SEPARATE ACCOUNT B OF PARAGON LIFE INSURANCE CO, 485BPOS, 1999-04-30

SEPARATE ACCOUNT B OF PARAGON LIFE INSURANCE CO
485BPOS, 1999-04-30

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<PAGE>

As filed with the Securities and Exchange Commission on 30 April 1999

Registration No. 33-58796
811-7534

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

POST-EFFECTIVE AMENDMENT NO. 11
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 LLP
1275 Pennsylvania Ave., N.W.
Washington, D.C. 20004-2404

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

[_] immediately upon filing pursuant to paragraph (b), of Rule 485

[X] 1 May 1999 pursuant to paragraph (b) of Rule 485

[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485

[_] on (date), pursuant to paragraph (a)(1) of rule 485

[_] 75 days after filing pursuant to paragraph (a)(2) of rule 485

[_] on (date) pursuant to paragraph (a)(2) of Rule 485

Title of securities being registered: Group and Individual Flexible Premium
Variable Life Insurance Policies.

<PAGE>

Post-Effective Amendment No. 11 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 five variable life insurance policies (the
"Policies") issued by the depositor and the registrant described in the five
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
five Policies.

multi-pr
<PAGE>

[SCUDDER LOGO]
SCUDDER
VARIABLE LIFE
INVESTMENT FUND

[PARAGON LIFE INSURANCE COMPANY LOGO]

. GROUP AND INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICIES

Prospectus dated May 1, 1999

50407
Com
<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," "we," or "us") which
are designed for use in employer-sponsored insurance programs. When a Group
Contract is issued, Certificates showing the rights of the Owners and/or
Insureds will be issued under the Group Contract. Individual Policies will be
issued when a Group Contract is not issued. The terms of the Certificate and
the Individual Policy are very similar and are collectively referred to in this
Prospectus as "Policy" or "Policies."

The Policies are designed to provide lifetime insurance protection to age 95
and provide flexibility to vary premium payments and change the level of death
benefits payable under the Policies. Flexibility allows an Owner to provide for
changing insurance needs under a single insurance policy. An Owner can allocate
net premiums among several investment portfolios ("Funds") with different
investment objectives.

The Policy provides for: (1) a value upon surrendering the Policy; (2) loans;
and (3) a death benefit payable on the Insured's death. As long as the Policy
remains in force, the death benefit payable on the Insured's death will not be
less than the Face Amount of the Policy. The Policy will remain in force so
long as there is enough value to pay certain monthly charges.

The Owner may allocate net premiums to one or more of the Divisions of Separate
Account B (the "Separate Account"). The Policy value will vary to reflect the
investment experience of the Divisions selected by the Owner. Depending on the
death benefit option elected, portions of the death benefit may also vary. The
Owner bears the entire investment risk under the Policies; there is no minimum
guaranteed value.

Each Division of the Separate Account will invest solely in Class A Shares of a
corresponding investment portfolio of Scudder Variable Life Investment Fund:

FUND FUND
- --------------------------------------------------------------------------------
Money Market Portfolio Global Discovery Portfolio
Bond Portfolio International Portfolio
Capital Growth Portfolio Small Company Growth Portfolio
Balanced Portfolio Large Company Growth Portfolio
Growth and Income Portfolio
- --------------------------------------------------------------------------------

The date of this Prospectus is May 1, 1999.

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Please read this Prospectus carefully and keep it. A full description of the
Funds is contained in the prospectus for each Fund, which must accompany this
Prospectus.

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

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.

2
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
The Company, The Separate Account, and The Funds......................... 9
The Company
The Separate Account
The Funds
Addition, Deletion, or Substitution of Investments
Payment and Allocation of Premiums....................................... 12
Issuance of a Policy
Premiums
Allocation of Net Premiums and Cash Value
Policy Lapse and Reinstatement
Policy Benefits.......................................................... 16
Death Benefit
Cash Value
Policy Rights and Privileges............................................. 21
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................................................... 26
Sales Charges
Premium Tax Charge
Monthly Deduction
Partial Withdrawal Transaction Charge
Separate Account Charges
General Matters Relating to the Policy................................... 29
Distribution of the Policies............................................. 33
General Provisions of the Group Contract................................. 33
Federal Tax Matters...................................................... 34
Safekeeping of the Separate Account's Assets............................. 38
Voting Rights............................................................ 38
State Regulation of the Company.......................................... 39
Management of the Company................................................ 40
Legal Matters............................................................ 41
Legal Proceedings........................................................ 41
Experts.................................................................. 41
Additional Information................................................... 41
Definitions.............................................................. 41
Financial Statements..................................................... F-
Appendix A............................................................... A-1
</TABLE>

The Policies are not available in all states.

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SUMMARY OF THE POLICY

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

The Policy

The Policies (either an Individual Policy or a Certificate) described in this
Prospectus are designed for use in employer-sponsored insurance programs and
are issued in three situations.

. First--Policies in the form of Certificates are issued pursuant to Group
Contracts entered into between the Company and Contractholders (see
"General Provisions of the Group Contract");

. Second--Individual Policies can be issued in connection with employer-
sponsored insurance programs where Group Contracts are not issued; and

. Third--Individual Policies can be issued in connection with Corporate
Programs, where Group Contracts are not issued.

The Insured under a Policy is usually an employee of the Contractholder or
sponsoring employer or the employee's spouse. An Executive Program Policy is
issued with a maximum Face Amount in excess of $500,000 under a Group Contract
or an employer-sponsored insurance program. Generally, only an employee
is eligible to be an Insured under an Executive Program Policy. If 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").

On behalf of Owners, the Contractholder will make planned premium payments
under the Group Contract equal to an amount authorized by employees to be
deducted from their wages. In addition, Owners may pay additional premiums. In
Corporate Programs only the Owner will remit planned and additional premiums. A
similar procedure will apply when an Individual Policy is issued in connection
with an employer-sponsored program.

The Policies are "variable" policies because, unlike the fixed benefits under
other types of life insurance contracts, the Cash Value and, under certain
circumstances, the death benefit under a Policy may increase or decrease
depending upon the investment experience of the Funds underlying the Divisions
to which the Owner has allocated net premium payments. So long as a Policy's
Cash Surrender Value continues to be sufficient to pay the monthly deduction,
an Owner is guaranteed a minimum death benefit equal to the Face Amount of his
or her Policy or an accelerated death benefit in a reduced amount determined in
accordance with certain riders available under the Policy. (See "General
Matters Relating to the Policy--Additional Insurance Benefits.")

Right to Examine Policy

The Owner has a limited right to return a Policy for cancellation within 20
days after the delivery of the Policy to the Owner, within 45 days after the
Owner signs the application, or within 10 days after the Company mails a notice
of this cancellation right to the Owner whichever is latest. If a Policy is
cancelled within this time period, a refund will be paid which will equal all
premiums paid under the Policy or any different amount required by state law.
The Owner also has a right to cancel a requested increase in Face Amount. Upon
cancellation of an increase, the Owner may request that the Company refund the
amount of the additional charges deducted in connection with the increase, or
have the amount of the additional charges added to the Cash Value. (See "Policy
Rights and Privileges--Right to Examine Policy.")

The Separate Account

The Owner may allocate the net premiums to one or more Divisions. (See "The
Company, The Separate Account and The Funds" for a complete description of the
available Funds.) An Owner may change future allocations of net premiums at any
time by notifying the Company directly.

4
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Subject to certain restrictions, an Owner may transfer Cash Values among the
Divisions of the Separate Account. Currently, no charge is assessed for
transfers. The Company reserves the right to modify the transfer privilege.
(See "Policy Rights and Privileges--Transfers.")

Premiums

An Owner has flexibility concerning the amount and frequency of premium
payments. An initial premium equal to one-twelfth ( 1/12) of the planned annual
premium set forth in the specifications page of a Policy is necessary to start
a Policy. The planned annual premium is an amount specified for each Policy
based on the requested initial Face Amount and certain other factors.

. 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 will pay premiums generally on a
schedule agreed to by the Company.

However, as discussed below, planned premiums need not be paid so long as there
is sufficient Cash Surrender Value to keep the Policy in force. Subject to
certain limitations, additional premium payments in any amount and at any
frequency may be made directly by the Owner. (See "Payment and Allocation of
Premiums--Issuance of a Policy--Premiums.")

A Policy will lapse (and terminate without value) when the Cash Surrender Value
is not enough to pay the next monthly deduction and a grace period of 62 days
expires without an adequate payment being made by the Owner. (See "Payment and
Allocation of Premiums--Policy Lapse and Reinstatement.")

Death Benefit

Death benefit proceeds are payable to the Beneficiary when the Insured dies or
to the Owner, prior to the Insured's death under circumstances described in
available riders. (See "General Matters Relating to the Policy--Additional
Insurance Benefits.") Two death benefit options are available, as follows:

. Under the "Level Type" death benefit, the death benefit is the Face
Amount of the Policy or, if greater, the applicable percentage of Cash
Value; and

. Under the "Increasing Type" death benefit, the death benefit is the Face
Amount of the Policy plus the Cash Value or, if greater, the applicable
percentage of Cash Value.

So long as a Policy remains in force, the minimum death benefit under either
option will be at least equal to the current Face Amount. (See "Policy
Benefits--Death Benefit.")

The minimum initial Face Amount is generally $25,000 under the Company's
current rules. Executive Program Policies generally have a minimum Face Amount
of $100,000. The maximum Face Amount is generally $500,000. However, we may
establish a higher maximum Face Amount for Executive or Corporate Program
Policies. 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.")

Riders

5
<PAGE>

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.") We will deduct the cost of these additional
insurance benefits from Cash Value as part of the monthly deduction. (See
"Charges and Deductions--Monthly Deduction.")

Cash Value

The Policies provide for a Cash Value equal to the total of the Policy's Cash
Value in the Separate Account and the Loan Account (securing Policy Loans). A
Policy's Cash Value will reflect premium payments, the investment performance
of any selected Divisions of the Separate Account, transfers, any Policy Loans,
Loan Account interest rate credited, any partial withdrawals, and the charges
imposed in connection with the Policy. (See "Policy Benefits--Cash Value.")
There is no minimum guaranteed Cash Value.

Charges and Deductions

Sales Charges. We deduct a front-end sales charge of 1% of premiums from each
premium paid ("premium expense charge"). We deduct an additional charge on
Policies that are deemed to be individual Policies under the Omnibus Budget
Reconciliation Act of 1990 ("OBRA"). The additional 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.

Premium Tax Charge. We deduct a charge of 2% to cover state premium taxes from
premiums paid. (See "Charges and Deductions--Premium Tax Charge.")

Monthly Deduction. We make a monthly deduction from the Policy's Cash Value in
the Separate Account. The monthly deduction includes the following:

. Administrative Charge. We deduct an administrative charge (see the
specification pages of the Policy) based on 1) the number of Insureds
covered under a Group Contract or other employer-sponsored insurance
program, and 2) 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.

. Cost of Insurance Charge. We deduct a cost of insurance charge calculated
on each Monthly Anniversary. We determine monthly cost of insurance rates
based upon expectations as to future mortality experience. For a
discussion of the factors affecting the rate class of the Insured. (see
"Charges and Deductions--Monthly Deduction--Cost of Insurance.")

. A charge for any additional insurance benefits provided by a rider.

Separate Account Charges.

. Mortality and Expense Risk Charge. We deduct a daily charge not to exceed
.0024547% (an annual rate of .90%) of the net assets of each Division for
the Company's assumption of certain mortality and expense risks incurred
in connection with the Policies. (See "Charges and Deductions--Separate
Account Charges.")

. Federal Taxes. No charges are currently made for federal or state income
taxes. (See "Federal Tax Matters.")

. Annual Expenses of the Funds (after fee waiver and reimbursement as
applicable). The value of the assets of the Divisions will reflect the
management fee and other expenses incurred by the Funds. The following
table describes the Fund fees and expenses during the time that the Owner
owns the Policy. These fees and expenses are shown as a percentage of net
assets for the year ended December 31, 1998.

6
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The prospectus for each Fund contains more detail concerning a Fund's fees
and expenses. (See "The Company, The Separate Account and The Funds.")

<TABLE>
<CAPTION>
Management Fees
(after fee Other Expenses Total
waiver (after reimbursement Annual
Fund as applicable) as applicable) Expenses
<S> <C> <C> <C>
Money Market Portfolio 0.37% 0.07% 0.44%
Bond Portfolio 0.47% 0.09% 0.56%
Capital Growth Portfolio 0.47% 0.04% 0.51%
Balanced Portfolio 0.47% 0.08% 0.55%
Growth and Income Portfolio 0.47% 0.09% 0.56%
International Portfolio 0.87% 0.18% 1.05%
Global discovery
Portfolio(/1/) 0.91% 0.81% 1.72%
</TABLE>

(/1/)The Advisor agreed to waive all or a portion of its management fee to
limit the expenses of the Global Discovery Portfolio to 1.50% of average
daily net assets until April 30, 1998. Without this reduction, expenses
would have been: Management Fee of .97%; Other Expenses of .81%; Total
Expenses of 1.78%.

The expense information regarding the Funds was provided by those Funds. We
have not independently verified this information. We cannot guarantee that
the reimbursements provided by certain Funds will continue.

Partial Withdrawal Transaction Charge. We deduct a transaction charge equal to
the lesser of $25 or 2% of the amount withdrawn on each partial withdrawal of
amounts from the Separate Account. Currently, there are no transaction charges
imposed for transfers of amounts between Divisions. In addition, transfers and
withdrawals are subject to restrictions relative to amount and frequency. (See
"Payment and Allocation of Premiums--Allocation of Net Premiums and Cash
Value," "Policy Rights and Privileges--Surrender and Partial Withdrawals--
Transfers," and "Charges and Deductions--Partial Withdrawal Transaction
Charge.")

Policy Loans

After the first Policy Anniversary an Owner may borrow against the Cash Value
of a Policy. All outstanding Indebtedness will be deducted from proceeds
payable at the Insured's death, upon maturity, or upon surrender. We transfer a
portion of the Policy's Cash Value in each Division of the Separate Account to
which the loan is allocated to the Loan Account as security for the loan.
Therefore, a Policy Loan may have a permanent impact on the Policy's Cash Value
even if it is repaid. A Policy Loan may be repaid in whole or in part at any
time while the Policy is in force. (See "Policy Rights and Privileges--Loans.")
Loans taken from, or secured by, a Policy may in certain circumstances be
treated as taxable distributions from the Policy. Moreover, with certain
exceptions, a 10% additional income tax would be imposed on the portion of any
loan that is included in income. (See "Federal Tax Matters.")

Surrender and Partial Withdrawals

At any time that a Policy is in effect, an Owner may elect to surrender the
Policy and receive its Cash Surrender Value. An Owner may also request a
partial withdrawal of the Cash Value of the Policy. A partial withdrawal may
reduce the Face Amount and the death benefit payable under the Policy. (See
"Policy Rights and Privileges--Surrender and Partial Withdrawals.") Surrenders
and partial withdrawals may have federal income tax consequences. (See "Federal
Tax Matters.")

Conversion Right

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

7
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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.

If a Certificate was issued in connection with the Group Contract, the
Certificate will be amended automatically to continue in force as an Individual
Policy. The new Individual Policy will provide benefits 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 Rights and
Privileges--Eligibility Change Conversion.")

Illustrations

Illustrations in Appendix A show how death benefits and Cash Surrender Values
may vary based on certain hypothetical rate of return assumptions as well as
assumptions pertaining to the level of the charges. These rates are not
guaranteed. They are illustrative only and do not show past or future
performance. If a Policy is surrendered in the early Policy Years, the Cash
Surrender Value payable will be low compared to premiums accumulated with
interest, and consequently the insurance protection provided prior to surrender
will be costly.

Policy Tax Compliance

We intend for the Policy to satisfy the definition of a life insurance contract
under Section 7702 of the Internal Revenue Code (the "Code"). Assuming that a
Policy qualifies as a life insurance contract under the Code, a Policy Owner
should not be taxed for receiving value from the Policy, until there is a
distribution from the Policy. Also, death benefits payable under a Policy
should be excludable from the gross income of the Beneficiary.

A Policy may be treated as a "modified endowment contract." If the Policy is a
modified endowment contract, it will affect the tax advantages offered under
the Policy. (See "Federal Tax Matters.")

Specialized Uses of the Policy

Because the Policy provides for an accumulation of Cash Value as well as a
death benefit, the Policy can be used for various individual and business
financial planning purposes. Purchasing the Policy in part for such purposes
entails certain risks. For example, if the investment performance of Divisions
to which Cash Value is allocated is poorer than expected or if sufficient
premiums are not paid, the Policy may lapse or may not accumulate sufficient
Cash Value to fund the purpose for which the Policy was purchased. Partial
withdrawals and Policy Loans may significantly affect current and future Cash
Value, Cash Surrender Value, or death benefit proceeds. Depending upon Division
investment performance and the amount of a Policy Loan, the loan may cause a
Policy to lapse. Because the Policy is designed to provide benefits on a long-
term basis, before purchasing a Policy for a specialized purpose a purchaser
should consider whether the long-term nature of the Policy is consistent with
the purpose for which it is being considered. Using a Policy for a specialized
purpose may have tax consequences. (See "Federal Tax Matters.")

Questions

If you have any questions, you may write or call the Company at 100 South
Brentwood, St. Louis, MO 63105, (314) 862-2211.

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THE COMPANY AND THE SEPARATE ACCOUNT

The Company

Paragon Life Insurance Company is a stock life insurance company incorporated
under the laws of Missouri. We were organized in 1981 as General American
Insurance Company and on December 31, 1987, our name was changed. No change in
operations or ownership took place in connection with the name change. Our main
business is writing individual and group life insurance policies and annuity
contracts. As of December 31, 1998, we had assets in excess of $300 million. We
are admitted to do business in 49 states and the District of Columbia. Our
principal offices are at 100 South Brentwood, St. Louis, Missouri 63105 ("Home
Office"). Our Internal Revenue Service Employer Identification Number is 43-
1235869.

We are a wholly-owned subsidiary of General American Life Insurance Company
(the "Parent Company"), a Missouri life insurance company. The Parent Company
is wholly owned by GenAmerica Corporation, a Missouri general business
corporation, which is wholly owned by General American Mutual Holding Company,
a Missouri mutual insurance holding company.

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

Ratings. We may from time to time publish in advertisements, sales literature,
and reports to Owners or Contractholders, the ratings and other information
assigned to us by one or more independent rating organizations such as A. M.
Best Company, Standard & Poor's, and Duff & Phelps. The purpose of the ratings
is to reflect our financial strength and/or claims paying ability and should
not be considered as bearing on the investment performance of assets held in
the Separate Account. Each year the A. M. Best Company reviews the financial
status of thousands of insurers, culminating in the assignment of Best's
ratings. These ratings reflect Best's current opinion of the relative financial
strength and operating performance of an insurance company in comparison to the
norms of the life/health insurance industry. In addition, the claims paying
ability of the Company as measured by Standard & Poor's Insurance Ratings
Services or Duff & Phelps may be referred to in advertisements or sales
literature or in reports to Owners or Contractholders. These ratings are
opinions of an operating insurance company's financial capacity to meet the
obligations of its insurance policies in accordance with their terms. These
ratings do not reflect the investment performance of the Separate Account or
the degree of risk associated with an investment in the Separate Account.

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

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

The Separate Account

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In addition, the Separate Account receives and invests net premiums for other
flexible premium variable life insurance policies issued by us.

The Separate Account is divided into Divisions. Each Division will invest in
Funds as shown on the cover page of this Prospectus. Income and both realized
and unrealized gains or losses from the assets of each Division of the Separate
Account are credited to or charged against that Division without regard to
income, gains, or losses from any other Division of the Separate Account or
arising out of any other business we 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 we 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 Policy liabilities. From time to
time, these excess assets may be transferred from the Separate Account and
included in the Company's general assets. Before making any such transfers, we
will consider any possible adverse impact the transfer may have on the Separate
Account.

The Separate Account has been registered with the Securities and Exchange
Commission ("SEC" or "Commission") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act") and meets the definition of a
"separate account" under federal securities laws. Registration with the SEC
does not involve supervision of the management or investment practices or
policies of the Separate Account or the Company by the Commission.

The Funds

The Separate Account invests in Class A shares of Scudder Variable Life
Investment Fund (the "Scudder Variable Fund"), a series-type mutual fund
registered with the SEC as open-end, diversified management investment company.
The assets of the Fund used by the Policies are held separate from the assets
of the other Funds, and each Fund has investment objectives and policies which
are generally different from those of the other Funds. The income or losses of
one Fund generally have no effect on the investment performance of any other
Fund.

Investment Results. The investment objectives and policies of certain Funds are
similar to the investment objectives and policies of other portfolios that may
be managed by the same investment adviser or manager. The investment results of
the Funds may differ from the results of these other portfolios. There can be
no guarantee, and no representation is made, that the investment results of any
of the Funds will be comparable to the investment results of any other
portfolio, even if the other portfolio has the same investment adviser or
manager.

The following summarizes the investment policies of each Fund:

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 Portfolio seeks to maintain a net asset value of $1.00 per
share.

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. The Portfolio
pursues its objective by investing, under normal circumstances, at least 65% of
its assets in bonds, of any maturity, including those of the U.S. Government
and its agencies, corporate bonds of U.S. and foreign issuers, and other notes
and bonds paying high current income. In addition, the Portfolio may also
invest in mortgage and asset-backed securities and convertible securities.

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Capital Growth Portfolio

The Capital Growth Portfolio seeks to maximize long-term capital growth through
a broad and flexible investment program. The Portfolio invests in marketable
securities, principally common stocks and preferred stocks. In selecting stocks
for the Portfolio, the investment adviser considers a number of factors,
including the issuer's financial strength, management reputation, absolute size
and overall industry position.

Balanced Portfolio

The Balanced Portfolio seeks a balance of growth and income from a diversified
portfolio of equity and fixed income securities. The Portfolio also seeks long-
term preservation of capital through a quality-oriented investment approach
that is designed to reduce risk. The Portfolio normally invests between 50% and
75% of its net assets in common stocks and other equity securities including
preferred stocks, convertible securities and warrants. The remainder of the
Portfolio's assets will be invested in investment-grade debt securities or
cash.

Growth and Income Portfolio

The Growth and Oncome Portfolio seeks long-term growth of capital, current
income and growth of income. The Portfolio 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 higher than
average current dividends. The Portfolio may also purchase such securities
which don't pay current dividends but which offer prospects for growth of
capital and future income.

Global Discovery Portfolio

The Global Discovery Portfolio pursues above-average capital appreciation over
the long term by investing primarily in the equity securities of small
companies located throughout the world. The Portfolio invests primarily in a
diversified portfolio of equity securities of small rapidly growing companies
that the Portfolio's management believes offer the potential for above-average
returns relative to larger companies, yet are frequently overlooked and thus
undervalued by the market.

International Portfolio

The International Portfolio seeks long-term growth of capital primarily through
diversified holdings of marketable foreign equity investments. The Portfolio
pursues its objective by investing primarily in common stocks of established
companies, listed on foreign exchanges, which the investment adviser believes
have favorable characteristics. The companies in which the Portfolio invests do
business primarily outside the United States. The Portfolio intends to
diversify its investments among several countries and its holdings will include
business activities in at least three different countries, excluding the U.S.

Small Company Growth Portfolio

Small Company Growth Portfolio pursues long-term growth of capital by investing
primarily in the common stocks of emerging growth companies that are poised to
be leaders in the next century. The Portfolio pursues its investment objective
by investing primarily in the equity securities issued by emerging growth
companies. Emerging growth companies tend to be small or little-known companies
that have strong prospects for growth because they may offer such things as
cutting edge products, unique services, innovative distribution channels or
technological advances.

Large Company Growth Portfolio

Large Company Growth Portfolio seeks long-term growth of capital through
investment primarily in the equity securities of seasoned, financially strong
U.S. growth companies. The Portfolio pursues its investment objective by
investing at least 65% of its assets in the equity securities issued by large-
sized domestic companies that

11
<PAGE>

offer above-average appreciation potential. These companies typically have
market capitalization in excess of $1 billion, are of above-average financial
quality and offer the prospect for above-average growth in earnings, cash flow
or assets relative to the overall market as defined by the Standard & Poor's
Composite 500 Price Index.

There is no assurance that any of the Funds will achieve its stated objective.
More detailed information, including a description of risks, is in the
prospectus for the Funds, which must accompany or precede this Prospectus and
which should be read carefully. Please also refer to the "Annual Expenses of
the Funds" information of this Prospectus for a list of the Funds' annual
expenses.

Agreements. We have has entered into or may enter into arrangements with Funds
pursuant to which we receive a fee based upon an annual percentage of the
average net asset amount invested by us on behalf of the Separate Account and
other separate accounts of the Company. These arrangements are entered into
because of administrative services provided by the Company.

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

Addition, Deletion, or Substitution of Investments. We reserve the right,
subject to compliance with applicable law, to make additions to, deletions
from, or substitutions for the shares of the Funds that are held by the
Separate Account or that the Separate Account may purchase. We reserve the
right to (1) eliminate the shares of any of the Funds and (2) substitute shares
of another fund if the shares of a Fund are no longer available for investment,
or further investment in any Fund becomes inappropriate in view of the purposes
of the Separate Account. We will not substitute any shares without notice to
the Owner and prior approval of the SEC, to the extent required by the 1940 Act
or other applicable law, as required

We also reserve the right to establish additional Divisions of the Separate
Account. We will establish new Divisions when marketing needs or investment
conditions warrant. Any new Division will be made available to existing Owners
on a basis to be determined by the Company. To the extent approved by the SEC,
we may also:

. Eliminate or combine one or more Divisions;

. Substitute one Division for another Division; or

. Transfer assets between Divisions if marketing, tax, or investment
conditions warrant.

We may make changes in the Policy by appropriate endorsement in the event of a
substitution or change. We will notify all Owners of any such changes.

If we deem it to be in the best interests of persons having voting rights under
the Policy, and to the extent any necessary SEC approvals or Owner votes are
obtained, the Separate Account may be:

(a) operated as a management company under the 1940 Act;

(b) deregistered under that Act in the event such registration is no longer
required; or

To the extent permitted by applicable law, we may transfer the assets of the
Separate Account associated with the Policy to another separate account.

12
<PAGE>

us. Should this agreement terminate or should shares become unavailable for any
other reason, the Separate Account will not be able to purchase the existing
Fund shares. Should this occur, we will be unable to honor Owner requests to
allocate Cash Values or premium payments to the Divisions of the Separate
Account investing in such shares. In the event that a Fund is no longer
available, we will take reasonable steps to obtain alternative investment
options.

PAYMENT AND ALLOCATION OF PREMIUMS

Issuance of a Policy

We will generally issue a Group Contract to employers whose employees and/or
their spouses may become Owners (and/or Insureds) under the Group Contract 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 an appropriate officer of the employer and acceptance by us
at our Home Office. (See "General Provisions of the Group Contract--Issuance.")
Individuals (i.e., eligible employees and/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 our authorized representative or us at our Home Office. We 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:

(1) to independent contractors of the employer;

(2) to persons who wish to continue coverage after a Group Contract has
terminated;

(3) to persons who wish to continue coverage after they no longer are
employed by the Group Contractholder;

(4) if state law restrictions make issuance of a Group Contract
impracticable; or

(5) if the employer chooses to use an employer-sponsored insurance program
that does not involve a Group Contract.

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

Issue Ages. A Policy generally will be issued only to Insureds of Issue Ages 17
through 70 who supply satisfactory evidence of insurability. We may issue
Policies to individuals falling outside the Issue Ages or decline to issue
Policies to individuals within the Issue Ages.

Employee Eligibility. 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, we reserve the right to waive
or modify the "actively at work" requirement at our discretion.

13
<PAGE>

specifications pages. Employees of any Associated Companies of the
Contractholder will be considered employees of the Contractholder. We may also
allow an individual who is an independent contractor working primarily for the
sponsoring employer to be considered an eligible employee. An independent
contractor 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.

Guaranteed Issue. Other than in Executive Programs or Corporate Programs, we
will issue the Policy and any children's insurance rider applied for by the
employee pursuant to our guaranteed issue procedure. We offer the guaranteed
issue procedure only when an employee is given the opportunity to purchase a
Policy for the first time. 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. We may offer guaranteed
issue with Executive Programs or Corporate Programs depending upon the number
of eligible employees or if other existing insurance coverage is cancelled.

Simplified Underwriting. The employee must submit to a simplified underwriting
procedure requiring the employee to respond satisfactorily to certain health
questions in the application:

. 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

A blood test may be required. This requirement is generally applicable only to
Executive Programs or Corporate Programs.

Simplified underwriting must be followed 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.

Acceptance of an application is always subject to our underwriting rules, and
we reserve the right to reject an application for any reason.

Employee's Spouse. If a Policy is to be issued to a spouse, the appropriate
application for Individual Insurance must be supplied. We will subject the
spouse to the simplified underwriting procedure described above. Guaranteed
issue is not available. We generally do not offer spouse coverage under
Executive Program Policies or Corporate Program Policies.

Issue Date. The Issue Date is the effective date for all coverage provided in
the original application for Individual Insurance. The Issue Date is used to
determine Policy Anniversaries, Policy Years, and Policy Months. A Policy will
not take effect until:

. the appropriate application for Individual Insurance is signed;

. the initial premium has been paid prior to the Insured's death;

. the Insured is eligible for it; and

. the information in the application is determined to be acceptable to the
Company.

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<PAGE>

Amount. If available, interim insurance will start as of the date of the
application. Interim insurance ends on the earliest of the following dates:

. the date insurance begins on the Policy applied for;

. the date a Policy other than the Policy applied for is offered to the
applicant;

. the date the Company notifies the applicant that the application for any
proposed Insured is declined;

. 60 days from the date of application; or

. termination of employment with the Contractholder or sponsoring employer.

Premiums

The initial premium is due on the Issue Date, and usually will be paid 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.") The Owner is not
required to pay premiums equal to the planned annual premium.

We will apply premiums paid by a Contractholder or sponsoring employer or
designated payor to a Policy as of the Valuation Date we receive the premiums.
Premiums will be "received" on a Valuation Date when we receive supporting
documentation necessary for us to determine the amount of premium per Policy
and the cash premium.

Planned Premium Payments. After the initial premium, and subject to the
limitations described below, premiums may be paid in any amount and at any
interval. Under Group Contracts and Individual Policies issued in connection
with other employer-sponsored insurance programs, the planned annual premium
usually will be paid by the Contractholder or sponsoring employer on behalf of
the Owner pursuant to a planned premium payment schedule. A planned premium
payment schedule provides for premium payments in a level amount at fixed
intervals (usually monthly) agreed to by the Contractholder or employer and us.

The amount of the premiums paid by the sponsoring employer or Contractholder
will be equal to the amount authorized by the employee. The Owner may skip
planned premium payments. Failure to pay one or more planned premium payments
will not always cause the Policy to lapse. The Policy will lapse if the Cash
Surrender Value is insufficient to cover the next Monthly Deduction. (See
"Payment and Allocation of Premiums--Policy Lapse and Reinstatement.")

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

Continuance of Insurance. Failure of the Contractholder to pay the planned
premium payments authorized by its employees may cause the Group Contract to
terminate. (See "General Provisions of the Group Contract--Termination.")
Provided that there is sufficient Cash Surrender Value to prevent the Policy
from lapsing, the Individual Insurance provided will automatically continue in
the event of Group Contract termination. (See "Policy Rights and Privileges--
Eligibility Change Conversion.") Individual Insurance will also continue if the
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. The new schedule will have the same planned
annual premium, and the payment intervals will be no more frequent than
quarterly. In Corporate Programs, there will generally be no change in planned
or scheduled premiums upon discontinuing the employment of an Insured.

15
<PAGE>

Premium Limitations. Every premium payment paid must be at least $20. Total
premiums paid under a Policy may not exceed the current maximum premium
limitations established by federal tax laws in any Policy Year. The maximum
premium limitation for a Policy Year is the sum of the premiums paid under the
Policy that will not at any time exceed the guideline premium limitations
referred to in Section 7702(c) of the Internal Revenue Code of 1986. If at any
time a premium is paid which would result in total premiums exceeding the
current maximum premium limitation, we will accept only that portion of the
premium which will make total premiums equal the maximum. Any part of the
premium in excess of the maximum premiums will be returned directly to the
Owner within 60 days of the end of the Policy Year in which payment is received
(unless we agree) and no further premiums will be accepted until allowed by the
current maximum premium limitations prescribed by Federal tax law. See "Federal
Tax Matters" for a further explanation of premium limitations.

Section 7702A creates an additional premium limitation, which, if exceeded, can
change the tax status of a Policy to that of a "modified endowment contract." A
modified endowment contract is a life insurance contract, from which
withdrawals are treated (for tax purposes) (1) as a distribution of any taxable
income under the contract, and (2) as a distribution of nontaxable investment
in the contract. Also, such withdrawals may be subject to a 10% federal income
tax penalty. We have adopted administrative steps designed to notify an Owner
when we believe that a premium payment will cause a Policy to become a modified
endowment contract. Owner will be given a limited amount of time to request
that the premium be reversed in order to avoid the Policy's classification as a
modified endowment contract. (See "Federal Tax Matters.")

Allocation of Net Premiums and Cash Value

Net Premiums. The net premium equals:

(1) the premium paid; less

(2) the premium expense charge;

(3) any charge to compensate us for anticipated higher corporate income
taxes resulting from the sale of a Policy; and

(4) the premium tax charge. (See "Charges and Deductions--Sales Charges.")

Allocation of Net Premiums. In the application for a Policy, the Owner
indicates how net premiums are to be allocated among the 14 Divisions of the
Separate Account. Beginning with the initial premium payment, all premiums will
be allocated in accordance with the Owner's instructions upon our receipt of
the premiums. However, the minimum percentage, of any allocation to a Division
is 10 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 us. Any change in allocation
will take effect immediately upon our receipt of the written notification. No
charge is imposed for changing the allocations of future net premiums.

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

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

Policy Lapse and Reinstatement

16
<PAGE>

premiums have been paid. Lapse will occur only when the Cash Surrender Value is
insufficient to cover the monthly deduction, and a grace period expires without
a sufficient payment being made. (See also "General Provisions of the Group
Contract--Grace Period--Termination.") Thus, the payment of premiums in any
amount does not guarantee that the Policy will remain in force until the
Maturity Date.

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

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

. Evidence of the insurability of the Insured satisfactory to us (including
evidence of insurability of any person covered by a rider to reinstate
the rider).

. Payment of a premium that, after the deduction of any premium expense
charge and any premium tax charge, is large enough to cover: (a) the
monthly deductions due at the time of lapse, and (b) two times the
monthly deduction due at the time of reinstatement.

. Payment or reinstatement of any Indebtedness. Any Indebtedness reinstated
will cause a Cash Value of an equal amount also to be reinstated.

Any loan paid at the time of reinstatement will cause an increase in Cash Value
equal to the amount of the repaid loan. The Policy cannot be reinstated if it
has been surrendered. The amount of Cash Value on the date of reinstatement
will be equal to the amount of any Indebtedness reinstated, increased by the
net premiums paid at reinstatement and any loans paid at the time of
reinstatement.

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

POLICY BENEFITS

Death Benefit

As long as the Policy remains in force, we will, (upon proof of the Insured's
death), pay the death benefit proceeds of a Policy in accordance with the death
benefit option in effect at the time of the Insured's death. Payment of death
benefit proceeds will not be affected by termination of the Group Contract,
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.")

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.

17
<PAGE>

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, we may
establish a substantially higher Face Amount for Policies issued under that
Contract or program.

Option A. Under Option A, the death benefit is:

(1) the current Face Amount of the Policy or, if greater,

(2) the applicable percentage of Cash Value on the date of death.

The applicable percentage is 250% for an Insured Attained Age 40 or below on
the Policy Anniversary prior to the date of death. For Insureds with an
Attained Age over 40 on that Policy Anniversary, the percentage is lower and
declines with age as shown in the Applicable Percentage Table below. Under
Option A the death 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...................... 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.

Option B. Under Option B, the death benefit is equal to:

(1) the current Face Amount plus the Cash Value of the Policy or, if
greater,

18
<PAGE>

(2) the applicable percentage of the Cash Value on the date of death. The
applicable percentage is the same as under Option A.

Under Option B, the amount of the death benefit will always vary as the Cash
Value varies (but will never be less than the Face Amount).

Owners who prefer to have favorable investment performance reflected in higher
death benefits for the same Face Amount generally should select Option B. All
other factors equal, for the same premium dollar, Option B Provides lower
initial Face Amount resulting in earlier cash accumulation.

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

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

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

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 because the federal tax
law requirements are not satisfied. (See "Federal Tax Matters.")

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

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

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

(2) The next most recent increases successively; and

(3) The initial Face Amount.

19
<PAGE>

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").

Face Amount Increases. For an increase in the Face Amount, we require that
satisfactory evidence of insurability be submitted. If approved, the increase
will become effective on the Monthly Anniversary on or following receipt of the
satisfactory evidence of insurability. In addition, the Insured must have an
Attained Age of 80 or less on the effective date of the increase. The amount of
the increase may not be less than $5,000. The Face Amount may not be increased
more than the maximum Face Amount for that Policy, generally $500,000. However,
in connection with a particular Group Contract or employer-sponsored insurance
program, we may establish a substantially higher Face Amount for Policies
issued under that Contract or program. Although an increase need not
necessarily be accompanied by additional premium, the Cash Surrender Value in
effect immediately after the increase must be sufficient to cover the next
monthly deduction. (See "Charges and Deductions--Monthly Deduction.") An
increase in the Face Amount may result in certain additional charges. (See
"Charges and Deductions.")

Cancellation of an Increase. An increase in Face Amount may be cancelled within
the later of:

. 20 days from the date the Owner received the new Policy specifications
page for the increase;

. within 10 days of mailing the right to cancellation notice to the Owner;
or

. within 45 days after the application for an increase was signed.

Upon cancellation, any additional charges, which would not have been assessed
without the increase, will be refunded to the Owner if requested. If a request
for a refund is not made, the charges will be restored to the Policy's Cash
Value and allocated to Divisions in the same manner as they were deducted.
Premiums paid following an increase in Face Amount and prior to the time the
right to cancel the increase expires will become part of the Policy's Cash
Value and will not be subject to refund. (See "Policy Rights and Privileges--
Right to Examine Policy.")

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

(a) A decrease in the Face Amount will, subject to the applicable percentage
limitations (see "Policy Benefits--Death Benefit"), decrease the pure insurance
protection and the cost of insurance charges under the Policy without reducing
the Cash Value.

(b) An increase in the Face Amount may increase the amount of pure insurance
protection, depending on the amount of Cash Value and the resultant applicable
percentage limitation. If the insurance protection is increased, the Policy
charges generally will increase as well.

(c) An increased level of premium payments will reduce the pure insurance
protection if Option A is in effect. However, when the applicable percentage of
Cash Value exceeds either the Face Amount (if Option A is in effect) or the
Cash Value plus the Face Amount (if Option B is in effect), increased premium
payments will increase the pure insurance protection. Increased premiums should
also increase the amount of funds available to keep the Policy in force.

(d) A reduced level of premium payments generally will increase the amount of
pure insurance protection, depending on the applicable percentage limitations.
If the reduced level of premium payments is insufficient to cover monthly
deductions or to offset negative investment performance, Cash Value may also
decrease, which in turn will increase the possibility that the Policy will
lapse. (See "Payment and Allocation of Premiums--Policy Lapse and
Reinstatement.")

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 we receive all documentation
required. Payment may, however, be postponed in certain circumstances. (See
"General Matters Relating to the Policy--Postponement of Payments.") The Owner
may decide the form in which the proceeds will be paid. During the Insured's
lifetime, the Owner may arrange for the death benefit proceeds to be paid in a
single sum or under one or more of the optional methods of settlement described
below. The death benefit will be increased by the amount of the monthly cost of
insurance for the portion of the month from the date of death to the end of the
month, and reduced by any outstanding Indebtedness. (See "General Matters
Relating to the Policy--Additional Insurance Benefits," and "Charges and
Deductions.")

When no election for an optional method of settlement is in force when the
Insured dies, the Beneficiary may select one or more of the optional methods of
settlement at any time before death benefit proceeds are paid. (See "Policy
Rights and Privileges--Payment of Policy Benefits.")

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

Cash Value

The Cash Value of the Policy is equal to the total of the Policy's Cash Value
in the Separate Account and the Loan Account. The Policy's Cash Value in the
Separate Account will reflect:

. the investment performance of the chosen Divisions;

. the frequency and amount of net premiums paid;

. transfers;

. partial withdrawals;

. Policy Loans;

. Loan account interest rate credited; and

. the charges assessed in connection with the Policy.

An Owner may at any time surrender the Policy and receive the Policy's Cash
Surrender Value. (See "Policy Rights and Privileges--Surrender and Partial
Withdrawals.") There is no guaranteed minimum Cash Value.

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

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

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

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

21
<PAGE>

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

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

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

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

(8) If a Monthly Anniversary occurs during the current Valuation Period, the
portion of the monthly deduction allocated to the Division during the current
Valuation Period to cover the Policy Month which starts during that Valuation
Period. (See "Charges and Deductions.")

The Policy's Cash Value in the Separate Account equals the sum of the Policy's
Cash Values in each Division.

Net Investment Factor. The Net Investment Factor measures the investment
performance of a Division during a Valuation Period. The Net Investment Factor
for each Division for a Valuation Period is calculated as follows:

(1) The value of the assets at the end of the preceding Valuation Period; plus

(2) The investment income and capital gains--realized or unrealized--credited
to the assets in the Valuation Period for which the Net Investment Factor is
being determined; minus

(3) The capital losses, realized or unrealized, charged against those assets
during the Valuation Period; minus

(4) Any amount charged against each Division for taxes or other economic burden
resulting from the application of tax laws, determined by the Company to be
properly attributable to the Divisions or the Policy, or any amount set aside
during the Valuation Period as a reserve for taxes attributable to the
operation or maintenance of each Division; minus

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

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

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

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

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

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

POLICY RIGHTS AND PRIVILEGES

Exercising Rights and Privileges Under the Policies

22
<PAGE>

allocations, borrow, etc.) by directly notifying us in writing at our Home
Office. We will send all reports and other notices described herein or in the
Policy directly to the Owner.

Loans

Loan Privileges. After the first Policy Anniversary, the Owner may, by written
request directly to us, borrow an amount up to the Loan Value of the Policy,
with the Policy serving as sole security for such loan. The Loan Value is equal
to (a) minus (b), where

. (a) is 85% 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 we receive
the loan request at our Home Office, although payments may be postponed under
certain circumstances. (See "General Matters Relating to the Policy--
Postponement of Payments.")

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

Loan Account Interest Rate Credited. Cash Value transferred to the Loan Account
to secure a Policy Loan will accrue interest daily at an annual rate not less
than 5%. The rate is declared by action of our management as authorized by our
Board of Directors. The Loan Account interest credited will be transferred to
the Divisions: (1) each Policy Anniversary; (2) when a new loan is made; (3)
when a loan is partially or fully repaid; and (4) when an amount is needed to
meet a monthly deduction.

Interest Rate Charged for Policy Loans. The interest rate charged will be at an
annual rate of 8%. Interest charged will be due and payable annually in arrears
on each Policy Anniversary or for the duration of the Policy Loan, if shorter.
If the Owner does not pay the interest charged when it is due, an amount of
Cash Value equal to that which is due will be transferred to the Loan Account.
(See "Policy Rights and Privileges--Loans--Effect of Policy Loans.") The amount
transferred will be deducted from the Divisions in the same proportion that the
portion of the Cash Value in each Division bears to the total Cash Value of the
Policy (not including the Cash Value in the Loan Account).

Effect of Policy Loans. A loan taken from, or secured by, a Policy may have
federal income tax consequences. (See "Federal Tax Matters.")

Whether or not a Policy Loan is repaid, it will permanently affect the Cash
Value of a Policy, and may permanently affect the amount of the death benefit.
This is because the collateral for the Policy Loan (the amount held in the Loan
Account) does not participate in the performance of the Separate Account while
the loan is outstanding. If the Loan Account interest credited is less than the
investment performance of the selected Division, the Policy values will be
lower as a result of the loan. Conversely, if the Loan Account interest
credited is higher than the investment performance of the Division, the Policy
values may be higher.

In addition, if the Indebtedness exceeds the Cash Value on any Monthly
Anniversary, the Policy may lapse, subject to a grace period. (See "Charges and
Deductions.") A sufficient payment must be made within the later of:

23
<PAGE>

(1) the grace period of 62 days from the Monthly Anniversary immediately
before the date Indebtedness exceeds the Cash Value; or

(2) 31 days after notice that the Policy will terminate without a
sufficient payment has been mailed.

If a sufficient payment is not received, the Policy will lapse and terminate
without value. A lapsed Policy may later be reinstated. (See "Payment and
Allocation of Premiums--Policy Lapse and Reinstatement.")

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

Repayment of Indebtedness. A Policy Loan may be repaid in whole or in part at
any time prior to the death of the Insured and as long as a Policy is in
effect. All repayments should be made directly to us. Amounts paid while a
Policy Loan is outstanding will be treated as premiums unless the Owner
requests in writing that the payments be treated as repayment of Indebtedness.
When a loan repayment is made, an amount securing the Indebtedness in the Loan
Account equal to the loan repayment will be transferred to the Divisions in the
same proportion that Cash Value in the Loan Account bears to the Cash Value in
each Loan Subaccount. A Loan Subaccount exists for each Division. Amounts
transferred to the Loan Account to secure Indebtedness are allocated to the
appropriate Loan Subaccount to reflect their origin.

Surrender and Partial Withdrawals

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

Surrender. To effect a surrender, the Policy must be returned to us along with
the request, or the request must be accompanied by a completed affidavit of
lost Policy. Upon request, we can provide a lost Policy Certificate. Upon
surrender, we will pay the Cash Surrender Value to the Owner. The Cash
Surrender Value equals the Cash Value on the date of surrender, less any
Indebtedness. 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 $500. The
minimum amount that can be withdrawn from a Division is $50, or the Policy's
Cash Value in a Division, if smaller. The maximum amount that may be withdrawn,
including the partial withdrawal transaction charge, is the Loan Value. The
partial withdrawal transaction charge is equal to the lesser of $25 or 2% of
the amount withdrawn. The Owner may allocate the amount withdrawn, subject to
the above conditions, among the Divisions. If no allocation is specified, then
the partial withdrawal will be allocated among the Divisions in the same
proportion that the Policy's Cash Value in each Division bears to the total
Cash Value of the Policy, (not including the Cash Value in the Loan Account,)
on the date the request for the partial withdrawal is received.

24
<PAGE>

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.

Generally, the partial withdrawal transaction charge will be allocated among
the Divisions in the same proportion as the partial withdrawal is allocated.
If, following a partial withdrawal, insufficient funds remain in a Division to
pay the partial withdrawal transaction charge 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 approved.

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

Transfers

Under the Company's current rules, a Policy's Cash Value (not including amounts
credited to the Loan Account), may be transferred among the Divisions available
with the Policy. Requests for transfers from or among Divisions must be made in
writing directly to us and may be made once each Policy Month. Transfers must
be in amounts of at least $250 or, if smaller, the Policy's Cash Value in a
Division. We will make transfers and determine all values in connection with
transfers as of the end of the Valuation Period during which the transfer
request is received.

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

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

Right to Examine Policy

The Owner may cancel a Policy within 10 days of after receiving it or such
longer period if required by state law. If a Policy is cancelled within this
time period, a refund will be paid. The refund will equal all premiums paid
under the Policy.

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

As noted above, a request for an increase in Face Amount (see "Policy
Benefits--Death Benefit") also may be cancelled. The request for cancellation
must be made within the latest of:

. 20 days from the date the Owner received the new Policy specifications
pages for the increase;

. 10 days of mailing the right to cancellation notice to the Owner; or

. 45 days after the Owner signed the application for the increase.

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<PAGE>

Upon cancellation of an increase, the Owner may request that we refund the
amount of the additional charges deducted in connection with the increase. This
amount will equal the amount by which the monthly deductions since the increase
went into effect exceeded the monthly deductions which would have been made
absent the increase. (See "Charges and Deductions--Monthly Deduction.") If no
request is made, we will increase the Policy's Cash Value by the amount of
these additional charges. This amount will be allocated among the Divisions in
the same manner as it was deducted.

Conversion Right to a Fixed Benefit Policy

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

Eligibility Change Conversion

If an Insured's eligibility under a Group Contract 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 (a)
after we receive written notice that 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 us before the new Individual Policy will
be mailed. A new planned premium schedule will be established which will have
the same planned annual premium utilized under the Group Contract. The new
planned payment intervals will be no more frequent than quarterly. The Company
may allow payment of planned premium through periodic (usually monthly)
authorized electronic funds transfer. Of course, unscheduled premium payments
can be made at any time. (See "Payment and Allocation of Premiums--Premiums.")

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.

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<PAGE>

Payment of Benefits at Maturity

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

Payment of Policy Benefits

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

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

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

CHARGES AND DEDUCTIONS

We will deduct charges in connection with the Policies to compensate us 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. We may realize a profit on one or more of these charges. We may use
any such profit for any corporate purpose, including, among other things,
payments of sales and distribution expenses.

Sales Charges

Prior to allocation of net premiums among the Divisions, premium payments will
be reduced by a front-end sales charge ("premium expense charge") equal to 1%
of the premium.

In addition, 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, we
make an additional charge of 1% of each premium payment to compensate us for
the anticipated higher corporate income taxes that result from the sale of such
a Policy. Among other possible employer-sponsored programs, Corporate Program
Policies are deemed to be individual contracts.

The net premium payment is calculated as the premium payment less:

. the premium expense charge less;

. any charge to compensate the Company for anticipated higher corporate
income taxes resulting from the sale of a Policy; and

. the premium tax charge (described below).

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

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<PAGE>

Premium Tax Charge

Various states and subdivisions impose a tax on premiums received by insurance
companies. Premium taxes vary from jurisdiction to jurisdiction. To cover these
premium taxes, premium payments will be reduced by a premium tax charge of 2%
from all Policies.

Monthly Deduction

Charges will be deducted monthly from the Cash Value of each Policy ("monthly
deduction") to compensate us for (a) certain administrative costs; (b)
insurance underwriting and acquisition expenses in connection with issuing a
Policy; (c) the cost of insurance; and (d) the cost of optional benefits added
by rider. The monthly deduction will be deducted on the Investment Start Date
and on each succeeding Monthly Anniversary. It will be allocated among each
Division in the same proportion that a Policy's Cash Value in each Division
bears to the total Cash Value of the Policy (not including the Cash Value in
the Loan Account) on the date the deduction is made. Because portions of the
monthly deduction, such as the cost of insurance, can vary from month to month,
the monthly deduction itself will vary in amount from month to month.

Monthly Administrative Charge. We are responsible for the administration of the
Policies and the Separate Account. Administrative expenses include premium
billing and collection, recordkeeping, processing death benefit claims, cash
surrenders, partial withdrawals, Policy changes, reporting and overhead costs,
processing applications, and establishing Policy records. We assess 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 First Subsequent
Employees Year 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 (1) with
fewer than 250 eligible employees, (2) with additional administrative costs, or
(3) 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 are guaranteed not to increase over the life of the Policy. The
administrative charge will not change in the event that the Insured is no
longer eligible for group coverage, but continues coverage on an individual
basis. In addition, when we believe that lower administrative costs will be
incurred in connection with a particular Group Contract or employer-sponsored
insurance program we 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 next Policy Month. Because the cost of insurance depends
upon a number of variables, the cost will vary for each Policy Month. The cost
of insurance is determined separately for the initial Face Amount and for any
increases in Face Amount. We will determine the monthly cost of insurance
charge by multiplying the applicable cost of insurance rate or rates by the net
amount at risk for each Policy Month.

Cost of Insurance Rates. 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. We will determine the current cost of insurance rates based on our
expectations as to future mortality experience. We currently issue the Policies
on a guaranteed issue or simplified underwriting basis without regard to the
sex of the Insured. Whether a Policy is

28
<PAGE>

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 risk we assume 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. We reserve the right
to change criteria on which a rate class will be based in the future.

If gender mix is a factor, we 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, we 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, we reserve the right to base the gender
mix and rate class on the group consisting of those Insureds who are no longer
under a Group Contract 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% of the maximum rates that could be charged based on the 1980 Commissioners
Standard Ordinary Mortality Table C ("1980 CSO Table"). The guaranteed rates
are higher than 100% of the maximum rates in the 1980 CSO Table because we use
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% of the 1980 CSO Table. Any change
in the actual cost of insurance rates, will apply to all persons of the same
Attained Age and rate class whose Face Amounts have been in force for the same
length of time. Any change in the actual cost of insurance rates will not
include changes made to adjust for changes in the gender mix of the pool of
Insureds under a particular Group Contract or employer-sponsored insurance
program. (For purposes of computing guideline premiums under Section 7702 of
the Internal Revenue Code of 1986, as amended, the Company will use 100% of the
1980 CSO Table.)

Net Amount at Risk. The net amount at risk for a Policy Month is (a) the death
benefit at the beginning of the Policy Month divided by 1.0040741), less (b)
the Cash Value at the beginning of the Policy Month. Dividing the death benefit
by 1.0040741 reduces the net amount at risk, solely for purposes of computing
the cost of insurance, by taking into account assumed monthly earnings at an
annual rate of 5%.

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

Because the calculation of the net amount at risk is different under Option A
and Option B when more than one rate class is in effect, a change in the death
benefit option may result in a different net amount at risk for each rate
class. Since the cost of insurance is calculated separately for each rate
class, any change in the net amount at risk resulting from a change in the
death benefit option may affect the total cost of insurance paid by the Owner.

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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 2% of the amount withdrawn
will be assessed on each partial withdrawal, to cover administrative costs
incurred in processing the partial withdrawal.

Separate Account Charges

Mortality and Expense Risk Charge. The Company will deduct a daily charge from
the Separate Account at the rate not to exceed .0024547% of the net assets of
each Division of the Separate Account. This equals an annual rate of .90% of
those net assets. This deduction is guaranteed not to increase for the duration
of the Policy. We may realize a profit from this charge and may use this profit
to finance distribution expenses.

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

Federal Taxes. Currently no charge is made to the Separate Account for federal
income taxes that may be incurred by the Separate Account. We may make such a
charge in the future. Charges for other taxes incurred by the Account may also
be made. (See "Federal Tax Matters.")

Expenses of the Funds. The value of the net assets of the Separate Account will
reflect the investment advisory fee and other expenses incurred by the Funds.
(See "Summary of the Policy--Separate Account Charges--Annual Expenses of the
Funds" and "The Company, the Separate Accounts and The Funds--The Funds.")

GENERAL MATTERS RELATING TO THE POLICY

Postponement of Payments

Payment of any amount due from the Separate Account because of surrender,
partial withdrawals, election of an accelerated death benefit under a rider,
death of the Insured, or the Maturity Date, as well as payments of a Policy
loan and transfers, may be postponed whenever:

(1) the New York Stock Exchange is closed other than customary weekend and
holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the SEC;

(2) the SEC by order permits postponement for the protection of Owners; or

(3) an emergency exists, as determined by the SEC, as a result of which
disposal of securities is not reasonably practicable or it is not
reasonably practicable to determine the value of the Separate Account's
net assets.

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

The Contract

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

Beneficiary

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

Change of Owner or Beneficiary

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

Policy Changes

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

Conformity with Statutes

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

Claims of Creditors

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

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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

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

Suicide

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

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

Misstatement of Age and Corrections

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

Any payment or Policy changes we make in good faith, relying on our records or
evidence supplied with respect to such payment, will fully discharge our duty.
We reserve the right to correct any errors in the Policy.

Additional Insurance Benefits

Subject to certain requirements, 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, we
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.")

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.

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will be paid upon receipt of proof by us 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 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. We
will pay the Policy's death benefit (less any Indebtedness and any term
insurance added by riders), calculated on the date that we receive satisfactory
evidence that the Insured has tested seropositive for HIV, reduced by a $100
administrative processing fee. We will pay the accelerated benefit to the Owner
in a single payment in full settlement of the 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 us.

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
advisor 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 accelerated
payment of a reduced death benefit. The Owner may make such an election under
the rider if evidence, including a certification from a licensed physician, is
provided to us that the Insured (1) has a life expectancy of 12 months or less
or (2) is permanently confined to a qualified nursing home and is expected to
remain there until death. Any irrevocable Beneficiary and assignees of record
must provide written authorization in order for the Owner to receive the
accelerated benefit. The 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 we receive satisfactory evidence
of either (1) or (2), above (less any Indebtedness and any term insurance added
by other riders), plus the product of the applicable "benefit factor"
multiplied by the difference of (a) minus (b), where (a) equals the Policy's
death benefit proceeds, and (b) equals the Policy's Cash Surrender Value. The
"benefit factor", in the case of terminal illness, is 0.85 and, in the case of
permanent nursing home confinement, is 0.70.

Pursuant to the recently enacted Health Insurance Portability and
Accountability Act of 1996, we believe that for federal income tax purposes an
accelerated death benefit payment made under the Accelerated Death Benefit
Settlement Option Rider should be fully excludable from the gross income of the
Beneficiary, as long as the Beneficiary is the Insured under the Policy.
However, you should consult a qualified tax advisor about the consequences of
adding this Rider to a Policy or requesting an accelerated death benefit
payment under this Rider.

Records and Reports

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<PAGE>

deductions made since the last report, and any outstanding Policy Loans. The
Owner will also be sent without comment periodic reports for the Funds and a
list of the portfolio securities held in each Fund. Receipt of premium payments
directly from the Owner, transfers, partial withdrawals, Policy Loans, loan
repayments, changes in death benefit options, increases or decreases in Face
Amount, surrenders and reinstatements will be confirmed promptly following each
transaction.

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

DISTRIBUTION OF THE POLICIES

Walnut Street Securities, Inc. ("Walnut Street") acts as principal underwriter
of the Policies pursuant to an Underwriting Agreement with us. Walnut Street is
a wholly-owned subsidiary of GenAmerica Corporation. Walnut Street is
registered with the SEC under the Securities Exchange Act of 1934 as a broker-
dealer and is a member of the National Association of Securities Dealers.
Walnut Street's Internal Revenue Service employer identification No. is 43-
1333368. It is a Missouri corporation formed May 4, 1984. Walnut Street's
address is 400 South 4th Street, Suite 1000, St. Louis, MO 63102. The Policies
will be sold by broker-dealers who have entered into written sales agreements
with Walnut Street. Sales of the Policies may take place in all states (except
New York) and the District of Columbia.

Broker-dealers will receive commissions based upon a commission schedule in the
sales agreement with us and Walnut Street. Broker-dealers compensate their
registered representative agents. Commissions are payable on net collected
premiums received by the Company. Maximum commissions payable to a broker-
dealer during the first year of a Group Contract or other employer-sponsored
insurance program are (a) 18% of premiums that do not exceed the cost of
insurance assessed during the first Policy Year plus (b) 1% of premiums in
excess of the cost of insurance assessed during that Policy Year. In all
renewal years of a Group Contract or other employer-sponsored insurance program
maximum commissions are (a) 3% of premiums that do not exceed the cost of
insurance assessed during the respective Policy Year plus (b) 1% of premiums in
excess of the cost of insurance assessed during that Policy Year. In lieu of
the part (b) of renewal commissions described above payable on premiums
received in excess of the cost of insurance assessed, renewal commissions may
be up to 0.25% per year of the average Cash Value of a Policy during a Policy
Year or calendar year. In no event will commissions be payable for more than 20
years.

GENERAL PROVISIONS OF THE GROUP CONTRACT

Issuance

The Group Contract will be issued upon receipt of a signed application for
Group Insurance signed by a duly authorized officer of the employer and
acceptance by a duly authorized officer of the Company at its Home Office.

Premium Payments

The Contractholder will give planned premium payments for Insureds of the
Contractholder or an Associated Company in an amount authorized by the employee
to be deducted from his wages. All planned premiums under a Group Contract must
be given in advance. The planned premium payment interval is agreed to by the
Contractholder and us. Prior to each planned payment interval, we will furnish
the Contractholder with a statement of the planned premium payments to be made
under the Group Contract or such other notification as has been agreed to by
the Contractholder and us.

Grace Period

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If the Contractholder does not give premiums prior to the end of the grace
period, the Group Contract will terminate. However, the Individual Insurance
will continue following the Group Contract's termination, provided such
insurance is not surrendered or cancelled by the Owner. (See "Policy Rights and
Privileges--Eligibility Change Conversion.")

Termination

Except as described in "Grace Period" above, the Group Contract will be
terminated immediately upon default. In addition, we may end a Group Contract
or any of its provisions on 31 days' notice. If the Group Contract terminates,
any Policies in effect will remain in force on an individual basis, unless such
insurance is surrendered or cancelled by the Owner. New Policies will be issued
as described in "Policy Rights and Privileges--Eligibility Change Conversion."

Right to Examine Group Contract

The Contractholder may terminate the Group Contract within 20 days after
receiving it, within 45 days after the application was signed or within 10 days
of mailing a notice of the cancellation right, whichever is latest. To cancel
the Group Contract, the Contractholder should mail or deliver the Group
Contract to us.

Entire Contract

The Group Contract, with the attached copy of the Contractholder's application
and other attached papers, if any, is the entire contract between the
Contractholder and us. All statements made by the Contractholder, any Owner or
any Insured will be deemed representations and not warranties. Misstatements
will not be used in any contest or to reduce claim under the Group Contract,
unless it is in writing. A copy of the application containing such misstatement
must have been given to the Contractholder or to the Insured or to his
Beneficiary, if any.

Incontestability

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

Ownership of Group Contract

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

FEDERAL TAX MATTERS

Introduction

The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete
or to cover all situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisors 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

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<PAGE>

authorized to prescribe regulations implementing Section 7702, while proposed
regulations and other interim guidance has been issued, final regulations have
not been adopted. In short, guidance as to how Section 7702 is
to be applied is limited. The Company nonetheless believes (largely in reliance
on IRS Notice 88-128 and the proposed regulations under Section 7702, issued on
July 5, 1991) that the Policy should meet the Section 7702 definition of a life
insurance contract. If a Policy were determined not to be a life insurance
contract for purposes of Section 7702, such Policy would not provide the tax
advantages normally provided by a life insurance policy. Therefore, if it is
subsequently determined that a Policy does not satisfy Section 7702, we 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, we reserve 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 to be "adequately
diversified" in order for the Policy to be treated as a life insurance contract
for federal tax purposes. Although we do not control the investment management
companies or their investments, the investment management companies have
represented that they intend 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 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 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, we do
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. We
therefore reserve 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.

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The exchange of a Policy, a change in the Policy's death benefit option (e.g.,
a change from Option B to Option A), a change in the Policy's Face Amount, a
conversion to a fixed policy, an exchange, a Policy loan, an unscheduled
premium payment, a Policy lapse with an outstanding loan, a partial withdrawal,
a surrender, or an assignment of the Policy may have federal income tax
consequences depending on the circumstances. In addition, federal estate and
state and local estate, inheritance, and other tax consequences of ownership or
receipt of Policy proceeds depend on the circumstances of each Policy Owner or
Beneficiary. A competent tax advisor should be consulted for further
information.

Pursuant to the recently enacted Health Insurance Portability and
Accountability Act of 1996, the Company believes that for federal income tax
purposes an accelerated death benefit payment made under the Accelerated Death
Benefit Settlement Option Rider should be fully excludable from the gross
income of the Beneficiary, as long as the Beneficiary is the Insured under the
Policy. However, you should consult a qualified tax advisor about the
consequences of adding this Rider to a Policy or requesting an accelerated
death benefit payment under this Rider.

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. In recent years, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
Policy or a change in an existing Policy should consult a tax advisor.

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

2. Policies classified as modified endowment contracts. In general, a Policy
will be a modified endowment contract if the accumulated premiums paid at any
time during the first seven Policy years exceeds the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. Further, a Policy that is not otherwise a modified endowment contract
may become a modified endowment contract if it is "materially changed." The
determination whether a Policy will be a modified endowment contract 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 Policy Owner
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

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efforts to enhance its administrative systems to monitor potential modified
endowment classifications automatically.

3. Distributions from Policies Classified as Modified Endowment Contracts.
Policies classified as modified endowment contracts will be subject to the
following tax rules: First, all distributions, including distributions upon
surrender and benefits paid at maturity, from such a Policy are treated as
ordinary income subject to tax up to the amount equal to the excess (if any) of
the Cash Value immediately before the distribution over the investment in the
Policy (described below) at such time. Second, loans taken from, or secured by,
such a Policy (as well as due but unpaid interest that is added to the loan
amount) are treated as distributions from such a Policy and taxed accordingly.
Third, a 10 % 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% 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 Policy Owner
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 us
(or our 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.

38
<PAGE>

Possible Charge for Taxes

At the present time, the Company makes no charge to the Separate Account for
any federal, state or local taxes we incur that may be attributable to the
Separate Account or to the Policies. We reserve 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 we determine to be properly attributable to
the Separate Account or to the Policies.

Possible Changes in Taxation

Although the likelihood of legislative changes is uncertain, there is always
the possibility that the tax treatment of the Policy could change by
legislation or otherwise. It is possible that any legislative change could be
retroactive (that is, effective prior to the date of the date of the change). A
tax advisor should be consulted with respect to legislative developments and
their effect on the Policy.

SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS

The Company holds assets of the Separate Account. The assets are kept
physically segregated and held separate and apart from our general assets. We
maintain records of all purchases and redemptions of Fund shares by each of the
Divisions. Additional protection for the assets of the Separate Account is
afforded by a blended executive risk insurance program, including blanket
fidelity coverage issued by CNA and Chubb Insurance Companies with a limit of
$25 million, covering all officers and employees of the Company who have access
to the assets of the Separate Account.

VOTING RIGHTS

To the extent required by law, the Company will vote the shares held in the
Separate Account at regular and special shareholder meetings of the underlying
Funds in accordance with instructions received from persons having voting
interests in the corresponding Divisions of the Separate Account. If, however,
the 1940 Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result the Company determines
that it is permitted to vote shares of the underlying Funds in its own right,
it may elect to do so.

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

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

39
<PAGE>

subclassification or investment objective of or one or more of the Funds or to
approve or disapprove an investment advisory contract for a Fund. In addition,
the Company itself may disregard voting instructions in favor of changes
initiated by an Owner in the investment policy or by the investment adviser or
sub-adviser of a Fund if the Company reasonably disapproves of such changes. A
proposed change would be disapproved only if the proposed change is contrary to
state law or prohibited by state regulatory authorities, or we determine that
the change would have an adverse effect on its general assets in that the
proposed investment policy for a Fund may result in overly speculative or
unsound investments. In the event we do disregard voting instructions, a
summary of that action and the reasons for such action will be included in the
next annual report to Owners.

IMSA

The Company is a member of the Insurance Market place Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.

STATE REGULATION OF THE COMPANY

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

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

Preparing for Year 2000

Like all financial service providers, we utilizes systems that may be affected
by Year 2000 transition issues and rely on service providers, including the
Funds, that also may be affected. We have developed and implemented a Year 2000
transition plan, and sought disclosure from our service providers that they are
also so engaged. The resources devoted to this effort that have been, and
continue to be, substantial. It is difficult to predict with precision whether
the amount of resources ultimately devoted, or the outcome of these efforts,
will have any negative impact. However, as of the date of this prospectus, it
is not anticipated that Policy Owners will experience negative effects on their
investment, or on the services provided in connection therewith, as a result of
Year 2000 transition implementation We have examined our systems and made the
necessary changes to ensure proper Year 2000 transition, and put in place the
proper processes to ensure continued Year 2000 transition success. The results
of that examination have been independently reviewed, but there can be no
assurance that we will be completely successful, or that interaction with other
service providers will not impair our services at that time.

40
<PAGE>

MANAGEMENT OF THE COMPANY

<TABLE>
<CAPTION>
Name Principal Occupation(s) During Past Five Years/1/
--------------------------- --------------------------------------------------
<C> <S>
Executive Officers/2/

Carl H. Anderson/4/ President and Chief Executive Officer since June,
1986. Vice President, New Ventures, since June
1986, General American Life Insurance Co., St.
Louis, Mo (GenAm).

Matthew K. Duffy 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./4/ Treasurer since December, 1994. Corporate Actuary
General American Life and Treasurer, GenAm since October, 1994.
Insurance Company Executive Vice President--Group Pensions, GenAm
700 Market Street January, 1990-October, 1994.
St. Louis, MO 63101

Matthew P. McCauley/4/ 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
700 Market Street 30, 1995.
St. Louis, MO 63101

Craig K. Nordyke/4/ Executive Vice President and Chief Actuary since
November, 1996. Vice President and Chief Actuary
August, 1990-November, 1996; Second Vice President
and Chief Actuary, May, 1987-August, 1990.

John R. Tremmel Vice President--Operations and System Development
since January 1999. Formerly Chief Operating
Officer, ISP Alliance, April 1998-December 1998.
Vice President and General Manager of National
Operations Centers, Norell Corporation, January
1995-March 1998. Senior Vice President, Citicorp
Insurance Group, September 1986-December 1995.

Directors/3/

Richard A. Liddy Chairman, 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.

Warren J. Winer Executive Vice President--Group, GenAm, since
September, 1995. Formerly, Managing Director, Wm.
M. Mercer, July, 1993-August, 1995; President, WF
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.

41
<PAGE>

/3 /The principal business address of each person listed is General American
Life Insurance Company, 700 Market Street, St. Louis, MO 63101, except A.
Greig Woodring--Reinsurance Group of America, 660 Mason Ridge Center Drive,
St. Louis, MO 63141.
/4 /Indicates Executive Officers who are also Directors.

LEGAL MATTERS

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

LEGAL PROCEEDINGS

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

EXPERTS

The financial statements of the Company and the Separate Account included in
this Prospectus and in the registration statement have been included in
reliance upon the reports of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

Actuarial matters included in this Prospectus have been examined by Craig K.
Nordyke, FSA, MAAA, Executive Vice President and Chief Actuary of the Company,
as stated in the opinion filed as an exhibit to the registration statement.

ADDITIONAL INFORMATION

A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This Prospectus does not contain all the information
set forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Separate Account, the Company and the Policy offered
hereby. Statements contained in this Prospectus as to the contents of the
Policy and other legal instruments are summaries. For a complete statement of
the terms thereof reference is made to such instruments as filed.

FINANCIAL STATEMENTS

The financial statements of the Company which are included in this Prospectus
should be distinguished from the financial statements for the Separate Account
included in this Prospectus, and should be considered only as bearing on the
ability of the Company to meet its obligations under the Policy. They should
not be considered as bearing on the investment performance of the assets held
in the Separate Account.

42
<PAGE>

DEFINITIONS

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

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

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

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

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

Certificate--A document issued to Owners of Policies issued under Group
Contracts, setting forth or summarizing the Owner's rights and benefits.

Contractholder--The employer, association, sponsoring organization or trust
that is issued a Group Contract.

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.

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.

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.

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.

43
<PAGE>

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.

44
<PAGE>

[KPMG LOGO]

10 South Broadway
Suite 900
St. Louis, MO 63102-1761

INDEPENDENT AUDITOR'S REPORT

The Board of Directors

Paragon Life Insurance Company:

We have audited the accompanying balance sheets of Paragon Life Insurance
Company as of December 31, 1998 and 1997, and the related statements of
operations and comprehensive income, stockholder's equity, and cash flows for
each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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, 1998 and 1997, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1998, in conformity with generally accepted accounting
principles.

[LOGO SIGNATURE OF KPMG LLP]

February 3, 1999

F-1

[LOGO OF FOUR BOXES]

<PAGE>

PARAGON LIFE INSURANCE COMPANY

Balance Sheets

December 31, 1998 and 1997

(in thousands of dollars)

<TABLE>
<CAPTION>
1998 1997
--------- -------
<S> <C> <C>
Assets
Fixed maturities, available for sale....................... $ 83,384 75,704
Policy loans............................................... 14,135 11,487
Cash and cash equivalents.................................. 7,439 5,733
--------- -------
Total cash and invested assets......................... 104,958 92,924
Reinsurance recoverables................................... 1,170 1,733
Deposits relating to reinsured policyholder account
balances.................................................. 6,688 6,416
Accrued investment income.................................. 1,545 1,377
Deferred policy acquisition costs.......................... 20,602 17,980
Fixed assets and leasehold improvements, net............... 4,504 2,609
Other assets............................................... 105 179
Separate account assets.................................... 168,222 118,051
--------- -------
Total assets........................................... $ 307,794 241,269
========= =======
Liabilities and Stockholder's Equity
Policyholder account balances.............................. 93,334 85,152
Policy and contract claims................................. 1,672 1,085
Federal income taxes payable............................... 281 163
Other liabilities and accrued expenses..................... 3,943 3,486
Payable to affiliates...................................... 2,062 1,620
Due to separate account.................................... 183 61
Deferred tax liability..................................... 5,591 4,394
Separate account liabilities............................... 168,222 118,051
--------- -------
Total liabilities...................................... $ 275,288 214,012
--------- -------
Stockholder's equity:
Common stock, par value $25; 100,000 shares authorized;
82,000 shares issued and outstanding.................... 2,050 2,050
Additional paid-in capital............................... 17,950 17,950
Accumulated other comprehensive income................... 2,809 1,958
Retained earnings........................................ 9,697 5,299
--------- -------
Total stockholder's equity............................. $ 32,506 27,257
--------- -------
Total liabilities and stockholder's equity............. $ 307,794 241,269
========= =======
</TABLE>

See accompanying notes to financial statements.

F-2
<PAGE>

PARAGON LIFE INSURANCE COMPANY

Statements of Operations and Comprehensive Income

Years ended December 31, 1998, 1997 and 1996

(in thousands of dollars)

<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Revenues:
Policy contract charges............................... $20,437 16,417 13,719
Net investment income................................. 6,983 6,288 5,663
Commissions and expense allowances on reinsurance
ceded................................................ 124 10 114
Net realized investment gains......................... 53 69 72
------- ------ ------
Total revenues...................................... 27,597 22,784 19,568
======= ====== ======
Benefits and expenses:
Policy benefits....................................... 4,774 3,876 3,326
Interest credited to policyholder account balances.... 5,228 4,738 4,126
Commissions, net of capitalized costs................. 167 227 79
General and administration expenses, net of
capitalized costs.................................... 9,512 7,743 6,798
Amortization of deferred policy acquisition costs..... 1,150 424 285
------- ------ ------
Total benefits and expenses......................... 20,831 17,008 14,614
======= ====== ======
Income before federal income tax expense............ 6,766 5,775 4,954
Federal income tax expense.............................. 2,368 1,885 1,738
------- ------ ------
Net income.............................................. $ 4,398 3,890 3,216
Other comprehensive income (loss)....................... 851 1,636 (1,261)
------- ------ ------
Comprehensive income.................................... $ 5,249 5,526 1,955
======= ====== ======
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

PARAGON LIFE INSURANCE COMPANY

Statements of Stockholder's Equity

Years ended December 31, 1998, 1997, and 1996

(in thousands of dollars)

<TABLE>
<CAPTION>
Accumulated
Additional other Retained Total
Common paid-in comprehensive earnings stockholder's
Stock capital income (deficit) equity
------ ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... $2,050 17,950 1,583 (1,807) 19,776
Net income............ -- -- -- 3,216 3,216
Other comprehensive
income............... -- -- (1,261) -- (1,261)
------ ------ ------ ------ ------
Balance at December 31,
1996................... $2,050 17,950 322 1,409 21,731
Net income............ -- -- -- 3,890 3,890
Other comprehensive
income............... -- -- 1,636 -- 1,636
------ ------ ------ ------ ------
Balance at December 31,
1997................... $2,050 17,950 1,958 5,299 27,257
Net income............ -- -- -- 4,398 4,398
Other comprehensive
income............... -- -- 851 -- 851
------ ------ ------ ------ ------
Balance at December 31,
1998................... $2,050 17,950 2,809 9,697 32,506
====== ====== ====== ====== ======
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

PARAGON LIFE INSURANCE COMPANY

Statements of Cash Flows

Years ended December 31, 1998, 1997 and 1996

(in thousands of dollars)

<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 4,398 3,890 3,216
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in:
Reinsurance recoverables..................... 563 (892) 407
Deposits relating to reinsured policyholder
account balances............................ (272) (342) (378)
Accrued investment income.................... (168) (79) (257)
Federal income tax payable................... 118 (648) 811
Other assets................................. (1,821) (1,280) (1,019)
Policy and contract claims................... 587 (23) 12
Other liabilities and accrued expenses....... 457 782 741
Payable to affiliates........................ 442 (669) 397
Due to separate account...................... 122 (34) (108)
Deferred tax expense........................... 740 732 615
Policy acquisition costs deferred.............. (3,808) (2,972) (2,447)
Amortization of deferred policy acquisition
costs......................................... 1,150 424 285
Interest credited to policyholder accounts..... 5,228 4,738 4,126
Net gain on sales and calls of fixed
maturities.................................... (53) (69) (72)
-------- ------- -------
Net cash provided by operating activities.......... 7,683 3,558 6,329
-------- ------- -------
Cash flows from investing activities:
Purchase of fixed maturities..................... (14,915) (12,557) (15,290)
Sale or maturity of fixed maturities............. 8,632 5,255 6,860
Increase in policy loans, net.................... (2,648) (1,923) (2,358)
-------- ------- -------
Net cash used in investing activities.............. (8,931) (9,225) (10,788)
-------- ------- -------
Cash flows from financing activities:
Net policyholder account deposits................ 2,954 2,294 6,509
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 1,706 (3,373) 2,050
Cash and cash equivalents at beginning of year..... 5,733 9,106 7,056
-------- ------- -------
Cash and cash equivalents at end of year........... $ 7,439 5,733 9,106
======== ======= =======
Income taxes paid.................................. $ (1,460) (1,801) (198)
======== ======= =======
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

PARAGON LIFE INSURANCE COMPANY

Notes to Financial Statements--(Continued)

(1) Summary of Significant Accounting Policies

Paragon Life Insurance Company (Paragon or the Company) is a wholly owned
subsidiary of General American Life Insurance Company (General American or the
Parent). Paragon markets universal life and variable universal life insurance
products through the sponsorship of major companies and organizations. Paragon
is licensed to do business in the District of Columbia and all states except
New York.

General American has guaranteed that Paragon will have sufficient funds to
meet all of its contractual obligations. In the event a policyholder presents
a legitimate claim for payment on a Paragon insurance policy, General American
will pay such claim directly to the policyholder if Paragon is unable to make
such payment. The guarantee agreement is binding on General American, its
successor or assignee and shall cease only if the guarantee is assigned to an
organization having a financial rating from Standard & Poor's equal to or
better than General American's rating.

The accompanying financial statements are prepared on the basis of generally
accepted accounting principles. The preparation of financial statements
requires the use of estimates by management which affect the amounts reflected
in the financial statements. Actual results could differ from those estimates.
Accounts that the Company deems to be sensitive to changes in estimates
include deferred policy acquisition costs and contract claims.

The significant accounting policies of the Company are as follows:

(a) Recognition of Policy Revenue and Related Expenses

Revenues for universal life products consist of policy charges for the cost
of insurance, administration and surrender charges during the period. Revenues
for variable universal life products also include policy charges for mortality
and expense risks assumed by Paragon. Policy benefits and expenses include
interest credited to policy account balances on universal life products and
death benefit payments made in excess of policy account balances.

Policy acquisition costs, such as commissions and certain costs of policy
issuance and underwriting, are deferred and amortized in relation to the
present value of expected gross profits over the estimated life of the
policies.

(b) Invested Assets

Investment securities are accounted for at fair value. At December 31, 1998
and 1997, fixed maturity securities are classified as available-for-sale and
are carried at fair value with the unrealized gain or loss, net of taxes,
being reflected as accumulated other comprehensive income, a separate
component of stockholder's equity. Policy loans are valued at aggregate unpaid
balances.

Realized gains or losses on the sale of securities are determined on the
basis of specific identification and include the impact of any related
amortization of premiums or accretion of discounts which is generally computed
consistent with the interest method.

Amortization of the premium or discount on mortgage-backed securities is
recognized using a level-yield method which considers the estimated timing and
amount of prepayments of underlying mortgage loans. Actual prepayment
experience is periodically reviewed and effective yields are recalculated when
differences arise between the prepayments originally anticipated and the
actual prepayments received and currently anticipated. When such differences
occur, the net investment in the mortgage-backed security is adjusted to the
amount that would have existed had the new effective yield been applied since
the acquisition of the security with a corresponding charge or credit to
interest income.

F-6
<PAGE>

PARAGON LIFE INSURANCE COMPANY

Notes to Financial Statements--(Continued)

Policyholder account balances are equal to the policyholder account value
before deduction of any surrender charges. The policyholder account value
represents an accumulation of gross premium payments plus credited interest
less expense and mortality charges and withdrawals. These expense charges are
recognized in income as earned. Certain variable life policies allow
policyholders to exchange accumulated assets from the variable rate separate
accounts to a fixed-interest general account policy. The fixed-interest
general account guaranteed minimum crediting rates of 4% in 1998, 1997 and
1996. The actual crediting rate was 6.5% in 1998 and 1997, and ranged from
6.5% to 7.0% in 1996.

(d) Federal Income Taxes

The Company establishes deferred taxes under the asset and liability method,
and deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

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

(e) Reinsurance

Balances resulting from agreements which transfer funds relating to
policyholder account balances have been accounted for as deposits. Other
reinsurance activities are accounted for consistent with terms of the risk
transfer reinsurance contracts. Premiums for reinsurance ceded to other
companies have been reported as a reduction of policy contract charges.
Amounts applicable to reinsurance ceded for future policy benefits and claim
liabilities have been reported as assets for these items, and commissions and
expense allowances received in connection with reinsurance ceded have been
accounted for in income as earned. Reinsurance does not relieve the Company
from its primary responsibility to meet claim obligations.

(f) Deferred Policy Acquisition Costs

The costs of acquiring new business which vary with, and are primarily
related to, the production of new business have been deferred to the extent
that such costs are deemed recoverable from future gross profits. Such costs
include commissions, premium taxes, as well as certain costs of policy
issuance and underwriting. Deferred policy acquisition costs are adjusted for
the impact on estimated gross margins of net unrealized gains and losses on
investment securities. The estimates of expected gross margins are evaluated
regularly and are revised if actual experience or other evidence indicates
that revision is appropriate. Upon revision, total amortization recorded to
date is adjusted by a charge or credit to income.

(g) Separate Account Business

The assets and liabilities of the separate accounts represent segregated
funds administered and invested by the Company for purposes of funding
variable life insurance contracts for the exclusive benefit of variable life
insurance contract holders. The Company charges the separate accounts for
risks it assumes in issuing a policy and retains varying amounts of withdrawal
charges to cover expenses in the event of early withdrawals by contract
holders. The assets and liabilities of the separate account are carried at
fair value.

F-7
<PAGE>

PARAGON LIFE INSURANCE COMPANY

Notes to Financial Statements--(Continued)

(h) Fair Value of Financial Instruments

Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Although fair value estimates are calculated using
assumptions that management believes are appropriate, changes in assumption
could significantly affect the estimates and such estimates should be used
with care. The following assumptions were used to estimate the fair value of
each class of financial instrument for which it was practicable to estimate
fair value:

Fixed maturities--Fixed maturities are valued using quoted market prices,
if available. If quoted market prices are not available, fair value is
estimated using quoted market prices of similar securities.

Policy loans--Policy loans are carried at their unpaid balances which
approximates fair value.

Separate account assets and liabilities--The separate account assets are
carried at fair value as determined by quoted market prices. Accordingly,
the carrying value of separate account liabilities is equal to their fair
value since it represents the contractholders' interest in the separate
account assets.

Cash and cash equivalents--The carrying amount is a reasonable estimate
of fair value.

(i) Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents represent
demand deposits and highly liquid short-term investments, which include U.S.
Treasury bills, commercial paper, and repurchase agreements with original or
remaining maturities of 90 days or less when purchased.

(j) Reclassifications

The Company has reclassified the presentation of certain prior period
information to conform to the 1998 presentation.

(2) Investments

The amortized cost and estimated fair value of fixed maturities at December
31, 1998 and 1997 are as follows (000's):

<TABLE>
<CAPTION>
1998
-----------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities........ $ 6,705 267 -- 6,972
Corporate securities............ 64,607 4,481 (208) 68,881
Mortgage-backed securities...... 6,854 192 (25) 7,021
Asset-backed securities......... 500 10 -- 510
------- ----- ---- ------
$78,666 4,950 (233) 83,384
======= ===== ==== ======

<CAPTION>
1997
-----------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities........ $ 4,472 131 -- 4,603
Corporate securities............ 56,973 3,098 (142) 59,929
Mortgage-backed securities...... 9,124 233 (48) 9,309
Asset-backed securities......... 1,762 101 -- 1,863
------- ----- ---- ------
$72,331 3,563 (190) 75,704
======= ===== ==== ======
</TABLE>

F-8
<PAGE>

PARAGON LIFE INSURANCE COMPANY

Notes to Financial Statements--(Continued)

The amortized cost and estimated fair value of fixed maturities at December
31, 1998, by contractual maturity, are shown below (000's). Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.

<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
--------- ---------
<S> <C> <C>
Due in one year or less............................... $ 605 616
Due after one year through five years................. 20,733 21,528
Due after five years through ten years................ 12,600 13,338
Due after ten years through twenty years.............. 37,873 40,881
Mortgage-backed securities............................ 6,855 7,021
------- ------
$78,666 83,384
======= ======
</TABLE>

Proceeds from sales of fixed maturities during 1998, 1997 and 1996 were
$4,069,000, $1,328,585 and $4,129,254 respectively. Gross gains of $53,180,
$68,876 and $71,604 were realized on those sales in 1998, 1997 and 1996,
respectively.

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

<TABLE>
<CAPTION>
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Fixed Maturities.................................... $5,603 4,941 4,626
Short-term investments.............................. 535 608 449
Policy loans and other.............................. 924 807 680
------ ----- -----
$7,062 6,356 5,755
Investment expenses................................. (79) (68) (92)
------ ----- -----
Net investment income........................... $6,983 6,288 5,663
====== ===== =====
</TABLE>

A summary of the components of the net unrealized appreciation
(depreciation) on invested assets carried at fair value is as follows (in
000's):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ----
<S> <C> <C> <C>
Unrealized appreciation (depreciation):
Fixed maturities available-for-sale.............. $ 4,717 3,373 513
Deferred policy acquisition costs................ (396) (361) (17)
Deferred income taxes.............................. (1,512) (1,054) (174)
------- ------ ----
Net unrealized appreciation (depreciation)......... $ 2,809 1,958 322
======= ====== ====
</TABLE>

The Company has fixed maturities on deposit with various state insurance
departments with an amortized cost of approximately $4,121,000 and $3,982,000
at December 31, 1998 and 1997, 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.

F-9
<PAGE>

PARAGON LIFE INSURANCE COMPANY

Notes to Financial Statements--(Continued)

Premiums and related reinsurance amounts for the years ended December 31,
1998, 1997 and 1996 as they relate to transactions with affiliates are
summarized as follows (000's):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Reinsurance transactions with affiliates:
Premiums for reinsurance ceded.................... $14,723 13,001 10,264
Policy benefits ceded............................. 17,071 14,070 6,274
Commissions and expenses ceded.................... 123 195 114
Reinsurance recoverables.......................... 1,109 1,661 774
</TABLE>

Ceded premiums and benefits to nonaffiliates for 1998, 1997 and 1996 were
insignificant.

(4) Deferred Policy Acquisition Costs

A summary of the policy acquisition costs deferred and amortized is as
follows (000's):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Balance at beginning of year.................... $17,980 15,776 13,006
Policy acquisition costs deferred............... 3,808 2,972 2,447
Policy acquisition costs amortized.............. (1,150) (424) (285)
Deferred policy acquisition costs relating to
change in unrealized (gain) loss on investments
available for sale............................. (36) (344) 608
------- ------ ------
Balance at end of year.......................... $20,602 17,980 15,776
======= ====== ======
</TABLE>

(5) 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>
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Current tax (benefit) expense.......................... $1,628 1,153 1,123
Deferred tax expense................................... 740 732 615
------ ----- -----
Federal income tax expense............................. $2,368 1,885 1,738
====== ===== =====
</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 income from
operations before federal income tax, is as follows (000s):

<TABLE>
<CAPTION>
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Computed "expected" tax expense....................... $2,368 2,022 1,734
Other, net............................................ 0 (137) 4
------ ----- -----
Federal income tax expense............................ $2,368 1,885 1,738
====== ===== =====
</TABLE>

F-10
<PAGE>

PARAGON LIFE INSURANCE COMPANY

Notes to Financial Statements--(Continued)

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1998 and 1997
are presented below (000's):

<TABLE>
<CAPTION>
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Deferred tax assets:
Unearned reinsurance allowances...................... $ 218 217 153
Policy and contract liabilities...................... 709 1,031 1,305
Tax capitalization of acquisition costs.............. 2,147 1,755 1,386
Other, net........................................... 58 76 69
------ ----- -----
Total deferred tax assets.......................... $3,132 3,079 2,913
====== ===== =====
Deferred tax liabilities:
Unrealized gain on investments....................... $1,512 1,054 174
Deferred policy acquisition costs.................... 7,211 6,419 5,520
------ ----- -----
Total gross deferred tax liabilities............... $8,723 7,473 5,694
------ ----- -----
Net deferred tax liabilities....................... $5,591 4,394 2,781
====== ===== =====
</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.

(6) Related-Party Transactions

Paragon purchases certain administrative services from General American.
Charges for services performed are based upon personnel and other costs
involved in providing such service. Charges for services during 1998, 1997 and
1996 were $1,513,433, $1,348,198 and $1,250,396, respectively. See Note 3 for
reinsurance transactions with affiliates.

(7) Pension Plan

Associates of Paragon participate in a non-contributory multi-employer
defined benefit pension plan jointly sponsored by Paragon and General
American. The benefits are based on years of service and compensation level.
No pension expense was recognized in 1998, 1997 or 1996 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
$188,316, $198,972 and $80,434 for 1998, 1997 and 1996, respectively.

Paragon provides for certain health care and life insurance benefits for
retired employees. The Company accounts for these benefits in accordance with
SFAS No. 106--Employer's Accounting for Postretirement Benefits Other Than
Pensions. The amounts involved are not material.

(8) Statutory Financial Information

The Company is subject to financial statement filing requirements of the
State of Missouri Department of Insurance, its state of domicile, as well as
the states in which it transacts business. Such financial statements,
generally referred to as statutory financial statements, are prepared on a
basis of accounting which varies in some

F-11
<PAGE>

PARAGON LIFE INSURANCE COMPANY

Notes to Financial Statements--(Continued)

respects from generally accepted accounting principles (GAAP). Statutory
accounting principles include: (1) charging of policy acquisition costs to
income as incurred; (2) establishment of policy and contract liabilities
computed using required valuation standards which may vary in methodology
utilized; (3) nonprovision of deferred federal income taxes resulting from
temporary differences between financial reporting and tax bases of assets and
liabilities; (4) recognition of statutory liabilities for asset impairments
and yield stabilization on fixed maturity dispositions prior to maturity with
asset valuation reserves based on statutory determined formulae and interest
stabilization reserves designed to level yields over their original purchase
maturities; (5) valuation of investments in fixed maturities at amortized
cost; (6) net presentation of reinsurance balances; and (7) recognition of
deposits and withdrawals on universal life policies as revenues and expenses.

The stockholder's equity (surplus) and net income (loss) of the Company at
December 31, 1998, 1997 and 1996, as determined using statutory accounting
practices, is summarized as follows (000's):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Statutory surplus as reported to regulatory
authorities...................................... $10,500 10,725 10,751
Net income (loss) as reported to regulatory
authorities...................................... $ 1,596 1,397 982
</TABLE>

(9) Dividend Restrictions

Dividend payments by Paragon are restricted by state insurance laws as to
the amount that may be paid without prior notice or approval of the Missouri
Department of Insurance. The maximum amount of dividends which can be paid
without prior approval of the insurance commissioner is limited to the maximum
of (1) 10% of statutory surplus or (2) net gain from operations. The maximum
dividend distribution that can be paid by Paragon during 1998 without prior
notice or approval is $1,596,000. Paragon did not pay dividends in 1998, 1997
or 1996.

(10) Risk-Based Capital

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

The RBC guidelines define specific capital levels where action by the
Company or regulators is required based on the ratio of a company's actual
total adjusted capital to control levels determined by the RBC formula. At
December 31, 1998, the Company's actual total adjusted capital was in excess
of minimum levels which would require action by the Company or regulatory
authorities under the RBC formula.

(11) Commitments and Contingencies

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

<TABLE>
<S> <C>
Year ended December 31:
1999............................................................. $ 626
2000............................................................. 598
2001............................................................. 256
2002............................................................. 53
------
$1,533
======
</TABLE>

Rent expense totaled $489,999, $433,864 and $388,976 in 1998, 1997 and 1996,
respectively.

F-12
<PAGE>

PARAGON LIFE INSURANCE COMPANY

Notes to Financial Statements--(Concluded)

(12) Comprehensive Income

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", effective for years beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The most significant items of
comprehensive income are net income and changes in unrealized gains and losses
on securities. The adoption of SFAS No. 130 does not affect results of
operations or financial position, but affects their presentation and
disclosure. The Company has adopted SFAS No. 130 as of January 1, 1998, and
the following summaries present the components of the Company's comprehensive
income, other than net income, for the periods ending December 31, 1998, 1997
and 1996 (000s):

<TABLE>
<CAPTION>
1998
-------------------------
Before- Tax Net-
Tax (Expense) of-Tax
Amount Benefit Amount
------- -------- ------
<S> <C> <C> <C>
Unrealized holding gains arising during
period....................................... $ 1,361 (476) 885
Less: reclassification adjustment for gains
realized in net income....................... (53) 19 (34)
------- ---- ------
Other comprehensive income.................... 1,308 (457) 851
------- ---- ------

<CAPTION>
1997
-------------------------
Before- Tax Net-
Tax (Expense) of-Tax
Amount Benefit Amount
------- -------- ------
<S> <C> <C> <C>
Unrealized holding gains arising during
period....................................... $ 2,585 (904) 1,681
Less: reclassification adjustment for gains
realized in net income....................... (69) 24 (45)
------- ---- ------
Other comprehensive income.................... 2,516 (880) 1,636
------- ---- ------

<CAPTION>
1996
-------------------------
Before- Tax Net-
Tax (Expense) of-Tax
Amount Benefit Amount
------- -------- ------
<S> <C> <C> <C>
Unrealized holding gains arising during
period....................................... $(1,868) 654 (1,214)
Less: reclassification adjustment for gains
realized in net income....................... (72) 25 (47)
------- ---- ------
Other comprehensive income (loss)............. (1,940) 679 (1,261)
------- ---- ------
</TABLE>

F-13
<PAGE>

[KPMG 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, Growth and Income, and Global Discovery Divisions of Paragon
Separate Account B as of December 31, 1998, 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, 1998 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, Growth and Income, and Global
Discovery Divisions of Paragon Separate Account B as of December 31, 1998, and
the results of their operations and changes in their net assets for the
periods presented, in conformity with generally accepted accounting
principles.

[KPMG SIGNATURE LOGO]
April 2, 1999

[KPMG 4-SQUARES LOGO]

F-14
<PAGE>

PARAGON SEPARATE ACCOUNT B

STATEMENTS OF NET ASSETS
December 31, 1998

<TABLE>
<CAPTION>
Money Capital Growth & Global
Market International Growth Balanced Bond Income Discovery
Division Division Division Division Division Division Division
-------- ------------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Assets:
Investments in Scudder
Investments, at
Market Value (See
Schedule of
Investments.......... $77,390 603,661 1,553,902 746,033 177,500 357,104 573
Receivable(payable)
from/to Paragon Life
Insurance Company.... 221 2,350 11,968 14,035 422 931 --
------- ------- --------- ------- ------- ------- ----
Total Net Assets.... 77,611 606,011 1,565,870 760,068 177,922 358,035 573
======= ======= ========= ======= ======= ======= ====
Group Variable Univer-
sal Life Cash Value
Invested in Separate
Account.............. 77,611 606,011 1,565,870 760,068 177,922 358,035 573
------- ------- --------- ------- ------- ------- ----
$77,611 606,011 1,565,870 760,068 177,922 358,035 573
======= ======= ========= ======= ======= ======= ====
Total Units Held........ 64,421 35,777 51,535 39,810 19,458 26,465 71
Net Asset Value Per
Unit................... $ 1.20 16.94 30.38 19.09 9.14 13.53 8.06
Cost of Investments..... $77,390 517,133 1,096,376 572,381 176,965 336,244 514
======= ======= ========= ======= ======= ======= ====
</TABLE>

See Accompanying Notes to Financial Statements.

F-15
<PAGE>

PARAGON SEPARATE ACCOUNT B

STATEMENTS OF OPERATIONS

For the Years Ended December 31, 1998, 1997, and 1996, except for the Global
Discovery Division
which is for the period from May 15, 1998 (Inception) to December 31, 1998.

<TABLE>
<CAPTION>
International
Money Market Division Division Capital Growth Division Balanced Division
---------------------- ---------------------- ------------------------- ---------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------ ------ ------- ------ ------ --------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Income....... $ 2,514 1,697 1,156 9,586 6,239 6,611 10,625 67,231 7,660 16,634 12,268 8,168
Expenses:
Mortality and Expense
Charge................ 364 260 211 4,279 3,814 3,190 10,303 8,396 5,890 4,734 3,712 2,869
------- ------ ------ ------- ------ ------ ------- ------- ------- ------- ------ ------
Net Investment
Income (Expense).... 2,150 1,437 945 5,307 2,425 3,421 322 58,835 1,770 11,900 8,556 5,299
Net Realized Gain on
Investments
Realized Gain from
Distributions......... -- -- -- 63,044 3,268 -- 67,200 2,366 40,680 26,776 20,984 6,958
Proceeds from Sales... 11,296 18,673 6,474 112,597 68,547 64,427 264,342 149,231 113,945 83,851 70,741 60,612
Cost of Investments
Sold.................. 11,296 18,673 6,474 100,354 56,471 56,562 202,151 104,692 92,669 69,758 56,070 51,183
------- ------ ------ ------- ------ ------ ------- ------- ------- ------- ------ ------
Net Realized Gain on
Investments......... -- -- -- 75,287 15,344 7,865 129,391 46,905 61,956 40,869 35,655 16,387
Net Unrealized Gain
(Loss) on Investments:
Unrealized Gain
(Loss) Beginning of
Year.................. -- -- -- 78,522 59,971 25,477 316,515 120,746 72,588 97,262 43,162 32,744
Unrealized Gain
(Loss) End of Year.... -- -- -- 86,528 78,522 59,971 457,526 316,515 120,746 173,652 97,262 43,162
------- ------ ------ ------- ------ ------ ------- ------- ------- ------- ------ ------
Net Unrealized Gain
(Loss) on
Investments........... -- -- -- 8,006 18,551 34,494 141,011 195,769 48,158 76,390 54,100 10,418
------- ------ ------ ------- ------ ------ ------- ------- ------- ------- ------ ------
Net Gain (Loss) on
Investments......... -- -- -- 83,293 33,895 42,359 270,402 242,674 110,114 117,259 89,755 26,805
------- ------ ------ ------- ------ ------ ------- ------- ------- ------- ------ ------
Increase (Decrease) in
Assets Resulting from
Operations............. $ 2,150 1,437 945 88,600 36,320 45,780 270,724 301,509 111,884 129,159 98,311 32,104
======= ====== ====== ======= ====== ====== ======= ======= ======= ======= ====== ======
<CAPTION>
Growth & Income Global
Bond Division Division Discovery
---------------------- ---------------------- ---------
1998 1997 1996 1998 1997 1996 1998
------- ------ ------ ------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Income....... $ 8,740 5,950 7,646 6,710 3,833 1,558 --
Expenses:
Mortality and Expense
Charge................ 1,121 930 840 2,254 1,275 562 1
------- ------ ------ ------- ------ ------ -------
Net Investment
Income (Expense).... 7,619 5,020 6,806 4,456 2,558 996 (1)
Net Realized Gain on
Investments............
Realized Gain from
Distributions......... 481 1,659 -- 15,633 3,309 208
Proceeds from Sales... 30,061 27,553 14,092 67,098 26,569 50,395 52
Cost of Investments
Sold.................. 30,206 24,606 12,863 62,590 22,348 45,641 51
------- ------ ------ ------- ------ ------ -------
Net Realized Gain on
Investments......... 336 4,606 1,229 20,141 7,530 4,962 1
Net Unrealized Gain
(Loss) on Investments:
Unrealized Gain
(Loss) Beginning of
Year.................. 35 51 5,666 37,619 7,630 1,300 --
Unrealized Gain
(Loss) End of Year.... 535 35 51 20,860 37,619 7,630 59
------- ------ ------ ------- ------ ------ -------
Net Unrealized Gain
(Loss) on
Investments........... 500 (16) (5,615) (16,759) 29,989 6,330 59
------- ------ ------ ------- ------ ------ -------
Net Gain (Loss) on
Investments......... 836 4,590 (4,386) 3,382 37,519 11,292 60
------- ------ ------ ------- ------ ------ -------
Increase (Decrease) in
Assets Resulting from
Operations............. $ 8,455 9,610 2,420 7,838 40,077 12,288 59
======= ====== ====== ======= ====== ====== =======
</TABLE>

See Accompanying Notes to Financial Statements.

F-16
<PAGE>

PARAGON SEPARATE ACCOUNT B

STATEMENTS OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1998, 1997 and 1996, except for the Global
Discovery Division which
is for the period from May 15, 1998 (inception) to December 31, 1998

<TABLE>
<CAPTION>
Money Market Division International Division Capital Growth Division
------------------------ ------------------------ ----------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
-------- ------- ------- ------- ------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income
(Expense).............. $ 2,150 1,437 945 5,307 2,425 3,421 322 58,835 1,770
Net Realized Gain
(Loss) on Investments.. -- -- -- 75,287 15,344 7,865 129,391 46,905 61,956
Net Unrealized Gain
(Loss) on Investments.. -- -- -- 8,006 18,551 34,494 141,011 195,769 48,158
-------- ------- ------- ------- ------- ------- --------- --------- -------
Increase (Decrease) in
Net Assets Resulting
from Operations........ 2,150 1,437 945 88,600 36,320 45,780 270,724 301,509 111,884
Net Deposits into Sep-
arate Account.......... 42,677 5,480 7,609 5,924 73,456 90,073 75,940 140,956 186,952
-------- ------- ------- ------- ------- ------- --------- --------- -------
Increase in Net As-
sets................. 44,827 6,917 8,554 94,524 109,776 135,853 346,664 442,465 298,836
Net Assets, Beginning of
Year.................... 32,784 25,867 17,313 511,487 401,711 265,858 1,219,206 776,741 477,905
-------- ------- ------- ------- ------- ------- --------- --------- -------
Net Assets, End of Year. $ 77,611 32,784 25,867 606,011 511,487 401,711 1,565,870 1,219,206 776,741
======== ======= ======= ======= ======= ======= ========= ========= =======
<CAPTION>
Global
Balanced Division Bond Division Growth & Income Division Discovery
------------------------ ------------------------ ---------------------------- ---------
1998 1997 1996 1998 1997 1996 1998 1997 1996 1998
-------- ------- ------- ------- ------- ------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income
(Expense).............. $ 11,900 8,556 5,299 7,619 5,020 6,806 4,456 2,558 996 (1)
Net Realized Gain
(Loss) on Investments.. 40,869 35,655 16,387 336 4,606 1,229 20,141 7,530 4,962 1
Net Unrealized Gain
(Loss) on Investments.. 76,390 54,100 10,418 500 (16) (5,615) (16,759) 29,989 6,330 59
-------- ------- ------- ------- ------- ------- --------- --------- ------- ---
Increase (Decrease) in
Net Assets Resulting
from Operations........ 129,159 98,311 32,104 8,455 9,610 2,420 7,838 40,077 12,288 59
Net Deposits into Sep-
arate Account.......... 93,743 69,393 93,679 41,324 14,364 31,680 131,034 97,894 6,848 514
-------- ------- ------- ------- ------- ------- --------- --------- ------- ---
Increase in Net As-
sets................. 222,902 167,704 125,783 49,779 23,974 34,100 138,872 137,971 68,661 573
Net Assets, Beginning of
Year.................... 537,166 369,462 243,679 128,143 104,169 70,069 219,163 81,192 12,531 --
-------- ------- ------- ------- ------- ------- --------- --------- ------- ---
Net Assets, End of Year. $760,068 537,166 369,462 177,922 128,143 104,169 358,035 219,163 81,192 573
======== ======= ======= ======= ======= ======= ========= ========= ======= ===
</TABLE>

See Accompanying Notes to Financial Statements.

F-17
<PAGE>

PARAGON SEPARATE ACCOUNT B
Notes to Financial Statements

December 31, 1998

(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, seven of which invest 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
Fund, International Fund, Capital Growth Fund, Balanced Fund, Bond Fund,
Growth and Income Fund and Global Discovery Fund (the Funds). Policyholders
have the option of directing their premium payments into any or all of the
Divisions.

(2) Significant Accounting Policies

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

Investments

The Separate Account's investments in the Funds of 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

F-18
<PAGE>

PARAGON SEPARATE ACCOUNT B

Notes to Financial Statements--(Continued)
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 year, 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 .00206% of the net assets of each division of the Separate
Account which equals an annual rate of .75% of those net assets. The mortality
risk assumed by Paragon is that insureds may die sooner than anticipated and
that, therefore, Paragon will pay an aggregate amount of death benefits
greater than anticipated. The expense risk assumed is that expenses incurred
in issuing and administering the policy will exceed the amounts realized from
the administrative charges assessed against the policy.

F-19
<PAGE>

PARAGON SEPARATE ACCOUNT B

Notes to Financial Statements--(Continued)

(4) Purchases and Sales of Scudder Investment Series Shares

For the years ended December 31, 1998, 1997, and 1996 except for the Global
Discovery Division which is for the period from May 15, 1998 (Inception) to
December 31, 1998; purchases and proceeds from sales of Scudder Variable Life
Investment Funds were as follows:

<TABLE>
<CAPTION>
Money Market Division International Division Capital Growth Division
--------------------- ----------------------- -----------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------ ------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases............... $53,364 23,916 13,868 111,520 138,552 151,355 317,123 282,658 294,894
Sales................... $11,296 18,673 6,474 112,597 68,547 64,427 264,342 149,231 113,945
======= ====== ====== ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
Growth & Income Global
Balanced Division Bond Division Division Discovery
------------------------ -------------------- ----------------------- ---------
1998 1997 1996 1998 1997 1996 1998 1997 1996 1998
-------- ------- ------- ------ ------ ------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases............... $158,435 136,801 151,544 69,750 41,077 44,942 194,789 123,344 106,656 565
Sales................... $ 83,851 70,741 60,612 30,061 27,553 14,092 67,098 26,569 50,395 52
======== ======= ======= ====== ====== ====== ======= ======= ======= ===
</TABLE>

(5) Accumulation of Unit Activity

The following is a reconciliation of the accumulation of unit activity for
the years ended December 31, 1998, 1997, and 1996, except for the Global
Discovery Division which is for the period from May 15, 1998 (Inception) to
December 31, 1998:

<TABLE>
<CAPTION>
Money Market International Capital Growth
Division Division Division
-------------------- -------------------- --------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in Units
Deposits............... 45,369 21,325 12,898 7,107 10,046 12,404 11,935 13,559 17,686
Withdrawals............ 9,370 16,319 5,806 6,829 4,720 4,940 9,447 6,577 6,420
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Increase in Unit. 35,999 5,006 7,092 278 5,326 7,464 2,488 6,982 11,266
Outstanding Units,
Beginning of Year...... 28,422 23,416 16,324 35,499 30,173 22,709 49,047 42,065 30,799
------ ------ ------ ------ ------ ------ ------ ------ ------
Outstanding Units, End
of Year................ 64,421 28,422 23,416 35,777 35,499 30,173 51,535 49,047 42,065
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
Global
Growth & Income Discovery
Balanced Division Bond Division Division Division
-------------------- -------------------- -------------------- ---------
1998 1997 1996 1998 1997 1996 1998 1997 1996 1998
------ ------ ------ ------ ------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in Units
Deposits............... 10,163 10,116 12,690 7,938 5,071 5,817 14,262 11,243 11,954 78
Withdrawals............ 4,734 4,939 4,836 3,295 3,293 1,717 4,975 2,275 5,278 7
------ ------ ------ ------ ------ ------ ------ ------ ------ ---
Net Increase in Unit. 5,429 5,177 7,854 4,643 1,778 4,100 9,287 8,968 6,676 71
Outstanding Units,
Beginning of Year...... 34,381 29,204 21,350 14,815 13,037 8,937 17,178 8,210 1,534 --
------ ------ ------ ------ ------ ------ ------ ------ ------ ---
Outstanding Units, End
of Year................ 39,810 34,381 29,204 19,458 14,815 13,037 26,465 17,178 8,210 71
====== ====== ====== ====== ====== ====== ====== ====== ====== ===
</TABLE>

F-20
<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, 1998, 1997, and 1996, except for the Global Discovery Division which is
for the period from May 15, 1998 (Inception) to December 31, 1998:

<TABLE>
<CAPTION>
Money Market International Capital Growth
Division Division Division
-------------------------- ------------------------- --------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
-------- ------- ------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross Deposits.... $ 25,225 18,433 17,177 164,286 172,592 183,290 377,928 334,899 333,168
Surrenders and
Withdrawals............ (505) (13,596) (1,433) (84,896) (30,987) (20,546) (150,589) (56,497) (19,152)
Transfers Between Funds
and General Account.... 25,891 8,319 (1,387) (15,319) (12,712) (10,737) (101) (1,888) (9,053)
-------- ------- ------- ------- ------- ------- -------- ------- -------
Total Gross Deposits
net of Surrenders,
Withdrawals, and
Transfers........... 50,611 13,156 14,357 64,071 128,893 152,007 227,238 276,514 304,963

Deductions:
Premium Expense
Charges............... 740 543 501 4,819 5,084 5,346 11,085 9,865 9,718
Monthly Expense
Charges............... 497 433 305 3,685 4,050 4,714 9,690 7,859 8,860
Cost of Insurance and
Optional Benefits..... 6,697 6,700 5,942 49,643 46,303 51,874 130,523 117,834 99,433
-------- ------- ------- ------- ------- ------- -------- ------- -------
Total Deductions..... 7,934 7,676 6,748 58,147 55,437 61,934 151,298 135,558 118,011
-------- ------- ------- ------- ------- ------- -------- ------- -------
Net Deposits from
Policyholders.......... $ 42,677 5,480 7,609 5,924 73,456 90,073 75,940 140,956 186,952
======== ======= ======= ======= ======= ======= ======== ======= =======

<CAPTION>
Balanced Bond Growth & Income Global
Division Division Division Discovery
-------------------------- ------------------------- -------------------------- ---------
1998 1997 1996 1998 1997 1996 1998 1997 1996 1998
-------- ------- ------- ------- ------- ------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross Deposits.... $208,733 168,771 183,446 79,806 52,193 54,516 209,544 129,485 83,186 1,239
Surrenders and
Withdrawals............ (28,227) (34,296) (19,050) (4,783) (9,875) (3,481) (17,789) (7,167) (37,530) (11)
Transfers Between Funds
and General Account.... (14,287) (2,412) (9,771) (12,203) (9,318) (1,088) 1,021 15,123 32,036 --
-------- ------- ------- ------- ------- ------- -------- ------- ------- -----
Total Gross Deposits
net of Surrenders,
Withdrawals, and
Transfers........... 166,219 132,063 154,625 62,820 33,000 49,947 192,776 137,441 77,692 1,228

Deductions:
Premium Expense
Charges............... 6,122 4,971 5,351 2,341 1,537 1,590 6,146 3,814 2,426 36
Monthly Expense
Charges............... 4,586 3,961 4,330 1,324 1,225 1,230 3,842 3,039 662 47
Cost of Insurance and
Optional Benefits..... 61,768 53,738 51,265 17,831 15,874 15,447 51,754 32,694 18,231 631
-------- ------- ------- ------- ------- ------- -------- ------- ------- -----
Total Deductions..... 72,476 62,670 60,946 21,496 18,636 18,267 61,742 39,547 21,319 714
-------- ------- ------- ------- ------- ------- -------- ------- ------- -----
Net Deposits from
Policyholders.......... $ 93,743 69,393 93,679 41,324 14,364 31,680 131,034 97,894 56,373 514
======== ======= ======= ======= ======= ======= ======== ======= ======= =====
</TABLE>

F-21
<PAGE>

PARAGON SEPARATE ACCOUNT B

SCHEDULE OF INVESTMENTS

December 31, 1998

<TABLE>
<CAPTION>
Number Market
of Shares Value Cost
--------- ---------- ----------
<S> <C> <C> <C>
Scudder Variable Insurance Series:
Money Market Division........................ 77,390 $ 77,390 $ 77,390
International Division....................... 41,460 603,661 517,133
Capital Growth Division...................... 64,881 1,553,902 1,096,376
Balanced Division............................ 49,049 746,033 572,381
Bond Division................................ 25,799 177,500 176,965
Growth & Income Division..................... 31,827 357,104 336,244
Global Discovery............................. 71 573 514
</TABLE>

See Accompanying Independent Auditor's Report.

F-22
<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
maximum .90% charge for mortality and expense risk, an assumed combined
investment advisory fee (representing the average of the fees incurred by the
Funds in which the Divisions invest) and the Funds' expenses (based on the
average of the actual expenses incurred in fiscal year 1998) of .770%. These
charges take into account expense reimbursement arrangements expected to be in
place for 1999 for some of the Funds. In the absence of the reimbursement
arrangements for some of the Funds, the charges would have totaled .584% and
.194%, respectively. See the respective Fund prospectus for details. 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 -1.670%,
4.330%, and 10.330%, respectively.

The hypothetical values shown in the tables reflect all fees and charges under
the Policy, including the premium expense charge, the premium tax charge, and
all components of the monthly deduction. They do not reflect any charges for
federal income taxes against the Separate Account, since the Company is not
currently making any such charges. However, such charges may be made in the
future and, in that event, the gross annual investment rate of return of the
divisions of the Separate Account would have to exceed 0%, 6%, and 12% by an
amount sufficient to cover the tax charges in order to produce the Death
Benefit and Cash Value illustrated. (See "Federal Tax Matters.") 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 AGE 45
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 1.00% $6,000.00
PREMIUM TAX: 2.00% (Monthly Premium:
$500.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN AT 0.00% (NET RATE AT -
1.670%)
--------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- -------------------------------
PREM CASH DEATH CASH DEATH
YR AT 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,047 $500,000 $ 4,877 $500,000
2 12,630 5,889 500,000 9,588 500,000
3 19,423 8,484 500,000 14,171 500,000
4 26,555 10,825 500,000 18,561 500,000
5 34,045 12,887 500,000 22,769 500,000
6 41,908 14,652 500,000 26,798 500,000
7 50,165 16,091 500,000 30,655 500,000
8 58,834 17,161 500,000 34,281 500,000
9 67,937 17,828 500,000 37,743 500,000
10 77,496 18,061 500,000 40,986 500,000
11 87,532 17,852 500,000 43,954 500,000
12 98,070 17,167 500,000 46,714 500,000
13 109,134 16,001 500,000 49,216 500,000
14 120,752 14,326 500,000 51,407 500,000
15 132,951 12,086 500,000 53,294 500,000
16 145,760 9,217 500,000 54,881 500,000
17 159,209 5,607 500,000 56,116 500,000
18 173,331 1,119 500,000 56,945 500,000
19 188,159 0 0 57,379 500,000
20 203,728 0 0 57,363 500,000
25 294,060 0 0 47,631 500,000
30 409,348 0 0 8,780 500,000
</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 Policy
Owner, 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 and further assume there is no Policy Indebtedness outstanding.

A-2
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE 45
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 1.00% $6,000.00
PREMIUM TAX: 2.00% (Monthly Premium:
$500.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN AT 6.00% (NET RATE AT
4.330%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR AT 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,146 $500,000 $ 5,036 $500,000
2 12,630 6,272 500,000 10,204 500,000
3 19,423 9,328 500,000 15,546 500,000
4 26,555 12,303 500,000 21,002 500,000
5 34,045 15,165 500,000 26,584 500,000
6 41,908 17,889 500,000 32,302 500,000
7 50,165 20,434 500,000 38,165 500,000
8 58,834 22,748 500,000 44,121 500,000
9 67,937 24,781 500,000 50,240 500,000
10 77,496 26,488 500,000 56,472 500,000
11 87,532 27,840 500,000 62,769 500,000
12 98,070 28,787 500,000 69,199 500,000
13 109,134 29,302 500,000 75,721 500,000
14 120,752 29,332 500,000 82,290 500,000
15 132,951 28,796 500,000 88,916 500,000
16 145,760 27,601 500,000 95,611 500,000
17 159,209 25,597 500,000 102,333 500,000
18 173,331 22,606 500,000 109,041 500,000
19 188,159 18,426 500,000 115,752 500,000
20 203,728 12,849 500,000 122,426 500,000
25 294,060 0 0 153,160 500,000
30 409,348 0 0 170,188 500,000
</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 AGE: 45
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 1.00% $6,000.00
PREMIUM TAX: 2.00% (Monthly Premium:
$500.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN AT 12.00% (NET RATE AT
10.330%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR AT 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,244 $500,000 $ 5,193 $500,000
2 12,630 6,663 500,000 10,833 500,000
3 19,423 10,226 500,000 17,007 500,000
4 26,555 13,942 500,000 23,700 500,000
5 34,045 17,800 500,000 30,976 500,000
6 41,908 21,796 500,000 38,900 500,000
7 50,165 25,914 500,000 47,547 500,000
8 58,834 30,126 500,000 56,935 500,000
9 67,937 34,407 500,000 67,212 500,000
10 77,496 38,738 500,000 78,421 500,000
11 87,532 43,122 500,000 90,612 500,000
12 98,070 47,538 500,000 103,962 500,000
13 109,134 51,994 500,000 118,558 500,000
14 120,752 56,476 500,000 134,500 500,000
15 132,951 60,946 500,000 151,958 500,000
16 145,760 65,360 500,000 171,123 500,000
17 159,209 69,622 500,000 192,166 500,000
18 173,331 73,615 500,000 215,292 500,000
19 188,159 77,205 500,000 240,785 500,000
20 203,728 80,254 500,000 268,927 500,000
25 294,060 82,560 500,000 463,238 537,356
30 409,348 31,725 500,000 783,934 838,810
</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 AGE: 45
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 1.00% $12,000.00
PREMIUM TAX: 2.00% (Monthly Premium:
$1,000.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN AT 0.00% (NET RATE AT -
1.670%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR AT 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 8,804 $508,804 $ 10,640 $510,640
2 25,261 17,290 517,290 21,007 521,007
3 38,846 25,415 525,415 31,143 531,143
4 53,111 33,175 533,175 40,979 540,979
5 68,090 40,544 540,544 50,527 550,527
6 83,817 47,506 547,506 59,791 559,791
7 100,330 54,033 554,033 68,776 568,776
8 117,669 60,083 560,083 77,422 577,422
9 135,875 65,625 565,625 85,799 585,799
10 154,992 70,631 570,631 93,847 593,847
11 175,064 75,097 575,097 101,507 601,507
12 196,140 78,998 578,998 108,849 608,849
13 218,269 82,337 582,337 115,820 615,820
14 241,505 85,093 585,093 122,362 622,362
15 265,903 87,224 587,224 128,481 628,481
16 291,521 88,680 588,680 134,184 634,184
17 318,419 89,367 589,367 139,414 639,414
18 346,663 89,172 589,172 144,113 644,113
19 376,319 87,986 587,986 148,296 648,296
20 407,457 85,714 585,714 151,907 651,907
25 588,120 56,384 556,384 158,477 658,477
30 818,697 0 0 134,603 634,603
</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 AGE: 45
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 1.00% $12,000.00
PREMIUM TAX: 2.00% (Monthly Premium:
$1,000.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN AT 6.00% (NET RATE AT 4.330%)
-----------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- -------------------------------
PREM CASH DEATH CASH DEATH
YR AT 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 9,092 $ 509,092 $ 10,987 $ 510,987
2 25,261 18,400 518,400 22,353 522,353
3 38,846 27,886 527,886 34,150 534,150
4 53,111 37,545 537,545 46,323 546,323
5 68,090 47,353 547,353 58,895 558,895
6 83,817 57,292 557,292 71,884 571,884
7 100,330 67,332 567,332 85,306 585,306
8 117,669 77,429 577,429 99,114 599,114
9 135,875 87,541 587,541 113,393 613,393
10 154,992 97,634 597,634 128,094 628,094
11 175,064 107,693 607,693 143,169 643,169
12 196,140 117,681 617,681 158,702 658,702
13 218,269 127,590 627,590 174,651 674,651
14 241,505 137,384 637,384 190,968 690,968
15 265,903 147,004 647,004 207,668 707,668
16 291,521 156,382 656,382 224,769 724,769
17 318,419 165,397 665,397 242,219 742,219
18 346,663 173,906 673,906 259,968 759,968
19 376,319 181,758 681,758 278,035 778,015
20 407,457 188,809 688,809 296,366 796,366
25 588,120 208,283 708,283 388,922 888,922
30 818,697 181,402 681,402 469,084 969,084
</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 AGE: 45
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 1.00% $12,000.00
PREMIUM TAX: 2.00% (Monthly Premium:
$1,000.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN AT 12.00% (NET RATE AT 10.330%)
-------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- ---------------------------------
PREM CASH DEATH CASH DEATH
YR AT 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 9,374 $ 509,374 $ 11,329 $ 511,329
2 25,261 19,535 519,535 23,728 523,728
3 38,846 30,512 530,512 37,344 537,344
4 53,111 42,378 542,378 52,229 552,229
5 68,090 55,192 555,192 68,519 568,519
6 83,817 69,029 569,029 86,360 586,360
7 100,330 83,954 583,954 105,912 605,912
8 117,669 100,032 600,032 127,282 627,282
9 135,875 117,336 617,336 150,728 650,728
10 154,992 135,956 635,956 176,395 676,395
11 175,064 156,016 656,016 204,442 704,442
12 196,140 177,626 677,626 235,186 735,186
13 218,269 200,941 700,941 268,843 768,843
14 241,505 226,105 726,105 305,644 805,644
15 265,903 253,255 753,255 345,914 845,914
16 291,521 282,531 782,531 390,011 890,011
17 318,419 314,041 814,041 438,264 938,264
18 346,663 347,884 847,884 491,032 991,032
19 376,319 384,171 884,171 548,788 1,048,788
20 407,457 423,034 923,034 611,979 1,111,979
25 588,120 663,663 1,163,663 1,027,549 1,527,549
30 818,697 999,199 1,499,199 1,668,095 2,168,095
</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>

Morgan Stanley
Dean Witter
Variable
Investment
Series

[PARAGON LIFE INSURANCE COMPANY LOGO]

. GROUP AND INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICIES

Prospectus dated May 1, 1999

50450

<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

The Owner may allocate net premiums to one or more of the Divisions of
Separate Account B (the "Separate Account"). The Policy value will vary to
reflect the investment experience of the Divisions selected by the Owner.
Depending on the death benefit option elected, portions of the death benefit
may also vary. The Owner bears the entire investment risk under the Policies;
there is no minimum guaranteed value.

Each of the 13 Divisions of the Separate Account will invest solely in one of
the corresponding Funds managed by Morgan Stanley Dean Witter Advisors Inc.:

Money Market Portfolio Global Dividend Growth Portfolio
Quality Income Plus Portfolio European Growth Portfolio
High Yield Portfolio Pacific Growth Portfolio
Utilities Portfolio Equity Portfolio
Income Builder Portfolio Competitive Edge "Best Ideas"
Dividend Growth Portfolio Portfolio
Capital Growth Portfolio Portfolio Strategist Portfolio

The date of this Prospectus is May 1, 1999.

1
<PAGE>

Please read this Prospectus carefully and keep it. A full description of the
Funds is contained in the prospectus for each Fund, which must accompany this
Prospectus.

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

2
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
The Company The Separate Account, and The Funds.......................... 10
The Company
The Separate Account
The 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................................................... 27
Sales Charges
Premium Tax Charge
Monthly Deduction
Partial Withdrawal Transaction Charge
Separate Account Charges
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............................. 39
Voting Rights............................................................ 39
State Regulation of the Company.......................................... 40
Management of the Company................................................ 42
Legal Matters............................................................ 42
Legal Proceedings........................................................ 42
Experts.................................................................. 42
Additional Information................................................... 42
Definitions.............................................................. 42
Financial Statements..................................................... F-1
Appendix A............................................................... A-1
</TABLE>

The Policies are not available in all states.

3
<PAGE>

SUMMARY OF THE POLICY

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 issued in three situations.

. First--Policies in the form of Certificates are issued pursuant to Group
Contracts entered into between the Company and Contractholders (see
"General Provisions of the Group Contract");

. Second--Individual Policies can be issued in connection with employer-
sponsored insurance programs where Group Contracts are not issued; and

The Insured under a Policy is usually an employee of the Contractholder or
sponsoring employer or the employee's spouse. An Executive Program Policy is
issued with a maximum Face Amount in excess of $500,000 under a Group Contract
or an employer sponsored insurance program. Generally, only an employee is
eligible to be an Insured under an Executive Program Policy. If 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").

On behalf of Owners, the Contractholder will make planned premium payments
under the Group Contract equal to an amount authorized by employees to be
deducted from their wages. In addition, Owners may pay additional premiums. A
similar procedure will apply when an Individual Policy is issued in connection
with an employer-sponsored program.

Right to Examine Policy

The Separate Account

4
<PAGE>

Premiums

Death Benefit

. Under the "Level Type" death benefit, the death benefit is the Face
Amount of the Policy or, if greater, the applicable percentage of Cash
Value; and

. Under the "Increasing Type" death benefit, the death benefit is the Face
Amount of the Policy plus the Cash Value or, if greater, the applicable
percentage of Cash Value.

So long as a Policy remains in force, the minimum death benefit under either
option will be at least equal to the current Face Amount. (See "Policy
Benefits--Death Benefit.")

The minimum initial Face Amount is generally $25,000 under the Company's
current rules. Executive Program Policies generally have a minimum Face Amount
of $100,000. The maximum Face Amount is generally $500,000. However, we may
establish a higher maximum Face Amount for Executive Program Policies. 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.")

Riders

Additional insurance benefits offered under the Policy by rider may include a
children's insurance 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. (See
"General Matters Relating to the Policy--Additional Insurance Benefits.") We
will deduct the cost of these additional insurance benefits from Cash Value as
part of the monthly deduction. (See "Charges and Deductions--Monthly
Deduction.")

5
<PAGE>

Cash Value

Charges and Deductions

Sales Charges. Generally, there are no sales charges under a Policy. However, a
front-end charge will be imposed on Policies that are deemed to be individual
Policies under the Omnibus Budget Reconciliation Act of 1990 ("OBRA"). The
additional 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.

Premium Tax Charge. We deduct a charge of 2.25% to cover state premium taxes
from premiums paid. (See "Charges and Deductions--Premium Tax Charge.")

Monthly Deduction. We make a monthly deduction from the Policy's Cash Value in
the Separate Account. The monthly deduction includes the following:

. Cost of Insurance Charge. We deduct a cost of insurance charge calculated
on each Monthly Anniversary. We determine monthly cost of insurance rates
based upon expectations as to future mortality experience. For a
discussion of the factors affecting the rate class of the Insured (see
"Charges and Deductions--Monthly Deduction--Cost of Insurance.")

. A charge for any additional insurance benefits provided by a rider.

Separate Account Charges.

. Federal Taxes. No charges are currently made for federal or state income
taxes. (See "Federal Tax Matters.")

6
<PAGE>

<TABLE>
<CAPTION>
Management Other
Fees Expenses
(after fee (after
waiver reimbursement Total
as as Annual
Fund applicable) applicable) Expenses
---- ---------- ------------- --------
<S> <C> <C> <C>
High Yield Portfolio............. 0.50% 0.03% 0.53%
Utilities Portfolio.............. 0.65% 0.02% 0.67%
Income Builder Portfolio......... 0.75% 0.06% 0.81%
Dividend Growth Portfolio........ 0.52% 0.01% 0.53%
Capital Growth Portfolio......... 0.65% 0.05% 0.70%
Global Dividend Growth Portfolio. 0.75% 0.09% 0.84%
European Growth Portfolio........ 0.99% 0.12% 1.11%
Pacific Growth Portfolio......... 0.99% 0.52% 1.51%
Capital Appreciation
Portfolio(/1/)(/2/)............. 0.00% 0.00% 0.00%
Equity Portfolio................. 0.50% 0.02% 0.52%
Competitive Edge "Best Ideas"
Portfolio(/1/).................. 0.00% 0.00% 0.00%
Strategist Portfolio............. 0.50% 0.02% 0.52%
</TABLE>

(/1/)The Investment manager waived its management fee and assumed all
expenses for the Capital Appreciation Portfolio and the Competitive Edge
"Best Ideas" Portfolio. Without this arrangement, Capital Appreciation
Portfolio's management fee would have been 0.75% and expenses would have
been 0.11% for total expenses of 0.86%. Competitive Edge "Best Ideas"
Portfolio's management fee would have been 0.65% and expenses would have
been 0.27% for total expenses of 0.92%.

(/2/)The Capital Appreciation Portfolio was closed on March 22, 1999. All
remaining shares were transferred to the Equity Portfolio.

Policy Loans

7
<PAGE>

Surrender and Partial Withdrawals

Conversion Right

Eligibility Change Conversion

Illustrations

Policy Tax Compliance

A Policy may be treated as a "modified endowment contract." If the Policy is a
modified endowment contract, it will affect the tax advantages offered under
the Policy. (See "Federal Tax Matters.")

Specialized Uses of the Policy

8
<PAGE>

allocated is poorer than expected or if sufficient premiums are not paid, the
Policy may lapse or may not accumulate sufficient Cash Value to fund the
purpose for which the Policy was purchased. Partial withdrawals and Policy
Loans may significantly affect current and future Cash Value, Cash Surrender
Value, or death benefit proceeds. Depending upon Division investment
performance and the amount of a Policy Loan, the loan may cause a Policy to
lapse. Because the Policy is designed to provide benefits on a long-term basis,
before purchasing a Policy for a specialized purpose a purchaser should
consider whether the long-term nature of the Policy is consistent with the
purpose for which it is being considered. Using a Policy for a specialized
purpose may have tax consequences. (See "Federal Tax Matters.")

Questions

If you have any questions, you may write or call the Company at 100 South
Brentwood, St. Louis, MO 63105, (314) 862-2211.

9
<PAGE>

THE COMPANY AND THE SEPARATE ACCOUNT

The Company

Ratings. We may from time to time publish in advertisements, sales literature,
and reports to Owners or Contractholders, the ratings and other information
assigned to us by one or more independent rating organizations such as A. M.
Best Company, Standard & Poor's, and Duff & Phelps. The purpose of the ratings
our financial strength and/or claims paying ability and should not be
considered as bearing on the investment performance of assets held in the
Separate Account. Each year the A. M. Best Company reviews the financial status
of thousands of insurers, culminating in the assignment of Best's ratings.
These ratings reflect Best's current opinion of the relative financial strength
and operating performance of an insurance company in comparison to the norms of
the life/health insurance industry. In addition, the claims paying ability of
the Company as measured by Standard & Poor's Insurance Ratings Services or Duff
& Phelps may be referred to in advertisements or sales literature or in reports
to Owners or Contractholders. These ratings are opinions of an operating
insurance company's financial capacity to meet the obligations of its insurance
policies in accordance with their terms. These ratings do not reflect the
investment performance of the Separate Account or the degree of risk associated
with an investment in the Separate Account.

10
<PAGE>

The Separate Account

We established Separate Account B (the "Separate Account") 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 us.

The Funds

The Separate Account invests in shares of Morgan Stanley Dean Witter Variable
Investment Series (referred to as the "Fund"), a series-type mutual fund
registered with the SEC as open-end, diversified management investment company.
Only the funds described in this section of the prospectus are currently
available as investment choices of the policies even though additional Funds
may be described in the prospectus for the Morgan Stanley Dean Witter Variable
Investment Series. The assets of each Portfolio used by the Policies are held
separate from the assets of the other Portfolios, and each Portfolio has
investment objectives and policies which are generally different from those of
the other Portfolios. The income or losses of one Portfolio generally have no
effect on the investment performance of any other Portfolios.

Investment Results. The investment objectives and policies of certain
Portfolios are similar to the investment objectives and policies of other
portfolios that may be managed by the same investment adviser or manager. The
investment results of the Portfolios may differ from the results of these other
portfolios. There can be no guarantee, and no representation is made, that the
investment results of any of the Portfolios will be comparable to the
investment results of any other portfolio, even if the other portfolio has the
same investment adviser or manager.

The following summarizes the investment policies of each Portfolio:

Money Market Portfolio

The investment objectives of the Money Market Portfolio are high current
income, preservation of capital and liquidity. The Money Market Portfolio seeks
to achieve those objectives by investing in high quality, short-term debt
obligations. In selecting investments, the Investment Manager seeks to manage
the Portfolio's share price to remain stable at $1.00.

11
<PAGE>

Quality Income Plus Portfolio

The primary investment objective of the Quality Income Plus Portfolio is to
provide a high level of current income by investing primarily in U.S.
Government securities and other fixed-income securities. As a secondary
objective, the Portfolio seeks capital appreciation but only when consistent
with its primary objective.

High Yield Portfolio

The primary investment objective of the High Yield Portfolio is to provide a
high level of current income by investing in a diversified portfolio consisting
principally of fixed-income securities, which may include both non-convertible
and convertible debt securities and preferred stocks. As a secondary objective,
the Portfolio will seek capital appreciation, but only when consistent with its
primary objective.

Utilities Portfolio

The investment objective of the Utilities Portfolio is to provide current
income and long-term growth of income and capital, by investing primarily in
equity and fixed-income securities of companies engaged in the public utilities
industry.

Income Builder Portfolio

The primary investment objective of the Income Builder Portfolio is to seek
reasonable income. Growth of capital is a secondary objective.

Dividend Growth Portfolio

The investment objective of the Dividend Growth Portfolio is to provide
reasonable current income and long-term growth of income and capital. The
Portfolio invests primarily in common stock of companies with a record of
paying dividends and the potential for increasing dividends.

Capital Growth Portfolio

The investment objective of the Capital Growth Portfolio is long-term capital
growth. The Portfolio normally invests at least 65% of its assets in common
stocks.

Global Dividend Growth Portfolio

The investment objective of the Global Dividend Growth Portfolio is to provide
reasonable current income and long-term growth of income and capital. The
Portfolio will normally invest at least 65% of its assets in dividend paying
equity securities issued by issuers located in various countries around the
world.

European Growth Portfolio

The investment objective of the European Growth Portfolio is to maximize the
capital appreciation of its investments. The Portfolio normally invests at
least 65% of its assets in securities issued by issuers located in European
countries.

Pacific Growth Portfolio

The investment objective of the Pacific Growth Portfolio is to maximize the
capital appreciation of its investments. The Portfolio normally invests at
least 65% of its assets in common stocks and other securities of companies
which are (i) organized under the laws of and have a principal place of
business in Asia, Australia, or New Zealand or (ii) derives at least 50% of
their total revenues from businesses in such areas.

12
<PAGE>

Equity Portfolio

The primary investment objective of the Equity Portfolio is growth of capital
through investments in common stocks of companies believed by the Investment
Manager to have potential for superior growth. As a secondary objective the
Equity Portfolio seeks income but only when consistent with its primary
objective.

Competitive Edge "Best Ideas" Portfolio

The investment objective of the Competitive Edge "Best Ideas" Portfolio is
long-term capital growth. The Portfolio normally invests primarily in the
common stock of U.S. and non-U.S. companies included in the "Best Ideas"
subgroup of "Global Investing: The Competitive Edge," a research compilation
assembled and maintained by Morgan Stanley Dean Witter ("MSDW") Equity
Research.

Strategist Portfolio

The investment objective of the Strategist Portfolio is to seek a high total
investment return through a fully managed investment policy utilizing equity,
fixed-income and money market securities, and the writing of covered call and
put options.

There is no assurance that any of the Funds will achieve its stated objective.
More detailed information, including a description of risks, is in the
prospectus for the Funds, which must preceede this Prospectus and which should
be read carefully. Please also refer to the "Annual Expenses of the Funds".

Addition, Deletion, or Substitution of Investments.

We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares of the Funds that
are held by the Separate Account or that the Separate Account may purchase. We
reserve the right to (1) eliminate the shares of any of the Funds and (2)
substitute shares of another fund if the shares of a Fund are no longer
available for investment, or further investment in any Fund becomes
inappropriate in view of the purposes of the Separate Account. We will not
substitute any shares without notice to the Owner and prior approval of the
SEC, to the extent required by the 1940 Act or other applicable law, as
required

We also reserve the right to establish additional Divisions of the Separate
Account. We will establish new Divisions when marketing needs or investment
confitions warrant. Any new Division will be made available to existing Owners
on a basis to be determined by the Company. To the extent approved by the SEC,
we may also:

.Eliminate or combine one or more Divisions;

.Substitute one Division for another Division; or

.Transfer assets between Divisions if marketing, tax, or investment
conditions warrant.

13
<PAGE>

We may make changes in the Policy by appropriate endorsement in the event of a
substitution or change. We will notify all Owners of any such changes.

If we deem it to be in the best interests of persons having voting rights under
the Policy, and to the extent any necessary SEC approvals or Owner votes are
obtained, the Separate Account may be:

(a) operated as a management company under the 1940 Act;

(b) deregistered under that Act in the event such registration is no longer
required; or

To the extent permitted by applicable law, we may transfer the assets of the
Separate Account associated with the Policy to another separate account.

We cannot guarantee that the shares of the Funds will always be available. The
Funds each sell shares to the Separate Account in accordance with the terms of
a participation agreement between the Fund distributors and us. Should this
agreement terminate or should shares become unavailable for any other reason,
the Separate Account will not be able to purchase the existing Fund shares.
Should this occur, we will be unable to honor Owner requests to allocate Cash
Values or premium payments to the Divisions of the Separate Account investing
in such shares. In the event that a Fund is no longer available, we will take
reasonable steps to obtain alternative investment options.

PAYMENT AND ALLOCATION OF PREMIUMS

Issuance of a Policy

Individual Policies, rather than Certificates, will be issued

(1) to independent contractors of the employer;

(2) to persons who wish to continue coverage after a Group Contract has
terminated;

(3) to persons who wish to continue coverage after they no longer are
employed by the Group Contractholder;

(4) if state law restrictions make issuance of a Group Contract
impracticable; or

(5) if the employer chooses to use an employer-sponsored insurance program
that does not involve a Group Contract.

14
<PAGE>

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, we reserve the right
to waive or modify the "actively at work" requirement at our discretion.

In addition, the Contractholder may require that an employee must be employed
by the employer as of a certain date or for a certain period of time. We will
set forth this date or time period in the Group Contract specifications pages.
Employees of any Associated Companies of the Contractholder will be considered
employees of the Contractholder. We may also allow an individual who is an
independent contractor working primarily for the sponsoring employer to be
considered an eligible employee. An independent contractor 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.

Guaranteed Issue. Other than in Executive Programs, we will issue the Policy
and any children's insurance rider applied for by the employee pursuant to our
guaranteed issue procedure. We offer the guaranteed issue procedure only when
an employee is given the opportunity to purdchase a Policy for the first time.
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. We may offer guaranteed issue with Executive
Programs depending upon the number of eligible employees or if other existing
insurance coverage is cancelled.

Simplified Underwriting. The employee must submit to a simplified underwriting
procedure requiring the employee to respond satisfactorily to certain health
questions in the application:

. 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

A blood test may be required. This requirement is generally applicable only to
Executive Programs.

Acceptance of an application is always subject to our underwriting rules, and
we reserve the right to reject an application for any reason.

15
<PAGE>

. 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.

Interim Insurance. Interim Insurance in the amount of insurance applied for may
be available prior to the issuance of a Policy which is being underwritten on a
guaranteed issue basis up to the Guaranteed Issue Amount. If available, interim
insurance will start as of the date of the application. Interim insurance ends
on the earliest of the following dates:

. the date insurance begins on the Policy applied for;

. the date a Policy other than the Policy applied for is offered to the
applicant;

. the date the Company notifies the applicant that the application for any
proposed Insured is declined;

. 60 days from the date of application; or

. termination of employment with the Contractholder or sponsoring employer.

Premiums

The initial premium is due on the Issue Date, and usually will be paid 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.") The Owner is not required to
pay premiums equal to the planned annual premium.

We will apply premiums paid by a Contractholder or sponsoring employer or
designated payor to a Policy as of the Valuation Date we receive the prmeiums.
Premiums will be "received" on a Valuation Date when we receive supporting
documentation necessary for us to determine the amount of premium per Policy
and the cash premium.

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<PAGE>

Termination.") Provided that there is sufficient Cash Surrender Value to
prevent the Policy from lapsing, the Individual Insurance provided will
automatically continue in the event of Group Contract termination. (See "Policy
Rights and Privileges--Eligibility Change Conversion.") Individual Insurance
will also continue if the 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. The new schedule
will have the same planned annual premium, and the payment intervals will be no
more frequent than quarterly.

Section 7702A creates an additional premium limitation, which, if exceeded, can
change the tax status of a Policy to that of a "modified endowment contract." A
modified endowment contract is a life insurance contract, from which
withdrawals are treated (for tax purposes) (1)as a distribution of any taxable
income under the contract, and (2) as a distribution of nontaxable investment
in the contract. Also, such withdrawals may be subject to a 10% federal income
tax penalty. We have adopted administrative steps designed to notify an Owner
when we believe that a premium payment will cause a Policy to become a modified
endowment contract. Owner will be given a limited amount of time to request
that the premium be reversed in order to avoid the Policy's classification as a
modified endowment contract. (See "Federal Tax Matters.")

Allocation of Net Premiums and Cash Value

Net Premiums. The net premium equals:
(1) the premium paid; less

(2) the premium expense charge;

(3) any charge to compensate us for anticipated higher corporate income taxes
resulting from the sale of a Policy; and

(4) the premium tax charge. (See "Charges and Deductions--Sales Charges.")

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

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<PAGE>

Policy Lapse and Reinstatement

Lapse. Unlike conventional life insurance policies, the failure to make a
premium payment following the initial premium payment will not itself cause a
Policy to lapse. However, a Policy can lapse even if planned premiums have been
paid. Lapse will occur only when the Cash Surrender Value is insufficient to
cover the monthly deduction, and a grace period expires without a sufficient
payment being made. (See also "General Provisions of the Group Contract--Grace
Period--Termination.") Thus, the payment of premiums in any amount does not
guarantee that the Policy will remain in force until the Maturity Date.

. Evidence of the insurability of the Insured satisfactory to us
(including evidence of insurability of any person covered by a rider to
reinstate the rider).

. Payment or reinstatement of any Indebtedness. Any Indebtedness
reinstated will cause a Cash Value of an equal amount also to be
reinstated.

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

POLICY BENEFITS

Death Benefit

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<PAGE>

Option A. Under Option A, the death benefit is:

(1) the current Face Amount of the Policy or, if greater,

(2) the applicable percentage of Cash Value on the date of death.

APPLICABLE PERCENTAGE TABLE

<TABLE>
<CAPTION>
Applicable
Attained Age Percentage
---------------------------------- ----------
<S> <C>
40................................ 250%
41................................ 243
42................................ 236
43................................ 229
44................................ 222
45................................ 215
46................................ 209
47................................ 203
48................................ 197
49................................ 191
50................................ 185
51................................ 178
52................................ 171
53................................ 164
54................................ 157
55................................ 150
56................................ 146
57................................ 142
58................................ 138
59................................ 134
60................................ 130
</TABLE>

19
<PAGE>

<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>

Option B. Under Option B, the death benefit is equal to:

(1) the current Face Amount plus the Cash Value of the Policy or, if
greater,
(2) the applicable percentage of the Cash Value on the date of death. The
applicable percentage is the same as under Option A.

Under Option B, the amount of the death benefit will always vary as the Cash
Value varies (but will never be less than the Face Amount).

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

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<PAGE>

A. 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.")

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

(2) The next most recent increases successively; and

(3) The initial Face Amount.

This order of reduction will be used to determine the amount of subsequent cost
of insurance charges (see "Charges and Deductions--Monthly Deduction--Cost of
Insurance").

Cancellation of an Increase. An increase in Face Amount may be cancelled within
the later of:

. 20 days from the date the Owner received the new Policy specifications
page for the increase;

. within 10 days of mailing the right to cancellation notice to the Owner;
or

. within 45 days after the application for an increase was signed.

21
<PAGE>

Policy's Cash Value and allocated to Divisions 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.")