SEPARATE ACCOUNT B OF PARAGON LIFE INSURANCE CO, 485BPOS, 1997-04-22

SEPARATE ACCOUNT B OF PARAGON LIFE INSURANCE CO
485BPOS, 1997-04-22

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<PAGE>

As filed with the Securities and Exchange Commission on 18 April 1997

Registration No. 33-75778
811-7534

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

POST-EFFECTIVE AMENDMENT NO.4
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 B 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
1275 Pennsylvania Ave., N.W.
Washington, D.C. 20004-2404

It is proposed that this filing will become effective (check appropriate box)

immediately upon filing pursuant to paragraph (b)
x on April 31, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i)
on ( ) pursuant to paragraph (a)(1) of Rule 485
this post-effective amendment designates a new
effective date for a previously filed post-
effective amendment.

The Registrant has registered an indefinite number of its shares under the
Securities Act of l933 pursuant to Rule 24f-2 under the Investment Company Act
of l940. The Registrant filed the notice required by such rule for the
Registrant's most recent year on February 28, 1997.
<PAGE>

RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS

Item No. of
Form N-8B-2 Caption in Prospectus

1. Cover Page
2. Cover Page
3. Not Applicable
4. Distribution of the Policies
5. The Company and the Separate Account
6. The Separate Account
7. Not Required
8. Not Required
9. Legal Proceedings
10. Summary; Scudder Variable Life Investment
Fund/Multiple Manager; Charges and
Deductions; Policy
Benefits; Policy Rights; Voting Rights;
General Matters Relating to the Policy
11. Summary; Scudder Variable Life Investment
Fund/Multiple Manager
12. Summary; Scudder Variable Life Investment
Fund/Multiple Manager
13. Summary; Charges and Deductions; Scudder
Variable Life Investment Fund/Multiple
Manager
14. Summary; Payment and Allocation of
Premiums
15. Payment and Allocation of Premiums
16. Payment and Allocation of Premiums;
Scudder Variable Life Investment Fund/
Multiple Manager
17. Summary; Charges and Deductions; Policy
Rights; Scudder Variable Life Investment
Fund/Multiple Manager
18. Scudder Variable Life Investment
Fund/Multiple Manager; Payment and
Allocation of Premiums
19. General Matters Relating to the Policy;
Voting Rights
20. Not Applicable
21. Policy Rights; General Matters Relating to
the Policy
22. Not Applicable
23. Safekeeping of the Separate Account's
Assets
24. General Matters Relating to the Policy
25. The Company and the Separate Account
26. Not Applicable
27. The Company and the Separate Account
28. Management of the Company

-i-
<PAGE>

Item No. of
Form N-8B-2 Caption in Prospectus

29. The Company and the Separate Account
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. The Company and the Separate Account
36. Not Required
37. Not Applicable
38. Summary; Distribution of the Policies
39. Summary; Distribution of the Policies
40. Not Applicable
41. The Company and the Separate Account;
Distribution of the Policies
42. Not Applicable
43. Not Applicable
44. Payment and Allocation of Premiums
45. Not Applicable
46. Policy Rights
47. Scudder Variable Life Investment
Fund/Multiple Manager
48. Not Applicable
49. Not Applicable
50. The Separate Account
51. Cover Page; Summary; Charges and
Deductions; Policy Rights; Policy
Benefits; Payment and Allocation of
Premiums
52. Scudder Variable Life Investment
Fund/Multiple Manager
53. Federal Tax Matters
54. Not Applicable
55. Not Applicable
56. Not Required
57. Not Required
58. Not Required
59. Not Required

-ii-
<PAGE>

Post-Effective Amendment No. 4 to the registration statement on Form S-6 (the
"Registration Statement") is being filed pursuant to paragraph (b) of Rule 485
under the Securities Act of 1933 (the "Act") to update the Registration
Statement, which describes two variable life insurance policies (the "Policies")
issued by the depositor and the registrant described in the two prospectuses
included in the Registration Statement. The Policies are substantially
identical, except that different subaccounts investing in different underlying
funds are available as allocation options under each of the two Policies.
<PAGE>

SCUDDER
[SCUDDER LOGO]
VARIABLE LIFE
INVESTMENT FUND

[PARAGON LOGO]

GROUP AND INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICIES

Prospectus dated May 1, 1997
50412
Dir

<PAGE>

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") which are designed
for use in employer-sponsored insurance programs. In circumstances where a
Group Contract is issued, Individual Policies or Certificates setting forth or
summarizing the rights of the Owners and/or Insureds, will be issued under the
Group Contract. Individual Policies also can be issued in connection with
employer-sponsored insurance programs in circumstances where a Group Contract
is not issued. The terms of the Certificate and the Individual Policy, whether
or not the Individual Policy is issued under a Group Contract, are
substantially the same 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 at the same time provide flexibility to vary premium payments and change
the level of death benefits payable under the Policies. This flexibility allows
an Owner to provide for changing insurance needs under a single insurance
policy. An Owner also has the opportunity to allocate net premiums among
several investment portfolios with different investment objectives.

The Policy provides for: (1) a Cash Surrender Value that can be obtained by
surrendering the Policy; (2) Policy Loans; and (3) a death benefit payable at
the Insured's death. As long as a Policy remains in force, the death benefit
payable on the Insured's death will not be less than the current Face Amount of
the Policy. The insurance under a Policy will remain in force so long as its
Cash Surrender Value is sufficient to pay certain monthly charges imposed in
connection with the Policy.

The Owner may allocate net premiums to one or more of the Divisions of the
Separate Account B (the "Separate Account"). The duration of the Policy and the
amount of the Cash Value will vary to reflect the investment performance of the
Divisions of the Separate Account selected by the Owner, and, depending on the
death benefit option elected, the amount of the death benefit above the minimum
may also vary with that investment performance. Thus, the Owner bears the
entire investment risk under the Policies; there is no minimum guaranteed Cash
Value.

Each Division of the Separate Account will invest solely in Class A Shares of
a corresponding investment portfolio of Scudder Variable Life Investment Fund,
an investment company currently consisting of six separate investment
portfolios, or "Funds": Money Market Portfolio, Bond Portfolio, Capital Growth
Portfolio, Balanced Portfolio, Growth and Income Portfolio and International
Portfolio. The accompanying prospectus for Scudder Variable Life Investment
Fund describes the investment objectives and policies, and the risks of the
Funds.

It may not be advantageous to purchase a Policy as a replacement for another
type of life insurance or as a means to obtain additional insurance protection
if the purchaser already owns another flexible premium variable life insurance
policy.

This Prospectus Must Be Accompanied Or Preceded By A Current Prospectus For
Scudder Variable Life Investment Fund.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Please Read This Prospectus Carefully And Retain It For Future Reference.

The date of this prospectus is May 1, 1997.

Dir
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions................................................................ 3
Summary.................................................................... 4
The Company and the Separate Account....................................... 9
The Company.............................................................. 9
The Separate Account..................................................... 10
Scudder Variable Life Investment Fund.................................... 11
Addition, Deletion, or Substitution of Investments....................... 12
Payment and Allocation of Premiums......................................... 13
Issuance of a Policy..................................................... 13
Premiums................................................................. 15
Allocation of Net Premiums and Cash Value................................ 16
Policy Lapse and Reinstatement........................................... 16
Policy Benefits............................................................ 17
Death Benefit............................................................ 17
Cash Value............................................................... 21
Policy Rights and Privileges............................................... 22
Exercising Rights and Privileges Under the Policies...................... 22
Loans.................................................................... 22
Surrender and Partial Withdrawals........................................ 24
Transfers................................................................ 25
Right to Examine Policy.................................................. 25
Conversion Right to a Fixed Benefit Policy............................... 25
Eligibility Change Conversion............................................ 26
Payment of Benefits at Maturity.......................................... 26
Payment of Policy Benefits............................................... 27
Charges and Deductions..................................................... 27
Premium Expense Charge................................................... 27
Premium Tax Charge....................................................... 27
Monthly Deduction........................................................ 28
Partial Withdrawal Transaction Charge.................................... 30
Separate Account Charges................................................. 30
General Matters Relating to the Policy..................................... 30
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.............................................................. 39
State Regulation of the Company............................................ 39
Management of the Company.................................................. 40
Legal Matters.............................................................. 41
Legal Proceedings.......................................................... 41
Experts.................................................................... 41
Additional Information..................................................... 41
Financial Statements....................................................... 41
Appendix A................................................................. A-1
</TABLE>

THE POLICIES ARE NOT AVAILABLE IN ALL STATES.

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.

2
<PAGE>

DEFINITIONS

Attained Age--The Issue Age of the Insured plus the number of completed
Policy Years.

Associated Companies--Those companies listed in a Group Contract's
specifications pages that are under common control through stock ownership,
contract or otherwise, with the Contractholder.

Beneficiary--The person(s) named in an application for Individual Insurance
or by later designation to receive Policy proceeds in the event of the
Insured's death. A Beneficiary may be changed as set forth in the Policy and
this Prospectus.

Cash Value--The total amount that a Policy provides for investment at any
time. It is equal to the total of the amounts credited to the Owner in the
Separate Account and in the Loan Account.

Cash Surrender Value--The Cash Value of a Policy on the date of surrender,
less any Indebtedness.

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.

Corporate Program--A category of Policies available, usually as an Individual
Policy, in which the sponsoring employer or its designated trust is generally
the Owner of the Policy.

Division--A subaccount of the Separate Account. Each Division invests
exclusively in the Class A shares of a Fund of Scudder Variable Life Investment
Fund.

Employee--A person who is employed and paid for services by an employer on a
regular basis. To qualify as an employee, a person ordinarily must work for an
employer at least 30 hours per week. The Company may waive or modify this
requirement at its discretion. An employee may also include an independent
contractor acting in many respects as an employee with a sponsoring employer.
An employee may include a partner in a partnership if the employer is a
partnership.

Executive Program--A category of Policies issued under Group Contracts or
employer-sponsored insurance programs that have a maximum Face Amount available
for each Policy generally in excess of $500,000.

Face Amount--The minimum death benefit under the Policy so long as the Policy
remains in force.

Fund--A separate investment portfolio of the Scudder Variable Life Investment
Fund, a mutual fund in which the Separate Account's assets are invested.

Group Contract--A group flexible premium variable life insurance contract
issued to the Contractholder by the Company.

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 or under an
Individual Policy issued in connection with an employer-sponsored insurance
program on an employee or an employee's spouse.

3
<PAGE>

Insured--The person whose life is insured under a Policy. The term may
include both an employee and an employee's spouse.

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.

Policy--Either the Certificate or the Individual Policy offered by the
Company and described in this Prospectus. Under Group Contracts, the Policy may
be issued on the employee or on the employee's spouse.

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.

Spouse--An employee's legal spouse. The term does not include a spouse who is
legally separated from the employee.

Valuation Date--Each day that the New York Stock Exchange is open for
trading, except on the day after Thanksgiving when the Company is closed.

Valuation Period--The period between two successive Valuation Dates,
commencing at the close of business of a Valuation Date and ending at the close
of business of the next succeeding Valuation Date.

SUMMARY

The following summary of Prospectus information should be read in conjunction
with the detailed information appearing elsewhere in this Prospectus. Unless
otherwise indicated, the description of the Policies contained in this
Prospectus assumes that a Policy is in effect and that there is no outstanding
Indebtedness.

4
<PAGE>

The Policy. The Policies (either an Individual Policy or a Certificate)
described in this Prospectus are designed for use in employer-sponsored
insurance programs and are typically issued in two situations. First, Policies
are issued pursuant to Group Contracts entered into between the Company and
Contractholders. (See "General Provisions of the Group Contract.") Second, in
certain circumstances where Group Contracts are not issued, Individual Policies
are issued in connection with the employer-sponsored insurance programs.
Subject to certain restrictions, the Insured under a Policy may be either an
employee of the Contractholder or sponsoring employer, or the employee's
spouse. Generally, only the employee is eligible to be an Insured under an
Executive Program Policy. Provided there is sufficient Cash Surrender Value,
Individual Insurance under a Group Contract or other employer-sponsored
insurance program will continue should the Group Contract or other program
cease or the employee's employment end. (See "Payment and Allocation of
Premiums--Issuance of a Policy.")

The Policies are life insurance contracts with death benefits, cash values,
surrender rights, policy loan privileges, and other features traditionally
associated with life insurance. On behalf of Owners, the Contractholder will
remit planned premium payments under the Group Contract equal to an amount
authorized by employees to be deducted from their wages. In addition, Owners
may, but are not required to, pay additional premiums. However, the Owner in
Corporate Programs will remit planned and additional premiums. A similar
procedure will apply when an Individual Policy is issued in connection with an
employer-sponsored program where the Group Contract is not issued.

The Policies are "variable" policies because, unlike the fixed benefits under
an ordinary life insurance contract, the Cash Value and, under certain
circumstances, the death benefit under a Policy may increase or decrease
depending upon the investment performance of the Divisions of the Separate
Account to which the Owner has allocated net premium payments. However, so long
as a Policy's Cash Surrender Value continues to be sufficient to pay the
monthly deduction, an Owner is guaranteed a minimum death benefit equal to the
Face Amount of his or her Policy 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.")

The Separate Account. The Owner may allocate the net premiums to one or more
Divisions of the Separate Account. The Separate Account has Divisions, each of
which invests in Class A shares of a corresponding Fund of Scudder Variable
Life Investment Fund. The six Funds currently available with the Policy are the
Money Market Portfolio, Bond Portfolio, Capital Growth Portfolio, Balanced
Portfolio, Growth and Income Portfolio and International Portfolio. Each Fund
has a different investment objective. (See "The Company and the Separate
Account--Scudder Variable Life Investment Fund," page 10.) An Owner may change
future allocations of net premiums at any time by notifying the Company
directly.

Subject to certain restrictions, an Owner may transfer Cash Values among the
Divisions of the Separate Account. Currently, no charge is assessed for
transfers. The Company reserves the right to modify the transfer privilege.
(See "Policy Rights and Privileges--Transfers.")

Premiums. An Owner has flexibility concerning the amount and frequency of
premium payments. An initial premium equal to one-twelfth ( 1/12) of the
planned annual premium set forth in the specifications page of a Policy is
necessary to place a Policy in force. The planned annual premium is an amount
specified for each Policy based on the requested initial Face Amount and
certain other factors. Under Group Contracts and employer-sponsored programs,
the initial premium and subsequent planned premiums generally are remitted by
the Contractholder or sponsoring employer on behalf of the Owner at intervals
agreed to by the Contractholder or employer. In Corporate Programs, the Owner
or its designee will remit premiums generally on a schedule agreed to by the
Company. However, as is discussed below, planned premiums need not be paid so
long as there is sufficient Cash Surrender Value to keep the Policy in force.
Subject to certain limitations, additional premium payments in any amount and
at any frequency may be made directly by the Owner. (See "Payment and
Allocation of Premiums--Issuance of a Policy--Premiums.")

5
<PAGE>

by the Owner (see "Payment and Allocation of Premiums--Policy Lapse and
Reinstatement."). The Policies, therefore, differ in two important respects
from conventional life insurance policies. First, the failure to make planned
premium payments following the initial premium payment will not itself cause a
Policy to lapse. Second, under the circumstances described above, a Policy can
lapse even if planned premiums have been paid. Thus, the payment of premiums in
any amount does not guarantee that the Policy will remain in force until the
Maturity Date. (See "Payment and Allocation of Premiums--Policy Lapse and
Reinstatement.")

Death Benefit. Death benefit proceeds are payable to the named Beneficiary
when the Insured under a Policy dies or, under certain riders available under
the Policy, to the Owner, prior to the Insured's death under circumstances
described in those riders. (See "General Matters Relating to the Policy--
Additional Insurance Benefits.") Two death benefit options are available. Under
the "Level Type" death benefit, the death benefit is the Face Amount of the
Policy or, if greater, the applicable percentage of Cash Value. Under the
"Increasing Type" death benefit, the death benefit is the Face Amount of the
Policy plus the Cash Value or, if greater, the applicable percentage of Cash
Value. So long as a Policy remains in force, the minimum death benefit under
either option will be at least equal to the current Face Amount. The death
benefit proceeds will be increased by the amount of the cost of insurance for
the portion of the month from the date of death to the end of the month, and
reduced by any outstanding Indebtedness. (See "Policy Benefits--Death
Benefit.")

The minimum initial Face Amount is generally $25,000 under the Company's
current rules. Executive Program Policies generally have a minimum Face Amount
of $100,000. The maximum Face Amount is generally $500,000. However, in
connection with a particular Group Contract, employer-sponsored insurance
program, Executive Programs, or Corporate Programs the Company may establish a
substantially higher Face Amount for Policies issued under that Contract or
program. The Owner may generally change the Face Amount (subject to the minimum
and maximum amounts applicable to his or her policy) and the death benefit
option, but in certain cases evidence of insurability may be required. (See
"Policy Benefits--Death Benefit.")

Additional insurance benefits offered under the Policy by rider may include a
children's insurance rider, an acceleration of death benefits rider, an
accelerated death benefit settlement option rider, an accidental death benefit
rider, and a waiver of monthly deductions rider. Some Group Contracts and
employer-sponsored insurance programs may not provide each of the additional
benefits described above. Generally, Executive Program Policies only have the
acceleration of death benefits rider. Generally, Corporate Programs have none
of the additional benefits described above. (See "General Matters Relating to
the Policy--Additional Insurance Benefits.") The cost of these additional
insurance benefits will be deducted from Cash Value as part of the monthly
deduction. (See "Charges and Deductions--Monthly Deduction.")

Benefits under the Policy may be paid in a single sum or under one of the
settlement options set forth in the Policy or an applicable rider. (See "Policy
Benefits--Death Benefit" and "Policy Rights and Privileges--Payment of Policy
Benefits.")

Cash Value. The Policies provide for a Cash Value equal to the total of the
Policy's Cash Value in the Separate Account and the Loan Account (securing
Policy Loans). A Policy's Cash Value will reflect the amount and frequency of
premium payments, the investment performance of any selected Divisions of the
Separate Account, any Policy Loans, 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. Generally, there are no sales charges under a Policy.
However, a front-end charge deducted from each premium paid ("premium expense
charge") will be imposed on Policies that are deemed to be individual Policies
under the Omnibus Budget Reconciliation Act of 1990 ("OBRA"). This charge,
which is for federal income taxes measured by premiums, is equal to 1% of each
premium payment, and compensates the Company for a significantly higher
corporate income tax liability resulting from changes made to the Internal
Revenue Code by OBRA.

6
<PAGE>

A charge of 2 percent to cover state premium taxes will be deducted from
premiums paid. However, a charge of 2 1/4 percent to cover state premium taxes
may be deducted from premiums paid in connection with Executive Programs and
Corporate Programs. (See "Charges and Deductions--Premium Tax Charge.")

A monthly deduction will be made from a Policy's Cash Value in the Divisions
of the Separate Account. The monthly deduction includes an administrative
charge, a cost of insurance charge, and the cost of any additional insurance
benefits provided by rider. The amount of the administrative charge will be set
forth in the specification pages of the Policy and will be based on the number
of the Insureds covered under a Group Contract or other employer-sponsored
insurance program and the amount of administrative services provided by the
Company. The charge will not exceed $6.00 per month during the first Policy
Year and $3.50 per month during renewal years.

The cost of insurance charge is calculated on each Monthly Anniversary. (See
"Charges and Deductions--Monthly Deduction--Cost of Insurance.") Monthly cost
of insurance rates will be determined by the Company based upon its
expectations as to future mortality experience. The Company currently
underwrites Policies on either a simplified issue or guaranteed issue basis.
However, the Company does not vary cost of insurance rates based on a
particular Policy's classification as simplified issue or guaranteed issue
within a particular Group Contract or employer-sponsored program. Rather, the
rates are based on the Attained Age and rate class of the Insured, as well as
on the gender mix of the group insured, which is the proportion of men and
women covered under a particular Group Contract or employer-sponsored program.
For a discussion of the factors affecting the rate class of the Insured, see
"Charges and Deductions--Monthly Deduction--Cost of Insurance."

Cost of insurance rates are guaranteed not to exceed 125 percent of the
maximum rates that could be charged based on the 1980 Commissioners Standard
Ordinary Mortality Table C ("1980 CSO Table"). The 1980 CSO Table assumes a
blending of sixty percent male and forty percent female. Generally, the rates
currently charged do not exceed 100% of the 1980 CSO Table. However, instances
in which the Company's current rates may exceed 100% of the 1980 CSO Table are
generally limited to particular Policies issued to Insureds in small groups
(i.e. generally less than 750 eligible employees) and/or groups that are
predominantly male. The guaranteed rates are higher than the 1980 CSO Table
because, under both guaranteed and simplified underwriting, the Insured is not
required to submit to a medical or paramedical examination although a blood
test may be required. Because the Company gathers less health information about
these individuals, it is exposed to additional insurance risks. Although the
circumstances in which the Company could raise its current mortality charges
are limited, such an increase is permitted under the Policy. To the extent that
the current cost of insurance rates exceed or are raised so that they exceed
100% of the 1980 CSO Table, the monthly cost of insurance charge would, in
effect, be a substandard risk charge for healthy Insureds.

A daily charge not to exceed .0024547% (an annual rate of .90%) of the net
assets of each Division of the Separate Account will be imposed for the
Company's assumption of certain mortality and expense risks incurred in
connection with the Policies. (See "Charges and Deductions--Separate Account
Charges.")

No charges are currently made from the Separate Account for Federal or state
income taxes. However, if it is determined that such taxes may be incurred,
then the Company may make deductions from the Separate Account to pay these
taxes or to pay any economic burden resulting from the application of the tax
laws that the Company determines to be properly attributable to the Separate
Account or the Policies. (See "Federal Tax Matters.")

The value of the assets of the Divisions of the Separate Account will reflect
the investment advisory fee and other expenses incurred by Scudder Variable
Life Investment Fund because the Separate Account purchases the Class A shares
of Scudder Variable Life Investment Fund. (See "The Company and the Separate
Account--Scudder Variable Life Investment Fund.") The total annual investment
advisory fee and fund expenses for the funds available during the last fiscal
year as a percentage of net assets are as follows:

7
<PAGE>

Money Market Portfolio .46%; Bond Portfolio .61%; Capital Growth Portfolio
.53%; Balanced Portfolio .60%; Growth and Income Portfolio .66%; and
International Portfolio 1.05%.

A transaction charge equal to the lesser of $25 or two percent of the amount
withdrawn will be assessed on each partial withdrawal of amounts from the
Separate Account. Currently, there are no transaction charges imposed for
transfers of amounts between Divisions of the Separate Account. In addition,
transfers and withdrawals are subject to restrictions relative to amount and
frequency. (See "Payment and Allocation of Premiums--Allocation of Net Premiums
and Cash Value," page 15, and "Policy Rights and Privileges-- Surrender and
Partial Withdrawals--Transfers," pages 23 and 24, and "Charges and Deductions--
Partial Withdrawal Transaction Charge," page 30.)

Policy Loans. After the first Policy Anniversary an Owner may borrow against
the Cash Value of a Policy. The Loan Value is (a) minus (b), where (a) is 85
percent of the Cash Value of the Policy on the date the loan request is
received and (b) is any outstanding Indebtedness. Loan interest is due and
payable in arrears on each Policy Anniversary or on a pro rata basis for such
shorter period as the Policy Loan may exist. All outstanding Indebtedness will
be deducted from proceeds payable at the Insured's death, upon maturity, or
upon surrender.

A Policy Loan will be allocated among the various Divisions of the Separate
Account. A portion of the Policy's Cash Value in each Division of the Separate
Account to which the loan is allocated will be transferred to the Loan Account
as security for the loan. Therefore, a Policy Loan may have a permanent impact
on the Policy's Cash Value even if it is repaid. A Policy Loan may be repaid in
whole or in part at any time while the Policy is in force. (See "Policy Rights
and Privileges--Loans," page 21.) Loans taken from, or secured by, a Policy may
in certain circumstances be treated as taxable distributions from the Policy.
Moreover, with certain exceptions, a ten percent additional income tax would be
imposed on the portion of any loan that is included in income. (See "Federal
Tax Matters," page 35.)

Surrender and Partial Withdrawals. At any time that a Policy is in effect, an
Owner may elect to surrender the Policy and receive its Cash Surrender Value.
An Owner may also request a partial withdrawal of the Cash Value of the Policy.
When the death benefit under either death benefit option is not based on an
applicable percentage of the Cash Value, a partial withdrawal reduces the death
benefit payable under the Policy by an amount equal to the reduction in the
Policy's Cash Value. (See "Policy Rights and Privileges--Surrender and Partial
Withdrawals," page 23.) Surrenders and partial withdrawals may have federal
income tax consequences. (See "Federal Tax Matters," page 35.)

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," page 24.)

Eligibility Change Conversion. In the event that the Insured is no longer
eligible for coverage under the Group Contract, either because the Group
Contract has terminated or because the employee is no longer employed by the
Contractholder, 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.

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<PAGE>

which are identical to those provided under the Certificate. If an Individual
Policy was issued in connection with a Group Contract, the Individual Policy
will continue in force following the termination of the Group Contract. (See
"Policy Right and Privileges--Eligibility Change Conversion," page 25.)

Conversion Right to a Fixed Benefit Policy. During the first 24 Policy Months
following a Policy's Issue Date, the Owner may convert the Policy to a life
insurance policy that provides for benefits that do not vary with the
investment return of the Divisions of the Separate Account. The Owner also has
a similar right with respect to increases in the Face Amount. (See "Policy
Rights and Privileges--Conversion Right to a Fixed Benefit Policy," page 25.)

Exercising Rights and Privileges Under the Policies. Owners of Policies
issued under a Group Contract or in connection with an employer-sponsored
insurance program may exercise their rights and privileges under the Policies
(i.e., make transfers, change premium allocations, borrow, etc.) by notifying
the Company in writing at its Home Office. Likewise, the Company will send all
reports and other notices described herein or in the Policy directly to the
Owner. (See "Policy Rights and Privileges--Exercising Rights and Privileges
Under the Policies," page 21.)

Illustrations of Death Benefits and Cash Surrender Values. Illustrations on
pages A-1 to A-7 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 administrative charge and
the level of the sales charges. These illustrations also show how these
benefits compare with amounts which would accumulate if premiums were invested
to earn interest (after taxes) at 5% compounded annually. If a Policy is
surrendered in the early Policy Years, the Cash Surrender Value payable will be
low as compared with premiums accumulated with interest, and consequently the
insurance protection provided prior to surrender will be costly.

Tax Consequences of the Policy. While guidance is limited, the Company
believes that the Policy should be treated as a life insurance contract for
Federal income tax purposes. Assuming that a Policy qualifies as a life
insurance contract for Federal income tax purposes, a Policy Owner should not
be deemed to be in constructive receipt of Cash Surrender Value under a Policy
until there is a distribution from the Policy. Moreover, death benefits payable
under a Policy should be completely excludable from the gross income of the
Beneficiary. As a result, the Beneficiary generally should not be taxed on
these proceeds.

Under certain circumstances, a Policy may be treated as a "modified endowment
contract." If the Policy is a modified endowment contract, then all pre-death
distributions, including Policy loans, will be treated first as a distribution
of taxable income and then as a return of basis or investment in the contract.
In addition, prior to age 59 1/2 any such distributions generally will be
subject to a 10% penalty tax.

If the Policy is not a modified endowment contract, distributions generally
will be treated first as a return of basis or investment in the contract and
then as disbursing taxable income. Loans will not be treated as distributions.
Neither distributions nor loans from a Policy that is not a modified endowment
contract are subject to the 10% penalty tax. (See "Federal Tax Matters," page
35.)

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.")

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THE COMPANY AND THE SEPARATE ACCOUNT

THE COMPANY

Paragon Life Insurance Company (the "Company") is a stock life insurance
company incorporated under the laws of Missouri. The Company was organized in
1981 as General American Insurance Company and on December 31, 1987, its name
was changed. No change in operations or ownership took place in connection with
the name change. The Company is principally engaged in writing individual and
group life insurance policies and annuity contracts. As of December 31, 1996,
it had assets in excess of $180 million. The Company is admitted to do business
in 49 states and the District of Columbia. The principal offices of the Company
are at 100 South Brentwood, St. Louis, Missouri 63105 ("Home Office").

The Company is a wholly-owned subsidiary of General American Life Insurance
Company (the "Parent Company"), a mutual life insurance company. The Parent
Company has agreed that until March 23, 1999, it will maintain capital and
surplus within the Company sufficient to satisfy the capital requirements of
the states in which the Company is authorized to do business.

In addition, the Parent Company agrees to guarantee that the Company will
have sufficient funds to meet all of its contractual obligations. In the event
a policyholder presents a legitimate claim for payment on a Paragon insurance
policy, the Parent Company will pay such claim directly to the policyholder if
Paragon is unable to make such payment. This guarantee, which does not have a
predetermined termination date, can be modified or ended only as to policies
not yet issued. The guarantee agreement is binding on the Parent Company, its
successor or assignee and shall cease only if the guarantee is assigned to an
organization having a financial rating from Standard & Poor's equal to or
better than the Parent Company's rating. The Parent Company does not intend
this guarantee to be a guarantee with regard to the investment experience or
cash values of the Policy.

SUPPLEMENT

The Company may from time to time publish in advertisements, sales
literature, and reports to Owners or Contractholders, the ratings and other
information assigned to it by one or more independent rating organizations such
as A. M. Best Company, Standard & Poor's Corporation, and Duff & Phelps. The
purpose of the ratings is to reflect the financial strength and/or claims
paying ability of the Company and should not be considered as bearing on the
investment performance of assets held in the Separate Account. Each year the A.
M. Best 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 of Duff & Phelps may be referred
to in advertisements or sales literature or in reports to owners or
Contractholders. These ratings are opinions of an operating insurance company's
financial capacity to meet the obligations of its insurance policies in
accordance with their terms. These ratings do not reflect the investment
performance of the Separate Account or the degree of risk associated with an
investment in the Separate Account.

The Company also may include in advertisements and other literature certain
rankings assigned to the Company by the National Association of Insurance
Commissioners ("NAIC"), and the Company's analyses of statistical information
produced by the NAIC. These rankings and analyses of statistical information
may describe among other things, the Company's growth, premium income,
investment income, capital gains and losses, policy reserves, policy claims,
and life insurance in force. The Company's use of such rankings and statistical
information is not an endorsement by the NAIC.

Advertisements and literature prepared by the Company also may include
discussions of taxable and tax-deferred investment programs (including
comparisons based on selected tax brackets), alternative investment vehicles,
and general economic conditions.

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THE SEPARATE ACCOUNT

Separate Account B (the "Separate Account") was established by the Company as
a separate investment account on January 4, 1993 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 the Company that
are invested in other subaccounts of the Separate Account.

The Separate Account is divided into Divisions. Each Division for the Policy
invests exclusively in Class A shares of a single Fund of Scudder Variable Life
Investment Fund. 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.

SCUDDER VARIABLE LIFE INVESTMENT FUND

The Separate Account invests in Class A shares of Scudder Variable Life
Investment Fund (the "Scudder Variable Fund"), a series-type mutual fund
registered with the SEC as an open-end, diversified management investment
company. Scudder Variable Fund currently has six separate investment portfolios
or "Funds" used by the Policies: Money Market Portfolio, Bond Portfolio,
Capital Growth Portfolio, Balanced Portfolio, Growth and Income Portfolio, and
International Portfolio. The assets of each Fund are held separate from the
assets of the other Funds, and each Fund has investment objectives and policies
which are different from those of the other Funds. Thus, each Fund operates as
a separate investment vehicle, and the income or losses of one Fund generally
have no effect on the investment performance of any other Fund.

The investment objectives and policies of each Fund are summarized below:

MONEY MARKET PORTFOLIO

The Money Market Portfolio seeks to maintain the stability of capital and,
consistent therewith, to maintain the liquidity of capital and to provide
current income. The Fund seeks to maintain a constant net asset value of $1.00
per share, although there can be no assurance that this will be achieved.

BOND PORTFOLIO

The Bond Portfolio pursues a policy of investing for a high level of income
consistent with a high quality portfolio of debt securities. Under normal
circumstances, the Fund invests at least 65% of its assets in bonds, including
those of the U.S. Government and its agencies, and those of corporations and
other notes and bonds paying high current income. The Fund may also invest in
preferred stocks consistent with it's objectives. It will attempt to moderate
the effect of market price fluctuation relative to that of a long-term bond by
investing in securities with varying maturities and by entering into future
contracts on debt securities and related options for hedging purposes.

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<PAGE>

CAPITAL GROWTH PORTFOLIO

The Capital Growth Portfolio seeks to maximize long-term capital growth
through a broad and flexible investment program. The Fund invests in marketable
securities, principally common stocks and, consistent with its objective of
long-term capital growth, preferred stocks. However, in order to reduce risk,
as market or economic conditions periodically warrant, the Fund may also invest
up to 25% of its assets in short-term debt instruments.

BALANCED PORTFOLIO

The Balanced Portfolio seeks a balance of growth and income from a
diversified portfolio of equity and fixed income securities. The Fund also
seeks long-term preservation of capital through a quality-oriented investment
approach that is designed to reduce risk.

GROWTH AND INCOME PORTFOLIO

The Growth and Income Portfolio seeks long-term growth of capital, current
income and growth of income. The Fund invests primarily in common stocks,
preferred stocks, and securities convertible into common stocks of companies
which offer the prospect for growth of earnings while paying current dividends.
Over time, continued growth of earnings tends to lead to higher dividends and
enhancement of capital value. The Fund allocates its investments among
different industries and companies, and changes its portfolio securities for
investment considerations and not for trading purposes.

INTERNATIONAL PORTFOLIO

The International Portfolio seeks long-term growth of capital primarily
through diversified holdings of marketable foreign equity investments. The Fund
invests in companies, wherever organized, which do business primarily outside
the United States. The Fund intends to diversify investments among several
countries and to have represented in its holdings, in substantial portions,
business activities in not less than three different countries. The Fund does
not intend to concentrate investments in any particular industry.

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 Scudder Variable Fund, which must accompany or precede
this Prospectus and which should be read carefully.

Scudder, Stevens & Clark, Inc. ("Scudder") provides investment advisory
services to the Scudder Variable Fund in accordance with the terms set forth in
the current prospectus for the Scudder Variable Fund. See the Scudder Variable
Fund prospectus for details regarding these fees.

The Scudder Variable Fund is registered with the SEC as an open-end
diversified management company. Registration with the SEC does not involve
supervision of the management or investment practices or policies of the
Scudder Variable Fund by the Commission.

Resolving Material Conflicts. All of the Funds of the Scudder Variable Fund
are also available to registered separate accounts of other insurance companies
offering variable annuity and variable life insurance products. As a result,
there is a possibility that a material conflict may arise between the interests
of Owners of Policies and of owners of policies whose cash values are allocated
to other separate accounts investing in the Funds. In the event a material
conflict arises, the Company will take any necessary steps, including removing
the assets of the Separate Account from one or more of the Funds, to resolve
the matter. See the Scudder Variable Fund prospectus for further details.

ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS

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<PAGE>

Account may purchase. The Company reserves the right to eliminate the shares of
any of the Funds of the Scudder Variable Fund and to substitute shares of
another Fund of the Scudder Variable Fund or of another registered open-end
investment company, if the shares of a Fund are no longer available for
investment, or if in the Company's judgment further investment in any Fund
becomes inappropriate in view of the purposes of the Separate Account. The
Company will not substitute any shares attributable to an Owner's interest in a
Division of the Separate Account without notice to the Owner and prior approval
of the SEC, to the extent required by the 1940 Act or other applicable law.
Nothing contained in this Prospectus shall prevent the Separate Account from
purchasing other securities for other series or classes of policies, or from
permitting a conversion between series or classes of policies on the basis of
requests made by Owners.

The Company also reserves the right to establish additional Divisions of the
Separate Account, each of which would invest in a new Fund of the Scudder
Variable Fund, or in shares of another investment company, with a specified
investment objective. New Divisions may be established when, in the sole
discretion of the Company, marketing needs or investment conditions warrant,
and any new Division will be made available to existing Owners on a basis to be
determined by the Company. To the extent approved by the SEC, the Company may
also eliminate or combine one or more Divisions, substitute one Division for
another Division, or transfer assets between Divisions if, in its sole
discretion, marketing, tax, or investment conditions warrant.

In the event of a substitution or change, the Company may, if it considers it
necessary, make such changes in the Policy by appropriate endorsement. The
Company will notify all Owners of any such changes.

If deemed by the Company to be in the best interests of persons having voting
rights under the Policy, and to the extent any necessary SEC approvals or Owner
votes are obtained, the Separate Account may be: (a) operated as a management
company under the 1940 Act; (b) deregistered under that Act in the event such
registration is no longer required; or (c) combined with other separate
accounts of the Company. To the extent permitted by applicable law, the Company
may also transfer the assets of the Separate Account associated with the Policy
to another separate account.

The Company cannot guarantee that the shares of the Scudder Variable Fund
will always be available. Scudder Variable Fund sells its shares to the
Separate Account in accordance with the terms of a participation agreement
between Scudder Variable Fund and the Company. Should this agreement terminate
or should shares become unavailable for any other reason, the Separate Account
will not be able to purchase Scudder Variable Fund shares. Should this occur,
the Company will be unable to honor Owner requests to allocate their cash
values or premium payments to the Divisions of the Separate Account investing
in shares of the Scudder Variable Fund. In the event that the Scudder Variable
Fund is no longer available, the Company will, of course, take reasonable steps
to obtain alternative investment options.

PAYMENT AND ALLOCATION OF PREMIUMS

ISSUANCE OF A POLICY

The Company will generally issue a Group Contract to employers whose
employees and/or their spouses may become Owners and/or Insureds thereunder so
long as the employee is within the class of employees eligible to be included
in the Group Contract. The class(es) of employees covered by a particular Group
Contract are set forth in that Group Contract's specifications pages. The Group
Contract will be issued upon receipt of an application for a Group Contract
signed by a duly authorized officer of the employer and acceptance by a duly
authorized officer of the Company at its Home Office. (See "General Provisions
of the Group Contract--Issuance.") Individuals (i.e., eligible employees or
their spouses) wishing to purchase a Policy, whether under a Group Contract or
an employer-sponsored insurance program, must complete the appropriate
application for Individual Insurance and submit it to an authorized
representative of the Company or to the Company's Home Office. The Company will
issue to each Contractholder either a Certificate or an Individual Policy to
give to each Owner. Individual Policies, rather than Certificates, will be
issued (i) to independent contractors of the employer; (ii) to persons who wish
to continue coverage after a

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<PAGE>

Group Contract has terminated; (iii) to persons who wish to continue coverage
after they no longer are employed by the Group Contractholder; (iv) if state
law restrictions make issuance of a Group Contract impracticable; or (v) if the
employer chooses to use an employer-sponsored insurance program that does not
involve a Group Contract.

Corporate Programs will generally involve Individual Policies. Policies will
be issued on the lives of eligible Insureds, generally employees of a
sponsoring employer, and the Owner will usually be the sponsoring employer or
its designee.

A Policy generally will be issued only to Insureds of Issue Ages 17 through
70 who supply evidence of insurability satisfactory to the Company. The Company
may, at its sole discretion, issue Policies to individuals falling outside
those Issue Ages or decline to issue Policies to individuals within those Issue
Ages.

In order for an employee to be eligible to purchase a Policy, the employee
must be actively at work at the time the application for Individual Insurance
is signed. In addition, the Contractholder may determine specific classes to
which the employee must belong to be eligible to purchase a Policy. Actively at
work means that the employee must work for the Contractholder or sponsoring
employer at the employee's usual place of work or such other places as required
by the Contractholder or sponsoring employer in the course of such work for the
full number of hours and the full rate of pay, as set by the employment
practices of the employer. Ordinarily the time worked per week must not be less
than 30 hours. However, the Company reserves the right to waive or modify the
actively at work requirement at its discretion. In addition, the Contractholder
may require that, to be eligible to purchase a Policy, an employee must be
employed by the employer as of a certain date or for a certain period of time.
This date or time period will be set forth in the Group Contract specifications
pages. Employees of any Associated Companies of the Contractholder will be
considered employees of the Contractholder. The Company may also allow an
individual who is an independent contractor working primarily for the
sponsoring employer to be considered an eligible employee. As an independent
contractor, he may receive an Individual Policy rather than a Certificate
depending upon state law applicable to the contracts. An employee may include a
partner in a partnership if the employer is a partnership.

In other than Executive Programs or Corporate Programs, the first time an
employee is given the opportunity to purchase a Policy, the Company will issue
the Policy and any children's insurance rider applied for by the employee
pursuant to its guaranteed issue procedure. Under this procedure the employee
is required to answer qualifying questions in the application for Individual
Insurance, but is not required to submit to a medical or paramedical
examination. The maximum Face Amount that an employee can generally apply for
under the guaranteed issue procedure ("Guaranteed Issue Amount") is three times
the employee's salary up to a ceiling that is based on the number of eligible
employees under a Group Contract or other employer-sponsored insurance program.
Guaranteed issue may be available with Executive Programs or Corporate Programs
depending upon number of eligible employees or if other existing insurance
coverage is cancelled.

Where the Face Amount exceeds the guaranteed issue limits, where the Policy
has been offered previously to the employee, where the guaranteed issue
requirements set forth in the application for Individual Insurance are not met,
or in connection with certain programs that may be offered without guaranteed
issue, the employee must submit to a simplified underwriting procedure which
requires the employee to respond satisfactorily to certain health questions in
the application. A blood test may be required. This requirement is generally
applicable only to Executive Programs or Corporate Programs. Similarly, such
questions must be answered if, in connection with the issuance of any
children's rider, if the employee is not eligible for guaranteed issue
underwriting, or, even when the employee is eligible, if the child does not
satisfy the guaranteed issue requirements set forth in the application for
Individual Insurance. However, regardless of which underwriting procedure is
used, 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.

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<PAGE>

If a Policy is to be issued to a spouse of an employee who is eligible to
purchase a Policy under a Group Contract or an employer-sponsored insurance
program, the appropriate application for Individual Insurance must be supplied.
The spouse will be subject to the simplified underwriting procedure described
above. Guaranteed issue is not available. Spouse coverage is generally not
available under Executive Program Policies or Corporate Program Policies.

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. However, prior to the actual
issuance of a Policy which is being underwritten on a guaranteed issue basis,
interim insurance in the amount of insurance applied for up to the Guaranteed
Issue Amount may be available and, if so, will start as of the date of the
application. Interim insurance ends on the earliest of the following dates: (a)
the date insurance begins on the Policy applied for; (b) the date a Policy
other than the Policy applied for is offered to the applicant; (c) the date the
Company notifies the applicant that the application for any proposed Insured is
declined; (d) 60 days from the date of application; or (e) termination of
employment with the Contractholder or sponsoring employer.

PREMIUMS

The initial premium is due on the Issue Date, and usually will be remitted by
the Contractholder or employer on behalf of the Owner. The Company requires
that the initial premium for a Policy be at least equal to one-twelfth ( 1/12)
of the planned annual premium for the Policy set forth in the specifications
pages. The planned annual premium is an amount specified for each Policy based
on the requested initial Face Amount, the Issue Age of the Insured and the
charges under the Policy. (See "Charges and Deductions.") However, the Owner is
not required to pay premiums equal to the planned annual premium.

Premiums remitted by a Contractholder or sponsoring employer or designated
payor shall be applied to a Policy when received by the Company. Should
supporting documentation to enable the determination of the amount of premium
per Policy not be received prior to or coincident with the cash premium, the
premiums shall be promptly returned to the entity remitting such premiums.

Following the initial premium, subject to the limitations described below,
premiums may be paid in any amount and at any interval. Under Group Contracts
and Individual Policies issued in connection with other employer-sponsored
insurance programs, the planned annual premium usually will be remitted by the
Contractholder or sponsoring employer 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 or employer and
the Company (usually monthly). The amount of the premiums remitted by the
sponsoring employer or Contractholder will be that amount authorized to be
deducted by the employee. The Owner may skip planned premium payments. Failure
to pay one or more planned premium payments will not cause the Policy to lapse
until such time as the Cash Surrender Value is insufficient to cover the next
Monthly Deduction. (See "Payment and Allocation of Premiums--Policy Lapse and
Reinstatement.")

In addition to any planned payments made, an Owner may make unscheduled
premium payments at any time in any amount, subject to the minimum and maximum
premium limitations described below. The payment of an unscheduled premium
payment may have Federal income tax consequences. (See "Federal Tax Matters.")
Moreover, as mentioned above, an Owner may also skip planned premium payments.
Therefore, unlike conventional insurance policies, a Policy does not obligate
the Owner to pay premiums in accordance with a rigid and inflexible premium
schedule.

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<PAGE>

Individual Insurance provided will automatically continue in the event of such
termination. (See "Policy Rights and Privileges--Eligibility Change
Conversion.") Individual Insurance will also continue if the employee's
employment with the Contractholder or sponsoring employer terminates. In either
circumstance, an Owner of an Individual Policy (or a Certificate converted by
amendment to an Individual Policy) will establish a new schedule of planned
premiums which will have the same planned annual premium, but ordinarily the
payment intervals will be no more frequent than quarterly. In Corporate
Programs, there will generally be no planned or scheduled premiums upon the
discontinuing employment of an Insured.

Premium Limitations. Every premium payment remitted by or on behalf of an
Owner must be at least $20. In no event may the total of all premiums paid
under a Policy in any Policy Year exceed the current maximum premium
limitations for that year established by Federal tax laws. The maximum premium
limitation for a Policy Year is the most premium that can be paid in that
Policy Year such that the sum of the premiums paid under the Policy will not at
any time exceed the guideline premium limitations referred to in section
7702(c) of the Internal Revenue Code of 1986, or any successor provision. If at
any time a premium is paid which would result in total premiums exceeding the
current maximum premium limitation, the Company will accept only that portion
of the premium which will make total premiums equal the maximum. Any part of
the premium in excess of that amount will be returned directly 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. 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, withdrawals from which are, for tax purposes, treated first as a
distribution of any taxable income under the contract, and then as a
distribution of nontaxable investment in the contract. Additionally, such
withdrawals may be subject to a 10% federal income tax penalty. The Company has
adopted administrative steps designed to notify an Owner when it is believed
that a premium payment will cause a Policy to become a modified endowment
contract. The Company has administrative procedures to prevent a modified
endowment contract by monitoring premium limits. The Owner will be given a
limited amount of time to request that the premium be reversed in order to
avoid the Policy's being classified as a modified endowment contract. (See
"Federal Tax Matters.")

ALLOCATION OF NET PREMIUMS AND CASH VALUE

Net Premiums. The net premium equals the premium paid less the premium
expense charge less any charge to compensate the Company for anticipated higher
corporate income taxes resulting from the sale of a Policy less the premium tax
charge. (See "Charges and Deductions--Premium Expense Charge.")

Allocation of Net Premiums. In the application for a Policy, the Owner
indicates how net premiums are to be allocated among the Divisions of the
Separate Account. Beginning with the initial premium payment, all premiums will
be allocated in accordance with the Owner's instructions upon receipt of the
premiums at the Company's Home Office. However, the minimum percentage, other
than zero ("0"), that may be allocated to a Division is 10 percent of the net
premium, and fractional percentages may not be used.

The allocation for future net premiums may be changed without charge at any
time by providing notice in writing directly to the Company. Any change in
allocation will take effect immediately upon receipt by the Company of the
written notification. No charge is imposed for changing the allocations of
future net premiums.

The Policy's Cash Value also may be transferred between the Divisions of the
Separate Account. (See "Policy Rights and Privileges--Transfers.")

The value of amounts allocated to Divisions of the Separate Account will vary
with the investment performance of the chosen Divisions and the Owner bears the
entire investment risk. This will affect the Policy's Cash Value, and may
affect the death benefit as well. Owners should periodically review their
allocations of premiums and values in light of market conditions and overall
financial planning requirements.

16
<PAGE>

POLICY LAPSE AND REINSTATEMENT

Lapse. Unlike conventional life insurance policies, the failure to make a
premium payment following the initial premium will not itself cause a Policy to
lapse. Lapse will occur only when the Cash Surrender Value is insufficient to
cover the monthly deduction, and a grace period expires without a sufficient
payment being made. (See also "General Provisions of the Group Contract--Grace
Period--Termination.")

The grace period, which is 62 days, begins on the Monthly Anniversary on
which the Cash Surrender Value becomes insufficient to meet the next monthly
deduction. The Company will notify the Owner at the beginning of the grace
period by mail addressed to the last known address on file with the Company.
The notice will specify the amount of premium required to keep the Policy in
force and the date the payment is due. Subject to minimum premium requirements,
the amount of the premium required to keep the Policy in force will be the
amount of the current monthly deduction. (See "Charges and Deductions.") If the
Company does not receive the required amount within the grace period, the
Policy will lapse and terminate without Cash Value. If the Insured dies during
the grace period, any overdue monthly deductions will be deducted from the
death benefit otherwise payable.

Reinstatement. The Owner may reinstate a lapsed Policy by written application
any time within five years after the date of lapse and before the Maturity
Date. The right to reinstate a lapsed Policy will not be affected
by the termination of a Group Contract or the termination of an employee's
employment during the reinstatement period. Reinstatement is subject to the
following conditions:

1. Evidence of the insurability of the Insured satisfactory to the
Company (including evidence of insurability of any person covered by a
rider to reinstate the rider).
2. 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.
3. Payment or reinstatement of any Indebtedness. Any Indebtedness
reinstated will cause a Cash Value of an equal amount also to be
reinstated. Any loan paid at the time of reinstatement will cause an
increase in Cash Value equal to the amount of the repaid loan.
4. The Policy cannot be reinstated if it has been surrendered.

The amount of Cash Value on the date of reinstatement will be equal to the
amount of any Indebtedness reinstated, increased by the net premiums paid at
reinstatement and any loans paid at the time of reinstatement.

The effective date of reinstatement will be the date of approval by the
Company of the application for reinstatement. There will be a full monthly
deduction for the Policy Month that includes that date.

POLICY BENEFITS

DEATH BENEFIT

As long as the Policy remains in force, the Company will, upon proof of the
Insured's death, pay the death benefit proceeds of a Policy in accordance with
the death benefit option in effect at the time of the Insured's death. Payment
of death benefit proceeds will not be affected by termination of the Group
Contract or employer-sponsored insurance program or by termination of an
employee's employment.

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.")

17
<PAGE>

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. The
maximum Face Amount is generally $500,000. However, in connection with a
particular Group Contract or employer sponsored insurance program, the Company
may establish a substantially higher Face Amount for Policies issued under that
Contract or program.

Option A. Under Option A, the death benefit is the current Face Amount of the
Policy or, if greater, the applicable percentage of Cash Value on the date of
death. The applicable percentage is 250 percent for an Insured Attained Age 40
or below on the Policy Anniversary prior to the date of death. For Insureds
with an Attained Age over 40 on that Policy Anniversary, the percentage is
lower and declines with age as shown in the Applicable Percentage Table below.
Accordingly, under Option A the death benefit will remain level at the Face
Amount unless the applicable percentage of Cash Value exceeds the current Face
Amount, in which case the amount of the death benefit will vary as the Cash
Value varies. Owners who prefer to have favorable investment performance
reflected in higher Cash Value for the same Face Amount, rather than increased
death benefit, generally should select Option A.

APPLICABLE PERCENTAGE TABLE

<TABLE>
<CAPTION>
APPLICABLE
ATTAINED AGE PERCENTAGE
- ------------ ----------
<S> <C>
40 or younger........... 250%
41...................... 243
42...................... 236
43...................... 229
44...................... 222
45...................... 215
46...................... 209
47...................... 203
48...................... 197
49...................... 191
50...................... 185
51...................... 178
52...................... 171
53...................... 164
54...................... 157
55...................... 150
56...................... 146
57...................... 142
58...................... 138
59...................... 134
60...................... 130
</TABLE>
<TABLE>
<CAPTION>
APPLICABLE
ATTAINED AGE PERCENTAGE
- ------------ ----------
<S> <C>
61...................... 128%
62...................... 126
63...................... 124
64...................... 122
65...................... 120
66...................... 119
67...................... 118
68...................... 117
69...................... 116
70...................... 115
71...................... 113
72...................... 111
73...................... 109
74...................... 107
75 to 90................ 105
91...................... 104
92...................... 103
93...................... 102
94...................... 101
95 or older............. 100

</TABLE>

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.

18
<PAGE>

Option B. Under Option B, the death benefit is equal to the current Face
Amount plus the Cash Value of the Policy or, if greater, the applicable
percentage of the Cash Value on the date of death. The applicable percentage is
the same as under Option A: 250 percent for an Insured with an Attained Age of
40 or below on the Policy Anniversary prior to the date of death, and for
Insureds with an Attained Age over 40 on that Policy Anniversary the percentage
declines as shown in the Applicable Percentage Table above. Accordingly, under
Option B the amount of the death benefit will always vary as the Cash Value
varies (but will never be less than the Face Amount). Owners who prefer to have
favorable investment performance reflected in higher death benefits for the
same Face Amount generally should select Option B. All other factors equal, for
the same premium dollar, Option B provides lower initial Face Amount resulting
in earlier cash accumulation.

Change in Death Benefit Option. After the first Policy Anniversary, the Owner
may change the death benefit option in effect. The Company reserves the right
to limit the number of changes in death benefit options to one each Policy
Year. A request for change must be made directly to the Company in writing. The
effective date of such a change will be the Monthly Anniversary on or following
the date the Company receives the change request.

If the death benefit option is changed from Option A to Option B, the Face
Amount after the change will equal the Face Amount before the change less the
Cash Value on the effective date of the change. Satisfactory evidence of
insurability must be submitted directly to the Company in connection with a
request for a change from Option A to Option B. This change may not be made if
it would result in a Face Amount of less than $25,000.

If the death benefit option is changed from Option B to Option A, the Face
Amount after the change will equal the Face Amount before the change plus the
Cash Value on the effective date of change.

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. In
addition, if, prior to or accompanying a change in the death benefit option,
there has been an increase in the Face Amount, the cost of insurance charge may
be different for the increased amount. (See "Charges and Deductions--Monthly
Deduction--Cost of Insurance.")

No change in death benefit option will be permitted that results in the death
benefit under a Policy being included in gross income due to not satisfying the
requirements of Federal tax law. (See "Federal Tax Matters.")

Change in Face Amount. Subject to certain limitations set forth below, an
Owner may increase or decrease the Face Amount of a Policy (without changing
the death benefit option) after the first Policy Anniversary. A written request
for a change in the Face Amount must be sent directly to the Company. A change
in Face Amount may affect the cost of insurance rate and the net amount at
risk, both of which affect an Owner's cost of insurance charge. (See "Charges
and Deductions--Monthly Deduction--Cost of Insurance.") In addition, a change
in Face Amount may have Federal income tax consequences. (See "Federal Tax
Matters.")

Any decrease in the Face Amount will become effective on the Monthly
Anniversary on or following receipt of the written request by the Company. The
amount of the requested decrease must be at least $5,000 and the Face Amount
remaining in force after any requested decrease may not be less than the
minimum amount 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 these requirements. A
decrease in the Face Amount will reduce the Face Amount in the following order:

(a) The Face Amount provided by the most recent increase;

19
<PAGE>

(b) The next most recent increases successively; and

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").

For an increase in the Face Amount, the Company requires that satisfactory
evidence of insurability be submitted. If approved, the increase will become
effective on the Monthly Anniversary on or following receipt of the
satisfactory evidence of insurability. In addition, the Insured must have an
Attained Age of not greater than 80 on the effective date of the increase. The
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 or employer-
sponsored insurance program, the Company may establish a substantially higher
Face Amount for Policies issued under that Contract or program. Although an
increase need not necessarily be accompanied by an additional premium (unless
it is required to meet the next monthly deduction), the Cash Surrender Value in
effect immediately after the increase must be sufficient to cover the next
monthly deduction. (See "Charges and Deductions--Monthly Deduction.") An
increase in the Face Amount may result in certain additional charges. (See
"Charges and Deductions.")

An increase in Face Amount may be cancelled within the later of 20 days from
the date the Owner received the new Policy specifications page for the
increase, within 10 days of mailing the right to cancellation notice to the
Owner, or within 45 days after the application for an increase was signed. Upon
cancellation, any additional charges, which would not have been assessed
without the increase, will be refunded to the Owner if requested. If a request
for a refund is not made, the charges will be restored to the Policy's Cash
Value and allocated to Divisions of the Separate Account in the same manner as
they were deducted. Premiums paid following an increase in Face Amount and
prior to the time the right to cancel the increase expires will become part of
the Policy's Cash Value and will not be subject to refund. (See "Policy Rights
and Privileges--Right to Examine Policy.")

Methods of Affecting Insurance Protection. An Owner may increase or decrease
the pure insurance protection provided by a Policy--the difference between the
death benefit and the Cash Value--in several ways as insurance needs change.
These ways include increasing or decreasing the Face Amount, changing the level
of premium payments, and, to a lesser extent, making partial withdrawals from
the Policy. Although the consequences of each of these methods will depend upon
the individual circumstances, they may be generally summarized as follows:

(a) A decrease in the Face Amount will, subject to the applicable
percentage limitations (see "Policy Benefits--Death Benefit," page 16),
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.")

20
<PAGE>

(e) A partial withdrawal will reduce the death benefit. (See "Policy
Rights and Privileges--Surrender and Partial Withdrawals.") However, it
only affects the amount of pure insurance protection and cost of insurance
charges if the death benefit before or after the withdrawal is based on the
applicable percentage of Cash Value, because otherwise the decrease in the
death benefit is offset by the amount of Cash Value withdrawn. The primary
use of a partial withdrawal is to withdraw Cash Value.

Payment of Death Benefit Proceeds. Death benefit proceeds under the Policy
ordinarily will be paid within seven days after the Company receives all
documentation required for such a payment at its Home Office. Payment may,
however, be postponed in certain circumstances. (See "General Matters Relating
to the Policy--Postponement of Payments.") The Owner may decide the form in
which the proceeds will be paid. During the Insured's lifetime, the Owner may
arrange for the death benefit proceeds to be paid in a single sum or under one
or more of the optional methods of settlement described below. The death
benefit will be increased by the amount of the monthly cost of insurance for
the portion of the month from the date of death to the end of the month, and
reduced by any outstanding Indebtedness. (See "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 at the
death of the Insured, the Beneficiary may select one or more of the optional
methods of settlement at any time before death benefit proceeds are paid. (See
"Policy Rights and Privileges--Payment of Policy Benefits.")

An election or change of method of settlement must be in writing. A change in
Beneficiary revokes any previous settlement election. Once payments have begun,
the settlement option may not be changed.

CASH VALUE

The Cash Value of the Policy is equal to the total of the Policy's Cash Value
in the Separate Account and the Loan Account. The Policy's Cash Value in the
Separate Account will reflect the investment performance of the chosen
Divisions of the Separate Account, the frequency and amount of net premiums
paid, transfers, partial withdrawals, Policy Loans, and the charges assessed in
connection with the Policy. An Owner may at any time surrender the Policy and
receive the Policy's Cash Surrender Value. (See "Policy Rights and Privileges--
Surrender and Partial Withdrawals.") There is no guaranteed minimum Cash Value.

Determination of Cash Value. Cash Value is determined on a daily basis. On
the Investment Start Date, the Cash Value in a Division will equal the portion
of any net premium allocated to the Division, reduced by the portion of the
monthly deductions due from the Issue Date through the Investment Start Date
allocated to that Division. Depending upon the length of time between the Issue
Date and the Investment Start Date, this amount may be more than the amount of
one monthly deduction. (See "Payment and Allocation of Premiums.") Thereafter,
on each Valuation Date, the Cash Value in a Division of the Separate Account
will equal:

(1) The Cash Value in the Division on the preceding Valuation Date,
multiplied by the Division's Net Investment Factor (defined below) for
the current Valuation Period; plus

(2) Any net premium payments received during the current Valuation Period
which are allocated to the Division; plus

(3) Any loan repayments allocated to the Division during the current
Valuation Period; plus

(4) Any amounts transferred to the Division from another Division during
the current Valuation Period; plus

(5) That portion of the interest credited on outstanding Policy Loans which
is allocated to the Division during the current Valuation Period; minus

(6) Any amounts transferred from the Division during the current Valuation
Period plus transfer charges if any; minus

21
<PAGE>

(7) Any partial withdrawals plus any partial withdrawal transaction charge,
from the Division during the current Valuation Period; minus

(8) 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 of the Separate
Account or the Policy, or any amount set aside during the Valuation
Period as a reserve for taxes attributable to the operation or
maintenance of each Division; minus

(5) A charge not to exceed .0024547% of the net assets for each day in the
Valuation Period. This corresponds to 0.90% per year for mortality and
expense risks; divided by

(6) The value of the assets at the end of the preceding Valuation Period.

The Company may use an equivalent method to determine Cash Value in each
Division on each Valuation Date in lieu of the Net Investment Factor method.
This method directly determines the units of Cash Value in each Division and
the corresponding unit value. Unit value is obtained as follows:

(1) The value of assets in a Division are obtained by multiplying shares
outstanding by the net asset value as of the Valuation Date; minus

(2) A reduction based upon a charge not to exceed .0024547% of the net
assets for each day in the Valuation Period is made (This corresponds
to 0.90% per year for mortality and expense risk charge); divided by

(3) Aggregate units outstanding in the Division at the end of the preceding
Valuation Period.

POLICY RIGHTS AND PRIVILEGES

EXERCISING RIGHTS AND PRIVILEGES UNDER THE POLICIES

Owners of Policies issued under a Group Contract or in connection with an
employer-sponsored insurance program may exercise their rights and privileges
under the Policies (i.e., make transfers, change premium allocations, borrow,
etc.) by directly notifying the Company in writing at its Home Office. The
Company will send all reports and other notices described herein or in the
Policy directly to the Owner.

LOANS

22
<PAGE>

such loan. The Loan Value is equal to (a) minus (b), where (a) is 85 percent of
the Cash Value of the Policy on the date the Policy Loan is requested and (b)
is the amount of any outstanding Indebtedness. Loan interest is due and payable
in arrears on each Policy Anniversary or on a pro rata basis for such shorter
period as the loan may exist. The minimum amount that may be borrowed is $100.
The loan may be completely or partially repaid at any time while the Insured is
living. Any amount due to an Owner under a Policy Loan ordinarily will be paid
within seven days after the Company receives the loan request at its Home
Office, although payments may be postponed under certain circumstances. (See
"General Matters Relating to the Policy--Postponement of Payments.")

When a Policy Loan is made, Cash Value equal to the amount of the loan will
be transferred to the Loan Account as security for the loan. Unless the Owner
requests a different allocation, amounts will be transferred from the Divisions
of the Separate Account in the same proportion that the Policy's Cash Value in
each Division bears to the Policy's total Cash Value, less the Cash Value in
the Loan Account, at the end of the Valuation Period during which the request
for a Policy Loan is received. This will reduce the Policy's Cash Value in the
Separate Account. These transactions will not be considered transfers for
purposes of the limitations on transfers between Divisions.

Loan Account Interest Rate Credited. Cash Value transferred to the Loan
Account to secure a Policy Loan will accrue interest daily at an annual rate
not less than five percent. The rate is declared by action of Company
management as authorized by the Board of Directors of the Company. The Loan
Account interest credited will be transferred to the Divisions of the Separate
Account: (1) each Policy Anniversary; (2) when a new loan is made; (3) when a
loan is partially or fully repaid; and (4) when an amount is needed to meet a
monthly deduction.

Interest Rate Charged for Policy Loans. The interest rate charged will be at
an annual rate of eight percent. Interest charged will be due and payable
annually in arrears on each Policy Anniversary or for such shorter period as
the Policy Loan may exist. If the Owner does not pay the interest charged when
it is due, an amount of Cash Value equal to that which is due will be
transferred to the Loan Account. (See "Effect of Policy Loans," below.) The
amount transferred will be deducted from the Divisions of the Separate Account
in the same proportion that the portion of the Cash Value in each Division
bears to the total Cash Value of the Policy minus the Cash Value in the Loan
Account.

Effect of Policy Loans. A loan taken from, or secured by, a 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,
even if the loan is repaid. This is because the collateral for the Policy Loan
(the amount held in the Loan Account) does not participate in the performance
of the Separate Account while the loan is outstanding. If the Loan Account
interest credited is less than the investment performance of the selected
Division, the Policy values will be lower as a result of the loan. Conversely,
if the Loan Account interest credited is higher than the investment performance
of the Division, the Policy values may be higher.

In addition, if the Indebtedness exceeds the Cash Value on any Monthly
Anniversary, the Policy may lapse, subject to a grace period. (See "Charges and
Deductions.") A sufficient payment must be made within the later of the grace
period of 62 days from the Monthly Anniversary immediately before the date
Indebtedness exceeds the Cash Value, or 31 days after notice that the Policy
will terminate without a sufficient payment has been mailed, or the Policy will
lapse and terminate without value. A lapsed Policy, however, may later be
reinstated. (See "Payment and Allocation of Premiums--Policy Lapse and
Reinstatement.")

All outstanding Indebtedness will be deducted from the proceeds payable upon
the death of the Insured, surrender, or the maturity of the Policy.

23
<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 the Company at its Home
Office. Amounts paid while a Policy Loan is outstanding will be treated as
premiums unless the Owner requests in writing that they be treated as repayment
of Indebtedness. When a loan repayment is made, an amount securing the
Indebtedness in the Loan Account equal to the loan repayment will be
transferred to the Divisions of the Separate Account in the same proportion
that Cash Value in the Loan Account bears to the Cash Value in each Loan
Subaccount. A Loan Subaccount exists for each Division of the Separate Account.
Amounts transferred to the Loan Account to Secure Indebtedness are allocated to
the appropriate Loan Subaccount to reflect their origin.

SURRENDER AND PARTIAL WITHDRAWALS

At any time during the lifetime of the Insured and while a Policy is in
force, the Owner may surrender, or make a partial withdrawal under, the Policy
by sending a written request to the Company. The amount available upon
surrender is the Cash Surrender Value (described below) at the end of the
Valuation Period during which the surrender request is received at the
Company's Home Office. Amounts payable upon surrender or a partial withdrawal
ordinarily will be paid within seven days of receipt of the written request.
(See "General Matters Relating to the Policy--Postponement of Payments.")
Surrenders and partial withdrawals may have Federal income tax consequences.
(See "Federal Tax Matters.")

Surrender. To effect a surrender, the Policy itself must be returned to the
Company along with the request, or the request must be accompanied by a
completed affidavit of lost policy, which is available from the Company. Upon
surrender, the Company will pay the Cash Surrender Value to the Owner. The Cash
Surrender Value equals the Cash Value on the date of surrender, less any
Indebtedness. 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, is at least
$500. The minimum amount that can be withdrawn from a Division is $50, or the
Policy's Cash Value in a Division, if smaller. The maximum amount that may be
withdrawn, including the partial withdrawal transaction charge, is the Loan
Value. The partial withdrawal transaction charge is equal to the lesser of $25
or two percent of the amount withdrawn. The Owner may allocate the amount
withdrawn, subject to the above conditions, among the Divisions of the Separate
Account. If no allocation is specified, then the partial withdrawal will be
allocated among the Divisions of the Separate Account in the same proportion
that the Policy's Cash Value in each Division bears to the total Cash Value of
the Policy, less the Cash Value in the Loan Account, on the date the request
for the partial withdrawal is received.

A 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. 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 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. 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.

24
<PAGE>

withdrawal, insufficient funds remain in a Division to pay the partial
withdrawal transaction charge 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 be paid from the Owner's
Cash Value in another Division.

The Face Amount remaining in force after a partial withdrawal may not be less
than $25,000. Any request for a partial withdrawal that would reduce the Face
Amount below this amount will not be executed.

Partial withdrawals may affect the way in which the cost of insurance charge
is calculated and the amount of pure insurance protection afforded under a
Policy. (See "Policy Benefits--Death Benefit--Methods of Affecting Insurance
Protection.")

TRANSFERS

Under the Company's current rules, a Policy's Cash Value, except amounts
credited to the Loan Account, may be transferred among the Divisions of the
Separate Account. Requests for transfers from or among Divisions of the
Separate Account must be made in writing directly to the Company and may be
made once each Policy Month. Transfers must be in amounts of at least $250 or,
if smaller, the Policy's Cash Value in a Division. The Company will effectuate
transfers and determine all values in connection with transfers as of the end
of the Valuation Period during which the transfer request is received.

All requests received on the same Valuation Day will be considered a single
transfer request. Each transfer must meet the minimum requirement of $250 or
the entire Cash Value in a Division. Where a single transfer request calls for
more than one transfer, and not all of the transfers would meet the minimum
requirements, the Company will effectuate those transfers that do meet the
requirements. Transfers resulting from Policy Loans will not be counted for
purposes of the limitations on the amount or frequency of transfers allowed in
each month or year.

Although the Company currently intends to continue to permit transfers for
the foreseeable future, the Policy provides that the Company may modify the
transfer privilege, by changing the minimum amount transferable, by altering
the frequency of transfers, by imposing a transfer charge, by prohibiting
transfers, or in such other manner as the Company may determine at its
discretion.

RIGHT TO EXAMINE POLICY

The Owner may cancel a Policy within 20 days after receiving it, within 45
days after the Owner signed the application, or within 10 days of mailing a
notice of the cancellation right to the Owner, whichever is latest. If a Policy
is cancelled within this time period, a refund will be paid. The refund will
equal all premiums paid under the Policy.

To cancel the Policy, the Owner should mail or deliver the Policy directly to
the Company. A refund of premiums paid by check may be delayed until the check
has cleared the Owner's bank. (See "General Matters Relating to the Policy--
Postponement of Payments.")

A request for an increase in Face Amount (see "Policy Benefits--Death
Benefit," page 16) also may be cancelled. The request for cancellation must be
made within the latest of 20 days from the date the Owner received the new
Policy specifications pages for the increase, 10 days of mailing the right to
cancellation notice to the Owner, or 45 days after the Owner signed the
application for the increase.

Upon cancellation of an increase, the Owner may request that the Company
refund the amount of the additional charges deducted in connection with the
increase. This will equal the amount by which the monthly deductions since the
increase went into effect exceeded the monthly deductions which would have been
made absent the increase (see "Charges and Deductions--Monthly Deduction," page
27). 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.

25
<PAGE>

CONVERSION RIGHT TO A FIXED BENEFIT POLICY

Once during the first 24 Policy Months following the Issue Date of the
Policy, the Owner may, upon written request, convert a Policy still in force to
a life insurance policy that provides for benefits that do not vary with the
investment return of the Divisions of the Separate Account. In the event a
Certificate has been amended to operate as an Individual Policy following an
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," page 25). No evidence of
insurability will be required when this right is exercised. However, the
Company will require that the Policy be in force and that the Owner repay any
existing Indebtedness. At the time of the conversion, the new Policy will have,
at the Owner's option, either the same death benefit or the same net amount at
risk as the original Policy. The new Policy will also have the same Issue Date
and Issue Age as the original Policy. The premiums for the new Policy will be
based on the Company's rates in effect for the same Issue Age and rate class as
the original Policy.

ELIGIBILITY CHANGE CONVERSION

If an Insured's eligibility under a Group Contract or employer-sponsored
insurance program ends due to its termination or due to the termination of the
employee's employment, the Insured's coverage will continue unless the Policy
is no longer in force. 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 employee'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
the Company receives written notice that (a) the employee's employment ended 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 the Company at its Home Office before
the new Individual Policy will be mailed. A new planned premium schedule will
be established which will have the same planned annual premium utilized under
the Group Contract, but, ordinarily, the planned payment intervals will be no
more frequent than quarterly. 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.")

If an Individual Policy was issued under the Group Contract or other
employer-sponsored insurance program including a Corporate Program or Executive
Program, the Policy will continue in force following the change in eligibility.
The rights, benefits, and guaranteed charges under the Policy will remain the
same following this change in eligibility.

When an employee's spouse is the Insured under a Policy, the spouse's
insurance coverage also will continue in the event the employee is no longer
eligible. If a Certificate was originally issued to the employee's spouse, the
Certificate will be amended automatically as described above. If an Individual
Policy was originally issued, the Individual Policy will continue as described
above. In addition, if an Associated Company ceases be to under common control
with the Contractholder, the Insureds of the Associated Company (i.e.,
employees of the Associated Company and their spouses) may continue their
insurance in the
manner described above.

PAYMENT OF BENEFITS AT MATURITY

26
<PAGE>

Date paid in a single sum or under a settlement option. (See "Policy Rights and
Privileges--Payment of Policy Benefits.") Amounts payable on the Maturity Date
ordinarily will be paid within seven days of that date, although payment may be
postponed under certain circumstances. (See "General Matters Relating to the
Policy--Postponement of Payments.") A Policy will mature if and when the
Insured reaches Attained Age 95.

PAYMENT OF POLICY BENEFITS

A lump sum payment will be made. Provisions for settlement of proceeds
different from a lump sum payment may only be made upon written agreement with
the Company.

Settlement Options. The Company may offer settlement options that apply to
the payment of death benefit proceeds, as well as to benefits payable at
maturity. Once a settlement option is in effect, there will no longer be value
in the Separate Account.

Accelerated Death Benefits. The Company offers certain riders which permit
the Owner to elect to receive an accelerated payment of the Policy's death
benefit in a reduced amount under certain circumstances. (See "General Matters
Relating to the Policy--Additional Insurance Benefits.")

CHARGES AND DEDUCTIONS

Charges will be deducted in connection with the Policies to compensate the
Company for providing the insurance benefits set forth in the Policies 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.

PREMIUM EXPENSE CHARGE

Generally, there are no sales charges applicable to the Policies. However,
there may be a front-end charge applied to premium payments ("premium expense
charge") to certain Policies that would be categorized as individual contracts
under OBRA.

Prior to allocation of net premiums among the Divisions of the Separate
Account, premium payments will be reduced by any premium expense charge. The
premium expense charge is equal to a percentage of each premium paid as set
forth on the specifications pages of the Policy. The charge will either be zero
("0") or one percent, depending on whether the Policy is determined to be a
group or individual contract under OBRA. Among other possible employer-
sponsored programs, Corporate Program Policies are deemed to be individual
contracts. As a result of OBRA, insurance companies are generally required to
capitalize and amortize certain policy acquisition expenses over a ten year
period rather than currently deducting such expenses. A higher capitalization
expense applies to the deferred acquisition expenses of Policies that are
deemed to be individual contracts under OBRA and will result in a significantly
higher corporate income tax liability for the Company in early Policy Years.
Thus, under Policies that are deemed to be individual contracts under OBRA, the
Company makes a charge of 1% of each premium payment to compensate the Company
for the anticipated higher corporate income taxes that result from the sale of
such a Policy.

The premium payment less the premium expense charge less any charge to
compensate the Company for anticipated higher corporate income taxes resulting
from the sale of a Policy less the premium tax charge (described below) equals
the net premium.

The charges will not change in the event that an Insured is no longer
eligible under a Group Contract or employer-sponsored insurance program, but
continues coverage on an individual basis.

27
<PAGE>

PREMIUM TAX CHARGE

Various states and subdivisions impose a tax on premiums received by
insurance companies. Premium taxes vary from jurisdiction to jurisdiction.
Generally, to cover these premium taxes, the Company deducts a charge of 2
percent from all Policies. However, the Company may impose a charge of 2 1/4
percent for premium taxes on premiums received in connection with Policies
issued under an Executive Program.

MONTHLY DEDUCTION

Charges will be deducted monthly from the Cash Value of each Policy ("monthly
deduction") to compensate the Company for (a) certain administrative costs; (b)
insurance underwriting and acquisition expenses in connection with issuing a
Policy; (c) the cost of insurance; and (d) the cost of optional benefits added
by rider. The monthly deduction will be deducted on the Investment Start Date
and on each succeeding Monthly Anniversary. It will be allocated among each
Division of the Separate Account in the same proportion that a Policy's Cash
Value in each Division bears to the total Cash Value of the Policy, less the
Cash Value in the Loan Account, on the date the deduction is made. Because
portions of the monthly deduction, such as the cost of insurance, can vary from
month to month, the monthly deduction itself will vary in amount from month to
month.

Monthly Administrative Charge. The Company has responsibility for the
administration of the Policies and the Separate Account. Administrative
expenses include premium billing and collection, recordkeeping, processing
death benefit claims, cash surrenders, partial withdrawals, Policy changes,
reporting and overhead costs, processing applications, and establishing Policy
records. As reimbursement for administrative expenses related to the
maintenance of each Policy and the Separate Account, the Company assesses a
monthly administration charge from each Policy. The amount of this charge is
set forth in the specifications pages of the Policy and depends on the number
of employees eligible to be covered at issue of a Group Contract or an
employer-sponsored insurance program. The following table sets forth the range
of monthly administrative charges under the Policy:

<TABLE>
<CAPTION>
ELIGIBLE EMPLOYEES FIRST YEAR SUBSEQUENT YEARS
------------------ ---------- ----------------
<S> <C> <C>
250-499....................... $5.00......................... $2.50
500-999....................... $4.75......................... $2.25
1000+......................... $4.50......................... $2.00
</TABLE>

For Group Contracts or other employer-sponsored insurance programs with fewer
than 250 eligible employees, those with additional administrative costs, or
those that are offered as Executive Programs or Corporate Programs, the monthly
administrative charge may be higher, but will not exceed $6.00 per month during
the first Policy Year and $3.50 per month in renewal years.

These charges, once established at the time a Policy is issued, 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 the Company believes that lower administrative costs will be
incurred in connection with a particular Group Contract or employer-sponsored
insurance program due to the number of eligible employees or administrative
support provided by the employer, the Company may modify the above schedule for
that Group Contract or other employer-sponsored insurance program. The amount
of the administrative charge applicable to a particular Policy will be set
forth in specifications pages for that Policy.

Cost of Insurance. The cost of insurance is deducted on each Monthly
Anniversary for the following Policy Month. Because the cost of insurance
depends upon a number of variables, the cost will vary for each Policy Month.
The cost of insurance is determined separately for the initial Face Amount and
for any subsequent increases in Face Amount. The Company will determine the
monthly cost of insurance charge by multiplying the applicable cost of
insurance rate or rates by the net amount at risk for each Policy Month.

28
<PAGE>

The cost of insurance rates are determined at the beginning of each Policy
Year for the initial Face Amount and each increase in Face Amount. The current
cost of insurance rates will be determined by the Company based on its
expectations as to future mortality experience. The Company currently issues
the Policies on a guaranteed issue or simplified underwriting basis without
regard to the sex of the Insured. Whether a Policy is issued on a guaranteed
issue or simplified underwriting basis does not affect the cost of insurance
charge determined for that Policy.

The current cost of insurance rates will be based on the Attained Age of the
Insured, the rate class of the Insured, and possibly the gender mix (i.e., the
proportion of men and women covered under a particular Group Contract or
employer-sponsored program). 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 eligible employees as well as other factors that may
affect the mortality risks assumed by the Company in connection with a
particular Group Contract or employer-sponsored insurance program. All other
factors being equal, the cost of insurance rates generally decrease by rate
class as the number of eligible employees in the rate class increase. The
Company reserves the right to change criteria on which a rate class will be
based in the future.

If gender mix is a factor, the Company will estimate the gender mix of the
pool of Insureds under a Group Contract or employer-sponsored insurance program
upon issuance of the Contract. Each year on the Group Contract or employer-
sponsored insurance program's anniversary, the Company may adjust the rate to
reflect the actual gender mix for the particular group. In the event that the
Insured's eligibility under a Group Contract (or other employer-sponsored
insurance program) ceases, the cost of insurance rate will continue to reflect
the gender mix of the pool of Insureds at the time the Insured's eligibility
ceased. However, at some time in the future, the Company reserves the right to
base the gender mix and rate class on the group consisting of those Insureds
who are no longer under a Group Contract or employer-sponsored program.

The current cost of insurance rates will not be greater than the guaranteed
cost of insurance rates set forth in the Policy. These guaranteed rates are 125
percent of the maximum rates that could be charged based on the 1980
Commissioners Standard Ordinary Mortality Table C ("1980 CSO Table"). The
guaranteed rates are higher than 100 percent of the maximum rates in the 1980
CSO Table because the Company uses guaranteed or 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, except those changes made to adjust for changes in the gender
mix of the pool of Insureds under a particular Group Contract or employer-
sponsored insurance program, will apply to all persons of the same Attained Age
and rate class whose initial Face Amounts or increases in Face Amount have been
in force for the same length of time. (For purposes of computing guideline
premiums under Section 7702 of the Internal Revenue Code of 1986, as amended,
the Company will use 100 percent of the 1980 CSO Table.)

The net amount at risk for a Policy Month is (a) the death benefit at the
beginning of the Policy Month divided by 1.0040741 (which reduces the net
amount at risk, solely for purposes of computing the cost of insurance, by
taking into account assumed monthly earnings at an annual rate of five
percent), less (b) the Cash Value at the beginning of the Policy Month.

The net amount at risk may be affected by changes in the Cash Value or
changes in the Face Amount of the Policy. If there is an increase in the Face
Amount and the rate class applicable to the increase is different from that for
the initial Face Amount, the net amount at risk will be calculated separately
for each rate class. If Option A is in effect, for purposes of determining the
net amounts at risk for each rate class, Cash Value will first be considered a
part of the initial Face Amount. If the Cash Value is greater than the initial
Face Amount, the excess Cash Value will then be considered a part of each
increase in order, starting with the first increase. If Option B is in effect,
the net amount at risk for each rate class will be determined by the Face
Amount associated with that rate class. In calculating the cost of insurance
charge, the cost of insurance rate for a Face Amount is applied to the net
amount at risk for the corresponding rate class.

29
<PAGE>

Because the calculation of the net amount at risk is different under Option A
and Option B when more than one rate class is in effect, a change in the death
benefit option may result in a different net amount at risk for each rate class
than would have occurred had the death benefit option not been changed. Since
the cost of insurance is calculated separately for each rate class, any change
in the net amount at risk resulting from a change in the death benefit option
may affect the total cost of insurance paid by the Owner.

Partial withdrawals and decreases in Face Amount will affect the manner in
which the net amount at risk for each rate class is calculated. (See "Policy
Benefits--Death Benefit," and "Policy Rights and Privileges--Surrender and
Partial Withdrawals.")

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.")

PARTIAL WITHDRAWAL TRANSACTION CHARGE

A transaction charge which is the lesser of $25 or two percent of the amount
withdrawn will be assessed on each partial withdrawal to cover 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, which equals an annual rate of .90%
of those net assets. This deduction is guaranteed not to increase for the
duration of the Policy. The Company may realize a profit from this charge.

The mortality risk assumed by the Company is that Insureds may die sooner
than anticipated and that therefore the Company will pay an aggregate amount of
death benefits greater than anticipated. The expense risk assumed is that
expenses incurred in issuing and administering the Policy will exceed the
amounts realized from the administrative charges assessed against the Policy.

Federal Taxes. Currently no charge is made to the Separate Account for
Federal income taxes that may be attributable to the Separate Account. The
Company may, however, make such a charge in the future. Charges for other
taxes, if any, attributable to the Account may also be made. (See "Federal Tax
Matters.")

Expenses of Scudder Variable Fund. The value of the net assets of the
Separate Account will reflect the investment advisory fee and other expenses
incurred by the Class A Shares of Scudder Variable Fund. (See "The Company and
the Separate Account--Scudder Variable Life Investment Fund.")

GENERAL MATTERS RELATING TO THE POLICY

POSTPONEMENT OF PAYMENTS

Payment of any amount due from the Separate Account upon surrender, partial
withdrawals, election of an accelerated death benefit under a rider, death of
the Insured, or the Maturity Date, as well as payments of a Policy loan and
transfers, may be postponed whenever: (i) the New York Stock Exchange is closed
other than customary weekend and holiday closings, or trading on the New York
Stock Exchange is restricted as determined by the SEC; (ii) the SEC by order
permits postponement for the protection of Owners; or (iii) an emergency
exists, as determined by the SEC, as a result of which disposal of securities
is not reasonably practicable or it is not reasonably practicable to determine
the value of the Separate Account's net assets.

Payments under the Policy of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared the Owner's bank.

30
<PAGE>

THE CONTRACT

The Policy, the attached application, any riders, endorsements, any
application for an increase in Face Amount, and any application for
reinstatement constitute the entire contract between the Owner and the Company.
Apart from the rights and benefits described in the Certificate 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.

CONTROL OF POLICY

The Insured will be considered Owner of the Policy unless another person is
shown as the Owner in the application. Ownership may be changed, however, as
described below. The Owner is entitled to all rights provided by the Policy,
prior to its Maturity Date. After the Maturity Date, the Owner cannot change
the payee nor the mode of payment, unless otherwise provided in the Policy. Any
person whose rights of ownership depend upon some future event will not possess
any present rights of ownership. If there is more than one Owner at a given
time, all must exercise the rights of ownership. If the Owner should die, and
the Owner is not the Insured, the Owner's interest will go to his or her estate
unless otherwise provided.

BENEFICIARY

The Beneficiary(ies) is (are) the person(s) specified in the application or
by later designation. Unless otherwise stated in the Policy, the Beneficiary
has no rights in a Policy before the death of the Insured. If there is more
than one Beneficiary at the death of the Insured, each will receive equal
payments unless otherwise provided by the Owner. If no Beneficiary is living at
the death of the Insured, the proceeds will be payable to the Owner or, if the
Owner is not living, to the Owner's estate.

CHANGE OF OWNER OR BENEFICIARY

The Owner may change the ownership and/or Beneficiary designation by written
request in a form acceptable to the Company at any time during the Insured's
lifetime. The Company may require that the Policy be returned for endorsement
of any change. The change will take effect as of the date the request is
signed, whether or not the Insured is living when the request is received at
the Company's Home Office. The
Company will not be liable for any payment made or action taken before the
Company received the written request for change. If the Owner is also a
Beneficiary of the Policy at the time of the Insured's death, the Owner may,
within 60 days of the Insured's death, designate another person to receive the
Policy proceeds.

POLICY CHANGES

The Company reserves the right to limit the number of Policy changes to one
per Policy Year and to restrict such changes in the first Policy Year.
Currently, no change may be made during the first Policy Year. For this
purpose, changes include increases or decreases in Face Amount and changes in
the death benefit option. No change will be permitted that would result in the
death benefit under a Policy being included in gross income due to not
satisfying the requirements of Section 7702 of the Internal Revenue Code or any
applicable successor provision.

CONFORMITY WITH STATUTES

If any provision in a Policy is in conflict with the laws of the state
governing the Policy, the provision will be deemed to be amended to conform to
such laws.

31
<PAGE>

CLAIMS OF CREDITORS

To the extent permitted by law, neither the Policy nor any payment thereunder
will be subject to the claims of creditors or to any legal process.

INCONTESTABILITY

The Policy is incontestable after it has been in force for two years from the
Issue Date during the lifetime of the Insured. An increase in Face Amount or
addition of a rider after the Issue Date is incontestable after such increase
or addition has been in force for two years from its effective date during the
lifetime of the Insured. Any reinstatement of a Policy is incontestable, except
for nonpayment of premiums, only after it has been in force during the lifetime
of the Insured for two years after the effective date of the reinstatement.

ASSIGNMENT

The Company will be bound by an assignment of a Policy only if: (a) it is in
writing; (b) the original instrument or a certified copy is filed with the
Company at its Home Office; and (c) the Company sends an acknowledged copy to
the Owner. The Company is not responsible for determining the validity of any
assignment. Payment of Policy proceeds is subject to the rights of any assignee
of record. If a claim is based on an assignment, the Company may require proof
of the interest of the claimant. A valid assignment will take precedence over
any claim of a Beneficiary.

SUICIDE

Suicide within two years of the Issue Date is not covered by the Policy. If
the Insured dies by suicide, while sane or insane, within two years from the
Issue Date (or within the maximum period permitted by the laws of the state in
which the Policy was delivered, if less than two years), the amount payable
will be limited to premiums paid, less any partial withdrawals and outstanding
Indebtedness. If the Insured, while sane or insane, dies by suicide within two
years after the effective date of any increase in Face Amount, the death
benefit for that increase will be limited to the amount of the monthly
deductions for the increase.

If the Insured is a Missouri citizen when the Policy is issued, this
provision does not apply on the Issue Date of the Policy, or on the effective
date of any increase in Face Amount, unless the Insured intended suicide at the
time of application for the Policy or any increase in Face Amount.

MISSTATEMENT OF AGE AND CORRECTIONS

If the age of the Insured has been misstated in the application, the amount
of the death benefit will be that which the most recent cost of insurance
charge would have purchased for the correct age.

Any payment or Policy changes made by the Company in good faith, relying on
its records or evidence supplied with respect to such payment, will fully
discharge the Company's duty. The Company reserves the right to correct any
errors in the Policy.

ADDITIONAL INSURANCE BENEFITS

Subject to certain requirements, one or more of the following additional
insurance benefits may be added to a Policy by rider. However, some Group
Contracts or employer-sponsored insurance programs may not offer each of the
additional benefits described below. Certain riders may not be available in all
states. In addition, should it be determined that the tax status of a Policy as
life insurance is adversely affected by the addition of any of these riders,
the Company will cease offering such riders. The descriptions below are
intended to be general; the terms of the Policy riders providing the additional
benefits may vary from state to state, and the Policy should be consulted. The
cost of any additional insurance benefits will be deducted as part of the
monthly deduction. (See "Charges and Deductions--Monthly Deduction.")

32
<PAGE>

Waiver of Monthly Deductions Rider. Provides for the waiver of the monthly
deductions while the Insured is totally disabled, subject to certain
limitations described in the rider. The Insured must have become disabled
before age 65.

Accidental Death Benefit Rider. Provides additional insurance if the
Insured's death results from accidental bodily injury, as defined in the rider.
Under the terms of the rider, the additional benefits provided in the Policy
will be paid upon receipt of proof by the Company that death resulted directly
from accidental injury and independently of all other causes; occurred within
120 days from the date of injury; and occurred before the Policy Anniversary
nearest age 70 of the Insured.

Children's Life Insurance Rider. Provides for term insurance on the Insured's
children, as defined in the rider. To be eligible for insurance under the
rider, the child to be insured must not be confined in a hospital at the time
the application is signed. Under the terms of the rider, the death benefit will
be payable to the named Beneficiary upon the death of any insured child. Upon
receipt of proof of the Insured's death before the rider terminates, the rider
will be continued on a fully paid-up term insurance basis.

HIV Acceleration of Death Benefits Rider. Provides for the Owner's election
for the Company to make an accelerated payment, prior to the death of the
Insured upon receipt of satisfactory evidence that the Insured has tested
seropositive for the human immunodeficiency virus ("HIV") after both the Policy
and rider are issued. The Company will pay the Policy's death benefit (less any
Indebtedness and any term insurance added by riders), calculated on the date
that the Company receives satisfactory evidence that the Insured has tested
seropositive for HIV, reduced by a $100 administrative processing fee. The
Company will pay the accelerated benefit to the Owner in a single payment in
full settlement of the Company's obligations under the Policy. The rider may be
added to the Policy only after the Insured satisfactorily meets certain
underwriting requirements which will generally include a negative HIV test
result to a blood or other screening test acceptable to the Company.

The Federal income tax consequences associated with (i) adding the HIV
Acceleration of Death Benefit Rider or (ii) receiving the benefit provided
under the rider are uncertain. Accordingly, we urge you to consult a tax
adviser about such consequences before adding the HIV Acceleration of Death
Benefit Rider to your Policy or requesting a benefit under the rider.

Accelerated Death Benefit Settlement Option Rider. Provides for the
accelerated payment of a portion of death benefit proceeds in a single sum to
the Owner if the Insured is terminally ill or permanently confined to a nursing
home. Under the rider, which is available at no additional cost, the Owner may
make a voluntary election to completely settle the Policy in return for the
Company's accelerated payment of a reduced death benefit. The Owner may make
such an election under the rider if 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 Accelerated Death Benefit Settlement
Option Rider is not available with Corporate Programs.

The amount of the death benefit payable under the rider will equal the cash
surrender value under the Policy on the date the Company receives satisfactory
evidence of either (1) or (2), above, (less any Indebtedness and any term
insurance added by other riders) plus the product of the applicable "benefit
factor" multiplied by the difference of (a) minus (b), where (a) equals the
Policy's death benefit proceeds, and (b) equals the Policy's cash surrender
value. The "benefit factor", in the case of terminal illness, is 0.85 and, in
the case of permanent nursing home confinement, is 0.70.

The Federal income tax consequences associated with (i) adding the
Accelerated Death Benefit Settlement Option Rider or (ii) receiving the
benefits provided under such rider are uncertain. Accordingly, we urge you to
consult a tax adviser about such consequences before adding the Accelerated
Death Benefit Settlement Option Rider to your Policy or requesting a benefit
under the rider.

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<PAGE>

RECORDS AND REPORTS

The Company will maintain all records relating to the Separate Account and
will mail to the Owner once each Policy Year, at the last known address of
record, a report which shows the current Policy values, premiums paid,
deductions made since the last report, and any outstanding Policy Loans. The
Owner will also be sent without comment periodic reports for the Scudder
Variable Fund and a list of the portfolio securities held in each Fund. Receipt
of premium payments directly from the Owner, transfers, partial withdrawals,
Policy Loans, loan repayments, changes in death benefit options, increases or
decreases in Face Amount, surrenders and reinstatements will be confirmed
promptly following each transaction.

An Owner may request in writing a projection of illustrated future Cash
Surrender Values and death benefits. This projection will be furnished by the
Company for a nominal fee.

DISTRIBUTION OF THE POLICIES

Walnut Street Securities, Inc. ("Walnut Street") acts as principal
underwriter of the Policies pursuant to an Underwriting Agreement with the
Company. Walnut Street is a wholly-owned subsidiary of General American Holding
Company, which is an affiliate of the Company. Walnut Street is registered with
the SEC under the Securities Exchange Act of 1934 as a broker-dealer and is a
member of the National Association of Securities Dealers. The Policies are
distributed by the Company on behalf of Walnut Street or through broker-dealers
who have entered into written sales agreements with Walnut Street. No
commissions are paid for distribution of the Policies.

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 remit 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 remitted in advance to the Company. The planned premium payment interval is
agreed to by the Contractholder and the Company. Prior to each planned payment
interval, the Company will furnish the Contractholder with a statement of the
planned premium payments to be made under the Group Contract or such other
notification as has been agreed to by the Contractholder and the Company.

GRACE PERIOD

If the Contractholder does not remit planned premium payments in a timely
fashion, the Group Contract will be in default. A grace period of 31 days
begins on the date that the planned premiums were scheduled to be remitted. If
the Contractholder does not remit premiums prior to the end of the grace
period, the Group Contract will terminate. However, the Individual Insurance
will continue following the Group Contract's termination, provided such
insurance is not surrendered or cancelled by the Owner. (See "Policy Rights and
Privileges--Eligibility Change Conversion.")

TERMINATION

34
<PAGE>

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 the Company.

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 the Company. All statements made by the Contractholder,
any Owner or any Insured will be deemed representations and not warranties.
Misstatements will not be used in any contest or to reduce claim under the
Group Contract, unless it is in writing. A copy of the application containing
such misstatement must have been given to the Contractholder or to the Insured
or to his Beneficiary, if any.

INCONTESTABILITY

The Company cannot contest the Group Contract after it has been in force for
two years from the date of issue.

OWNERSHIP OF GROUP CONTRACT

The Contractholder owns the Group Contract. The Group Contract may be changed
or ended by agreement between the Company and the Contractholder without the
consent of, or notice to, any person claiming rights or benefits under the
Group Contract. However, the Contractholder does not have any ownership
interest in the Policies issued under the Group Contract. The rights and
benefits under the Policies inure to the benefit of the Owners, Insureds, and
Beneficiaries as set forth herein and in the Policies.

FEDERAL TAX MATTERS

INTRODUCTION

The following summary provides a general description of the Federal income
tax considerations associated with the Policy and does not purport to be
complete or to cover all situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisers should be consulted for more
complete information. This discussion is based upon the Company's understanding
of the present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of
continuation of the present Federal income tax laws or of the current
interpretations by the Internal Revenue Service.

TAXATION OF THE POLICY

35
<PAGE>

7702 definition of a life insurance contract. If a Policy were determined not
to be a life insurance contract for purposes of Section 7702, such Policy would
not provide the tax advantages normally provided by a life insurance policy.
Therefore, if it is subsequently determined that a Policy does not satisfy
section 7702, the Company will take whatever steps are appropriate and
necessary to attempt to cause such Policy to comply with section 7702,
including possibly refunding any premiums paid that exceed the limitations
allowable under section 7702 (together with interest or other earnings on any
such premiums refunded as required by law). For these reasons, the Company
reserves the right to modify the Policy as necessary to attempt to qualify it
as a life insurance contract under section 7702.

Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of each Division of the Separate
Account to be "adequately diversified" in order for the Policy to be treated as
a life insurance contract for Federal tax purposes. Although the Company does
not control the Scudder Variable Fund or its investments, the Scudder Variable
Fund has represented that it intends to comply with the diversification
requirements prescribed by the Treasury in Reg. section 1.817-5. Thus, the
Company believes that each Division of the Separate Account, through the
Scudder Variable Fund, will be in compliance with the requirements prescribed
by the Treasury.

The IRS has stated in published rulings that a variable contract owner will
be considered the owner of separate account assets, for federal income tax
purposes, if the contract owner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. If
that were to be determined to be the case, income and gains from the separate
account assets would be includible in the variable contract owner's gross
income. The Treasury Department has also announced, in connection with the
issuance of regulations concerning diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor (i.e., the
Owner), rather than the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
owners of the underlying assets."

The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Owner has additional flexibility in allocating Premium payments
and Policy Values. These differences could result in an Owner being treated as
the owner of a pro rata portion of the assets of the Separate Account. In
addition, the Company does not know what standards will be set forth, if any,
in the regulations or rulings which the Treasury Department has stated it
expects to issue. The Company therefore reserves the right to modify the Policy
as necessary to attempt to prevent an Owner from being considered the owner of
a pro rata share of the assets of the Separate Account.

The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.

TAX TREATMENT OF POLICY BENEFITS

1. IN GENERAL. As a life insurance contract, the proceeds and cash value
increases of a Policy should be treated in a manner consistent with a fixed-
benefit life insurance policy for Federal income tax purposes. Thus, the death
benefit under the Policy should be excludable from the gross income of the
Beneficiary under section 101(a)(1) of the Code.

36
<PAGE>

or an assignment of the Policy may have Federal income tax consequences
depending on the circumstances. In addition, Federal estate and state and local
estate, inheritance, and other tax consequences of ownership or receipt of
Policy proceeds depend on the circumstances of each Policy owner or
Beneficiary. A competent tax adviser should be consulted for further
information.

The Federal income tax consequences associated with (i) adding either the HIV
Acceleration of Death Benefit Rider or the Accelerated Death Benefit Settlement
Option Rider (the "Riders") or (ii) receiving the benefits provided under these
Riders are uncertain. Accordingly, we urge you to consult a tax adviser before
adding either rider to your Policy or requesting a benefit under such Riders.

The Policies may be used in various arrangements, such as nonqualified
deferred compensation or salary continuance plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of such Policies in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement.

Generally, the Owner will not be deemed to be in constructive receipt of the
cash value, including increments thereof, under the Policy until there is a
distribution. The tax consequences of distributions from, and loans taken from
or secured by, a Policy depend on whether the Policy is classified as a
"modified endowment contract". Whether a Policy is or is not classified as a
modified endowment contract, upon a complete surrender or lapse of the Policy
or when benefits are paid at the maturity date, if the amount received plus the
amount of indebtedness exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to tax.

2. POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. In general, a Policy
will be a modified endowment contract if the accumulated premiums paid at any
time during the first seven policy years exceeds the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. Further, a Policy that is not otherwise a modified endowment contract
may become a modified endowment contract if it is "materially changed." The
determination whether a Policy will be a modified endowment contract after a
material change generally depends upon the relationship of the death benefit
and the cash value at the time of such change and the additional premiums paid
in the seven years following the material change.

Due to the Policy's flexibility, classification as a modified endowment
contract will depend on the individual circumstances of each Policy. Moreover,
the rules relating to whether a Policy will be treated as a modified endowment
contract are extremely complex. Therefore, a current or prospective Policy
owner is strongly advised to retain and consult with a competent advisor before
purchasing a Policy, making an unscheduled premium payment on an existing
Policy or making any change in an existing Policy, to determine whether the
Policy will be treated as a modified endowment contract.

The Company has adopted administrative steps designed to protect a
Policyowner against inadvertently having the Policy become a modified endowment
contract. Although the Company cannot provide complete assurance at this time
that a Policy will not inadvertently become a modified endowment contract, it
is continuing its efforts to enhance its administrative systems to monitor
potential modified endowment classifications automatically.

37
<PAGE>

distributions from such a Policy and taxed accordingly. Third, a 10 percent
additional income tax is imposed on the portion of any distribution from, or
loan taken from or secured by, such a Policy that is included in income except
where the distributions or loan is made on or after the Policy owner attains
age 59 1/2, is attributable to the Policy owner's becoming disabled, or is part
of a series of substantially equal periodic payments for the life (or life
expectancy) of the Policy owner or the joint lives (or joint life expectancies)
of the Policy owner and the Policy owner's Beneficiary.

If a Policy becomes a modified endowment contract after it is issued,
distributions made during the policy year in which it becomes a modified
endowment contract, distributions in any subsequent policy year and
distributions within two years before the Policy becomes a modified endowment
contract will be subject to the tax treatment described above. This means that
a distribution from a Policy that is not a modified endowment contract could
later become taxable as a distribution from a modified endowment contract.

4. DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT
CONTRACTS. Distributions from a Policy that is not a modified endowment
contract, and which is not materially changed, or, if materially changed, is
not classified as a modified endowment contract after such material change, are
generally treated as first recovering the investment in the Policy (described
below) and then, only after the return of all such investment in the Policy, as
distributing taxable income. An exception to this general rule occurs in the
case of a decrease in the Policy's death benefit (e.g., partial withdrawal or a
change from Option B to Option A) or any other change that reduces benefits
under the Policy in the first 15-years after the Policy is issued and that
results in a cash distribution to the Policy owner in order for the Policy to
continue complying with the section 7702 definitional limits. Such a cash
distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in section 7702.

Loans from, or secured by, a Policy that is not a modified endowment contract
are not treated as distributions. Instead, such loans are treated as
indebtedness of the Owner.

Finally, neither distributions (including distributions upon surrender or
lapse) nor loans from, or secured by, a Policy that is not a modified endowment
contract are subject to the 10 percent additional income tax.

5. POLICY LOAN INTEREST. If there is any borrowing against a Policy, the
interest paid on the loan generally will not be tax deductible. A Policyowner
should consult a qualified tax adviser before deducting interest on a policy
loan.

6. INVESTMENT IN THE POLICY. Investment in the Policy means (i) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (ii) the
aggregate amount received under the Policy which is excluded from gross income
of the Policy owner (except that the amount of any loan from, or secured by, a
Policy that is a modified endowment contract, to the extent such amount is
excluded from gross income, will be disregarded), plus (iii) the amount of any
loan from, or secured by, a Policy that is a modified endowment contract to the
extent that such amount is included in the gross income of the Owner.

7. MULTIPLE POLICIES. All modified endowment contracts that are issued by the
Company (or its affiliates) to the same Policy owner during any calendar year
are treated as one modified endowment contract for purposes of determining the
amount includible in gross income.

POSSIBLE CHARGE FOR TAXES

At the present time, the Company makes no charge to the Separate Account for
any Federal, state or local taxes the Company incurs that may be attributable
to the Separate Account or to the Policies. The Company, however, reserves the
right in the future to make a charge for any such tax or other economic burden
resulting from the application of the tax laws that it determines to be
properly attributable to the Separate Account or to the Policies.

38
<PAGE>

SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS

The Company holds the assets of the Separate Account. The assets are kept
physically segregated and held separate and apart from the Company's general
assets. The Company maintains records of all purchases and redemptions of
Scudder Variable Fund shares by each of the Divisions. Additional protection
for the assets of the Separate Account is afforded by a blanket fidelity bond
issued by Reliance Insurance Company in the amount of $5 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 Class A shares of
the Scudder Variable Fund held in the Separate Account at regular and special
shareholder meetings of the Scudder Variable Fund 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 Scudder Variable Fund in its own right, it may elect to do so.

The Owners of Policies ordinarily are the persons having a voting interest in
the Divisions of the Separate Account. The number of votes which an Owner has
the right to instruct will be calculated separately for each Division. The
number of votes which each Owner has the right to instruct will be determined
by dividing a Policy's Cash Value in a Division by the net asset value per
share of the corresponding Fund in which the Division invests. Fractional
shares will be counted. The number of votes of the Fund which the Owner has
right to instruct will be determined as of the date coincident with the date
established by that Fund for determining shareholders eligible to vote at the
meeting of the Scudder Variable Fund. Voting instructions will be solicited by
written communications prior to such meeting in accordance with procedures
established by the Scudder Variable Fund.

Because the Funds of the Scudder Variable Fund serve as investment vehicles
for this Policy as well as for other variable life insurance policies sold by
insurers other than the Company and funded through other separate investment
accounts, persons owning the other policies will enjoy similar voting rights.
The Company will vote Fund shares held in the Separate Account for which no
timely voting instructions are received and Fund shares that it owns as a
consequence of accrued charges under the Policies, in proportion to the voting
instructions which are received with respect to all Policies participating in a
Fund. Each person having a voting interest in a Division will receive proxy
material, reports, and other materials relating to the appropriate Fund.

Disregard of Voting Instructions. The Company may, when required by state
insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
subclassification or investment objective of 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 of the Scudder Variable 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 the Company determined that the change would have an adverse
effect on its general assets in that the proposed investment policy for a Fund
may result in overly speculative or unsound investments. In the event the
Company does disregard voting instructions, a summary of that action and the
reasons for such action will be included in the next annual report to Owners.

39
<PAGE>

STATE REGULATION OF THE COMPANY

The Company, a stock life insurance company organized under the laws of
Missouri, is subject to regulation by the Missouri Division of Insurance. An
annual statement is filed with the Director of Insurance on or before March 1
each year covering the operations and reporting on the financial condition of
the Company as of December 31 of the preceding year. Periodically, the Director
of Insurance examines the liabilities and reserves of the Company and the
Separate Account and certifies their adequacy, and a full examination of the
Company's operations is conducted by the National Association of Insurance
Commissioners at least once every three years.

In addition, the Company is subject to the insurance laws and regulations of
other states within which it is licensed or may become licensed to operate.
Generally, the insurance departments of other states apply the laws of the
state of domicile in determining permissible investments.

MANAGEMENT OF THE COMPANY

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME DURING PAST FIVE YEARS*
---- -----------------------
EXECUTIVE OFFICERS**
<C> <S>
Carl H. Anderson@ President and Chief Executive Officer since June,
1986, and Vice President, New Ventures, since June,
1986, General American Life Insurance Co., St.
Louis, Mo. (GenAm).
Matthew K. Duffy Vice President and Chief Financial Officer since
July, 1996. Formerly, Director of Accounting,
Prudential Insurance Company of America, March,
1987-June, 1996.
E. Thomas Hughes, Jr.@ Treasurer since December, 1994. Corporate Actuary
General American Life and Treasurer, GenAm since October, 1994. Executive
Insurance Company Vice President-Group Pensions, GenAm January, 1990-
700 Market Street October, 1994.
St. Louis, MO 63101
Matthew P. McCauley@ Vice President and General Counsel since 1984.
General American Life Secretary since August, 1981. Vice President and
Insurance Company Associate General Counsel, GenAm, since December 30,
700 Market Street 1995.
St. Louis, MO 63101
Craig K. Nordyke@ Executive Vice President and Chief Actuary since
November, 1996. Vice President and Chief Actuary
August, 1990 - November, 1996. Second Vice President
and Chief Actuary, May, 1987-August, 1990.
George E. Phillips Vice President--Operations and System Development
since January, 1995. Formerly, Senior Vice
President, Fortis, Inc. July, 1991-August, 1994.
Vice President, Mutual Benefit prior to July, 1991.
<CAPTION>
DIRECTORS***
<C> <S>
Richard A. Liddy Chairman, President, and Chief Executive Officer,
GenAm, since May, 1992. President and Chief
Operating Officer, GenAm, May, 1988-May, 1992.
Leonard M. Rubenstein Chairman and Chief Executive Officer--Conning
Corporation and Conning Asset Management Company
since January, 1997. Executive Vice President--
Investments, GenAm, February, 1991- January, 1997.
</TABLE>

40
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME DURING PAST FIVE YEARS*
---- -----------------------
EXECUTIVE OFFICERS**
<C> <S>
Warren J. Winer Executive Vice President--Group, GenAm, since
September, 1995. Formerly, Managing Director, Wm. M.
Mercer, July, 1993-August, 1995; President, W F
Corroon, September, 1990-July, 1993.
Bernard H Wolzenski Executive Vice President--Individual, GenAm, since
November, 1991. Vice President--Life Product
Management, GenAm, May, 1989-November, 1991.
A. Greig Woodring President, Reinsurance Group of America, Inc., since
May, 1993. Formerly, Executive Vice President--
Reinsurance, GenAm, since January, 1990.
</TABLE>
- --------
*All positions listed are with the Company unless otherwise indicated.
**The principal business address of each person listed is Paragon Life
Insurance Company, 100 South Brentwood, St. Louis, Missouri 63105 unless
otherwise noted.
***The principal business address of each person listed is General American
Life Insurance Company, 700 Market Street, St. Louis, MO 63101, except A.
Greig Woodring--Reinsurance Group of America, 660 Mason Ridge Center Drive,
St. Louis, MO 63141.
@Indicates Executive Officers who are also Directors.

LEGAL MATTERS

Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on
certain legal matters relating to aspects of Federal securities laws. All
matters of Missouri law pertaining to the Policies, including the validity of
the Policies and the Company's right to issue the Policies and the Group
Contract under Missouri insurance law, and all legal matters relating to the
Parent Company's resolution concerning policies issued by Paragon have been
passed upon by Matthew P. McCauley, Esquire, General Counsel of Paragon Life
Insurance Company.

LEGAL PROCEEDINGS

There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. The Company is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Account.

EXPERTS

The financial statements of the Company and the Separate Account included in
this Prospectus and in the registration statement have been included in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, and on 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.

41
<PAGE>

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
Divisions 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.

42
<PAGE>

[LETTERHEAD OF KPMG PEAT MARWICK LLP]

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, 1996 and 1995, and the related statements of
operations, stockholder's equity, and cash flows for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
and 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, 1996 and 1995, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

February 21, 1997

F-1
<PAGE>

PARAGON LIFE INSURANCE COMPANY

BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
ASSETS
Bonds, at fair value......................................... $ 65,472 59,518
Policy loans................................................. 9,564 7,206
Cash and cash equivalents.................................... 9,106 7,056
-------- -------
Total cash and invested assets........................... 84,142 73,780
Reinsurance receivables:
Future policy benefits..................................... 6,141 5,761
Policy and contract claims................................. 774 1,183
Accrued investment income.................................... 1,298 1,041
Deferred policy acquisition costs............................ 15,776 13,006
Federal income tax recoverable............................... -- 114
Other assets................................................. 1,508 375
Separate account assets...................................... 76,995 50,195
-------- -------
Total assets............................................. $186,634 145,455
======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Reserve for future policy benefits........................... 78,120 67,485
Policy and contract claims................................... 1,108 1,096
Federal income taxes payable................................. 811 --
Other liabilities and accrued expenses....................... 2,704 1,963
Payable to affiliates........................................ 2,289 1,892
Due to separate account...................................... 95 203
Deferred tax liability....................................... 2,781 2,845
Separate account liabilities................................. 76,995 50,195
-------- -------
Total liabilities........................................ $164,903 125,679
======== =======
Commitments and contingencies
Stockholder's equity:
Common stock, par value $25; 100,000 shares authorized;
82,000 shares issued and outstanding...................... 2,050 2,050
Additional paid-in capital................................. 17,950 17,950
Net unrealized gain on investments, net.................... 322 1,583
Retained earnings (deficit)................................ 1,409 (1,807)
-------- -------
Total stockholder's equity............................... $ 21,731 19,776
-------- -------
Total liabilities and stockholder's equity............... $186,634 145,455
======== =======
</TABLE>

See accompanying notes to financial statements.

F-2
<PAGE>

PARAGON LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Revenues:
Policy contract charges................................ $13,719 9,931 7,692
Net investment income.................................. 5,663 4,888 4,117
Commissions and expenses allowances on reinsurance ced-
ed.................................................... 114 96 119
Realized investment gains.............................. 72 1 44
------- ------ ------
Total revenues....................................... 19,568 14,916 11,972
======= ====== ======
Benefits and expenses:
Policy benefits........................................ 3,326 2,873 2,754
Interest credited...................................... 4,126 3,833 3,065
Commissions, net of capitalized costs.................. 79 57 73
General and administration expenses, net of capitalized
costs................................................. 6,798 5,528 4,282
Amortization of deferred policy acquisition costs...... 285 369 164
------- ------ ------
Total benefits and expenses.......................... 14,614 12,660 10,338
======= ====== ======
Gain from operations before federal income tax ex-
pense............................................... 4,954 2,256 1,634
Federal income tax expense............................... 1,738 781 576
------- ------ ------
Net income............................................... $ 3,216 1,475 1,058
======= ====== ======
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

PARAGON LIFE INSURANCE COMPANY

STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
NET UNREALIZED
ADDITIONAL GAIN (LOSS) ON RETAINED TOTAL
COMMON PAID-IN INVESTMENTS, EARNINGS STOCKHOLDER'S
STOCK CAPITAL NET OF TAXES (DEFICIT) EQUITY
------ ---------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... $2,050 17,950 1,100 (4,340) 16,760
Net income............ -- -- -- 1,058 1,058
Change in net
unrealized gain
(loss) on
investments, net..... -- -- (2,924) -- (2,924)
------ ------ ------ ------ ------
Balance at December 31,
1994................... $2,050 17,950 (1,824) (3,282) 14,894
Net income............ -- -- -- 1,475 1,475
Change in net
unrealized gain
(loss) on
investments, net..... -- -- 3,407 -- 3,407
------ ------ ------ ------ ------
Balance at December 31,
1995................... $2,050 17,950 1,583 (1,807) 19,776
Net income............ -- -- -- 3,216 3,216
Change in net
unrealized gain
(loss) on
investments, net..... -- -- (1,261) -- (1,261)
------ ------ ------ ------ ------
Balance at December 31,
1996................... $2,050 17,950 322 1,409 21,731
====== ====== ====== ====== ======
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

PARAGON LIFE INSURANCE COMPANY

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 3,216 1,475 1,058
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in:
Reinsurance receivables...................... 29 158 (1,775)
Accrued investment income.................... (257) (156) (79)
Deferred policy acquisition costs, net....... (2,770) (1,894) (2,148)
Federal income tax recoverable/payable....... 925 (23) (91)
Other assets................................. (1,133) (122) 11
Policy and contract claims................... 12 387 (281)
Other liabilities and accrued expenses....... 741 313 286
Payable to affiliates........................ 397 526 690
Due to separate account...................... (108) (14) 217
Deferred tax expense............................. 615 897 669
Interest credited................................ 4,126 3,833 3,065
Net gain on sales and calls of investments....... (72) (1) (44)
-------- ------- -------
Net cash provided by operating activities.......... 5,721 5,379 1,578
======== ======= =======
Cash flows from investing activities:
Purchase of investments.......................... (15,248) (8,462) (11,613)
Sale or maturity of investments.................. 6,860 3,082 4,751
Increase in policy loans, net.................... (2,358) (1,788) (1,785)
-------- ------- -------
Net cash used in investing activities.............. (10,746) (7,168) (8,827)
-------- ------- -------
Cash flows from financing activities:
Gross policyholder account deposits on life con-
tracts.......................................... 45,433 35,202 29,046
Net transfers to separate account for variable
life contracts.................................. (38,358) (29,399) (20,323)
-------- ------- -------
Net cash provided by financing activities.......... 7,075 5,803 8,723
-------- ------- -------
Net increase in cash and cash equivalents.......... 2,050 4,014 1,474
Cash and cash equivalents at beginning of year..... 7,056 3,042 1,568
-------- ------- -------
Cash and cash equivalents at end of year........... $ 9,106 7,056 3,042
======== ======= =======
Income taxes received (paid)....................... $ (198) 93 2
======== ======= =======
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND 1995

(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.

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 benefit 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
which is assumed to be 20 years.

(b) Invested Assets

Investment securities are accounted for at fair value. At December 31, 1996
and 1995, all long-term securities are classified as available-for-sale and are
carried at fair value with the unrealized gain or loss, net of taxes, being
reflected as a separate component of stockholder's equity. Short-term
investments are carried at amortized cost which approximates market value.
Policy loans are valued at aggregate unpaid balances. The fair value of policy
loans is assumed to approximate the carrying value as the loans have no fixed
maturity date and, therefore, it is not practical to determine fair value.

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.

Liabilities for future benefits on life policies are carried at their
accumulated account values. Certain interest sensitive life policies allow
policyholders to move accumulated assets from the variable rate separate
accounts to a fixed-interest general account. The fixed-interest general
account guaranteed policyholders minimum crediting rates of 4.0% in 1996 and
1995 and 5.5% in 1994.

F-6
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(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. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

The Company files its federal income tax return on a consolidated basis with
its Parent and other subsidiaries. In accordance with a tax allocation
agreement between Paragon and General American, taxes are computed as if
Paragon was filing its own income tax return, and tax expense (benefit) is paid
to, or received from, General American. Paragon recognizes a tax benefit to the
extent that its tax losses are utilized by other members of the General
American consolidated tax group.

(e) Reinsurance

Reinsurance activities are accounted for consistent with terms of risk
transfer reinsurance contracts. Premiums 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. The Company deferred approximately $2,447,000, $2,263,000 and
$2,313,000 in policy acquisition costs and recognized amortization of deferred
policy acquisition costs of approximately $285,000, $369,000 and $164,000 in
1996, 1995 and 1994 respectively. In addition, the Company recognizes the
impact on deferred policy acquisition costs related to unrealized gains
(losses) on investments underlying the business. In 1996, 1995 and 1994 the
Company recognized a direct charge (benefit) to stockholder's equity of
approximately ($17,000), $624,000 and ($719,000) respectively.

(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 market value.

(h) Fair Market Disclosures

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.

F-7
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 which care. The following
assumptions were used to estimate the fair market value of each class of
financial instrument for which it was practicable to estimate fair value:

Investment securities--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 the carrying value which
approximates fair value.

Separate account assets and liabilities--The separate account assets and
liabilities are carried at market value as determined by quoted market
prices.

Cash and short-term investments--The carrying amount is 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.

(2) INVESTMENTS

Market value is based upon market prices obtained from independent pricing
services which approximate fair value. The amortized cost and estimated market
value of bonds at December 31, 1996 and 1995 are as follows (000's):

<TABLE>
<CAPTION>
1996
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities....... $ 4,410 129 (5) 4,534
U.S. government agency obliga-
tions......................... 3,597 70 (20) 3,647
Corporate securities........... 55,007 1,208 (844) 55,371
Mortgage-backed securities..... 1,945 65 (90) 1,920
------- ----- ---- ------
$64,959 1,472 (959) 65,472
======= ===== ==== ======
<CAPTION>
1995
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities....... $ 4,608 281 (1) 4,888
U.S. government agency obliga-
tions......................... 4,920 173 -- 5,093
Corporate securities........... 42,842 2,842 (438) 45,246
Mortgage-backed securities..... 4,088 203 -- 4,291
------- ----- ---- ------
$56,458 3,499 (439) 59,518
======= ===== ==== ======
</TABLE>

F-8
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The amortized cost and estimated market value of bonds at December 31, 1996,
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>
AMORTIZED ESTIMATED
COST MARKET VALUE
--------- ------------
<S> <C> <C>
Due in one year or less............................ $ 3,248 3,273
Due after one year through five years.............. 9,685 9,980
Due after five years through ten years............. 22,144 22,248
Due after ten years through twenty years........... 27,937 28,051
Mortgage-backed securities......................... 1,945 1,920
------- ------
$64,959 65,472
======= ======
</TABLE>

Proceeds from sales of investments in bonds during 1996, 1995 and 1994 were
$4,129,254, $264,750 and $495,666 respectively. Gross gains of $71,604, $1,338
and $44,095 were realized on those sales in 1996, 1995 and 1994, respectively.

The sources of net investment income follow (000s):

<TABLE>
<CAPTION>
1996 1995 1994
------- ----- -----
<S> <C> <C> <C>
Bonds.............................................. $ 4,626 4,109 3,685
Short-term investments............................. 449 338 113
Policy loans and other............................. 680 480 347
------- ----- -----
Investment expenses................................ 5,755 4,927 4,145
(92) (39) (28)
------- ----- -----
Net investment income.......................... $ 5,663 4,888 4,117
======= ===== =====
</TABLE>

The Company has bonds on deposit with various state insurance departments
with an amortized cost of approximately $3,909,000 and $3,868,000 at December
31, 1996 and 1995, respectively.

(3) REINSURANCE

The Company reinsures certain risks with other insurance companies above a
maximum retention amount (currently $50,000) to help reduce the loss on any
single policy.

Premiums and related reinsurance amounts for the years ended December 31,
1996, 1995 and 1994 as they relate to transactions with affiliates are
summarized as follows (000's):

<TABLE>
<CAPTION>
1996 1995 1994
------- ----- -----
<S> <C> <C> <C>
Reinsurance transactions with affiliates:
Reinsurance premiums ceded.......................... $10,715 9,126 7,136
Policy benefits ceded............................... 6,274 6,881 4,960
Commissions and expenses ceded...................... 114 94 130
</TABLE>

Ceded premiums and benefits to nonaffiliates for 1996, 1995 and 1994 were
insignificant.

F-9
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(4) 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>
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
Current tax (benefit) expense.......................... $1,123 (116) (93)
Deferred tax expense................................... 615 897 669
------ ---- ---
Federal income tax expense............................. $1,738 781 576
====== ==== ===
</TABLE>

A reconciliation of the Company's "expected" federal income tax expense,
computed by applying the federal U.S. corporate tax rate of 35% to gain from
operations before federal income tax, is a follows (000s):

<TABLE>
<CAPTION>
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense......................... $1,734 790 572
Other, net.............................................. 4 (9) 4
------ --- ---
Federal income tax expense.............................. $1,738 781 576
====== === ===
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1996 and 1995
are presented below (000's):

<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Deferred tax assets:
Unearned reinsurance allowances............................ $ 153 153
Reserve for future policy benefits......................... 1,305 1,604
Tax capitalization of acquisition costs.................... 1,386 1,067
Other, net................................................. 69 54
------ -----
Total deferred tax assets................................ $2,913 2,878
====== =====
Deferred tax liabilities:
Unrealized gain on investments............................. $ 173 1,071
Deferred policy acquisition costs.......................... 5,521 4,552
Other, net................................................. -- 100
------ -----
Total gross deferred tax liabilities..................... $5,694 5,723
====== =====
Net deferred tax liabilities................................. $2,781 2,845
====== =====
</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.

(5) 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 1996, 1995 and
1994 were $1,250,396, $1,103,028 and $651,472, respectively.

F-10
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(6) 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 if service and compensation level. No pension
expense was recognized in 1996, 1995 or 1994 due to overfunding of the plan.

In addition, Paragon has adopted an associate incentive plan applicable to
full-time salaried associates with at least one year of service. Contributions
to the plan are determined annually by General American and are based on
salaries of eligible associates. Full vesting occurs after five years of
continuous service. Total expenses to the company for the incentive plan were
$80,434, $149,747 and $37,533 for 1996, 1995 and 1994, respectively.

Paragon provides for certain health care and life insurance benefits for
retired employees. The Company accounts for these benefits in accordance with
SFAS No. 106--Employer's Accounting for Postretirement Benefits Other Than
Pensions. SFAS No. 106 requires the Company to accrue the estimated cost of
retiree benefit payments during the years the employee provides services.

SFAS No. 106 allows recognition of the cumulative effect of the liability in
the year of the adoption or the amortization of the transition obligation over
a period of up to 20 years. The Company has elected to recognize the initial
post-retirement benefit obligation of approximately $73,000 over a period of 20
years. The unrecognized initial post retirement benefit obligation was
approximately $58,391 and $61,782 at December 31, 1996 and 1995, respectively.
Net periodic post-retirement benefit costs for the years ended December 31,
1996, 1995 and 1994 were approximately $30,000, $35,000 and $26,000,
respectively. This included expected costs of benefits for newly eligible or
vested employees, interest costs, gains and losses from differences between
actuarial and actual experience, and amortization of the initial post-
retirement benefit obligation. The accumulated post-retirement benefit
obligation was approximately $116,000 and $118,000 at December 31, 1996 and
1995. The discount rate used in determining the accumulated post-retirement
benefit obligation was 7.25 percent. The health care cost trend rates were 9%
for the Indemnity Plan, 8% for the HMO Plan, and 9% for the Dental Plan. These
rates were graded to 5.25% over the next 13 years. A one percentage point
increase in the assumed health care cost trend rates would increase the
December 31, 1996 accumulated post-retirement obligation by 12.9%, and the
estimated service cost and interest cost components of the net periodic post-
retirement benefit cost for 1996 by 16.0%.

(7) 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 a
liability for future policy benefits 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; and (5) valuation of
investments in bonds at amortized cost.

The stockholder's equity (surplus) and net income (loss) of the Company at
December 31, 1996, 1995 and 1994, as determined using statutory accounting
practices, is summarized as follows (000's):

F-11
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Statutory surplus as reported to regulatory au-
thorities...................................... $10,751 10,778 11,821
Net income (loss) as reported to regulatory au-
thorities...................................... $ 982 (920) (950)
</TABLE>

(8) 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 1997 without prior
notice or approval is $1,075,000. Paragon did not pay dividends in 1996, 1995
or 1994.

(9) RISK-BASED CAPITAL

The insurance departments of various states, including the Company's
domiciliary state of Missouri, impose risk-based capital (RBC) requirements on
insurance enterprises. The RBC calculation serves as a benchmark for the
regulation of life insurance companies by state insurance regulators. The
requirements apply various weighted factors to financial balances or activity
levels based on their perceived degree of risk.

The RBC guidelines define specific capital levels where action by the Company
or regulators is required based on the ratio of a company's actual total
adjusted capital to control levels determined by the RBC formula. At December
31, 1996, 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.

(10) COMMITMENTS AND CONTINGENCIES

The Company leases certain of its facilities under noncancellable leases
which expire March 2001. The future minimum lease obligations under the terms
of the leases are summarized as follows (000s):

<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31:
1997............................ $ 510
1998............................ 480
1999............................ 472
2000............................ 468
2001............................ 445
------
$2,375
======
</TABLE>

Rent expense totaled $388,976, $256,631 and $239,967 in 1996, 1995 and 1994,
respectively.

F-12
<PAGE>

LOGO

INDEPENDENT AUDITORS' REPORT

The Board of Directors

Paragon Life Insurance Company and

Policyholders of Separate Account B's Scudder Divisions:

We have audited the accompanying statements of net assets, including the
schedule of investments, of the Money Market, International, Capital Growth,
Balanced, Bond, and Growth and Income Divisions of Paragon Separate Account B
as of December 31, 1996, and related statements of operations and changes in
net assets for the periods presented. These financial statements are the
responsibility of Paragon Separate Account B's management. Our responsibility
is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at December 31, 1996 by
correspondence with the Scudder Variable Life Investment Fund. 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 Money Market,
International, Capital Growth, Balanced, Bond, and Growth and Income Divisions
of Paragon Separate Account B as of December 31, 1996, and the results of their
operations and changes in their net assets for the periods presented, in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP
April 4, 1997

F-13
<PAGE>

PARAGON SEPARATE ACCOUNT B

STATEMENTS OF NET ASSETS
DECEMBER 31, 1996

<TABLE>
<CAPTION>
MONEY CAPITAL GROWTH &
MARKET INTERNATIONAL GROWTH BALANCED BOND INCOME
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
-------- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS:
Investments in Scudder
Investments, at Mar-
ket Value (See Sched-
ule of Investments).. $25,867 401,721 776,759 369,471 104,172 81,194
Receivable (payable)
from/to Paragon Life
Insurance Company.... -- (10) (19) (9) (3) (2)
------- ------- ------- ------- ------- ------
Total Net Assets.... 25,867 401,711 776,740 369,462 104,169 81,192
======= ======= ======= ======= ======= ======
Group Variable Univer-
sal Life Cash Value
Invested in Separate
Account.............. 25,867 401,711 776,740 369,462 104,169 81,192
------- ------- ------- ------- ------- ------
$25,867 401,711 776,740 369,462 104,169 81,192
======= ======= ======= ======= ======= ======
TOTAL UNITS HELD........ 23,416 30,173 42,065 29,204 13,037 8,210
NET ASSET VALUE PER
UNIT................... $ 1.10 13.31 18.47 12.65 7.99 9.89
COST OF INVESTMENTS..... 24,279 334,483 598,764 305,374 92,814 71,617
======= ======= ======= ======= ======= ======
</TABLE>

See Accompanying Notes to Financial Statements.

F-14
<PAGE>

PARAGON SEPARATE ACCOUNT B
STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995, AND FOR THE PERIOD FROM MARCH
3, 1994 (INCEPTION) TO DECEMBER 31, 1994

<TABLE>
<CAPTION>
INTERNATIONAL CAPITAL GROWTH
MONEY MARKET DIVISION DIVISION DIVISION BALANCED DIVISION
--------------------- ---------------------- ---------------------- ---------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994 1996 1995 1994
------- ------ ------ ------ ------ ------- ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Realized Gain (Loss)
from Sales of Invest-
ments:
Proceeds from Sales.... $ 6,474 7,711 54,912 64,427 64,140 126,258 113,945 74,163 68,339 60,612 41,367 38,170
Cost of Investments
Sold................... 6,195 7,546 54,716 56,562 61,059 128,911 92,669 68,867 70,498 51,183 38,636 38,457
------- ------ ------ ------ ------ ------- ------- ------ ------ ------ ------ ------
Net Realized
Gain(Loss) from Sales
of Investments....... 279 165 196 7,865 3,081 (2,653) 21,276 5,296 (2,159) 9,429 2,731 (287)
Net Unrealized
Gain(Loss) on Invest-
ments:
Unrealized Gain(Loss)
Beginning of Year...... 711 79 -- 26,132 (364) -- 81,498 (4,175) -- 38,554 (122) --
Unrealized Gain(Loss)
End of Year............ 1,588 711 79 67,237 26,132 (364) 177,995 81,498 (4,175) 64,098 38,554 (122)
------- ------ ------ ------ ------ ------- ------- ------ ------ ------ ------ ------
Net Unrealized
Gain(Loss) on Invest-
ments.................. 877 632 79 41,105 26,496 (364) 96,497 85,673 (4,175) 25,544 38,676 (122)
------- ------ ------ ------ ------ ------- ------- ------ ------ ------ ------ ------
Net Gain(Loss) on In-
vestments............ 1,156 797 275 48,970 29,577 (3,017) 117,773 90,969 (6,334) 34,973 41,407 (409)
Expenses:
Mortality and Expense
Charge................. 211 142 56 3,190 2,056 722 5,890 3,431 867 2,869 1,617 384
------- ------ ------ ------ ------ ------- ------- ------ ------ ------ ------ ------
Increase(Decrease) in
Assets Resulting from
Operations.............. $ 945 655 219 45,780 27,521 (3,739) 111,883 87,538 (7,201) 32,104 39,790 (793)
======= ====== ====== ====== ====== ======= ======= ====== ====== ====== ====== ======
<CAPTION>
GROWTH & INCOME
BOND DIVISION DIVISION
--------------------- ----------------------
1996 1995 1994 1996 1995 1994
------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Realized Gain from
Sales of Investments:
Proceeds from Sales.... $14,092 11,832 90,086 50,395 1,961 55,424
Cost of Investments
Sold................... 12,863 11,059 90,992 45,641 1,739 55,407
------- ------ ------ ------ ------ -------
Net Realized
Gain(Loss) from Sales
of Investments....... 1,229 773 (906) 4,754 222 17
Net Unrealized
Gain(Loss) on Invest-
ments:
Unrealized Gain(Loss)
Beginning of Year.... 9,327 493 -- 1,480 7 --
Unrealized Gain(Loss)
End of Year.......... 11,358 9,327 493 9,576 1,480 7
------- ------ ------ ------ ------ -------
Net Unrealized
Gain(Loss) on Invest-
ments................ 2,031 8,834 493 8,096 1,473 7
------- ------ ------ ------ ------ -------
Net Gain(Loss) on
Investments........ 3,260 9,607 (413) 12,850 1,695 24
Expenses:
Mortality and Expense
Charge................. 840 519 183 562 55 1
------- ------ ------ ------ ------ -------
Increase(Decrease) in
Assets Resulting from
Operations.............. $ 2,420 9,088 (596) 12,288 1,640 23
======= ====== ====== ====== ====== =======
</TABLE>

See Accompanying Notes to Financial Statements.

F-15
<PAGE>

PARAGON SEPARATE ACCOUNT B

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND FOR THE PERIOD FROM MARCH 3,
1994 (INCEPTION) TO DECEMBER 31, 1994

<TABLE>
<CAPTION>
MONEY MARKET DIVISION INTERNATIONAL DIVISION CAPITAL GROWTH DIVISION
------------------------- ------------------------- -------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
-------- ------- ------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Realized Gain
(Loss) from sales of
investments............ $ 279 165 196 7,865 3,081 (2,653) 21,276 5,296 (2,159)
Net Unrealized Gain
(Loss) on Investments.. 877 632 79 41,105 26,496 (364) 96,497 85,673 (4,175)
Mortality and Expense
Charge................. (211) (142) (56) (3,190) (2,056) (722) (5,890) (3,431) (867)
-------- ------- ------ ------- ------- ------- ------- ------- -------
Increase (Decrease) in
Net Assets Resulting
from Operations........ 945 655 219 45,780 27,521 (3,739) 111,883 87,538 (7,201)
Net Deposits into Sepa-
rate Account........... 7,609 6,407 10,032 90,073 102,560 139,516 186,952 222,400 175,168
-------- ------- ------ ------- ------- ------- ------- ------- -------
Increase in Net As-
sets.................. 8,554 7,062 10,251 135,853 130,081 135,777 298,835 309,938 167,967
Net Assets, Beginning of
Year.................... 17,313 10,251 -- 265,858 135,777 -- 477,905 167,967 --
-------- ------- ------ ------- ------- ------- ------- ------- -------
Net Assets, End of Year. $ 25,867 17,313 10,251 401,711 265,858 135,777 776,740 477,905 167,967
======== ======= ====== ======= ======= ======= ======= ======= =======
<CAPTION>
GROWTH & INCOME
BALANCED DIVISION BOND DIVISION DIVISION
------------------------- ------------------------- -------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
-------- ------- ------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Realized Gain
(Loss) from sales of
investments............ $ 9,429 2,731 (287) 1,229 773 (906) 4,754 222 17
Net Unrealized Gain
(Loss) on Investments.. 25,544 38,676 (122) 2,031 8,834 493 8,096 1,473 7
Mortality and Expense
Charge................. (2,869) (1,617) (384) (840) (519) (183) (562) (55) (1)
-------- ------- ------ ------- ------- ------- ------- ------- -------
Increase (Decrease) in
Net Assets Resulting
from Operations........ 32,104 39,790 (793) 2,420 9,088 (596) 12,288 1,640 23
Net Deposits into Sepa-
rate Account........... 93,679 108,054 96,628 31,680 27,205 34,372 56,373 6,848 4,020
-------- ------- ------ ------- ------- ------- ------- ------- -------
Increase in Net As-
sets.................. 125,783 147,844 95,835 34,100 36,293 33,776 68,661 8,488 4,043
Net Assets, Beginning of
Year.................... 243,679 95,835 -- 70,069 33,776 -- 12,531 4,043 --
-------- ------- ------ ------- ------- ------- ------- ------- -------
Net Assets, End of Year. $369,462 243,679 95,835 104,169 70,069 33,776 81,192 12,531 4,043
======== ======= ====== ======= ======= ======= ======= ======= =======
</TABLE>

See Accompanying Notes to Financial Statements.

F-16
<PAGE>

PARAGON SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

(1) ORGANIZATION

Paragon Life Insurance Company (Paragon) established Paragon Separate Account
B on January 4, 1991. Paragon Separate Account B (the Separate Account)
commenced operations on March 3, 1994 and is registered under the Investment
Company Act of 1940 as a unit investment trust. The Division options included
herein commenced operations on March 3, 1994. The Separate Account receives and
invests net premiums for flexible premium group variable life insurance
policies that are issued by Paragon. The Separate Account is divided into
Divisions, six of which invests exclusively in shares of a single fund of
Scudder Variable Life Investment Fund (Scudder), an open-end, diversified
management investment company. These funds are the Money Market Portfolio,
International Portfolio, Capital Growth Portfolio, Balanced Portfolio, Bond
Portfolio, and Growth and Income Portfolio (the Funds). Policyholders have the
option of directing their premium payments into any or all of the Divisions.

(2) SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by the
Separate Account in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.

Investments

The Separate Account's investments in the Funds of Scudder 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 is determined by the costs
associated with distributing the policy and, if applicable, is equal to 1% of
the premium paid. The premium expense charge compensates Paragon for

F-17
<PAGE>

PARAGON SEPARATE ACCOUNT B

NOTES TO FINANCIAL STATEMENTS--(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 policies have a premium tax assessment equal to 2%
or 2.25% to reimburse Paragon for premium taxes incurred. The premium payment
less premium expense and premium tax charges equals the net premium that is
invested in the underlying separate account.

Monthly Expense Charge

Paragon has responsibility for the administration of the policies and the
Separate Account. As reimbursement for expenses related to the acquisition and
maintenance of each policy and the Separate Account, Paragon assesses a monthly
administration charge to each policy. This charge, which varies due to the size
of the group, has a maximum of $6.00 per month during the first 12 policy
months and $3.50 per month thereafter.

Cost of Insurance

The cost of insurance is deducted on each monthly anniversary for the
following policy month. Because the cost of insurance depends upon a number of
variables, the cost varies for each policy month. The cost of insurance is
determined separately for the initial face amount and for any subsequent
increase in face amount. Paragon determines the monthly cost of insurance
charge by multiplying the applicable cost of insurance rate or rates by the net
amount at risk for each policy month.

Optional Rider Benefits Charge

The monthly deduction charge for any additional benefits provided by rider.

Surrender or Contingent Deferred Sales Charge

During the first policy years, certain policies include a provision for a
charge upon surrender or lapse of the policy, a requested decrease in face
amount, or a partial withdrawal that causes the face amount to decrease. The
amount assessed under the policy terms, if any, depends upon the cost
associated with distributing the particular policies. The amount of any charge
depends on a number of factors, including whether the event is a full surrender
or lapse or only a decrease in face amount, the amount of premiums received by
Paragon, and the policy year in which the surrender or other event takes place.

Mortality and Expense Charge

In addition to the above contract charges, a daily charge against the
operations of each division is made for the mortality and expense risks assumed
by Paragon. Paragon deducts a daily charge from the Separate Account at the
rate of .0024547% of the net assets of each division of the Separate Account
which equals an annual rate of .90% of those net assets. The mortality risk
assumed by Paragon is that insureds may die sooner than anticipated and that,
therefore, Paragon will pay an aggregate amount of death benefits greater than
anticipated. The expense risk assumed is that expenses incurred in issuing and
administering the policy will exceed the amounts realized from the
administrative charges assessed against the policy.

F-18
<PAGE>

PARAGON SEPARATE ACCOUNT B

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(4) PURCHASES AND SALES OF SCUDDER VARIABLE LIFE INVESTMENT FUND SHARES

During the years ended December 31, 1996 and 1995, and for the period from
March 3, 1994 (inception) to December 31, 1994 purchases and proceeds from the
sales of the Scudder Variable Life Investment Fund were as follows:

<TABLE>
<CAPTION>
MONEY MARKET DIVISION INTERNATIONAL DIVISION CAPITAL GROWTH DIVISION
------------------------ ----------------------- -----------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
-------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases............... $ 13,868 13,976 64,538 151,355 164,644 258,600 294,894 293,131 237,403
Sales................... $ 6,474 7,711 54,912 64,427 64,140 126,258 113,945 74,163 68,339
======== ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
GROWTH & INCOME
BALANCED DIVISION BOND DIVISION DIVISION
------------------------ ----------------------- -----------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
-------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases............... $151,544 147,804 128,210 44,942 38,518 123,033 106,656 8,754 59,419
Sales................... $ 60,612 41,367 38,170 14,092 11,832 90,086 50,395 1,961 55,424
======== ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

(5) ACCUMULATION OF UNIT ACTIVITY

The following is a reconciliation of the accumulation of unit activity for
the years ended December 31, 1996 and 1995, and for the period from March 3,
1994 to December 31, 1994:

<TABLE>
<CAPTION>
MONEY MARKET INTERNATIONAL CAPITAL GROWTH
DIVISION DIVISION DIVISION
-------------------- -------------------- --------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in Units
Deposits............... 12,898 13,545 17,149 12,404 15,567 17,820 17,686 22,304 25,409
Withdrawals............ 5,806 7,295 7,075 4,940 5,639 5,039 6,420 5,299 11,615
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Increase in Units.. 7,092 6,250 10,074 7,464 9,928 12,781 11,266 17,005 13,794
Outstanding Units,
Beginning of Year...... 16,324 10,074 -- 22,709 12,781 -- 30,799 13,794 --
------ ------ ------ ------ ------ ------ ------ ------ ------
Outstanding Units, End
of Year................ 23,416 16,324 10,074 30,173 22,709 12,781 42,065 30,799 13,794
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
GROWTH & INCOME
BALANCED DIVISION BOND DIVISION DIVISION
-------------------- -------------------- --------------------
1996 1995 1994 1996 1995 1994 1996 1995 1,994
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in Units
Deposits............... 12,690 14,882 18,942 5,817 5,517 7,079 11,954 1,138 646
Withdrawals............ 4,836 4,035 8,439 1,717 1,592 2,067 5,278 250 --
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Increase in Units.. 7,854 10,847 10,503 4,100 3,925 5,012 6,676 888 646
Outstanding Units,
Beginning of Year...... 21,350 10,503 -- 8,937 5,012 -- 1,534 646 --
------ ------ ------ ------ ------ ------ ------ ------ ------
Outstanding Units, End
of Year................ 29,204 21,350 10,503 13,037 8,937 5,012 8,210 1,534 646
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

F-19
<PAGE>

PARAGON SEPARATE ACCOUNT B

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(6) RECONCILIATION OF GROSS AND NET DEPOSITS INTO THE SEPARATE ACCOUNT

Deposits into the Separate Account purchase shares of Scudder Variable Life
Investment Fund. Net deposits represent the amount available for investment in
such shares after deduction of premium expense charges, monthly expense
charges, cost of insurance and the cost of optional benefits added by rider.
The following is a summary of net deposits made for the years ended December
31, 1996 and 1995, and for the period from March 3, 1994 (inception) to
December 31, 1994:

<TABLE>
<CAPTION>
MONEY MARKET DIVISION INTERNATIONAL DIVISION CAPITAL GROWTH DIVISION
-------------------------- ------------------------- -------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
-------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross Deposits.... $ 17,177 15,728 14,282 183,290 187,321 187,545 333,168 304,665 239,058
Surrenders and
Withdrawals............ (1,433) (1,878) -- (20,546) (6,334) (3,620) (19,152) (5,721) (260)
Transfers Between Funds
and General Account.... (1,387) (1,374) 265 (10,737) (22,137) 348 (9,053) 16,250 (516)
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total Gross Deposits
net of Surrenders,
Withdrawals, and
Transfers............ 14,357 12,476 14,547 152,007 158,850 184,273 304,963 315,194 238,282
Deductions:
Premium Expense
Charges............... 501 468 438 5,346 5,576 5,621 9,718 9,068 7,249
Monthly Expense
Charges............... 305 419 547 4,714 4,596 5,247 8,860 7,658 7,490
Cost of Insurance and
Optional Benefits..... 5,942 5,182 3,530 51,874 46,118 33,889 99,433 76,068 48,375
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total Deductions...... 6,748 6,069 4,515 61,934 56,290 44,757 118,011 92,794 63,114
-------- ------- ------- ------- ------- ------- ------- ------- -------
Net Deposits from
Policyholders.......... $ 7,609 6,407 10,032 90,073 102,560 139,516 186,952 222,400 175,168
======== ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
GROWTH & INCOME
BALANCED DIVISION BOND DIVISION DIVISION
-------------------------- ------------------------- -------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
-------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross Deposits.... $183,446 164,138 137,307 54,516 43,869 47,026 83,186 8,921 3,226
Surrenders and
Withdrawals............ (19,050) (10,199) (246) (3,481) (2,002) (106) (37,530) -- --
Transfers Between Funds
and General Account.... (9,771) 5,283 (215) (1,088) -- (774) 32,036 1,978 892
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total Gross Deposits
net of Surrenders,
Withdrawals, and
Transfers............ 154,625 159,222 136,846 49,947 41,867 46,146 77,692 10,899 4,118
Deductions:
Premium Expense
Charges............... 5,351 4,886 4,051 1,590 1,306 1,389 2,426 266 98
Monthly Expense
Charges............... 4,330 4,158 4,849 1,230 1,214 1,392 662 141 --
Cost of Insurance and
Optional Benefits..... 51,265 42,124 31,318 15,447 12,142 8,993 18,231 3,644 --
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total Deductions...... 60,946 51,168 40,218 18,267 14,662 11,774 21,319 4,051 98
-------- ------- ------- ------- ------- ------- ------- ------- -------
Net Deposits from
Policyholders.......... $ 93,679 108,054 96,628 31,680 27,205 34,372 56,373 6,848 4,020
======== ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

F-20
<PAGE>

PARAGON SEPARATE ACCOUNT B

SCHEDULE OF INVESTMENTS

DECEMBER 31, 1996

<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE COST
--------- -------- --------
<S> <C> <C> <C>
SCUDDER VARIABLE LIFE INVESTMENT FUND:
Money Market Division............................ 25,867 $ 25,867 $ 24,279
International Division........................... 30,319 401,721 334,483
Capital Growth Division.......................... 47,076 776,759 598,764
Balanced Division................................ 31,824 369,471 305,374
Bond Division.................................... 15,479 104,172 92,814
Growth & Income Division......................... 8,665 81,194 71,617
</TABLE>

See Accompanying Independent Auditor's Report.

F-21
<PAGE>

APPENDIX A

ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES

The following tables illustrate how the Cash 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 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%. In
addition, the Cash 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 tables illustrate a Policy issued to an Insured, age 45, in an Executive
Program issued as a Group Contract Policy. This assumes the maximum monthly
administrative charge. If a particular Policy has different sales or
administrative charges or if a particular group is larger or smaller or has a
different gender mix, the Cash Values and Death Benefits would vary from those
shown in the tables.

The Cash Value column under the "Guaranteed" heading shows the accumulated
value of the premiums paid reflecting deduction of the charges described above
and monthly charges for the cost of insurance based on the guaranteed rate
which is 125% of the maximum allowed under the 1980 Commissioners Standard
Ordinary Mortality Table C. The "Cash Value" column under the "Current" heading
shows the accumulated value of the premiums paid reflecting deduction of the
charges described above and monthly charges for the cost of insurance at the
current level for an Executive Program, which is less than or equal to 125% of
the maximum allowed by the 1980 Commissioners Standard Ordinary Mortality Table
C. 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.

The amounts shown for the Cash 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 .522%,
representing the average of the fees incurred by the Funds in which the
Divisions invest (the actual investment advisory fee is shown in the Fund
prospectus), and a .130% charge that is an estimate of the Funds' expenses
based on the average of the actual expenses incurred in fiscal year 1996. 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 -1.552%,
4.448%, and 10.448%, respectively. An expense reimbursement arrangement exists
between the Company and Scudder Variable Fund, as part of the Scudder Variable
Fund's participation agreement with the Company. However, fund assets are of a
sufficient size that no reimbursement is currently necessary. Scudder did not
reimburse expenses in 1996 for any Portfolio.

The hypothetical values shown in the tables 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.") Additionally,
the hypothetical values shown in the tables assume that the Policy for which
values are illustrated is not deemed an individual policy under OBRA, and
therefore the values do not reflect the additional 1% premium expense charge
for the Company's increased federal tax liabilities.

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, that no transfer charges were incurred, and
that no optional riders have been requested.

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: $500,000.00 AGE 45
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00% $6,000.00
PREMIUM TAX: 2.25% (Monthly Premium:
$500.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 0.00% (NET RATE @-
1.552%)
--------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- -------------------------------
PREM CASH DEATH CASH DEATH
YR @5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,093 $500,000 $ 4,954 $500,000
2 12,630 5,986 500,000 9,747 500,000
3 19,423 8,633 500,000 14,416 500,000
4 26,555 11,029 500,000 18,907 500,000
5 34,045 13,148 500,000 23,220 500,000
6 41,908 14,973 500,000 27,357 500,000
7 50,165 16,472 500,000 31,330 500,000
8 58,834 17,606 500,000 35,082 500,000
9 67,937 18,336 500,000 38,672 500,000
10 77,496 18,633 500,000 42,050 500,000
11 87,532 18,487 500,000 45,167 500,000
12 98,070 17,867 500,000 48,083 500,000
13 109,134 16,765 500,000 50,748 500,000
14 120,752 15,152 500,000 53,115 500,000
15 132,951 12,973 500,000 55,184 500,000
16 145,760 10,163 500,000 56,965 500,000
17 159,209 6,610 500,000 58,406 500,000
18 173,331 2,176 500,000 59,459 500,000
19 188,159 0 0 60,127 500,000
20 203,728 0 0 60,358 500,000
25 294,060 0 0 52,220 500,000
30 409,348 0 0 16,133 500,000
</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 policyowner,
and the investment results for the Funds. The cash 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 any additional premiums shown 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: $500,000.00 AGE 45
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00% $6,000.00
PREMIUM TAX: 2.25% (Monthly Premium:
$500.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6.00% (NET RATE @ 4.448%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR @5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,194 $500,000 $ 5,116 $500,000
2 12,630 6,374 500,000 10,373 500,000
3 19,423 9,491 500,000 15,814 500,000
4 26,555 12,533 500,000 21,390 500,000
5 34,045 15,470 500,000 27,106 500,000
6 41,908 18,275 500,000 32,969 500,000
7 50,165 20,909 500,000 38,996 500,000
8 58,834 23,320 500,000 45,137 500,000
9 67,937 25,459 500,000 51,455 500,000
10 77,496 27,279 500,000 57,910 500,000
11 87,532 28,755 500,000 64,457 500,000
12 98,070 29,835 500,000 71,163 500,000
13 109,134 30,491 500,000 77,987 500,000
14 120,752 30,673 500,000 84,891 500,000
15 132,951 30,300 500,000 91,882 500,000
16 145,760 29,278 500,000 98,980 500,000
17 159,209 27,460 500,000 106,144 500,000
18 173,331 24,667 500,000 113,342 500,000
19 188,159 20,699 500,000 120,587 500,000
20 203,728 15,347 500,000 127,846 500,000
25 294,060 0 0 162,567 500,000
30 409,348 0 0 186,654 500,000
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-3
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000.00 AGE: 45
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00% $6,000.00
PREMIUM TAX: 2.25% (Monthly Premium:
$500.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @
10.448%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR @5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,294 $500,000 $ 5,275 $500,000
2 12,630 6,771 500,000 11,012 500,000
3 19,423 10,404 500,000 17,299 500,000
4 26,555 14,201 500,000 24,136 500,000
5 34,045 18,153 500,000 31,578 500,000
6 41,908 22,259 500,000 39,695 500,000
7 50,165 26,505 500,000 48,570 500,000
8 58,834 30,864 500,000 58,226 500,000
9 67,937 35,315 500,000 68,811 500,000
10 77,496 39,841 500,000 80,377 500,000
11 87,532 44,449 500,000 92,989 500,000
12 98,070 49,121 500,000 106,823 500,000
13 109,134 53,871 500,000 121,976 500,000
14 120,752 58,689 500,000 138,563 500,000
15 132,951 63,545 500,000 156,761 500,000
16 145,760 68,399 500,000 176,777 500,000
17 159,209 73,168 500,000 198,798 500,000
18 173,331 77,742 500,000 223,049 500,000
19 188,159 82,001 500,000 249,829 500,000
20 203,728 85,823 500,000 279,445 500,000
25 294,060 94,284 500,000 484,741 562,300
30 409,348 57,477 500,000 823,534 881,181
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-4
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000.00 AGE: 45
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00% $12,000.00
PREMIUM TAX: 2.25% (Monthly Premium:
$1,000.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 0.00% (NET RATE @ -
1.552%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 8,899 $508,899 $ 10,765 $510,765
2 25,261 17,489 517,489 21,269 521,269
3 38,846 25,726 525,726 31,551 531,551
4 53,111 33,605 533,605 41,555 541,555
5 68,090 41,101 541,101 51,280 551,280
6 83,817 48,197 548,197 60,729 560,729
7 100,330 54,863 554,863 69,913 569,913
8 117,669 61,058 561,058 78,771 578,771
9 135,875 66,749 566,749 87,368 587,368
10 154,992 71,908 571,908 95,648 595,648
11 175,064 76,531 576,531 103,556 603,556
12 196,140 80,591 580,591 111,159 611,159
13 218,269 84,090 584,090 118,400 618,400
14 241,505 87,009 587,009 125,228 625,228
15 265,903 89,302 589,302 131,642 631,642
16 291,521 90,920 590,920 137,655 637,655
17 318,419 91,767 591,767 143,208 643,208
18 346,663 91,731 591,731 148,249 648,249
19 376,319 90,700 590,700 152,785 652,785
20 407,457 88,579 588,579 156,760 656,760
25 588,120 59,890 559,890 165,446 665,446
30 818,697 0 0 144,408 644,408
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-5
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000.00 AGE: 45
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00% $12,000.00
PREMIUM TAX: 2.25% (Monthly Premium:
$1,000.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6.00% (NET RATE @ 4.448%)
-----------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- -------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 9,189 $ 509,189 $ 11,117 $ 511,117
2 25,261 18,611 518,611 22,631 522,631
3 38,846 28,225 528,225 34,596 534,596
4 53,111 38,029 538,029 46,971 546,971
5 68,090 48,000 548,000 59,768 559,768
6 83,817 58,121 558,121 73,006 573,006
7 100,330 68,363 568,363 86,710 586,710
8 117,669 78,681 578,681 100,835 600,835
9 135,875 89,037 589,037 115,460 615,460
10 154,992 99,396 599,396 130,547 630,547
11 175,064 109,744 609,744 146,054 646,054
12 196,140 120,047 620,047 162,061 662,061
13 218,269 130,294 630,294 178,531 678,531
14 241,505 140,454 640,454 195,422 695,422
15 265,903 150,468 650,468 212,747 712,747
16 291,521 160,268 660,268 230,531 730,531
17 318,419 169,734 669,734 248,728 748,728
18 346,663 178,724 678,724 267,296 767,296
19 376,319 187,088 687,088 286,251 786,251
20 407,457 194,683 694,683 305,543 805,543
25 588,120 217,359 717,359 404,300 904,300
30 818,697 194,465 694,465 493,787 993,787
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-6
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000.00 AGE: 45
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00% $12,000.00
PREMIUM TAX: 2.25% (Monthly Premium:
$1,000.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @ 10.448%)
---------------------------------------------------------------
GUARANTEED* CURRENT**
----------------------------- ------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 9,475 $ 509,475 $ 11,462 $ 511,462
2 25,261 19,757 519,757 24,021 524,021
3 38,846 30,881 530,881 37,830 537,830
4 53,111 42,922 542,922 52,955 552,955
5 68,090 55,943 555,943 69,528 569,528
6 83,817 70,023 570,023 87,701 587,701
7 100,330 85,233 585,233 107,646 607,646
8 117,669 101,643 601,643 129,481 629,481
9 135,875 119,333 619,333 153,464 653,464
10 154,992 138,399 638,399 179,758 679,758
11 175,064 158,973 658,973 208,542 708,542
12 196,140 181,174 681,174 240,139 740,139
13 218,269 205,168 705,168 274,779 774,779
14 241,505 231,109 731,109 312,718 812,718
15 265,903 259,145 759,145 354,295 854,295
16 291,521 289,433 789,433 399,897 899,897
17 318,419 322,095 822,095 449,874 949,874
18 346,663 357,247 857,247 504,623 1,004,623
19 376,319 395,018 895,018 564,642 1,064,642
20 407,457 435,564 935,564 630,412 1,130,412
25 588,120 688,500 1,188,500 1,065,386 1,565,386
30 818,697 1,046,247 1,546,247 1,742,587 2,242,587
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-7
<PAGE>

Underlying Funds Through:

FIDELITY VARIABLE INSURANCE PRODUCTS FUND
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
MFS VARIABLE INSURANCE TRUST
PUTNAM VARIABLE TRUST
SCUDDER VARIABLE LIFE INVESTMENT FUND
T. ROWE PRICE EQUITY SERIES, INC.
T. ROWE PRICE FIXED INCOME SERIES, INC.

[PARAGON LOGO]
GROUP AND INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICIES

Prospectus dated May 1, 1997
50452
Dir

<PAGE>

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

Each Division of the Separate Account will invest in the following
corresponding investment company portfolios ("Funds"): (1) Fidelity Variable
Insurance Products Fund or Fidelity Variable Insurance Products Fund II--Growth
Portfolio, Index 500 Portfolio, Equity-Income Portfolio, and Contrafund
Portfolio; (2) MFS Variable Insurance Trust--Emerging Growth Series; (3) Putnam
Variable Trust--Putnam VT High Yield Fund, Putnam VT New Opportunities Fund,
Putnam VT U.S. Government and High Quality Bond Fund and Putnam VT Voyager
Fund; (4) Scudder Variable Life Investment Fund--Money Market Portfolio, and
Class A Shares of International Portfolio; and (5) T. Rowe Price--New America
Growth Portfolio, Personal Strategy Balanced Portfolio, and Limited-Term Bond
Portfolio.

A full description of the Funds, including the investment policies,
restrictions, risks, and charges is contained in the prospectus of each Fund.

This Prospectus Must Be Accompanied Or Preceded By A Current Prospectus For
the Underlying Funds.

Please Read This Prospectus Carefully And Retain It For Future Reference.

The date of this prospectus is May 1, 1997.

1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions.............................................................. 3
Summary.................................................................. 4
The Company and the Separate Account..................................... 9
The Company
The Separate Account
The Underlying Funds
Addition, Deletion, or Substitution of Investments
Payment and Allocation of Premiums....................................... 14
Issuance of a Policy
Premiums
Allocation of Net Premiums and Cash Value
Policy Lapse and Reinstatement
Policy Benefits.......................................................... 18
Death Benefit
Cash Value
Policy Rights and Privileges............................................. 23
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................................................... 28
Premium Expense Charge
Premium Tax Charge
Monthly Deduction
Partial Withdrawal Transaction Charge
Separate Account Charges
General Matters Relating to the Policy................................... 31
Distribution of the Policies............................................. 35
General Provisions of the Group Contract................................. 35
Federal Tax Matters...................................................... 36
Safekeeping of the Separate Account's Assets............................. 40
Voting Rights............................................................ 40
State Regulation of the Company.......................................... 41
Management of the Company................................................ 41
Legal Matters............................................................ 42
Legal Proceedings........................................................ 42
Experts.................................................................. 42
Additional Information................................................... 43
Financial Statements..................................................... 43
Appendix A............................................................... A-1
</TABLE>

THE POLICIES ARE NOT AVAILABLE IN ALL STATES.

2
<PAGE>

DEFINITIONS

Attained Age--The Issue Age of the Insured plus the number of completed
Policy Years.

Associated Companies--Those companies listed in a Group Contract's
specifications pages that are under common control through stock ownership,
contract or otherwise, with the Contractholder.

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.

Corporate Program--A category of Policies available, usually as an Individual
Policy, in which the sponsoring employer or its designated trust is generally
the Owner of the Policy.

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.

Fund--A separate investment portfolio of Fidelity Variable Insurance Products
Fund, Fidelity Variable Insurance Products Fund II, MFS Variable Insurance
Trust, Putnam Variable Trust, Scudder Variable Life Insurance Fund, or two T.
Rowe Price Funds, mutual funds in which the Separate Account's assets are
invested. Although sometimes referred to elsewhere as "Portfolios," they are
referred to herein as "Funds," except where "Portfolio" is a part of the name.