<PAGE>
As filed with the Securities and Exchange Commission on 9 February 1999
Registration No. 33-58796
811-7534
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 10
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
SEPARATE ACCOUNT 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
[_] 1 May 1998 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[X] on 30 April 1999, 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. 10 to the registration statement on Form S-6 (the
"Registration Statement") is being filed pursuant to paragraph (a) of Rule 485
under the Securities Act of 1933 (the "Act") to bring into Plain English
compliance the Registration Statement, which describes five variable life
insurance policies (the "Policies") issued by the depositor and the registrant.
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. For this purpose, only the Multiple Manager
Commission prospectus is included in this amendment. The remaining prospectus
for the registration statement will be revised consistant with this amendment
and any comments by subsequent amendment pursuant to Rule 485(b).
multi-pr
<PAGE>
Underlying Funds Through:
Fidelity Variable Insurance Products Fund
Fidelity Variable Insurance Products Fund II
MFS Variable Insurance Trust
Putnam Variable Trust
Scudder Variable Life Investment Fund
T. Rowe Price Equity Series, Inc.
T. Rowe Price Fixed Income Series, Inc.
[LOGO]
. GROUP AND INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICIES
Prospectus dated May 1, 1999
50451
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 of the 14 Divisions of the Separate Account will invest in one of the
following corresponding Funds:
<TABLE>
<CAPTION>
FUND MANAGER
- -----------------------------------------------------------------------------
<S> <C>
Fidelity Variable Insurance Fidelity Management & Research Company
Products Fund or
Fidelity Variable Insurance
Products Fund II
VIP Growth Portfolio
VIP Equity-Income Portfolio
VIP II Index 500 Portfolio
VIP II Contrafund Portfolio
- -----------------------------------------------------------------------------
MFS Variable Insurance Trust Massachusetts Financial Services Company
MFS Emerging Growth Series
- -----------------------------------------------------------------------------
Putnam Variable Trust Putnam Investment Management, Inc.
Putnam VT High Yield Fund ("Putnam Management")
Putnam VT New Opportunities Fund
Putnam VT U.S. Government and
High Quality
Bond Fund
Putnam VT Voyager Fund
- -----------------------------------------------------------------------------
Scudder Variable Life Investment Scudder, Kemper Investments
Fund
Money Market Portfolio
International Portfolio
- -----------------------------------------------------------------------------
T. Rowe Price Equity Series, Inc. T. Rowe Price Associates, Inc.
and
T. Rowe Price Fixed Income
Series, Inc.
New America Growth Portfolio
Personal Strategy Balanced
Portfolio
Limited-Term Bond Portfolio
</TABLE>
<PAGE>
The date of this prospectus is May 1, 1999.
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 and the Separate Account..................................... 10
The Company
The Separate Account
The Underlying Funds
Addition, Deletion, or Substitution of Investments
Payment and Allocation of Premiums....................................... 15
Issuance of a Policy
Premiums
Allocation of Net Premiums and Cash Value
Policy Lapse and Reinstatement
Policy Benefits.......................................................... 19
Death Benefit
Cash Value
Policy Rights and Privileges............................................. 24
Exercising Rights and Privileges Under the Policies
Loans
Surrender and Partial Withdrawals
Transfers
Right to Examine Policy
Conversion Right to a Fixed Benefit Policy
Eligibility Change Conversion
Payment of Benefits at Maturity
Payment of Policy Benefits
Charges and Deductions................................................... 28
Sales Charges
Premium Tax Charge
Monthly Deduction
Partial Withdrawal Transaction Charge
Separate Account Charges
General Matters Relating to the Policy................................... 32
Distribution of the Policies............................................. 35
General Provisions of the Group Contract................................. 36
Federal Tax Matters...................................................... 37
Safekeeping of the Separate Account's Assets............................. 38
Voting Rights............................................................ 41
State Regulation of the Company.......................................... 41
Management of the Company................................................ 43
Legal Matters............................................................ 44
Legal Proceedings........................................................ 44
Experts.................................................................. 44
Additional Information................................................... 44
Definitions.............................................................. 45
Financial Statements..................................................... F-1
Appendix A............................................................... A-1
</TABLE>
3
<PAGE>
The Policies are not available in all states.
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. 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.")
4
<PAGE>
The Separate Account
The Owner may allocate the net premiums to one or more Divisions. See "The
Company and the Separate Account" for a complete description of the available
Funds. An Owner may change future allocations of net premiums at any time by
notifying the Company directly.
Subject to certain restrictions, an Owner may transfer Cash Values among the
Divisions of the Separate Account. Currently, no charge is assessed for
transfers. The Company reserves the right to modify the transfer privilege.
(See "Policy Rights and Privileges--Transfers.")
Premiums
An Owner has flexibility concerning the amount and frequency of premium
payments. An initial premium equal to one-twelfth ( 1/12) of the planned annual
premium set forth in the specifications page of a Policy is necessary to start
a Policy. The planned annual premium is an amount specified for each Policy
based on the requested initial Face Amount and certain other factors.
. 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.")
5
<PAGE>
Riders
Additional insurance benefits offered under the Policy by rider may include a
children's insurance rider, an acceleration of death benefits rider, an
accelerated death benefit settlement option rider, an accidental death benefit
rider, and a waiver of monthly deductions rider. Some Group Contracts and
employer-sponsored insurance programs may not provide each of the additional
benefits described above. Generally, Executive Program Policies only have the
acceleration of death benefits rider. Generally, Corporate Programs have none
of the additional benefits described above. (See "General Matters Relating to
the Policy--Additional Insurance Benefits.") 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 percent 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.")
6
<PAGE>
. Annual Expenses of the Funds. The value of the assets of the Divisions
will reflect the management fee and other expenses incurred by the Funds.
The following table describes the Fund fees and expenses during the time
that the Owner owns the Policy. These fees and expenses are shown as a
percentage of net assets for the year ended December 31, 1998. The
prospectus for each Fund contains more detail concerning a Fund's fees
and expenses. (See "The Company and the Separate Account -- The
Underlying Funds.")
<TABLE>
<CAPTION>
Management Fees Other Expenses
(after fee (after Total
waiver as reimbursement as Annual
Fund applicable) applicable) Expenses
<S> <C> <C> <C>
Fidelity Variable Insurance Products
Fund(/1/)
VIP Growth Portfolio % % %
VIP Equity-Income Portfolio % % %
Fidelity Variable Insurance Products
Fund II(/1/)
VIP II Index 500 Portfolio % % %
VIP II Contrafund Portfolio % % %
MFS Variable Insurance Trust
Emerging Growth Series % % %
Putnam Variable Trust
Putnam VT High Yield Fund % % %
Putnam VT New Opportunities Fund % % %
Putnam VT U.S. Government and High
Quality Bond Fund % % %
Putnam VT Voyager Fund % % %
Scudder Variable Life Investment
Fund
Money Market Portfolio % % %
International Portfolio % % %
T. Rowe Price Equity Series, Inc.
New America Growth Portfolio % % %
Personal Strategy Balanced
Portfolio % % %
T. Rowe Price Income Series, Inc.
Limited-Term Bond Portfolio % % %
</TABLE>
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.
(/1/)Fidelity Management & Research Company ("FMR") agreed to reimburse a
portion of VIP II Index 500 Portfolio's expenses during the period. Without
this reimbursement, the fund's total expenses would have been %. A
portion of the brokerage commissions that certain funds pay was used to
reduce funds' expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Without
these reductions, the total operating expenses as a percentage of net
assets would have been as follows: Fidelity Insurance Products Fund--VIP
Growth Portfolio % and VIP Equity-Income Portfolio %; Fidelity Variable
Insurance Products Fund II--VIP II Contrafund Portfolio %.
Partial Withdrawal Transaction Charge. We deduct a transaction charge equal to
the lesser of $25 or two percent 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
7
<PAGE>
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,"
page 21.) Loans taken from, or secured by, a Policy may in certain
circumstances be treated as taxable distributions from the Policy. Moreover,
with certain exceptions, a ten percent additional income tax would be imposed
on the portion of any loan that is included in income. (See "Federal Tax
Matters.")
Surrender and Partial Withdrawals
At any time that a Policy is in effect, an Owner may elect to surrender the
Policy and receive its Cash Surrender Value. An Owner may also request a
partial withdrawal of the Cash Value of the Policy. When the death benefit
under either death benefit option is not based on an applicable percentage of
the Cash Value, a partial withdrawal reduces the death benefit payable under
the Policy by an amount equal to the reduction in the Policy's Cash Value. (See
"Policy Rights and Privileges--Surrender and Partial Withdrawals.") Surrenders
and partial withdrawals may have federal income tax consequences. (See "Federal
Tax Matters.")
Conversion Right
During the first 24 Policy Months following a Policy's Issue Date, the Owner
may convert the Policy to a life insurance policy that provides for benefits
that do not vary with the investment return of the Divisions. The Owner also
has a similar right with respect to increases in the Face Amount. (See "Policy
Rights and Privileges--Conversion Right to a Fixed Benefit Policy.")
Eligibility Change Conversion
In the event that the Insured is no longer eligible for coverage under the
Group Contract, either because the 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 Right and
Privileges--Eligibility Change Conversion.")
Illustrations
Illustrations on pages A-1 to A-7 in Appendix A show how death benefits and
Cash Surrender Values may vary based on certain hypothetical rate of return
assumptions as well as assumptions pertaining to the level of the 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.
8
<PAGE>
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.
9
<PAGE>
THE COMPANY AND THE SEPARATE ACCOUNT
The Company
Paragon Life Insurance Company (the "Company") is a stock life insurance
company incorporated under the laws of Missouri. The Company was organized in
1981 as General American Insurance Company and on December 31, 1987, its name
was changed. No change in operations or ownership took place in connection
with the name change. The Company is principally engaged in writing individual
and group life insurance policies and annuity contracts. As of December 31,
1998, it had assets in excess of $300 million. The Company is admitted to do
business in 49 states and the District of Columbia. The principal offices of
the Company are at 100 South Brentwood, St. Louis, Missouri 63105 ("Home
Office"). The Company's Internal Revenue Service Employer Identification
Number is 43-1235869.
The Company is a wholly-owned subsidiary of General American Life Insurance
Company (the "Parent Company"), a Missouri life insurance company. The Parent
Company is wholly owned by GenAmerica Corporation, a Missouri general business
corporation, which is wholly owned by General American Mutual Holding Company,
a Missouri mutual insurance holding company. The Parent Company has agreed
that until March 23, 1999, it will maintain capital and surplus within the
Company sufficient to satisfy the capital requirements of the states in which
the Company is authorized to do business.
In addition, the Parent Company agrees to guarantee that the Company will have
sufficient funds to meet all of its contractual obligations. In the event a
policyholder presents a legitimate claim for payment on a Paragon insurance
policy, the Parent Company will pay such claim directly to the policyholder if
Paragon is unable to make such payment. This guarantee, which does not have a
predetermined termination date, can be modified or ended only as to policies
not yet issued. The guarantee agreement is binding on the Parent Company, its
successor or assignee and shall cease only if the guarantee is assigned to an
organization having a financial rating from Standard & Poor's equal to or
better than the Parent Company's rating. The Parent Company does not intend
this guarantee to be a guarantee with regard to the investment experience or
cash values of the Policy.
The Company may from time to time publish in advertisements, sales literature,
and reports to Owners or Contractholders, the ratings and other information
assigned to it by one or more independent rating organizations such as A. M.
Best Company, Standard & Poor's, and Duff & Phelps. The purpose of the ratings
is to reflect the financial strength and/or claims paying ability of the
Company and should not be considered as bearing on the investment performance
of assets held in the Separate Account. Each year the A. M. Best Company
reviews the financial status of thousands of insurers, culminating in the
assignment of Best's ratings. These ratings reflect Best's current opinion of
the relative financial strength and operating performance of an insurance
company in comparison to the norms of the life/health insurance industry. In
addition, the claims paying ability of the Company as measured by Standard &
Poor's Insurance Ratings Services or Duff & Phelps may be referred to in
advertisements or sales literature or in reports to Owners or Contractholders.
These ratings are opinions of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. These ratings do not reflect the investment performance of the
Separate Account or the degree of risk associated with an investment in the
Separate Account.
The Company also may include in advertisements and other literature certain
rankings assigned to the Company by the National Association of Insurance
Commissioners ("NAIC"), and the Company's analyses of statistical information
produced by the NAIC. These rankings and analyses of statistical information
may describe, among other things, the Company's growth, premium income,
investment income, capital gains and losses, policy reserves, policy claims,
and life insurance in force. The Company's use of such rankings and
statistical information is not an endorsement by the NAIC.
Advertisements and literature prepared by the Company also may include
discussions of taxable and tax-deferred investment programs (including
comparisons based on selected tax brackets), alternative investment vehicles,
and general economic conditions.
10
<PAGE>
The Separate Account
Separate Account B (the "Separate Account") was established by the Company as a
separate investment account on January 4, 1993 under Missouri law. The Separate
Account receives and invests the net premiums paid under the Policies. In
addition, the Separate Account receives and invests net premiums for other
flexible premium variable life insurance policies issued by the Company.
The Separate Account is divided into Divisions. Each Division will invest in
Funds as shown on the cover page of this Prospectus. Income and both realized
and unrealized gains or losses from the assets of each Division of the Separate
Account are credited to or charged against that Division without regard to
income, gains, or losses from any other Division of the Separate Account or
arising out of any other business the Company may conduct.
Although the assets of the Separate Account are the property of the Company,
the assets in the Separate Account equal to the reserves and other liabilities
of the Separate Account are not chargeable with liabilities arising out of any
other business which the Company may conduct. The assets of the Separate
Account are available to cover the general liabilities of the Company only to
the extent that the Separate Account's assets exceed its liabilities arising
under the Policies. From time to time, these excess assets may be transferred
out of the Separate Account and included in the Company's general assets.
Before making any such transfers, the Company will consider any possible
adverse impact the transfer may have on the Separate Account.
The Separate Account has been registered with the Securities and Exchange
Commission ("SEC" or "Commission") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act") and meets the definition of a
"separate account" under federal securities laws. Registration with the SEC
does not involve supervision of the management or investment practices or
policies of the Separate Account or the Company by the Commission.
The Underlying Funds
The Separate Account invests in shares of various investment management
companies. These are series-type mutual funds registered with the SEC as open-
end, investment management companies. The assets of each 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.
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 under the
corresponding investment management company:
Fidelity Variable Insurance Products Fund
Variable Insurance Products Fund ("VIP") is an open-end diversified management
investment company. Only the Funds described in this section of the prospectus
are currently available as investment choices of the Policies even though
additional Funds may be described in the prospectus for VIP. Fidelity
Management & Research Company ("FMR") of Boston, Massachusetts is the manager
of the Funds.
. VIP Growth Portfolio
The investment objective seeks to achieve capital appreciation. The
Portfolio normally purchases common stocks, although its investments are
not restricted to any one type of security. Capital appreciation may also
be found in other types of securities, including bonds and preferred
stocks.
11
<PAGE>
. VIP Equity-Income Portfolio
The investment objective seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities, the
Portfolio will also consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield
on the securities comprising the Standard & Poor's 500 Composite Stock
Price Index.
Fidelity Variable Insurance Products Fund II
Variable Insurance Products II Fund ("VIP II") is an open-end diversified
management investment company. Only the Funds described in this section of the
prospectus are currently available as investment choices of the Policies even
though additional Funds may be described in the prospectus for VIP II. Fidelity
Management & Research Company ("FMR") of Boston, Massachusetts is the manager
of the Funds.
. VIP II Index 500 Portfolio
The investment objective seeks to provide investment results that
correspond to the total return (i.e., the combination of capital change
and income) of common stocks publicly traded in the United States as
represented by the Standard & Poor's 500 Composite Stock Price Index
while keeping transaction costs and other expenses low. The Portfolio is
designed as a long-term money-market option.
. VIP II Contrafund Portfolio
The investment objective seeks long-term capital appreciation by
investing in securities of companies whose value FMR believes is not
fully recognized by the public.
MFS Variable Insurance Trust
MFS Variable Insurance Trust ("MFS Trust") is an open-end diversified
management investment company. Only the Funds described in this section of the
prospectus are currently available as investment choices of the Policies even
though additional Funds may be described in the prospectus for MFS Trust.
Massachusetts Financial Services Company ("MFS") provides investment advisory
services to MFS Trust for fees in accordance with the terms of the current
prospectus for the Fund.
. Emerging Growth Series
The investment objective seeks to provide long-term growth of capital.
Dividend and interest income from portfolio securities, if any, is
incidental to the Series investment objective of long-term growth of
capital. The Series' policy is to invest primarily (i.e., at least 80% of
its assets under normal circumstances) in common stocks of small and
medium-sized companies that are early in their life cycle but which have
the potential to become major enterprises (emerging growth companies).
Putnam Variable Trust
Putnam Variable Trust is an open-end diversified management investment company.
Only the Funds described in this section of the prospectus are currently
available as investment choices of the Policies even though additional Funds
may be described in the prospectus for Putnam Variable Trust. Putnam Management
provides investment advisory services to Putnam Variable Trust for fees in
accordance with the terms described in the current Fund prospectus.
. Putnam VT High Yield Fund
Seeks high current income and, when consistent with this objective, a
secondary objective of capital growth, by investing primarily in high-
yielding, lower-rated fixed income securities (commonly known as "junk
bonds"), constituting a portfolio that Putnam Management believes does
not involve undue risk to income or principal. See the special
considerations for investments in high yield securities described in the
Putnam Variable Trust prospectus.
12
<PAGE>
. Putnam VT New Opportunities Fund
Seeks long-term capital appreciation by investing principally in common
stocks of companies in sectors of the economy that Putnam Management
believes possess above-average long-term growth potential.
. Putnam VT U.S. Government and High Quality Bond Fund
Seeks current income consistent with preservation of capital by investing
primarily in securities issued or guaranteed as to principal and interest
by the U.S. Government or by its agencies or instrumentalities and in
other debt obligations rated at least A by a nationally recognized
securities rating agency such as Standard & Poor's or Moody's Investors
Service, Inc. or, if not rated, determined by Putnam Management to be of
comparable quality.
. Putnam VT Voyager Fund
Seeks capital appreciation by investing primarily in common stocks of
companies that Putnam Management believes have potential for capital
appreciation that is significantly greater than that of market averages.
Scudder Variable Life Investment Fund
Scudder Variable Life Investment Fund ("Scudder VLI") is a series-type mutual
fund registered with the SEC as an open-end, diversified management investment
company. Only the Money Market Portfolio and the Class A Shares of the
International Portfolio described herein are currently available as investment
choices of the Policies even though other classes and other Funds may be
described in the prospectus for Scudder VLI. Scudder Kemper Investments
("Scudder") provides investment advisory services to Scudder VLI whose terms
and fees are set forth in the Scudder VLI prospectus.
. Money Market Portfolio
The investment objective seeks to maintain the stability of capital and,
consistent therewith, to maintain the liquidity of capital and to provide
current income. The Fund seeks to maintain a constant net asset value of
$1.00 per share, although there can be no assurance that this will be
achieved.
. International Portfolio
The investment objective seeks long-term growth of capital primarily
through diversified holdings of marketable foreign equity investments.
The Fund invests in companies, wherever organized, which do business
primarily outside the United States. The Fund intends to diversify
investments among several countries and to have represented in its
holdings, in substantial portions, business activities in not less than
three different countries. The Fund does not intend to concentrate
investments in any particular industry.
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Series, Inc. (referred to as "TRP") is an open-end
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 TRP. T. Rowe
Price Associates, Inc. provides investment advisory services to TRP for fees in
accordance with the terms described in the current Fund prospectus.
. New America Growth Portfolio
The investment objective seeks long-term growth of capital through
investment in common stock of U.S. companies which operate in the service
sector of the economy.
. Personal Strategy Balanced Portfolio
The investment objective seeks the highest total return consistent with
an emphasis on both capital appreciation and income by investing in a
diversified portfolio typically consisting of approximately 60% stocks,
30% bonds, and 10% money market securities.
13
<PAGE>
T. Rowe Price Income Series, Inc.
T. Rowe Price Fixed Income Series, Inc. (referred to as "TRP") is an open-end
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 TRP. T. Rowe
Price Associates, Inc. provides investment advisory services to TRP for fees in
accordance with the terms described in the current Fund prospectus.
. Limited-Term Bond Portfolio
The investment objective seeks a high level of current income consistent
with modest price fluctuations by investing primarily in short-term and
intermediate-term investment-grade debt securities.
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.
The Company has entered into or may enter into arrangements with Funds pursuant
to which the Company receives a fee based upon an annual percentage of the
average net asset amount invested by the Company on behalf of the Separate
Account and other separate accounts of the Company. These arrangements reflect
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
The Company reserves the right, subject to compliance with applicable law, to
make additions to, deletions from, or substitutions for the shares that are
held by the Separate Account or that the Separate Account may purchase. The
Company reserves the right to eliminate the shares of any of the Funds and to
substitute shares of another Fund of the existing management investment
companies or of another registered open-end investment company, if the shares
of a Fund are no longer available for investment, or if in the Company's
judgment further investment in any Fund becomes inappropriate in view of the
purposes of the Separate Account. The Company will not substitute any shares
attributable to an Owner's interest in a Division of the Separate Account
without notice to the Owner and prior approval of the SEC, to the extent
required by the 1940 Act or other applicable law. Nothing contained in this
Prospectus shall prevent the Separate Account from purchasing other securities
for other series or classes of policies, or from permitting a conversion
between series or classes of policies on the basis of requests made by Owners.
The Company also reserves the right to establish additional Divisions of the
Separate Account, each of which would invest in a new Fund of the existing
management investment companies, or in shares of another investment company,
with a specified investment objective. New Divisions may be established when,
in the sole discretion of the Company, marketing needs or investment conditions
warrant, and any new Division will be made available to existing Owners on a
basis to be determined by the Company. To the extent approved by the SEC, the
Company may also eliminate or combine one or more Divisions, substitute one
Division for another Division, or transfer assets between Divisions if, in its
sole discretion, marketing, tax, or investment conditions warrant.
In the event of a substitution or change, the Company may, if it considers it
necessary, make such changes in the Policy by appropriate endorsement. The
Company will notify all Owners of any such changes.
14
<PAGE>
If deemed by the Company to be in the best interests of persons having voting
rights under the Policy, and to the extent any necessary SEC approvals or Owner
votes are obtained, the Separate Account may be: (a) operated as a management
company under the 1940 Act; (b) deregistered under that Act in the event such
registration is no longer required; or (c) combined with other separate
accounts of the Company. To the extent permitted by applicable law, the Company
may also transfer the assets of the Separate Account associated with the Policy
to another separate account.
The Company cannot guarantee that the shares of the 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
the Company. 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, the Company will be
unable to honor Owner requests to allocate their cash values or premium
payments to the Divisions of the Separate Account investing in such shares. In
the event that a Fund is no longer available, the Company will, of course, take
reasonable steps to obtain alternative investment options.
PAYMENT AND ALLOCATION OF PREMIUMS
Issuance of a Policy
The Company will generally issue a Group Contract to employers whose employees
and/or their spouses may become Owners and/or Insureds thereunder so long as
the employee is within the class of employees eligible to be included in the
Group Contract. The class(es) of employees covered by a particular Group
Contract are set forth in that Group Contract's specifications pages. The Group
Contract will be issued upon receipt of an application for a Group Contract
signed by a duly authorized officer of the employer and acceptance by a duly
authorized officer of the Company at its Home Office. (See "General Provisions
of the Group Contract--Issuance.") Individuals (i.e., eligible employees or
their spouses) wishing to purchase a Policy, whether under a Group Contract or
an employer-sponsored insurance program, must complete the appropriate
application for Individual Insurance and submit it to an authorized
representative of the Company or to the Company's Home Office. The Company will
issue to each Contractholder either a Certificate or an Individual Policy to
give to each Owner. Individual Policies, rather than Certificates, will be
issued (i) to independent contractors of the employer; (ii) to persons who wish
to continue coverage after a Group Contract has terminated; (iii) to persons
who wish to continue coverage after they no longer are employed by the Group
Contractholder; (iv) if state law restrictions make issuance of a Group
Contract impracticable; or (v) if the employer chooses to use an employer-
sponsored insurance program that does not involve a Group Contract.
Corporate Programs will generally involve Individual Policies. Policies will be
issued on the lives of eligible Insureds, generally employees of a sponsoring
employer, and the Owner will usually be the sponsoring employer or its
designee.
A Policy generally will be issued only to Insureds of Issue Ages 17 through 70
who supply evidence of insurability satisfactory to the Company. The Company
may, at its sole discretion, issue Policies to individuals falling outside
those Issue Ages or decline to issue Policies to individuals within those Issue
Ages.
In order for an employee to be eligible to purchase a Policy, the employee must
be actively at work at the time the application for Individual Insurance is
signed. In addition, the Contractholder may determine specific classes to which
the employee must belong to be eligible to purchase a Policy. Actively at work
means that the employee must work for the Contractholder or sponsoring employer
at the employee's usual place of work or such other places as required by the
Contractholder or sponsoring employer in the course of such work for the full
number of hours and the full rate of pay, as set by the employment practices of
the employer. Ordinarily the time worked per week must not be less than 30
hours. However, the Company reserves the right to waive or modify the actively
at work requirement at its discretion. In addition, the Contractholder may
require that, to be eligible to purchase a Policy, an employee must be employed
by the employer as of a certain date or for a
15
<PAGE>
certain period of time. This date or time period will be set forth in the Group
Contract specifications pages. Employees of any Associated Companies of the
Contractholder will be considered employees of the Contractholder. The Company
may also allow an individual who is an independent contractor working primarily
for the sponsoring employer to be considered an eligible employee. As an
independent contractor, he may receive an Individual Policy rather than a
Certificate depending upon state law applicable to the contracts. An employee
may include a partner in a partnership if the employer is a partnership.
In other than Executive Programs or Corporate Programs, the first time an
employee is given the opportunity to purchase a Policy, the Company will issue
the Policy and any children's insurance rider applied for by the employee
pursuant to its guaranteed issue procedure. Under this procedure the employee
is required to answer qualifying questions in the application for Individual
Insurance, but is not required to submit to a medical or paramedical
examination. The maximum Face Amount that an employee can generally apply for
under the guaranteed issue procedure ("Guaranteed Issue Amount") is three times
the employee's salary up to a ceiling that is based on the number of eligible
employees under a Group Contract or other employer-sponsored insurance program.
Guaranteed issue may be available with Executive Programs or Corporate Programs
depending upon number of eligible employees or if other existing insurance
coverage is cancelled.
Where the Face Amount exceeds the guaranteed issue limits, where the Policy has
been offered previously to the employee, where the guaranteed issue
requirements set forth in the application for Individual Insurance are not met,
or in connection with certain programs that may be offered without guaranteed
issue the employee must submit to a simplified underwriting procedure which
requires the employee to respond satisfactorily to certain health questions in
the application. A blood test may be required. This requirement is generally
applicable only to Executive Programs or Corporate Programs. Similarly, such
questions must be answered if, in connection with the issuance of any
children's rider, if the employee is not eligible for guaranteed issue
underwriting, or, even when the employee is eligible, if the child does not
satisfy the guaranteed issue requirements set forth in the application for
Individual Insurance. However, regardless of which underwriting procedure is
used, acceptance of an application is subject to the Company's underwriting
rules, and the Company reserves the right to reject an application for any
reason.
If a Policy is to be issued to a spouse of an employee who is eligible to
purchase a Policy under a Group Contract or an employer-sponsored insurance
program, the appropriate application for Individual Insurance must be supplied.
The spouse will be subject to the simplified underwriting procedure described
above. Guaranteed issue is not available. Spouse coverage is generally not
available under Executive Program Policies or Corporate Program Policies.
The Issue Date is the effective date for all coverage provided in the original
application for Individual Insurance. The Issue Date is used to determine
Policy Anniversaries, Policy Years, and Policy Months. A Policy will not take
effect until the appropriate application for Individual Insurance is signed,
the initial premium has been paid prior to the Insured's death, the Insured is
eligible for it, and the information in the application is determined to be
acceptable to the Company. However, prior to the actual issuance of a Policy
which is being underwritten on a guaranteed issue basis, interim insurance in
the amount of insurance applied for up to the Guaranteed Issue Amount may be
available and, if so, will start as of the date of the application. Interim
insurance ends on the earliest of the following dates: (a) the date insurance
begins on the Policy applied for; (b) the date a Policy other than the Policy
applied for is offered to the applicant; (c) the date the Company notifies the
applicant that the application for any proposed Insured is declined; (d) 60
days from the date of application; or (e) termination of employment with the
Contractholder or sponsoring employer.
Premiums
The initial premium is due on the Issue Date, and usually will be remitted by
the Contractholder or employer on behalf of the Owner. The Company requires
that the initial premium for a Policy be at least equal to one-twelfth ( 1/12)
of the planned annual premium for the Policy set forth in the specifications
pages. The planned
16
<PAGE>
annual premium is an amount specified for each Policy based on the requested
initial Face Amount, the Issue Age of the Insured and the charges under the
Policy. (See "Charges and Deductions.") However, the Owner is not required to
pay premiums equal to the planned annual premium.
Premiums remitted by a Contractholder or sponsoring employer or designated
payor shall be applied to a Policy as of the Valuation Date received by the
Company. Premiums will be deemed to be received on a Valuation Date when both
supporting documentation necessary to enable the determination of the amount of
premium per Policy and the cash premium have been received by the Company at
its Home Office.
Following the initial premium, subject to the limitations described below,
premiums may be paid in any amount and at any interval. Under Group Contracts
and Individual Policies issued in connection with other employer-sponsored
insurance programs, the planned annual premium usually will be remitted by the
Contractholder or sponsoring employer on behalf of the Owner pursuant to a
planned premium payment schedule which will provide for premium payments in a
level amount at fixed intervals agreed to by the Contractholder or employer and
the Company (usually monthly). The amount of the premiums remitted by the
sponsoring employer or Contractholder will be that amount authorized to be
deducted by the employee. The Owner may skip planned premium payments. Failure
to pay one or more planned premium payments will not cause the Policy to lapse
until such time as the Cash Surrender Value is insufficient to cover the next
Monthly Deduction. (See "Payment and Allocation of Premiums--Policy Lapse and
Reinstatement.")
In addition to any planned payments made, an Owner may make unscheduled premium
payments at any time in any amount, subject to the minimum and maximum premium
limitations described below. The payment of an unscheduled premium payment may
have Federal income tax consequences. (See "Federal Tax Matters.") Moreover, as
mentioned above, an Owner may also skip planned premium payments. Therefore,
unlike conventional insurance policies, a Policy does not obligate the Owner to
pay premiums in accordance with a rigid and inflexible premium schedule.
Failure of the Contractholder to remit the planned premium payments authorized
by its employees may cause the Group Contract to terminate. (See "General
Provisions of the Group Contract--Termination.") Nonetheless, provided that
there is sufficient Cash Surrender Value to prevent the Policy from lapsing,
the Individual Insurance provided will automatically continue in the event of
such termination. (See "Policy Rights and Privileges--Eligibility Change
Conversion.") Individual Insurance will also continue if the employee's
employment with the Contractholder or sponsoring employer terminates. In either
circumstance, an Owner of an Individual Policy (or a Certificate converted by
amendment to an Individual Policy) will establish a new schedule of planned
premiums which will have the same planned annual premium, but ordinarily the
payment intervals will be no more frequent than quarterly. In Corporate
Programs, there will generally be no change in planned or scheduled premiums
upon the discontinuing employment of an Insured.
Premium Limitations. Every premium payment remitted by or on behalf of an Owner
must be at least $20. In no event may the total of all premiums paid under a
Policy in any Policy Year exceed the current maximum premium limitations for
that year established by Federal tax laws. The maximum premium limitation for a
Policy Year is the most premium that can be paid in that Policy Year such that
the sum of the premiums paid under the Policy will not at any time exceed the
guideline premium limitations referred to in section 7702(c) of the Internal
Revenue Code of 1986, or any successor provision. If at any time a premium is
paid which would result in total premiums exceeding the current maximum premium
limitation, the Company will accept only that portion of the premium which will
make total premiums equal the maximum. Any part of the premium in excess of
that amount will be returned directly to the Owner within 60 days of the end of
the Policy Year in which payment is received or applied as otherwise agreed and
no further premiums will be accepted until allowed by the current maximum
premium limitations prescribed by Federal tax law. See "Federal Tax Matters"
for a further explanation of premium limitations. Section 7702A creates an
additional premium limitation, which, if exceeded, can change the tax status of
a Policy to that of a "modified endowment
17
<PAGE>
contract." A modified endowment contract is a life insurance contract,
withdrawals from which are, for tax purposes, treated first as a distribution
of any taxable income under the contract, and then as a distribution of
nontaxable investment in the contract. Additionally, such withdrawals may be
subject to a 10% federal income tax penalty. The Company has adopted
administrative steps designed to notify an Owner when it is believed that a
premium payment will cause a Policy to become a modified endowment contract.
The Company has administrative procedures to prevent a modified endowment
contract by monitoring premium limits. The Owner will be given a limited amount
of time to request that the premium be reversed in order to avoid the Policy's
being classified as a modified endowment contract. (See "Federal Tax Matters.")
Allocation of Net Premiums and Cash Value
Net Premiums. The net premium equals the premium paid less the premium expense
charge less any charge to compensate the Company for anticipated higher
corporate income taxes resulting from the sale of a Policy less the premium tax
charge. (See "Charges and Deductions--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 receipt of the
premiums at the Company's Home Office. However, the minimum percentage, other
than zero ("0"), that may be allocated to a Division is 10 percent of the net
premium, and fractional percentages may not be used.
The allocation for future net premiums may be changed without charge at any
time by providing notice in writing directly to the Company. Any change in
allocation will take effect immediately upon receipt by the Company of the
written notification. No charge is imposed for changing the allocations of
future net premiums.
The Policy's Cash Value also may be transferred between the Divisions of the
Separate Account. (See "Policy Rights and Privileges--Transfers.")
The value of amounts allocated to Divisions of the Separate Account will vary
with the investment performance of the chosen Divisions and the Owner bears the
entire investment risk. This will affect the Policy's Cash Value, and may
affect the death benefit as well. Owners should periodically review their
allocations of premiums and values in light of market conditions and overall
financial planning requirements.
Policy Lapse and Reinstatement
Lapse. Unlike conventional life insurance policies, the failure to make a
premium payment following the initial premium will not itself cause a Policy to
lapse. A Policy can lapse even if planned premiums have been paid. Lapse will
occur only when the Cash Surrender Value is insufficient to cover the monthly
deduction, and a grace period expires without a sufficient payment being made.
(See also "General Provisions of the Group Contract--Grace Period--
Termination.") Thus, the payment of premiums in any amount does not guarantee
that the Policy will remain in force until the Maturity Date.
The grace period, which is 62 days, begins on the Monthly Anniversary on which
the Cash Surrender Value becomes insufficient to meet the next monthly
deduction, premium expense charge, and premium tax charge. The Company will
notify the Owner at the beginning of the grace period by mail addressed to the
last known address on file with the Company. The notice will specify the amount
of premium required to keep the Policy in force and the date the payment is
due. Subject to minimum premium requirements, the amount of the premium
required to keep the Policy in force will be the amount of the current monthly
deduction. (See "Charges and Deductions.") If the Company does not receive the
required amount within the grace period, the Policy will lapse and terminate
without Cash Value. If the Insured dies during the grace period, any overdue
monthly deductions will be deducted from the death benefit otherwise payable.
18
<PAGE>
Reinstatement. The Owner may reinstate a lapsed Policy by written application
any time within five years after the date of lapse and before the Maturity
Date. The right to reinstate a lapsed Policy will not be affected by the
termination of a Group Contract or the termination of an employee's employment
during the reinstatement period. Reinstatement is subject to the following
conditions:
1. Evidence of the insurability of the Insured satisfactory to the Company
(including evidence of insurability of any person covered by a rider to
reinstate the rider).
2. Payment of a premium that, after the deduction of any premium expense
charge and any premium tax charge, is large enough to cover: (a) the
monthly deductions due at the time of lapse, and (b) two times the monthly
deduction due at the time of reinstatement.
3. Payment or reinstatement of any Indebtedness. Any Indebtedness
reinstated will cause a Cash Value of an equal amount also to be
reinstated. Any loan paid at the time of reinstatement will cause an
increase in Cash Value equal to the amount of the repaid loan.
4. The Policy cannot be reinstated if it has been surrendered.
The amount of Cash Value on the date of reinstatement will be equal to the
amount of any Indebtedness reinstated, increased by the net premiums paid at
reinstatement and any loans paid at the time of reinstatement.
The effective date of reinstatement will be the date of approval by the Company
of the application for reinstatement. There will be a full monthly deduction
for the Policy Month that includes that date.
POLICY BENEFITS
Death Benefit
As long as the Policy remains in force, the Company will, upon proof of the
Insured's death, pay the death benefit proceeds of a Policy in accordance with
the death benefit option in effect at the time of the Insured's death. Payment
of death benefit proceeds will not be affected by termination of the Group
Contract or employer-sponsored insurance program or by termination of an
employee's employment.
If a rider permitting the accelerated payment of death benefit proceeds has
been added to the Policy, the death benefit may be paid in a single sum prior
to the death of the Insured and may be less than otherwise would be paid upon
the death of the Insured. (See "General Matters Relating to the Policy--
Additional Insurance Benefits.")
The amount of the death benefit proceeds payable will be determined at the end
of the Valuation Period during which the Insured's death occurred. The proceeds
may be paid in a single sum or under one or more of the settlement options set
forth in the Policy. (See "Policy Rights and Privileges--Payment of Policy
Benefits.") Death benefit proceeds will be paid to the surviving Beneficiary or
Beneficiaries specified in the application or as subsequently changed.
The Policy provides two death benefit options: a "Level Type" death benefit
("Option A") and an "Increasing Type" death benefit ("Option B"). Option B
generally will be the only option presented. The death benefit under either
option will never be less than the current Face Amount of the Policy as long as
the Policy remains in force. (See "Payment and Allocation of Premiums--Policy
Lapse and Reinstatement.") The minimum Face Amount currently is $25,000. The
maximum Face Amount is generally $500,000. However, in connection with a
particular Group Contract or employer sponsored insurance program, the Company
may establish a substantially higher Face Amount for Policies issued under that
Contract or program.
Option A. Under Option A, the death benefit is the current Face Amount of the
Policy or, if greater, the applicable percentage of Cash Value on the date of
death. The applicable percentage is 250 percent for an Insured Attained Age 40
or below on the Policy Anniversary prior to the date of death. For Insureds
with an
19
<PAGE>
Attained Age over 40 on that Policy Anniversary, the percentage is lower and
declines with age as shown in the Applicable Percentage Table below.
Accordingly, under Option A the death benefit will remain level at the Face
Amount unless the applicable percentage of Cash Value exceeds the current Face
Amount, in which case the amount of the death benefit will vary as the Cash
Value varies. Owners who prefer to have favorable investment performance
reflected in higher Cash Value for the same Face Amount, rather than increased
death benefit, generally should select Option A.
APPLICABLE PERCENTAGE TABLE
<TABLE>
<CAPTION>
Applicable
Attained Age Percentage
- ------------ ----------
<S> <C>
40...................... 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 the current Face Amount
plus the Cash Value of the Policy or, if greater, the applicable percentage of
the Cash Value on the date of death. The applicable percentage is the same as
under Option A: 250 percent for an Insured with an Attained Age of 40 or below
on the Policy Anniversary prior to the date of death, and for Insureds with an
Attained Age over 40 on that Policy Anniversary the percentage declines as
shown in the Applicable Percentage Table above. Accordingly, under Option B the
amount of the death benefit will always vary as the Cash Value varies (but will
never be less than the Face Amount). Owners who prefer to have favorable
investment performance reflected in higher death benefits for the same Face
Amount generally should select Option B. All other factors equal, for the same
premium dollar, Option B provides lower initial Face Amount resulting in
earlier cash accumulation.
Change in Death Benefit Option. After the first Policy Anniversary, the Owner
may change the death benefit option in effect. The Company reserves the right
to limit the number of changes in death benefit options to one each Policy
Year. A request for change must be made directly to the Company in writing. The
effective date of such a change will be the Monthly Anniversary on or following
the date the Company receives the change request.
20
<PAGE>
If the death benefit option is changed from Option A to Option B, the Face
Amount after the change will equal the Face Amount before the change less the
Cash Value on the effective date of the change. Satisfactory evidence of
insurability must be submitted directly to the Company in connection with a
request for a change from Option A to Option B. This change may not be made if
it would result in a Face Amount of less than $25,000.
If the death benefit option is changed from Option B to Option A, the Face
Amount after the change will equal the Face Amount before the change plus the
Cash Value on the effective date of change.
A change in death benefit option will not in itself result in an immediate
change in the amount of a Policy's death benefit or Cash Value. No charges will
be imposed upon a change from death benefit Option B to Option A. Changing from
Option A to Option B, however, will result in a decrease in the Face Amount. In
addition, if, prior to or accompanying a change in the death benefit option,
there has been an increase in the Face Amount, the cost of insurance charge may
be different for the increased amount. (See "Charges and Deductions--Monthly
Deduction--Cost of Insurance.")
No change in death benefit option will be permitted that results in the death
benefit under a Policy being included in gross income due to not satisfying the
requirements of Federal tax law. (See "Federal Tax Matters.")
Change in Face Amount. Subject to certain limitations set forth below, an Owner
may increase or decrease the Face Amount of a Policy (without changing the
death benefit option) after the first Policy Anniversary. A written request for
a change in the Face Amount must be sent directly to the Company. A change in
Face Amount may affect the cost of insurance rate and the net amount at risk,
both of which affect an Owner's cost of insurance charge. (See "Charges and
Deductions--Monthly Deduction--Cost of Insurance.") In addition, a change in
Face Amount may have Federal income tax consequences. (See "Federal Tax
Matters.")
Any decrease in the Face Amount will become effective on the Monthly
Anniversary on or following receipt of the written request by the Company. The
amount of the requested decrease must be at least $5,000 and the Face Amount
remaining in force after any requested decrease may not be less than the
minimum amount Face Amount, generally $25,000. If, following a decrease in Face
Amount, the Policy would not comply with the maximum premium limitations
required by Federal tax law (see "Payment and Allocation of Premiums"), the
decrease may be limited or Cash Value may be returned to the Owner (at the
Owner's election), to the extent necessary to meet these requirements. A
decrease in the Face Amount will reduce the Face Amount in the following order:
(a) The Face Amount provided by the most recent increase;
(b) The next most recent increases successively; and
(c) The initial Face Amount.
This order of reduction will be used to determine the amount of subsequent cost
of insurance charges (see "Charges and Deductions--Monthly Deduction--Cost of
Insurance").
For an increase in the Face Amount, the Company requires that satisfactory
evidence of insurability be submitted. If approved, the increase will become
effective on the Monthly Anniversary on or following receipt of the
satisfactory evidence of insurability. In addition, the Insured must have an
Attained Age of not greater than 80 on the effective date of the increase. The
amount of the increase may not be less than $5,000. The Face Amount may not be
increased more than the maximum Face Amount for that Policy, generally
$500,000. However, in connection with a particular Group Contract or employer-
sponsored insurance program, the Company may establish a substantially higher
Face Amount for Policies issued under that Contract or program. Although an
increase need not necessarily be accompanied by an additional premium (unless
it is required to meet the next monthly deduction), the Cash Surrender Value in
effect immediately after the increase must be sufficient to cover the next
monthly deduction. (See "Charges and Deductions--Monthly Deduction.") An
increase in the Face Amount may result in certain additional charges. (See
"Charges and Deductions.")
21
<PAGE>
An increase in Face Amount may be cancelled within the later of 20 days from
the date the Owner received the new Policy specifications page for the
increase, within 10 days of mailing the right to cancellation notice to the
Owner, or within 45 days after the application for an increase was signed. Upon
cancellation, any additional charges, which would not have been assessed
without the increase, will be refunded to the Owner if requested. If a request
for a refund is not made, the charges will be restored to the Policy's Cash
Value and allocated to Divisions of the Separate Account in the same manner as
they were deducted. Premiums paid following an increase in Face Amount and
prior to the time the right to cancel the increase expires will become part of
the Policy's Cash Value and will not be subject to refund. (See "Policy Rights
and Privileges--Right to Examine Policy.")
Methods of Affecting Insurance Protection. An Owner may increase or decrease
the pure insurance protection provided by a Policy--the difference between the
death benefit and the Cash Value--in several ways as insurance needs change.
These ways include increasing or decreasing the Face Amount, changing the level
of premium payments, and, to a lesser extent, making partial withdrawals from
the Policy. Although the consequences of each of these methods will depend upon
the individual circumstances, they may be generally summarized as follows:
(a) A decrease in the Face Amount will, subject to the applicable percentage
limitations (see "Policy Benefits--Death Benefit"), decrease the pure insurance
protection and the cost of insurance charges under the Policy without reducing
the Cash Value.
(b) An increase in the Face Amount may increase the amount of pure insurance
protection, depending on the amount of Cash Value and the resultant applicable
percentage limitation. If the insurance protection is increased, the Policy
charges generally will increase as well.
(c) An increased level of premium payments will reduce the pure insurance
protection if Option A is in effect. However, when the applicable percentage of
Cash Value exceeds either the Face Amount (if Option A is in effect) or the
Cash Value plus the Face Amount (if Option B is in effect), increased premium
payments will increase the pure insurance protection. Increased premiums should
also increase the amount of funds available to keep the Policy in force.
(d) A reduced level of premium payments generally will increase the amount of
pure insurance protection, depending on the applicable percentage limitations.
If the reduced level of premium payments is insufficient to cover monthly
deductions or to offset negative investment performance, Cash Value may also
decrease, which in turn will increase the possibility that the Policy will
lapse. (See "Payment and Allocation of Premiums--Policy Lapse and
Reinstatement.")
(e) A partial withdrawal will reduce the death benefit. (See "Policy Rights and
Privileges--Surrender and Partial Withdrawals.") However, it only affects the
amount of pure insurance protection and cost of insurance charges if the death
benefit before or after the withdrawal is based on the applicable percentage of
Cash Value, because otherwise the decrease in the death benefit is offset by
the amount of Cash Value withdrawn. The primary use of a partial withdrawal is
to withdraw Cash Value.
Payment of Death Benefit Proceeds. Death benefit proceeds under the Policy
ordinarily will be paid within seven days after the Company receives all
documentation required for such a payment at its Home Office. Payment may,
however, be postponed in certain circumstances. (See "General Matters Relating
to the Policy--Postponement of Payments," page 30.) 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.")
22
<PAGE>
When no election for an optional method of settlement is in force at the death
of the Insured, the Beneficiary may select one or more of the optional methods
of settlement at any time before death benefit proceeds are paid. (See "Policy
Rights and Privileges--Payment of Policy Benefits.")
An election or change of method of settlement must be in writing. A change in
Beneficiary revokes any previous settlement election. Once payments have begun,
the settlement option may not be changed.
Cash Value
The Cash Value of the Policy is equal to the total of the Policy's Cash Value
in the Separate Account and the Loan Account. The Policy's Cash Value in the
Separate Account will reflect the investment performance of the chosen
Divisions of the Separate Account, the frequency and amount of net premiums
paid, transfers, partial withdrawals, Policy Loans, loan account interest rate
credited, and the charges assessed in connection with the Policy. An Owner may
at any time surrender the Policy and receive the Policy's Cash Surrender Value.
(See "Policy Rights and Privileges--Surrender and Partial Withdrawals.") There
is no guaranteed minimum Cash Value.
Determination of Cash Value. Cash Value is determined on a daily basis. On the
Investment Start Date, the Cash Value in a Division will equal the portion of
any net premium allocated to the Division, reduced by the portion of the
monthly deductions due from the Issue Date through the Investment Start Date
allocated to that Division. Depending upon the length of time between the Issue
Date and the Investment Start Date, this amount may be more than the amount of
one monthly deduction. (See "Payment and Allocation of Premiums.") Thereafter,
on each Valuation Date, the Cash Value in a Division of the Separate Account
will equal:
(1) The Cash Value in the Division on the preceding Valuation Date, multiplied
by the Division's Net Investment Factor (defined below) for the current
Valuation Period; plus
(2) Any net premium payments received during the current Valuation Period which
are allocated to the Division; plus
(3) Any loan repayments allocated to the Division during the current Valuation
Period; plus
(4) Any amounts transferred to the Division from another Division during the
current Valuation Period; plus
(5) That portion of the interest credited on outstanding Policy Loans which is
allocated to the Division during the current Valuation Period; minus
(6) Any amounts transferred from the Division during the current Valuation
Period plus transfer charges if any; minus
(7) Any partial withdrawals plus any partial withdrawal transaction charge,
from the Division during the current Valuation Period; minus
(8) 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
23
<PAGE>
(3) The capital losses, realized or unrealized, charged against those assets
during the Valuation Period; minus
(4) Any amount charged against each Division for taxes or other economic burden
resulting from the application of tax laws, determined by the Company to be
properly attributable to the Divisions of the Separate Account or the Policy,
or any amount set aside during the Valuation Period as a reserve for taxes
attributable to the operation or maintenance of each Division; minus
(5) A charge not to exceed .0024547% of the net assets for each day in the
Valuation Period. This corresponds to 0.90% per year for mortality and expense
risks; divided by
(6) The value of the assets at the end of the preceding Valuation Period.
The Company may use an equivalent method to determine Cash Value in each
Division on each Valuation Date in lieu of the Net Investment Factor method.
This method directly determines the units of Cash Value in each Division and
the corresponding unit value. Unit value is obtained as follows:
(1) The value of assets in a Division are obtained by multiplying shares
outstanding by the net asset value as of the Valuation Date: minus
(2)A reduction based upon a charge not to exceed .0024547% of the net assets
for each day in the Valuation Period is made (This corresponds to 0.90% per
year for mortality and expense risk charge); divided by
(3)Aggregate units outstanding in the Division at the end of the preceding
Valuation Period.
POLICY RIGHTS AND PRIVILEGES
Exercising Rights and Privileges Under the Policies
Owners of Policies issued under a Group Contract or in connection with an
employer-sponsored insurance program may exercise their rights and privileges
under the Policies (i.e., make transfers, change premium allocations, borrow,
etc.) by directly notifying the Company in writing at its Home Office. The
Company will send all reports and other notices described herein or in the
Policy directly to the Owner.
Loans
Loan Privileges. After the first Policy Anniversary, the Owner may, by written
request directly to the Company, borrow an amount up to the Loan Value of the
Policy, with the Policy serving as sole security for such loan. The Loan Value
is equal to (a) minus (b), where (a) is 85 percent of the Cash Value of the
Policy on the date the Policy Loan is requested and (b) is the amount of any
outstanding Indebtedness. Loan interest is due and payable in arrears on each
Policy Anniversary or on a pro rata basis for such shorter period as the loan
may exist. The minimum amount that may be borrowed is $100. The loan may be
completely or partially repaid at any time while the Insured is living. Any
amount due to an Owner under a Policy Loan ordinarily will be paid within seven
days after the Company receives the loan request at its Home Office, although
payments may be postponed under certain circumstances. (See "General Matters
Relating to the Policy--Postponement of Payments.")
When a Policy Loan is made, Cash Value equal to the amount of the loan will be
transferred to the Loan Account as security for the loan. Unless the Owner
requests a different allocation, amounts will be transferred from the Divisions
of the Separate Account in the same proportion that the Policy's Cash Value in
each Division bears to the Policy's total Cash Value, less the Cash Value in
the Loan Account, at the end of the Valuation Period during which the request
for a Policy Loan is received. This will reduce the Policy's Cash Value in the
Separate Account. These transactions will not be considered transfers for
purposes of the limitations on transfers between Divisions.
24
<PAGE>
Loan Account Interest Rate Credited. Cash Value transferred to the Loan Account
to secure a Policy Loan will accrue interest daily at an annual rate not less
than five percent. The rate is declared by action of Company management as
authorized by the Board of Directors of the Company. The Loan Account interest
credited will be transferred to the Divisions of the Separate Account: (1) each
Policy Anniversary; (2) when a new loan is made; (3) when a loan is partially
or fully repaid; and (4) when an amount is needed to meet a monthly deduction.
Interest Rate Charged for Policy Loans. The interest rate charged will be at an
annual rate of eight percent. Interest charged will be due and payable annually
in arrears on each Policy Anniversary or for such shorter period as the Policy
Loan may exist. If the Owner does not pay the interest charged when it is due,
an amount of Cash Value equal to that which is due will be transferred to the
Loan Account. (See "Effect of Policy Loans.") The amount transferred will be
deducted from the Divisions of the Separate Account in the same proportion that
the portion of the Cash Value in each Division bears to the total Cash Value of
the Policy minus the Cash Value in the Loan Account.
Effect of Policy Loans. A loan taken from, or secured by, a Policy may have
Federal income tax consequences. (See "Federal Tax Matters.")
Whether or not a Policy Loan is repaid, it will permanently affect the Cash
Value of a Policy, and may permanently affect the amount of the death benefit,
even if the loan is repaid. This is because the collateral for the Policy Loan
(the amount held in the Loan Account) does not participate in the performance
of the Separate Account while the loan is outstanding. If the Loan Account
interest credited is less than the investment performance of the selected
Division, the Policy values will be lower as a result of the loan. Conversely,
if the Loan Account interest credited is higher than the investment performance
of the Division, the Policy values may be higher.
In addition, if the Indebtedness exceeds the Cash Value on any Monthly
Anniversary, the Policy may lapse, subject to a grace period. (See "Charges and
Deductions.") A sufficient payment must be made within the later of the grace
period of 62 days from the Monthly Anniversary immediately before the date
Indebtedness exceeds the Cash Value, or 31 days after notice that the Policy
will terminate without a sufficient payment has been mailed, or the Policy will
lapse and terminate without value. A lapsed Policy, however, may later be
reinstated. (See "Payment and Allocation of Premiums--Policy Lapse and
Reinstatement.")
All outstanding Indebtedness will be deducted from the proceeds payable upon
the death of the Insured, surrender, or the maturity of the Policy.
Repayment of Indebtedness. A Policy Loan may be repaid in whole or in part at
any time prior to the death of the Insured and as long as a Policy is in
effect. All repayments should be made directly to the Company at its Home
Office. Amounts paid while a Policy Loan is outstanding will be treated as
premiums unless the Owner requests in writing that they be treated as repayment
of Indebtedness. When a loan repayment is made, an amount securing the
Indebtedness in the Loan Account equal to the loan repayment will be
transferred to the Divisions of the Separate Account in the same proportion
that Cash Value in the Loan Account bears to the Cash Value in each Loan
Subaccount. A Loan Subaccount exists for each Division of the Separate Account.
Amounts transferred to the Loan Account to secure Indebtedness are allocated to
the appropriate Loan Subaccount to reflect their origin.
Surrender and Partial Withdrawals
During the lifetime of the Insured and while a Policy is in force, the Owner
may surrender, or make a partial withdrawal under, the Policy by sending a
written request to the Company. Any restrictions are 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 at the Company's Home Office. Amounts payable upon surrender or a
partial withdrawal ordinarily will be paid within seven days of receipt of the
25
<PAGE>
written request. (See "General Matters Relating to the Policy--Postponement of
Payments.") Surrenders and partial withdrawals may have Federal income tax
consequences. (See "Federal Tax Matters.")
Surrender. To effect a surrender, the Policy itself must be returned to the
Company along with the request, or the request must be accompanied by a
completed affidavit of lost policy, which is available from the Company. Upon
surrender, the Company will pay the Cash Surrender Value to the Owner. The Cash
Surrender Value equals the Cash Value on the date of surrender, less any
Indebtedness. Surrender proceeds will be paid in a single sum. If the request
is received on a Monthly Anniversary, the monthly deduction otherwise
deductible will be included in the amount paid. Coverage under a Policy will
terminate as of the date of surrender.
Partial Withdrawals. After the first Policy Year, an Owner may make up to one
partial withdrawal each Policy Month from the Separate Account. The minimum
amount of a partial withdrawal, net of any transaction charges, is at least
$500. The minimum amount that can be withdrawn from a Division is $50, or the
Policy's Cash Value in a Division, if smaller. The maximum amount that may be
withdrawn, including the partial withdrawal transaction charge, is the Loan
Value. The partial withdrawal transaction charge is equal to the lesser of $25
or two percent of the amount withdrawn. The Owner may allocate the amount
withdrawn, subject to the above conditions, among the Divisions of the Separate
Account. If no allocation is specified, then the partial withdrawal will be
allocated among the Divisions of the Separate Account in the same proportion
that the Policy's Cash Value in each Division bears to the total Cash Value of
the Policy, less the Cash Value in the Loan Account, on the date the request
for the partial withdrawal is received.
A partial withdrawal will decrease the Face Amount in two situations. First, if
the death benefit Option A is in effect and the death benefit equals the Face
Amount then the partial withdrawal will decrease the Face Amount, and, thus,
the death benefit by an amount equal to the partial withdrawal plus the partial
withdrawal transaction charge. Second, if the death benefit equals a percentage
of Cash Value (whether Option A or Option B is in effect), then a partial
withdrawal will decrease the Face Amount by the amount that the partial
withdrawal plus the partial withdrawal transaction charge exceeds the
difference between the death benefit and the Face Amount. The death benefit
also will be reduced in this circumstance. If Option B is in effect and the
death benefit equals the Face Amount plus the Cash Value, the partial
withdrawal will not reduce the Face Amount, but it will reduce the Cash Value
and, thus, the death benefit by the amount of the partial withdrawal plus the
partial withdrawal transaction charge. The Face Amount will be decreased in the
following order: (1) the Face Amount at issue; and (2) any increases in the
same order in which they were issued.
Generally, the partial withdrawal transaction charge will be allocated among
the Divisions of the Separate Account in the same proportion as the partial
withdrawal is allocated. If, following a partial withdrawal, insufficient funds
remain in a Division to pay the partial withdrawal transaction charge allocated
to a Division, the unpaid charges will be allocated equally among the remaining
Divisions. In addition, an Owner may request that the partial withdrawal
transaction charge be paid from the Owner's Cash Value in another Division.
The Face Amount remaining in force after a partial withdrawal may not be less
than $25,000. Any request for a partial withdrawal that would reduce the Face
Amount below this amount will not be executed.
Partial withdrawals may affect the way in which the cost of insurance charge is
calculated and the amount of pure insurance protection afforded under a Policy.
(See "Policy Benefits--Death Benefit--Methods of Affecting Insurance
Protection.")
Transfers
Under the Company's current rules, a Policy's Cash Value, except amounts
credited to the Loan Account, may be transferred among the Divisions of the
Separate Account available with the Policy. Requests for transfers from or
among Divisions of the Separate Account must be made in writing directly to the
Company and may be made once each Policy Month. Transfers must be in amounts of
at least $250 or, if smaller, the Policy's Cash Value in a Division. The
Company will effectuate transfers and determine all values in connection with
transfers as of the end of the Valuation Period during which the transfer
request is received.
26
<PAGE>
All requests received on the same Valuation Day will be considered a single
transfer request. Each transfer must meet the minimum requirement of $250 or
the entire Cash Value in a Division. Where a single transfer request calls for
more than one transfer, and not all of the transfers would meet the minimum
requirements, the Company will effectuate those transfers that do meet the
requirements. Transfers resulting from Policy Loans will not be counted for
purposes of the limitations on the amount or frequency of transfers allowed in
each month or year.
Although the Company currently intends to continue to permit transfers for the
foreseeable future, the Policy provides that the Company may modify the
transfer privilege, by changing the minimum amount transferable, by altering
the frequency of transfers, by imposing a transfer charge, by prohibiting
transfers, or in such other manner as the Company may determine at its
discretion.
Right to Examine Policy
The Owner may cancel a Policy within 10 days of after receiving it or such
longer period required by state law. If a Policy is cancelled within this time
period, a refund will be paid. The refund will equal all premiums paid under
the Policy.
To cancel the Policy, the Owner should mail or deliver the Policy directly to
the Company. A refund of premiums paid by check may be delayed until the check
has cleared the Owner's bank. (See "General Matters Relating to the Policy--
Postponement of Payments.")
A request for an increase in Face Amount (see "Policy Benefits--Death Benefit")
also may be cancelled. The request for cancellation must be made within the
latest of 20 days from the date the Owner received the new Policy
specifications pages for the increase, 10 days of mailing the right to
cancellation notice to the Owner, or 45 days after the Owner signed the
application for the increase.
Upon cancellation of an increase, the Owner may request that the Company refund
the amount of the additional charges deducted in connection with the increase.
This will equal the amount by which the monthly deductions since the increase
went into effect exceeded the monthly deductions which would have been made
absent the increase (see "Charges and Deductions--Monthly Deduction"). If no
request is made, the Company will increase the Policy's Cash Value by the
amount of these additional charges. This amount will be allocated among the
Divisions of the Separate Account 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 of the Separate Account. In the event a
Certificate has been amended to operate as an Individual Policy following an
Insured's change in eligibility under a Group Contract, the conversion right
will be measured from the Issue Date of the original Certificate. (See "Policy
Rights and Privileges--Eligibility Change Conversion.") No evidence of
insurability will be required when this right is exercised. However, the
Company will require that the Policy be in force and that the Owner repay any
existing Indebtedness. At the time of the conversion, the new Policy will have,
at the Owner's option, either the same death benefit or the same net amount at
risk as the original Policy. The new Policy will also have the same Issue Date
and Issue Age as the original Policy. The premiums for the new Policy will be
based on the Company's rates in effect for the same Issue Age and rate class as
the original Policy.
Eligibility Change Conversion
If an Insured's eligibility under a Group Contract or employer-sponsored
insurance program ends due to its termination or due to the termination of the
employee's employment, the Insured's coverage will continue unless the Policy
is no longer in force. Even if the Policy is not in force due to lapse, the
right to reinstate and thus to convert a lapsed Policy will not be affected by
the change in the employee's eligibility during the reinstatement period.
27
<PAGE>
If a Certificate was issued under the Group Contract, the Certificate will be
amended automatically so that it will continue in force as an Individual
Policy. The rights, benefits, and guaranteed charges will not be altered by
this amendment. The amendment will be mailed to the Owner within 31 days after
the Company receives written notice that (a) the employee's employment ended or
(b) after the termination of the Group Contract. If, at the time the conversion
occurs, the Policy is in a grace period (see "Payment and Allocation of
Premiums--Policy Lapse and Reinstatement"), any premium necessary to prevent
the Policy from lapsing must be paid to the Company at its Home Office before
the new Individual Policy will be mailed. A new planned premium schedule will
be established which will have the same planned annual premium utilized under
the Group Contract, but, ordinarily, the planned payment intervals will be no
more frequent than quarterly. The Company may allow payment of planned premium
through periodic (usually monthly) authorized electronic funds transfer. Of
course, unscheduled premium payments can be made at any time. (See "Payment and
Allocation of Premiums--Premiums.")
If an Individual Policy was issued under the Group Contract or other employer-
sponsored insurance program including a Corporate Program or Executive Program,
the Policy will continue in force following the change in eligibility. The
rights, benefits, and guaranteed charges under the Policy will remain the same
following this change in eligibility.
When an employee's spouse is the Insured under a Policy, the spouse's insurance
coverage also will continue in the event the employee is no longer eligible. If
a Certificate was originally issued to the employee's spouse, the Certificate
will be amended automatically as described above. If an Individual Policy was
originally issued, the Individual Policy will continue as described above. In
addition, if an Associated Company ceases be to under common control with the
Contractholder, the Insureds of the Associated Company (i.e., employees of the
Associated Company and their spouses) may continue their insurance in the
manner described above.
Payment of Benefits at Maturity
If the Insured is living and the Policy is in force, the Company will pay the
Cash Surrender Value of the Policy to the Owner on the Maturity Date. An Owner
may elect to have amounts payable on the Maturity Date paid in a single sum or
under a settlement option. (See "Policy Rights and Privileges--Payment of
Policy Benefits.") Amounts payable on the Maturity Date ordinarily will be paid
within seven days of that date, although payment may be postponed under certain
circumstances. (See "General Matters Relating to the Policy--Postponement of
Payments.") A Policy will mature if and when the Insured reaches Attained Age
95.
Payment of Policy Benefits
A lump sum payment will be made. Provisions for settlement of proceeds
different from a lump sum payment may only be made upon written agreement with
the Company.
Settlement Options. The Company may offer settlement options that apply to the
payment of death benefit proceeds, as well as to benefits payable at maturity.
Once a settlement option is in effect, there will no longer be value in the
Separate Account.
Accelerated Death Benefits. The Company offers certain riders which permit the
Owner to elect to receive an accelerated payment of the Policy's death benefit
in a reduced amount under certain circumstances. (See "General Matters Relating
to the Policy--Additional Insurance Benefits.")
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policies to compensate the
Company for providing the insurance benefits set forth in the Policies and any
additional benefits added by rider, administering the Policies, incurring
expenses in distributing the Policies, and assuming certain risks in connection
with the Policies. The Company may realize a profit on one or more of these
charges, such as the mortality and expense risk charge. We may use any such
profits for any corporate purpose, including, among other things, payments of
sales and distribution expenses.
28
<PAGE>
Sales Charges
Prior to allocation of net premiums among the Divisions of the Separate
Account, premium payments will be reduced by a front-end sales charge ("premium
expense charge") equal to one percent 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, the
Company makes an additional charge of 1% of each premium payment to compensate
the Company for the anticipated higher corporate income taxes that result from
the sale of such a Policy. Among other possible employer-sponsored programs,
Corporate Program Policies are deemed to be individual contracts.
The premium payment less the premium expense charge less any charge to
compensate the Company for anticipated higher corporate income taxes resulting
from the sale of a Policy less the premium tax charge (described below) equals
the net premium.
The sales charges will not change in the event that an Insured is no longer
eligible under a Group Contract or employer-sponsored insurance program, but
continues coverage on an individual basis.
Premium Tax Charge
Various states and subdivisions impose a tax on premiums received by insurance
companies. Premium taxes vary from jurisdiction to jurisdiction. To cover these
premium taxes, premium payments will be reduced by a premium tax charge of 2
percent from all Policies.
Monthly Deduction
Charges will be deducted monthly from the Cash Value of each Policy ("monthly
deduction") to compensate the Company for (a) certain administrative costs; (b)
insurance underwriting and acquisition expenses in connection with issuing a
Policy; (c) the cost of insurance; and (d) the cost of optional benefits added
by rider. The monthly deduction will be deducted on the Investment Start Date
and on each succeeding Monthly Anniversary. It will be allocated among each
Division of the Separate Account in the same proportion that a Policy's Cash
Value in each Division bears to the total Cash Value of the Policy, less the
Cash Value in the Loan Account, on the date the deduction is made. Because
portions of the monthly deduction, such as the cost of insurance, can vary from
month to month, the monthly deduction itself will vary in amount from month to
month.
Monthly Administrative Charge. The Company has responsibility for the
administration of the Policies and the Separate Account. Administrative
expenses include premium billing and collection, recordkeeping, processing
death benefit claims, cash surrenders, partial withdrawals, Policy changes,
reporting and overhead costs, processing applications, and establishing Policy
records. As reimbursement for administrative expenses related to the
maintenance of each Policy and the Separate Account, the Company assesses a
monthly administration charge from each Policy. The amount of this charge is
set forth in the specifications pages of the Policy and depends on the number
of employees eligible to be covered at issue of a Group Contract or an
employer-sponsored insurance program. The following table sets forth the range
of monthly administrative charges under the Policy:
<TABLE>
<CAPTION>
Subsequent
Eligible Employees First Year Years
------------------ ---------- ----------
<S> <C> <C>
250--499......................... $5.00............................ $2.50
500--999......................... $4.75............................ $2.25
1000+............................ $4.50............................ $2.00
</TABLE>
29
<PAGE>
For Group Contracts or other employer-sponsored insurance programs with fewer
than 250 eligible employees, those with additional administrative costs, or
those that are offered as Executive Programs or Corporate Programs, the monthly
administrative charge may be higher, but will not exceed $6.00 per month during
the first Policy Year and $3.50 per month in renewal years.
These charges, once established at the time a Policy is issued, are guaranteed
not to increase over the life of the Policy. Nor will the administrative charge
change in the event that the Insured is no longer eligible for group coverage,
but continues coverage on an individual basis. In addition, where the Company
believes that lower administrative costs will be incurred in connection with a
particular Group Contract or employer-sponsored insurance program due to the
number of eligible employees or administrative support provided by the
employer, the Company may modify the above schedule for that Group Contract or
other employer-sponsored insurance program. The amount of the administrative
charge applicable to a particular Policy will be set forth in specifications
pages for that Policy.
Cost of Insurance. The cost of insurance is deducted on each Monthly
Anniversary for the following Policy Month. Because the cost of insurance
depends upon a number of variables, the cost will vary for each Policy Month.
The cost of insurance is determined separately for the initial Face Amount and
for any subsequent increases in Face Amount. The Company will determine the
monthly cost of insurance charge by multiplying the applicable cost of
insurance rate or rates by the net amount at risk for each Policy Month.
The cost of insurance rates are determined at the beginning of each Policy Year
for the initial Face Amount and each increase in Face Amount. The current cost
of insurance rates will be determined by the Company based on its expectations
as to future mortality experience. The Company currently issues the Policies on
a guaranteed issue or simplified underwriting basis without regard to the sex
of the Insured. Whether a Policy is issued on a guaranteed issue or simplified
underwriting basis does not affect the cost of insurance charge determined for
that Policy.
The current cost of insurance rates will be based on the Attained Age of the
Insured, the rate class of the Insured, and possibly the gender mix (i.e., the
proportion of men and women covered under a particular Group Contract or
employer-sponsored program). The cost of insurance rates generally increase as
the Insured's Attained Age increases. An Insured's rate class is generally
based on the number of eligible employees as well as other factors that may
affect the mortality risks assumed by the Company in connection with a
particular Group Contract or employer-sponsored insurance program. All other
factors being equal, the cost of insurance rates generally decrease by rate
class as the number of eligible employees in the rate class increase. The
Company reserves the right to change criteria on which a rate class will be
based in the future.
If gender mix is a factor, the Company will estimate the gender mix of the pool
of Insureds under a Group Contract or employer-sponsored insurance program upon
issuance of the Contract. Each year on the Group Contract or employer-sponsored
insurance program's anniversary, the Company may adjust the rate to reflect the
actual gender mix for the particular group. In the event that the Insured's
eligibility under a Group Contract (or other employer-sponsored insurance
program) ceases, the cost of insurance rate will continue to reflect the gender
mix of the pool of Insureds at the time the Insured's eligibility ceased.
However, at some time in the future, the Company reserves the right to base the
gender mix and rate class on the group consisting of those Insureds who are no
longer under a Group Contract or employer-sponsored program.
The current cost of insurance rates will not be greater than the guaranteed
cost of insurance rates set forth in the Policy. These guaranteed rates are 125
percent of the maximum rates that could be charged based on the 1980
Commissioners Standard Ordinary Mortality Table C ("1980 CSO Table"). The
guaranteed rates are higher than 100 percent of the maximum rates in the 1980
CSO Table because the Company uses guaranteed or simplified underwriting
procedures whereby the insured is not required to submit to a medical or
paramedical examination. The current cost of insurance rates are generally
lower than 100 percent of the 1980 CSO Table. Any change in the actual cost of
insurance rates, except those changes made to adjust for changes in the gender
mix of the pool of Insureds under a particular Group Contract or employer-
sponsored insurance program, will
30
<PAGE>
apply to all persons of the same Attained Age and rate class whose initial Face
Amounts or increases in Face Amount have been in force for the same length of
time. (For purposes of computing guideline premiums under Section 7702 of the
Internal Revenue Code of 1986, as amended, the Company will use 100 percent of
the 1980 CSO Table.)
The net amount at risk for a Policy Month is (a) the death benefit at the
beginning of the Policy Month divided by 1.0040741 (which reduces the net
amount at risk, solely for purposes of computing the cost of insurance, by
taking into account assumed monthly earnings at an annual rate of five
percent), less (b) the Cash Value at the beginning of the Policy Month.
The net amount at risk may be affected by changes in the Cash Value or changes
in the Face Amount of the Policy. If there is an increase in the Face Amount
and the rate class applicable to the increase is different from that for the
initial Face Amount, the net amount at risk will be calculated separately for
each rate class. If Option A is in effect, for purposes of determining the net
amounts at risk for each rate class, Cash Value will first be considered a part
of the initial Face Amount. If the Cash Value is greater than the initial Face
Amount, the excess Cash Value will then be considered a part of each increase
in order, starting with the first increase. If Option B is in effect, the net
amount at risk for each rate class will be determined by the Face Amount
associated with that rate class. In calculating the cost of insurance charge,
the cost of insurance rate for a Face Amount is applied to the net amount at
risk for the corresponding rate class.
Because the calculation of the net amount at risk is different under Option A
and Option B when more than one rate class is in effect, a change in the death
benefit option may result in a different net amount at risk for each rate class
than would have occurred had the death benefit option not been changed. Since
the cost of insurance is calculated separately for each rate class, any change
in the net amount at risk resulting from a change in the death benefit option
may affect the total cost of insurance paid by the Owner.
Partial withdrawals and decreases in Face Amount will affect the manner in
which the net amount at risk for each rate class is calculated. (See "Policy
Benefits--Death Benefit," and "Policy Rights and Privileges--Surrender and
Partial Withdrawals.")
Additional Insurance Benefits. The monthly deduction will include charges for
any additional benefits provided by rider. (See "General Matters Relating to
the Policy--Additional Insurance Benefits.")
Partial Withdrawal Transaction Charge
A transaction charge which is the lesser of $25 or two percent of the amount
withdrawn will be assessed on each partial withdrawal, to cover administrative
costs incurred in processing the partial withdrawal.
Separate Account Charges
Mortality and Expense Risk Charge. The Company will deduct a daily charge from
the Separate Account at the rate not to exceed .0024547% of the net assets of
each Division of the Separate Account, which equals an annual rate of .90% of
those net assets. This deduction is guaranteed not to increase for the duration
of the Policy. The Company may realize a profit from this charge and may use
this profit to finance distribution expenses.
The mortality risk assumed by the Company is that Insureds may die sooner than
anticipated and that therefore the Company will pay an aggregate amount of
death benefits greater than anticipated. The expense risk assumed is that
expenses incurred in issuing and administering the Policy will exceed the
amounts realized from the administrative charges assessed against the Policy.
Federal Taxes. Currently no charge is made to the Separate Account for Federal
income taxes that may be attributable to the Separate Account. The Company may,
however, make such a charge in the future. Charges for other taxes, if any,
attributable to the Account may also be made. (See "Federal Tax Matters.")
31
<PAGE>
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 "Annual Expenses of the Funds" (Summary) and "The Company and the Separate
Account--the Underlying Funds.")
GENERAL MATTERS RELATING TO THE POLICY
Postponement of Payments
Payment of any amount due from the Separate Account upon surrender, partial
withdrawals, election of an accelerated death benefit under a rider, death of
the Insured, or the Maturity Date, as well as payments of a Policy loan and
transfers, may be postponed whenever: (i) the New York Stock Exchange is closed
other than customary weekend and holiday closings, or trading on the New York
Stock Exchange is restricted as determined by the SEC; (ii) the SEC by order
permits postponement for the protection of Owners; or (iii) an emergency
exists, as determined by the SEC, as a result of which disposal of securities
is not reasonably practicable or it is not reasonably practicable to determine
the value of the Separate Account's net assets.
Payments under the Policy of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared the Owner's bank.
The Contract
The Policy, the attached application, any riders, endorsements, any application
for an increase in Face Amount, and any application for reinstatement
constitute the entire contract between the Owner and the Company. Apart from
the rights and benefits described in the Certificate or Individual Policy and
incorporated by reference into the Group Contract, the Owner has no rights
under the Group Contract. All statements made by the Insured in the application
are considered representations and not warranties, except in the case of fraud.
Only statements in the application and any supplemental applications can be
used to contest a claim or the validity of the Policy. Any change to the Policy
must be approved in writing by the President, a Vice President, or the
Secretary of the Company. No agent has the authority to alter or modify any of
the terms, conditions, or agreements of the Policy or to waive any of its
provisions.
Control of Policy
The Insured will be considered Owner of the Policy unless another person is
shown as the Owner in the application. Ownership may be changed, however, as
described below. The Owner is entitled to all rights provided by the Policy,
prior to its Maturity Date. After the Maturity Date, the Owner cannot change
the payee nor the mode of payment, unless otherwise provided in the Policy. Any
person whose rights of ownership depend upon some future event will not possess
any present rights of ownership. If there is more than one Owner at a given
time, all must exercise the rights of ownership. If the Owner should die, and
the Owner is not the Insured, the Owner's interest will go to his or her estate
unless otherwise provided.
Beneficiary
The Beneficiary(ies) is (are) the person(s) specified in the application or by
later designation. Unless otherwise stated in the Policy, the Beneficiary has
no rights in a Policy before the death of the Insured. If there is more than
one Beneficiary at the death of the Insured, each will receive equal payments
unless otherwise provided by the Owner. If no Beneficiary is living at the
death of the Insured, the proceeds will be payable to the Owner or, if the
Owner is not living, to the Owner's estate.
Change of Owner or Beneficiary
The Owner may change the ownership and/or Beneficiary designation by written
request in a form acceptable to the Company at any time during the Insured's
lifetime. The Company may require that the Policy be returned for endorsement
of any change. The change will take effect as of the date the request is
signed, whether or not the Insured is living when the request is received at
the Company's Home Office. The Company
32
<PAGE>
will not be liable for any payment made or action taken before the Company
received the written request for change. If the Owner is also a Beneficiary of
the Policy at the time of the Insured's death, the Owner may, within 60 days of
the Insured's death, designate another person to receive the Policy proceeds.
Policy Changes
The Company reserves the right to limit the number of Policy changes to one per
Policy Year and to restrict such changes in the first Policy Year. Currently,
no change may be made during the first Policy Year. For this purpose, changes
include increases or decreases in Face Amount and changes in the death benefit
option. No change will be permitted that would result in the death benefit
under a Policy being included in gross income due to not satisfying the
requirements of Section 7702 of the Internal Revenue Code or any applicable
successor provision.
Conformity with Statutes
If any provision in a Policy is in conflict with the laws of the state
governing the Policy, the provision will be deemed to be amended to conform to
such laws.
Claims of Creditors
To the extent permitted by law, neither the Policy nor any payment thereunder
will be subject to the claims of creditors or to any legal process.
Incontestability
The Policy is incontestable after it has been in force for two years from the
Issue Date during the lifetime of the Insured. An increase in Face Amount or
addition of a rider after the Issue Date is incontestable after such increase
or addition has been in force for two years from its effective date during the
lifetime of the Insured. Any reinstatement of a Policy is incontestable, except
for nonpayment of premiums, only after it has been in force during the lifetime
of the Insured for two years after the effective date of the reinstatement.
Assignment
The Company will be bound by an assignment of a Policy only if: (a) it is in
writing; (b) the original instrument or a certified copy is filed with the
Company at its Home Office; and (c) the Company sends an acknowledged copy to
the Owner. The Company is not responsible for determining the validity of any
assignment. Payment of Policy proceeds is subject to the rights of any assignee
of record. If a claim is based on an assignment, the Company may require proof
of the interest of the claimant. A valid assignment will take precedence over
any claim of a Beneficiary.
Suicide
Suicide within two years of the Issue Date is not covered by the Policy. If the
Insured dies by suicide, while sane or insane, within two years from the Issue
Date (or within the maximum period permitted by the laws of the state in which
the Policy was delivered, if less than two years), the amount payable will be
limited to premiums paid, less any partial withdrawals and outstanding
Indebtedness. If the Insured, while sane or insane, dies by suicide within two
years after the effective date of any increase in Face Amount, the death
benefit for that increase will be limited to the amount of the monthly
deductions for the increase.
If the Insured is a Missouri citizen when the Policy is issued, this provision
does not apply on the Issue Date of the Policy, or on the effective date of any
increase in Face Amount, unless the Insured intended suicide at the time of
application for the Policy or any increase in Face Amount.
33
<PAGE>
Misstatement of Age and Corrections
If the age of the Insured has been misstated in the application, the amount of
the death benefit will be that which the most recent cost of insurance charge
would have purchased for the correct age.
Any payment or Policy changes made by the Company in good faith, relying on its
records or evidence supplied with respect to such payment, will fully discharge
the Company's duty. The Company reserves the right to correct any errors in the
Policy.
Additional Insurance Benefits
Subject to certain requirements, one or more of the following additional
insurance benefits may be added to a Policy by rider. However, some Group
Contracts or employer-sponsored insurance programs may not offer each of the
additional benefits described below. Certain riders may not be available in all
states. In addition, should it be determined that the tax status of a Policy as
life insurance is adversely affected by the addition of any of these riders,
the Company will cease offering such riders. The descriptions below are
intended to be general; the terms of the Policy riders providing the additional
benefits may vary from state to state, and the Policy should be consulted. The
cost of any additional insurance benefits will be deducted as part of the
monthly deduction. (See "Charges and Deductions--Monthly Deduction.")
Waiver of Monthly Deductions Rider. Provides for the waiver of the monthly
deductions while the Insured is totally disabled, subject to certain
limitations described in the rider. The Insured must have become disabled
before age 65.
Accidental Death Benefit Rider. Provides additional insurance if the Insured's
death results from accidental bodily injury, as defined in the rider. Under the
terms of the rider, the additional benefits provided in the Policy will be paid
upon receipt of proof by the Company that death resulted directly from
accidental injury and independently of all other causes; occurred within 120
days from the date of injury; and occurred before the Policy Anniversary
nearest age 70 of the Insured.
Children's Life Insurance Rider. Provides for term insurance on the Insured's
children, as defined in the rider. To be eligible for insurance under the
rider, the child to be insured must not be confined in a hospital at the time
the application is signed. Under the terms of the rider, the death benefit will
be payable to the named Beneficiary upon the death of any insured child. Upon
receipt of proof of the Insured's death before the rider terminates, the rider
will be continued on a fully paid-up term insurance basis.
HIV Acceleration of Death Benefits Rider. Provides for the Owner's election for
the Company to make an accelerated payment, prior to the death of the Insured
upon receipt of satisfactory evidence that the Insured has tested seropositive
for the human immunodeficiency virus ("HIV") after both the Policy and rider
are issued. The Company will pay the Policy's death benefit (less any
Indebtedness and any term insurance added by riders), calculated on the date
that the Company receives satisfactory evidence that the Insured has tested
seropositive for HIV, reduced by a $100 administrative processing fee. The
Company will pay the accelerated benefit to the Owner in a single payment in
full settlement of the Company's obligations under the Policy. The rider may be
added to the Policy only after the Insured satisfactorily meets certain
underwriting requirements which will generally include a negative HIV test
result to a blood or other screening test acceptable to the Company.
The Federal income tax consequences associated with (i) adding the HIV
Acceleration of Death Benefit Rider or (ii) receiving the benefit provided
under the rider are uncertain. Accordingly, we urge you to consult a tax
adviser about such consequences before adding the HIV Acceleration of Death
Benefit Rider to your Policy or requesting a benefit under the rider.
34
<PAGE>
Accelerated Death Benefit Settlement Option Rider. Provides for the accelerated
payment of a portion of death benefit proceeds in a single sum to the Owner if
the Insured is terminally ill or permanently confined to a nursing home. Under
the rider, which is available at no additional cost, the Owner may make a
voluntary election to completely settle the Policy in return for the Company's
accelerated payment of a reduced death benefit. The Owner may make such an
election under the rider if evidence, including a certification from a licensed
physician, is provided to the Company that the Insured (1) has a life
expectancy of 12 months or less or (2) is permanently confined to a qualified
nursing home and is expected to remain there until death. Any irrevocable
beneficiary and assignees of record must provide written authorization in order
for the Owner to receive the accelerated benefit. The Accelerated Death Benefit
Settlement Option Rider is not available with Corporate Programs.
The amount of the death benefit payable under the rider will equal the cash
surrender value under the Policy on the date the Company receives satisfactory
evidence of either (1) or (2), above, (less any Indebtedness and any term
insurance added by other riders) plus the product of the applicable "benefit
factor" multiplied by the difference of (a) minus (b), where (a) equals the
Policy's death benefit proceeds, and (b) equals the Policy's cash surrender
value. The "benefit factor", in the case of terminal illness, is 0.85 and, in
the case of permanent nursing home confinement, is 0.70.
Pursuant to the recently enacted Health Insurance Portability and
Accountability Act of 1996, the Company believes that for federal income tax
purposes an accelerated death benefit payment made under the Accelerated Death
Benefit Settlement Option Rider should be fully excludable from the gross
income of the Beneficiary, as long as the Beneficiary is the Insured under the
Policy. However, you should consult a qualified tax adviser about the
consequences of adding this Rider to a Policy or requesting an accelerated
death benefit payment under this Rider.
Records and Reports
The Company will maintain all records relating to the Separate Account and will
mail to the Owner once each Policy Year, at the last known address of record, a
report which shows the current Policy values, premiums paid, deductions made
since the last report, and any outstanding Policy Loans. The Owner will also be
sent without comment periodic reports for the 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 the
Company for a nominal fee.
DISTRIBUTION OF THE POLICIES
Walnut Street Securities, Inc. ("Walnut Street") acts as principal underwriter
of the Policies pursuant to an Underwriting Agreement with the Company. Walnut
Street is a wholly-owned subsidiary of General American Holding Company, which
is an affiliate of the Company. Walnut Street is registered with the SEC under
the Securities Exchange Act of 1934 as a broker-dealer and is a member of the
National Association of Securities Dealers. Walnut Street's Internal Revenue
Service employer identification No. is 43-1333368. It is a Missouri corporation
formed May 4, 1984. The Policies will be sold by broker-dealers who have
entered into written sales agreements with Walnut Street.
Broker-dealers will receive commissions based upon a commission schedule in the
sales agreement with the Company 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
35
<PAGE>
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.
Walnut Street received $ in commissions for the year ended December
31, 1998; $117,139 in commissions for the year ended December 31, 1997; and
zero commissions during the year ended December 31, 1996.
GENERAL PROVISIONS OF THE GROUP CONTRACT
Issuance
The Group Contract will be issued upon receipt of a signed application for
Group Insurance signed by a duly authorized officer of the employer and
acceptance by a duly authorized officer of the Company at its Home Office.
Premium Payments
The Contractholder will remit planned premium payments for Insureds of the
Contractholder or an Associated Company in an amount authorized by the employee
to be deducted from his wages. All planned premiums under a Group Contract must
be remitted in advance to the Company. The planned premium payment interval is
agreed to by the Contractholder and the Company. Prior to each planned payment
interval, the Company will furnish the Contractholder with a statement of the
planned premium payments to be made under the Group Contract or such other
notification as has been agreed to by the Contractholder and the Company.
Grace Period
If the Contractholder does not remit planned premium payments in a timely
fashion, the Group Contract will be in default. A grace period of 31 days
begins on the date that the planned premiums were scheduled to be remitted. If
the Contractholder does not remit premiums prior to the end of the grace
period, the Group Contract will terminate. However, the Individual Insurance
will continue following the Group Contract's termination, provided such
insurance is not surrendered or cancelled by the Owner. (See "Policy Rights and
Privileges--Eligibility Change Conversion.")
Termination
Except as described in "Grace Period" above, the Group Contract will be
terminated immediately upon default. In addition, the Company may end a Group
Contract or any of its provisions on 31 days notice. If the Group Contract
terminates, any Policies in effect will remain in force on an individual basis,
unless such insurance is surrendered or cancelled by the Owner. New Policies
will be issued as described in "Policy Rights and Privileges--Eligibility
Change Conversion."
Right to Examine Group Contract
The Contractholder may terminate the Group Contract within 20 days after
receiving it, within 45 days after the application was signed or within 10 days
of mailing a notice of the cancellation right, whichever is latest. To cancel
the Group Contract, the Contractholder should mail or deliver the Group
Contract to the Company.
36
<PAGE>
Entire Contract
The Group Contract, with the attached copy of the Contractholder's application
and other attached papers, if any, is the entire contract between the
Contractholder and the Company. All statements made by the Contractholder, any
Owner or any Insured will be deemed representations and not warranties.
Misstatements will not be used in any contest or to reduce claim under the
Group Contract, unless it is in writing. A copy of the application containing
such misstatement must have been given to the Contractholder or to the Insured
or to his Beneficiary, if any.
Incontestability
The Company cannot contest the Group Contract after it has been in force for
two years from the date of issue.
Ownership of Group Contract
The Contractholder owns the Group Contract. The Group Contract may be changed
or ended by agreement between the Company and the Contractholder without the
consent of, or notice to, any person claiming rights or benefits under the
Group Contract. However, the Contractholder does not have any ownership
interest in the Policies issued under the Group Contract. The rights and
benefits under the Policies inure to the benefit of the Owners, Insureds, and
Beneficiaries as set forth herein and in the Policies.
FEDERAL TAX MATTERS
Introduction
The following summary provides a general description of the Federal income tax
considerations associated with the Policy and does not purport to be complete
or to cover all situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisers should be consulted for more complete
information. This discussion is based upon the Company's understanding of the
present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of
continuation of the present Federal income tax laws or of the current
interpretations by the Internal Revenue Service.
Taxation of the Policy
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code") sets
forth a definition of a life insurance contract for Federal tax purposes.
Although the Secretary of the Treasury (the "Treasury") is authorized to
prescribe regulations implementing Section 7702, while proposed regulations and
other interim guidance has been issued, final regulations have not been
adopted. In short, guidance as to how Section 7702 is to be applied is limited.
The Company nonetheless believes (largely in reliance on IRS Notice 88-128 and
the proposed regulations under Section 7702, issued on July 5, 1991) that the
Policy should meet the Section 7702 definition of a life insurance contract. If
a Policy were determined not to be a life insurance contract for purposes of
Section 7702, such Policy would not provide the tax advantages normally
provided by a life insurance policy. Therefore, if it is subsequently
determined that a Policy does not satisfy section 7702, the Company will take
whatever steps are appropriate and necessary to attempt to cause such Policy to
comply with section 7702, including possibly refunding any premiums paid that
exceed the limitations allowable under section 7702 (together with interest or
other earnings on any such premiums refunded as required by law). For these
reasons, the Company reserves the right to modify the Policy as necessary to
attempt to qualify it as a life insurance contract under section 7702.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of each Division of the Separate
Account to be "adequately diversified" in order for the Policy to be treated as
a life insurance contract for Federal tax purposes. Although the Company does
not control the
37
<PAGE>
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 to be determined to be the case, income and gains from the separate
account assets would be includible in the variable contract owner's gross
income. The Treasury Department has also announced, in connection with the
issuance of regulations concerning diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor (i.e., the
Owner), rather than the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policy owners were not owners of separate account assets. For example, the
Owner has additional flexibility in allocating Premium payments and Policy
Values. These differences could result in an Owner being treated as the owner
of a pro rata portion of the assets of the Separate Account. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary to attempt to prevent an Owner from being considered the owner of a
pro rata share of the assets of the Separate Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Policy Benefits
1. In general. As a life insurance contract, the proceeds and cash value
increases of a Policy should be treated in a manner consistent with a fixed-
benefit life insurance policy for Federal income tax purposes. Thus, the death
benefit under the Policy should be excludable from the gross income of the
Beneficiary under section 101(a)(1) of the Code.
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 adviser should be consulted for further
information.
Pursuant to the recently enacted Health Insurance Portability and
Accountability Act of 1996, the Company believes that for federal income tax
purposes an accelerated death benefit payment made under the Accelerated Death
Benefit Settlement Option Rider should be fully excludable from the gross
income of the Beneficiary, as long as the Beneficiary is the Insured under the
Policy. However, you should consult a qualified tax adviser about the
consequences of adding this Rider to a Policy or requesting an accelerated
death benefit payment under this Rider.
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
38
<PAGE>
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 Policyowner
against inadvertently having the Policy become a modified endowment contract.
Although the Company cannot provide complete assurance at this time that a
Policy will not inadvertently become a modified endowment contract, it is
continuing its efforts to enhance its administrative systems to monitor
potential modified endowment classifications automatically.
3.Distributions from Policies Classified as Modified Endowment 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 percent additional income tax is imposed on the portion of any
distribution from, or loan taken from or secured by, such a Policy that is
included in income except where the distributions or loan is made on or after
the Policy owner attains age 59 1/2, is attributable to the Policy owner's
becoming disabled, or is part of a series of substantially equal periodic
payments for the life (or life expectancy) of the Policy owner or the joint
lives (or joint life expectancies) of the Policy owner and the Policy owner's
Beneficiary.
If a Policy becomes a modified endowment contract after it is issued,
distributions made during the policy year in which it becomes a modified
endowment contract, distributions in any subsequent policy year and
distributions within two years before the Policy becomes a modified endowment
contract will be subject to the
39
<PAGE>
tax treatment described above. This means that a distribution from a Policy
that is not a modified endowment contract could later become taxable as a
distribution from a modified endowment contract.
4. Distributions From Policies Not Classified as Modified Endowment Contracts.
Distributions from a Policy that is not a modified endowment contract, and
which is not materially changed, or, if materially changed, is not classified
as a modified endowment contract after such material change, are generally
treated as first recovering the investment in the Policy (described below) and
then, only after the return of all such investment in the Policy, as
distributing taxable income. An exception to this general rule occurs in the
case of a decrease in the Policy's death benefit (e.g., partial withdrawal or a
change from Option B to Option A) or any other change that reduces benefits
under the Policy in the first 15-years after the Policy is issued and that
results in a cash distribution to the Policy owner in order for the Policy to
continue complying with the section 7702 definitional limits. Such a cash
distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in section 7702.
Loans from, or secured by, a Policy that is not a modified endowment contract
are not treated as distributions. Instead, such loans are treated as
indebtedness of the Owner.
Finally, neither distributions (including distributions upon surrender or
lapse) nor loans from, or secured by, a Policy that is not a modified endowment
contract are subject to the 10 percent additional income tax.
5. Policy loan interest. If there is any borrowing against a Policy, the
interest paid on the loan generally will not be tax deductible. A Policyowner
should consult a qualified tax adviser before deducting interest on a policy
loan.
6. Investment in the Policy. Investment in the Policy means (i) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (ii) the
aggregate amount received under the Policy which is excluded from gross income
of the Policy owner (except that the amount of any loan from, or secured by, a
Policy that is a modified endowment contract, to the extent such amount is
excluded from gross income, will be disregarded), plus (iii) the amount of any
loan from, or secured by, a Policy that is a modified endowment contract to the
extent that such amount is included in the gross income of the Owner.
7. Multiple Policies. All modified endowment contracts that are issued by the
Company (or its affiliates) to the same Policy owner during any calendar year
are treated as one modified endowment contract for purposes of determining the
amount includible in gross income.
Possible Charge for Taxes
At the present time, the Company makes no charge to the Separate Account for
any Federal, state or local taxes the Company incurs that may be attributable
to the Separate Account or to the Policies. The Company, however, reserves the
right in the future to make a charge for any such tax or other economic burden
resulting from the application of the tax laws that it determines to be
properly attributable to the Separate Account or to the Policies.
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 the Company's general
assets. The Company maintains records of all purchases and redemptions of Fund
shares by each of the Divisions. Additional protection for the assets of the
Separate Account is afforded by a blended executive risk insurance program,
including blanket fidelity coverage issued
40
<PAGE>
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. The Company will vote Fund shares
held in the Separate Account for which no timely voting instructions are
received and Fund shares that it owns as a consequence of accrued charges under
the Policies, in proportion to the voting instructions which are received with
respect to all Policies participating in a Fund. Each person having a voting
interest in a Division will receive proxy material, reports, and other
materials relating to the appropriate Fund.
Disregard of Voting Instructions. The Company may, when required by state
insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
subclassification or investment objective of or one or more of the Funds or to
approve or disapprove an investment advisory contract for a Fund. In addition,
the Company itself may disregard voting instructions in favor of changes
initiated by an Owner in the investment policy or by the investment adviser or
sub-adviser of a Fund if the Company reasonably disapproves of such changes. A
proposed change would be disapproved only if the proposed change is contrary to
state law or prohibited by state regulatory authorities, or the Company
determined that the change would have an adverse effect on its general assets
in that the proposed investment policy for a Fund may result in overly
speculative or unsound investments. In the event the Company does disregard
voting instructions, a summary of that action and the reasons for such action
will be included in the next annual report to Owners.
STATE REGULATION OF THE COMPANY
The Company, a stock life insurance company organized under the laws of
Missouri, is subject to regulation by the Missouri Division of Insurance. An
annual statement is filed with the Director of Insurance on or before March 1
each year covering the operations and reporting on the financial condition of
the Company as of December 31 of the preceding year. Periodically, the Director
of Insurance examines the liabilities and reserves of the Company and the
Separate Account and certifies their adequacy, and a full examination of the
Company's operations is conducted by the National Association of Insurance
Commissioners at least once every three years.
41
<PAGE>
In addition, the Company is subject to the insurance laws and regulations of
other states within which it is licensed or may become licensed to operate.
Generally, the insurance departments of other states apply the laws of the
state of domicile in determining permissible investments.
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.
Preparing for Year 2000
Like all financial services providers, the Company utilizes systems that may be
affected by Year 2000 transition issues and it relies on service providers,
including the Funds, that also may be affected. The Company has developed, and
is in the process of implementing, a Year 2000 transition plan, and is
confirming that its service providers are also so engaged. The resources that
are being devoted to this effort is substantial. It is difficult to predict
with precision whether the amount of resources ultimately devoted, or the
outcome of these efforts, will have any negative impact on the Company.
However, as of the date of this prospectus, it is not anticipated that Policy
owners will experience negative effects on their investment, or on the services
provided in connection therewith, as a result of Year 2000 transition
implementation. The Company currently anticipates that its systems will be Year
2000 compliant on or about March 31, 1999, but there can be no assurance that
the Company will be successful, or that interaction with other service
providers will not impair the Company's services at that time.
42
<PAGE>
MANAGEMENT OF THE COMPANY
<TABLE>
<CAPTION>
Name Principal Occupation(s) During Past Five Years*
---- ----------------------------------------------------
<C> <S>
Executive Officers**
Carl H. Anderson@ President and Chief Executive Officer since June,
1986. Vice President, New Ventures, since June 1986,
General American Life Insurance Co., St. Louis, Mo.
(GenAm).
Matthew K. Duffy Vice President and Chief Financial Officer since
July, 1996. Formerly Director of Accounting,
Prudential Insurance Company of America, March,
1987--June, 1996.
E. Thomas Hughes, Jr.@ Treasurer since December, 1994. Corporate Actuary
General American Life and Treasurer, GenAm since October, 1994. Executive
Insurance Company Vice President--Group Pensions, GenAm January,
700 Market Street 1990--October, 1994.
St. Louis, MO 63101
Matthew P. McCauley@ Vice President and General Counsel since 1984.
General American Life Secretary since August, 1981. Vice President and
Insurance Company Associate General Counsel , GenAm, since December
700 Market Street 30, 1995.
St. Louis, MO 63101
Craig K. Nordyke@ Executive Vice President and Chief Actuary since
November, 1996. Vice President and Chief Actuary
August, 1990--November, 1996; Second Vice President
and Chief Actuary, May, 1987--August, 1990.
Directors***
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.
A. Greig Woodring President, Reinsurance Group of America, Inc., since
May, 1993, and Executive Vice President--
Reinsurance, GenAm, since January, 1990.
</TABLE>
- --------
* All positions listed are with the Company unless otherwise indicated.
** The principal business address of each person listed is Paragon Life
Insurance Company, 100 South Brentwood, St. Louis, Missouri 63105 unless
otherwise noted.
*** The principal business address of each person listed is General American
Life Insurance Company, 700 Market Street, St. Louis, MO 63101, except A.
Greig Woodring--Reinsurance Group of America, 660 Mason Ridge Center Drive,
St. Louis, MO 63141.
@ Indicates Executive Officers who are also Directors.
43
<PAGE>
LEGAL MATTERS
Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain legal matters relating to aspects of Federal securities laws. All
matters of Missouri law pertaining to the Policies, including the validity of
the Policies and the Company's right to issue the Policies and the Group
Contract under Missouri insurance law, and all legal matters relating to the
Parent Company's resolution concerning policies issued by Paragon have been
passed upon by Matthew P. McCauley, Esquire, General Counsel of Paragon Life
Insurance Company.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. The Company is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Account.
EXPERTS
The financial statements of the Company and the Separate Account included in
this Prospectus and in the registration statement have been included in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
Actuarial matters included in this Prospectus have been examined by Craig K.
Nordyke, FSA, MAAA, Executive Vice President and Chief Actuary of the Company,
as stated in the opinion filed as an exhibit to the registration statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This Prospectus does not contain all the information
set forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Separate Account, the Company and the Policy offered
hereby. Statements contained in this Prospectus as to the contents of the
Policy and other legal instruments are summaries. For a complete statement of
the terms thereof reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of the Company which are included in this Prospectus
should be distinguished from the financial statements for the Separate Account
included in this Prospectus, and should be considered only as bearing on the
ability of the Company to meet its obligations under the Policy. They should
not be considered as bearing on the investment performance of the assets held
in the Separate Account.
44
<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.
45
<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.
46
<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 . %. 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. %, 4. %, and 10. %,
respectively. An expense reimbursement arrangement exists between the Company
and Scudder VLI as part of the participation agreement with the Company.
However, fund assets are of a sufficient size that no reimbursement is
currently necessary. No other expense reimbursement arrangement exists between
the Company and the other investment Funds. FMR reimbursed expenses in 1997 for
the Index 500 Portfolio. MFS reimbursed expenses in 1997 for the Emerging
Growth Series.
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>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities and
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore, or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article III, Section 13 of the Company's Bylaws provide: "The Corporation
may indemnify any person who is made a party to any civil or criminal suit, or
made a subject of any administrative or investigative proceeding by reason of
the fact that he is or was a director, officer, or agent of the Corporation.
This indemnity may extend to expenses, including attorney's fees, judgments,
fine, and amounts paid in settlement. The indemnity shall not be available to
persons being sued by or upon the information of the Corporation not to person
who are being investigated by the Corporation. The indemnity shall be
discretionary with the Board of Directors and shall not be granted until the
Board of Directors has made a determination that the person who would be
indemnified acted in good faith and in a manner he reasonably believed to be in
the best interest of the Corporation. The Corporation shall have such other and
further powers of indemnification as are not inconsistent with the laws of
Missouri."
Insofar as indemnification for liability arising under the Securities Act
of l933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Charter and Articles of Incorporation of the Company,
the By-Laws of the Company, agreement, statute, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
<PAGE>
REPRESENTATION CONCERNING FEES AND CHARGES
Paragon Life Insurance Company hereby represents that the fees and charges
deducted under the terms of the Contract are, in the aggregate, reasonable in
relationship to the services rendered, the expenses expected, and the risks
assumed by Paragon.
II-2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The facing sheet.
The Scudder Commissioned Prospectus*, Dean Witter Prospectus*,
Putnam Prospectus*, MFS Prospectus*, Multiple Manager
Commissioned.
The undertaking to file reports required by Section 15 (d),
1934 Act.
The undertaking pursuant to Rule 484.
Representation concerning fees and charges.
The signatures.
1. The following exhibits (which correspond in number to the numbers under
paragraph A of the instructions as to exhibits for Form N-8B-2):
(1) Resolution of the Board of Directors of the Company authorizing
establishment of the Separate Account. /1/
(2) Not applicable.
(3) (a) Form of Underwriting Agreement. /1/
(b) Form of Selling Agreement. /1/
(c) Commission Schedule for Scudder Commissioned Policy and Dean
Witter Policy. /3/
(d) Commission Schedule for Putnam Policy and MFS Policy. /1/
(4) Not applicable.
(5) (a) Form of Group Contract. /1/
(b) Proposed Form of Individual Policy and Policy Riders. /3/
(c) Proposed Form of Certificate and Certificate Riders. /3/
(6) (a) Amended Charter and Articles of Incorporation of
the Company. /1/
(b) By-Laws of the Company. /2/
(7) Not applicable.
II-3
<PAGE>
(8) (a) Form of Series Participation Agreement with Scudder
Variable Life Investment Fund and Dean Witter
Variable Investment Series /3/
(b) Form of Participation Agreement with Putnam
Capital Manager Trust /4/
(c) Form of Participation Agreement with MFS Variable
Insurance Trust /5/
(d) Form of Participation Agreement with Fidelity Variable Insurance
Products Fund /2/
(e) Form of Participation Agreement with Fidelity Variable Insurance
Products Fund II /2/
(f) Form of Participation Agreement with T. Rowe Price Investment
Services, Inc. /6/
(9) Not applicable.
(10) (a) Form of Application for Group Contract. /1/
(b) Form of Application for Employee Insurance
(Guaranteed Issue) (Group Contract). /1/
(c) Form of Application for Employee Insurance
(Simplified Issue) (Group Contract). /1/
(d) Form of Application for Spouse Insurance
(Group Contract). /1/
(e) Form of Application for Employee Insurance
Guaranteed Issue (Individual Policy). /1/
(f) Form of Application for Employee Insurance
(Simplified Issue) (Individual Policy). /1/
(g) Form of Application for Spouse Insurance
(Individual Policy). /1/
(h) Form of Application for an Executive
Program. /1/
(i) Form of Application Supplement for Scudder
Commissioned Policy and Dean Witter Policy.
/3/
(j) Form of Application Supplement for Putnam
Policy. /4/
(k) Form of Application Supplement for MFS Policy. /5/
2. Memorandum describing the Company's issuance, transfer, and redemption
procedures for the Policies and the Company's procedure for conversion to a
fixed benefit policy. /1/
II-4
<PAGE>
3. The following exhibits are numbered to correspond to the numbers in the
instructions as to exhibits for Form S-6.
(1) See above.
(2) See Exhibit 1(5).
(3) Opinion of Matthew P. McCauley, Esquire, General
Counsel of Paragon Life Insurance Company.* /1/
(4) Financial statements.*
(5) Not applicable.
4. The opinion and consent of Craig K. Nordyke, F.S.A., M.A.A.A., Executive
Vice President and Chief Actuary.*
5. The consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants.*
6. Written consent of Sutherland, Asbill & Brennan LLP.*
7. Original powers of attorney authorizing Matthew P. McCauley, Carl H.
Anderson, and Craig K. Nordyke, and each of them singly, to sign this
Registration Statement and Amendments thereto on behalf of the Board of
Directors of Paragon Life Insurance Company. /1/ /8/
/1/ Incorporated by reference to the initial Registration Statement in
File No. 33-58796.
/2/ Incorporated by reference to the Registration Statement in File No.
33-67970.
/3/ Incorporated by reference to Post-Effective Amendment No. 2 to the
Registration Statement in File No. 33-58796.
/4/ Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement in File No. 33-58796.
/5/ Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement in File No. 33-58796.
/6/ Incorporated by reference to the Pre-Effective Amendment No. 1 to the
Registration Statement in File No. 33-36515.
/7/ Incorporated by reference to the Post-Effective Amendment No. 6 to the
Registration Statement in File No. 33-58796.
/8/ Incorporated by reference to Post-Effective Amendment No. 8 to the
Registration Statement in File No. 33-18341.
/9/ Filed herewith.
* To be filed by amendment.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Paragon Life
Insurance Company and Separate Account B of Paragon Life Insurance Company
certify that they meet all the requirements for effectiveness of this amended
Registration Statement pursuant to Rule 485(a) under the Securities Act of 1933
and have duly caused this amended Registration Statement to be signed on their
behalf by the undersigned thereunto duly authorized, and the seal of Paragon
Life Insurance Company to be hereunto affixed and attested, all in the City of
St. Louis, State of Missouri, on the 9th day of February, 1999.
(Seal) Paragon Life Insurance Company
Attest: /s/ Matthew P. McCauley By: /s/ Carl H. Anderson
----------------------- -----------------------
Matthew P. McCauley, Carl H. Anderson, President
Secretary and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities on the dates indicated.
Signature Title Date
/s/ Carl H. Anderson 2/9/99
- -----------------------
Carl H. Anderson
President and Director
(Chief Executive Officer)
/s/ Matthew K. Duffy 2/9/99
- -----------------------
Matthew K. Duffy Vice President and Chief
Financial Officer (Principal
Accounting Officer and
Principal Financial Officer)
- -----------------------
Warren J. Winer* Director
- -----------------------
Richard A. Liddy* Director
/s/ Matthew P. McCauley 2/9/99
- -----------------------
Matthew P. McCauley Vice President
General Counsel
Secretary, and Director
II-6
<PAGE>
Signature Title Date
/s/ Craig K. Nordyke
---------------------- 2/9/99
Craig K. Nordyke Director
- -------------------------
Leonard M. Rubenstein* Director
- -------------------------
E. Thomas Hughes, Jr.* Director and Treasurer
- -------------------------
Bernard H. Wolzenski* Director
- -------------------------
A. Greig Woodring* Director
By: /s/ Craig K. Nordyke
---------------------- 2/9/99
Craig K. Nordyke
*Original powers of attorney authorizing Matthew P. McCauley,
Carl H. Anderson, and Craig K. Nordyke, and each of them singly,
to sign this Registration Statement and Amendments thereto on
behalf of the Board of Directors of Paragon Life Insurance
Company have been filed with the Securities and Exchange
Commission.
33-58796
II-7
