows the accumulated
value of the premiums paid reflecting deduction of the premium expense charge,
the monthly administrative charge and monthly charges for the cost of
insurance based on the 125% of the maximum allowed under the 1980
Commissioners Standard Ordinary Mortality Table C. The "Cash Surrender Value"
column under the "Guaranteed" heading shows the projected Cash Surrender
Values of the Policy, which are calculated by taking the Cash Value under the
"Guaranteed" heading and deducting any applicable contingent deferred sales
charges under the Policies. The "Cash Value" column under the "Current"
heading shows the accumulated value of the premiums paid reflecting deduction
of the premium expense charge, the monthly administrative charge and monthly
charges for the cost of insurance at the current level for a group that is 70%
male, 30% female, which is less than or equal to the guaranteed rates of 125%
of the maximum allowed by the 1980 Commissioners Standard Ordinary Mortality
Table C. These cost of insurance rates illustrated at the current level as
described would range from 44% to 81% of the guaranteed rates depending upon
attained age. The "Cash Surrender Value" column under the "Current" heading
shows the projected Cash Surrender Value of the Policy, which is calculated by
taking the Cash Value under the "Current" heading and deducting any applicable
contingent deferred sales charge. The illustrations of Death Benefits reflect
the above assumptions. The Death Benefits also vary between tables depending
upon whether Level Type (Option A) or Increasing Type (Option B) Death
Benefits are illustrated. These illustrations also show how these benefits
compare with amounts which would accumulate if premiums were invested to earn
interest (after taxes) at 5.00% compounded annually.
The amounts shown for the Cash Value, Cash Surrender Value, and Death
Benefit reflect the fact that the investment rate of return is lower than the
gross after-tax return on the assets held in a Division of the Separate
Account. The charges include a .90% charge for mortality and expense risk, an
investment advisory fee of .467%, representing the average of the fees
incurred by the seven Funds in which the Account invests is applicable to each
Fund (the actual investment advisory fee is shown in the Fund prospectus) and
a .026% charge that is an estimate of the Funds' expenses based on expenses on
an average of the actual expenses incurred in fiscal year 1997. After
deduction for these amounts, the illustrated gross annual investment rates of
return of 0%, 6% and 12% correspond to approximate net annual rates of -
1.393%, 4.607%, and 10.607%, respectively. The Fund has no expense
reimbursement arrangement with Capital or the Company.
The values reflect a premium expense charge of 2.5%, contingent deferred
sales charge of 25%, and a charge for premium taxes of 2%.
The hypothetical values shown in the tables reflect all fees and charges
under the Policy, including the premium expense charge, the premium tax
charge, and a components of the monthly deduction. They do not reflect any
charges for federal income taxes against the Separate Account, since the
Company is not currently making any such charges. However, such charges may be
made in the future and, in that event, the gross annual investment rate of
return of the divisions of the Separate Account would have to exceed 0%, 6%,
and 12% by an amount sufficient to cover the tax charges in order to produce
the Death Benefit and Cash Value illustrated. (See "Federal Tax Matters.")
The tables illustrate the Policy values that would result based upon the
investment rates of return if premiums are paid as indicated, and if no Policy
loans have been made. The tables are also based on the assumptions that the
Owner has not requested an increase or decrease in the Face Amount, that no
partial withdrawals have been made, and that no transfer charges were
incurred.
Upon request, the Company will provide a comparable illustration based upon
the proposed Insured's age, group size and gender mix, the Face Amount and
premium requested, and the proposed frequency of premium payments.
A-1
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $252,000 AGE: 30
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 2.50% $2,400.00
CONTINGENT DEFERRED SALES CHARGE: 25.00% (MONTHLY PREMIUM: $200.00)
PREMIUM TAX: 2.00%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT A--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 0.00% (NET RATE @ -1.393%)
-----------------------------------------------------
GUARANTEED* CURRENT**
-------------------------- --------------------------
CASH CASH
PREMIUM SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR @ 5.00% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- --------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 1,141 $ 1,741 $252,000 $ 1,390 $ 1,990 $252,000
2 5,052 2,907 3,447 252,000 3,408 3,948 252,000
3 7,769 4,636 5,116 252,000 5,389 5,869 252,000
4 10,622 6,318 6,738 252,000 7,337 7,757 252,000
5 13,618 7,955 8,315 252,000 9,246 9,606 252,000
6 16,763 9,542 9,842 252,000 11,113 11,413 252,000
7 20,066 11,071 11,311 252,000 12,937 13,177 252,000
8 23,533 12,536 12,716 252,000 14,718 14,898 252,000
9 27,175 13,931 14,051 252,000 16,456 16,576 252,000
10 30,998 15,252 15,312 252,000 18,146 18,206 252,000
11 35,012 16,490 16,490 252,000 19,779 19,779 252,000
12 39,228 17,583 17,583 252,000 21,285 21,285 252,000
13 43,653 18,588 18,588 252,000 22,727 22,727 252,000
14 48,301 19,502 19,502 252,000 24,101 24,101 252,000
15 53,180 20,326 20,326 252,000 25,398 25,398 252,000
16 58,304 21,051 21,051 252,000 26,617 26,617 252,000
17 63,683 21,677 21,677 252,000 27,755 27,755 252,000
18 69,332 22,196 22,196 252,000 28,804 28,804 252,000
19 75,263 22,605 22,605 252,000 29,757 29,757 252,000
20 81,491 22,892 22,892 252,000 30,608 30,608 252,000
25 117,624 21,984 21,984 252,000 33,105 33,105 252,000
30 163,739 15,792 15,792 252,000 31,571 31,571 252,000
</TABLE>
- --------
* These values reflect investment results using guaranteed cost of
insurance rates.
** These values reflect investment results using current cost of insurance
rates.
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS ILLUSTRATIVE ONLY,
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICY
OWNER, AND THE INVESTMENT RESULTS FOR THE FUNDS. THE CASH VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY, WALNUT STREET
SECURITIES, THE INVESTMENT MANAGEMENT COMPANY OR ANY REPRESENTATIVE THEREOF,
THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR, OR
SUSTAINED OVER ANY PERIOD OF TIME.
ILLUSTRATED VALUES SHOWN ABOVE ARE AS OF THE END OF THE YEARS INDICATED AND
ASSUME PREMIUMS ARE RECEIVED MONTHLY ON THE POLICY ANNIVERSARY DAY AND FURTHER
ASSUME THERE IS NO POLICY INDEBTEDNESS OUTSTANDING.
A-2
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $252,000 AGE: 30
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 2.50% $2,400.00
CONTINGENT DEFERRED SALES CHARGE: 25.00% (MONTHLY PREMIUM: $200.00)
PREMIUM TAX: 2.00%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT A--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6% (NET RATE @ 4.607%)
------------------------------------------------------
GUARANTEED* CURRENT**
-------------------------- ---------------------------
CASH CASH
PREM @ SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR 5.00% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- --------- ------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 1,198 $ 1,798 $252,000 $ 1,455 $ 2,055 $252,000
2 5,052 3,128 3,668 252,000 3,660 4,200 252,000
3 7,769 5,130 5,610 252,000 5,954 6,434 252,000
4 10,622 7,198 7,618 252,000 8,346 8,766 252,000
5 13,618 9,338 9,698 252,000 10,832 11,192 252,000
6 16,763 11,545 11,845 252,000 13,414 13,714 252,000
7 20,066 13,816 14,056 252,000 16,095 16,335 252,000
8 23,533 16,146 16,326 252,000 18,880 19,060 252,000
9 27,175 18,532 18,652 252,000 21,772 21,892 252,000
10 30,998 20,973 21,033 252,000 24,772 24,832 252,000
11 35,012 23,462 23,462 252,000 27,875 27,875 252,000
12 39,228 25,940 25,940 252,000 31,017 31,017 252,000
13 43,653 28,465 28,465 252,000 34,266 34,266 252,000
14 48,301 31,038 31,038 252,000 37,621 37,621 252,000
15 53,180 33,662 33,662 252,000 41,080 41,080 252,000
16 58,304 36,332 36,332 252,000 44,648 44,648 252,000
17 63,683 39,052 39,052 252,000 48,327 48,327 252,000
18 69,332 41,817 41,817 252,000 52,118 52,118 252,000
19 75,263 44,627 44,627 252,000 56,018 56,018 252,000
20 81,491 47,476 47,476 252,000 60,032 60,032 252,000
25 117,624 61,992 61,992 252,000 81,884 81,884 252,000
30 163,739 76,220 76,220 252,000 106,837 106,837 252,000
</TABLE>
- --------
* These values reflect investment results using guaranteed cost of
insurance rates.
** These values reflect investment results using current cost of insurance
rates.
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS ILLUSTRATIVE ONLY,
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICY
OWNER, AND THE INVESTMENT RESULTS FOR THE FUNDS. THE CASH VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY, WALNUT STREET
SECURITIES, THE INVESTMENT MANAGEMENT COMPANY OR ANY REPRESENTATIVE THEREOF,
THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR, OR
SUSTAINED OVER ANY PERIOD OF TIME.
ILLUSTRATED VALUES SHOWN ABOVE ARE AS OF THE END OF THE YEARS INDICATED AND
ASSUME PREMIUMS ARE RECEIVED MONTHLY ON THE POLICY ANNIVERSARY AND FURTHER
ASSUME THERE IS NO POLICY INDEBTEDNESS OUTSTANDING.
A-3
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $252,000 AGE: 30
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 2.50% $2,400.00
CONTINGENT DEFERRED SALES CHARGE: 25.00% (MONTHLY PREMIUM:
$200.00)
PREMIUM TAX: 2.00%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT A--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @ 10.607%)
-------------------------------------------------------
GUARANTEED* CURRENT**
--------------------------- ---------------------------
CASH CASH
PREM SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR @ 5.00% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 1,254 $ 1,854 $252,000 $ 1,519 $ 2,119 $252,000
2 5,052 3,353 3,893 252,000 3,917 4,457 252,000
3 7,769 5,655 6,135 252,000 6,555 7,035 252,000
4 10,622 8,172 8,592 252,000 9,460 9,880 252,000
5 13,618 10,928 11,288 252,000 12,655 13,015 252,000
6 16,763 13,944 14,244 252,000 16,168 16,468 252,000
7 20,066 17,239 17,479 252,000 20,030 20,270 252,000
8 23,533 20,838 21,018 252,000 24,280 24,460 252,000
9 27,175 24,768 24,888 252,000 28,959 29,079 252,000
10 30,998 29,062 29,122 252,000 34,108 34,168 252,000
11 35,012 33,751 33,751 252,000 39,771 39,771 252,000
12 39,228 38,818 38,818 252,000 45,933 45,933 252,000
13 43,653 44,371 44,371 252,000 52,719 52,719 252,000
14 48,301 50,464 50,464 252,000 60,195 60,195 252,000
15 53,180 57,159 57,159 252,000 68,430 68,430 252,000
16 58,304 64,522 64,522 252,000 77,509 77,509 252,000
17 63,683 72,631 72,631 252,000 87,527 87,527 252,000
18 69,332 81,570 81,570 252,000 98,586 98,586 252,000
19 75,263 91,437 91,437 252,000 110,802 110,802 252,000
20 81,491 102,338 102,338 252,000 124,309 124,309 252,000
25 117,624 177,124 177,124 278,085 216,075 216,075 339,237
30 163,739 299,508 299,508 401,341 365,323 365,323 489,532
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS ILLUSTRATIVE ONLY,
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICY
OWNER, AND THE INVESTMENT RESULTS FOR THE FUNDS. THE CASH VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY, WALNUT STREET
SECURITIES, THE INVESTMENT MANAGEMENT COMPANY OR ANY REPRESENTATIVE THEREOF,
THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR, OR
SUSTAINED OVER ANY PERIOD OF TIME.
ILLUSTRATED VALUES SHOWN ABOVE ARE AS OF THE END OF THE YEARS INDICATED AND
ASSUME PREMIUMS ARE RECEIVED MONTHLY ON THE POLICY ANNIVERSARY AND FURTHER
ASSUME THERE IS NO POLICY INDEBTEDNESS OUTSTANDING.
A-4
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $99,000 AGE: 50
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 2.50% $2,400.00
CONTINGENT DEFERRED SALES CHARGE: 25.00% (MONTHLY PREMIUM: $200.00)
PREMIUM TAX: 2.00%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT A--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 0.00% (NET RATE @ -1.3939%)
---------------------------------------------------
GUARANTEED* CURRENT**
------------------------- -------------------------
CASH CASH
PREM @ SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR 5.00% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- --------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 881 $ 1,481 $99,000 $ 1,163 $ 1,763 $99,000
2 5,052 2,351 2,891 99,000 2,924 3,464 99,000
3 7,769 3,742 4,222 99,000 4,621 5,101 99,000
4 10,622 5,051 5,471 99,000 6,250 6,670 99,000
5 13,618 6,271 6,631 99,000 7,813 8,173 99,000
6 16,763 7,403 7,703 99,000 9,295 9,595 99,000
7 20,066 8,444 8,684 99,000 10,700 10,940 99,000
8 23,533 9,393 9,573 99,000 12,024 12,204 99,000
9 27,175 10,248 10,368 99,000 13,260 13,380 99,000
10 30,998 11,000 11,060 99,000 14,400 14,460 99,000
11 35,012 11,641 11,641 99,000 15,417 15,417 99,000
12 39,228 12,094 12,094 99,000 16,262 16,262 99,000
13 43,653 12,396 12,396 99,000 16,989 16,989 99,000
14 48,301 12,526 12,526 99,000 17,591 17,591 99,000
15 53,180 12,465 12,465 99,000 18,057 18,057 99,000
16 58,304 12,197 12,197 99,000 18,365 18,365 99,000
17 63,683 11,707 11,707 99,000 18,426 18,426 99,000
18 69,332 10,980 10,980 99,000 18,233 18,233 99,000
19 75,263 9,996 9,996 99,000 17,782 17,782 99,000
20 81,491 8,717 8,717 99,000 17,060 17,060 99,000
25 117,624 0 0 0 8,239 8,239 99,000
30 163,739 0 0 0 0 0 0
</TABLE>
- --------
* These values reflect investment results using guaranteed cost of
insurance rates.
** These values reflect investment results using current cost of insurance
rates.
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS ILLUSTRATIVE ONLY,
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICY
OWNER, AND THE INVESTMENT RESULTS FOR THE FUNDS. THE CASH VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY, WALNUT STREET
SECURITIES, THE INVESTMENT MANAGEMENT COMPANY OR ANY REPRESENTATIVE THEREOF,
THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR, OR
SUSTAINED OVER ANY PERIOD OF TIME.
ILLUSTRATED VALUES SHOWN ABOVE ARE AS OF THE END OF THE YEARS INDICATED AND
ASSUME PREMIUMS ARE RECEIVED MONTHLY ON THE POLICY ANNIVERSARY AND FURTHER
ASSUME THERE IS NO POLICY INDEBTEDNESS OUTSTANDING.
A-5
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $99,000 AGE: 50
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 2.50% $2,400.00
CONTINGENT DEFERRED SALES CHARGE: 25.00% (MONTHLY PREMIUM:
$200.00)
PREMIUM TAX: 2.00%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT A--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6.00% (NET RATE @ 4.607%)
---------------------------------------------------
GUARANTEED* CURRENT**
------------------------- -------------------------
CASH CASH
PREM SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR @ 5.00% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ------- --------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 929 $ 1,529 $99,000 $ 1,221 $ 1,821 $99,000
2 5,052 2,538 3,078 99,000 3,147 3,687 99,000
3 7,769 4,159 4,639 99,000 5,119 5,599 99,000
4 10,622 5,788 6,208 99,000 7,135 7,555 99,000
5 13,618 7,421 7,781 99,000 9,199 9,559 99,000
6 16,763 9,058 9,358 99,000 11,299 11,599 99,000
7 20,066 10,698 10,938 99,000 13,441 13,681 99,000
8 23,533 12,342 12,522 99,000 15,624 15,804 99,000
9 27,175 13,987 14,107 99,000 17,845 17,965 99,000
10 30,998 15,630 15,690 99,000 20,101 20,161 99,000
11 35,012 17,262 17,262 99,000 22,369 22,369 99,000
12 39,228 18,810 18,810 99,000 24,606 24,606 99,000
13 43,653 20,316 20,316 99,000 26,871 26,871 99,000
14 48,301 21,763 21,763 99,000 29,164 29,164 99,000
15 53,180 23,135 23,135 99,000 31,485 31,485 99,000
16 58,304 24,422 24,422 99,000 33,823 33,823 99,000
17 63,683 25,614 25,614 99,000 36,116 36,116 99,000
18 69,332 26,701 26,701 99,000 38,373 38,373 99,000
19 75,263 27,672 27,672 99,000 40,606 40,606 99,000
20 81,491 28,501 28,501 99,000 42,822 42,822 99,000
25 117,624 28,675 28,675 99,000 53,783 53,783 99,000
30 163,739 13,685 13,685 99,000 64,248 64,248 99,000
</TABLE>
- --------
* These values reflect investment results using guaranteed cost of
insurance rates.
** These values reflect investment results using current cost of insurance
rates.
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS ILLUSTRATIVE ONLY,
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICY
OWNER, AND THE INVESTMENT RESULTS FOR THE FUNDS. THE CASH VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY, WALNUT STREET
SECURITIES, THE INVESTMENT MANAGEMENT COMPANY OR ANY REPRESENTATIVE THEREOF,
THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR, OR
SUSTAINED OVER ANY PERIOD OF TIME.
ILLUSTRATED VALUES SHOWN ABOVE ARE AS OF THE END OF THE YEARS INDICATED AND
ASSUME PREMIUMS ARE RECEIVED MONTHLY ON THE POLICY ANNIVERSARY AND FURTHER
ASSUME THERE IS NO POLICY INDEBTEDNESS OUTSTANDING.
A-6
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $99,000 AGE: 50
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 2.50% $2,400.00
CONTINGENT DEFERRED SALES CHARGE: 25.00% (MONTHLY PREMIUM:
$200.00)
PREMIUM TAX: 2.00%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT A--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @ 10.607%)
-------------------------------------------------------
GUARANTEED* CURRENT**
--------------------------- ---------------------------
CASH CASH
PREM SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR @ 5.00% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 977 $ 1,577 $ 99,000 $ 1,278 $ 1,878 $ 99,000
2 5,052 2,729 3,269 99,000 3,375 3,915 99,000
3 7,769 4,602 5,082 99,000 5,648 6,128 99,000
4 10,622 6,604 7,024 99,000 8,114 8,534 99,000
5 13,618 8,748 9,108 99,000 10,796 11,156 99,000
6 16,763 11,051 11,351 99,000 13,705 14,005 99,000
7 20,066 13,531 13,771 99,000 16,871 17,111 99,000
8 23,533 16,213 16,393 99,000 20,326 20,506 99,000
9 27,175 19,122 19,242 99,000 24,098 24,218 99,000
10 30,998 22,283 22,343 99,000 28,224 28,284 99,000
11 35,012 25,725 25,725 99,000 32,728 32,728 99,000
12 39,228 29,418 29,418 99,000 37,618 37,618 99,000
13 43,653 33,453 33,453 99,000 43,015 43,015 99,000
14 48,301 37,875 37,875 99,000 48,992 48,992 99,000
15 53,180 42,737 42,737 99,000 55,634 55,634 99,000
16 58,304 48,116 48,116 99,000 63,038 63,038 99,000
17 63,683 54,100 54,100 99,000 71,296 71,296 99,000
18 69,332 60,804 60,804 99,000 80,576 80,576 99,000
19 75,263 68,362 68,362 99,000 91,015 91,015 106,488
20 81,491 76,935 76,935 99,000 102,520 102,520 118,923
25 117,624 138,279 138,279 147,958 180,430 180,430 193,060
30 163,739 239,172 239,172 251,131 308,382 308,382 323,801
</TABLE>
- --------
* These values reflect investment results using guaranteed cost of
insurance rates.
** These values reflect investment results using current cost of insurance
rates.
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS ILLUSTRATIVE ONLY,
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICY
OWNER, AND THE INVESTMENT RESULTS FOR THE FUNDS. THE CASH VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY, WALNUT STREET
SECURITIES, THE INVESTMENT MANAGEMENT COMPANY OR ANY REPRESENTATIVE THEREOF,
THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR, OR
SUSTAINED OVER ANY PERIOD OF TIME.
ILLUSTRATED VALUES SHOWN ABOVE ARE AS OF THE END OF THE YEARS INDICATED AND
ASSUME PREMIUMS ARE RECEIVED MONTHLY ON THE POLICY ANNIVERSARY AND FURTHER
ASSUME THERE IS NO POLICY INDEBTEDNESS OUTSTANDING.
A-7
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $109,000 AGE: 30
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 2.50% $2,400.00
CONTINGENT DEFERRED SALES CHARGE: 25.00% (MONTHLY PREMIUM:
$200.00)
PREMIUM TAX: 2.00%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT A--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 0.00% (NET RATE @ -1.393%)
-----------------------------------------------------
GUARANTEED* CURRENT**
-------------------------- --------------------------
CASH CASH
PREMIUM SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR @ 5.00% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- --------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 1,423 $ 2,023 $111,023 $ 1,531 $ 2,131 $111,131
2 5,052 3,471 4,011 113,011 3,689 4,229 113,229
3 7,769 5,484 5,964 114,964 5,813 6,293 115,293
4 10,622 7,458 7,878 116,878 7,904 8,324 117,324
5 13,618 9,394 9,754 118,754 9,961 10,321 119,321
6 16,763 11,290 11,590 120,590 11,982 12,282 121,282
7 20,066 13,141 13,381 122,381 13,966 14,206 123,206
8 23,533 14,946 15,126 124,126 15,914 16,094 125,094
9 27,175 16,703 16,823 125,823 17,825 17,945 126,945
10 30,998 18,408 18,468 127,468 19,699 19,759 128,759
11 35,012 20,058 20,058 129,058 21,529 21,529 130,529
12 39,228 21,593 21,593 130,593 23,253 23,253 132,253
13 43,653 23,070 23,070 132,070 24,931 24,931 133,931
14 48,301 24,489 24,489 133,489 26,561 26,561 135,561
15 53,180 25,849 25,849 134,849 28,139 28,139 137,139
16 58,304 27,148 27,148 136,148 29,665 29,665 138,665
17 63,683 28,385 28,385 137,385 31,137 31,137 140,137
18 69,332 29,557 29,557 138,557 32,551 32,551 141,551
19 75,263 30,662 30,662 139,662 33,903 33,903 142,903
20 81,491 31,696 31,696 140,696 35,191 35,191 144,191
25 117,624 35,565 35,565 144,565 40,562 40,562 149,562
30 163,739 36,745 36,745 145,745 43,643 43,643 152,643
</TABLE>
- --------
* These values reflect investment results using guaranteed cost of
insurance rates.
** These values reflect investment results using current cost of insurance
rates.
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS ILLUSTRATIVE ONLY,
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICY
OWNER, AND THE INVESTMENT RESULTS FOR THE FUNDS. THE CASH VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY, WALNUT STREET
SECURITIES, THE INVESTMENT MANAGEMENT COMPANY OR ANY REPRESENTATIVE THEREOF,
THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR, OR
SUSTAINED OVER ANY PERIOD OF TIME.
ILLUSTRATED VALUES SHOWN ABOVE ARE AS OF THE END OF THE YEARS INDICATED AND
ASSUME PREMIUMS ARE RECEIVED MONTHLY ON THE POLICY ANNIVERSARY AND FURTHER
ASSUME THERE IS NO POLICY INDEBTEDNESS OUTSTANDING.
A-8
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $109,000 AGE: 30
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 2.50% $2,400.00
CONTINGENT DEFERRED SALES CHARGE: 25.00% (MONTHLY PREMIUM:
$200.00)
PREMIUM TAX: 2.00%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT A--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6.00% (NET RATE @ 4.607%)
-------------------------------------------------------
GUARANTEED* CURRENT**
--------------------------- ---------------------------
CASH CASH
PREM SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR @ 5.00% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 1,488 $ 2,088 $111,088 $ 1,600 $ 2,200 $111,200
2 5,052 3,727 4,267 113,267 3,959 4,499 113,499
3 7,769 6,058 6,538 115,538 6,418 6,898 115,898
4 10,622 8,482 8,902 117,902 8,984 9,404 118,404
5 13,618 11,002 11,362 120,362 11,659 12,019 121,019
6 16,763 13,621 13,921 122,921 14,446 14,746 123,746
7 20,066 16,340 16,580 125,580 17,349 17,589 126,589
8 23,533 19,158 19,338 128,338 20,373 20,553 129,553
9 27,175 22,078 22,198 131,198 23,523 23,643 132,643
10 30,998 25,102 25,162 134,162 26,803 26,863 135,863
11 35,012 28,229 28,229 137,229 30,213 30,213 139,213
12 39,228 31,402 31,402 140,402 33,695 33,695 142,695
13 43,653 34,685 34,685 143,685 37,314 37,314 146,314
14 48,301 38,080 38,080 147,080 41,075 41,075 150,075
15 53,180 41,592 41,592 150,592 44,980 44,980 153,980
16 58,304 45,222 45,222 154,222 49,032 49,032 158,032
17 63,683 48,973 48,973 157,973 53,238 53,238 162,238
18 69,332 52,849 52,849 161,849 57,599 57,599 166,599
19 75,263 56,851 56,851 165,851 62,117 62,117 171,117
20 81,491 60,978 60,978 169,978 66,798 66,798 175,798
25 117,624 83,448 83,448 192,448 92,743 92,743 201,743
30 163,739 108,798 108,798 217,798 123,034 123,034 232,034
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS ILLUSTRATIVE ONLY,
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICY
OWNER, AND THE INVESTMENT RESULTS FOR THE FUNDS. THE CASH VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY, WALNUT STREET
SECURITIES, THE INVESTMENT MANAGEMENT COMPANY OR ANY REPRESENTATIVE THEREOF,
THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR, OR
SUSTAINED OVER ANY PERIOD OF TIME.
ILLUSTRATED VALUES SHOWN ABOVE ARE AS OF THE END OF THE YEARS INDICATED AND
ASSUME PREMIUMS ARE RECEIVED MONTHLY ON THE POLICY ANNIVERSARY AND FURTHER
ASSUME THERE IS NO POLICY INDEBTEDNESS OUTSTANDING.
A-9
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $109,000 AGE: 30
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 2.50% $2,400.00
CONTINGENT DEFERRED SALES CHARGE: 25.00% (MONTHLY PREMIUM:
$200.00)
PREMIUM TAX: 2.00%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT A--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @ 10.607%)
-------------------------------------------------------
GUARANTEED* CURRENT**
--------------------------- ---------------------------
CASH CASH
PREM SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR @ 5.00% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 1,553 $ 2,153 $111,153 $ 1,668 $ 2,268 $111,268
2 5,052 3,989 4,529 113,529 4,234 4,774 113,774
3 7,769 6,668 7,148 116,148 7,061 7,541 116,541
4 10,622 9,612 10,032 119,032 10,177 10,597 119,597
5 13,618 12,850 13,210 122,210 13,610 13,970 122,970
6 16,763 16,411 16,711 125,711 17,393 17,693 126,693
7 20,066 20,323 20,563 129,563 21,560 21,800 130,800
8 23,533 24,620 24,800 133,800 26,153 26,333 135,333
9 27,175 29,341 29,461 138,461 31,216 31,336 140,336
10 30,998 34,527 34,587 143,587 36,797 36,857 145,857
11 35,012 40,223 40,223 149,223 42,945 42,945 151,945
12 39,228 46,421 46,421 155,421 49,654 49,654 158,654
13 43,653 53,239 53,239 162,239 57,053 57,053 166,053
14 48,301 60,739 60,739 169,739 65,210 65,210 174,210
15 53,180 68,994 68,994 177,994 74,202 74,202 183,202
16 58,304 78,080 78,080 187,080 84,114 84,114 193,114
17 63,683 88,083 88,083 197,083 95,044 95,044 204,044
18 69,332 99,096 99,096 208,096 107,093 107,093 217,400
19 75,263 111,224 111,224 220,224 120,368 120,368 237,126
20 81,491 124,575 124,575 237,938 134,981 134,981 257,814
25 117,624 214,177 214,177 336,258 233,458 233,458 366,530
30 163,739 359,124 359,124 481,226 393,541 393,541 527,345
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS ILLUSTRATIVE ONLY,
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICY
OWNER, AND THE INVESTMENT RESULTS FOR THE FUNDS. THE CASH VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY, WALNUT STREET
SECURITIES, THE INVESTMENT MANAGEMENT COMPANY OR ANY REPRESENTATIVE THEREOF,
THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR, OR
SUSTAINED OVER ANY PERIOD OF TIME.
ILLUSTRATED VALUES SHOWN ABOVE ARE AS OF THE END OF THE YEARS INDICATED AND
ASSUME PREMIUMS ARE RECEIVED MONTHLY ON THE POLICY ANNIVERSARY AND FURTHER
ASSUME THERE IS NO POLICY INDEBTEDNESS OUTSTANDING.
A-10
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $45,000 AGE: 50
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 2.50% $2,400.00
CONTINGENT DEFERRED SALES CHARGE: 25.00% (MONTHLY PREMIUM:
$200.00)
PREMIUM TAX: 2.00%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT A--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 0.00% (NET RATE @ -1.393%)
---------------------------------------------------
GUARANTEED* CURRENT**
------------------------- -------------------------
CASH CASH
PREM SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR @ 5.00% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ------- --------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 1,291 $ 1,891 $46,891 $ 1,420 $ 2,020 $47,020
2 5,052 3,187 3,727 48,727 3,451 3,991 48,991
3 7,769 5,025 5,505 50,505 5,431 5,911 50,911
4 10,622 6,802 7,222 52,222 7,358 7,778 52,778
5 13,618 8,514 8,874 53,874 9,232 9,592 54,592
6 16,763 10,162 10,462 55,462 11,046 11,346 56,346
7 20,066 11,745 11,985 56,985 12,801 13,041 58,041
8 23,533 13,261 13,441 58,441 14,495 14,675 59,675
9 27,175 14,709 14,829 59,829 16,122 16,242 61,242
10 30,998 16,086 16,146 61,146 17,681 17,741 62,741
11 35,012 17,388 17,388 62,388 19,153 19,153 64,153
12 39,228 18,545 18,545 63,545 20,487 20,487 65,487
13 43,653 19,607 19,607 64,607 21,738 21,738 66,738
14 48,301 20,566 20,566 65,566 22,902 22,902 67,902
15 53,180 21,411 21,411 66,411 23,974 23,974 68,974
16 58,304 22,139 22,139 67,139 24,943 24,943 69,943
17 63,683 22,746 22,746 67,746 25,760 25,760 70,760
18 69,332 23,228 23,228 68,228 26,426 26,426 71,426
19 75,263 23,581 23,581 68,581 26,942 26,942 71,942
20 81,491 23,793 23,793 68,793 27,307 27,307 72,307
25 117,624 21,993 21,993 66,993 26,614 26,614 71,614
30 163,739 13,417 13,417 58,417 20,060 20,060 65,060
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS ILLUSTRATIVE
ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICY
OWNER, AND THE INVESTMENT RESULTS FOR THE FUNDS. THE CASH VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY, WALNUT STREET
SECURITIES, THE INVESTMENT MANAGEMENT COMPANY OR ANY REPRESENTATIVE THEREOF,
THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR, OR
SUSTAINED OVER A PERIOD OF TIME.
ILLUSTRATED VALUES SHOWN ABOVE ARE AS OF THE END OF THE YEARS INDICATED AND
ASSUME PREMIUMS ARE RECEIVED MONTHLY ON THE POLICY ANNIVERSARY AND FURTHER
ASSUME THERE IS NO POLICY INDEBTEDNESS OUTSTANDING.
A-11
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $45,000 AGE: 50
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 2.50% $2,400.00
CONTINGENT DEFERRED SALES CHARGE: 25.00% (MONTHLY PREMIUM:
$200.00)
PREMIUM TAX: 2.00%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT A--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6.00% (NET RATE @ 4.607%)
-------------------------------------------------
GUARANTEED* CURRENT**
------------------------ ------------------------
CASH CASH
PREM SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR @ 5.00% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ------- --------- ------ ------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 1,353 1,953 46,953 1,486 2,086 47,086
2 5,052 3,426 3,966 48,966 3,706 4,246 49,246
3 7,769 5,558 6,038 51,038 6,002 6,482 51,482
4 10,622 7,748 8,168 53,168 8,374 8,794 53,794
5 13,618 9,994 10,354 55,354 10,824 11,184 56,184
6 16,763 12,299 12,599 57,599 13,348 13,648 58,648
7 20,066 14,662 14,902 59,902 15,951 16,191 61,191
8 23,533 17,085 17,265 62,265 18,631 18,811 63,811
9 27,175 19,568 19,688 64,688 21,388 21,508 66,508
10 30,998 22,109 22,169 67,169 24,220 24,280 69,280
11 35,012 24,705 24,705 69,705 27,113 27,113 72,113
12 39,228 27,288 27,288 72,288 30,015 30,015 75,015
13 43,653 29,910 29,910 74,910 32,985 32,985 77,985
14 48,301 32,561 32,561 77,561 36,020 36,020 81,020
15 53,180 35,231 35,231 80,231 39,117 39,117 84,117
16 58,304 37,916 37,916 82,916 42,266 42,266 87,266
17 63,683 40,609 40,609 85,609 45,417 45,417 90,417
18 69,332 43,307 43,307 88,307 48,570 48,570 93,570
19 75,263 46,005 46,005 91,005 51,724 51,724 96,724
20 81,491 48,686 48,686 93,686 54,875 54,875 99,875
25 117,624 60,951 60,951 105,951 70,241 70,241 115,241
30 163,739 68,406 68,406 113,406 82,744 82,744 127,744
</TABLE>
- --------
* These values reflect investment results using guaranteed cost of insurance
rates.
** These values reflect investment results using current cost of insurance
rates.
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS ILLUSTRATIVE ONLY,
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICY
OWNER, AND THE INVESTMENT RESULTS FOR THE FUNDS. THE CASH VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY, WALNUT STREET
SECURITIES, THE INVESTMENT MANAGEMENT COMPANY OR ANY REPRESENTATIVE THEREOF,
THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR, OR
SUSTAINED OVER ANY PERIOD OF TIME.
ILLUSTRATED VALUES SHOWN ABOVE ARE AS OF THE END OF THE YEARS INDICATED AND
ASSUME PREMIUMS ARE RECEIVED MONTHLY ON THE POLICY ANNIVERSARY AND FURTHER
ASSUME THERE IS NO POLICY INDEBTEDNESS OUTSTANDING.
A-12
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $45,000 AGE: 50
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 2.50% $2,400.00
CONTINGENT DEFERRED SALES CHARGE: 25.00% (MONTHLY PREMIUM:
$200.00)
PREMIUM TAX: 2.00%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT A--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @ 10.607%)
-------------------------------------------------------
GUARANTEED* CURRENT**
--------------------------- ---------------------------
CASH CASH
PREM SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR @ 5.00% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 1,413 $ 2,013 $ 47,013 $ 1,551 $ 2,151 $ 47,151
2 5,052 3,670 4,210 49,210 3,967 4,507 49,507
3 7,769 6,125 6,605 51,605 6,608 7,088 52,088
4 10,622 8,794 9,214 54,214 9,496 9,916 54,916
5 13,618 11,698 12,058 57,058 12,655 13,015 58,015
6 16,763 14,860 15,160 60,160 16,105 16,405 61,405
7 20,066 18,304 18,544 63,544 19,878 20,118 65,118
8 23,533 22,059 22,239 67,239 24,005 24,185 69,185
9 27,175 26,157 26,277 71,277 28,517 28,637 73,637
10 30,998 30,627 30,687 75,687 33,451 33,511 78,511
11 35,012 35,504 35,504 80,504 38,834 38,834 83,834
12 39,228 40,761 40,761 85,761 44,658 44,658 89,658
13 43,653 46,493 46,493 91,493 51,033 51,033 96,033
14 48,301 52,739 52,739 97,739 58,010 58,010 103,010
15 53,180 59,542 59,542 104,542 65,647 65,647 110,647
16 58,304 66,955 66,955 111,955 74,002 74,002 119,002
17 63,683 75,037 75,037 120,037 83,096 83,096 128,096
18 69,332 83,854 83,854 128,854 93,008 93,008 138,008
19 75,263 93,497 93,479 138,479 103,824 103,824 148,824
20 81,491 103,983 103,983 148,983 115,637 115,637 160,637
25 117,624 172,368 172,368 217,368 193,417 193,417 238,417
30 163,739 276,691 276,691 321,691 314,645 314,645 359,645
</TABLE>
- --------
* These values reflect investment results using guaranteed cost of insurance
rates.
** These values reflect investment results using current cost of insurance
rates.
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS ILLUSTRATIVE ONLY,
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICY
OWNER, AND THE INVESTMENT RESULTS FOR THE FUNDS. THE CASH VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL YEARS. NO REPRESENTATION CAN BE MADE BY THE COMPANY, WALNUT STREET
SECURITIES, THE INVESTMENT MANAGEMENT COMPANY OR ANY REPRESENTATIVE THEREOF,
THAT THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR, OR
SUSTAINED OVER ANY PERIOD OF TIME.
ILLUSTRATED VALUES SHOWN ABOVE ARE AS OF THE END OF THE YEARS INDICATED AND
ASSUME PREMIUMS SHOWN ARE RECEIVED MONTHLY ON THE POLICY ANNIVERSARY AND
FURTHER ASSUME THERE IS NO POLICY INDEBTEDNESS OUTSTANDING.
A-13
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities and
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore, or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article III, Section 13 of the Company's Bylaws provide: "The Corporation
may indemnify any person who is made a party to any civil or criminal suit, or
made a subject of any administrative or investigative proceeding by reason of
the fact that he is or was a director, officer, or agent of the Corporation.
This indemnity may extend to expenses, including attorney's fees, judgments,
fine, and amounts paid in settlement. The indemnity shall not be available to
persons being sued by or upon the information of the Corporation not to person
who are being investigated by the Corporation. The indemnity shall be
discretionary with the Board of Directors and shall not be granted until the
Board of Directors has made a determination that the person who would be
indemnified acted in good faith and in a manner he reasonably believed to be in
the best interest of the Corporation. The Corporation shall have such other and
further powers of indemnification as are not inconsistent with the laws of
Missouri."
Insofar as indemnification for liability arising under the Securities Act
of l933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Charter and Articles of Incorporation of the Company,
the By-Laws of the Company, agreement, statute, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
<PAGE>
REPRESENTATION CONCERNING FEES AND CHARGES
Paragon Life Insurance Company hereby represents that the fees and charges
deducted under the terms of the Contract are, in the aggregate, reasonable in
relationship to the services rendered, the expenses expected, and the risks
assumed by Paragon.
II-2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The facing sheet.
The Prospectus consisting of 77 pages.
The undertaking to file reports required by Section 15(d),
1934 Act.
The undertaking pursuant to Rule 484.
Representation concerning fees and charges.
The signatures.
The following exhibits:
1. The following exhibits correspond in number to the numbers under paragraph
A of the instructions as to exhibits for Form N-8B-2:
(1) Resolution of the Board of Directors of the Company
authorizing establishment of the Separate Account. 1
(2) (a) Proposed form of Underwriting Agreement. 2
(b) Proposed form of Selling Agreement. 2
(c) Commission Schedule. 2
(4) Not applicable.
(5) (a) Proposed form of Group Contract. 2
(6) (a) Amended Charter and Articles of Incorporation of
the Company. 3
(b) By-Laws of the Company. 1
(7) Not applicable.
(8) Series Participation Agreement. 2
(9) Not applicable.
(10)(a) Form of Application for Group Contract. 2
(b) Form of Application for Individual Insurance
Guaranteed Issue (Group Contract). 2
II-3
<PAGE>
2. Memorandum describing the Company's issuance, transfer, and redemption
procedures for the Policies and the Company's procedure for conversion to a
fixed benefit policy. 2
3. The following exhibits are numbered to correspond to the numbers in the
instructions as to exhibits for Form S-6.
(1) See above.
(2) See Exhibit 1(5).
(3) Opinion of Matthew P. McCauley, Esquire, General
Counsel of Paragon Life Insurance Company. 2
(4) No financial statements are omitted from the Prospectus
pursuant to Instruction 1(b) or (c) of Part I.
(5) Not applicable.
4. Opinion and consent of Craig K. Nordyke, F.S.A., M.A.A.A., Executive Vice
President and Chief Actuary. 5
5. The consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants. 5
6. Written consent of Sutherland, Asbill & Brennan LLP. 5
7. Original powers of attorney authorizing Matthew P. McCauley, Carl H.
Anderson, and Craig K. Nordyke, and each of them singly, to sign this
Registration Statement and Amendments thereto on behalf of the Board of
Directors of Paragon Life Insurance Company. 3, 5
1 Incorporated by reference to the initial Registration
Statement in File No. 33-l834l.
2 Incorporated by reference to the Registration Statement in
File No. 33-27242.
3 Incorporated by reference to Pre-Effective Amendment No. 1
to the Registration Statement in File 33-l834l.
4 Incorporated by reference to Post-Effective Amendment No. 8
to the Registration Statement, File No. 33-l834l.
5 Filed herewith.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Paragon Life
Insurance Company and Separate Account A of Paragon Life Insurance Company
certify that they meet all the requirements for effectiveness of this amended
Registration Statement pursuant to Rule 485(b) under the Securities Act of l933
and have duly caused this amended Registration Statement to be signed on their
behalf by the undersigned thereunto duly authorized, and the seal of Paragon
Life Insurance Company to be hereunto affixed and attested, all in the City of
St. Louis, State of Missouri, on the 28 day of April, 1998.
(Seal) Paragon Life Insurance Company
Attest: /s/_________________ By: /s/_______________________
Matthew P. McCauley, Carl H. Anderson, President
Secretary and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ 4/28/98
- ------------------------
Carl H. Anderson President and Director
(Chief Executive Officer)
/s/ 4/28/98
- ------------------------
Matthew K. Duffy Vice President
and Chief Financial
Officer (Principal
Accounting Officer and
Principal Financial Officer)
- ------------------------
Warren J. Winer* Director
- ------------------------
Richard A. Liddy* Director
II-5
<PAGE>
Signature Title Date
/s/ 4/28/98
- ------------------------
Matthew P. McCauley Vice President,
General Counsel,
Secretary and Director
/s/ 4/28/98
- ------------------------
Craig K. Nordyke Director
- ------------------------
Leonard M. Rubenstein* Director
- ------------------------
E. Thomas Hughes* Director and Treasurer
- ------------------------
Bernard H Wolzenski* Director
- ------------------------
A. Greig Woodring* Director
By: /s/__________________ 4/28/98
Craig K. Nordyke
*Original powers of attorney authorizing Matthew P. McCauley, Carl H. Anderson,
and Craig K. Nordyke, and each of them singly, to sign this Registration
Statement and Amendments thereto on behalf of the Board of Directors of Paragon
Life Insurance Company have been filed with the Securities and Exchange
Commission.
II-6
<PAGE>
EXHIBIT INDEX
Exhibit
4. Opinion and consent of Craig K. Nordyke, F.S.A.,
M.A.A.A., Executive Vice President and Chief
Actuary
5. Written consent of KPMG Peat Marwick LLP,
Independent Certified Public Accountants.
6. Written consent of Sutherland, Asbill & Brennan LLP.
<PAGE>
Exhibit 4
OPINION AND CONSENT OF CRAIG K. NORDYKE, F.S.A., M.A.A.A.,
EXECUTIVE VICE PRESIDENT AND CHIEF ACTUARY
<PAGE>
RE: 33-27242
Gentlemen:
In my capacity as Executive Vice President and Chief Actuary for Paragon Life
Insurance Company, I have provided actuarial advice concerning: (a) the
preparation of a registration statement for Separate Account A filed on Form S-6
with the Securities and Exchange Commission under the Securities Act of 1933
(the "Registration Statement") regarding the offer and sale of flexible premium
variable life insurance policies (the "Policies"); and (b) the preparation of
policy forms for the Policies described in the Registration Statement.
It is my professional opinion that:
1. The illustrations of cash values, cash surrender values, death benefits,
and accumulated premiums in the Appendix to the prospectus contained in
the Registration Statement, are based on the assumptions stated in the
illustration, and are consistent with the provisions of the Policies. The
rate structure of the Policies has not been designed so as to make the
relationship between premiums and benefits, as shown in the illustrations,
appear to be more favorable to prospective purchasers of Policies aged 30
or 50 in the rate class illustrated than to prospective purchasers of
Policies at other ages.
2. The information contained in the examples set forth in the section of the
prospectus entitled "Death Benefits", is based on the assumption stated in
the examples, and is consistent with the provisions of the Policies.
I hereby consent to the filing of this opinion as an exhibit to the Post-
Effective Amendment No. 10 to the Registration Statement and to the use of my
name under the heading "Experts" in the prospectus.
/s/
Craig K. Nordyke, FSA, MAAA
Executive Vice President and Chief Actuary
<PAGE>
Exhibit 5
WRITTEN CONSENT OF KPMG PEAT MARWICK LLP,
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
Independent Auditors' Consent
The Board of Directors
Paragon Life Insurance Company
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the Registration Statement and Prospectus
for Separate Account A of Paragon Life Insurance Company.
KPMG Peat Marwick LLP
St. Louis, Missouri
April 28, 1998
<PAGE>
Exhibit 6
WRITTEN CONSENT OF SUTHERLAND, ASBILL & BRENNAN LLP
<PAGE>
April 27, 1998
Board of Directors
Paragon Life Insurance Company
100 South Brentwood Boulevard
St. Louis, Missouri 63105
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
matters" in the Prospectus filed as part of Post-Effective Amendment No. 10 to
the registration statement on Form S-6 for Separate Account A of Paragon Life
Insurance Company (File No. 33-27272). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN LLP
By: /s/________________________
Stephen E. Roth
