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As filed with the Securities and Exchange Commission on 28 April 2000
Registration No. 33-27242
811-5382
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 12
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 May 2000 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>
[LOGO OF PARAGON LIFE INSURANCE COMPANY]
[LOGO OF GROUP AMERICAN PLUS]
. GROUP FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
Prospectus dated May 1, 2000
50405
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GROUP AND INDIVIDUAL 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," "we," or "us") which
are designed for use in employer-sponsored insurance programs. When a Group
Contract is issued, Certificates showing the rights of the Owners and/or
Insureds will be issued under the Group Contract. Individual Policies will be
issued when a Group Contract is not issued. The terms of the Certificate and
the Individual Policy are very similar and are collectively referred to in this
Prospectus as "Policy" or "Policies."
The Policies are designed to provide lifetime insurance protection to age 95
and provide flexibility to vary premium payments and change the level of death
benefits payable under the Policies. Flexibility allows an Owner to provide for
changing insurance needs under a single insurance policy. An Owner can allocate
net premiums among several investment portfolios ("Funds") with different
investment objectives.
The Policy provides for: (1) a value upon surrendering the Policy; (2) loans;
and (3) a death benefit payable on the Insured's death. As long as the Policy
remains in force, the death benefit payable on the Insured's death will not be
less than the Face Amount of the Policy. The Policy will remain in force so
long as there is enough value to pay certain monthly charges.
The Owner may allocate net premiums to one or more of the Divisions of
Separate Account A (the "Separate Account"). The Policy value will vary to
reflect the investment experience of the Divisions selected by the Owner.
Depending on the death benefit option elected, portions of the death benefit
may also vary. The Owner bears the entire investment risk under the Policies;
there is no minimum guaranteed value.
Each Division of the Separate Account will invest solely in a corresponding
investment portfolio of American Variable Insurance Series, managed by Capital
Research and Management Company:
<TABLE>
<CAPTION>
FUND FUND
- ----------------------------------------------------------------------------------------
<S> <C>
Cash Management Fund Bond Fund
High-Yield Bond Fund Global Growth Fund
Growth-Income Fund U.S. Government/AAA-Rated Securities Fund
Growth Fund Global Small Capitalization Fund
Asset Allocation Fund New World Fund
International Fund
</TABLE>
The date of this Prospectus is May 1, 2000.
<PAGE>
Please read this Prospectus carefully and keep it. A full description of the
Funds is contained in the prospectus for each Fund, which must accompany this
Prospectus.
It may not be a good decision 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.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
The Company, The Separate Account, and The Funds......................... 9
The Company
The Separate Account
The Funds
Addition, Deletion, or Substitution of Investments
Payment and Allocation of Premiums....................................... 13
Issuance of a Policy
Premiums
Allocation of Net Premiums and Cash Value
Policy Lapse and Reinstatement
Policy Benefits.......................................................... 16
Death Benefit
Cash Value
Policy Rights and Privileges............................................. 22
Exercising Rights and Privileges Under the Policies
Loans
Surrender and Partial Withdrawals
Transfers
Right to Examine Policy
Conversion Right to a Fixed Benefit Policy
Eligibility Change Conversion
Payment of Benefits at Maturity
Payment of Policy Benefits
Charges and Deductions................................................... 27
Sales Charges
Premium Tax Charge
Monthly Deduction
Partial Withdrawal Transaction Charge
Separate Account Charges
General Matters Relating to the Policy................................... 31
Distribution of the Policies............................................. 34
General Provisions of the Group Contract................................. 34
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................................................ 40
Legal Matters............................................................ 41
Legal Proceedings........................................................ 41
Experts.................................................................. 41
Additional Information................................................... 41
Definitions.............................................................. 41
Financial Statements..................................................... F-1
Appendix A............................................................... A-1
</TABLE>
The Policies are not available in all states.
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SUMMARY OF THE POLICY
The following summary of Prospectus information should be read with the
detailed information which follows in this Prospectus. Unless we provide
otherwise, 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 Group Contract
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 "variable" policies because, unlike the fixed benefits under
other types of life insurance contracts, the Cash Value and, under certain
circumstances, the death benefit under a Policy may increase or decrease
depending upon the investment experience of the Funds underlying the Divisions
to which the Owner has allocated net premium payments. 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 or an accelerated death benefit in a reduced amount determined in
accordance with certain riders available under the Policy. (See "General
Matters Relating to the Policy--Additional Insurance Benefits.")
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 whichever is latest. If a Policy is
cancelled within this time period, a refund will be paid which will equal all
premiums paid under the Policy or any different amount required by state law.
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.")
The Separate Account
The Owner may allocate the net premiums to one or more Divisions. See "The
Company, The Separate Account and The Fund" for a complete description of the
available Funds. 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 start
a Policy. 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.
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However, as 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. (See "Payment and Allocation of
Premiums--Issuance of a Policy--Premiums.") 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 not enough 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.")
Death Benefit
Death benefit proceeds are payable to the Beneficiary when the Insured dies.
Two death benefit options are available, as follows:
. 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; and
. 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. (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.")
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 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
Sales Charges. The sales charges imposed will consist of a front-end sales
charge of 2.5%, 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% 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 ( 1/10) 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 paid 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
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"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 ( 1/10) 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.")
Premium Tax Charge. We deduct a charge of 2% to cover state premium taxes from
premiums paid. (See "Charges and Deductions--Premium Tax Charge.")
Monthly Deduction. We make a monthly deduction from the Policy's Cash Value in
the Separate Account. The monthly deduction includes the following:
. Administrative Charge. We deduct an administrative charge (see the
specification pages of the Policy) which will ordinarily be $3.00 per
month during all policy years.
. Cost of Insurance Charge. We deduct a cost of insurance charge calculated
on each Monthly Anniversary. We determine monthly cost of insurance rates
based upon expectations as to future mortality experience. For a
discussion of the factors affecting the rate class of the Insured (See
"Charges and Deductions--Monthly Deduction--Cost of Insurance.")
Separate Account Charges.
. Mortality and Expense Risk Charge. We deduct a daily charge not to exceed
.0024547% (an annual rate of .90%) of the net assets of each Division for
the Company's assumption of certain mortality and expense risks incurred
in connection with the Policies, see "Charges and Deductions--Separate
Account Charges."
. Federal Taxes. No charges are currently made for federal or state income
taxes. (See "Federal Tax Matters.")
. Annual Expenses of the Funds. The value of the assets of the Divisions
will reflect the management fee and other expenses incurred by the Funds.
The following table describes the Fund fees and expenses during the time
that the Owner owns the Policy. These fees and expenses are shown as a
percentage of net assets for the year ended December 31, 1999. The
prospectus for each Fund contains more detail concerning a Fund's fees
and expenses. (See "The Company, The Separate Account, and The Funds.")
<TABLE>
<CAPTION>
Total
Management Other Annual
Fund Fees Expenses Expenses
<S> <C> <C> <C>
Cash Management Fund 0.44% 0.01% 0.45%
High-Yield Bond Fund 0.50% 0.01% 0.51%
Growth-Income Fund 0.34% 0.01% 0.35%
Growth Fund 0.38% 0.01% 0.39%
Asset Allocation Fund 0.43% 0.01% 0.44%
International Fund 0.55% 0.05% 0.60%
Bond Fund 0.51% 0.02% 0.53%
Global Growth Fund 0.68% 0.03% 0.71%
U.S. Government/AAA-Rated Securities Fund 0.51% 0.01% 0.52%
Global Small Capitalization Fund(1) 0.78% 0.03% 0.81%
New World Fund 0.78% 0.05% 0.83%
</TABLE>
- --------
The expense information regarding the Funds was provided by those Funds. We
have not independently verified this information.
6
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Partial Withdrawal Transaction Charge. We deduct a transaction charge equal to
the lesser of $25 or 2% of the amount withdrawn on each partial withdrawal of
amounts from the Separate Account. Currently, there are no transaction charges
imposed for transfers of amounts between Divisions. 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," "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. All outstanding Indebtedness will be deducted from proceeds
payable at the Insured's death, upon maturity, or upon surrender. We transfer a
portion of the Policy's Cash Value in each Division of the Separate Account to
which the loan is allocated 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 10% 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. A partial withdrawal may
reduce the Face Amount and the death benefit payable under the Policy. If
Option A is in effect and the death 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.")
Conversion Right
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. The Owner also
has a similar right with respect to increases in the Face Amount. (See "Policy
Rights and Privileges--Conversion Right to a Fixed Benefit Policy.")
Eligibility Change Conversion
In the event that the Insured is no longer eligible for coverage 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 Rights and Privileges--Eligibility Change
Conversion.")
Illustrations
Illustrations in Appendix A show how death benefits and Cash Surrender Values
may vary based on certain hypothetical rate of return assumptions as well as
assumptions pertaining to the level of the charges. These rates are not
guaranteed. They are illustrative only and do not show past or future
performance. If a Policy is
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surrendered in the early Policy Years, the Cash Surrender Value payable will be
low compared to premiums accumulated with interest, and consequently the
insurance protection provided prior to surrender will be costly.
Policy Tax Compliance
We intend for the Policy to satisfy the definition of a life insurance contract
under Section 7702 of the Internal Revenue Code (the "Code"). Assuming that a
Policy qualifies as a life insurance contract under the Code, a Policy Owner
should not be taxed for receiving value from the Policy, until there is a
distribution from the Policy. Also, death benefits payable under a Policy
should be excludable from the gross income of the Beneficiary.
A Policy may be treated as a "modified endowment contract." If the Policy is a
modified endowment contract, it will affect the tax advantages offered under
the Policy. (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.")
Questions
If you have any questions, you may write or call the Company at 100 South
Brentwood, St. Louis, MO 63105, (314) 862-2211.
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THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUNDS
The Company
Paragon Life Insurance Company is a stock life insurance company incorporated
under the laws of Missouri. We were organized in 1981 as General American
Insurance Company and on December 31, 1987, our name was changed. No change in
operations or ownership took place in connection with the name change. Our main
business is writing individual and group life insurance policies and annuity
contracts. As of December 31, 1999, it had assets of $400 million. We are
admitted to do business in 49 states and the District of Columbia. Our
principal offices are at 100 South Brentwood, St. Louis, Missouri 63105 ("Home
Office"). Our Internal Revenue Service Employer Identification Number is 43-
1235869.
We are 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 Metropolitan Life Insurance Company, a
New York insurance company.
Guarantee. The Parent Company agrees to guarantee that we will have sufficient
funds to meet all of our 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 end 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
that this guarantee cover the investment experience or Cash Values of the
Policy.
Ratings. We may from time to time publish in advertisements, sales literature,
and reports to Owners or Contractholders, the ratings and other information
assigned to us by one or more independent rating organizations such as A. M.
Best Company, Standard & Poor's, and Duff & Phelps. The purpose of the ratings
is to reflect our financial strength and/or claims paying ability and should
not be considered as bearing on the investment performance of assets held in
the Separate Account. Each year the A. M. Best 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.
Advertisements. We also may include in advertisements and other literature
certain rankings assigned to us by the National Association of Insurance
Commissioners ("NAIC"), and our analyses of statistical information produced by
the NAIC. These rankings and analyses of statistical information may describe,
among other things, our growth, premium income, investment income, capital
gains and losses, policy reserves, policy claims, and life insurance in force.
Our 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.
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The Separate Account
We established Separate Account A (the "Separate Account") 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 receives and invests net premiums for other flexible premium
variable life insurance policies issued by us.
The Separate Account is divided into Divisions. Each Division will invest in
Funds as shown on the cover page of this Prospectus. 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.
The Funds
The Separate Account invests in shares of American Variable Insurance Series
(referred to as the "American Series"), a series-type mutual fund registered
with the SEC as open-end, diversified management investment company. The
American Series investment advisor is Capital Research and Management 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 Variable Insurance Series.
The assets of each Portfolio used by the Policies are held separate from the
assets of the other Portfolios, and each Portfolio has investment objectives
and policies which are generally different from those of the other Portfolios.
The income or losses of one Portfolio generally have no effect on the
investment performance of any other Portfolios.
The investment objectives and policies of certain Portfolios are similar to the
investment objectives and policies of other portfolios. The investment results
of the Portfolios may differ from the results of these other portfolios. There
can be no guarantee, and no representation is made, that the investment results
of any of the Portfolios will be comparable to the investment results of any
other portfolio.
The following summarizes the investment policies of each Portfolio:
.Cash Management Fund
The Fund seeks to provide you an opportunity to earn income on your cash
reserves while preserving the value of your investment and maintaining
liquidity by investing in a diversified selection of high quality money market
instruments. The prices of money market instruments may be affected by
unfavorable political, economic, or governmental developments that could affect
the repayment of principal or the payment of interest.
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.High-Yield Bond Fund
The Fund seeks to provide you with a high level of current income and
secondarily capital appreciation by investing primarily in lower quality debt
securities (rated Ba and BB or below by Moody's Investors Services, Inc. or
Standard & Poor's Corporation or unrated but determined to be of equivalent
quality), including those of non-U.S. issuers. The fund may also invest in
equity securities and securities that have both equity and debt characteristics
that provide an opportunity for capital appreciation.
.Growth-Income Fund
The Fund seeks to make your investment grow and provide you with income over
time by investing primarily in common stocks or other securities which
demonstrate the potential for appreciation and/or dividends. The fund may also
invest up to 10% of its assets in securities of issuers domiciled outside the
U.S. and not included in the Standard & Poor's 500 Composite Index.
.Growth Fund
The Fund seeks to make your investment grow by investing primarily in common
stocks of companies that appear to offer superior opportunities for growth of
capital. The fund may also invest up to 15% of its assets in equity securities
of issuers domiciled outside the U.S. and Canada and not included in the
Standard & Poor's 500 Composite Index.
.Asset Allocation Fund
The Fund seeks to provide you with high total return (including income and
capital gains) consistent with preservation of capital over the long-term by
investing in a diversified portfolio of common stocks and other equity
securities, bonds and other intermediate and long-term debt securities, and
money market instruments. The fund may also invest up to 10% of its assets in
equity securities of issuers domiciled outside the U.S. and not included in the
Standard & Poor's 500 Composite Index, and up to 5% of its assets in debt
securities of non-U.S. issuers.
.International Fund
The Fund seeks to make your investment grow over time by investing primarily in
common stocks of companies located outside the United States (at least 65%
under normal circumstances).
.Bond Fund
The Fund seeks to maximize your level of current income and preserve your
capital by investing primarily in bonds. The fund is designed for investors
seeking income and more price stability than stocks, and capital preservation
over the long-term.
.Global Growth Fund
The Fund seeks to make your investment grow over time by investing primarily in
common stocks of companies located around the world. The fund normally will
invest in issuers domiciled in at least three countries.
.U.S. Government/AAA-Rated Securities Fund (the "Government/AAA Fund")
The Fund seeks to provide you with a high level of current income, as well as
preserve your investment. The fund invests primarily in securities that are
guaranteed by the "full faith and credit" pledge of the U.S. Government and
securities that are rated AAA or Aaa by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation or unrated but determined to be of equivalent
quality. The fund may also invest a significant portion of its assets in
securities backed by pools of mortgages (also called "mortgage-backed"
securities).
.Global Small Capitalization Fund
The Fund seeks to make your investment grow over time by investing primarily in
stocks of smaller companies located around the world that typically have market
capitalizations of $50 million to $1.5 billion.
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<PAGE>
.New World Fund
The Fund seeks to make your investment grow over time by investing primarily in
stocks of companies with significant exposure to countries with developing
economics and/or markets. The fund may invest up to 25% of its assets in debt
securities of issuers primarily based in qualified countries which have
developing economies and/or markets.
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 the Funds, which must accompany or precede this Prospectus and
which should be read carefully. Please also refer to the "Annual Expenses of
the Funds" information of this Prospectus for a list of the Funds' annual
expenses.
Agreements. We have entered into or may enter into arrangements with certain
Funds pursuant to which we receive a fee based upon an annual percentage of the
average net asset amount invested by us on behalf of the Separate Account and
other separate accounts of the Company. These arrangements vary among the Funds
and are entered into because of administrative services provided by the
Company.
Resolving Material Conflicts. All of the Funds 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.
Addition, Deletion, or Substitution of Investments. We reserve the right,
subject to compliance with applicable law, to make additions to, deletions
from, or substitutions for the shares of the Funds that are held by the
Separate Account or that the Separate Account may purchase. We reserve the
right to (1) eliminate the shares of any of the Funds and (2) substitute shares
of another fund if the shares of a Fund are no longer available for investment,
or further investment in any Fund becomes inappropriate in view of the purposes
of the Separate Account. We will not substitute any shares without notice to
the Owner and prior approval of the SEC, to the extent required by the 1940 Act
or other applicable law, as required
We also reserve the right to establish additional Divisions of the Separate
Account. We will establish new Divisions when marketing needs or investment
conditions warrant. 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,
we may also:
. Eliminate or combine one or more Divisions;
. Substitute one Division for another Division; or
. Transfer assets between Divisions if marketing, tax, or investment
conditions warrant.
We may make changes in the Policy by appropriate endorsement in the event of a
substitution or change. We will notify all Owners of any such changes.
If we deem it 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, we may transfer the assets of the
Separate Account associated with the Policy to another separate account.
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<PAGE>
We cannot guarantee that the shares of the Funds will always be available. The
Funds each sell shares to the Separate Account in accordance with the terms of
a participation agreement between the Fund distributors and us. Should this
agreement terminate or should shares become unavailable for any other reason,
the Separate Account will not be able to purchase the existing Fund shares.
Should this occur, we will be unable to honor Owner requests to allocate Cash
Values or premium payments to the Divisions of the Separate Account investing
in such shares. In the event that a Fund is no longer available, we will 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 an appropriate officer of the entity wishing to enter into a
Group contract and acceptance by us at our Home Office. (See "General
Provisions of the Group Contract--Issuance.") Individuals wishing to purchase a
Policy issued under a Group Contract must complete the appropriate application
for Individual Insurance and submit it to our authorized representative or us
at our 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. We will issue to each Contractholder
a Certificate to give to each Owner.
Issue Ages. A Policy generally will be issued only to Insureds of Issue Ages 17
through 70 who supply satisfactory evidence of insurability. We may issue
Policies to individuals falling outside the Issue Ages or decline to issue
Policies to individuals within the Issue Ages.
Eligibility. 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.
Issue Date. 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.
Premiums
The initial premium is due on the Issue Date, and usually will be paid 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.") The Owner is not required to
pay premiums equal to the planned annual premium.
We will apply premiums paid by a Contractholder or designated payor to a Policy
as of the Valuation Date we receive the premiums. Premiums will be "received"
on a Valuation Date when we receive supporting documentation necessary for us
to determine the amount of premium per Policy and the cash premium.
Planned Premium Payments. After the initial premium and subject to the
limitations described below, premiums may be paid in any amount and at any
interval. The planned annual premium usually will be paid by the
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<PAGE>
Contractholder on behalf of the Owner pursuant to a planned premium payment
schedule. A planned premium payment schedule provides for premium payments in a
level amount at fixed intervals (usually monthly) agreed to by the
Contractholder or employer us.
The amount of the premiums paid by the Contractholder will be equal to the
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 us.
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
account. 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 always cause the Policy to lapse.
The Policy will lapse if the Cash Surrender Value is insufficient to cover the
next Monthly Deduction. (See "Payment and Allocation of Premiums--Policy Lapse
and Reinstatement.")
Unscheduled Premiums. In addition to any planned payments made, an Owner may
make unscheduled premium payments at any time and 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. 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.
Continuance of Insurance. Failure of the Contractholder to pay the planned
premium payments may cause the Group Contract to terminate. (See "General
Provisions of the Group Contract--Termination.") 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 Group
contract termination. (See "Policy Rights and Privileges--Eligibility Change
Conversion.") Individual Insurance will also continue if the Owner's
eligibility under 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. The new schedule
will have the same planned annual premium, and the payment intervals will be no
more frequent than quarterly.
Premium Limitations. Every premium payment must be at least $20. Total premiums
paid under a Policy may not exceed the current maximum premium limitations
established by federal tax laws in any Policy Year. The maximum premium
limitation for a Policy Year is the sum of the premiums paid under the Policy
that will not at any time exceed the guideline premium limitations referred to
in Section 7702(c) of the Internal Revenue Code of 1986. If at any time a
premium is paid which would result in total premiums exceeding the current
maximum premium limitation. We will accept only that portion of the premium
which will make total premiums equal the maximum. Any part of the premium in
excess of the maximum premiums will be returned directly to the Owner within 60
days of the end of the Policy Year in which payment is received (unless we
agree) 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 a 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, from which
withdrawals are treated (for tax purposes) (1) as a distribution of any taxable
income
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<PAGE>
under the contract, and (2) as a distribution of nontaxable investment in the
contract. Also, such withdrawals may be subject to a 10% federal income tax
penalty. We have adopted administrative steps designed to notify an Owner when
we believe that a premium payment will cause a Policy to become a modified
endowment contract. Owner will be given a limited amount of time to request
that the premium be reversed in order to avoid the Policy's classification as a
modified endowment contract. (See "Federal Tax Matters.")
Allocation of Net Premiums and Cash Value
Net Premiums. The net premium equals:
(1) the premium paid; less
(2) the premium expense charge;
(3) any charge to compensate us for anticipated higher corporate income
taxes resulting from the sale of a Policy; and
(4) 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 10 Divisions of the
Separate Account. Beginning with the initial premium payment, all premiums will
be allocated in accordance with the Owner's instructions upon our receipt of
the premiums. However, the minimum percentage, of any allocation to a Division
is 10% 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 us. Any change in allocation
will take effect immediately upon our receipt 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 the Divisions will vary with the investment
performance of the Funds underlying the Divisions. The Owner bears the entire
investment risk. Investment performance 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 payment will not itself cause a
Policy to lapse. However, a Policy can lapse even if planned premiums have been
paid. 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.") Thus, the payment of premiums in any amount does not
guarantee that the Policy will remain in force until the Maturity Date.
The grace period, which is 62 days, begins on the Monthly Anniversary on which
the Cash Surrender Value is not enough to cover the next monthly deduction,
premium expense charge, and premium tax charge. We will notify the Owner at the
beginning of the grace period by mail. 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.
(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 payable.
Reinstatement. The Owner may reinstate a lapsed Policy by written application
at 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
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<PAGE>
by the termination of a Group Contract or the termination of an employee's
employment during the reinstatement period. Reinstatement is subject to the
following conditions:
. Evidence of the insurability of the Insured satisfactory to us (including
evidence of insurability of any person covered by a rider to reinstate
the rider).
. Payment of a premium that, after the deduction of any premium expense
charge and any premium tax charge, 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.
. 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. 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 our approval 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, we 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 "General Matters Relating to the Policy--
Additional Insurance 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.
Option A. Under Option A, the death benefit is:
(1) the current Face Amount of the Policy or, if greater,
(2) the applicable percentage of Cash Value on the date of death.
The applicable percentage is 250% 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 below. Under
Option A the death
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<PAGE>
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...................... 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:
(1) the current Face Amount plus the Cash Value of the Policy or, if
greater,
(2) the applicable percentage of the Cash Value on the date of death. The
applicable percentage is the same as under Option A.
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. We reserve the right to limit the number
of changes in death benefit options to one each Policy Year. A request for a
change must be made directly to us in writing. The effective date of such a
change will be the Monthly Anniversary on or following the date we receive 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 us 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.
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<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 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 because the federal tax
law requirements are not satisfied. (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 us. 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 our receipt of the written request. 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 the minimum Face
Amount, generally $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"), 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 those requirements. A decrease in the Face Amount will
reduce the Face Amount in the following order:
(1) The Face Amount provided by the most recent increase;
(2) The next most recent increases successively; and
(3) 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 an 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.")
Face Amount Increases. For an increase in the Face Amount, we require 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 80 or less on the effective date of the increase. The amount of
the increase may not be less than $5,000. The Face Amount may not be increased
more than the maximum Face Amount for that Policy, generally $500,000. However,
in connection with a particular Group Contract insurance program, we may
establish a substantially higher Face Amount for Policies issued under that
Contract or program. Although an increase need not necessarily be accompanied
by additional premium, 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.")
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<PAGE>
Cancellation of an Increase. 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 Divisions 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.
Examples 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 we receive all documentation
required. 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
20
<PAGE>
for the portion of the month from the date of death to the end of the month,
and reduced by any outstanding Indebtedness. (See "General Matters Relating to
the Policy--Additional Insurance Benefits," and "Charges and Deductions.")
When no election for an optional method of settlement is in force when the
Insured dies, 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.
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;
. 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 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 (including amounts securing Policy Loans) 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
21
<PAGE>
(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
(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 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.
POLICY RIGHTS AND PRIVILEGES
Exercising Rights and Privileges Under the Policies
Owners of Policies issued under a Group Contract may exercise their rights and
privileges under the Policies (i.e., make transfers, change premium
allocations, borrow, etc.) by directly notifying us in writing at our Home
Office. We 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 us, 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% 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.
22
<PAGE>
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 we receive
the loan request at our 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 and loan
interest due 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,
(not including 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.
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 5%. The rate is declared by action of our management as authorized by our
Board of Directors. The Loan Account interest credited will be transferred to
the Divisions: (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 8%. Interest charged will be due and payable annually in arrears
on each Policy Anniversary or for the duration of the Policy Loan, if shorter.
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 "Policy Rights and Privileges--Loans --Effect of Policy Loans.") The
amount transferred will be deducted from the Divisions in the same proportion
that the portion of the Cash Value in each Division bears to the total Cash
Value of the Policy (not including the Cash Value in the Loan Account).
Effect of Policy Loans. A loan taken from, or secured by, a Policy 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.
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 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:
(1) the grace period of 62 days from the Monthly Anniversary immediately
before the date Indebtedness exceeds the Cash Value; or
(2) 31 days after notice that the Policy will terminate without a
sufficient payment has been mailed.
If a sufficient payment is not received, the Policy will lapse and terminate
without value. A lapsed Policy 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.
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<PAGE>
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 us. Amounts paid while a
Policy Loan is outstanding will be treated as premiums unless the Owner
requests in writing that the payments 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 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. 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 of the Policy by sending a written
request to us. Any restrictions are described 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 by us. Amounts
payable upon 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 must be returned to us along with
the request, or the request must be accompanied by a completed affidavit of
lost Policy. Upon request, we can provide a lost Policy Certificate. Upon
surrender, we 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 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 $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 2% of the amount
withdrawn. The Owner may allocate the amount withdrawn, subject to the above
conditions, among the Divisions. If no allocation is specified, then the
partial withdrawal will be allocated among the Divisions in the same proportion
that the Policy's Cash Value in each Division bears to the total Cash Value of
the Policy, (not including 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.
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<PAGE>
The Face Amount will be decreased in the following order: (1) the Face Amount
at issue; and (2) any increases in the same order in which they were issued.
The amount of any contingent deferred sales charge deducted will be that which
is in effect for the Face Amount at issue or the increase being decreased.
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 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 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 approved.
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, (not including
amounts credited to the Loan Account) may be transferred among the Divisions
available with the Policy. Requests for transfers from or among Divisions must
be made in writing directly to us 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. We will make 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, we will make 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 we currently intend to continue to permit transfers for the
foreseeable future, the Policy provides that we 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 we may determine.
Right to Examine Policy
The Owner may cancel a Policy within 10 days of after receiving it or such
longer period if 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
us. 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.")
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<PAGE>
As noted above, 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 we refund the
amount of the additional charges deducted in connection with the increase. This
amount 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, we will increase the Policy's Cash Value by the amount of
these additional charges. This amount will be allocated among the Divisions 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. In the event a Certificate has been amended
to operate as an Individual Policy following an Insured'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, we 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 our rates in effect for the
same Issue Age and rate class as the original Policy.
Eligibility Change Conversion
If an Insured's eligibility under a Group Contract ends, the Insured's coverage
will continue 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.
If a Certificate was issued under the Group Contract, the Certificate 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
we receive written notice that 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 paid to us 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. The new planned
payment intervals will be no more frequent than quarterly. The Company may
allow payment of planned premium through periodic (usually monthly) authorized
electronic funds transfer. Of course, unscheduled premium payments can be made
at any time. (See "Payment and Allocation of Premiums--Premiums.")
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<PAGE>
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 our agreement.
Settlement Options. We 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.
Accelerated Death Benefits. We offer 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
We will deduct charges in connection with the Policies to compensate the
Company for providing the insurance benefits set forth in the Policies and any
additional benefits added by rider, 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 mortality and expense risk charge. We may use any such
profits for any corporate purpose, including, among other things, payments of
sales and distribution 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% 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 the premium
expense charge of 2.5%.
The net premium payment is calculated as 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; and
. the premium tax charge (described below).
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<PAGE>
Contingent Deferred Sales Charge. During the first ten Policy Years, we may
assess 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% of premiums we receive 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 ( 1/10) 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, if any associated with the increase will equal
25% of premiums associated with the increase which are received within the 12
Policy Months of the increase, up to the guideline 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 year, 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
paid in the first Policy Year or in the first 12 Policy Months after an
increase in Face Amount.
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 considered a premium payment of the
increase, and subsequent premium payment 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 payment 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
28
<PAGE>
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%
from all Policies.
Monthly Deduction
Charges will be deducted monthly from the Cash Value of each Policy ("monthly
deduction") to compensate us 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 in the same proportion that a Policy's Cash Value in each Division
bears to the total Cash Value of the Policy (not including 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. We are responsible 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. We deduct a monthly
administration charge of $3.00 per month from each Policy.
These charges are guaranteed not to increase over the life of the Policy. Nor
will the administrative charge change in the event that the Insured is no
longer eligible for group coverage, but continues coverage on an individual
basis. In addition, where we believe 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, we 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 next 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
increases in Face Amount. We 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.
Cost of Insurance Rates are determined at the beginning of each Policy Year for
the initial Face Amount and each increase in Face Amount. We will determine the
current cost of insurance rates based on our expectations as to future
mortality experience. We currently issue 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. We also reserves the right
to issue Policies on another basis which is determined by us to be appropriate
for the group and which may include guaranteed issue.
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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 number of
potential insureds as well as other factors that may affect the mortality risks
we assume in connection with a particular Group Contract. All other factors
being equal, the cost of insurance rates generally decrease by rate class as
the number of potential insureds in the rate class increase. We reserve the
right to change criteria on which a rate class will be based in the future.
We 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, we may adjust the rate to reflect the actual gender mix for the
particular group. Currently, in the event that the Insured'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, we reserve 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% of the maximum rates that could be charged based on the 1980 Commissioners
Standard Ordinary Mortality Table C ("1980 CSO Table"). The guaranteed rates
are higher than 100% of the maximum rates in the 1980 CSO Table because we use
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 actual cost of insurance rates will apply to all persons of the same
Attained Age and rate class whose Face Amounts have been in force for the same
length of time. Any change in the actual cost of insurance rates will not
include changes made to adjust for changes in the gender mix of the pool of
Insureds under a particular Group Contract. (For purposes of computing
guideline premiums under Section 7702 of the Internal Revenue Code of 1986, as
amended, the Company will use 100% of the 1980 CSO Table.)
Net Amount at Risk. 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), less (b)
the Cash Value at the beginning of the Policy Month. Dividing the death benefit
by 1.0040741 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 5%.
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, we will calculate the net amount at risk separately for
each rate class. When we determine the net amounts at risk for each rate class,
when Option A is in effect, we will consider the Cash Value first to be a part
of the initial Face Amount. If the Cash Value is greater than the initial Face
Amount, we will consider the excess Cash Value a part of each increase in
order, starting with the first increase. If Option B is in effect, we will
determine the net amount at risk for each rate class 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. 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.")
Additional Insurance Benefits. The monthly deduction will include charges for
any additional benefits provided by rider. (See "General Matters Relating to
the Policy--Additional Insurance Benefits.")
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Partial Withdrawal Transaction Charge
A transaction charge which is the lesser of $25 or 2% of the amount withdrawn
will be assessed on each partial withdrawal, to cover 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 not to exceed .0024547% of the net assets of
each Division of the Separate Account. This equals an annual rate of .90% of
those net assets. This deduction is guaranteed not to increase for the duration
of the Policy. We may realize a profit from this charge and may use this profit
to finance distribution expenses.
The mortality risk we assume is that an Insured may die sooner than anticipated
and that we 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 incurred by the Separate Account. We may make such a
charge in the future. Charges for other taxes incurred by the Account may also
be made. (See "Federal Tax Matters.")
Expenses of the Funds. The value of the net assets of the Separate Account will
reflect the investment advisory fee and other expenses incurred by the Funds.
(See "Summary of the Policy--Separate Account Charges--Annual Expenses of the
Funds" and The Company, the Separate Accounts and The Funds.")
GENERAL MATTERS RELATING TO THE POLICY
Postponement of Payments
Payment of any amount due from the Separate Account because of 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:
(1) 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;
(2) the SEC by order permits postponement for the protection of Owners; or
(3) 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 Contract
The Policy, the attached application, any riders, endorsements, any application
for an increase in Face Amount, and any application for reinstatement together
make the entire contract between the Owner and us. Apart from the rights and
benefits described in the Certificate or Individual Policy and incorporated by
reference into the Group Contract, the Owner has no rights under the Group
Contract. All statements made by the 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.
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Control of Policy
The Insured will be the Owner of the Policy unless another person is shown as
the Owner in the application. Ownership may be changed 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 us 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 by us. We
will not be liable for any payment made or action taken before we receive 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. Changing the
Owner may have adverse tax consequences.
Policy Changes
We reserve 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.
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Assignment
We 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 us at our Home
Office; and (c) we send an acknowledged copy to the Owner. We are 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, we 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.
Any payment or Policy changes we make in good faith, relying on our records or
evidence supplied with respect to such payment, will fully discharge our duty.
We reserve the right to correct any errors in the Policy.
Additional Insurance Benefits
Subject to certain requirements, the following additional insurance benefits
may be added to a Policy by rider. However, some Group Contracts may not offer
the additional benefits described below. The rider 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 this rider, we
will cease offering such rider. 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 "Charges and Deductions--Monthly Deduction.")
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 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 us 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 and assignees of record
must provide written authorization in order for the Owner to receive the
accelerated benefit.
The amount of the death benefit payable under the rider will equal the Cash
Surrender Value under the Policy on the date we receive 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.
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Pursuant to the Health Insurance Portability and Accountability Act of 1996, we
believe 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 advisor about the consequences of adding this Rider to a Policy
or requesting an accelerated death benefit payment under this Rider.
Records and Reports
We 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 Funds 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 us
for a nominal fee.
DISTRIBUTION OF THE POLICIES
Walnut Street Securities, Inc. ("Walnut Street") acts as principal underwriter
of the Policies pursuant to an Underwriting Agreement with the Company. Walnut
Street is a wholly-owned subsidiary of GenAmerica Corporation, a Missouri
general business corporation, which is also a parent company of the Company.
GenAmerica Corporation is wholly owned by Metropolitan Life Insurance Company,
a New York insurance 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. Walnut Street's Internal Revenue
Service employer identification No. is 43-1333368. It is a Missouri corporation
formed May 4, 1984. Walnut Street's address is 400 South 4th Street, Suite
1000, St. Louis, MO 63102. The Policies will be sold by broker-dealers who have
entered into written sales agreements with Walnut Street. Sales of the Policies
may take place in all states (except New York) and the District of Columbia.
Agents will receive commissions based upon a commission schedule in the sales
agreements. Agents' first-year commissions are based on a percentage of first-
year premiums. The commission rates will generally be no more than 27.5% of
first-year premiums paid up to the guideline annual premium. Renewal
Commissions are not paid.
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 employer and
acceptance by a duly authorized officer of the Company at its Home Office.
Premium Payments
The Contractholder will give planned premium payments for Insureds of the
Contractholder or an Associated Company in an amount authorized by the employee
to be deducted from his wages. All planned premiums under a Group Contract must
be given in advance. The planned premium payment interval is agreed to by the
Contractholder and us. Prior to each planned payment interval, we will furnish
the Contractholder with a statement of the planned premium payments to be made
under the Group Contract or such other notification as has been agreed to by
the Contractholder and us.
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Grace Period
If the Contractholder does not give 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 given. If the
Contractholder does not give 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.")
Termination
Except as described in "Grace Period" above, the Group Contract will be
terminated immediately upon default. In addition, we 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."
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 us.
Entire 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 us. 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
We 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 us 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.
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 tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisors should be consulted for more complete
information. This
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discussion is based upon our understanding of the present federal income tax
laws. No representation is made as to the likelihood of continuation of the
present federal income tax laws or as to how they may be interpreted by the
Internal Revenue Service.
Tax Status of the Policy
In order to qualify as a life insurance contract for federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that the
Policy should satisfy the applicable requirements. If it is subsequently
determined that a Policy does not satisfy the applicable requirements, we may
take appropriate steps to bring the Policy into compliance with such
requirements and we reserve the right to restrict Policy transactions in order
to do so.
In certain circumstances, owners of variable life insurance contracts have been
considered for federal income tax purposes to be the owners of the assets of
the variable account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of a Owner to allocate
premiums and cash values, have not been explicitly addressed in published
rulings. While we believe that the Policies do not give Owners investment
control over Variable Account assets, we reserve the right to modify the
Policies as necessary to prevent a Owner from being treated as the owner of the
Variable Account assets supporting the Policy.
In addition, the Code requires that the investments of the Variable Account be
"adequately diversified" in order for the Policies to be treated as life
insurance contracts for federal income tax purposes. It is intended that the
Variable Account, through its decisions, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
Tax Treatment of Policy Benefits
In General. We believe that the death benefit under a Policy should be
excludible from the gross income of the beneficiary. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on the circumstances of each Owner or beneficiary. A tax advisor should
be consulted on these consequences.
Generally, the Owner will not be deemed to be in constructive receipt of the
Policy cash value until there is a distribution. When distributions from a
Policy occur, or when loans are taken out from or secured by a Policy, the tax
consequences depend on whether the Policy is classified as a "modified
endowment contract."
Modified Endowment Contracts. Under the Internal Revenue Code, certain life
insurance contracts are classified as "modified endowment contracts," with less
favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policies as to premiums and benefits, the individual
circumstances of each Policy will determine whether it is classified as a
modified endowment contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
Policy years. Certain changes in a Policy after it is issued could also cause
it to be classified as a modified endowment contract. A current or prospective
Owner should consult with a competent advisor to determine whether a Policy
transaction will cause the Policy to be classified as a modified endowment
contract.
Distributions Other Than Death Benefits from Modified Endowment Contracts.
Policies classified as modified endowment contracts are subject to the
following tax rules:
(1) All distributions other than death benefits, including distributions
upon surrender and withdrawals, from a modified endowment contract will
be treated first as distributions of gain taxable as ordinary
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income and as tax-free recovery of the Owner's investment in the Policy
only after all gain has been distributed.
(2) Loans taken from or secured by a Policy classified as a modified
endowment contract are treated as distributions and taxed accordingly.
(3) A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Owner has
attained age 59 1/2 or is disabled, or where the distribution is part
of a series of substantially equal periodic payments for the life (or
life expectancy) of the Owner or the joint lives (or joint life
expectancies) of the Owner and the Owner's beneficiary or designated
beneficiary.
If a Policy becomes a modified endowment contract, distributions that occur
during the contract year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a Policy within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a Policy that is not a modified
endowment contract could later become taxable as a distribution from a
modified endowment contract.
Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions other than death benefits from a Policy
that is not classified as a modified endowment contract are generally treated
first as a recovery of the Owner's investment in the Policy and only after the
recovery of all investment in the Policy as taxable income. However, certain
distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance contract for federal income tax purposes if Policy
benefits are reduced during the first 15 Policy years may be treated in whole
or in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a modified endowment contract
are generally not treated as distributions.
Finally, neither distributions from nor loans from or secured by a Policy that
is not a modified endowment contract are subject to the 10 percent additional
income tax.
Investment in the Policy. Your investment in the Policy is generally your
aggregate premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that is
tax-free.
Policy Loans. In general, interest on a Policy loan will not be deductible. If
a Policy loan is outstanding when a Policy is canceled or lapses, the amount
of the outstanding indebtedness will be added to the amount distributed and
will be taxed accordingly. Before taking out a Policy loan, you should consult
a tax adviser as to the tax consequences.
Multiple Policies. All modified endowment contracts that are issued by us (or
our affiliates) to the same Owner during any calendar year are treated as one
modified endowment contract for purposes of determining the amount includible
in the Owner's income when a taxable distribution occurs.
Accelerated Death Benefit Settlement Option Rider. We believe that payments
received under the Accelerated Death Benefit Settlement Option Rider should be
fully excludable from the gross income of the beneficiary if 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
payment under this rider.
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Business Uses of Policy. Businesses can use the Policies in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, tax
exempt and nonexempt welfare benefit plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances. If you are purchasing the Policy for any arrangement
the value of which depends in part on its tax consequences, you should consult
a qualified tax adviser. In recent years, moreover, 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 adviser.
Other Tax Considerations. The transfer of the Policy or designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate, and generation-skipping
transfer taxes. For example, the transfer of the Policy to, or the designation
as a beneficiary of, or the payment of proceeds to, a person who is assigned to
a generation which is two or more generations below the generation assignment
of the owner may have generation skipping transfer tax consequences under
federal tax law. The individual situation of each owner or beneficiary will
determine the extent, if any, to which federal, state, and local transfer and
inheritance taxes may be imposed and how ownership or receipt of Policy
proceeds will be treated for purposes of federal, state and local estate,
inheritance, generation skipping and other taxes.
Possible Tax Law Changes. 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. Consult a tax adviser with respect to
legislative developments and their effect on the Policy.
Our Income Taxes
Under current federal income tax law, we are not taxed on the Separate
Account's operations. Thus, currently we do not deduct a charge from the
Separate Account for federal income taxes. We reserve the right to charge the
Separate Account for any future federal income taxes or economic burdens we may
incur.
Under current laws in several states, we may incur state and local taxes (in
addition to premium taxes). These taxes are not now significant and we are not
currently charging for them. If they increase, we may deduct charges for such
taxes.
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 our general assets. We
maintain records of all purchases and redemptions of Fund shares by each of the
Divisions. Additional protection for assets of the Separate Account is afforded
by Financial Institution Bonds issued by St. Paul Fire and Marine Company 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 held in the
Separate Account at regular and special shareholder meetings of the underlying
Funds 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 the underlying Funds in its own right,
it may elect to do so.
38
<PAGE>
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 the underlying Funds. Voting instructions will be solicited by
written communications prior to such meeting in accordance with procedures
established by the underlying Funds.
Because the Funds 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. We will vote Fund shares held in the
Separate Account for which no timely voting instructions are received and Fund
shares that we own 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 or 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 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 we determine 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 we do disregard voting instructions, a
summary of that action and the reasons for such action will be included in the
next annual report to Owners.
IMSA
The Company is a member of the Insurance Market place Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
STATE REGULATION OF THE COMPANY
We are a stock life insurance company organized under the laws of Missouri and
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 our liabilities and reserves and the liabilities and
reserves of the Separate Account and certifies their adequacy. 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, we are 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.
39
<PAGE>
MANAGEMENT OF THE COMPANY
<TABLE>
<CAPTION>
Name Principal Occupation(s) During Past Five Years/1/
---- ---------------------------------------------------
<S> <C>
Executive Officers/2/
Carl H. Anderson/4/ 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/4/ Vice President and Chief Financial Officer since
June 1996. Formerly Director of Accounting,
Prudential Insurance Company of America, March
1987-June 1996.
E. Thomas Hughes, Jr./4/ Treasurer since December 1994. Corporate Actuary
General American Life and Treasurer, GenAm since October 1994.
Insurance Company 700
Market Street
St. Louis, MO 63101
Matthew P. McCauley/4/ Vice President and General Counsel since 1984.
General American Life Secretary since August 1981. Vice President and
Insurance Company 700 Associate General Counsel, GenAm, since December
Market Street 30, 1995.
St. Louis, MO 63101
Craig K. Nordyke/4/ Executive Vice President and Chief Actuary since
November 1996. Vice President and Chief Actuary
August 1990
-November 1996.
John R. Tremmel Vice President--Operations and System Development
since January 1999. Formerly Chief Operating
Officer, ISP Alliance, April 1998-December 1998.
Vice President and General Manager of National
Operations Centers, Norell Corporation, January
1995-March 1998. Senior Vice President, Citicorp
Insurance Group, September 1986-December 1995.
Directors/3/
Richard A. Liddy Chairman and Chief Executive Officer, GenAm, since
January 2000. Chairman, President, and Chief
Executive Officer, GenAm, May 1992-January 2000.
Warren J. Winer Executive Vice President--Group, GenAm, since
September 1995. Formerly, Managing Director, Wm.
M. Mercer, July 1993-August 1995.
Bernard H. Wolzenski Executive Vice President--Individual, GenAm, since
October 1991.
A. Greig Woodring President and CEO, Reinsurance Group of America,
Inc., since May 1993, and Executive Vice
President--Reinsurance, GenAm, since January 1990.
</TABLE>
- --------
/1 /All positions listed are with the Company unless otherwise indicated.
/2 /The principal business address of each person listed is Paragon Life
Insurance Company, 100 South Brentwood, St. Louis, MO 63105 unless otherwise
noted.
/3 /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, 1370 Timberlake Manor Parkway,
Chesterfield, MO 63017
/4 /Indicates Executive Officers who are also Directors.
40
<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 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.
DEFINITIONS
Attained Age--The Issue Age of the Insured plus the number of completed Policy
Years.
Associated Companies--The companies listed in a Group Contract's specifications
pages that are under common control through stock ownership, contract or
otherwise, with the Contractholder.
41
<PAGE>
Beneficiary--The person(s) named in an Individual Insurance Policy 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.
Certificate--A document issued to Owners of Policies issued under Group
Contracts, setting forth or summarizing the Owner's rights and benefits.
Contractholder--The employer, association, sponsoring organization or trust
that is issued a Group Contract.
Division--A subaccount of the Separate Account. Each Division invests
exclusively in an available underlying Fund.
Face Amount--The minimum death benefit under the Policy so long as the Policy
remains in force.
Group Contract--A group flexible premium variable life insurance contract
issued to the Contractholder by the Company.
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.
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 premium expense charge and any charge for
premium taxes.
Owner--The Owner of a Policy, as designated in the application or as
subsequently changed.
42
<PAGE>
Policy--Either the Certificate or the Individual Policy 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--The Separate Account B, 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.
43
<PAGE>
INDEPENDENT AUDITORS' 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, 1999 and 1998, and the related statements of
operations and comprehensive income, stockholder's equity, and cash flows for
each of the years in the three-year period ended December 31, 1999. 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, 1999 and 1998, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1999, in conformity with generally accepted accounting principles.
March 10, 2000
KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is a member of KPMG
International, a Swiss association.
F-1
<PAGE>
PARAGON LIFE INSURANCE COMPANY
Balance Sheets
December 31, 1999 and 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Assets
Fixed maturities, available
for sale................... $ 81,421 83,384
Policy loans................ 16,954 14,135
Cash and cash equivalents... 10,591 7,439
-------- -------
Total cash and invested
assets................. 108,966 104,958
-------- -------
Reinsurance recoverables.... 1,314 1,170
Deposits relating to
reinsured policyholder
account balances........... 7,020 6,688
Accrued investment income... 1,853 1,545
Deferred policy acquisition
costs...................... 24,357 20,602
Fixed assets and leasehold
improvements, net.......... 1,031 4,504
Other assets................ 262 105
Separate account assets..... 255,190 168,222
-------- -------
Total assets............ $399,993 307,794
======== =======
Liabilities and
Stockholder's Equity
Policyholder account
balances................... 101,665 93,334
Policy and contract claims.. 1,691 1,672
Federal income taxes
payable.................... 1,007 281
Other liabilities and
accrued expenses........... 3,734 3,943
Payable to affiliates....... 3,803 2,062
Due to separate account..... 192 183
Deferred tax liability...... 3,070 5,591
Separate account
liabilities................ 255,126 168,222
-------- -------
Total liabilities....... $370,288 275,288
-------- -------
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
Accumulated other
comprehensive (loss)
income................... (2,748) 2,809
Retained earnings......... 12,453 9,697
-------- -------
Total stockholder's
equity................. $ 29,705 32,506
-------- -------
Total liabilities and
stockholder's equity... $399,993 307,794
======== =======
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
PARAGON LIFE INSURANCE COMPANY
Statements of Operations and Comprehensive Income
Years ended December 31, 1999, 1998 and 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Revenues:
Policy contract charges............................... $24,577 20,437 16,417
Net investment income................................. 7,726 6,983 6,288
Commissions and expense allowances on reinsurance
ceded................................................ 292 124 10
Net realized investment gains......................... 57 53 69
------- ------ ------
Total revenues...................................... 32,652 27,597 22,784
======= ====== ======
Benefits and expenses:
Policy benefits....................................... 4,616 4,774 3,876
Interest credited to policyholder account balances.... 5,524 5,228 4,738
Commissions, net of capitalized costs................. 445 167 227
General and administration expenses, net of
capitalized costs.................................... 11,394 9,042 7,743
Policy administration system expenses................. 4,787 469 --
Amortization of deferred policy acquisition costs..... 1,631 1,150 424
------- ------ ------
Total benefits and expenses......................... 28,397 20,830 17,008
======= ====== ======
Income before federal income tax expense............ 4,255 6,766 5,775
Federal income tax expense.............................. 1,499 2,368 1,885
------- ------ ------
Net income.............................................. $ 2,756 4,398 3,890
Other comprehensive (loss) income....................... (5,557) 851 1,636
------- ------ ------
Comprehensive (loss) income............................. $(2,801) 5,249 5,526
======= ====== ======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PARAGON LIFE INSURANCE COMPANY
Statements of Stockholder's Equity
Years ended December 31, 1999, 1998, and 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in comprehensive Retained stockholder's
Stock capital income earnings equity
------ ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... $2,050 17,950 322 1,409 21,731
Net income............ -- -- -- 3,890 3,890
Other comprehensive
income............... -- -- 1,636 -- 1,636
------ ------ ------ ------ ------
Balance at December 31,
1997................... $2,050 17,950 1,958 5,299 27,257
Net income............ -- -- -- 4,398 4,398
Other comprehensive
income............... -- -- 851 -- 851
------ ------ ------ ------ ------
Balance at December 31,
1998................... $2,050 17,950 2,809 9,697 32,506
Net income............ -- -- -- 2,756 2,756
Other comprehensive
loss................. -- -- (5,557) -- (5,557)
------ ------ ------ ------ ------
Balance at December 31,
1999................... $2,050 17,950 (2,748) 12,453 29,705
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PARAGON LIFE INSURANCE COMPANY
Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 2,756 4,398 3,890
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in:
Reinsurance recoverables..................... (144) 563 (892)
Deposits relating to reinsured policyholder
account balances............................ (332) (272) (342)
Accrued investment income.................... (308) (168) (79)
Federal income tax payable................... 726 118 (648)
Other assets................................. 3,316 (1,821) (1,280)
Policy and contract claims................... 19 587 (23)
Other liabilities and accrued expenses....... (209) 457 782
Payable to affiliates........................ 1,741 442 (669)
Company ownership of separate account........ (64) -- --
Due to separate account...................... 9 122 (34)
Deferred tax expense........................... 469 740 732
Policy acquisition costs deferred.............. (4,185) (3,808) (2,972)
Amortization of deferred policy acquisition
costs......................................... 1,631 1,150 424
Interest credited to policyholder accounts..... 5,524 5,228 4,738
Net gain on sales and calls of fixed
maturities.................................... (57) (53) (69)
-------- ------- -------
Net cash provided by operating activities.......... 10,892 7,683 3,558
-------- ------- -------
Cash flows from investing activities:
Purchase of fixed maturities..................... (12,423) (14,915) (12,557)
Sale or maturity of fixed maturities............. 4,695 8,632 5,255
Increase in policy loans, net.................... (2,819) (2,648) (1,923)
-------- ------- -------
Net cash used in investing activities (10,547) (8,931) (9,225)
-------- ------- -------
Cash flows from financing activities:
Net policyholder account deposits................ 2,807 2,954 2,294
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 3,152 1,706 (3,373)
Cash and cash equivalents at beginning of year..... 7,439 5,733 9,106
-------- ------- -------
Cash and cash equivalents at end of year........... $ 10,591 7,439 5,733
-------- ------- -------
Income taxes paid.................................. $ (346) (1,460) (1,801)
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PARAGON LIFE INSURANCE COMPANY
Notes to Financial Statements
(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, 1999
and 1998, 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 accumulated other comprehensive income, 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>
PARGON 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 1999, 1998 and 1997. The
actual crediting rate ranged from 6.1% to 6.5% in 1999, and was 6.5% in 1998
and 1997.
(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.
(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>
PARGON 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) Subsequent Event
(i) On January 6, 2000, the Company's ultimate parent, GenAmerica
Corporation, was purchased by Metropolitan Life Insurance Company.
(ii) Subsequent to December 31, 1999 a significant customer notified
Paragon of its intent to terminate its group contract, effective April 30,
2000. This group represents 29% and 8% of Paragon's policies inforce and
separate account assets, as of December 31, 1999.
(2) Investments
The amortized cost and estimated fair value of fixed maturities at December
31, 1999 and 1998 are as follows (000's):
<TABLE>
<CAPTION>
1999
-----------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities........ $ 8,728 53 (162) 8,619
Corporate securities............ 70,312 276 (4,830) 65,758
Mortgage-backed securities...... 6,911 36 (394) 6,553
Asset-backed securities......... 500 -- (9) 491
-------- --- ------ ------
$ 86,451 365 (5,395) 81,421
======== === ====== ======
</TABLE>
F-8
<PAGE>
PARGON LIFE INSURANCE COMPANY
Notes to Financial Statements--(Continued)
<TABLE>
<CAPTION>
1998
-----------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities........ $ 6,705 267 -- 6,972
Corporate securities............ 64,607 4,481 (208) 68,880
Mortgage-backed securities...... 6,854 193 (25) 7,022
Asset-backed securities......... 500 10 -- 510
------- ----- ---- ------
$78,666 4,951 (233) 83,384
======= ===== ==== ======
</TABLE>
The amortized cost and estimated fair value of fixed maturities at December
31, 1999, 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 Fair
cost value
--------- ---------
<S> <C> <C>
Due in one year or less............................... $ 471 480
Due after one year through five years................. 22,034 21,893
Due after five years through ten years................ 8,853 8,317
Due after ten years through twenty years.............. 48,182 44,178
Mortgage-backed securities............................ 6,911 6,553
-------- ------
$ 86,451 81,421
======== ======
</TABLE>
Proceeds from sales of fixed maturities during 1999, 1998 and 1997 were
$4,695,414, $4,068,639 and $1,328,585 respectively. Gross gains of $56,686,
$53,180 and $68,876 were realized on those sales in 1999, 1998 and 1997,
respectively.
The sources of net investment income follow (000s):
<TABLE>
<CAPTION>
1999 1998 1997
------- ----- -----
<S> <C> <C> <C>
Fixed Maturities...................................... $ 6,077 5,603 4,941
Short-term investments................................ 486 535 608
Policy loans and other................................ 1,244 924 807
------- ----- -----
$ 7,807 7,062 6,356
Investment expenses................................... (81) (79) (68)
------- ----- -----
Net investment income............................. $ 7,726 6,983 6,288
======= ===== =====
</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>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Unrealized appreciation (depreciation):
Fixed maturities available-for-sale............ $(5,030) 4,717 3,373
Deferred policy acquisition costs.............. 803 (396) (361)
Deferred income taxes............................ 1,479 (1,512) (1,054)
------- ------ ------
Net unrealized appreciation (depreciation)....... $(2,748) 2,809 1,958
======= ====== ======
</TABLE>
The Company has fixed maturities on deposit with various state insurance
departments with an amortized cost of approximately $4,082,871 and $4,120,850
at December 31, 1999 and 1998 respectively.
F-9
<PAGE>
PARGON LIFE INSURANCE COMPANY
Notes to Financial Statements--(Continued)
(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,
1999, 1998 and 1997 as they relate to transactions with affiliates are
summarized as follows (000's):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Reinsurance transactions with affiliates:
Premiums for reinsurance ceded.................... $16,869 14,723 13,001
Policy benefits ceded............................. 16,823 17,071 14,070
Commissions and expenses ceded.................... 292 123 195
Reinsurance recoverables.......................... 1,268 1,109 1,661
</TABLE>
Ceded premiums and benefits to nonaffiliates for 1999, 1998 and 1997 were
insignificant.
(4) Deferred Policy Acquisition Costs
A summary of the policy acquisition costs deferred and amortized is as
follows (000's):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Balance at beginning of year.................... $20,602 17,980 15,776
Policy acquisition costs deferred............... 4,185 3,808 2,972
Policy acquisition costs amortized.............. (1,631) (1,150) (424)
Deferred policy acquisition costs relating to
change in unrealized (gain) loss on investments
available for sale............................. 1,201 (36) (344)
------- ------ ------
Balance at end of year.......................... $24,357 20,602 17,980
======= ====== ======
</TABLE>
(5) Administration System Write-off
In 1999 Paragon expensed $4,787,275 relating to the termination of a system
development project for policy administration. The one-time write-off in 1999
of previously capitalized amounts was $3,963,450 and other costs incurred in
1999 relating to the project were $823,825. Other costs incurred and expensed
in 1998 and 1997 were $468,794 and $0, respectively.
(6) Federal Income Taxes
The Company is taxed as a life insurance company. A summary of Federal income
tax expense is as follows (000s):
<TABLE>
<CAPTION>
1999 1998 1997
------- ----- -----
<S> <C> <C> <C>
Current tax expense................................... $ 1,030 1,628 1,153
Deferred tax expense.................................. 469 740 732
------- ----- -----
Federal income tax expense............................ $ 1,499 2,368 1,885
======= ===== =====
</TABLE>
F-10
<PAGE>
PARGON LIFE INSURANCE COMPANY
Notes to Financial Statements--(Continued)
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):
<TABLE>
<CAPTION>
1999 1998 1997
------- ----- -----
<S> <C> <C> <C>
Computed "expected" tax expense...................... $ 1,489 2,368 2,022
Other, net........................................... 10 0 (137)
------- ----- -----
Federal income tax expense........................... $ 1,499 2,368 1,885
======= ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1999, 1998 and
1997 are presented below (000's):
<TABLE>
<CAPTION>
1999 1998 1997
------- ----- -----
<S> <C> <C> <C>
Deferred tax assets:
Unearned reinsurance allowances..................... $ 194 218 217
Policy and contract liabilities..................... 583 709 1,031
Tax capitalization of acquisition costs............. 2,559 2,147 1,755
Other, net.......................................... 359 58 76
Unrealized Loss on investments, net................. 1,479 -- --
------- ----- -----
Total deferred tax assets......................... $ 5,174 3,132 3,079
======= ===== =====
Deferred tax liabilities:
Unrealized gain on investments, net................. $ -- 1,512 1,054
Deferred policy acquisition costs................... 8,244 7,211 6,419
------- ----- -----
Total deferred tax liabilities.................... $ 8,244 8,723 7,473
------- ----- -----
Net deferred tax liabilities...................... $ 3,070 5,591 4,394
======= ===== =====
</TABLE>
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.
(7) 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 1999, 1998 and
1997 were $2,247,302, $1,513,433 and $1,348,198, respectively. See Note 3 for
reinsurance transactions with affiliates.
(8) 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 1999, 1998 or 1997 due to overfunding of the plan.
F-11
<PAGE>
PARGON LIFE INSURANCE COMPANY
Notes to Financial Statements--(Continued)
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
$0, $188,316 and $198,972 for 1999, 1998 and 1997, respectively.
As a result of the Metropolitan Life Insurance purchase, Paragon implemented
a new bonus program covering all associates employed from October 1, 1999
through March 31, 2000 with at least 1000 hours of service during 1999. Total
expense to the Company for this program was $422,700 in 1999.
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.
(9) 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; (7)
presentation of indirect cash flows; (8) exclusion of comprehensive income
disclosures; and (9) recognition of deposits and withdrawals on universal life
policies as revenues and expenses.
The stockholder's equity (surplus) and net income of the Company at December
31, 1999, 1998 and 1997, as determined using statutory accounting practices, is
summarized as follows (000's):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Statutory surplus as reported to regulatory
authorities...................................... $13,545 10,500 10,725
Net income as reported to regulatory authorities.. $ 300 1,596 1,397
</TABLE>
(10) 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 1999 without prior
notice or approval is $300,406. Paragon did not pay dividends in 1999, 1998 or
1997.
(11) 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
F-12
<PAGE>
PARGON LIFE INSURANCE COMPANY
Notes to Financial Statements--(Continued)
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, 1999, 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.
(12) Commitments and Contingencies
The Company leases certain of its facilities and equipment under
noncancellable leases the majority of which expires 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:
2000............................................................ $ 750
2001............................................................ 321
2002............................................................ 130
2003............................................................ 99
-------
$ 1,300
=======
</TABLE>
Rent expense totaled $507,512, $489,999, and $433,864 in 1999, 1998 and 1997,
respectively.
(13) Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", effective for years beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. The most significant items of comprehensive
income are net income and changes in unrealized gains and losses on securities.
The adoption of SFAS No. 130 does not affect results of operations or financial
position, but affects their presentation and disclosure. The Company has
adopted SFAS No. 130 as of January 1, 1998, and the following summaries present
the components of the Company's comprehensive income, other than net income,
for the periods ending December 31, 1999, 1998 and 1997 (000s):
<TABLE>
<CAPTION>
1999
-------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount Benefit Amount
---------- -------- ----------
<S> <C> <C> <C>
Unrealized holding losses arising during
period.................................. $(8,492) 2,972 (5,520)
Less: reclassification adjustment for
gains realized in net income............ (57) 20 (37)
------- ----- ------
Other comprehensive loss................. (8,549) 2,992 (5,557)
======= ===== ======
</TABLE>
F-13
<PAGE>
PARGON LIFE INSURANCE COMPANY
Notes to Financial Statements--(Continued)
<TABLE>
<CAPTION>
1998
-------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount Benefit Amount
---------- -------- ----------
<S> <C> <C> <C>
Unrealized holding gains arising during
period.................................. $1,361 (476) 885
Less: reclassification adjustment for
gains realized in net income............ (53) 19 (34)
------ ---- ---
Other comprehensive income............... 1,308 (457) 851
====== ==== ===
</TABLE>
<TABLE>
<CAPTION>
1997
-------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount Benefit Amount
---------- -------- ----------
<S> <C> <C> <C>
Unrealized holding gains arising during
period.................................. $2,585 (904) 1,681
Less: reclassification adjustment for
gains realized in net income............ (69) 24 (45)
------ ---- -----
Other comprehensive income............... 2,516 (880) 1,636
====== ==== =====
</TABLE>
F-14
<PAGE>
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, Bond and Global Small Capitalization Divisions of Paragon
Separate Account A as of December 31, 1999, and related statements of
operations and changes in net assets for each of the periods in the three year
period then ended. These financial statements are the responsibility of the
management of Paragon Separate Account A. 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, 1999 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, Bond and Global Small Capitalization Divisions of
Paragon Separate Account A as of December 31, 1999, and the results of their
operations and changes in their net assets for each of the periods in the three
year period then ended, in conformity with generally accepted accounting
principles.
March 10, 2000
KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is a member of KPMG
International, a Swiss association.
F-15
<PAGE>
PARAGON SEPARATE ACCOUNT A
STATEMENTS OF NET ASSETS
December 31, 1999
<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)... $2,759,617 3,779,681 27,935,557 59,076,119 3,008,228 6,976,657 19,360,734 1,081,082 189,460
Receivable from
Paragon Life
Insurance
Company........ 2,988 9,074 36,886 77,148 10,508 11,802 13,945 2,466 1,474
---------- --------- ---------- ---------- --------- --------- ---------- --------- -------
Total Net
Assets......... $2,762,605 3,788,755 27,972,443 59,153,267 3,018,736 6,988,459 19,374,679 1,083,548 190,934
========== ========= ========== ========== ========= ========= ========== ========= =======
Net Assets,
representing:
Equity of
Contract
Owners......... $2,762,149 3,788,058 27,967,346 59,142,618 3,018,181 6,987,190 19,371,206 1,083,358 190,899
Equity of
Paragon Life
Insurance
Company........ 456 697 5,097 10,649 555 1,269 3,473 190 35
---------- --------- ---------- ---------- --------- --------- ---------- --------- -------
$2,762,605 3,788,755 27,972,443 59,153,267 3,018,736 6,988,459 19,374,679 1,083,548 190,934
========== ========= ========== ========== ========= ========= ========== ========= =======
Total Units Held. 167,819 122,353 359,601 409,886 154,481 234,568 494,132 46,328 16,907
Net Asset Value
Per Unit........ $ 16.46 30.96 77.77 144.29 19.54 29.79 39.20 23.38 11.29
Cost of
Investments..... $2,784,329 4,084,441 27,157,632 38,491,888 3,187,236 6,559,850 11,694,224 754,306 198,810
========== ========= ========== ========== ========= ========= ========== ========= =======
<CAPTION>
Global Small
Capitalization
Division
--------------
<S> <C>
Net Assets:
Investments in
American
Variable
Insurance Series,
at Market Value
(See Schedule
of
Investments)... 512,562
Receivable from
Paragon Life
Insurance
Company........ 452
--------------
Total Net
Assets......... 513,014
==============
Net Assets,
representing:
Equity of
Contract
Owners......... 512,930
Equity of
Paragon Life
Insurance
Company........ 84
--------------
513,014
==============
Total Units Held. 26,425
Net Asset Value
Per Unit........ 19.41
Cost of
Investments..... 413,704
==============
</TABLE>
See Accompanying Notes to Financial Statements.
F-16
<PAGE>
PARAGON SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
Page 1 of 2
For the years ended December 31, 1999, 1998, and 1997, except for the Global
Growth Division and Bond Division which are for the period from May 1, 1997
(Inception) to December 31, 1997, and the Global Small Capitalization Division
which is for the period May 15, 1998 (Inception) through December 31, 1998
<TABLE>
<CAPTION>
Cash Management Division High-Yield Bond Division Growth-Income Division
--------------------------- --------------------------- --------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
--------- ------- ------- -------- -------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Income........ $ 115,490 96,495 74,007 364,194 305,497 264,042 473,123 381,934 350,104
Expenses:
Mortality and Expense
Charge................. 19,014 13,584 10,690 27,659 25,250 22,441 199,439 160,445 133,938
--------- ------- ------- -------- -------- ------- ---------- --------- ---------
Net Investment Income
(Expense)............ 96,476 82,911 63,317 336,535 280,247 241,601 273,684 221,489 216,166
Net Realized Gain on In-
vestments:
Realized Gain from Dis-
tributions............. -- -- -- -- 49,339 34,716 4,499,088 3,510,810 1,872,910
Proceeds from Sales.... 1,005,867 628,387 443,594 582,087 463,409 274,962 3,021,189 1,511,189 1,769,273
Cost of Investments
Sold................... 1,012,535 638,944 412,545 623,671 456,240 212,893 2,532,037 1,164,554 1,078,967
--------- ------- ------- -------- -------- ------- ---------- --------- ---------
Net Realized Gain
(Loss) on Invest-
ments................ (6,668) (10,557) 31,049 (41,584) 56,508 96,785 4,988,240 3,857,445 2,563,216
Net Unrealized Gain
(Loss) on Investments:
Unrealized Gain (Loss)
Beginning of Year...... (37,429) (46,116) (11,937) (189,935) 159,157 173,880 3,336,423 3,787,828 2,714,233
Unrealized Gain (Loss)
End of Year............ (24,712) (37,429) (46,116) (304,760) (189,935) 159,157 777,925 3,336,423 3,787,828
--------- ------- ------- -------- -------- ------- ---------- --------- ---------
Net Unrealized Gain
(Loss) on Investments.. 12,717 8,687 (34,179) (114,824) (349,092) (14,723) (2,558,498) (451,405) 1,073,595
--------- ------- ------- -------- -------- ------- ---------- --------- ---------
Net Gain (Loss) on
Investments.......... 6,049 (1,870) (3,130) (156,408) (292,584) 82,062 2,429,742 3,406,040 3,636,811
Increase (Decrease) in
Assets Resulting from
Operations.............. $ 102,525 81,041 60,187 180,127 (12,337) 323,663 2,703,426 3,627,529 3,852,977
========= ======= ======= ======== ======== ======= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
U.S. Government/
Growth Division AAA-Rated Division Asset Allocation Division
--------------------------------- --------------------------- ---------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
----------- --------- --------- -------- -------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Income........ $ 83,136 115,480 134,259 192,900 165,217 147,633 243,309 223,957 174,754
Expenses:
Mortality and Expense
Charge................. 328,963 215,716 173,987 22,747 19,492 16,289 51,814 44,638 36,970
----------- --------- --------- -------- -------- ------- --------- ------- -------
Net Investment Income
(Expense)............ (245,827) (100,236) (39,728) 170,153 145,725 131,344 191,495 179,319 137,784
Net Realized Gain on In-
vestments:
Realized Gain from Dis-
tributions............. 7,940,743 4,926,240 3,088,079 -- -- -- 436,651 461,427 288,742
Proceeds from Sales.... 4,078,426 2,408,576 2,854,025 403,213 419,091 363,960 1,089,565 522,616 593,825
Cost of Investments
Sold................... 2,741,360 1,811,155 1,752,513 414,626 416,180 314,641 950,757 435,583 405,749
----------- --------- --------- -------- -------- ------- --------- ------- -------
Net Realized Gain
(Loss) on Invest-
ments................ 9,277,809 5,523,661 4,189,591 (11,413) 2,911 49,319 575,659 548,460 476,818
Net Unrealized Gain
(Loss) on Investments:
Unrealized Gain (Loss)
Beginning of Year...... 8,529,513 4,617,293 2,937,160 19,560 (27,162) (6,315) 747,636 772,040 527,649
Unrealized Gain (Loss)
End of Year............ 20,584,231 8,529,513 4,617,293 (179,008) 19,560 (27,162) 416,807 747,636 772,040
----------- --------- --------- -------- -------- ------- --------- ------- -------
Net Unrealized Gain
(Loss) on Investments.. 12,054,718 3,912,220 1,680,133 (198,568) 46,722 (20,847) (330,829) (24,404) 244,391
----------- --------- --------- -------- -------- ------- --------- ------- -------
Net Gain (Loss) on
Investments.......... 21,332,527 9,435,881 5,869,724 (209,981) 49,633 28,472 244,830 524,056 721,209
Increase (Decrease) in
Assets Resulting from
Operations.............. $21,086,700 9,335,645 5,829,996 (39,828) 195,358 159,816 436,325 703,375 858,993
=========== ========= ========= ======== ======== ======= ========= ======= =======
</TABLE>
See Accompanying Notes to Financial Statements.
F-17
<PAGE>
PARAGON SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS--(Continued)
Page 2 of 2
For the years ended December 31, 1999, 1998, and 1997, except for the Global
Growth Division and Bond Division which are for the period from May 1, 1997
(Inception) to December 31, 1997, and the Global Small Capitalization Division
which is for the period May 15, 1998 (Inception) through December 31, 1998
<TABLE>
<CAPTION>
Global Small
Global Growth Capitalization
International Division Division Bond Division Division
------------------------------ --------------------- ----------------------- ---------------
1999 1998 1997 1999 1998 1997 1999 1998 1997 1999 1998
---------- --------- --------- ------- ------ ----- ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Income........ $ 234,405 131,756 175,293 7,917 1,621 29 13,952 9,392 926 708 268
Expenses:
Mortality and Expense
Charge................. 98,243 72,947 66,681 3,817 940 12 1,480 922 9 1,281 118
---------- --------- --------- ------- ------ ----- ------- ------ ------ ------- ------
Net Investment Income
(Expense)............ 136,162 58,809 106,612 4,100 681 17 12,472 8,470 917 (573) 150
Net Realized Gain on In-
vestments:
Realized Gain from Dis-
tributions............. 1,690,422 194,147 895,572 42,478 6,913 20 -- 1,020 739 40,508 939
Proceeds from Sales.... 1,813,710 1,525,220 1,324,190 38,390 63,152 5,402 103,342 12,969 -- 40,096 2,973
Cost of Investments
Sold................... 1,137,843 1,342,843 980,764 31,886 60,867 5,506 106,752 13,407 -- 32,054 3,061
---------- --------- --------- ------- ------ ----- ------- ------ ------ ------- ------
Net Realized Gain
(Loss) on Invest-
ments................ 2,166,289 376,524 1,238,996 48,962 9,196 (84) (3,410) 582 739 48,550 851
Net Unrealized Gain
(Loss) on Investments:
Unrealized Gain (Loss)
Beginning of Year...... 1,665,020 254,538 959,525 22,248 (155) -- (4,405) (1,574) -- 12,850 --
Unrealized Gain (Loss)
End of Year............ 7,666,510 1,665,020 254,538 326,776 22,248 (155) (9,350) (4,405) (1,574) 98,858 12,850
---------- --------- --------- ------- ------ ----- ------- ------ ------ ------- ------
Net Unrealized Gain
(Loss) on Investments.. 6,001,490 1,410,482 (704,987) 304,528 22,403 (155) (4,945) (2,831) (1,574) 86,008 12,850
---------- --------- --------- ------- ------ ----- ------- ------ ------ ------- ------
Net Gain (Loss) on
Investments.......... 8,167,779 1,787,006 534,011 353,510 31,601 (239) (8,355) (2,249) (835) 134,558 13,701
Increase (Decrease) in
Assets Resulting from
Operations.............. $8,303,941 1,845,815 642,623 357,610 32,282 (222) 4,117 6,221 82 133,985 13,851
========== ========= ========= ======= ====== ===== ======= ====== ====== ======= ======
</TABLE>
See Accompanying Notes to Financial Statements.
F-18
<PAGE>
PARAGON SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1999, 1998, and 1997, except for the Global
Growth Division and Bond Division which are for the period from May 1, 1997
(Inception) to December 31, 1997, and the Global Small Capitalization Division
which is for the period May 15, 1998 (Inception) through December 31, 1998
<TABLE>
<CAPTION>
Cash Management Division High-Yield Bond Division Growth-Income Division
-------------------------------- ------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---------- --------- --------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income
(Expense).............. $ 96,476 82,911 63,317 336,535 280,247 241,601 273,684 221,489 216,166
Net Realized Gain
(Loss) on Investment... (6,668) (10,557) 31,049 (41,584) 56,508 96,785 4,988,240 3,857,445 2,563,216
Net Unrealized Gain
(Loss) on Investments.. 12,717 8,687 (34,179) (114,824) (349,092) (14,723) (2,558,498) (451,405) 1,073,595
---------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Increase (Decrease)
in Net Assets Result-
ing from Operations... 102,525 81,041 60,187 180,127 (12,337) 323,663 2.703,426 3,627,529 3,852,977
Net Deposits into
Separate Account...... 495,973 596,074 69,053 25,491 239,057 459,664 302,305 1,503,802 1,497,701
---------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Increase in Net As-
sets................. 598,498 677,115 129,240 205,618 226,720 783,327 3,005,731 5,131,331 5,350,678
Net Assets, Beginning of
Year.................... 2,164,107 1,486,992 1,357,752 3,583,137 3,356,417 2,573,090 24,966,712 19,835,381 14,484,703
---------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Net Assets, End of Year. $2,762,605 2,164,107 1,486,992 3,788,755 3,583,137 3,356,417 27,972,443 24,966,712 19,835,381
========== ========= ========= ========= ========= ========= ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
U.S. Government/
Growth Division AAA-Rated Division Asset Allocation Division
----------------------------------- ------------------------------ -------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
----------- ---------- ---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income
(Expense)............. $ (245,827) (100,236) (39,728) 170,153 145,725 131,344 191,495 179,319 137,784
Net Realized Gain
(Loss) on Investment.. 9,277,809 5,523,661 4,189,591 (11,413) 2,911 49,319 575,659 548,460 476,818
Net Unrealized Gain
(Loss) on Invest-
ments................. 12,054,718 3,912,220 1,680,133 (198,568) 46,722 (20,847) (330,829) (24,404) 244,391
----------- ---------- ---------- --------- --------- --------- --------- --------- ---------
Increase (Decrease)
in Net Assets Re-
sulting from Opera-
tions................ 21,086,700 9,335,645 5,829,996 (39,828) 195,358 159,816 436,325 703,375 858,993
Net Deposits into
Separate Account..... 1,094,698 1,824,078 864,930 9,536 508,935 158,596 (256,535) 702,411 389,338
----------- ---------- ---------- --------- --------- --------- --------- --------- ---------
Increase in Net
Assets.............. 22,181,398 11,159,723 6,694,926 (30,292) 704,293 318,412 179,790 1,405,786 1,248,331
Net Assets, Beginning
of Year................ 36,971,869 25,812,144 19,117,218 3,049,028 2,344,735 2,026,323 6,808,669 5,402,883 4,154,552
----------- ---------- ---------- --------- --------- --------- --------- --------- ---------
Net Assets, End of
Year................... $59,153,267 36,971,869 25,812,144 3,018,736 3,049,028 2,344,735 6,988,459 6,808,669 5,402,883
=========== ========== ========== ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Global Small
Global Growth Capitalization
International Division Division Bond Division Division
-------------------------------- ----------------------- ------------------------ ---------------
1999 1998 1997 1999 1998 1997 1999 1998 1997 1999 1998
----------- ---------- --------- --------- ------- ----- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment In-
come (Expense)..... $ 136,162 58,809 108,612 4,100 681 17 12,472 8,470 917 (573) 150
Net Realized Gain
(Loss) on Invest-
ment............... 2,166,289 376,524 1,238,998 48,982 9,198 (84) (3,410) 582 739 48,550 851
Net Unrealized
Gain (Loss) on In-
vestments.......... 6,001,490 1,410,482 (704,987) 304,528 22,403 (155) (4,945) (2,831) (1,574) 86,008 12,850
----------- ---------- --------- --------- ------- ----- ------- ------- ------ ------- ------
Increase (De-
crease) in Net
Assets Resulting
from Operations... 8,303,941 1,845,815 642,623 357,610 32,282 (222) 4,117 6,221 82 133,985 13,851
Net Deposits into
Separate Account.. 157,446 313,448 722,256 508,572 179,878 5,428 (35,581) 151,370 64,725 306,127 59,051
----------- ---------- --------- --------- ------- ----- ------- ------- ------ ------- ------
Increase in Net
Assets........... 8,461,387 2,159,263 1,364,879 866,182 212,160 5,206 (31,464) 157,591 64,807 440,112 72,902
Net Assets, Begin-
ning of Year........ 10,913,292 8,754,029 7,389,150 217,366 5,206 -- 222,398 64,807 -- 72,902 --
----------- ---------- --------- --------- ------- ----- ------- ------- ------ ------- ------
Net Assets, End of
Year................ $19,374,679 10,913,292 8,754,029 1,083,548 217,366 5,206 190,934 222,398 64,807 513,014 72,902
=========== ========== ========= ========= ======= ===== ======= ======= ====== ======= ======
</TABLE>
See Accompanying Notes to Financial Statements.
F-19
<PAGE>
PARAGON SEPARATE ACCOUNT A
Notes to Financial Statements
December 31, 1999
(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 ten
divisions, 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, High-Yield
Bond, Growth-Income, Growth, U.S. Government AAA-Rated, Asset Allocation,
International, Global Growth, Bond and Global Small Capitalization (the
Divisions). 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.
(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.
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
F-20
<PAGE>
PARAGON SEPARATE ACCOUNT A
Notes to Financial Statements--(Continued)
(3) Policy Charges--Continued
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 optional rider benefits charge is a monthly deduction for any additional
benefits provided by policy riders.
Surrender or Contingent Deferred Sales Charge
During the first policy year, or after issue or an increase, 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 up to eleven years after the
initial charge 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 .0000206% of the net assets of each division of the Separate Account which
equals an annual rate of .75% 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-21
<PAGE>
PARAGON SEPARATE ACCOUNT A
Notes to Financial Statements--(Continued)
(4) Purchases and Sales of American Series Shares
For the Years ended December 31, 1999, 1998, and 1997, except for the Global
Growth Division and Bond Division which are for the period from May 1, 1997
(Inception) to December 31, 1997, and the Global Small Capitalization Division
which are for the period May 15, 1998 (Inception) through December 31, 1998,
purchases and proceeds from the sales of the American Series were as follows:
<TABLE>
<CAPTION>
Cash Management Division High-Yield Division Growth-Income Division
---------------------------- ----------------------- -----------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---------- --------- ------- ------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases............... $1,482,069 1,211,759 501,797 584,077 664,784 716,910 3,137,946 2,826,253 3,148,883
Sales................... $1,005,867 628,387 443,594 582,087 463,409 274,962 3,021,189 1,511,189 1,769,273
========== ========= ======= ======= ======= ======= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
U.S. Government/
Growth Division AAA-Rated Division Asset Allocation Division
------------------------------ ----------------------- ---------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---------- --------- --------- ------- ------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases............... $4,831,538 3,933,913 3,567,101 389,407 898,768 512,847 776,736 1,176,859 934,034
Sales................... $4,078,426 2,408,576 2,854,025 403,213 419,091 363,960 1,089,565 522,616 593,825
========== ========= ========= ======= ======= ======= ========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
Global Small
Global Growth Corporation
International Division Division Bond Division Division
------------------------------ ---------------------- ---------------------- --------------
1999 1998 1997 1999 1998 1997 1999 1998 1997 1999 1998
---------- --------- --------- ------- ------- ------ ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases............... $1,866,011 1,701,386 2,043,240 542,031 240,471 11,085 66,106 162,110 64,725 344,832 61,565
Sales................... $1,813,710 1,525,220 1,324,190 38,390 63,152 5,402 103,342 12,969 0 40,096 2,973
========== ========= ========= ======= ======= ====== ======= ======= ====== ======= ======
</TABLE>
The purchases above do not include dividends and realized gains from
distributions that have been reinvested into the respective divisions.
F-22
<PAGE>
PARAGON SEPARATE ACCOUNT A
Notes to Financial Statements--(Continued)
Note 5--Accumulation of Unit Activity
The following is a reconciliation of the accumulation of unit activity for
the Years ended December 31, 1999, 1998, and 1997 except for the Global Growth
Division and Bond Division which are for the period from May 1, 1997
(Inception) to December 31, 1997, and the Global Small Capitalization Division
which is for the period May 15, 1998 (Inception) through December 31, 1998.
<TABLE>
<CAPTION>
High-
Cash Management Division Yield Bond Division Growth-Income Division
-------------------------- ----------------------- ---------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- -------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in Units
Deposits............... 93,130 78,771 34,468 19,790 23,162 25,785 43,326 45,271 59,235
Withdrawals............ 62,101 40,080 29,861 18,983 15,117 9,362 38,900 21,620 30,135
-------- -------- -------- ------- ------- ------- -------- -------- --------
Net Increase in Units.. 31,029 38,691 4,607 807 8,045 16,423 4,426 23,651 29,100
Outstanding Units,
Beginning of Year....... 136,790 98,099 93,492 121,546 113,501 97,078 355,175 331,524 302,424
-------- -------- -------- ------- ------- ------- -------- -------- --------
Outstanding Units, End
of Year................. 167,819 136,790 98,099 122,353 121,546 113,501 359,601 355,175 331,524
======== ======== ======== ======= ======= ======= ======== ======== ========
<CAPTION>
U.S. Government/
Growth Division AAA-Rated Division Asset Allocation Division
-------------------------- ----------------------- ---------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- -------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in Units
Deposits............... 45,334 53,606 59,854 20,540 48,167 29,124 27,915 45,193 41,817
Withdrawals............ 36,311 29,276 43,445 20,135 21,317 20,299 36,665 18,678 24,483
-------- -------- -------- ------- ------- ------- -------- -------- --------
Net Increase in Units.. 9,023 24,330 16,409 405 26,850 8,825 (8,750) 26,515 17,334
Outstanding Units,
Beginning of Year....... 400,863 376,533 360,124 154,076 127,226 118,401 243,318 216,803 199,469
-------- -------- -------- ------- ------- ------- -------- -------- --------
Outstanding Units, End
of Year................. 409,886 400,863 376,533 154,481 154,076 127,226 234,568 243,318 216,803
======== ======== ======== ======= ======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Global Small
Global Growth Capitalization
International Division Division Bond Division Division
----------------------- ------------------- -------------------- ---------------
1999 1998 1997 1999 1998 1997 1999 1998 1997 1999 1998
------- ------- ------- ------ ------ ----- ------ ------ ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in Units
Deposits............... 73,275 85,032 110,855 32,866 20,277 1,004 6,032 15,192 6,056 22,912 7,474
Withdrawals............ 66,636 68,041 70,268 2,223 5,073 523 9,223 1,149 1 3,634 327
------- ------- ------- ------ ------ ----- ------ ------ ----- ------- ------
Net Increase in Units.. 6,639 16,991 40,587 30,643 15,204 481 (3,191) 14,043 6,055 19,278 7,147
Outstanding Units,
Beginning of Year....... 487,493 470,502 429,915 15,685 481 -- 20,098 6,055 -- 7,147 --
------- ------- ------- ------ ------ ----- ------ ------ ----- ------- ------
Outstanding Units, End
of Year................. 494,132 487,493 470,502 46,328 15,685 481 16,907 20,098 6,055 26,425 7,147
======= ======= ======= ====== ====== ===== ====== ====== ===== ======= ======
</TABLE>
F-23
<PAGE>
PARAGON SEPARATE ACCOUNT A
Notes to Financial Statements--(Continued)
Page 1 of 2
Note 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 rider charges. The following is a summary of net
deposits made for the years ended December 31, 1999, 1998, and 1997, except
for the Global Growth Division and Bond Division which are for the period from
May 1, 1997 (Inception) to December 31, 1997, and the Global Small
Capitalization Division which is for the period May 15, 1998 (Inception)
through December 31, 1998.
<TABLE>
<CAPTION>
Cash Management Division High-Yield Bond Division Growth-Income Division
----------------------------- ---------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
--------- -------- -------- -------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross Deposits.... $ 662,254 900,694 480,549 757,715 939,255 851,440 4,105,126 4,415,471 4,234,060
Surrenders and
Withdrawals............. (403,468) (248,642) (255,218) (237,513) (349,977) (164,731) (1,418,560) (1,194,511) (1,323,100)
Transfers Between Funds
and General Account..... 529,957 222,269 103,215 (248,946) (66,499) 34,786 (1,035,081) (362,418) (135,707)
--------- -------- -------- -------- -------- -------- ---------- ---------- ----------
Total Gross Deposits
net of Surrenders,
Withdrawals, and
Transfers.............. 788,743 874,321 328,546 271,256 522,779 721,495 1,651,485 2,858,542 2,775,253
Deductions:
Premium Expense
Charges................ 16,902 23,179 12,315 19,339 24,171 21,821 104,770 113,631 108,510
Monthly Expense
Charges................ 10,381 9,831 5,351 8,520 10,004 9,481 46,827 47,835 47,147
Cost of Insurance and
Optional Benefits...... 265,487 245,237 241,827 217,906 249,547 230,529 1,197,583 1,193,274 1,121,895
--------- -------- -------- -------- -------- -------- ---------- ---------- ----------
Total Deductions..... 292,770 278,247 259,493 245,765 283,722 261,831 1,349,180 1,354,740 1,277,552
--------- -------- -------- -------- -------- -------- ---------- ---------- ----------
Net Deposits from
Policyholders........... $ 495,973 596,074 69,053 25,491 239,057 459,664 302,305 1,503,802 1,497,701
========= ======== ======== ======== ======== ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
U.S. Government/
Growth Division AAA-Rated Division Asset Allocation Division
----------------------------------- ---------------------------- -------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
----------- ---------- ---------- -------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross Deposits.... $ 5,805,189 5,752,879 5,579,506 563,306 830,396 604,392 1,137,178 1,402,869 1,203,831
Surrenders and
Withdrawals............. (2,864,964) (1,839,538) (2,433,049) (251,185) (255,904) (253,307) (483,502) (286,876) (368,203)
Transfers Between Funds
and General Account..... 42,059 (340,651) (680,220) (97,150) 151,445 17,632 (554,944) (26,637) (92,300)
----------- ---------- ---------- -------- -------- -------- --------- --------- ---------
Total Gross Deposits
net of Surrenders,
Withdrawals, and
Transfers.............. 2,982,284 3,572,690 2,466,237 214,971 725,937 368,717 98,732 1,089,356 743,328
Deductions:
Premium Expense
Charges................ 148,159 148,049 142,991 14,376 21,369 15,489 29,023 36,102 30,852
Monthly Expense
Charges................ 65,455 61,689 62,129 7,190 7,540 6,730 12,277 13,522 13,405
Cost of Insurance and
Optional Benefits...... 1,673,972 1,538,874 1,396,187 183,869 188,093 187,902 313,967 337,321 309,733
----------- ---------- ---------- -------- -------- -------- --------- --------- ---------
Total Deductions..... 1,887,586 1,748,612 1,601,307 205,435 217,002 210,121 355,267 386,945 353,990
----------- ---------- ---------- -------- -------- -------- --------- --------- ---------
Net Deposits from
Policyholders........... $ 1,094,698 1,824,078 864,930 9,536 508,935 158,596 (256,535) 702,411 389,338
=========== ========== ========== ======== ======== ======== ========= ========= =========
</TABLE>
F-24
<PAGE>
PARAGON SEPARATE ACCOUNT A
Notes to Financial Statements--(Continued)
Page 2 of 2
Note 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 rider charges. The following is a summary of net
deposits made for the years ended December 31, 1999, 1998, and 1997, except
for the Global Growth Division and Bond Division which are for the period from
May 1, 1997 (Inception) to December 31, 1997, and the Global Small
Capitalization Division which is for the period May 15, 1998 (Inception)
through December 31, 1998.
<TABLE>
<CAPTION>
Global Small
Global Growth Capitalization
International Division Division Bond Division Division
-------------------------------- ----------------------- ------------------------ ---------------
1999 1998 1997 1999 1998 1997 1999 1998 1997 1999 1998
---------- --------- --------- ------- ------- ----- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross Deposits.. $2,011,778 2,441,558 2,486,717 248,542 81,931 2,352 79,818 60,770 -- 132,488 16,691
Surrenders and
Withdrawals........... (825,357) (600,534) (825,714) (22,028) (26,996) (133) (74,358) (21,833) -- (6,034) (4,977)
Transfers Between
Funds and General
Account............... (447,726) (907,398) (286,533) 317,972 134,522 3,026 (24,218) 122,776 64,725 193,956 48,497
---------- --------- --------- ------- ------- ----- ------- ------- ------ ------- ------
Total Gross Deposits
net of Surrenders,
Withdrawals,
and Transfers........ 738,695 933,626 1,374,470 544,486 189,457 5,245 (18,758) 161,713 64,725 320,410 60,211
Deductions:
Premium Expense
Charges.............. 51,344 62,833 63,729 6,342 2,108 60 2,038 1,564 -- 3,383 430
Monthly Expense
Charges.............. 19,940 21,481 27,690 1,113 288 26 556 338 -- 410 28
Cost of Insurance
and Optional
Benefits............. 509,965 535,864 560,795 28,459 7,183 (269) 14,229 8,441 -- 10,490 702
---------- --------- --------- ------- ------- ----- ------- ------- ------ ------- ------
Total Deductions... 581,249 620,178 652,214 35,914 9,579 (183) 16,823 10,343 -- 14,283 1,160
---------- --------- --------- ------- ------- ----- ------- ------- ------ ------- ------
Net Deposits from
Policyholders......... $ 157,446 313,448 722,256 508,572 179,878 5,428 (35,581) 151,370 64,725 306,127 59,051
========== ========= ========= ======= ======= ===== ======= ======= ====== ======= ======
</TABLE>
F-25
<PAGE>
PARAGON SEPARATE ACCOUNT A
Note to Financial Statements--(Continued)
Note 7--Subsequent Event
On January 6, 2000, Paragon Life Insurance Co.'s ultimate parent, GenAmerica
Corporation, was purchased by Metropolitan Life Insurance Company.
F-26
<PAGE>
PARAGON SEPARATE ACCOUNT A
SCHEDULE OF INVESTMENTS
December 31, 1999
<TABLE>
<CAPTION>
Number Market
of Shares Value Cost
--------- ----------- -----------
<S> <C> <C> <C>
American Variable Insurance Series:
Cash Management Division.................... 249,739 $ 2,759,617 $ 2,784,329
High-Yield Bond Division.................... 296,446 3,779,681 4,084,441
Growth-Income Division...................... 844,485 27,935,557 27,157,632
Growth Division............................. 836,535 59,076,119 38,491,888
U.S. Government/AAA-Rated Division.......... 284,870 3,008,228 3,187,236
Asset Allocation Division................... 462,950 6,976,657 6,559,850
International Division...................... 724,036 19,360,734 11,694,224
Global Growth Division...................... 50,471 1,081,082 754,306
Bond Fund................................... 19,452 189,460 198,810
Global Small Capitalization................. 29,508 512,562 413,704
</TABLE>
See Accompanying Independent Auditors' Report.
F-27
<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 .538%, (representing the average of the fees incurred by the
Funds in which the Account invests is applicable to each Fund the actual
investment advisory fee is shown in the Fund prospectus) and a .022% charge
that is an estimate of the Funds' expenses based on expenses on an average of
the actual expenses incurred in fiscal year 1999. 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 1.460%, 4.540%, and 10.540%,
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 at 0.00% (Net Rate at -1.460%)
-----------------------------------------------------
Guaranteed* Current**
-------------------------- --------------------------
Cash Cash
Premium Surrender Cash Death Surrender Cash Death
Year at 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 2,905 3,445 252,000 3,405 3,945 252,000
3 7,769 4,630 5,110 252,000 5,383 5,863 252,000
4 10,622 6,308 6,728 252,000 7,326 7,746 252,000
5 13,618 7,941 8,301 252,000 9,229 9,589 252,000
6 16,763 9,522 9,822 252,000 11,090 11,390 252,000
7 20,066 11,044 11,284 252,000 12,906 13,146 252,000
8 23,533 12,501 12,681 252,000 14,678 14,858 252,000
9 27,175 13,887 14,007 252,000 16,405 16,525 252,000
10 30,998 15,199 15,259 252,000 18,084 18,144 252,000
11 35,012 16,427 16,427 252,000 19,705 19,705 252,000
12 39,228 17,509 17,509 252,000 21,198 21,198 252,000
13 43,653 18,502 18,502 252,000 22,627 22,627 252,000
14 48,301 19,404 19,404 252,000 23,986 23,986 252,000
15 53,180 20,215 20,215 252,000 25,267 25,267 252,000
16 58,304 20,927 20,927 252,000 26,470 26,470 252,000
17 63,683 21,540 21,540 252,000 27,592 27,592 252,000
18 69,332 22,046 22,046 252,000 28,623 28,623 252,000
19 75,263 22,441 22,441 252,000 29,558 29,558 252,000
20 81,491 22,713 22,713 252,000 30,390 30,390 252,000
25 117,624 21,733 21,733 252,000 32,790 32,790 252,000
30 163,739 15,476 15,476 252,000 31,154 31,154 252,000
</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 at 6% (Net Rate at 4.540%)
------------------------------------------------------
Guaranteed* Current**
-------------------------- ---------------------------
Cash Cash
Prem at 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 $ 1,197 $ 1,797 $252,000 $ 1,455 $ 2,055 $252,000
2 5,052 3,125 3,665 252,000 3,657 4,197 252,000
3 7,769 5,124 5,604 252,000 5,948 6,428 252,000
4 10,622 7,188 7,608 252,000 8,334 8,754 252,000
5 13,618 9,321 9,681 252,000 10,813 11,173 252,000
6 16,763 11,521 11,821 252,000 13,386 13,686 252,000
7 20,066 13,782 14,022 252,000 16,056 16,296 252,000
8 23,533 16,100 16,280 252,000 18,827 19,007 252,000
9 27,175 18,472 18,592 252,000 21,703 21,823 252,000
10 30,998 20,898 20,958 252,000 24,684 24,744 252,000
11 35,012 23,368 23,368 252,000 27,767 27,767 252,000
12 39,228 25,825 25,825 252,000 30,884 30,884 252,000
13 43,653 28,326 28,326 252,000 34,105 34,105 252,000
14 48,301 30,873 30,873 252,000 37,428 37,428 252,000
15 53,180 33,467 33,467 252,000 40,853 40,853 252,000
16 58,304 36,105 36,105 252,000 44,381 44,381 252,000
17 63,683 38,788 38,788 252,000 48,017 48,017 252,000
18 69,332 41,512 41,512 252,000 51,759 51,759 252,000
19 75,263 44,279 44,279 252,000 55,607 55,607 252,000
20 81,491 47,079 47,079 252,000 59,561 59,561 252,000
25 117,624 61,273 61,273 252,000 81,023 81,023 252,000
30 163,739 75,000 75,000 252,000 105,364 105,364 252,000
</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 at 12.00% (Net Rate at 10.540%)
-------------------------------------------------------
Guaranteed* Current**
--------------------------- ---------------------------
Cash Cash
Prem Surrender Cash Death Surrender Cash Death
Year at 5.00% Value Value Benefit Value Value Benefit
---- -------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 1,253 $ 1,853 $252,000 $ 1,518 $ 2,118 $252,000
2 5,052 3,351 3,891 252,000 3,914 4,454 252,000
3 7,769 5,649 6,129 252,000 6,548 7,028 252,000
4 10,622 8,160 8,580 252,000 9,447 9,867 252,000
5 13,618 10,909 11,269 252,000 12,633 12,993 252,000
6 16,763 13,915 14,215 252,000 16,134 16,434 252,000
7 20,066 17,197 17,437 252,000 19,981 20,221 252,000
8 23,533 20,778 20,958 252,000 24,212 24,392 252,000
9 27,175 24,687 24,807 252,000 28,866 28,986 252,000
10 30,998 28,955 29,015 252,000 33,986 34,046 252,000
11 35,012 33,612 33,612 252,000 39,611 39,611 252,000
12 39,228 38,642 38,642 252,000 45,729 45,729 252,000
13 43,653 44,148 44,148 252,000 52,462 52,462 252,000
14 48,301 50,186 50,186 252,000 59,873 59,873 252,000
15 53,180 56,817 56,817 252,000 68,032 68,032 252,000
16 58,304 64,103 64,103 252,000 77,022 77,022 252,000
17 63,683 72,121 72,121 252,000 86,934 86,934 252,000
18 69,332 80,953 80,953 252,000 97,870 97,870 252,000
19 75,263 90,696 90,696 252,000 109,940 109,940 252,000
20 81,491 101,451 101,451 252,000 123,277 123,277 252,000
25 117,624 175,087 175,087 274,887 213,755 213,755 335,595
30 163,739 295,354 295,354 395,775 360,483 360,483 483,047
</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 at 0.00% (Net Rate at -
1.460%)
---------------------------------------------------
Guaranteed* Current**
------------------------- -------------------------
Cash Cash
Prem Surrender Cash Death Surrender Cash Death
Year at 5.00% Value Value Benefit Value Value Benefit
---- -------- --------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 880 $ 1,480 $99,000 $ 1,163 $ 1,763 $99,000
2 5,052 2,349 2,889 99,000 2,922 3,462 99,000
3 7,769 3,738 4,218 99,000 4,615 5,095 99,000
4 10,622 5,043 5,463 99,000 6,241 6,661 99,000
5 13,618 6,259 6,619 99,000 7,799 8,159 99,000
6 16,763 7,386 7,686 99,000 9,275 9,575 99,000
7 20,066 8,421 8,661 99,000 10,673 10,913 99,000
8 23,533 9,364 9,544 99,000 11,989 12,169 99,000
9 27,175 10,213 10,333 99,000 13,216 13,336 99,000
10 30,998 10,958 11,018 99,000 14,347 14,407 99,000
11 35,012 11,591 11,591 99,000 15,354 15,354 99,000
12 39,228 12,035 12,035 99,000 16,188 16,188 99,000
13 43,653 12,328 12,328 99,000 16,904 16,904 99,000
14 48,301 12,450 12,450 99,000 17,494 17,494 99,000
15 53,180 12,379 12,379 99,000 17,947 17,947 99,000
16 58,304 12,102 12,102 99,000 18,243 18,243 99,000
17 63,683 11,602 11,602 99,000 18,289 18,289 99,000
18 69,332 10,865 10,865 99,000 18,082 18,082 99,000
19 75,263 9,872 9,872 99,000 17,616 17,616 99,000
20 81,491 8,583 8,583 99,000 16,879 16,879 99,000
25 117,624 0 0 0 7,979 7,979 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 at 6.00% (Net Rate at 4.540%)
---------------------------------------------------
Guaranteed* Current**
------------------------- -------------------------
Cash Cash
Prem Surrender Cash Death Surrender Cash Death
Year at 5.00% Value Value Benefit Value Value Benefit
---- -------- --------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 929 $ 1,529 $99,000 $ 1,220 $ 1,820 $99,000
2 5,052 2,535 3,075 99,000 3,145 3,685 99,000
3 7,769 4,154 4,634 99,000 5,113 5,593 99,000
4 10,622 5,779 6,199 99,000 7,125 7,545 99,000
5 13,618 7,407 7,767 99,000 9,182 9,542 99,000
6 16,763 9,038 9,338 99,000 11,274 11,574 99,000
7 20,066 10,670 10,910 99,000 13,407 13,647 99,000
8 23,533 12,304 12,484 99,000 15,578 15,758 99,000
9 27,175 13,939 14,059 99,000 17,785 17,905 99,000
10 30,998 15,568 15,628 99,000 20,026 20,086 99,000
11 35,012 17,186 17,186 99,000 22,275 22,275 99,000
12 39,228 18,717 18,717 99,000 24,490 24,490 99,000
13 43,653 20,204 20,204 99,000 26,731 26,731 99,000
14 48,301 21,629 21,629 99,000 28,997 28,997 99,000
15 53,180 22,976 22,976 99,000 31,287 31,287 99,000
16 58,304 24,236 24,236 99,000 33,590 33,590 99,000
17 63,683 25,396 25,396 99,000 35,844 35,844 99,000
18 69,332 26,449 26,449 99,000 38,056 38,056 99,000
19 75,263 27,381 27,381 99,000 40,237 40,237 99,000
20 81,491 28,166 28,166 99,000 42,396 42,396 99,000
25 117,624 28,015 28,015 99,000 52,923 52,923 99,000
30 163,739 12,330 12,330 99,000 62,450 62,450 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 at 12.00% (Net Rate at 10.540%)
-------------------------------------------------------
Guaranteed* Current**
--------------------------- ---------------------------
Cash Cash
Prem Surrender Cash Death Surrender Cash Death
Year at 5.00% Value Value Benefit Value Value Benefit
---- -------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 976 $ 1,576 $ 99,000 $ 1,277 $ 1,877 $ 99,000
2 5,052 2,726 3,266 99,000 3,372 3,912 99,000
3 7,769 4,596 5,076 99,000 5,642 6,122 99,000
4 10,622 6,594 7,014 99,000 8,103 8,523 99,000
5 13,618 8,732 9,092 99,000 10,777 11,137 99,000
6 16,763 11,027 11,327 99,000 13,675 13,975 99,000
7 20,066 13,496 13,736 99,000 16,829 17,069 99,000
8 23,533 16,164 16,344 99,000 20,266 20,446 99,000
9 27,175 19,055 19,175 99,000 24,017 24,137 99,000
10 30,998 22,195 22,255 99,000 28,177 28,177 99,000
11 35,012 25,611 25,611 99,000 32,589 32,589 99,000
12 39,228 29,271 29,271 99,000 37,439 37,439 99,000
13 43,653 33,267 33,267 99,000 42,788 42,788 99,000
14 48,301 37,641 37,641 99,000 48,707 48,707 99,000
15 53,180 42,447 42,447 99,000 55,279 55,279 99,000
16 58,304 47,757 47,757 99,000 62,599 62,599 99,000
17 63,683 53,659 53,659 99,000 70,756 70,756 99,000
18 69,332 60,263 60,263 99,000 79,913 79,913 99,000
19 75,263 67,701 67,701 99,000 90,220 90,220 105,558
20 81,491 76,128 76,128 99,000 101,584 101,584 117,837
25 117,624 136,506 136,506 146,061 178,395 178,395 190,883
30 163,739 235,598 235,598 247,378 304,165 304,165 319,373
</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 at 0.00% (Net Rate at -1.460%)
-----------------------------------------------------
Guaranteed* Current**
-------------------------- --------------------------
Cash Cash
Premium Surrender Cash Death Surrender Cash Death
Year at 5.00% Value Value Benefit Value Value Benefit
---- -------- --------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 1,422 $ 2,022 $111,022 $ 1,530 $ 2,130 $111,130
2 5,052 3,468 4,008 113,008 3,686 4,226 113,226
3 7,769 5,478 5,958 114,958 5,806 6,286 115,286
4 10,622 7,447 7,867 116,867 7,893 8,313 117,313
5 13,618 9,377 9,737 118,737 9,943 10,303 119,303
6 16,763 11,266 11,566 120,566 11,957 12,257 121,257
7 20,066 13,110 13,350 122,350 13,932 14,172 123,172
8 23,533 14,905 15,085 124,085 15,870 16,050 125,050
9 27,175 16,651 16,771 125,771 17,771 17,891 126,891
10 30,998 18,346 18,406 127,406 19,632 19,692 128,692
11 35,012 19,984 19,984 128,984 21,450 21,450 130,450
12 39,228 21,505 21,505 130,505 23,160 23,160 132,160
13 43,653 22,968 22,968 131,968 24,823 24,823 133,823
14 48,301 24,373 24,373 133,373 26,437 26,437 135,437
15 53,180 25,718 25,718 134,718 27,998 27,998 136,998
16 58,304 27,001 27,001 136,001 29,507 29,507 138,507
17 63,683 28,221 28,221 137,221 30,960 30,960 139,960
18 69,332 29,376 29,376 138,376 32,355 32,355 141,355
19 75,263 30,463 30,463 139,463 33,688 33,688 142,688
20 81,491 31,478 31,478 140,478 34,956 34,956 143,956
25 117,624 35,252 35,252 144,252 40,218 40,218 149,218
30 163,739 36,335 36,335 145,335 43,185 43,185 152,185
</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 at 6.00% (Net Rate at 4.540%)
-------------------------------------------------------
Guaranteed* Current**
--------------------------- ---------------------------
Cash Cash
Prem Surrender Cash Death Surrender Cash Death
Year at 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 $ 1,599 $ 2,199 $111,199
2 5,052 3,724 4,264 113,264 3,956 4,496 113,496
3 7,769 6,051 6,531 115,531 6,411 6,891 115,891
4 10,622 8,470 8,890 117,890 8,972 9,392 118,392
5 13,618 10,983 11,343 120,343 11,639 11,999 120,999
6 16,763 13,593 13,893 122,893 14,416 14,716 123,716
7 20,066 16,300 16,540 125,540 17,307 17,547 126,547
8 23,533 19,104 19,284 128,284 20,316 20,496 129,496
9 27,175 22,008 22,128 131,128 23,450 23,570 132,570
10 30,998 25,014 25,074 134,074 26,709 26,769 135,769
11 35,012 28,119 28,119 137,119 30,097 30,097 139,097
12 39,228 31,268 31,268 140,268 33,552 33,552 142,552
13 43,653 34,523 34,523 143,523 37,142 37,142 146,142
14 48,301 37,887 37,887 146,887 40,869 40,869 149,869
15 53,180 41,364 41,364 150,364 44,736 44,736 153,736
16 58,304 44,955 44,955 153,955 48,747 48,747 157,747
17 63,683 48,663 48,663 157,663 52,906 52,906 161,906
18 69,332 52,491 52,491 161,491 57,215 57,215 166,215
19 75,263 56,441 56,441 165,441 61,677 61,677 170,677
20 81,491 60,512 60,512 169,512 66,295 66,295 175,295
25 117,624 82,608 82,608 191,608 91,832 91,832 200,832
30 163,739 107,407 107,407 216,407 121,513 121,513 230,513
</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 at 12.00% (Net Rate at 10.540%)
-------------------------------------------------------
Guaranteed* Current**
--------------------------- ---------------------------
Cash Cash
Prem Surrender Cash Death Surrender Cash Death
Year at 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 3,986 4,526 113,526 4,231 4,771 113,771
3 7,769 6,661 7,141 116,141 7,054 7,534 116,534
4 10,622 9,599 10,019 119,019 10,163 10,583 119,583
5 13,618 12,828 13,188 122,188 13,587 13,947 122,947
6 16,763 16,377 16,677 125,677 17,357 17,657 126,657
7 20,066 20,273 20,513 129,513 21,508 21,748 130,748
8 23,533 24,551 24,731 133,731 26,080 26,260 135,260
9 27,175 29,247 29,367 138,367 31,117 31,237 140,237
10 30,998 34,404 34,464 143,464 36,665 36,725 145,725
11 35,012 40,063 40,063 149,063 42,774 42,774 151,774
12 39,228 46,216 46,216 155,216 49,436 49,436 158,436
13 43,653 52,980 52,980 161,980 56,778 56,778 165,778
14 48,301 60,417 60,417 169,417 64,867 64,867 173,867
15 53,180 68,597 68,597 177,597 73,778 73,778 182,778
16 58,304 77,593 77,593 186,593 83,596 83,596 192,596
17 63,683 87,492 87,492 196,492 94,414 94,414 203,414
18 69,332 98,384 98,384 207,384 106,332 106,332 215,855
19 75,263 110,370 110,370 219,370 119,456 119,456 235,330
20 81,491 123,557 123,557 235,994 133,896 133,896 255,742
25 117,624 211,917 211,917 332,711 231,018 231,018 362,698
30 163,739 354,426 354,426 474,931 388,421 388,421 520,485
</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 at 0.00% (Net Rate at -
1.460%)
---------------------------------------------------
Guaranteed* Current**
------------------------- -------------------------
Prem Cash Cash
at 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 $ 1,290 $ 1,890 $46,890 $ 1,420 $ 2,020 $47,020
2 5,052 3,185 3,725 48,725 3,448 3,988 48,988
3 7,769 5,019 5,499 50,499 5,425 5,905 50,905
4 10,622 6,791 7,211 52,211 7,347 7,767 52,767
5 13,618 8,499 8,859 53,859 9,216 9,576 54,576
6 16,763 10,141 10,441 55,441 11,023 11,323 56,323
7 20,066 11,716 11,956 56,956 12,770 13,010 58,010
8 23,533 13,224 13,404 58,404 14,454 14,634 59,634
9 27,175 14,663 14,783 59,783 16,072 16,192 61,192
10 30,998 16,030 16,090 61,090 17,620 17,680 62,680
11 35,012 17,321 17,321 62,321 19,081 19,081 64,081
12 39,228 18,467 18,467 63,467 20,402 20,402 65,402
13 43,653 19,518 19,518 64,518 21,640 21,640 66,640
14 48,301 20,464 20,464 65,464 22,790 22,790 67,790
15 53,180 21,296 21,296 66,296 23,848 23,848 68,848
16 58,304 22,012 22,012 67,012 24,802 24,802 69,802
17 63,683 22,605 22,605 67,605 25,604 25,604 70,604
18 69,332 23,073 23,073 68,073 26,255 26,255 71,255
19 75,263 23,413 23,413 68,413 26,755 26,755 71,755
20 81,491 23,612 23,612 68,612 27,105 27,105 72,105
25 17,624 21,748 21,748 66,748 26,337 26,337 71,337
30 163,739 13,129 13,129 58,129 19,724 19,724 64,724
</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 at 6.00% (Net Rate at 4.540%)
-----------------------------------------------------
Guaranteed* Current**
-------------------------- --------------------------
Cash Cash
Prem Surrender Cash Death Surrender Cash Death
Year at 5.00% Value Value Benefit Value Value Benefit
---- -------- --------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,464 $ 1,352 $ 1,952 $ 46,952 $ 1,486 $ 2,086 $ 47,086
2 5,052 3,423 3,963 48,963 3,704 4,244 49,244
3 7,769 5,552 6,032 51,032 5,995 6,475 51,475
4 10,622 7,737 8,157 53,157 8,362 8,782 53,782
5 13,618 9,977 10,337 55,337 10,805 11,165 56,165
6 16,763 12,273 12,573 57,573 13,320 13,620 58,620
7 20,066 14,626 14,866 59,866 15,912 16,152 61,152
8 23,533 17,037 17,217 62,217 18,579 18,759 63,759
9 27,175 19,505 19,625 64,625 21,320 21,440 66,440
10 30,998 22,029 22,089 67,089 24,134 24,194 69,194
11 35,012 24,606 24,606 69,606 27,006 27,006 72,006
12 39,228 27,168 27,168 72,168 29,884 29,884 74,884
13 43,653 29,766 29,766 74,766 32,827 32,827 77,827
14 48,301 32,389 32,389 77,389 35,833 35,833 80,833
15 53,180 35,030 35,030 80,030 38,897 38,897 83,897
16 58,304 37,681 37,681 82,681 42,009 42,009 87,009
17 63,683 40,338 40,338 85,338 45,120 45,120 90,120
18 69,332 42,997 42,997 87,997 48,229 48,229 93,229
19 75,263 45,651 45,651 90,651 51,334 51,334 96,334
20 81,491 48,285 48,285 93,285 54,432 54,432 99,432
25 117,624 60,253 60,253 105,253 69,464 69,464 114,464
30 163,739 67,299 67,299 112,299 81,497 81,497 126,497
</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 at 12.00% (Net Rate at
10.540%)
----------------------------------------------------
Guaranteed* Current**
-------------------------- -------------------------
Cash Cash
Prem Surrender Cash Death Surrender Cash Death
Year at 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 $ 1,550 $ 2,150 $47,150
2 5,052 3,667 4,207 49,207 3,964 4,504 49,504
3 7,769 6,118 6,598 51,598 6,601 7,081 52,081
4 10,622 8,782 9,202 54,202 9,483 9,903 54,903
5 13,618 11,678 12,038 57,038 12,633 12,993 57,993
6 16,763 14,829 15,129 60,129 16,071 16,371 61,371
7 20,066 18,259 18,499 63,499 19,829 20,069 65,069
8 23,533 21,996 22,176 67,176 23,937 24,117 69,117
9 27,175 26,072 26,192 71,192 28,425 28,545 73,545
10 30,998 30,515 30,575 75,575 33,330 33,390 78,390
11 35,012 35,359 35,359 80,359 38,677 38,677 83,677
12 39,228 40,577 40,577 85,577 44,458 44,458 89,458
13 43,653 46,261 46,261 91,261 50,780 50,780 95,780
14 48,301 52,451 52,451 97,451 57,696 57,696 102,696
15 53,180 59,187 59,187 104,187 65,261 65,261 110,261
16 58,304 66,523 66,523 111,523 73,531 73,531 118,531
17 63,683 74,514 74,514 119,514 82,525 82,525 127,525
18 69,332 83,226 83,226 128,226 92,321 92,321 137,321
19 75,263 92,728 92,728 137,728 103,002 103,002 148,002
20 81,491 103,090 103,090 148,090 114,658 114,658 159,658
25 117,624 170,369 170,369 215,369 191,216 191,216 236,216
30 163,739 272,534 272,534 317,534 310,045 310,045 355,045
</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 Idebtedness 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 83 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. 2
(2) (a) Proposed form of Underwriting Agreement. 2
(b) Proposed form of Selling Agreement. 3
(c) Commission Schedule. 1
(4) Not applicable.
(5) (a) Proposed form of Group Contract (30012). 1
(b) Proposed form of Certificate (30011) and Certificate Rider. 1,4
(6) (a) Amended Charter and Articles of Incorporation of
the Company. 3
(b) By-Laws of the Company. 3
(7) Not applicable.
(8) Series Participation Agreement
with America Variable Insurance Series. 2
(9) Not applicable.
(10)(a) Form of Application for Group Contract (10914). 2
(b) Form of Application for Individual Insurance
Guaranteed Issue (Group Contract 10919). 1
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. 1
3. Opinion of Matthew P. McCauley, Esquire, General Counsel of Paragon Life
Insurance Company. 2
4. Not Applicable.
5. Not Applicable.
6. Not Applicable.
7. Opinion and consent of Craig K. Nordyke, F.S.A., M.A.A.A., Executive Vice
President and Chief Actuary. 1
8. (a) The consent of KPMG LLP, Independent Certified Public Accountants. 1
(b) Written consent of Sutherland Asbill & Brennan LLP. 1
9. 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. 2
* * *
1 Filed herewith.
2 Incorporated by reference to Post-Effective Amendment No. 12 on Form S-6
found in File No. 33-l834l, filed with the Securities and Exchange
Commission on April 28, 2000.
3 Incorporated by reference to the Pre-Effective Amendment No. 1 on Form S-6
found in File No. 33-80393, filed with the Securities and Exchange
Commission on September 1, 1999.
4 Incorporated by reference to Post-Effective Amendment No. 12 on Form S-6
found in File No. 33-18341, filed with the Securities and Exchange
Commission on April 28, 2000 for the Accelerated Death Benefit Settlement
Option Rider (3081100) only.
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 28th day of April, 2000.
(Seal) Paragon Life Insurance Company
Attest: /s/Matthew P. McCauley By: /s/Carl H. Anderson
-------------------- ---------------------------
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/Carl H. Anderson 4/28/00
-------------------
Carl H. Anderson President and Director
(Chief Executive Officer)
/s/Matthew K. Duffy 4/28/00
-------------------
Matthew K. Duffy Vice President
and Chief Financial
Officer (Principal
Accounting Officer and
Principal Financial Officer)
and Director
-------------------
E. Thomas Hughes* Director and Treasurer
-------------------
Richard A. Liddy* Director
/s/Matthew P. McCauley 4/28/00
-------------------
Matthew P. McCauley Vice President,
General Counsel,
Secretary and Director
II-5
<PAGE>
Signature Title Date
/s/Craig K. Nordyke 4/28/00
-------------------
Craig K. Nordyke Executive Vice President, Chief
Actuary and Director
-------------------
Warren J. Winer* Director
-------------------
Bernard H Wolzenski* Director
-------------------
A. Greig Woodring* Director
By:/s/Craig K. Nordyke 4/28/00
--------------------
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
1. Commission Schedule.
2. Proposed Form of Group Contract (30012).
3. Proposed Form of Certificate (30011).
4. Form of Application (10919).
5. Issue, Transfer and Redemption Memo.
6. Opinion and consent of Craig K. Nordyke, F.S.A.,
M.A.A.A., Executive Vice President and Chief
Actuary.
7. Written consent of KPMG LLP,
Independent Certified Public Accountants.
8. Written consent of Sutherland Asbill & Brennan LLP.
<PAGE>
Exhibit 1
COMMISSION SCHEDULE
<PAGE>
Commission Schedule
for
Flexible Premium Variable Life Insurance Policies
issued by
Paragon Life Insurance Company
First Year Commissions 15%
Renewal Commission 3%
(payable while policy is serviced
as a member of the Contractholder)
<PAGE>
Exhibit 2
PROPOSED FORM OF GROUP CONTRACT (30012)
<PAGE>
DATA PAGE
GROUP CONTRACT
NUMBER
CONTRACTHOLDER
RIGHT TO
EXAMINE CERTIFICATE
You may return this contract within
twenty days after receiving it or
within 45 days after the application is
signed, whichever period ends later. It
may be delivered or mailed to us or the
agent through whom it was purchased.
The contract shall then be deemed void
from the start. Any premium paid will
be returned.
FLEXIBLE PREMIUM
VARIABLE LIFE
INSURANCE TO AGE 95
Flexible Premiums are payable during
the lifetime of the insured to age 95.
The death benefit is payable at the
death of the insured prior to age 95
and while the contract is in force.
Cash surrender value, if any, is
payable at the insured's age 95.
This contract is a legal contract
between the contract-holder and Paragon
Life Insurance Company.
PLEASE READ YOUR CONTRACT CAREFULLY.
ISSUED BY: PARAGON LIFE INSURANCE COMPANY
A STOCK COMPANY
100 SOUTH BRENTWOOD
ST. LOUIS, MISSOURI 63105
0.01
<PAGE>
ALPHABETIC GUIDE TO YOUR CONTRACT
Page
2.04 Agency
2.03 Authority
2.03 Certificate of Insurance
2.02 Conversion Privilege
2.01 Definitions
2.02 Effective Date of Dependent Term
Insurance and Additional Benefits
2.02 Effective Date of Individual Insurance
2.03 Entire Contract
2.02 Grace Period
2.03 Incontestability
2.04 Monies Payable
2.03 Ownership and Control of This Contract
2.02 Premiums
2.01 Premium Payments
2.03 Records Required
2.04 Sex and Number
2.02 Termination of Insurance
2.03 Termination of This Contract
The Certificate of Insurance will be attached to and made a part of this
Contract.
0.02
<PAGE>
Contract Specifications
Contract Effective Date:
Contract Anniversary Date:
Contract Jurisdiction State:
Contract Execution Date:
Contractholder:
Associated Companies:
Eligibility Rule:
Individual Eligibility Date:
1.01
<PAGE>
Contract Specifications (continued)
Insurance Benefits:
Additional Benefits:
Premium Due Date:
1.02
<PAGE>
Contract Specifications (continued)
1.03
<PAGE>
TABLE OF GUARANTEED MONTHLY COST OF INSURANCE RATES
RATES ARE PER $1000
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE RATE AGE RATE AGE RATE
--- ---- --- ---- --- ----
<S> <C> <C> <C> <C> <C>
18 0.15 19 0.16 20 0.16
21 0.16 22 0.16 23 0.16
24 0.16 25 0.16 26 0.16
27 0.16 28 0.16 29 0.16
30 0.17 31 0.17 32 0.18
33 0.19 34 0.20 35 0.21
36 0.22 37 0.24 38 0.26
39 0.28 40 0.30 41 0.33
42 0.36 43 0.39 44 0.42
45 0.45 46 0.48 47 0.52
48 0.56 49 0.60 50 0.65
51 0.70 52 0.77 53 0.84
54 0.91 55 0.99 56 1.07
57 1.16 58 1.24 59 1.34
60 1.45 61 1.58 62 1.72
63 1.89 64 2.08 65 2.28
66 2.49 67 2.70 68 2.93
69 3.19 70 3.48 71 3.81
72 4.21 73 4.66 74 5.16
75 5.71 76 6.28 77 6.88
78 7.52 79 8.20 80 8.97
81 9.84 82 10.83 83 11.94
84 13.15 85 14.44 86 15.80
87 17.21 88 18.70 89 20.26
90 21.93 91 23.73 92 25.76
93 28.11 94 31.31
</TABLE>
THESE RATES ARE FOR THE BASE COVERAGE AT ISSUE. They are based on 125 percent of
the 1980 Commissioners Standard Ordinary Mortality Table C Age Last Birthday.
Any values guaranteed in this contract are based on these rates.
1.01
<PAGE>
1. DEFINITIONS
We, Us and Our The Paragon Life Insurance Company.
Insured An individual who is insured for life insurance under this
contract.
Associated Those companies listed on the contract specifications page
Company that are under common control through stock ownership,
contract or otherwise, with the contractholder. The records
of an Associated Company which have a bearing on this
contract will be considered records of the contractholder.
If an Associated Company ceases to be under common control
with the contractholder, the insureds of the Associated
Company may continue the insurance as an individual policy.
The inclusion of any Associated Company will not affect the
ownership of this contract by the contractholder or the
rights of ownership of this contract by the contractholder.
Individual Insurance on the Insureds provided through this contract.
Insurance
Dependent Term Insurance on the dependent of an Insured provided by a
Insurance rider to the certificate.
2. PROVISIONS RELATING TO INDIVIDUAL AND DEPENDENT TERM
INSURANCE
Premium Premium payments for individual and dependent term insurance
Payments coverage may be made by the certificate owner and/or the
contractholder. The owner's premium paid under this contract
is the amount authorized by such owner to be remitted by the
contractholder. Premiums may be paid in addition to the
authorized deductions as set forth in the contract. The
authorization may be cancelled at any time upon written
request.
If for any reason, premiums for this coverage are no longer
being remitted for the certificate owner by the
contractholder, the insurance under the certificate will be
continued (in the form of an individual policy as a result
of the conversion privilege) and planned premiums will be on
a direct billed basis.
Effective Date Subject to the conditions listed below, the individual
of Individual insurance, subject to eligibility, will be made effective on
Insurance the latest of the date on which:
1) the application for the certificate is signed;
2) the first premium for the individual insurance is paid
to us; and
3) the information provided in the application for the
certificate is determined to be acceptable to us for
issuance of coverage under our current rules and
practices.
If individual insurance ends at the request of the owner or,
prior to the maturity date, when a certificate's cash
surrender value is insufficient to cover the monthly
deductions, individual insurance will be restored only as
stated in the certificate section titled "Reinstatement"
Effective Date of Subject to the conditions listed below, the dependent term
Dependent Term insurance and additional benefits, subject to eligibility,
Insurance and will be made effective on the latest of the date on which:
Additional Benefits
1) the individual insurance that such coverage is
issued in connection with is effective; and
2) the information provided in the application for the
particular coverage is determined to be acceptable
to us for issuance of coverage under our current
rules and practices.
2.01
<PAGE>
Termination of Individual and dependent term insurance will terminate
Insurance according to the terms of the certificate.
Conversion If an insured's eligibility under this contract ends due to
Privilege the termination of this contract or the insured or owner is
no longer a part of the eligibility definition, such
insured's coverage, if not already in the form of an
individual policy, will automatically be converted by
amendment to an individual policy. Such individual policy
will provide benefits which are identical to those provided
under the certificate.
An amendment to convert the certificate to an individual
policy will be mailed:
1) within 31 days after we receive written
notification that the employee's employment ended, or
after the termination date of the contract; and
2) once any planned premium necessary to prevent the
policy from lapsing is paid to us at our Home Office.
The planned premiums for this individual policy may be paid
annually, semiannually, quarterly or at other intervals we
establish from time to time. Additional premiums may be paid
as set forth in the policy.
3. PREMIUMS
Premium Payment All planned premiums must be remitted in advance by the
contractholder to our Home Office. This includes any
adjustments in premiums. Additional premiums may be paid by
the certificate owner.
Grace Period If planned premium payments after the first such payment are
not made in a timely fashion, this contract will be in
default. A grace period of 31 days will be granted for the
remittance of the planned premiums after the first payment.
This contract will be in force during the grace period. If
such premium is not paid in the grace period, the contract
will terminate at the end of that period. The contract will
terminate before that date if the contractholder gives us
written notice in advance.
4. GENERAL PROVISIONS
Entire Contract We have issued this contract in consideration of the
application of the contractholder and remittance of premiums
by the contractholder. This contract, with the attached copy
of the contractholder's application and other attached
papers, if any, is the entire contract between the
contractholder and us. All statements made by the
contractholder, any certificate owner or any insured will be
deemed representations and not warranties. Misstatements
will not be used in any contest or to reduce claim under
this 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.
Authority No agent may change this contract or waive any of its
provisions. No change in this contract, other than a change
of rates, will be effective until the form making such
change is signed by our executive officer and accepted by
the contractholder.
Incontestability We cannot contest this contract after it has been in force
for two years from the date of issue.
Ownership and The contractholder owns this contract. This contract may be
Control of This changed or ended by agreement between us and the
Contract contractholder without the consent of, or notice to, any
person claiming rights or benefits under this contract.
2.02
<PAGE>
Records Required The contractholder will promptly give us, at our Home
Office, any facts that we may need to administer the
insurance under this contract and to determine the
premiums. All of the contractholder's records which
have a bearing on this insurance will be ready for us
to inspect when and as often as we may, within reason,
require.
Clerical error by the contractholder or us will not
make the insurance of an ineligible person valid nor
continue insurance which was ended by valid means.
Certificate of We will issue to the contractholder, to give to each
Insurance insured under this contract, a certificate of insurance
or an individual policy. If an individual policy is
issued, then all reference herein to a certificate will
mean an individual policy. The certificate will state
the owner's rights and benefits under the certificate
and to whom benefits are payable. Also, stated are the
limits and requirements in this contract that may apply
to the insured and his insured dependents, if any.
Termination of The terms and provisions of the certificate, a copy of
This Contract which is attached, are incorporated herein by reference
and made a part of this contract. The rights and
benefits of the insured under or owner of the
certificate will not inure to the benefit of the
contractholder.
Except as provided in the Grace Period section of this
contract, this contract will be terminated immediately
upon default.
We may end this contract or any of its provisions by
giving notice in writing to the contractholder at least
31 days prior to the termination date.
If this contract is terminated any insurance in effect
will remain in force on an individual basis, provided
it is not cancelled or surrendered by the certificate
owner. Any planned premiums will no longer be deducted
from the employee's wages and will be remitted directly
to us.
Sex and Number When used in this contract, the masculine includes the
feminine, the singular the plural, and the plural the
singular.
Monies Payable All monies payable by us as benefits under this
contract will be paid, subject to the laws which govern
such payment, at our Home Office or authorized claim
offices. All monies payable to us or by us will be in
the lawful currency of the United States.
Agency Neither us nor the contractholder is an agent of the
other under this contract for any purpose.
2.03
<PAGE>
Exhibit 3
PROPOSED FORM OF CERTIFICATE (30011)
<PAGE>
**DATA PAGE** CERTIFICATE NUMBER:
INSURED:
RIGHT TO EXAMINE
CERTIFICATE
THE AMOUNT OF THE DEATH BENEFIT OR THE
DURATION OF THE DEATH BENEFIT MAY INCREASE Please read this certificate.
OR DECREASE UNDER THE CONDITIONS DESCRIBED\ You may return this
ON PAGES 3.02 AND 3.03. certificate to us or to the
agent through whom it was
purchased within 20 days from
THE CERTIFICATE'S CASH VALUE IN EACH the date you receive it or
INVESTMENT DIVISION OF THE SEPARATE within 45 days after the
ACCOUNT IS BASED ON THE INVESTMENT application is signed,
EXPERIENCE OF THAT INVESTMENT DIVISION whichever period ends later.
AND MAY INCREASE OR DECREASE DAILY. IT If you return it within this
IS NOT GUARANTEED AS TO DOLLAR AMOUNT. period, the certificate will
SEE THE SEPARATE ACCOUNT PROVISION. be void from the beginning.
We will refund any premium
paid.
FLEXIBLE PREMIUM
VARIABLE LIFE
INSURANCE TO AGE 95
Flexible Premiums are payable
during the lifetime of the
The provisions on the pages which follow are insured to age 95. The death
a part of this certificate. This contains a benefit is payable at the
summary of the terms of the Group Contract death of the insured prior to
which is the contract between the Contract- age 95 and while the
holder and Paragon Life Insurance Company. certificate is in force. Cash
This certificate is evidence of life insurance surrender value, if any, is
under the Group Contract and is subject to all payable at the insured's age
of the terms and limits of the Group Contract 95.
and any amendments thereto. PLEASE READ
YOUR CERTIFICATE CAREFULLY.
ISSUED BY: PARAGON LIFE INSURANCE CO.
A STOCK COMPANY
100 SOUTH BRENTWOOD
ST. LOUIS, MISSOURI 63105
(314) 862-2211
0.01
<PAGE>
ALPHABETIC GUIDE TO YOUR CONTRACT
Page Page
6.04 Addition, Deletion or Substitution of 3.01 Maturity Date
Investments 6.03 Misstatement of Age and
3.04 Allocation of Net Premiums Corrections
6.01 Assignments 4.03 Monthly Cost of Insurance
4.05 Basis of Computation 4.03 Monthly Deduction
6.01 Beneficiary 4.02 Net Investment Factor
4.03 Cash Surrender Value 3.04 Net Premium
4.01 Cash Values 6.01 Owner
3.03 Certificate Changes 4.04 Partial Withdrawals
3.01 Certificate Date 7.01 Payment of Benefits
3.03 Change in Contract Type 3.04 Payment of Premiums
3.03 Change in Face Amount 4.05 Postponement of Payments
6.01 Change of Owner or Beneficiary 3.02 Proceeds
6.02 Claims of Creditors 3.05 Reinstatement
6.01 Conformity with Statutes 6.02 Right to Examine Increase
6.02 Conversion Rights in Face Amount
3.02 Death Benefit 6.02 Right to Examine
Certificate
3.01 Definitions 4.02 Separate Account Cash
Value
6.02 Eligibility Change Conversion Privilege 6.03 Separate Account
Provisions
3.04 Grace Period 7.01 Settlement Options
3.01 Incontestability 6.02 Statements in Application
7.01 Interest on Proceeds 6.03 Suicide Exclusion
4.03 Loan Account Cash Value 6.04 Transfers
4.01 Loans
Additional Benefit Riders, Modifications and Amendments, if any, and a Copy of
the Application are found following the final section.
0.02
<PAGE>
CERTIFICATE SPECIFICATIONS
INSURED AGE (AGE) INSURED (INSURED)
SEX (SEX) FACE AMOUNT (FACEAMT)
CONTRACT TYPE (CONTTYPE) CERTIFICATE DATE (CERTDATE)
MINIMUM FACE AMOUNT (MINFACEAMT) CERTIFICATE NUMBER (CERTNUM)
NET PREMIUM PERCENTAGE (NETPREMPER) PLANNED ANNUAL PREMIUM (APREMIUM)
MONTHLY EXPENSE CHARGE (MOEXPCHG)
LOAN ACCOUNT GUARANTEED FIRST YEAR MONTHLY
INTEREST RATE (LAGIR) EXPENSE CHARGE (FYMEC)
FORM BENEFITS-AS SPECIFIED IN CERTIFICATE
NUMBER AND IN ANY RIDER
CERTIFICATE PLAN: FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE TO AGE 95
(DOCSLIST[LOOPIN, 1])
1.01
<PAGE>
CERTIFICATE SPECIFICATIONS
INSURED (INSURED)
CERTIFICATE DATE (CERTDATE)
CERTIFICATE NUMBER (CERTNUM)
COVERAGE RISK FACE MATURITY
CLASSIFICATION AMOUNT DATE*
(COVRG) (RISKCLASS) (FACEAMT) (MATDATE)
SEPARATE ACCOUNT: (SEPACCT)
INITIAL ALLOCATION OF NET PREMIUMS TO SEPARATE ACCOUNT
* IT IS POSSIBLE THAT COVERAGE WILL EXPIRE PRIOR TO THE MATURITY DATE SHOWN
WHERE EITHER NO PREMIUMS ARE PAID FOLLOWING PAYMENT OF THE INITIAL PREMIUM OR
SUBSEQUENT PREMIUMS ARE INSUFFICIENT TO CONTINUE COVERAGE TO SUCH A DATE. IF
CURRENT VALUES CHANGE, THE PLANNED PERIODIC PREMIUM COULD BE INSUFFICIENT TO
CONTINUE COVERAGE TO THE MATURITY DATE.
1.02
<PAGE>
CERTIFICATE SPECIFICATIONS
DESCRIPTION OF SEPARATE ACCOUNT A FUNDS
American Life/Annuity Series (the "Series") is an open-end diversified
management investment company which was incorporated in Massachusetts on
November 12, 1986. The Series offers seven separate funds which operate as
distinct investment vehicles. The names and investment objectives of the
funds are as follows:
Cash Management Fund: The investment objective of this Fund is to seek high
---------------------
current yield while preserving capital by investing in a diversified selection
of money market instruments.
High-Yield Bond Fund: The investment objective of this Fund is to seek high
---------------------
current income by investing primarily in intermediate and long-term corporate
obligations, with emphasis on higher yielding, higher risk, lower rated or
unrated securities.
Growth-Income Fund: The investment objective of this Fund is to seek growth of
-------------------
capital and income by investing primarily in common stocks or other securities
with a view to appreciation and/or potential dividends.
Growth Fund: The investment objective of this Fund is to seek 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.
U.S. Government/AAA-Rated Securities Fund: The investment objective of this
------------------------------------------
Fund is to seek a high level of current income consistent with prudent
investment risk and preservation of capital by investing primarily in a
combination of securities guaranteed by the U.S. Government and other debt
securities rated AAA or Aaa.
Asset Allocation Fund: The investment objective of this Fund is to seek total
----------------------
return (including income and capital gains) and preservation of capital over
the long-term by investing in a diversified portfolio of securities that can
include common stocks and other equity-type securities (such as convertible
bonds and preferred stocks), bonds and other intermediate and long-term fixed-
income securities, and money market instruments (debt securities maturing in
one year or less).
International Fund: The investment objective of this Fund is to seek long-term
-------------------
growth of capital by investing primarily in securities 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.
There can be no assurance that the investment objectives of these Funds, or
any other Funds that the Company may create, will be achieved.
1.01
5
<PAGE>
SURRENDER CHARGE SCHEDULE
INSURED: (INSURED) CERTIFICATE #: (CERTNUM)
AMOUNT OF INSURANCE: (FACEAMT) CERTIFICATE DATE: (CERTDATE)
SURRENDER CHARGE FACTOR: (SURCHGFACTR) GUIDELINE ANNUAL PREMIUM: (APREMIUM)
CERTIFICATE SURRENDER
YEAR CHARGE PERCENTAGE
(SRRCHG[CTR,1]) (SRRCHG[CTR,2])
IF THIS AMOUNT OF INSURANCE IS FULLY SURRENDERED DURING THE TEN YEARS FOLLOWING
THE EFFECTIVE DATE, THE SURRENDER CHARGE IS THE APPROPRIATE PERCENTAGE SHOWN
ABOVE TIMES THE SURRENDER CHARGE AMOUNT DEFINED IN SECTION 5, CASH VALUES. IF
THIS AMOUNT OF INSURANCE IS DECREASED BY SOME FRACTION OF THE TOTAL AMOUNT
DURING THE TEN YEARS FOLLOWING THE EFFECTIVE DATE, THE SURRENDER CHARGE AMOUNT
WILL BE THE PREVIOUSLY DEFINED SURRENDER CHARGE TIMES THE FRACTION. A NEW
SURRENDER CHARGE SCHEDULE PAGE WILL BE MAILED TO YOU FOR THE REMAINING COVERAGE.
IF THE AMOUNT OF INSURANCE IS INCREASED, A SURRENDER CHARGE WILL APPLY DURING
THE TEN YEARS FOLLOWING THE EFFECTIVE DATE OF THE INCREASE. A NEW SURRENDER
CHARGE SCHEDULE PAGE FOR THE INCREASE WILL BE MAILED TO YOU. THE SURRENDER
CHARGE FACTOR WILL NOT CHANGE FOR THE INCREASE.
<PAGE>
TABLE OF GUARANTEED MONTHLY COST OF INSURANCE RATES
RATES ARE PER $1,000
INSURED: (INSURED) POLICY NUMBER: (CERTNUM)
DATE OF ISSUE: (CERTDATE)
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE RATE AGE RATE AGE RATE
- --- ---- --- ---- --- ----
<S> <C> <C> <C> <C> <C>
29 0.163000 61 1.576000 93 28.155000
30 0.167000 62 1.723000 94 31.307000
31 0.172000 63 1.891000 95
32 0.178000 64 2.078000
33 0.187000 65 2.276000
34 0.196000 66 2.486000
35 0.207000 67 2.704000
36 0.221000 68 2.933000
37 0.238000 69 3.188000
38 0.257000 70 3.478000
39 0.278000 71 3.813000
40 0.303000 72 4.208000
41 0.329000 73 4.661000
42 0.357000 74 5.163000
43 0.386000 75 5.708000
44 0.416000 76 6.284000
45 0.449000 77 6.884000
46 0.483000 78 7.517000
47 0.520000 79 8.203000
48 0.559000 80 8.968000
49 0.603000 81 9.837000
50 0.651000 82 10.829000
51 0.705000 83 11.941000
52 0.767000 84 13.150000
53 0.836000 85 14.440000
54 0.911000 86 15.795000
55 0.988000 87 17.213000
56 1.071000 88 18.699000
57 1.155000 89 20.262000
58 1.244000 90 21.925000
59 1.342000 91 23.733000
60 1.450000 92 25.762000
</TABLE>
THESE RATES ARE FOR THE BASE CERTIFICATE AT ISSUE. THEY ARE BASED ON 125
PERCENT OF THE 1980 COMMISSIONERS STANDARD ORDINARY MORTALITY TABLE C.
ANY VALUES GUARANTEED IN THIS CONTRACT ARE BASED ON THESE RATES.
<PAGE>
1. DEFINITIONS
We, Us and Our The Paragon Life Insurance Company.
You and Your The owner of this certificate. The owner is as shown in the
application unless later changed as provided in this
certificate. The owner may be someone other than the
insured.
In the application the words "You" and "Your" refer to the
proposed insured person(s).
Insured The person whose life is insured under this certificate. See
the certificate specifications page. The insured must be
eligible to participate in the plan sponsored by the
contractholder at the time this certificate is issued.
Issue Age The insured's age at his or her last birthday as of the
certificate date.
Attained Age The issue age plus the number of completed certificate
years.
Certificate Date The date of issue of this certificate is the effective date
of coverage under this certificate. It is also the date from
which certificate anniversaries, certificate years, and
certificate months are measured.
Investment The date the first premium is applied to the Divisions of
Start Date the Separate Account. This date will be the later of:
. The certificate date; or
. The date we receive the first premium at our home
office.
Maturity Date The certificate anniversary on which the insured attains age
95. If the insured is living and the certificate is in force
on this date, the cash surrender value is payable. It is
possible that insurance coverage may not continue to the
maturity date even if planned premiums are paid in a timely
manner.
Monthly The same date in each succeeding month as the certificate
Anniversary 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.
Business Day Any day that we are open for business.
Separate A separate investment account created by us to receive and
Account invest net premiums received for this certificate. The
particular Separate Account for this certificate is
indicated on the certificate specifications page.
Loan Account The account to which we will transfer from the Divisions of
the Separate Account the amount of any certificate loan.
Loan A Loan SubAccount exists for each Division of the Separate
SubAccount Account. Any cash value transferred to the Loan Account will
be allocated to the appropriate SubAccount to reflect the
origin of the cash value. At any point in time, the Loan
Account will equal the sum of all the Loan SubAccounts.
3.01
<PAGE>
Contract The Group Flexible Premium Variable Life Insurance Contract
issued to the contractholder by us.
2. DEATH BENEFITS
Proceeds The certificate proceeds are:
1. The death benefit under the contract type then in
effect; plus
2. The monthly cost of insurance for the portion of the
month from the date of death to the end of the month of
death; less
3. Any loan and loan interest due.
Death Benefit The death benefit depends upon the contract type in effect
on the date of the insured's death. The contract type in
effect is shown on the certificate specifications page.
Level Contract Type: (Death benefit is level except when it
equals a percentage of cash value.)
The death benefit is the greater of:
1. The face amount; or
2. The applicable percentage of the cash value on the date
of death as described in Section 7702(d) of the
Internal Revenue Code of 1986 or as set forth in any
applicable successor provision thereto.
Increasing Contract Type:
The death benefit is the greater of:
1. The face amount plus the cash value on the date of
death; or
2. The applicable percentage of the cash value on the date
of death as described in Section 7702(d) of the
Internal Revenue Code of 1986 or as set forth in any
applicable successor provision thereto.
Applicable The percentages as currently described in Section 7702(d) of
Percentage the Internal Revenue: Code of 1986 are as follows:
<TABLE>
<CAPTION>
In the case of an insured with an The applicable percentage
attained age as of the beginning shall decrease by a ratable
of the certificate year of: portion for each full year:
More than: But not more than: From: To:
<S> <C>
0 ..................... 40 250 .................... 250
40 ..................... 45 250 .................... 215
45 ..................... 50 215 .................... 185
50 ..................... 55 185 .................... 150
55 ..................... 60 150 .................... 130
60 ..................... 65 130 .................... 120
65 ..................... 70 120 .................... 115
70 ..................... 75 115 .................... 105
75 ..................... 90 105 .................... 105
90 ..................... 95 105 .................... 100
</TABLE>
3.02
<PAGE>
Certificate You may request certificate changes at any time. We reserve
Changes the right to limit the number of changes to one per
certificate year and to restrict the changes in the first
certificate year. The types of changes allowed are explained
below.
No change will be permitted that would result in the death
benefit under this certificate being included in gross
income due to not satisfying the requirements of Section
7702 of the Internal Revenue Code of 1986 or as set forth in
any applicable successor provision thereto.
Change in The face amount may be changed by sending us a written
Face Amount request.
Any decrease in face amount will be subject to the following
conditions:
1. The decrease will become effective on the monthly
anniversary date on or following our receipt of the
request.
2. The decrease will reduce the face amount in the
following order:
a. The face amount provided by the most recent
increase;
b. Face amounts provided by the next most recent
increases, successively; and
c. The face amount when the certificate was issued.
3. The face amount remaining in force after any requested
decrease may not be less than the minimum face amount
shown on the certificate specifications page.
4. Any decrease must be at least $5,000.
Any increase in face amount will be subject to the following
conditions:
1. Proof that the insured is insurable by our standards on
the date of the requested increase must be submitted.
2. The increase will become effective on the monthly
anniversary date on or following our receipt of such
proof.
3. Any increase must be at least $5,000.
4. The insured must have an attained age not greater than
age 80 on the date of the requested increase.
We will amend your certificate to show the effective date of
the decrease or increase.
Change in The contract type in effect may be changed by sending us a
Contract Type written request. The effective date of change will be the
monthly anniversary date on or following the date we receive
the request. On the effective date of this change the death
benefit payable does not change.
If the contract type in effect is increasing, it may be
changed to level. The face amount will be increased to equal
the death benefit on the effective date of change.
If the contract type in effect is level, it may be changed
to increasing. Proof that the insured is insurable by our
standards on the date of the change must be submitted. The
face amount will be decreased to equal the death benefit
less the cash value on the effective date of change. This
change may not be made if it would result in a face amount
which is less than the minimum face amount shown on the
certificate specifications page.
3.03
<PAGE>
3. PREMIUMS AND GRACE PERIOD
Payment of Your first premium is due as of the certificate date. While
Premiums the insured is living, premiums after the first must be paid
at our home office. You may pay planned premiums directly or
through the contractholder annually, semiannually,
quarterly, or at other intervals we may establish from time
to time. This right is subject to our rates and minimum
premium requirements as of the certificate date.
If this certificate is in your possession and you have not
paid the first premium, it is not in force. It will be
considered that you have the certificate for inspection
only.
Premiums after the first may be paid in any amount and at
any interval subject to the following conditions:
1. No premium payment may be less than $20.00.
2. Total premiums paid in any certificate year may not
exceed the maximum premium limit for that certificate
year. The maximum premium limit for a certificate year
is the largest amount of premium which can be paid in
that certificate year such that the sum of the premiums
paid under the certificate will not at any time exceed
the guideline premium limitation referred to in Section
7702(c) of the Internal Revenue Code of 1986, or as set
forth in any applicable successor provision thereto.
The maximum premium limit for the following certificate
year will be shown on your annual report.
Net Premium The premium paid times the net premium percentage from the
certificate specifications page is the net premium.
Allocation of You determine the allocation of net premiums among the
Premiums Net Divisions of the Separate Account. The minimum
percentage (other than zero) that may be allocated to any
Division of the Separate Account is 10%. Percentages must be
in whole numbers. The initial allocation is shown on the
certificate specifications page.
Your Right You may change the allocation of future net premiums among
to Change the Divisions of the Separate Account subject to the
Allocation conditions outlined in the Allocation of the Net Premiums
Provision. The change in allocation percentages will take
effect immediately upon our receipt of your written request.
Grace Period We will allow a grace period of 62 days. The grace period
will start on any monthly anniversary date when the cash
surrender value is not large enough to cover the next
monthly deduction. (Monthly deduction is defined in the Cash
Values Section.) At that time, we will send you and any
assignee of record a notice. The notice will indicate the
minimum premium needed to keep the certificate in force and
the date such payment is due.
If you do not pay a premium large enough to cover the
monthly deduction by the end of the grace period, your
certificate will lapse at the end of that 62 day period. It
will then terminate without cash value. If the insured dies
during the grace period, any past due monthly deductions
will be deducted from the death benefit.
3.04
<PAGE>
Reinstatement You may reinstate your lapsed certificate within 5 years
after the date of lapse. This must be done before the
insured's age 95. You must submit the following items:
1. A written request for reinstatement.
2. Proof satisfactory to us that the insured is insurable
by our standards.
3. A premium 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.
Reinstatement will not be effective until the date of
application for reinstatement is approved by us. There will
be a full monthly deduction for the certificate month that
includes that date. The only accumulation value of this
certificate upon reinstatement will be the amount provided
by the premium then paid. The application for reinstatement
will be contestable for two years during the lifetime of the
insured from the date of its approval.
Any loan and loan interest due on the date of lapse may be
paid or reinstated. Any loan and loan interest reinstated
will cause a cash value of an equal amount to also 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.
The surrender charge at the time of reinstatement will be
the surrender charge in effect at the time of lapse. If only
a portion of the coverage is reinstated then only the
applicable portion of the surrender charge will be
reinstated. We will amend your certificate to show the new
surrender charge. The cash value following reinstatement
will be increased by the amount of the surrender charge
imposed at the time of lapse.
3.05
<PAGE>
4. LOANS
After the first certificate anniversary, you may borrow
an amount not in excess of the loan value of your
certificate while it is in force. The minimum amount of
your net loan request at any one time must be at least
$100. Your certificate will be the sole security for such
loan. We have the right to require your certificate for
endorsement.
The loan value is 85% of the cash value of your
certificate at the date of the loan reduced by:
1. Any existing loans and loan interest due; and
2. Any surrender charges.
You may allocate the certificate loan and any loan
interest due on this loan among the Divisions of the
Separate Account. If you do not specify the allocation,
then the certificate loan will be allocated among the
Divisions of the Separate Account in the same proportion
that the cash value in each Division bears to the total
cash value of the certificate, minus the cash value in
the Loan Account, on the date of the certificate loan.
Cash value equal to the certificate loan and the loan
interest due on this loan allocated to each Division of
the Separate Account will be transferred to the Loan
Account, reducing the cash value allocated to the
Divisions of the Separate Account accordingly.
Cash value held in the Loan Account for loan collateral
will earn interest daily at an annual rate of the Loan
Account guaranteed interest rate shown on the certificate
specifications page.
Interest payable on a loan accrues daily. Loan interest
is due and payable in arrears on each certificate
anniversary or on a pro rata basis for any shorter period
as the loan may exist. If you do not pay the interest
when it is due, we will add it to your existing loan if
your certificate has sufficient loan value. We will
charge the same rate of interest on this amount as on the
certificate loan. The total loan rate will be 8.0% per
year.
Loan Repayments All funds received will be credited to your certificate
as a premium unless clearly marked for loan repayment.
You may repay your loan in whole or in part at any time
before the death of the insured while the certificate is
in force. When a loan repayment is made, cash value
securing the debt in the Loan Account equal to the loan
repayment will be repaid to the Divisions of the Separate
Account in the same proportion that the cash value in the
Loan Account bears to the cash value in each Loan
SubAccount as of the date the original loan was made,
unless you indicate a specific allocation to the
Divisions of the Separate Account. Unpaid loans and loan
interest will be deducted from any settlement of your
certificate.
If you fail to make repayment when the total loan and
loan interest due would exceed the cash value, less any
surrender charges, your certificate will be in default.
We will allow you a grace period for such payment of
loans and loan interest due. In such event that payment
is not made, the certificate terminates at the end of the
grace period. On the date of default, we will mail a
notice to your last known address, the last known address
of the insured, and that of any assignee of record. This
grace period of 62 days will start on the monthly
anniversary immediately before the date the total loan
and loan interest exceeds the cash value less any
surrender charges and any unpaid monthly expense charges;
or 31 days after such notice has been mailed, if later.
5. CASH VALUES
Cash Value The cash value of your certificate is equal to the total
of:
- The cash value in the Divisions of the Separate
Account; plus
- The cash value in the Loan Account.
4.01
<PAGE>
You may borrow against the loan value of your
certificate. The interest rate used to calculate the
interest earned on the cash values in the Loan Account
securing any certificate loan will be at an effective
annual rate not less than the Loan Account guaranteed
interest rate shown on the certificate specifications
page.
Separate Account The cash value in each Division of the Separate Account
Cash Value on the Investment Start Date is equal to:
- The portion of the initial net premium received and
allocated to the Division; minus
- The portion of the monthly deductions due from the
certificate date through the Investment Start Date
charged to the Division.
The cash value in each Division of the Separate Account
on a subsequent valuation date is equal to:
- The cash value in the Division on the preceding
valuation date multiplied by that Division's net
investment factor for the current valuation period;
plus
- Any portion of net premium received and allocated to
the Division during the current valuation period; plus
- Any net amounts transferred to the Division from
another Division during the current valuation period;
plus
- Any loan repayments allocated to the Division during
the current valuation period; plus
- That portion of any interest credited on outstanding
loans which is allocated to the Division during the
current valuation period; minus
- Any amounts transferred plus any transfer charge from
the Division during the current valuation period;
minus
- Any partial withdrawal plus any withdrawal transaction
charge from the Division during the current valuation
period; minus
- Any surrender charges incurred during the current
valuation period; minus
- Any amount transferred from the Division to the Loan
Account during that valuation period; minus
- If a monthly anniversary occurs during the current
valuation period, the portion of the monthly deduction
charged to the Division during the current valuation
period to cover the certificate month which starts
during that valuation period.
Net Investment The Net Investment Factor measures the investment
Factor performance of a Division during a valuation period. The
Net Investment Factor for each Division for a valuation
period is calculated as follows:
- The value of the assets at the end of the preceding
valuation period; plus
- 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
- The capital losses --- realized or unrealized ---
charged against those assets during the valuation
period; minus
- Any amount charged against each Division for taxes, or
any amount we set aside during the valuation period as
a reserve for taxes attributable to the operation or
maintenance of each Division; minus
- A charge not to exceed .0024547% for each day in the
valuation period. This corresponds to 0.90% per year
for mortality and expense risks; divided by
- The value of the assets at the end of the preceding
valuation period.
4.02
<PAGE>
Loan Account The cash value of the Loan Account as of the Investment
Cash Value Start Date is zero.
The cash value of the Loan Account on any day after the
Investment Start Date is equal to:
- The cash value of the Loan Account on the preceding
business day, with interest; plus
- Any net amount transferred to the Loan Account from
the Divisions of the Separate Account on that day;
minus
- Any loan repayments on that day.
Monthly Cost The monthly cost of insurance for the following month is
of Insurance deducted on the monthly anniversary date. The monthly
cost of insurance is 1, below, multiplied by the
difference between 2 and 3 below:
1. The monthly cost of insurance rate.
2. The death benefit at the beginning of the certificate
month divided by 1.0040741.
3. The cash value at the beginning of the certificate
month, before the deduction of the monthly cost of
insurance.
If the contract type is level and if there has been an
increase in the face amount, then the cash value will
first be considered a part of the face amount when the
certificate was issued. If the cash value is greater than
the initial face amount, it will then be considered a
part of each increase in order, starting with the first
increase.
Monthly Cost At the beginning of each certificate year, the monthly
of Insurance cost of insurance rate is determined using the insured's
Rates attained age. The monthly cost of insurance rate is based
on the attained age and rate class. For the initial face
amount, we will use the rate class on the certificate
date. For each increase, we will use the rate class
applicable to the increase. If the death benefit equals a
percentage of the cash value, any increase in cash value
will cause an automatic increase in the death benefit.
The rate class for such increase will be the same as that
used for the most recent increase that required proof
that the insured was insurable by our standards.
The monthly cost of insurance rates will never exceed the
rates shown on the Table of Guaranteed Monthly Cost of
Insurance Rates page divided by 1,000. Any change in the
cost of insurance rates will apply to all persons of the
same age, and classification whose certificates have been
in force for the same length of time.
First Year The amount of additional monthly expense to be charged
Monthly Expense during the first certificate year is shown on the
Charge certificate specifications page.
Monthly Expense The amount of the monthly expense charge is shown on the
Charge certificate specifications page.
Monthly Deduction The monthly deduction is:
1. The monthly cost of insurance; plus
2. The monthly cost of insurance for any rider included
with this certificate; plus
3. The monthly expense charge; plus
4. For the first certificate year, the first year monthly
expense charge.
The monthly deduction for a certificate month will be
allocated among the Divisions of the Separate Account in
the same proportion that the cash value in each Division
bears to the total cash value of the certificate, minus
the cash value in the Loan Account on the monthly
anniversary.
Cash Surrender The cash surrender value of this certificate is:
Value
1. The cash value at the time of surrender; less
2. Any loan and loan interest due; less
3. Any surrender charge.
4.03
<PAGE>
Surrender You may surrender your certificate for its cash surrender
value at any time during the lifetime of the insured by
sending us a written request. The cash surrender value
will be determined as of the date we receive your written
request. The cash surrender value will not be reduced by
any monthly deduction due, if any, on that date for the
following month.
Partial After the first certificate year, you can make a partial
Withdrawals withdrawal of cash subject to the following conditions:
- You may make up to one partial withdrawal each
certificate month.
- The minimum amount of your net partial withdrawal
request from any one Division must be at least $50.00
of a Division or your entire balance in that Division,
if smaller.
- The total amount of your net partial withdrawal
request at any one time must be at least $500.
- The amount of withdrawal obtained by partial
withdrawal may not exceed the loan value.
Allocation of You may allocate the partial withdrawal, subject to the
Partial above conditions, among the Divisions of the Separate
Withdrawals Account. If you do not specify the allocation, then the
partial withdrawal will be allocated among the Divisions
of the Separate Account in the same proportion that the
cash value in each Division bears to the total cash value
of the certificate, minus the cash value in the Loan
Account on the date of the partial withdrawal.
If the contract type is level and the death benefit
equals the face amount, then a partial withdrawal will
decrease the face amount by an amount equal to the
partial withdrawal plus the applicable surrender charge.
The surrender charge will be allocated among the
Divisions of the Separate Account in the same proportion
that the partial withdrawal was allocated among the
Divisions of the Separate Account. If the death benefit
equals a percentage of the cash value then a partial
withdrawal will decrease the face amount by any amount by
which the partial withdrawal plus the applicable
surrender charge exceeds the difference between the death
benefit and the face amount. The face amount will be
decreased in the following order:
1. The face amount at issue; and
2. Any increases in the same order in which they were
issued.
No partial withdrawal will be processed which will result
in the face amount being decreased below the minimum face
amount shown on the certificate specifications page.
We reserve the right to change the minimum amount or the
number of times you may make a partial withdrawal. Each
partial withdrawal is subject to an administrative charge
equal to the lesser of $25.00 or 2% of the amount of the
partial withdrawal.
Surrender Charge If the certificate is surrendered, a surrender charge
will be applied:
1. With respect to the initial face amount and the number
of completed certificate years from the certificate
date; and
2. With respect to each increase in face amount and the
number of completed years from the effective date of
that increase.
The surrender charge amount for the initial face amount
for the first certificate year will be the lesser of:
1. The Surrender Charge Factor multiplied by actual
premiums paid during the first certificate year to
meet our minimum premium requirements; or
2. The Surrender Charge Factor multiplied by the
guideline annual premium. The guideline annual premium
is shown on the surrender charge schedule page.
This amount as calculated at the end of the first
certificate year will be used to determine the surrender
charge for any decrease in the initial face amount or
full cash surrender of the initial face amount in
subsequent years.
4.04
<PAGE>
The surrender charge amount for an increase in face
amount during the twelve certificate months following any
increase will be the lesser of:
1. The Surrender Charge Factor multiplied by the premiums
that are allocated to that increase during the twelve
certificate months following the increase; or
2. The Surrender Charge Factor multiplied by the
guideline annual premium for the increase. The
guideline annual premium for the increase will be
shown in the surrender charge schedule page for the
increase.
This amount as calculated at the end of the first year
following the effective date of the increase will be used
to determine the surrender charge for any decrease in
increased face amount or full cash surrender following
the increase in subsequent years. The premium allocated
to an increase for purposes of determining the surrender
charge will be based on the rules established by the
Securities and Exchange Commission and may include a part
of the existing cash value.
The Surrender Charge Percentage for the initial face
amount and any increase in face amount is shown on the
surrender charge schedule page for the respective face
amount.
The Surrender Charge Percentage multiplied by the
surrender charge amount determines the appropriate
surrender charge to be assessed.
The Surrender Charge Factor is shown on the surrender
charge schedule page.
A surrender charge will apply to any decrease in face
amount. A decrease in face amount may decrease some of
the initial face amount and some or all of any increases
in face amount as provided in Section 2. A partial
withdrawal may cause a decrease in face amount as
provided above and, therefore, a surrender charge may be
taken. The amount of surrender charge applied because of
a decrease in face amount is defined on the surrender
charge schedule page for the face amount being decreased.
The surrender charge for a decrease in face amount is
deducted from the cash value on the effective date of the
decrease.
Postponement We will usually pay any amounts payable on surrender,
of Payments partial withdrawal or certificate loan allocated to the
Divisions of the Separate Account within seven days after
written notice is received. We will usually pay any death
benefit proceeds within seven days after we receive due
proof of claim. Payment of any amount payable on
surrender, partial withdrawal, certificate loan or death
may be postponed whenever:
1. The New York Stock Exchange or our home office are
closed (other than customary weekend and holiday
closing) or trading on the New York Stock Exchange is
restricted as determined by the Securities and
Exchange Commission;
2. The Securities and Exchange Commission, by order,
permits postponement for the protection of certificate
owners; or
3. An emergency exists as determined by the Securities
and Exchange Commission, as a result of which disposal
of securities is not reasonably practicable or it is
not reasonably practicable to determine the value of
the net assets of the Separate Account. Transfers may
also be postponed under the circumstances listed
above.
Continuation If all premium payments cease, the insurance provided
of Insurance under this certificate, including benefits provided by
any rider attached to this certificate will continue in
accordance with the provisions of this certificate for as
long as the cash surrender value is sufficient to cover
the monthly deductions. Any remaining cash surrender
value will be payable on the maturity date.
Basis of The minimum cash values and net single premiums, if any,
Computation are based on 1) 125 percent of the Commissioner's 1980
Standard Ordinary Mortality Table C age last birthday;
and 2) compound interest at 5% a year.
All values are at least equal to those required by any
applicable law of the state that governs your
certificate. We have filed a detailed statement of the
method of calculating cash values and reserves with the
insurance supervisory official of that state.
4.05
<PAGE>
6. PERSONS WITH AN INTEREST IN THE CERTIFICATE
Owner The insured is the original owner of this certificate unless
someone else is shown as owner in the application. You, as owner,
are entitled to all rights provided by this certificate, prior to
its maturity date. Ownership may be changed in accordance with
the Change of Owner or Beneficiary provision. After the maturity
date, you cannot change the payee nor the mode of payment, unless
otherwise provided in this certificate. 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 you
should die, and you are not the insured, your interest will go to
your estate unless otherwise provided.
Beneficiary The original beneficiary is shown in the application. You may
change the beneficiary in accordance with the Change of Owner or
Beneficiary provision. Unless otherwise stated, the beneficiary
has no rights in this certificate 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. If no beneficiary is living at the death of the insured
the proceeds will be payable to you, if you are living, or to
your estate.
Change of During the insured's lifetime you may change the ownership and
Owner or beneficiary designations. You must make the change in written
Beneficiary form satisfactory to us. If acceptable to us it will take effect
as of the time you signed the request, whether or not the insured
is living when we receive your request at our home office. The
change will be subject to any assignment of this certificate or
other legal restrictions. It will also be subject to any payment
we made or action we took before we received your written notice
of the change. We have the right to require the certificate for
endorsement before we accept the change.
If you are also the beneficiary of the certificate at the time of
the insured's death, you may designate some other person to
receive the proceeds of the certificate within 60 days after the
insured's death.
Assignments We will not be bound by an assignment of the certificate or of
any interest in it unless:
1. It is made as a written instrument,
2. You file the original instrument or a certified copy with us
at our home office, and
3. We send you an acknowledged copy.
We are not responsible for the validity of any assignment. If a
claim is based on an assignment, we may require proof of interest
of the claimant. A valid assignment will take precedence over any
claim of a beneficiary.
7. GENERAL PROVISIONS
Entire We have issued this certificate in consideration of the
Contract application and payment of premiums. The certificate, the
application for it, and any application for an increase in face
amount constitute the entire contract. Any application is
attached and made a part of the certificate when the insurance
applied for is accepted. The certificate may be changed by mutual
agreement. Any change must be in writing and approved by our
President, or Secretary. Our agents have no authority to alter or
modify any terms, conditions, or agreements of this certificate,
or to waive any of its provisions.
Conformity If any provision in this certificate is in conflict with the laws
with of the state which govern this certificate, the provision will be
Statutes deemed to be amended to conform with such laws.
6.01
<PAGE>
Statements in All statements made by the insured or on his or her behalf,
Application or by the applicant, will be deemed representations and not
warranties, except in the case of fraud. Material
misstatements will not be used to void the certificate, or
deny a claim unless made in the application.
Claims of To the extent permitted by law, neither the certificate nor
Creditors any payment under it will be subject to the claim of
creditors or to any legal process.
Right to Examine You have the right to request us to cancel this certificate
Certificate and receive a refund. The request must be made no later
than:
- 20 days after you received the certificate; or
- 45 days after the date you signed the application.
The refund will equal the premiums paid into this
certificate.
Right to You have the right to request us to cancel an increase in
Examine Increase face amount and receive a refund. The request must be made
in Face Amount no later than:
- 20 days from the date you received the new certificate
specifications page for the increase; or
- 45 days after the date you signed the application for the
increase.
The refund will equal the monthly deductions associated with
that increase. If you do request us to cancel the increase
but do not request a refund, the monthly deductions
associated with that increase will be restored to the
certificate's cash value. This amount will be allocated to
the Divisions of the Separate Account in the same manner as
it was deducted.
Conversion Rights Once during the first two certificate years you have the
right, upon written request, to exchange this certificate
for a life insurance policy that provides for benefits that
do not vary with the investment return of the Divisions of
the Separate Account. No evidence of insurability will be
required. However, we will require that this certificate be
in force and that you repay any existing indebtedness. At
the time of the conversion, the new policy will have, at
your option, either the same death benefit or the same
difference between death benefit and cash value as this
certificate. The new policy will also have the same issue
date and issue age as this certificate. The planned premiums
for the new policy will be based on our rates in effect for
the same issue age and risk class as the original
certificate.
You also have the right once during the first two years
following the effective date of an increase in face amount
to exchange the increased portion of this certificate for a
life insurance policy that provides for fixed benefits. The
provisions applicable to the conversion of the entire
certificate described above are also applicable to a
conversion of an increase in face amount.
Eligibility Change If an insured's eligibility under the Contract ends due to
Conversion the termination of the contract or termination of the
Privilege employee's employment, your coverage, if still in force,
will convert automatically to an individual policy. Such
individual policy will provide benefits which are identical
to those provided under this certificate.
An amendment to convert the certificate to an individual
policy will be mailed:
1. Within 31 days after we receive written notification
that the employee's employment ended; or after the
termination of the contract; and
2. Once any premium necessary to prevent the policy from
lapsing is paid to us at our Home Office.
The planned premiums for this individual policy may be paid
annually, semiannually, quarterly, or at other intervals we
may establish from time to time. Additional premium payments
may be made at any time subject to limitations identical to
those contained in this certificate.
6.02
<PAGE>
Misstatement If there is a misstatement of age in the application, the
of Age and amount of the death benefit will be that which would be
Corrections purchased by the most recent mortality charge at the correct
age.
If we make any payment or certificate changes in good faith,
relying on our records, or evidence supplied to us, our duty
will be fully discharged. We reserve the right to correct
any errors in the certificate.
Incontestability We cannot contest this certificate after it has been in
force during the lifetime of the insured for two years from
its certificate date. We cannot contest an increase in face
amount with regard to material misstatements made concerning
such increase after it has been in force during the lifetime
of the insured for two years from its effective date. We
cannot contest any reinstatement of this certificate after
it has been in force during the lifetime of the insured for
a period of two years from the date we approve the
reinstatement. This provision will not apply to any rider
which contains its own incontestability clause.
Suicide Exclusion If the insured dies by suicide, while sane or insane, within
two years from the certificate date (or within the maximum
period permitted by law of the state in which this
certificate was delivered, if less than two years), the
amount payable will be limited to the amount of premiums
paid, less any outstanding certificate loans with interest
to the date of death, and less any partial withdrawals.
If the insured, while sane or insane, commits 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 monthly deductions for the increase.
This provision does not apply if the Group Contract is
issued to a Missouri citizen, unless the insured intended
suicide when this certificate or any increase in face amount
was applied for.
Annual Report Each year a report will be sent to you which shows the
current certificate values, premiums paid and deductions
made since the last report, and any outstanding certificate
loans.
Projection of You may make a written request to us for a projection of
Benefits and illustrative future cash values and death benefits. This
Values projection will be furnished to you for a nominal fee.
8. SEPARATE ACCOUNT PROVISIONS
Separate Account The variable benefits under this certificate are provided
through investments in the Separate Account. This account is
used for flexible premium variable life insurance policies
and, if permitted by law, may be used for other policies or
contracts as well.
We hold the assets of the Separate Account. These assets are
held separately from the Company's general assets. Income,
gains and losses --- whether or not realized --- from assets
allocated to the Separate Account will be credited to or
charged against the account without regard to our other
income, gains or losses.
Assets held by the Separate Account will not be charged
with liabilities that arise from any other business we may
conduct. We have the right to transfer to the Company's
general assets any assets of the Separate Account which are
in excess of the reserves and other policy liabilities of
the Separate Account.
The Separate Account is registered with the Securities and
Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. The Separate Account is also
subject to the laws of the State of Missouri, which regulate
the operations of insurance companies incorporated in
Missouri. The investment policy of the Separate Account will
not be changed without the approval of the Insurance
Commissioner of the State of Missouri. The approval process
is on file with the Insurance Commissioner of the state in
which the contract was delivered.
6.03
<PAGE>
Divisions The Separate Account has several Divisions which are shown
on the certificate specifications page. The Separate Account
will buy shares in the Funds identified on the certificate
specifications page. Each Fund corresponds to a different
investment portfolio.
Income, gains and losses --- whether or not realized---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 in other Divisions of the
Separate Account.
We will value the assets of each Division of the Separate
Account at the end of each valuation period. 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. New York time) on the next
succeeding valuation date. A valuation date is each day that
the New York Stock Exchange and our home office are open for
business or any other day that may be required by any
applicable Securities and Exchange Commission Rules and
Regulations.
Transfers You may transfer amounts among the Divisions of the Separate
Account.
These transfers will be subject to the following conditions:
- We must receive a written request for transfer.
- Transfers from or among the Divisions of the Separate
Account may be made at any time and must be at least
$250.00 or the entire amount you have in a Division, if
smaller.
We may modify the transfer privilege at any time, including
the minimum amount transferable, the frequency, and the
transfer charge, if any.
Addition, Deletion We reserve the right, subject to compliance with applicable
or Substitution law, to make additions to, deletions from, or substitutions
of Investments for the shares of a fund that are held by the Separate
Account or that the Separate Account may purchase. We
reserve the right to eliminate the shares of any of the
Funds and to substitute shares of another fund or of another
registered open-end, investment company, if the shares or
funds are no longer available for investment or if in our
judgement, further investment in any fund should become
inappropriate in view of the purpose of the policy or
contract. We will not substitute any shares attributable to
the owner's interest in a Division of the Separate Account
without notice to the owner and prior approval of the
Securities and Exchange Commission, to the extent required
by the Investment Company Act of 1940. This will not prevent
the Separate Account from purchasing other securities for
other series or classes of policies, or from permitting
conversion between series or classes of policies or
contracts on the basis of requests made by owners.
We reserve the right to establish additional Divisions of
the Separate Account, each of which would invest in a new
fund or in shares of another open-end investment company and
to make such Divisions available to such class or series of
policies as we deem appropriate. Subject to any required
regulatory approval, we also reserve the right to eliminate
or combine existing Divisions of the Separate Account or to
transfer assets between Divisions.
Subject to obtaining any necessary regulatory or owner
approval, the Separate Account may be operated as a
management company under the Investment Company Act of 1940;
it may be deregistered under that Act in the event
registration is no longer required; it may be combined with
other separate accounts; or its assets may be transferred to
other separate accounts.
6.04
<PAGE>
9. PAYMENT OF BENEFITS
Payment Payment will be made as provided on the face page.
If a beneficiary entitled to proceeds dies after the
insured, and
1. no settlement option elected by you is in effect, and
2. the deceased beneficiary has not chosen an option or
requested the proceeds in cash, his or her proceeds
will be paid as though he or she died before the
insured.
Interest on We will pay interest on single sum proceeds from the date of
Proceeds the insured's death to the date of payment. Interest will be
at an annual rate determined by us, but never less than the
Guaranteed Settlement Option rate.
Election of Prior to the maturity of the certificate, you may choose a
Settlement Options settlement option. Upon the death of the insured, the
proceeds will be placed under the settlement option chosen.
You may change or revoke an option during the lifetime of
the insured. After the maturity of the certificate, a person
entitled to receive payment in one sum may choose an option
for his or her benefit, if you have not already done so.
With our consent, an option may be chosen for the benefit of
another payee.
For you to choose an option, we must receive your written
request at our home office prior to the insured's death. If
the request is satisfactory to us, we will issue a written
agreement showing the option you elected. The effective date
of the election will be the date of the request, the
certificate date, or the date the person who is making the
election signed the agreement, whichever is the latest.
The Settlement Options are described below.
Settlement Options (See Settlement Option Tables at the end of this section.)
Upon the maturity of the certificate or upon death of the
insured, the proceeds may be placed under any of the
following options:
Option A. Life Income.
We will pay equal monthly installments as long as
the payee lives.
Option B. Life Income for Two Lives.
We will pay monthly installments jointly to two
named payees if both are living when the
installments become payable. One payee will be
designated as primary payee. Full installments
will continue so long as the primary payee is
living. If the primary payee dies after
installments begin, full installments or
installments of 1/2 or 2/3, (whichever you elected
when applying for this option) will continue to
the other payee during his or her lifetime.
Option C. Income for Specified Number of Years and Life
Thereafter.
We will pay monthly installments beginning on the
effective date of the option and continuing for 5,
10, 15 or 20 years certain, as may be chosen, and
after that, during the payee's lifetime.
Option D. Life Income With Cash Refund.
We will pay monthly installments as long as the
payee lives. If the payee dies before the total
amounts paid equal the proceeds applied, we pay
the difference in one sum.
Option E. Installments of a Specified Amount.
We will pay installments at dates and in amounts
chosen by the owner at the time of option request
with our approval. We will continue to make
payments until all of the proceeds, with interest,
are paid. The final payment will not exceed the
unpaid balance.
Option F. Income for Specified Number of Years.
We will pay monthly installments beginning on the
effective date of the option and continuing for a
specified number of years, not to exceed 30 years.
7.01
<PAGE>
Option G. Interest.
We will hold the proceeds on deposit during the
payee's lifetime or for any other period selected
with our approval. Interest may be accumulated or
received in monthly, quarterly, semiannual, or
annual payments, as may be chosen. Interest begins
to accrue as of the effective date of the option.
Payee A person who receives benefits under an option is a payee.
Except for a legal guardian, a payee must be a natural
person receiving benefits in his or her own right. With our
consent, the payee may be a trustee, assignee, corporation,
or partnership.
Guaranteed We use a guaranteed effective annual rate of 4% in computing
Settlement Option payments under all options. We may pay interest in excess of
Interest Rate this amount.
Minimum Amounts The minimum amount that can be placed under an option and
(for each payee) the minimum amount of any payments under an option will be
based on our rules at the time the option is to become
effective.
The required minimum amount to be placed under an option
will never be more than $5,000, nor shall the minimum amount
of any payment be set at more than $50 per month.
Life Income Life Income Options are based on the payee's age nearest
Options birthday on the settlement option effective date. We have
the right to require satisfactory proof of age. f the age
has been incorrectly stated, the proper adjustment in
payments will be made. We may also require proof that the
payee is living on any payment due date.
Death of Payee If a payee dies, any amount still payable under an option
will be paid as it becomes due surviving or next succeeding
payee. If no designated payee survives, any amount payable
in one sum, or the commuted value of any unpaid
installments, will be paid in one sum to the estate of the
last payee to die.
First Payment We will make the first payment under an option other than
Option G as of the option effective date. We will pay
interest under Option G at the end of each period selected
for payment.
Rights Under No payee has the right to make any change in the provisions
Settlement Options of the settlement option agreement or to receive the
proceeds in any manner other than that stated in the
settlement option agreement, unless such right was reserved
in the settlement option agreement. The right may be
reserved to the payee to withdraw all or part of any amount
held under Options G and E, including any interest, or the
commuted value of any unpaid installments under Option F. We
will not make any payments in advance, nor commute
installments under any life income option. Under a partial
withdrawal right, the number of withdrawals allowed per year
and the minimum amount of each withdrawal shall be
determined by our rules in effect at the time of the request
for a partial withdrawal, unless otherwise specified in the
agreement.
Basis of Commutation of installments will be at the effective annual
Commutation rate of 4% compounded annually.
7.02
<PAGE>
Contingent Payee The payee may name contingent payees, subject to any
restrictions under a settlement option chosen during the
insured's lifetime, under the following conditions:
1. If you are the payee; or
2. If the payee has the right to withdraw the entire
amount under the option, even though contingent payees
may have been previously named; or
3. If at any time after the insured's death and during the
option period no previously named contingent payee is
living.
Designations made by the payee under these provisions may be
changed by the payee. Such changes must be made by written
request satisfactory to us. Changes will only take effect
when we accept them in writing at our home office. At that
time, the contingent interest of any other person is
terminated as of the date the payee signed the request,
whether or not the payee is living when we receive the
request.
Extended Provisions for settlement of proceeds different from those
Provisions stated in this certificate may only be made upon written
agreement with us.
Company Liability We will be fully discharged by any payment we make when a
written request for an election, change, or revocation is
made and is received in our home office.
7.03
<PAGE>
SETTLEMENT OPTION TABLES
<TABLE>
<CAPTION>
FOR EACH $1,000
- -----------------------------------------------------------------------------------------------------------------------------------
OPTION A - LIFE INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
MONTHLY MONTHLY MONTHLY MONTHLY
AGE OF PAYEE INSTALLMENTS AGE OF PAYEE INSTALLMENTS AGE OF PAYEE INSTALLMENTS AGE OF PAYEE INSTALLMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
15 $3.58 35 $3.99 55 $5.09
16 3.59 36 4.02 56 5.17 75 $ 8.30
17 3.61 37 4.05 57 5.27 76 8.60
18 3.62 38 4.09 58 5.36 77 8.93
19 3.63 39 4.13 59 5.46 78 9.28
- -----------------------------------------------------------------------------------------------------------------------------------
20 3.65 40 4.16 60 5.57 79 9.67
21 3.67 41 4.21 61 5.68 80 10.08
22 3.68 42 4.25 62 5.80 81 10.53
23 3.70 43 4.30 63 5.93 82 11.02
24 3.72 44 4.35 64 6.06 83 11.54
- -----------------------------------------------------------------------------------------------------------------------------------
25 3.74 45 4.40 65 6.20 84 12.11
26 3.76 46 4.45 66 6.35 85 AND 12.73
27 3.78 47 4.51 67 6.51 OVER
28 3.80 48 4.57 68 6.69
29 3.82 49 4.63 69 6.87
- -----------------------------------------------------------------------------------------------------------------------------------
30 3.85 50 4.70 70 7.07
31 3.87 51 4.77 71 7.28
32 3.90 52 4.84 72 7.51
33 3.93 53 4.92 73 7.75
34 3.95 54 5.00 74 8.01
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
OPTION B-MONTHLY INSTALLMENTS-JOINT AND ONE-HALF TO SECONDARY PAYEE
- -----------------------------------------------------------------------------------------------------------------------------------
AGE OF
PRIMARY AGE OF SECONDARY PAYEE **
PAYEE**
- ------------------------------------------------------------------------------------------------------------------------------------
45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 $4.64 $4.66 $4.68 $4.70 $4.72 $4.74 $4.75 $4.77 $4.78 $4.79 $4.80 $4.81 $4.82 $4.83 $4.83 $4.84 $4.85 $4.85 $4.86 $4.86 $4.87
56 4.68 4.71 4.73 4.75 4.77 4.79 4.81 4.83 4.84 4.85 4.87 4.88 4.89 4.90 4.90 4.91 4.92 4.93 4.93 4.94 4.94
57 4.73 4.75 4.78 4.80 4.82 4.84 4.87 4.88 4.90 4.92 4.93 4.95 4.96 4.97 4.98 4.99 5.00 5.00 5.01 5.02 5.02
58 4.77 4.80 4.82 4.85 4.87 4.90 4.92 4.94 4.96 4.98 5.00 5.01 5.03 5.04 5.05 5.06 5.07 5.08 5.09 5.10 5.11
59 4.81 4.84 4.87 4.90 4.93 4.95 4.98 5.00 5.02 5.05 5.07 5.08 5.10 5.12 5.13 5.14 5.15 5.17 5.18 5.18 5.19
- ------------------------------------------------------------------------------------------------------------------------------------
60 4.86 4.89 4.92 4.95 4.98 5.01 5.04 5.06 5.09 5.11 5.13 5.15 5.17 5.19 5.21 5.22 5.24 5.25 5.26 5.27 5.28
61 4.90 4.94 4.97 5.00 5.03 5.06 5.09 5.12 5.15 5.18 5.20 5.23 5.25 5.27 5.29 5.31 5.32 5.34 5.35 5.36 5.38
62 4.95 4.98 5.02 5.05 5.09 5.12 5.15 5.18 5.21 5.24 5.27 5.30 5.32 5,35 5.37 5.39 5.41 5.43 5.44 5.46 5.47
63 5.00 5.03 5.07 5.11 5.14 5.18 5.21 5.24 5.28 5.31 5.34 5.37 5.40 5.43 5.45 5.48 5.50 5.52 5.54 5.55 5.57
64 5.05 5.09 5.12 5.16 5.20 5.23 5.27 5.31 5.34 5.38 5.41 5.45 5.48 5.51 5.54 5.56 5.59 5.61 5.63 5.65 5.67
- ------------------------------------------------------------------------------------------------------------------------------------
65 5.10 5.14 5.18 5.21 5.25 5.29 5.33 5.37 5.41 5.45 5.48 5.52 5.56 5.59 5.62 5.65 5.68 5.71 5.73 5.76 5.78
66 5.15 5.19 5.23 5.27 5.31 5.35 5.40 5.44 5.48 5.52 5.56 5.60 5.64 5.67 5.71 5.74 5.78 5.81 5.84 5.86 5.89
67 5.21 5.25 5.29 5.33 5.37 5.42 5.46 5.50 5.55 5.59 5.63 5.68 5.72 5.76 5.80 5.84 5.87 5.91 5.94 5.97 6.00
68 5.27 5.31 5.35 5.39 5.44 5.48 5.53 5.57 5.62 5.67 5.71 5.76 5.80 5.85 5.89 5.93 5.97 6.01 6.05 6.08 6.12
69 5.33 5.37 5.41 5.46 5.50 5.55 5.60 5.65 5.69 5.74 5.79 5.84 5.89 5.94 5.98 6.03 6.07 6.12 6.16 6.20 6.24
- ------------------------------------------------------------------------------------------------------------------------------------
70 5.39 5.43 5.48 5.52 5.57 5.62 5.67 5.72 5.77 5.82 5.87 5.92 5.98 6.03 6.08 6.13 6.18 6.23 6.27 6.32 6.36
71 5.45 5.50 5.55 5.59 5.64 5.69 5.74 5.80 5.85 5.90 5.96 6.01 6.07 6.12 6.18 6.23 6.28 6.34 6.39 6.44 6.49
72 5.52 5.57 5.62 5.67 5.72 5.77 5.82 5.87 5.93 5.99 6.04 6.10 6.16 6.22 6.28 6.33 6.39 6.45 6.51 6.56 6.62
73 5.59 5.64 5.69 5.74 5.79 5.85 5.90 5.96 6.01 6.07 6.13 6.19 6.25 6.32 6.38 6.44 6.50 6.57 6.63 6.69 6.75
74 5.66 5.71 5.76 5.82 5.87 5.92 5.98 6.04 6.10 6.16 6.22 6.29 6.35 6.42 6.48 6.55 6.62 6.68 6.75 6.82 6.89
- ------------------------------------------------------------------------------------------------------------------------------------
75 5.74 5.79 5.84 5.89 5.95 6.01 6.07 6.13 6.19 6.25 6.32 6.38 6.45 6.52 6.59 6.66 6.73 6.81 6.88 6.95 7.02
76 5.81 5.86 5.92 5.97 6.03 6.09 6.15 6.22 6.28 6.35 6.41 6.48 6.55 6.63 6.70 6.77 6.85 6.93 7.01 7.08 7.17
77 5.89 5.94 6.00 6.06 6.12 6.18 6.24 6.31 6.37 6.44 6.51 6.58 6.66 6.73 6.81 6.89 6.97 7.05 7.14 7.22 7.31
78 5.97 6.03 6.08 6.14 6.20 6.27 6.33 6.40 6.47 6.54 6.61 6.69 6.77 6.85 6.93 7.01 7.10 7.18 7.27 7.36 7.46
79 6.05 6.11 6.17 6.23 6.29 6.36 6.43 6.50 6.57 6.64 6.72 6.80 6.88 6.96 7.04 7.13 7.22 7.32 7.41 7.51 7.61
- ------------------------------------------------------------------------------------------------------------------------------------
80 6.14 6.20 6.26 6.32 6.39 6.45 6.52 6.60 6.67 6.75 6.82 6.91 6.99 7.08 7.17 7.26 7.35 7.45 7.55 7.65 7.76
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
** FOR ADDITIONAL AGE COMBINATIONS, THE PROPER RATES WILL BE PROVIDED UPON
REQUEST TO THE HOME OFFICE.
7.04
<PAGE>
SETTLEMENT OPTION TABLES-CONTINUED
<TABLE>
<CAPTION>
FOR EACH $1,000
- ------------------------------------------------------------------------------------------------------------------------------------
OPTION B-MONTHLY INSTALLMENTS-JOINT AND TWO-THIRDS TO SECONDARY PAYEE
- ------------------------------------------------------------------------------------------------------------------------------------
AGE OF PRIMARY AGE OF SECONDARY PAYEE **
PAYEE**
- ------------------------------------------------------------------------------------------------------------------------------------
45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 $4.51 $4.54 $4.56 $4.59 $4.61 $4.63 $4.65 $4.67 $4.69 $4.70 $4.71 $4.73 $4.74 $4.75 $4.75 $4.76 $4.77 $4.78 $4.78 $4.79 $4.80
56 4.54 4.57 4.60 4.63 4.65 4.68 4.70 4.72 4.74 4.76 4.77 4.79 4.80 4.81 4.82 4.83 4.84 4.85 4.86 4.86 4.87
57 4.57 4.60 4.63 4.66 4.69 4.72 4.74 4.77 4.79 4.81 4.83 4.85 4.86 4.88 4.89 4.90 4.91 4.92 4.93 4.94 4.95
58 4.60 4.63 4.67 4.70 4.73 4.76 4.79 4.82 4.84 4.87 4.89 4.91 4.93 4.94 4.96 4.97 4.98 5.00 5.01 5.02 5.03
59 4.63 4.67 4.70 4.74 4.77 4.80 4.83 4.86 4.89 4.92 4.94 4.97 4.99 5.01 5.03 5.04 5.06 5.07 5.09 5.10 5.11
- ------------------------------------------------------------------------------------------------------------------------------------
60 4.66 4.70 4.74 4.77 4.81 4.84 4.88 4.91 4.94 4.97 5.00 5.03 5.05 5.08 5.10 5.12 5.13 5.15 5.17 5.18 5.19
61 4.69 4.73 4.77 4.81 4.85 4.88 4.92 4.96 4.99 5.03 5.06 5.09 5.12 5.14 5.17 5.19 5.21 5.23 5.25 5.26 5.28
62 4.72 4.76 4.80 4.84 4.88 4.93 4.97 5.00 5.04 5.08 5.11 5.15 5.18 5.21 5.24 5.26 5.29 5.31 5.33 5.35 5.37
63 4.75 4.79 4.84 4.88 4.92 4.97 5.01 5.05 5.09 5.13 5.17 5.21 5.24 5.28 5.31 5.34 5.37 5.39 5.42 5.44 5.46
64 4.78 4.83 4.87 4.92 4.96 5.01 5.05 5.10 5.14 5.18 5.23 5.27 5.31 5.34 5.38 5.41 5.45 5.48 5.50 5.53 5.55
- ------------------------------------------------------------------------------------------------------------------------------------
65 4.81 4.86 4.91 4.95 5.00 5.05 5.09 5.14 5.19 5.23 5.28 5.33 5.37 5.41 5.45 5.49 5.53 5.56 5.59 5.62 5.65
66 4.85 4.89 4.94 4.99 5.04 5.09 5.14 5.19 5.24 5.29 5.34 5.38 5.43 5.48 5.52 5.56 5.61 5.64 5.68 5.72 5.75
67 4.88 4.93 4.98 5.03 5.08 5.13 5.18 5.23 5.29 5.34 5.39 5.44 5.49 5.54 5.59 5.64 5.69 5.73 5.77 5.81 5.85
68 4.92 4.97 5.02 5.07 5.12 5.17 5.23 5.28 5.34 5.39 5.45 5.50 5.56 5.61 5.66 5.72 5.77 5.82 5.86 5.91 5.95
69 4.96 5.00 5.06 5.11 5.16 5.22 5.27 5.33 5.39 5.44 5.50 5.56 5.62 5.68 5.74 5.79 5.85 5.90 5.95 6.00 6.05
- ------------------------------------------------------------------------------------------------------------------------------------
70 4.99 5.04 5.10 5.15 5.20 5.26 5.32 5.38 5.44 5.50 5.56 5.62 5.68 5.74 5.81 5.87 5.93 5.99 6.05 6.10 6.16
71 5.03 5.08 5.14 5.19 5.25 5.31 5.37 5.43 5.49 5.55 5.62 5.68 5.75 5.81 5.88 5.94 6.01 6.07 6.14 6.20 6.26
72 5.07 5.13 5.18 5.24 5.29 5.35 5.42 5.48 5.54 5.61 5.67 5.74 5.81 5.88 5.95 6.02 6.09 6.16 6.23 6.30 6.37
73 5.11 5.17 5.22 5.28 5.34 5.40 5.47 5.53 5.60 5.66 5.73 5.80 5.87 5.95 6.02 6.10 6.17 6.25 6.32 6.40 6.47
74 5.16 5.21 5.27 5.33 5.39 5.45 5.52 5.58 5.65 5.72 5.79 5.86 5.94 6.02 6.09 6.17 6.25 6.33 6.42 6.50 6.58
- ------------------------------------------------------------------------------------------------------------------------------------
75 5.20 5.26 5.31 5.37 5.44 5.50 5.57 5.64 5.71 5.78 5.85 5.93 6.01 6.08 6.17 6.25 6.33 6.42 6.51 6.60 6.68
76 5.24 5.30 5.36 5.42 5.49 5.55 5.62 5.69 5.76 5.84 5.91 5.99 6.07 6.15 6.24 6.33 6.42 6.51 6.60 6.69 6.79
77 5.29 5.35 5.41 5.47 5.54 5.60 5.67 5.74 5.82 5.89 5.97 6.05 6.14 6.22 6.31 6.40 6.50 6.59 6.69 6.79 6.89
78 5.34 5.40 5.46 5.52 5.59 5.66 5.73 5.80 5.88 5.95 6.03 6.12 6.20 6.29 6.39 6.48 6.58 6.68 6.78 6.89 7.00
79 5.38 5.44 5.51 5.57 5.64 5.71 5.78 5.86 5.93 6.01 6.10 6.18 6.27 6.36 6.46 6.56 6.66 6.77 6.88 6.99 7.10
- ------------------------------------------------------------------------------------------------------------------------------------
80 5.43 5.49 5.56 5.62 5.69 5.76 5.84 5.91 5.99 6.08 6.16 6.25 6.34 6.44 6.53 6.64 6.74 6.85 6.97 7.09 7.21
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OPTION B-MONTHLY INSTALLMENTS-JOINT AND EQUAL TO SECONDARY PAYEE
- ------------------------------------------------------------------------------------------------------------------------------------
AGE OF PRIMARY AGE OF SECONDARY PAYEE **
PAYEE**
- ------------------------------------------------------------------------------------------------------------------------------------
50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.27 $4.28 $4.29 $4.30 $4.30 $4.31 $4.31 $4.32 $4.32 $4.33 $4.33 $4.33 $4.34 $4.34 $4.35 $4.35 $4.36 $4.37 $4.37 $4.38 $4.38
51 4.28 4.32 4.33 4.34 4.35 4.36 4.36 4.37 4.37 4.38 4.38 4.39 4.40 4.40 4.41 4.41 4.42 4.42 4.43 4.44 4.44
52 4.29 4.33 4.37 4.38 4.39 4.40 4.41 4.42 4.43 4.43 4.44 4.45 4.45 4.46 4.47 4.47 4.48 4.49 4.49 4.50 4.51
53 4.30 4.34 4.38 4.43 4.44 4.45 4.46 4.47 4.48 4.49 4.50 4.51 4.51 4.52 4.53 4.53 4.54 4.55 4.56 4.56 4.57
54 4.30 4.35 4.39 4.44 4.49 4.50 4.51 4.53 4.54 4.55 4.56 4.57 4.57 4.58 4.59 4.60 4.61 4.62 4.62 4.63 4.64
- ------------------------------------------------------------------------------------------------------------------------------------
55 4.31 4.36 4.40 4.45 4.50 4.55 4.56 4.58 4.59 4.60 4.62 4.63 4.64 4.65 4.66 4.67 4.67 4.68 4.69 4.70 4.71
56 4.31 4.36 4.41 4.46 4.51 4.56 4.61 4.63 4.65 4.66 4.68 4.69 4.70 4.71 4.72 4.73 4.74 4.75 4.76 4.77 4.78
57 4.32 4.37 4.42 4.47 4.53 4.58 4.63 4.68 4.70 4.72 4.74 4.75 4.77 4.78 4.79 4.80 4.81 4.83 4.84 4.85 4.86
58 4.32 4.37 4.43 4.48 4.54 4.59 4.65 4.70 4.76 4.78 4.80 4.81 4.83 4.85 4.86 4.88 4.89 4.90 4.91 4.92 4.93
59 4.33 4.38 4.43 4.49 4.55 4.60 4.66 4.72 4.78 4.83 4.86 4.88 4.90 4.92 4.93 4.95 4.96 4.98 4.99 5.00 5.02
- ------------------------------------------------------------------------------------------------------------------------------------
60 4.33 4.38 4.44 4.50 4.56 4.62 4.68 4.74 4.80 4.86 4.92 4.94 4.96 4.98 5.00 5.02 5.04 5.06 5.07 5.09 5.10
61 4.33 4.39 4.45 4.51 4.57 4.63 4.69 4.75 4.81 4.88 4.94 5.00 5.03 5.05 5.08 5.10 5.12 5.14 5.16 5.17 5.19
62 4.34 4.40 4.45 4.51 4.57 4.64 4.70 4.77 4.83 4.90 4.96 5.03 5.10 5.12 5.15 5.18 5.20 5.22 5.24 5.26 5.28
63 4.34 4.40 4.46 4.52 4.58 4.65 4.71 4.78 4.85 4.92 4.98 5.05 5.12 5.19 5.22 5.25 5.28 5.31 5.33 5.35 5.37
64 4.35 4.41 4.47 4.53 4.59 4.66 4.72 4.79 4.86 4.93 5.00 5.08 5.15 5.22 5.30 5.33 5.36 5.39 5.42 5.44 5.47
- ------------------------------------------------------------------------------------------------------------------------------------
65 4.35 4.41 4.47 4.53 4.60 4.67 4.73 4.80 4.88 4.95 5.02 5.10 5.18 5.25 5.33 5.41 5.45 5.48 5.51 5.54 5.56
66 4.36 4.42 4.48 4.54 4.61 4.67 4.74 4.81 4.89 4.96 5.04 5.12 5.20 5.28 5.36 5.45 5.53 5.57 5.60 5.64 5.67
67 4.37 4.42 4.49 4.55 4.62 4.68 4.75 4.83 4.90 4.98 5.06 5.14 5.22 5.31 5.39 5.48 5.57 5.66 5.70 5.73 5.77
68 4.37 4.43 4.49 4.56 4.62 4.69 4.76 4.84 4.91 4.99 5.07 5.16 5.24 5.33 5.42 5.51 5.60 5.70 5.79 5.83 5.87
69 4.38 4.44 4.50 4.56 4.63 4.70 4.77 4.85 4.92 5.00 5.09 5.17 5.26 5.35 5.44 5.54 5.64 5.73 5.83 5.94 5.98
- ------------------------------------------------------------------------------------------------------------------------------------
70 4.38 4.44 4.51 4.57 4.64 4.71 4.78 4.86 4.93 5.02 5.10 5.19 5.28 5.37 5.47 5.56 5.67 5.77 5.87 5.98 6.09
71 4.39 4.45 4.51 4.58 4.65 4.72 4.79 4.87 4.94 5.03 5.11 5.20 5.29 5.39 5.49 5.59 5.69 5.80 5.91 6.03 6.14
72 4.39 4.45 4.52 4.58 4.65 4.72 4.80 4.87 4.95 5.04 5.12 5.21 5.31 5.40 5.51 5.61 5.72 5.83 5.95 6.07 6.19
73 4.40 4.46 4.52 4.59 4.66 4.73 4.81 4.88 4.96 5.05 5.14 5.23 5.32 5.42 5.52 5.63 5.74 5.86 5.98 6.10 6.23
74 4.41 4.47 4.53 4.60 4.67 4.74 4.81 4.89 4.97 5.06 5.15 5.24 5.34 5.44 5.54 5.65 5.77 5.88 6.01 6.14 6.27
- ------------------------------------------------------------------------------------------------------------------------------------
75 4.41 4.47 4.54 4.60 4.67 4.75 4.82 4.90 4.98 5.07 5.16 5.25 5.35 5.45 5.56 5.67 5.79 5.91 6.04 6.17 6.31
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
** FOR ADDITIONAL AGE COMBINATIONS, THE PROPER RATES WILL BE PROVIDED UPON
REQUEST TO THE HOME OFFICE.
7.05
<PAGE>
SETTLEMENT OPTION TABLES-CONTINUED
<TABLE>
<CAPTION>
FOR EACH $1,000
- -----------------------------------------------------------------------------------------------------------------------------
OPTION C-MONTHLY INSTALLMENTS CERTAIN AND LIFE THEREAFTER
- -----------------------------------------------------------------------------------------------------------------------------
MONTHLY INSTALLMENTS MONTHLY INSTALLMENTS MONTHLY INSTALLMENTS
AGE OF -------------------------- AGE OF -------------------------- AGE OF --------------------------
PAYEE NUMBER OF YEARS CERTAIN PAYEE NUMBER OF YEARS CERTAIN PAYEE NUMBER OF YEARS CERTAIN
- -----------------------------------------------------------------------------------------------------------------------------
5 10 15 20 5 10 15 20 5 10 15 20
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 $3.58 $3.58 $3.58 $3.57 40 $4.16 $4.15 $4.14 $4.11 65 $ 6.14 $5.96 $5.69 $5.36
16 3.59 3.59 3.59 3.58 41 4.20 4.19 4.18 4.15 66 6.28 6.08 5.78 5.42
17 3.61 3.60 3.60 3.60 42 4.25 4.24 4.22 4.18 67 6.43 6.21 5.87 5.48
18 3.62 3.62 3.61 3.61 43 4.29 4.28 4.26 4.22 68 6.59 6.34 5.97 5.53
19 3.63 3.63 3.63 3.62 44 4.34 4.33 4.30 4.26 69 6.77 6.48 6.06 5.58
- -----------------------------------------------------------------------------------------------------------------------------
20 3.65 3.65 3.64 3.64 45 4.39 4.38 4.35 4.30 70 6.95 6.62 6.16 5.64
21 3.66 3.66 3.66 3.65 46 4.45 4.43 4.40 4.34 71 7.14 6.77 6.25 5.69
22 3.68 3.68 3.68 3.67 47 4.50 4.48 4.44 4.39 72 7.35 6.93 6.35 5.73
23 3.70 3.70 3.69 3.69 48 4.56 4.54 4.50 4.43 73 7.57 7.09 6.44 5.77
24 3.72 3.71 3.71 3.70 49 4.63 4.60 4.55 4.48 74 7.81 7.26 6.54 5.81
- -----------------------------------------------------------------------------------------------------------------------------
25 3.74 3.73 3.73 3.72 50 4.69 4.66 4.60 4.53 75 8.05 7.43 6.63 5.85
26 3.76 3.75 3.75 3.74 51 4.76 4.72 4.66 4.57 76 8.32 7.60 6.72 5.88
27 3.78 3.77 3.77 3.76 52 4.83 4.79 4.72 4.62 77 8.60 7.78 6.80 5.91
28 3.80 3.79 3.79 3.78 53 4.91 4.86 4.78 4.67 78 8.90 7.96 6.88 5.93
29 3.82 3.82 3.81 3.80 54 4.98 4.93 4.84 4.73 79 9.21 8.14 6.95 5.95
- -----------------------------------------------------------------------------------------------------------------------------
30 3.84 3.84 3.84 3.83 55 5.07 5.01 4.91 4.78 80 9.55 8.32 7.02 5.96
31 3.87 3.87 3.86 3.85 56 5.15 5.08 4.98 4.84 81 9.90 8.50 7.08 5.98
32 3.90 3.89 3.89 3.88 57 5.24 5.17 5.05 4.89 82 10.27 8.67 7.13 5.98
33 3.92 3.92 3.91 3.90 58 5.33 5.25 5.12 4.95 83 10.66 8.84 7.18 5.99
34 3.95 3.95 3.94 3.93 59 5.43 5.34 5.19 5.01 84 11.06 9.01 7.22 5.99
- -----------------------------------------------------------------------------------------------------------------------------
35 3.98 3.98 3.97 3.96 60 5.54 5.43 5.27 5.06 85 & 11.48 9.16 7.25 6.00
36 4.02 4.01 4.00 3.98 61 5.64 5.53 5.35 5.12 OVER
37 4.05 4.04 4.03 4.02 62 5.76 5.63 5.43 5.18
38 4.09 4.08 4.07 4.05 63 5.88 5.73 5.51 5.24
39 4.12 4.12 4.10 4.08 64 6.00 5.84 5.60 5.30
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------- -------------------------------
OPTION F
OPTION D-MONTHLY INSTALLMENTS-CASH REFUND INSTALLMENTS
CERTAIN
- -------------------------------------------------------------------------------------- -------------------------------
AGE OF MONTHLY AGE OF MONTHLY AGE OF MONTHLY YEARS MONTHLY
PAYEE INSTALLMENTS PAYEE INSTALLMENTS PAYEE INSTALLMENTS CERTAIN INSTALLMENTS
- -------------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
15 $3.57 45 $4.28 $6.71 1 $84.83
16 3.58 46 4.32 75 6.85 2 43.25
17 3.59 47 4.36 76 7.02 3 29.39
18 3.60 48 4.40 77 7.17 4 22.47
19 3.62 49 4.45 78 7.34 5 18.32
- -------------------------------------------------------------------------------------- -------------------------------
20 3.63 50 4.50 79 7.51 6 15.56
21 3.65 51 4.55 80 7.70 7 13.59
22 3.66 52 4.60 81 7.87 8 12.11
23 3.68 53 4.65 82 8.06 9 10.97
24 3.69 54 4.71 83 8.25 10 10.06
- -------------------------------------------------------------------------------------- -------------------------------
25 3.71 55 4.77 84 8.46 11 9.31
26 3.73 56 4.83 85 & 12 8.69
27 3.75 57 4.89 OVER 13 8.17
28 3.77 58 4.96 14 7.72
29 3.79 59 5.03 15 7.34
- -------------------------------------------------------------------------------------- -------------------------------
30 3.81 60 5.10 16 7.00
31 3.84 61 5.18 17 6.70
32 3.86 62 5.26 18 6.44
33 3.89 63 5.34 19 6.21
34 3.91 64 5.43 20 6.00
- -------------------------------------------------------------------------------------- -------------------------------
35 3.94 65 5.52 21 5.81
36 3.97 66 5.62 22 5.64
37 4.00 67 5.72 23 5.49
38 4.03 68 5.82 24 5.35
39 4.06 69 5.93 25 5.22
- -------------------------------------------------------------------------------------- -------------------------------
40 4.09 70 6.05 26 5.10
41 4.12 71 6.17 27 4.99
42 4.16 72 6.30 28 4.89
43 4.20 73 6.43 29 4.80
44 4.24 74 6.57 30 4.72
- -------------------------------------------------------------------------------------- -------------------------------
</TABLE>
7.06
<PAGE>
Exhibit 4
FORM OF APPLICATION (10919)
<PAGE>
A MetLife/R/ Company
PARAGON
LIFE INSURANCE COMPANY
APPLICATION FOR
GROUP VARIABLE
UNIVERSAL LIFE WITH:
<TABLE>
<CAPTION>
<S> <C> <C>
Proposed Insured Soc. Sec. No. - - [ ] Male
- ---------------------------------------------------------------- --------------------------------------------
Last First MI Maiden
Mailing Address Date of Birth / / [ ] Female
- ---------------------------------------------------------------- --------------------------------------------
M D Y
- ----------------------------------------------------------------
City State Zip
Daytime phone ( ) Evening Phone ( )
- ---------------------------------------------------------------- --------------------------------------------
Owner
Owner Soc. Sec. No. - - [ ] Male
- ---------------------------------------------------------------- --------------------------------------------
Last First MI
Mailing Address Date of Birth / / [ ] Female
- ---------------------------------------------------------------- --------------------------------------------
Contingent M D Y
Owner
- ---------------------------------------------------------------- --------------------------------------------
City State Zip Last First MI
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
GROUP AMERICAN PLUS Insurance Applied For: Beneficiary:
Amount of Insurance Premium --------------------------------------------
Relationship:
--------------------------------------------
- --------------------- ------------
Contingent Beneficiary:
--------------------------------------------
Frequency
[ ] Level [ ] Increasing Monthly Relationship:
--------------- --------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Net Premium Allocation (0 or minimum of 10%. Percentages must be in whole numbers.)
[ ] Global Growth Fund............................................................... _____________%
[ ] Growth Fund...................................................................... _____________%
[ ] International Fund............................................................... _____________%
[ ] Growth-Income Fund............................................................... _____________%
[ ] Asset Allocation Fund............................................................ _____________%
[ ] Bond Fund........................................................................ _____________%
[ ] High-Yield Bond Fund............................................................. _____________%
[ ] U.S. Government/AAA-Rated Securities Fund........................................ _____________%
[ ] Cash Management Fund............................................................. _____________%
[ ] Global Small Capitalization Fund................................................. _____________%
T o t a l 100 %
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Additional Information:
a. Have you received a prospectus for the insurance applied for? [ ] Yes [ ] No
Date of Prospectus: Date of any supplement: / / .
----------------------------------------------------------------------------------------------
b. Do you understand that:
(i) the death benefit and cash surrender value will increase or decrease depending on
the investment experience, and
(ii) there is no guaranteed cash surrender value? [ ] Yes [ ] No
c. Do you believe that the insurance applied for meets your insurance objectives and your
anticipated financial needs? [ ] Yes [ ] No
</TABLE>
1
<PAGE>
- -------------------------------------------------------------------------------
Health Questions (Proposed Insured must complete.)
(Please give details to "Yes" answers in Remarks section)
- ---------------------------------------------
If applying for coverage in excess of
$500,000, also complete Application Part II.
- ---------------------------------------------
1. Have you ever had or been advised to have surgery, or diagnosis or
treatment for diabetes, heart disease or disorder, stroke or kidneys,
respiratory or nervous system disorder, cancer, high blood pressure, or
tumor?
[_] Yes [_] No
2. Have you been hospitalized at any time during the last five years?
[_] Yes [_] No
3. Have you received treatment or joined an organization because of alcohol
or drug use or been medically advised to do so?
[_] Yes [_] No
4. Have you ever had or been treated or diagnosed by a member of the
medical profession for AIDS (Acquired Immune Deficiency Syndrome) or ARC
(AIDS Related Complex)?
[_] Yes [_] No
5. Are you disabled and/or not performing all of the duties of your
occupation or profession?
[_] Yes [_] No
6. Height Weight
(Please explain any change in weight including lbs. in the past 12 mo.
in "Remarks"
- --------------------------------------------------------------------------------
Remarks: (Use separate piece of paper if additional space is needed)
- --------------------------------------------------------------------------------
Name & Question # Date Nature of Condition Duration Result
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Home Office Endorsement: (Home Office Use Only) Plan #
Date of Issue
- --------------------------------------------------------------------------------
Agreement
By signing this application, you (1) represent that your answers on this
application are true and complete to the best of your knowledge and b6mf; (2)
understand and agree that this application must be approved by Paragon Life
Insurance Company (3) understand that insurance is valid only if a Group Life
insurance certificate is issued during your lifetime and you remain insurable
until the date of issue shown on your certificate; (4) understand that this
application and any supplements thereto will be a part of the certificate, if
one is issued; (5) authorize the Group contractholder or its representatives to
remit insurance premiums to Paragon Life Insurance Company and (6) understand
that the Group contractholder and its employees will receive compensation for
this insurance.
Authorization to Obtain and Disclose Information
I authorize Paragon Life, its reinsures, employees, insurance support
organizations and their representatives to obtain information about me to
evaluate this application. This information may be about (1) age; (2) medical
history, condition and care; (3) physical and mental health; (4) income; (5)
other personal characteristics; and (6) other insurance. It includes the use of
alcohol, drugs and tobacco.
I authorize any licensed physician, medical practitioner, hospital, clinic, the
Veterans Administration or other medical or medically related facility, the
Medical Information Bureau, employer or other insurance company, that has any
records or knowledge of me or my health, to give to Paragon Life Insurance
company, or its reinsures, any such information on receipt of this
authorization. Paragon Life may release this information to its reinsurers, MIB,
Inc., or other insurance company to whom I've applied or to whom a claim has
been made. No other release may be made except as authorized by law, or unless I
further authorize such a release.
This form is valid for 30 months from the date it is signed. A photographic copy
is as valid as the original. I have the right to receive a copy of this upon
request. I acknowledge that I have received a copy of the Notice of Information
Practices.
Signature: X
---------------------- ------------------------------------------
Proposed Insured Applicant (if other than Proposed Insured)
Date:
- -------------------------
Month Day Year
- --------------------------------------------------------------------------------
I (we) hereby authorize A.G., Edwards & Sons, Inc. to Liquidate sufficient Money
Fund (CCA) shares form Account No. each month for the premium for this
coverage.
Account Owner(s) Signature X X
---------------------- ---------------------
(If Joint Account, X X
all parties must sign) ---------------------- ---------------------
- --------------------------------------------------------------------------------
10919 2
5/98
<PAGE>
Exhibit 5
ISSUE, TRANSFER, AND REDEMPTION MEMO
<PAGE>
PARAGON LIFE INSURANCE COMPANY
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES FOR
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
PURSUANT TO RULE 6e-3(T) (b) (12) (ii)
And
METHOD OF COMPUTING ADJUSTMENTS IN
PAYMENTS AND CASH VALUES UPON
CONVERSION TO FIXED BENEFIT POLICIES
Pursuant to Rule 6e-3(T) (b) (13) (v) (B)
This document sets forth the administrative procedures that will be
followed by Paragon Life Insurance Company (the "Company") in connection with
the issuance of Flexible Premium Variable Life Insurance Policies for use in
group insurance programs, the transfer of assets held thereunder, and the
redemption by Owners of their interests in such Policies. Certificates setting
forth or summarizing the rights and privileges of the Owners and/or Insureds,
will be issued under the Group Contract. The Certificates are collectively
referred to as "Policy" or "Policies". This document also explains the method
that the Company will follow in making a cash adjustment when a Policy is
exchanged for a fixed benefit insurance policy pursuant to Rule 6e-3(T) (b) (13)
(v) (B).
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF POLICIES
A. Premium Payments and Underwriting
Premiums for the Policies will not be the same for all owners of
Policies ("Owners"). Payment for the initial premium, together with a completed
application, must be received by the Company before a Policy will be issued. The
Company requires that the initial premium for a Policy be at least equal to one-
twelfth of the planned annual premium. Minimum first year planned annual
premiums will be established.
Following the initial premium, subject to the limitations described
below, premiums may be paid in any amount and at any interval. For the first
Policy year the amount of the planned premiums can be no less than the minimum
annual premium. We establish a billed or planned premium for each Policy.
Failure to pay planned premiums, however, will not itself cause the Policy to
lapse. Although not required, the planned premiums 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).
Some Contractholders may offer a cash management or financial service account.
If the Owner has such an account, subject to the approval of the contractholder,
planned premium payments may be made from such account. If the Owner elects to
make 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.
1
<PAGE>
Once the Owner is no longer eligible for group coverage (the group
arrangement is terminated or the Owner is no longer part of the group or
otherwise fails to satisfy eligibility requirements set forth in the Group
Contract), the Policy will automatically continue on an individual basis. Each
Certificate will be amended to make it an Individual Policy. The planned premium
billed quarterly, semiannually, or annually at the Owner's option. Premium
payments need not be made on this scheduled basis, however. This procedure is
only for Company billing.
An Owner may make unscheduled premium payments at any time in any
amount, or skip planned premium payments, subject to the following limitations.
Every premium payment must be at least $20. IN no event may the total of all
premiums paid in any Policy year exceed the current maximum premium limitations
for that year established by Federal tax laws. The maximum premium limit for a
Policy year is the largest amount of 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 limitations referred to in section 7702(C) of the
Internal Revenue Code of 1986, as amended, 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 only accept 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 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. The Company may
require additional evidence of insurability if any premium payment would cause
an increase in the Policy's death benefit exceeding the premium received.
Net premiums will be priced based upon the share price as of the close
of the day the premiums are received by the Company at its Home Office. When
premiums are received from a Contractholder they are generally received in the
form of a lump-sum check attached to a list billing for each Owner or via an
automated medium to verify the amount. The Company does not reconcile receipts
to billed amounts. We do verify that the amount received matches the supporting
data indicating the amount paid per Owner. For receipts received from a
Contractholder, allocations among multiple Policies for one Owner are made for
the Owner based upon the following procedure. Premiums are applied as billed for
Policies where the Owner is not the Insured, and the balance of the amount
received is allocated to the Policies where the Owner is the Insured. If the
Owner is no longer a part of a group or pays unscheduled premiums, these are
received in cash (or by check).
A Policy will remain in force so long as the cash surrender value is
sufficient to pay the monthly deduction. Thus, the amount of a premium, if any,
that must be paid to keep the Policy in force depends upon the cash value of the
Policy, which in turn depends on such factors as the investment experience and
the cost of insurance charge. The cost of insurance rate utilized in computing
the cost of insurance charge will not be the same for each Insured. The chief
reason is that the principle of pooling and distribution of mortality risks is
based on the assumption that each Insured incurs an insurance rate commensurate
with his mortality risk which is actuarially determined based on such factors as
attained age and rate class. Accordingly, while not all Insureds will be
subject to the
2
<PAGE>
same cost of insurance rate, there will be a single "rate" for all Insureds in a
given actuarial category.
Current cost of insurance rates will be determined by the Company
based upon expectations as to future mortality experience. The cost of insurance
rates are guaranteed not to exceed rates based upon 125% of the Commissioners'
1980 Standard Ordinary Mortality Table C.
The Policies will be offered and sold pursuant to established
underwriting standards and in accordance with state insurance laws. State
insurance laws may prohibit unfair discrimination among insureds but recognize
that premiums may be based upon factors such as age, sex, health, and
occupation.
B. Application and Initial Premium Processing
Upon receipt of a completed application, the Company will follow
certain insurance underwriting (e.g., evaluation of risks) procedures designed
to determine whether the applicant is insurable. This process may involve such
verification procedures as Medical Information Bureau and may require that
further information be provided by the proposed Insured before a determination
can be made. A Policy will not be issued until the underwriting procedure has
been completed.
The underwriting will be based upon the particular application
received. No medical or paramedical examination is required. The Company
currently issues Policies on a simplified underwriting basis without regard to
sex or smoker/non-smoker status of the Insured. This procedure requires the
employee to respond satisfactorily to certain health questions in the
application. The Company also reserves the right to issue Policies on another
basis which is determined by the Company to be appropriate for a group, and
which may include guaranteed issue. However, regardless of the underwriting
procedure used acceptance of an application is subject to he Company's
underwriting rules, and the Company reserves the right to reject an application
for any reason.
No substandard or extra rating will apply. There is no distinction in
rates based on the underwriting method once a risk is determined acceptable.
Insurance coverage under a Policy will begin on the issue date (the
date as of which the Policy is delivered and the initial premium has been
received prior to the insured'' death and prior to any change in health as shown
in the application). The issue date is used to determine Policy anniversaries,
Policy years, and Policy months.
The Company will allocate the net premiums according to the allocation
indicated on the application for insurance. The allocation of net premiums may
be changed for future premium receipts by the Owner's written request. Pricing
of the initial premiums will be as of the latter of the day received or the date
of issue of the Policy. Pricing of all subsequent premiums will be as of the
date received by the Company at its Home Office.
The minimum face amount at issue is currently $25,000.
3
<PAGE>
C. Reinsurance Procedures
The Policy may be reinstated within five years after lapse and before
the maturity date unless the Policy has been surrendered. A Policy will be
reinstated upon receipt by the Company of a written application for
reinstatement, production of evidence of insurability satisfactory to the
Company (including evidence of insurability of any person covered by a rider to
reinstate the rider) and receipt by the Company of sufficient premium to cover
the monthly deductions due at the time of lapse, and two times the monthly
deduction due at the time of reinstatement. Any indebtedness must also be paid
or reinstated.
The amount of cash value on the date of reinstatement will be equal to
the amount of any loan reinstated, increased by the net premiums paid at
reinstatement, any loans paid at the time of reinstatement, and the amount of
any surrender charge paid at the time of lapse to the extent of the face amount
reinstated. 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.
II. REDEMPTION PROCEDURES: SURRENDER AND RELATED TRANSACTION
Set forth below is a summary of the principal Policy provisions and
administrative procedures which might be deemed to constitute, either directly
or indirectly, a "redemption" transaction. The summary shows that because of
the insurance nature of the Policies, the procedures involved necessarily differ
in certain significant respects from the redemption procedures for mutual funds
and contractual plans.
A. Surrenders and Partial Withdrawals
At any time during the lifetime of the insured and while a Policy is
in effect, the Owner may surrender, or make a partial withdrawal under, the
Policy by sending a written request to the Company. The amount available for
surrender is he cash surrender value at the end of the valuation period during
which the surrender request is received at the Company's Home Office. Amounts
payable upon surrender or a partial withdrawal will ordinarily be paid within
seven days of receipt of the written request.
If the Policy is being surrendered, the Policy itself must be returned
to the Company along with the request. If the Policy cannot be returned, a lost
policy affidavit is required. Upon surrender, the Company will pay the cash
surrender value (the cash value less any indebtedness or surrender charge).
Surrender proceeds will be paid in a single sum. Coverage under a Policy will
terminate as of the date of surrender.
After the first Policy year, an Owner may make up to one partial
withdrawal each Policy month from the Separate Account. The total amount of a
partial withdrawal request, net of any applicable surrender charges, must be at
least $500 or the Policy's cash value if smaller. The minimum amount that can be
withdrawn from any one division is $50, or the cash value in the division, if
smaller. The maximum amount that may be withdrawn from a division is the
Policy's cash value in that division. The total that may be obtained by partial
withdrawal including the partial withdrawal transaction charge is the
4
<PAGE>
Loan Value. A transaction charge equal to he lesser of $25 or two percent of
the amount withdrawn applies to each partial withdrawal.
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 division 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.
Generally, any surrender charge imposed in connection with a partial
withdrawal and any transaction charge will be allocated among the divisions of
the Separate Account in the same proportion as the partial withdrawal is
allocated. An Owner may request, however, that a surrender charge applicable to
an amount withdrawn from a division be paid from the cash value in another
division. No amount may be withdrawn that would result in there being
insufficient cash value to meet any surrender charge that would be payable
immediately following the withdrawal upon the surrender of the remaining cash
value.
The death benefit will be affected by a partial withdrawal. If Option
A is in effect and the death benefit equals the face amount, then a partial
withdrawal will decrease the face amount by an amount equal to the partial
withdrawal plus the applicable surrender charge resulting from the change in
face amount. If the death benefit is based on a percentage of the cash value,
then a partial withdrawal will decrease the face amount by the amount by which
the partial withdrawal plus the applicable surrender charge exceeds the
difference between the death benefit and the face amount. If Option B is in
effect, the face amount will not change.
The face amount remaining in force after a partial withdrawal may not
be less than $25,000 or the applicable minimum issue amount. Any request for a
partial withdrawal that would reduce the face amount below this amount will not
be implemented. Partial withdrawals will be applied first to reduce the initial
face amount and then to each increase in face amount in order, starting with the
first increase.
If a Policy is surrendered, the surrender 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 Charge will
decrease by one-tenth of the total charge each year after the first Policy year
until it reaches zero (0) at the end of ten Policy years. Additional surrender
charges will be deducted if the Policy is surrendered following one or more
increases in face amount. The surrender charge applicable to each increase will
be 25 percent of premiums associated with the increase which are received by the
Company within 12 Policy months of the increase up to the guideline annual
premium for the increase. The surrender 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 from the effective date of the increase.
A surrender charge also will apply to any decrease in face amount.
The amount of the surrender charge assessed because of a decrease in face amount
is a
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portion of the surrender change that would be deducted upon surrender or lapse.
The portion is based on the relationship between the decrease in face amount and
face amount before the decrease.
B. Changes in Face Amount
An Owner may increase or decrease the face amount of a Policy (without
changing the death benefit option) once each Policy year after the first Policy
anniversary. A written request is required for a change in the face amount.
Any change is subject to the following conditions:
1. Any decrease will become effective on the monthly anniversary on
or next following receipt of the written request.
2. The minimum decrease allowed is $5,000, and the face amount may
not be decreased below $25,000. If, following the decrease in
face amount, the Policy would not comply with maximum premium
limitations required by Federal tax law, the decrease may be
limited or cash value may be returned to the Owner, at his or her
election, to the extent necessary to meet these requirements. Any
decrease 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.
3. For an increase in the face amount, the Company required that
satisfactory evidence of insurability be submitted. If approved,
the increase will become effective as of the monthly anniversary
following receipt of satisfactory evidence of insurability. In
addition, the insureds 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.
C. Change in Death Benefit Option
After the first Policy anniversary, the Owner may request in writing
to change the death benefit option. If the request is to change from Option A
to Option B, the face amount will be decreased by the amount of the cash value.
Evidence of insurability satisfactory to the Company will be required on a
change from Option A to Option B. This change cannot be made if it would result
in a face amount of less than $5,000. If the request is to change from Option B
to Option A, the face amount will be increased by the amount to the cash value.
The effective date of a change will be the monthly anniversary on or following
the date the request for change is received by the Company. The option may be
changed once each Policy year. A change from Option A to Option B may result in
the application of a surrender charge wince the change would result in a
decrease in face amount.
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D. Benefit Claims
While the Policy remains in force, the Company will pay a death
benefit to the named beneficiary in accordance with the designated death benefit
option within seven days after receipt in its home office of due proof of death
of the insured. Payment of death benefits may be postponed under certain
circumstances, such as the New York Stock Exchange being closed for reasons
other than customary weekend and holiday closings.
The amount of the death benefit is determined at the end of the
valuation period during which the insured dies. The amount of the death benefit
will never be less than the current face amount of the Policy as long as the
Policy remains in force. The proceeds will be reduced by any outstanding
indebtedness. The proceeds 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. The death benefit may exceed the face amount of the Policy depending
on the death benefit option in effect, the cash value of the Policy, and the
applicable percentage in effect at the date of death. Under Option A, the death
benefit is the greater of the face amount or the cash value on the date of death
multiplied by the applicable percentage. Under Death Benefit Option B, the
death benefit is equal to the face amount plus the cash value on the date of
death or, if greater, the applicable percentage (as per Option A) of the cash
value on the date of death.
If the insured is living on the maturity date (the date on which the
insured reaches attained age 95), the Company will pay the greater of the face
amount and the cash surrender value of the Policy on the maturity date.
Death benefit proceeds may be paid in a single sum, or under one of
the settlement options described in the Policy. The election may be made by the
Owner during the Insured's lifetime, or, if no election is in effect at death,
by the beneficiary. An option is available only if the proceeds to be applied
are $5,000 or more. The settlement options are subject to he restrictions and
limitations set forth in the Policy.
E. Policy Loans
After the first Policy anniversary, the Owner may, by written request
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 85%
of the cash value of the Policy on the date the Policy loan is requested,
reduced by the amount of any existing loans and interest payable on those loans,
and any surrender charges. The minimum amount that may be borrowed is $100.
Any amount due to an Owner under a loan ordinarily will be paid within seven
days after the Company received a loan request at its home office, although
payments may be postponed under certain circumstances.
When a loan is made, cash value equal to the amount of the loan will
be transferred to he "Loan Account" (part of the Company's general assets) 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 total
cash value, less the cash value in the Loan Account. Cash value transferred to
the Loan Account will accrue interest daily at an annual rate of 5%. The
interest rate charged will be 8%.
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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
must be made directly to he Company at its Home Office. When a loan repayment
is made, an amount securing the indebtedness in the Loan Account equal to the
loan repayment will be transferred to he divisions of the Separate Account in
the same proportion that cash value in the Loan Account bears to he cash value
in each Loan subaccount. A Loan Subaccount exists for each Division of the
Separate Account.
III. 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 in writing to the Company at its Home Office, 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.
The Company currently intends to continue to permit transfers for the
foreseeable future. The Policy provides that the Company may at any time modify
the transfer privilege, including the minimum amount transferable, and may in
the future impose a charge of no more than $25 per transfer request.
IV. REFUNDS
A. Right to Examine Policy Period
An Owner may cancel a Policy within the latest of 20 days after
receiving it, 45 days after the application was signed, or 10 days of mailing a
notice of the cancellation right. If a Policy is cancelled within this time
period, a refund will be paid. The refund will equal all premiums paid under
the Policy.
The Company will apply premiums to the divisions of the separate
account as initially requested. Any refund of premiums due to the "free look"
provision would be paid from the separate account. Any insufficiencies in funds
from the Separate Account will be paid from our general assets.
To cancel the Policy, the Owner must mail or deliver the Policy
directly to the Company at its Home Office. A refund of premiums paid by check
may be delayed until the check has cleared the Owner's bank.
A request for an increase in face amount may also 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 page from the increase, 45 days
after the application for the increase was signed, or 10 days of mailing the
right to cancellation notice.
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
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effect exceeded the monthly deductions which would have been made absent the
increase.
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
among the divisions of the Separate Account in the same manner as it was
deducted.
B. Suicide
In the event the insured commits suicide, whether sane or insane,
within two years of 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 the return of premiums paid, less
any indebtedness or partial withdrawals. In the event of suicide within two
years of 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.
C. Incontestability Clause
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 the 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.
D. Misstatement of Age
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.
V. METHOD OF COMPUTING EXCHANGE ADJUSTMENTS PURSUANT TO PARAGRAPH (b) (13) (V)
(B) of Rule 6e-3(T) UNDER THE INVESTMENT COMPANY ACT OF 1940
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. 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.
In addition, once during the first 24 Policy months following the
effective
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date of a requested increase in face amount (i.e., an increase that is not the
result of a change in death benefit options), the Owner may, upon written
request, convert the amount of the increase in face amount to a life insurance
policy which also provides for fixed benefits. Premiums under this new contract
will be based on the Company's rates in effect for the same issue age and rate
class of the insured as were applied on the effective date of the increase in
the face amount. The conditions and principles, described above, which are
applicable to a conversion of the entire Policy, will be equally applicable to
he conversion of an increase in face amount to a fixed-benefit policy.
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Exhibit 6
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. 12 to the Registration Statement and to the use of my
name under the heading "Experts" in the prospectus.
/s/ Craig K. Nordyke
---------------------------
Craig K. Nordyke, FSA, MAAA
Executive Vice President and Chief Actuary
<PAGE>
Exhibit 7
WRITTEN CONSENT OF KPMG 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
of Separate Account A of Paragon Life Insurance Company.
KPMG LLP
St. Louis, Missouri
April 28, 2000
<PAGE>
Exhibit 8
WRITTEN CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
<PAGE>
April 25, 2000
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. 12 to
the registration statement on Form S-6 for Separate Account A of Paragon Life
Insurance Company (File No. 33-27242). 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
---------------
Stephen E. Roth
