SEPARATE ACCOUNT B OF PARAGON LIFE INSURANCE CO
485BPOS, 2000-04-28
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<PAGE>


     As filed with the Securities and Exchange Commission on 28 April 2000

                                                       Registration No. 33-75778
                                                                       811-7534
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                         POST-EFFECTIVE AMENDMENT NO.7
                                       TO
                                    FORM S-6

                   FOR REGISTRATION UNDER THE SECURITIES ACT
                    OF 1933 OF SECURITIES OF UNIT INVESTMENT
                        TRUSTS REGISTERED ON FORM N-8B-2

              SEPARATE ACCOUNT B OF PARAGON LIFE INSURANCE COMPANY
                           (Exact Name of Registrant)

                         PARAGON LIFE INSURANCE COMPANY
                         100 South Brentwood Boulevard
                              St. Louis, MO  63105
                    (Address of Principal Executive Office)


                          Matthew P. McCauley, Esquire
                         Paragon Life Insurance Company
                               700 Market Street
                              St. Louis, MO  63101
               (Name and Address of Agent for Service of Process)

                                    Copy to:

                            Stephen E. Roth, Esquire
                        Sutherland Asbill & Brennan LLP
                          1275 Pennsylvania Ave., N.W.
                          Washington, D.C.  20004-2404

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

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

  [X]  1 May 2000 pursuant to paragraph (b) of Rule 485

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

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

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

  [ ]  on (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. 7 to the registration statement on Form S-6 (the
"Registration Statement") is being filed pursuant to paragraph (b) of Rule 485
under the Securities Act of 1933 (the "Act") to update the Registration
Statement, which describes two variable life insurance policies (the "Policies")
issued by the depositor and the registrant described in the two prospectuses
included in the Registration Statement.  The Policies are substantially
identical, except that different subaccounts investing in different underlying
funds are available as allocation options under each of the two Policies.
<PAGE>

                                             Scudder
                [LOGO OF SCUDDER VARIABLE LIFE INVESTMENT FUND]
                                             Variable Life
                                             Investment Fund

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

              Prospectus dated May 1, 2000
                                                                           50412
                                                                             Dir
<PAGE>

                     GROUP AND INDIVIDUAL FLEXIBLE PREMIUM
                       VARIABLE LIFE INSURANCE POLICIES
                                   ISSUED BY
                        PARAGON LIFE INSURANCE COMPANY
                              100 South Brentwood
                              St. Louis, MO 63105
                                (314) 862-2211

This Prospectus describes flexible premium variable life insurance policies
offered by Paragon Life Insurance Company (the "Company," "we," or "us") which
are designed for use in employer-sponsored insurance programs. When a Group
Contract is issued, Certificates showing the rights of the Owners and/or
Insureds will be issued under the Group Contract. Individual Policies will be
issued when a Group Contract is not issued. The terms of the Certificate and
the Individual Policy are very similar and are collectively referred to in
this Prospectus as "Policy" or "Policies."

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

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

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

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

                 FUND                                   FUND
- -------------------------------------------------------------------------------
 Money Market Portfolio                  Global Discovery Portfolio
 Bond Portfolio                          International Portfolio
 Capital Growth Portfolio                21st Century Growth Portfolio
 Balanced Portfolio                      Large Company Growth Portfolio
 Growth and Income Portfolio
- -------------------------------------------------------------------------------

                  The date of this Prospectus is May 1, 2000.

                                       1
<PAGE>

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

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

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

                                       2
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Summary..................................................................   4
The Company, The Separate Account, and The Funds.........................   9
  The Company
  The Separate Account
  The Funds
  Addition, Deletion, or Substitution of Investments
Payment and Allocation of Premiums.......................................  13
  Issuance of a Policy
  Premiums
  Allocation of Net Premiums and Cash Value
  Policy Lapse and Reinstatement
Policy Benefits..........................................................  17
  Death Benefit
  Cash Value
Policy Rights and Privileges.............................................  23
  Exercising Rights and Privileges Under the Policies
  Loans
  Surrender and Partial Withdrawals
  Transfers
  Right to Examine Policy
  Conversion Right to a Fixed Benefit Policy
  Eligibility Change Conversion
  Payment of Benefits at Maturity
  Payment of Policy Benefits
Charges and Deductions...................................................  27
  Sales Charges
  Premium Tax Charge
  Monthly Deduction
  Partial Withdrawal Transaction Charge
  Separate Account Charges
General Matters Relating to the Policy...................................  30
Distribution of the Policies.............................................  34
General Provisions of the Group Contract.................................  34
Federal Tax Matters......................................................  35
Safekeeping of the Separate Account's Assets.............................  38
Voting Rights............................................................  38
State Regulation of the Company..........................................  39
Management of the Company................................................  40
Legal Matters............................................................  41
Legal Proceedings........................................................  41
Experts..................................................................  41
Additional Information...................................................  41
Definitions..............................................................  42
Financial Statements..................................................... F-1
Appendix A............................................................... A-1
</TABLE>

                 The Policies are not available in all states.

                                       3
<PAGE>

                             SUMMARY OF THE POLICY

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

 The Policy

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

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

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

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

The Insured under a Policy is usually an employee of the Contractholder or
sponsoring employer or the employee's spouse. An Executive Program Policy is
issued with a maximum Face Amount in excess of $500,000 under a Group Contract
or an employer-sponsored insurance program. Generally, only an employee
is eligible to be an Insured under an Executive Program Policy. If there is
sufficient Cash Surrender Value, Individual Insurance under a Group Contract
or other employer-sponsored insurance program will continue should the Group
Contract or other program cease or the employee's employment end (see "Payment
and Allocation of Premiums--Issuance of a Policy").

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

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

 Right to Examine Policy

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

 The Separate Account

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

                                       4
<PAGE>

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

 Premiums

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

  . Under Group Contracts and employer-sponsored programs, the initial
    premium and subsequent planned premiums generally are remitted by the
    Contractholder or sponsoring employer on behalf of the Owner at intervals
    agreed to by the Contractholder or employer.

  . In Corporate Programs, the Owner will pay premiums generally on a
    schedule agreed to by the Company.

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

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

 Death Benefit

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

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

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

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

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

 Riders

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

                                       5
<PAGE>

insurance programs may not provide each of the additional benefits described
above. Generally, Executive Program Policies only have the acceleration of
death benefits rider. Generally, Corporate Programs have none of the
additional benefits described above. (See "General Matters Relating to the
Policy--Additional Insurance Benefits.") We will deduct the cost of these
additional insurance benefits from Cash Value as part of the monthly
deduction. (See "Charges and Deductions--Monthly Deduction.")

 Cash Value

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

 Charges and Deductions

Premium Expense Charges. Generally, there are no sales charges under a Policy.
We deduct an additional charge on Policies that are deemed to be individual
Policies under the Omnibus Budget Reconciliation Act of 1990 ("OBRA"). The
additional charge, which is for federal income taxes measured by premiums, is
equal to 1% of each premium payment, and compensates the Company for a
significantly higher corporate income tax liability resulting from changes
made to the Internal Revenue Code by OBRA.

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

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

  . Administrative Charge. We deduct an administrative charge (see the
    specification pages of the Policy) based on 1) the number of Insureds
    covered under a Group Contract or other employer-sponsored insurance
    program, and 2) the amount of administrative services provided by the
    Company. The charge will not exceed $6.00 per month during the first
    Policy Year and $3.50 per month during renewal years.

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

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

 Separate Account Charges.

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

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

  . Annual Expenses of the Funds (after fee waiver and reimbursement as
    applicable). The value of the assets of the Divisions will reflect the
    management fee and other expenses incurred by the Funds. The following
    table describes the Fund fees and expenses during the time that the Owner
    owns the Policy. These fees and expenses are shown as a percentage of net
    assets for the year ended December 31, 1999.

                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                         Management Fees
                                           (after fee       Other Expenses     Total
                                             waiver      (after reimbursement  Annual
                    Fund                 as applicable)     as applicable)    Expenses
      <S>                                <C>             <C>                  <C>
      Money Market Portfolio                  0.37%             0.06%          0.43%
      Bond Portfolio                          0.48%             0.09%          0.57%
      Capital Growth Portfolio                0.46%             0.03%          0.49%
      Balanced Portfolio                      0.48%             0.08%          0.56%
      Growth and Income Portfolio             0.48%             0.08%          0.56%
      International Portfolio                 0.85%             0.18%          1.03%
      Global discovery Portfolio(/1/)         0.98%             0.65%          1.63%
      Large Company Growth Portfolio(2)       0.00%             1.25%          1.25%
      21st Century Growth Portfolio(3)        0.00%             1.50%          1.50%
</TABLE>

     (/1/)Please note that beginning May 1, 2000, with the new Scudder
  Variable Life Investment Fund prospectus, Scudder Kemper Investments had
  agreed to maintain the expenses for the Global Discovery Portfolio at 1.25%
  of the portfolio's average daily net assets. These expense limits will
  remain in effect until at least April 30, 2001.

     (/2/)The Adviser continues to maintain the expenses for the Large
  Company Growth Portfolio at 1.25% of the portfolio's average daily net
  assets through April 30, 2001. Without these reimbursements, the Management
  Fee would have been .745% and Other Expenses would have been 2.72% for
  total expenses of 3.47%.

     (/3/)The Adviser also continues to maintain the management expenses for
  the 21st Century Growth Portfolio at 1.50% of the portfolio's average daily
  net assets through April 30, 2001. Without these reimbursements, the
  Management Fee would have been .875% and Other Expenses would have been
  2.02% for total expenses of 2.90%.

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

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

 Policy Loans

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

 Surrender and Partial Withdrawals

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

                                       7
<PAGE>

 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 Rights and Privileges--Eligibility Change Conversion.")

 Illustrations

Illustrations in Appendix A show how death benefits and Cash 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
Value payable will be low compared to premiums accumulated with interest, and
consequently the insurance protection provided prior to surrender will be
costly.

 Policy Tax Compliance

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

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

 Specialized Uses of the Policy

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

 Questions

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

                                       8
<PAGE>

                     THE COMPANY AND THE SEPARATE ACCOUNT

The Company

Paragon Life Insurance Company is a stock life insurance company incorporated
under the laws of Missouri. We were organized in 1981 as General American
Insurance Company and on December 31, 1987, our name was changed. No change in
operations or ownership took place in connection with the name change. Our
main business is writing individual and group life insurance policies and
annuity contracts. As of December 31, 1999, we had assets of $400 million. We
are admitted to do business in 49 states and the District of Columbia. Our
principal offices of the Company are at 100 South Brentwood, St. Louis,
Missouri 63105 ("Home Office"). Our Internal Revenue Service Employer
Identification Number is 43-1235869.

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

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

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

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

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

                                       9
<PAGE>

The Separate Account

We established Separate Account B (the "Separate Account") as a separate
investment account on January 4, 1993 under Missouri law. The Separate Account
receives and invests the net premiums paid under the Policies. In addition,
the Separate Account receives and invests net premiums for other flexible
premium variable life insurance policies issued by us.

The Separate Account is divided into Divisions. Each Division will invest in
Funds as shown on the cover page of this Prospectus. Income and both realized
and unrealized gains or losses from the assets of each Division of the
Separate Account are credited to or charged against that Division without
regard to income, gains, or losses from any other Division of the Separate
Account or arising out of any other business we may conduct.

Although the assets of the Separate Account are the property of the Company,
the assets in the Separate Account equal to the reserves and other liabilities
of the Separate Account are not chargeable with liabilities arising out of any
other business which we may conduct. The assets of the Separate Account are
available to cover the general liabilities of the Company only to the extent
that the Separate Account's assets exceed its Policy liabilities. From time to
time, these excess assets may be transferred from the Separate Account and
included in the Company's general assets. Before making any such transfers, we
will consider any possible adverse impact the transfer may have on the
Separate Account.

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

The Funds

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

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

The following summarizes the investment policies of each Fund:

Money Market Portfolio

The Money Market Portfolio seeks to maintain the stability of capital and,
consistent therewith, to maintain the liquidity of capital and to provide
current income. The Portfolio seeks to maintain a net asset value of $1.00 per
share.

Unless otherwise indicated, the portfolio's investment objective and policies
may be changed without a vote of shareholders.

                                      10
<PAGE>

Bond Portfolio

The Bond Portfolio pursues a policy of investing for a high level of income
consistent with a high quality portfolio of debt securities. Unless otherwise
indicated, the portfolio's investment objective and policies may be changed
without a vote of shareholders.

Capital Growth Portfolio

The Capital Growth Portfolio seeks to maximize long-term capital growth
through a broad and flexible investment program. Unless otherwise indicated,
the portfolio's investment objective and policies may be changed without a
vote of shareholders.

Balanced Portfolio

The Balanced Portfolio pursues a balance of growth and income from a
diversified portfolio of equity and fixed income securities. The Portfolio
also seeks long-term preservation of capital through a quality-oriented
investment approach that is designed to reduce risk. Unless otherwise
indicated, the portfolio's investment objective and policies may be changed
without a vote of shareholders.

Growth and Income Portfolio

The Growth and Income Portfolio seeks long-term growth of capital, current
income and growth of income. Unless otherwise indicated, the portfolio's
investment objective and policies may be changed without a vote of
shareholders.

Global Discovery Portfolio

The Global Discovery Portfolio pursues above-average capital appreciation over
the long term by investing primarily in the equity securities of small
companies located throughout the world. Unless otherwise indicated, the
portfolio's investment objective and policies may be changed without a vote of
shareholders.

International Portfolio

The International Portfolio seeks long-term growth of capital primarily
through diversified holdings of marketable foreign equity investments. Unless
otherwise indicated, the portfolio's investment objective and policies may be
changed without a vote of shareholders.

21st Century Growth Portfolio

  Please Note: This fund was previously named Small Company Growth Portfolio.

The 21st Century Growth Portfolio pursues long-term growth of capital by
investing primarily in equity securities issued by emerging growth companies.
Unless otherwise indicated, the portfolio's investment objective and policies
may be changed without a vote of shareholders.

                                      11
<PAGE>

Large Company Growth Portfolio

Large Company Growth Portfolio seeks long-term growth of capital through
investment primarily in the equity securities of seasoned, financially strong
U.S. growth companies. Unless otherwise indicated, the portfolio's investment
objective and policies may be changed without a vote of shareholders.

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

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

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

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

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

  . Eliminate or combine one or more Divisions;

  . Substitute one Division for another Division; or

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

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

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

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

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

  (c) combined with other separate accounts of the Company.

                                      12
<PAGE>

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

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

                      PAYMENT AND ALLOCATION OF PREMIUMS

Issuance of a Policy

We will generally issue a Group Contract to employers whose employees and/or
their spouses may become Owners (and/or Insureds) under the Group Contract so
long as the employee is within the class of employees eligible to be included
in the Group Contract. The class(es) of employees covered by a particular
Group Contract are set forth in that Group Contract's specifications pages.

The Group Contract will be issued upon receipt of an application for a Group
Contract signed by an appropriate officer of the employer and acceptance by us
at our Home Office. (See "General Provisions of the Group Contract--
Issuance.") Individuals (i.e., eligible employees and/or their spouses)
wishing to purchase a Policy, whether under a Group Contract or an employer-
sponsored insurance program, must complete the appropriate application for
Individual Insurance and submit it to our authorized representative or us at
our Home Office. We will issue to each Contractholder either a Certificate or
an Individual Policy to give to each Owner.

Individual Policies, rather than Certificates, will be issued

  (1) to independent contractors of the employer;

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

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

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

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

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

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

Employee Eligibility. In order for an employee to be eligible to purchase a
Policy, the employee must be actively at work at the time the application for
Individual Insurance is signed. In addition, the Contractholder may determine
specific classes to which the employee must belong to be eligible to purchase
a Policy. "Actively at work" means that the employee must work for the
Contractholder or sponsoring employer at the employee's usual place of work
(or such other places as required by the Contractholder or sponsoring
employer) in the course of such work for the full number of hours and the full
rate of pay, as set by the employment practices of the employer. Ordinarily
the time worked per week must not be less than 30 hours. However, we reserve
the right to waive or modify the "actively at work" requirement at our
discretion.

                                      13
<PAGE>

In addition, the Contractholder may require that an employee must be employed
by the employer as of a certain date or for a certain period of time. We will
set forth this date or time period in the Group Contract specifications pages.
Employees of any Associated Companies of the Contractholder will be considered
employees of the Contractholder. We may also allow an individual who is an
independent contractor working primarily for the sponsoring employer to be
considered an eligible employee. An independent contractor may receive an
Individual Policy rather than a Certificate depending upon state law
applicable to the contracts. An employee may include a partner in a
partnership if the employer is a partnership.

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

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

  . where the Face Amount exceeds the guaranteed issue limits;

  . where the Policy has been offered previously to the employee;

  . where the guaranteed issue requirements set forth in the application for
    Individual Insurance are not met; or

  . in connection with certain programs that may be offered without
    guaranteed issue

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

Simplified underwriting must be followed in connection with the issuance of
any children's rider, if the employee is not eligible for guaranteed issue
underwriting, or, (even when the employee is eligible,) if the child does not
satisfy the guaranteed issue requirements set forth in the application for
Individual Insurance.

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

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

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

  . the appropriate application for Individual Insurance is signed;

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

                                      14
<PAGE>

  . the Insured is eligible for it; and

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

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

  . the date insurance begins on the Policy applied for;

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

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

  . 60 days from the date of application; or

  . termination of employment with the Contractholder or sponsoring employer.

Premiums

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

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

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

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

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

Continuance of Insurance. Failure of the Contractholder to pay the planned
premium payments authorized by its employees may cause the Group Contract to
terminate. (See "General Provisions of the Group Contract--Termination.")
Provided that there is sufficient Cash Surrender Value to prevent the Policy
from lapsing, the Individual Insurance provided will automatically continue in
the event of Group Contract termination. (See "Policy Rights and Privileges--
Eligibility Change Conversion.") Individual Insurance will also continue if
the

                                      15
<PAGE>

employee's employment with the Contractholder or sponsoring employer
terminates. In either circumstance, an Owner of an Individual Policy (or a
Certificate converted by amendment to an Individual Policy) will establish a
new schedule of planned premiums. The new schedule will have the same planned
annual premium, and the payment intervals will be no more frequent than
quarterly. In Corporate Programs, there will generally be no change in planned
or scheduled premiums upon discontinuing the employment of an Insured.

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

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

Allocation of Net Premiums and Cash Value

Net Premiums. The net premium equals:

  (1) the premium paid; less

  (2) the premium expense charge;

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

  (4) the premium tax charge. (See "Charges and Deductions--Premium Expense
      Charge.")

Allocation of Net Premiums. In the application for a Policy, the Owner
indicates how net premiums are to be allocated among the 14 Divisions of the
Separate Account. Beginning with the initial premium payment, all premiums
will be allocated in accordance with the Owner's instructions upon our receipt
of the premiums. However, the minimum percentage, of any allocation to a
Division is 10 percent of the net premium, and fractional percentages may not
be used.

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

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

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

                                      16
<PAGE>

Policy Lapse and Reinstatement

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

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

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

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

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

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

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

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

                                POLICY BENEFITS

Death Benefit

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

If a rider permitting the accelerated payment of death benefit proceeds has
been added to the Policy, the death benefit may be paid in a single sum prior
to the death of the Insured and may be less than otherwise would be paid upon
the death of the Insured. (See "General Matters Relating to the Policy--
Additional Insurance Benefits.")

                                      17
<PAGE>

The amount of the death benefit proceeds payable will be determined at the end
of the Valuation Period during which the Insured's death occurred. The
proceeds may be paid in a single sum or under one or more of the settlement
options set forth in the Policy. (See "Policy Rights and Privileges--Payment
of Policy Benefits.") Death benefit proceeds will be paid to the surviving
Beneficiary or Beneficiaries specified in the application or as subsequently
changed.

The Policy provides two death benefit options: a "Level Type" death benefit
("Option A") and an "Increasing Type" death benefit ("Option B"). Option B
generally will be the only option presented. The death benefit under either
option will never be less than the current Face Amount of the Policy as long
as the Policy remains in force. (See "Payment and Allocation of Premiums--
Policy Lapse and Reinstatement.") The minimum Face Amount currently is
$25,000. The maximum Face Amount is generally $500,000. However, in connection
with a particular Group Contract or employer sponsored insurance program, we
may establish a substantially higher Face Amount for Policies issued under
that Contract or program.

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

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

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

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

                          APPLICABLE PERCENTAGE TABLE

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

                                      18
<PAGE>

The applicable percentages in the foregoing table are based on federal tax law
requirements described in Section 7702(d) of the Code. The Company reserves
the right to alter the applicable percentage to the extent necessary to comply
with changes to Section 7702(d) or any successor provision thereto.

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

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

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

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

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

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

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

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

A change in death benefit option will not in itself result in an immediate
change in the amount of a Policy's death benefit or Cash Value. No charges
will be imposed upon a change from death benefit Option B to Option A.
Changing from Option A to Option B, however, will result in a decrease in the
Face Amount. In addition, if, prior to or accompanying a change in the death
benefit option, there has been an increase in the Face Amount, the cost of
insurance charge may be different for the increased amount. (See "Charges and
Deductions--Monthly Deduction--Cost of Insurance.")

No change in death benefit option will be permitted that results in the death
benefit under a Policy being included in gross income because the federal tax
law requirements are not satisfied. (See "Federal Tax Matters.")

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

Face Amount Decreases. Any decrease in the Face Amount will become effective
on the Monthly Anniversary on or following our receipt of the written request.
The amount of the requested decrease must be at least $5,000 and the Face
Amount remaining in force after any requested decrease may not be less than
the minimum amount Face Amount, generally $25,000. If, following a decrease in
Face Amount, the Policy would not comply with the maximum premium limitations
required by federal tax law (see "Payment and Allocation of

                                      19
<PAGE>

Premiums"), the decrease may be limited or Cash Value may be returned to the
Owner (at the Owner's election), to the extent necessary to meet those
requirements. A decrease in the Face Amount will reduce the Face Amount in the
following order:

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

  (2) The next most recent increases successively; and

  (3) The initial Face Amount.

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

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

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

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

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

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

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

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

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

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

  (c) An increased level of premium payments will reduce the pure insurance
      protection if Option A is in effect. However, when the applicable
      percentage of Cash Value exceeds either the Face Amount (if

                                      20
<PAGE>

     Option A is in effect) or the Cash Value plus the Face Amount (if Option
     B is in effect), increased premium payments will increase the pure
     insurance protection. Increased premiums should also increase the amount
     of funds available to keep the Policy in force.

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

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

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

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

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

Cash Value

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

  . the investment performance of the chosen Divisions;

  . the frequency and amount of net premiums paid;

  . transfers;

  . partial withdrawals;

  . Policy Loans;

  . Loan account interest rate credited; and

  . the charges assessed in connection with the Policy.

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

Determination of Cash Value. Cash Value is determined on a daily basis. On the
Investment Start Date, the Cash Value in a Division will equal the portion of
any net premium allocated to the Division, reduced by the portion of the
monthly deductions due from the Issue Date through the Investment Start Date
allocated to that

                                      21
<PAGE>

Division. Depending upon the length of time between the Issue Date and the
Investment Start Date, this amount may be more than the amount of one monthly
deduction. (See "Payment and Allocation of Premiums.") Thereafter, on each
Valuation Date, the Cash Value in a Division will equal:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      22
<PAGE>

                         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 us in writing at our Home Office. We will send all
reports and other notices described herein or in the Policy directly to the
Owner.

Loans

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

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

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

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

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

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

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

                                      23
<PAGE>

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

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

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

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

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

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

Surrender and Partial Withdrawals

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

Surrender. To effect a surrender, the Policy must be returned to us along with
the request, or the request must be accompanied by a completed affidavit of
lost Policy. Upon request, we can provide a lost Policy Certificate. Upon
surrender, we will pay the Cash Surrender Value to the Owner. The Cash
Surrender Value equals the Cash Value on the date of surrender, less any
Indebtedness. Surrender proceeds will be paid in a single sum. If the request
is received on a Monthly Anniversary, the monthly deduction otherwise
deductible will be included in the amount paid. Coverage under a Policy will
terminate as of the date of surrender.

Partial Withdrawals. After the first Policy Year, an Owner may make up to one
partial withdrawal each Policy Month from the Separate Account. The minimum
amount of a partial withdrawal, net of any transaction charges, is $500. The
minimum amount that can be withdrawn from a Division is $50, or the Policy's
Cash Value in a Division, if smaller. The maximum amount that may be
withdrawn, including the partial withdrawal transaction charge, is the Loan
Value. The partial withdrawal transaction charge is equal to the lesser of $25
or 2% of the amount withdrawn. The Owner may allocate the amount withdrawn,
subject to the above conditions, among the Divisions. If no allocation is
specified, then the partial withdrawal will be allocated among the Divisions
in the same proportion that the Policy's Cash Value in each Division bears to
the total Cash Value of the Policy (not including the Cash Value in the Loan
Account), on the date the request for the partial withdrawal is received.

                                      24
<PAGE>

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 in the same proportion as the partial withdrawal is allocated.
If, following a partial withdrawal, insufficient funds remain in a Division to
pay the partial withdrawal transaction charge allocated to a Division, the
unpaid charges will be allocated equally among the remaining Divisions. In
addition, an Owner may request that the partial withdrawal transaction charge
be paid from the Owner's Cash Value in another Division.

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

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

Transfers

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

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

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

Right to Examine Policy

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

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

                                      25
<PAGE>

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

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

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

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

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

Conversion Right to a Fixed Benefit Policy

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

Eligibility Change Conversion

If an Insured's eligibility under a Group Contract or employer-sponsored
insurance program ends due to its termination or due to the termination of the
employee's employment, the Insured's coverage will continue unless the Policy
is no longer in force. Even if the Policy is not in force due to lapse, the
right to reinstate and thus to convert a lapsed Policy will not be affected by
the change in the employee's eligibility during the reinstatement period.

If a Certificate was issued under the Group Contract, the Certificate will be
amended automatically so that it will continue in force as an Individual
Policy. The rights, benefits, and guaranteed charges will not be altered by
this amendment. The amendment will be mailed to the Owner within 31 days (a)
after we receive written notice that the employee's employment ended or (b)
after the termination of the Group Contract. If, at the time the conversion
occurs, the Policy is in a grace period (see "Payment and Allocation of
Premiums--Policy Lapse and Reinstatement"), any premium necessary to prevent
the Policy from lapsing must be paid us before the new Individual Policy will
be mailed. A new planned premium schedule will be established which will have
the same planned annual premium utilized under the Group Contract. The new
planned payment intervals will be no more frequent than quarterly. The Company
may allow payment of planned premium through periodic (usually monthly)
authorized electronic funds transfer. Of course, unscheduled premium payments
can be made at any time. (See "Payment and Allocation of Premiums--Premiums.")

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

                                      26
<PAGE>

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 our agreement.

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

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

                            CHARGES AND DEDUCTIONS

We will deduct charges in connection with the Policies to compensate us for
providing the insurance benefits set forth in the Policies and any additional
benefits added by rider, administering the Policies, incurring expenses in
distributing the Policies, and assuming certain risks in connection with the
Policies. We may realize a profit on one or more of these charges. We may use
any such profit for any corporate purpose, including, among other things,
payments of sales and distribution expenses.

Premium Expense Charges

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

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

                                      27
<PAGE>

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

  . the premium expense charge; less

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

  . the premium tax charge (described below).

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

Premium Tax Charge

Various states and subdivisions impose a tax on premiums received by insurance
companies. Premium taxes vary from jurisdiction to jurisdiction. Generally, to
cover these premium taxes, premium payments will be reduced by a premium tax
charge of 2% from all Policies. However, we may impose a premium tax charge of
2% for premium taxes on premiums received in connection with Policies issued
under an Executive Program.

Monthly Deduction

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

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

<TABLE>
<CAPTION>
                                                                First Subsequent
                         Eligible Employees                     Year    Years
                         ------------------                     ----- ----------
      <S>                                                       <C>   <C>
      250-499.................................................. $5.00   $2.50
      500-999.................................................. $4.75   $2.25
      1000+.................................................... $4.50   $2.00
</TABLE>

For Group Contracts or other employer-sponsored insurance programs (1) with
fewer than 250 eligible employees, (2) with additional administrative costs,
or (3) that are offered as Executive Programs or Corporate Programs, the
monthly administrative charge may be higher, but will not exceed $6.00 per
month during the first Policy Year and $3.50 per month in renewal years.

These charges are guaranteed not to increase over the life of the Policy. The
administrative charge will not change in the event that the Insured is no
longer eligible for group coverage, but continues coverage on an individual
basis. In addition, when we believe that lower administrative costs will be
incurred in connection with a particular Group Contract or employer-sponsored
insurance program we may modify the above schedule for that Group Contract or
other employer-sponsored insurance program. The amount of the administrative
charge applicable to a particular Policy will be set forth in specifications
pages for that Policy.

                                      28
<PAGE>

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

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

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

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

The current cost of insurance rates will not be greater than the guaranteed
cost of insurance rates set forth in the Policy. These guaranteed rates are
125% of the maximum rates that could be charged based on the 1980
Commissioners Standard Ordinary Mortality Table C ("1980 CSO Table"). The
guaranteed rates are higher than 100% of the maximum rates in the 1980 CSO
Table because we use guaranteed or simplified underwriting procedures whereby
the insured is not required to submit to a medical or paramedical examination.
The current cost of insurance rates are generally lower than 100% of the 1980
CSO Table. Any change in the actual cost of insurance rates, will apply to all
persons of the same Attained Age and rate class whose Face Amounts have been
in force for the same length of time. Any change in the actual cost of
insurance rates will not include changes made to adjust for changes in the
gener mix of the pool of Insureds under a particular Group Contract or
employer-sponsored insurance program. (For purposes of computing guideline
premiums under Section 7702 of the Internal Revenue Code of 1986, as amended,
the Company will use 100% of the 1980 CSO Table.)

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

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

                                      29
<PAGE>

we will consider the excess Cash Value a part of each increase in order,
starting with the first increase. If Option B is in effect, we will determine
the net amount at risk for each rate class by the Face Amount associated with
that rate class. In calculating the cost of insurance charge, the cost of
insurance rate for a Face Amount is applied to the net amount at risk for the
corresponding rate class.

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

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

Additional Insurance Benefits. The monthly deduction will include charges for
any additional benefits provided by rider. (See "General Matters Relating to
the Policy--Additional Insurance Benefits.")

Partial Withdrawal Transaction Charge

A transaction charge which is the lesser of $25 or 2% of the amount withdrawn
will be assessed on each partial withdrawal, to cover administrative costs
incurred in processing the partial withdrawal.

Separate Account Charges

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

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

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

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

                    GENERAL MATTERS RELATING TO THE POLICY

Postponement of Payments

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

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

                                      30
<PAGE>

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

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

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

The Contract

The Policy, the attached application, any riders, endorsements, any
application for an increase in Face Amount, and any application for
reinstatement together make the entire contract between the Owner and us.
Apart from the rights and benefits described in the Certificate or Individual
Policy and incorporated by reference into the Group Contract, the Owner has no
rights under the Group Contract. All statements made by the Insured in the
application are considered representations and not warranties, except in the
case of fraud. Only statements in the application and any supplemental
applications can be used to contest a claim or the validity of the Policy. Any
change to the Policy must be approved in writing by the President, a Vice
President, or the Secretary of the Company. No agent has the authority to
alter or modify any of the terms, conditions, or agreements of the Policy or
to waive any of its provisions.

Control of Policy

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

Beneficiary

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

Change of Owner or Beneficiary

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

Policy Changes

We reserve the right to limit the number of Policy changes to one per Policy
Year and to restrict such changes in the first Policy Year. Currently, no
change may be made during the first Policy Year. For this purpose, changes
include increases or decreases in Face Amount and changes in the death benefit
option. No change will

                                      31
<PAGE>

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

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

Suicide

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

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

Misstatement of Age and Corrections

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

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

Additional Insurance Benefits

Subject to certain requirements, one or more of the following additional
insurance benefits may be added to a Policy by rider. However, some Group
Contracts or employer-sponsored insurance programs may not offer

                                      32
<PAGE>

each of the additional benefits described below. Certain riders may not be
available in all states. In addition, should it be determined that the tax
status of a Policy as life insurance is adversely affected by the addition of
any of these riders, we will cease offering such riders. The descriptions
below are intended to be general; the terms of the Policy riders providing the
additional benefits may vary from state to state, and the Policy should be
consulted. The cost of any additional insurance benefits will be deducted as
part of the monthly deduction. (See "Charges and Deductions--Monthly
Deduction.")

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

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 us that death resulted directly from accidental
injury and independently of all other causes; occurred within 120 days from
the date of injury; and occurred before the Policy Anniversary nearest age 70
of the Insured.

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

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

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

Accelerated Death Benefit Settlement Option Rider. Provides for the
accelerated payment of a portion of death benefit proceeds in a single sum to
the Owner if the Insured is terminally ill or permanently confined to a
nursing home. Under the rider, which is available at no additional cost, the
Owner may make a voluntary election to completely settle the Policy in return
for accelerated payment of a reduced death benefit. The Owner may make such an
election under the rider if evidence, including a certification from a
licensed physician, is provided to us that the Insured (1) has a life
expectancy of 12 months or less or (2) is permanently confined to a qualified
nursing home and is expected to remain there until death. Any irrevocable
Beneficiary and assignees of record must provide written authorization in
order for the Owner to receive the accelerated benefit. The Accelerated Death
Benefit Settlement Option Rider is not available with Corporate Programs.

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

                                      33
<PAGE>


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

Records and Reports

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

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

                         DISTRIBUTION OF THE POLICIES

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

                   GENERAL PROVISIONS OF THE GROUP CONTRACT

Issuance

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

Premium Payments

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

Grace Period

If the Contractholder does not give planned premium payments in a timely
fashion, the Group Contract will be in default. A grace period of 31 days
begins on the date that the planned premiums were scheduled to be given.

                                      34
<PAGE>

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

Termination

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

Right to Examine Group Contract

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

Entire Contract

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

Incontestability

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

Ownership of Group Contract

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

                           FEDERAL TAX MATTERS

Introduction

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

                                      35
<PAGE>


Tax Status of the Policy

In order to qualify as a life insurance contract for federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that the
Policy should satisfy the applicable requirements. If it is subsequently
determined that a Policy does not satisfy the applicable requirements, we may
take appropriate steps to bring the Policy into compliance with such
requirements and we reserve the right to restrict Policy transactions in order
to do so.

In order to qualify as a life insurance contract for federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that the
Policy should satisfy the applicable requirements. If it is subsequently
determined that a Policy does not satisfy the applicable requirements, we may
take appropriate steps to bring the Policy into compliance with such
requirements and we reserve the right to restrict Policy transactions in order
to do so.

In certain circumstances, owners of variable life insurance contracts have
been considered for federal income tax purposes to be the owners of the assets
of the variable account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of a Owner to allocate
premiums and cash values, have not been explicitly addressed in published
rulings. While we believe that the Policies do not give Owners investment
control over Variable Account assets, we reserve the right to modify the
Policies as necessary to prevent a Owner from being treated as the owner of
the Variable Account assets supporting the Policy.

In addition, the Code requires that the investments of the Variable Account be
"adequately diversified" in order for the Policies to be treated as life
insurance contracts for federal income tax purposes. It is intended that the
Variable Account, through its decisions, will satisfy these diversification
requirements.

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

Tax Treatment of Policy Benefits

In General. We believe that the death benefit under a Policy should be
excludible from the gross income of the beneficiary. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Owner or beneficiary. A tax
advisor should be consulted on these consequences.

Generally, the Owner will not be deemed to be in constructive receipt of the
Policy cash value until there is a distribution. When distributions from a
Policy occur, or when loans are taken out from or secured by a Policy, the tax
consequences depend on whether the Policy is classified as a "modified
endowment contract."

Modified Endowment Contracts. Under the Internal Revenue Code, certain life
insurance contracts are classified as "modified endowment contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policies as to premiums and benefits, the individual
circumstances of each Policy will determine whether it is classified as a
modified endowment contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
Policy years. Certain changes in a Policy after it is issued could also cause
it to be classified as a modified endowment contract. A current or prospective
Owner should consult with a competent advisor to determine whether a Policy
transaction will cause the Policy to be classified as a modified endowment
contract.


                                      36
<PAGE>


Distributions Other Than Death Benefits from Modified Endowment Contracts.
Policies classified as modified endowment contracts are subject to the
following tax rules:

      (1) All distributions other than death benefits, including
  distributions upon surrender and withdrawals, from a modified endowment
  contract will be treated first as distributions of gain taxable as ordinary
  income and as tax-free recovery of the Owner's investment in the Policy
  only after all gain has been distributed.

      (2) Loans taken from or secured by a Policy classified as a modified
  endowment contract are treated as distributions and taxed accordingly.

      (3) A 10 percent additional income tax is imposed on the amount subject
  to tax except where the distribution or loan is made when the Owner has
  attained age 59 or is disabled, or where the distribution is part of a
  series of substantially equal periodic payments for the life (or life
  expectancy) of the Owner or the joint lives (or joint life expectancies) of
  the Owner and the Owner's beneficiary or designated beneficiary.

If a Policy becomes a modified endowment contract, distributions that occur
during the contract year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a Policy within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a Policy that is not a modified
endowment contract could later become taxable as a distribution from a
modified endowment contract.

Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts Distributions other than death benefits from a Policy that
is not classified as a modified endowment contract are generally treated first
as a recovery of the Owner's investment in the Policy and only after the
recovery of all investment in the Policy as taxable income. However, certain
distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance contract for federal income tax purposes if Policy
benefits are reduced during the first 15 Policy years may be treated in whole
or in part as ordinary income subject to tax.

Loans from or secured by a Policy that is not a modified endowment contract
are generally not treated as distributions.

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

Investment in the Policy. Your investment in the Policy is generally your
aggregate premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that is
tax-free.

Policy Loans. In general, interest on a Policy loan will not be deductible. If
a Policy loan is outstanding when a Policy is canceled or lapses, the amount
of the outstanding indebtedness will be added to the amount distributed and
will be taxed accordingly.

Before taking out a Policy loan, you should consult a tax adviser as to the
tax consequences.

Multiple Policies. All modified endowment contracts that are issued by us (or
our affiliates) to the same Owner during any calendar year are treated as one
modified endowment contract for purposes of determining the amount includible
in the Owner's income when a taxable distribution occurs.

Accelerated Death Benefit Settlement Option Rider. We believe that payments
received under the Accelerated Death Benefit Settlement Option Rider should be
fully excludable from the gross income of the beneficiary if the beneficiary
is the insured under the Policy. However, you should consult a qualified tax
adviser about the consequences of adding this rider to a Policy or requesting
payment under this rider.

HIV Acceleration of Death Benefit Rider. The tax consequences association with
the HIV Acceleration of Death Benefit Rider are uncertain and a tax advisor
should be consulted.

                                      37
<PAGE>


Business Uses of Policy. Businesses can use the Policies in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, tax
exempt and nonexempt welfare benefit plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the
particular facts and circumstances. If you are purchasing the Policy for any
arrangement the value of which depends in part on its tax consequences, you
should consult a qualified tax adviser. In recent years, moreover, Congress
has adopted new rules relating to life insurance owned by businesses. Any
business contemplating the purchase of a new Policy or a change in an existing
Policy should consult a tax adviser.

Other Tax Considerations. The transfer of the Policy or designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate, and generation-
skipping transfer taxes. For example, the transfer of the Policy to, or the
designation as a beneficiary of, or the payment of proceeds to, a person who
is assigned to a generation which is two or more generations below the
generation assignment of the owner may have generation skipping transfer tax
consequences under federal tax law. The individual situation of each owner or
beneficiary will determine the extent, if any, to which federal, state, and
local transfer and inheritance taxes may be imposed and how ownership or
receipt of Policy proceeds will be treated for purposes of federal, state and
local estate, inheritance, generation skipping and other taxes.

Possible Tax Law Changes. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the
Policy could change by legislation or otherwise. Consult a tax adviser with
respect to legislative developments and their effect on the Policy.

Our Income Taxes

Under current federal income tax law, we are not taxed on the Separate
Account's operations. Thus, currently we do not deduct a charge from the
Separate Account for federal income taxes. We reserve the right to charge the
Separate Account for any future federal income taxes or economic burdens we
may incur.

Under current laws in several states, we may incur state and local taxes (in
addition to premium taxes). These taxes are not now significant and we are not
currently charging for them. If they increase, we may deduct charges for such
taxes.

                 SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS

The Company holds assets of the Separate Account. The assets are kept
physically segregated and held separate and apart from our general assets. We
maintain records of all purchases and redemptions of Fund shares by each of
the Divisions. Additional protection for assets of the Separate Account is
afforded by Financial Institution Bonds issued by St. Paul Fire and Marine
Company with a limit of $25 million, covering all officers and employees of
the Company who have access to the assets of the Separate Account.

                                 VOTING RIGHTS

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

                                      38
<PAGE>

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

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

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

                                     IMSA

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

                        STATE REGULATION OF THE COMPANY

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

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


                                      39
<PAGE>

                           MANAGEMENT OF THE COMPANY

<TABLE>
<CAPTION>
           Name             Principal Occupation(s) During Past Five Years (1)
 ------------------------- ---------------------------------------------------
 <C>                       <S>
 Executive Officers (2)
 Carl H. Anderson (4)       President and Chief Executive Officer since June
                            1986. Vice President, New Ventures, since June
                            1986, General American Life Insurance Co.,
                            St. Louis, Mo. (GenAm).

 Matthew K. Duffy (4)       Vice President and Chief Financial Officer since
                            June 1996. Formerly Director of Accounting,
                            Prudential Insurance Company of America, March
                            1987-June 1996.

 E. Thomas Hughes, Jr. (4)  Treasurer since December 1994. Corporate Actuary
  General American Life     and Treasurer, GenAm since October 1994.
  Insurance Company
  700 Market Street
  St. Louis, MO 63101

 Matthew P. McCauley (4)    Vice President and General Counsel since 1984.
  General American Life     Secretary since August 1981. Vice President and
  Insurance Company         Associate General Counsel, GenAm, since December
  700 Market Street         30, 1995.
  St. Louis, MO 63101

 Craig K. Nordyke (4)       Executive Vice President and Chief Actuary since
                            November 1996. Vice President and Chief Actuary
                            August 1990-November 1996.

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

 Directors (3)

 Richard A. Liddy           Chairman and Chief Executive Officer, GenAm, since
                            January 2000. Chairman, President, and Chief
                            Executive Officer, GenAm, May 1992- January 2000.

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

 Bernard H Wolzenski        Executive Vice President--Individual, GenAm, since
                            October 1991.

 A. Greig Woodring          President and CEO, Reinsurance Group of America,
                            Inc., since May 1993, and Executive Vice
                            President--Reinsurance, GenAm, since January 1990.
</TABLE>
- --------
(1) All positions listed are with the Company unless otherwise indicated.
(2) The principal business address of each person listed is Paragon Life
    Insurance Company, 100 South Brentwood, St. Louis, MO 63105 unless
    otherwise noted.
(3) The principal business address of each person listed is General American
    Life Insurance Company, 700 Market Street, St. Louis, MO 63101, except A.
    Greig Woodring--Reinsurance Group of America, 1370 Timberlake Manor
    Parkway, Chesterfield, MO 63017.
(4) Indicates Executive Officers who are also Directors.

                                      40
<PAGE>

                                 LEGAL MATTERS

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

                               LEGAL PROCEEDINGS

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

                                    EXPERTS

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

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

                            ADDITIONAL INFORMATION

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

                             FINANCIAL STATEMENTS

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

                                      41
<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.

                                      42
<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.

                                      43
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Paragon Life Insurance Company:

  We have audited the accompanying balance sheets of Paragon Life Insurance
Company as of December 31, 1999 and 1998, and the related statements of
operations and comprehensive income, stockholder's equity, and cash flows for
each of the years in the three-year period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Paragon Life Insurance Company
as of December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1999, in conformity with generally accepted accounting principles.


March 10, 2000

KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is a member of KPMG
International, a Swiss association.

                                      F-1
<PAGE>

                         PARAGON LIFE INSURANCE COMPANY

                                 Balance Sheets
                           December 31, 1999 and 1998
                           (in thousands of dollars)

<TABLE>
<CAPTION>
                               1999     1998
                             --------  -------
<S>                          <C>       <C>
           Assets
Fixed maturities, available
 for sale................... $ 81,421   83,384
Policy loans................   16,954   14,135
Cash and cash equivalents...   10,591    7,439
                             --------  -------
    Total cash and invested
     assets.................  108,966  104,958
                             --------  -------
Reinsurance recoverables....    1,314    1,170
Deposits relating to
 reinsured policyholder
 account balances...........    7,020    6,688
Accrued investment income...    1,853    1,545
Deferred policy acquisition
 costs......................   24,357   20,602
Fixed assets and leasehold
 improvements, net..........    1,031    4,504
Other assets................      262      105
Separate account assets.....  255,190  168,222
                             --------  -------
    Total assets............ $399,993  307,794
                             ========  =======
      Liabilities and
    Stockholder's Equity
Policyholder account
 balances...................  101,665   93,334
Policy and contract claims..    1,691    1,672
Federal income taxes
 payable....................    1,007      281
Other liabilities and
 accrued expenses...........    3,734    3,943
Payable to affiliates.......    3,803    2,062
Due to separate account.....      192      183
Deferred tax liability......    3,070    5,591
Separate account
 liabilities................  255,126  168,222
                             --------  -------
    Total liabilities....... $370,288  275,288
                             --------  -------
Stockholder's equity:
  Common stock, par value
   $25; 100,000 shares
   authorized;
   82,000 shares issued and
   outstanding..............    2,050    2,050
  Additional paid-in
   capital..................   17,950   17,950
  Accumulated other
   comprehensive (loss)
   income...................   (2,748)   2,809
  Retained earnings.........   12,453    9,697
                             --------  -------
    Total stockholder's
     equity................. $ 29,705   32,506
                             --------  -------
    Total liabilities and
     stockholder's equity... $399,993  307,794
                             ========  =======
</TABLE>

                See accompanying notes to financial statements.

                                      F-2
<PAGE>

                         PARAGON LIFE INSURANCE COMPANY

               Statements of Operations and Comprehensive Income
                  Years ended December 31, 1999, 1998 and 1997
                           (in thousands of dollars)

<TABLE>
<CAPTION>
                                                          1999     1998   1997
                                                         -------  ------ ------
<S>                                                      <C>      <C>    <C>
Revenues:
  Policy contract charges............................... $24,577  20,437 16,417
  Net investment income.................................   7,726   6,983  6,288
  Commissions and expense allowances on reinsurance
   ceded................................................     292     124     10
  Net realized investment gains.........................      57      53     69
                                                         -------  ------ ------
    Total revenues......................................  32,652  27,597 22,784
                                                         =======  ====== ======
Benefits and expenses:
  Policy benefits.......................................   4,616   4,774  3,876
  Interest credited to policyholder account balances....   5,524   5,228  4,738
  Commissions, net of capitalized costs.................     445     167    227
  General and administration expenses, net of
   capitalized costs....................................  11,394   9,042  7,743
  Policy administration system expenses.................   4,787     469    --
  Amortization of deferred policy acquisition costs.....   1,631   1,150    424
                                                         -------  ------ ------
    Total benefits and expenses.........................  28,397  20,830 17,008
                                                         =======  ====== ======
    Income before federal income tax expense............   4,255   6,766  5,775
Federal income tax expense..............................   1,499   2,368  1,885
                                                         -------  ------ ------
Net income.............................................. $ 2,756   4,398  3,890
Other comprehensive (loss) income.......................  (5,557)    851  1,636
                                                         -------  ------ ------
Comprehensive (loss) income............................. $(2,801)  5,249  5,526
                                                         =======  ====== ======
</TABLE>


                See accompanying notes to financial statements.

                                      F-3
<PAGE>

                         PARAGON LIFE INSURANCE COMPANY

                       Statements of Stockholder's Equity
                 Years ended December 31, 1999, 1998, and 1997
                           (in thousands of dollars)

<TABLE>
<CAPTION>
                                            Accumulated
                                Additional     other                  Total
                         Common  paid-in   comprehensive Retained stockholder's
                         Stock   capital      income     earnings    equity
                         ------ ---------- ------------- -------- -------------
<S>                      <C>    <C>        <C>           <C>      <C>
Balance at December 31,
 1996................... $2,050   17,950         322       1,409     21,731
  Net income............    --       --          --        3,890      3,890
  Other comprehensive
   income...............    --       --        1,636         --       1,636
                         ------   ------      ------      ------     ------
Balance at December 31,
 1997................... $2,050   17,950       1,958       5,299     27,257
  Net income............    --       --          --        4,398      4,398
  Other comprehensive
   income...............    --       --          851         --         851
                         ------   ------      ------      ------     ------
Balance at December 31,
 1998................... $2,050   17,950       2,809       9,697     32,506
  Net income............    --       --          --        2,756      2,756
  Other comprehensive
   loss.................    --       --       (5,557)        --      (5,557)
                         ------   ------      ------      ------     ------
Balance at December 31,
 1999................... $2,050   17,950      (2,748)     12,453     29,705
                         ======   ======      ======      ======     ======
</TABLE>


                See accompanying notes to financial statements.

                                      F-4
<PAGE>

                         PARAGON LIFE INSURANCE COMPANY

                            Statements of Cash Flows
                  Years ended December 31, 1999, 1998 and 1997
                           (in thousands of dollars)

<TABLE>
<CAPTION>
                                                      1999     1998     1997
                                                    --------  -------  -------
<S>                                                 <C>       <C>      <C>
Cash flows from operating activities:
  Net income....................................... $  2,756    4,398    3,890
  Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
    Change in:
      Reinsurance recoverables.....................     (144)     563     (892)
      Deposits relating to reinsured policyholder
       account balances............................     (332)    (272)    (342)
      Accrued investment income....................     (308)    (168)     (79)
      Federal income tax payable...................      726      118     (648)
      Other assets.................................    3,316   (1,821)  (1,280)
      Policy and contract claims...................       19      587      (23)
      Other liabilities and accrued expenses.......     (209)     457      782
      Payable to affiliates........................    1,741      442     (669)
      Company ownership of separate account........      (64)     --       --
      Due to separate account......................        9      122      (34)
    Deferred tax expense...........................      469      740      732
    Policy acquisition costs deferred..............   (4,185)  (3,808)  (2,972)
    Amortization of deferred policy acquisition
     costs.........................................    1,631    1,150      424
    Interest credited to policyholder accounts.....    5,524    5,228    4,738
    Net gain on sales and calls of fixed
     maturities....................................      (57)     (53)     (69)
                                                    --------  -------  -------
Net cash provided by operating activities..........   10,892    7,683    3,558
                                                    --------  -------  -------
Cash flows from investing activities:
  Purchase of fixed maturities.....................  (12,423) (14,915) (12,557)
  Sale or maturity of fixed maturities.............    4,695    8,632    5,255
  Increase in policy loans, net....................   (2,819)  (2,648)  (1,923)
                                                    --------  -------  -------
Net cash used in investing activities                (10,547)  (8,931)  (9,225)
                                                    --------  -------  -------
Cash flows from financing activities:
  Net policyholder account deposits................    2,807    2,954    2,294
                                                    --------  -------  -------
Net increase (decrease) in cash and cash
 equivalents.......................................    3,152    1,706   (3,373)
Cash and cash equivalents at beginning of year.....    7,439    5,733    9,106
                                                    --------  -------  -------
Cash and cash equivalents at end of year........... $ 10,591    7,439    5,733
                                                    --------  -------  -------
Income taxes paid.................................. $   (346)  (1,460)  (1,801)
                                                    ========  =======  =======
</TABLE>

                See accompanying notes to financial statements.

                                      F-5
<PAGE>

                         PARAGON LIFE INSURANCE COMPANY

                         Notes to Financial Statements

(1) Summary of Significant Accounting Policies

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

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

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

  The significant accounting policies of the Company are as follows:

 (a) Recognition of Policy Revenue and Related Expenses

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

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

 (b) Invested Assets

  Investment securities are accounted for at fair value. At December 31, 1999
and 1998, fixed maturity securities are classified as available-for-sale and
are carried at fair value with the unrealized gain or loss, net of taxes, being
reflected as accumulated other comprehensive income, a separate component of
stockholder's equity. Policy loans are valued at aggregate unpaid balances.

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

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

                                      F-6
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

 (c) Policyholder Account Balances

  Policyholder account balances are equal to the policyholder account value
before deduction of any surrender charges. The policyholder account value
represents an accumulation of gross premium payments plus credited interest
less expense and mortality charges and withdrawals. These expense charges are
recognized in income as earned. Certain variable life policies allow
policyholders to exchange accumulated assets from the variable rate separate
accounts to a fixed-interest general account policy. The fixed-interest general
account guaranteed minimum crediting rates of 4% in 1999, 1998 and 1997. The
actual crediting rate ranged from 6.1% to 6.5% in 1999, and was 6.5% in 1998
and 1997.

 (d) Federal Income Taxes

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

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

 (e) Reinsurance

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

 (f) Deferred Policy Acquisition Costs

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

 (g) Separate Account Business

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

                                      F-7
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

 (h) Fair Value of Financial Instruments

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

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

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

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

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

 (i) Cash and Cash Equivalents

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

 (j) Subsequent Event

    (i) On January 6, 2000, the Company's ultimate parent, GenAmerica
  Corporation, was purchased by Metropolitan Life Insurance Company.

    (ii) Subsequent to December 31, 1999 a significant customer notified
  Paragon of its intent to terminate its group contract, effective April 30,
  2000. This group represents 29% and 8% of Paragon's policies inforce and
  separate account assets, as of December 31, 1999.

(2) Investments

  The amortized cost and estimated fair value of fixed maturities at December
31, 1999 and 1998 are as follows (000's):

<TABLE>
<CAPTION>
                                                         1999
                                       -----------------------------------------
                                                   Gross      Gross    Estimated
                                       Amortized unrealized unrealized   fair
                                         cost      gains      losses     value
                                       --------- ---------- ---------- ---------
      <S>                              <C>       <C>        <C>        <C>
      U.S. Treasury securities........ $  8,728      53         (162)    8,619
      Corporate securities............   70,312     276       (4,830)   65,758
      Mortgage-backed securities......    6,911      36         (394)    6,553
      Asset-backed securities.........      500     --            (9)      491
                                       --------     ---       ------    ------
                                       $ 86,451     365       (5,395)   81,421
                                       ========     ===       ======    ======
</TABLE>

                                      F-8
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

<TABLE>
<CAPTION>
                                                         1998
                                       -----------------------------------------
                                                   Gross      Gross    Estimated
                                       Amortized unrealized unrealized   fair
                                         cost      gains      losses     value
                                       --------- ---------- ---------- ---------
      <S>                              <C>       <C>        <C>        <C>
      U.S. Treasury securities........  $ 6,705      267        --       6,972
      Corporate securities............   64,607    4,481       (208)    68,880
      Mortgage-backed securities......    6,854      193        (25)     7,022
      Asset-backed securities.........      500       10        --         510
                                        -------    -----       ----     ------
                                        $78,666    4,951       (233)    83,384
                                        =======    =====       ====     ======
</TABLE>

  The amortized cost and estimated fair value of fixed maturities at December
31, 1999, by contractual maturity, are shown below (000's). Expected maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                                       Estimated
                                                             Amortized   Fair
                                                               cost      value
                                                             --------- ---------
      <S>                                                    <C>       <C>
      Due in one year or less............................... $    471      480
      Due after one year through five years.................   22,034   21,893
      Due after five years through ten years................    8,853    8,317
      Due after ten years through twenty years..............   48,182   44,178
      Mortgage-backed securities............................    6,911    6,553
                                                             --------   ------
                                                             $ 86,451   81,421
                                                             ========   ======
</TABLE>

  Proceeds from sales of fixed maturities during 1999, 1998 and 1997 were
$4,695,414, $4,068,639 and $1,328,585 respectively. Gross gains of $56,686,
$53,180 and $68,876 were realized on those sales in 1999, 1998 and 1997,
respectively.

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

<TABLE>
<CAPTION>
                                                              1999   1998  1997
                                                             ------- ----- -----
      <S>                                                    <C>     <C>   <C>
      Fixed Maturities...................................... $ 6,077 5,603 4,941
      Short-term investments................................     486   535   608
      Policy loans and other................................   1,244   924   807
                                                             ------- ----- -----
                                                             $ 7,807 7,062 6,356
      Investment expenses...................................     (81)  (79)  (68)
                                                             ------- ----- -----
          Net investment income............................. $ 7,726 6,983 6,288
                                                             ======= ===== =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                         1999     1998    1997
                                                        -------  ------  ------
      <S>                                               <C>      <C>     <C>
      Unrealized appreciation (depreciation):
        Fixed maturities available-for-sale............ $(5,030)  4,717   3,373
        Deferred policy acquisition costs..............     803    (396)   (361)
      Deferred income taxes............................   1,479  (1,512) (1,054)
                                                        -------  ------  ------
      Net unrealized appreciation (depreciation)....... $(2,748)  2,809   1,958
                                                        =======  ======  ======
</TABLE>

  The Company has fixed maturities on deposit with various state insurance
departments with an amortized cost of approximately $4,082,871 and $4,120,850
at December 31, 1999 and 1998 respectively.

                                      F-9
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

(3) Reinsurance

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

  Premiums and related reinsurance amounts for the years ended December 31,
1999, 1998 and 1997 as they relate to transactions with affiliates are
summarized as follows (000's):

<TABLE>
<CAPTION>
                                                            1999    1998   1997
                                                           ------- ------ ------
      <S>                                                  <C>     <C>    <C>
      Reinsurance transactions with affiliates:
        Premiums for reinsurance ceded.................... $16,869 14,723 13,001
        Policy benefits ceded.............................  16,823 17,071 14,070
        Commissions and expenses ceded....................     292    123    195
        Reinsurance recoverables..........................   1,268  1,109  1,661
</TABLE>

  Ceded premiums and benefits to nonaffiliates for 1999, 1998 and 1997 were
insignificant.

(4) Deferred Policy Acquisition Costs

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

<TABLE>
<CAPTION>
                                                         1999     1998    1997
                                                        -------  ------  ------
      <S>                                               <C>      <C>     <C>
      Balance at beginning of year....................  $20,602  17,980  15,776
      Policy acquisition costs deferred...............    4,185   3,808   2,972
      Policy acquisition costs amortized..............   (1,631) (1,150)   (424)
      Deferred policy acquisition costs relating to
       change in unrealized (gain) loss on investments
       available for sale.............................    1,201     (36)   (344)
                                                        -------  ------  ------
      Balance at end of year..........................  $24,357  20,602  17,980
                                                        =======  ======  ======
</TABLE>

(5) Administration System Write-off

  In 1999 Paragon expensed $4,787,275 relating to the termination of a system
development project for policy administration. The one-time write-off in 1999
of previously capitalized amounts was $3,963,450 and other costs incurred in
1999 relating to the project were $823,825. Other costs incurred and expensed
in 1998 and 1997 were $468,794 and $0, respectively.

(6) Federal Income Taxes

  The Company is taxed as a life insurance company. A summary of Federal income
tax expense is as follows (000s):

<TABLE>
<CAPTION>
                                                              1999   1998  1997
                                                             ------- ----- -----
      <S>                                                    <C>     <C>   <C>
      Current tax expense................................... $ 1,030 1,628 1,153
      Deferred tax expense..................................     469   740   732
                                                             ------- ----- -----
      Federal income tax expense............................ $ 1,499 2,368 1,885
                                                             ======= ===== =====
</TABLE>

                                      F-10
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

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

<TABLE>
<CAPTION>
                                                             1999   1998  1997
                                                            ------- ----- -----
      <S>                                                   <C>     <C>   <C>
      Computed "expected" tax expense...................... $ 1,489 2,368 2,022
      Other, net...........................................      10     0  (137)
                                                            ------- ----- -----
      Federal income tax expense........................... $ 1,499 2,368 1,885
                                                            ======= ===== =====
</TABLE>

  The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1999, 1998 and
1997 are presented below (000's):

<TABLE>
<CAPTION>
                                                              1999   1998  1997
                                                             ------- ----- -----
      <S>                                                    <C>     <C>   <C>
      Deferred tax assets:
        Unearned reinsurance allowances..................... $   194   218   217
        Policy and contract liabilities.....................     583   709 1,031
        Tax capitalization of acquisition costs.............   2,559 2,147 1,755
        Other, net..........................................     359    58    76
        Unrealized Loss on investments, net.................   1,479   --    --
                                                             ------- ----- -----
          Total deferred tax assets......................... $ 5,174 3,132 3,079
                                                             ======= ===== =====
      Deferred tax liabilities:
        Unrealized gain on investments, net................. $   --  1,512 1,054
        Deferred policy acquisition costs...................   8,244 7,211 6,419
                                                             ------- ----- -----
          Total deferred tax liabilities.................... $ 8,244 8,723 7,473
                                                             ------- ----- -----
          Net deferred tax liabilities...................... $ 3,070 5,591 4,394
                                                             ======= ===== =====
</TABLE>

  The Company believes that a valuation allowance with respect to the
realization of the total gross deferred tax asset is not necessary. In
assessing the realization of deferred tax assets, the Company considers whether
it is more likely than not that the deferred tax assets will be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. The Company files a consolidated tax return with its Parent.
Realization of the gross tax asset will not be dependent solely on the
Company's ability to generate its own taxable income. General American has a
proven history of earnings and it appears more likely than not that the
Company's gross deferred tax asset will ultimately be fully realized.

(7) Related-Party Transactions

  Paragon purchases certain administrative services from General American.
Charges for services performed are based upon personnel and other costs
involved in providing such service. Charges for services during 1999, 1998 and
1997 were $2,247,302, $1,513,433 and $1,348,198, respectively. See Note 3 for
reinsurance transactions with affiliates.

(8) Pension Plan

  Associates of Paragon participate in a non-contributory multi-employer
defined benefit pension plan jointly sponsored by Paragon and General American.
The benefits are based on years of service and compensation level. No pension
expense was recognized in 1999, 1998 or 1997 due to overfunding of the plan.

                                      F-11
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

  In addition, Paragon has adopted an associate incentive plan applicable to
full-time salaried associates with at least one year of service. Contributions
to the plan are determined annually by General American and are based on
salaries of eligible associates. Full vesting occurs after five years of
continuous service. Total expenses to the Company for the incentive plan were
$0, $188,316 and $198,972 for 1999, 1998 and 1997, respectively.

  As a result of the Metropolitan Life Insurance purchase, Paragon implemented
a new bonus program covering all associates employed from October 1, 1999
through March 31, 2000 with at least 1000 hours of service during 1999. Total
expense to the Company for this program was $422,700 in 1999.

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

(9) Statutory Financial Information

  The Company is subject to financial statement filing requirements of the
State of Missouri Department of Insurance, its state of domicile, as well as
the states in which it transacts business. Such financial statements, generally
referred to as statutory financial statements, are prepared on a basis of
accounting which varies in some respects from generally accepted accounting
principles (GAAP). Statutory accounting principles include: (1) charging of
policy acquisition costs to income as incurred; (2) establishment of policy and
contract liabilities computed using required valuation standards which may vary
in methodology utilized; (3) nonprovision of deferred federal income taxes
resulting from temporary differences between financial reporting and tax bases
of assets and liabilities; (4) recognition of statutory liabilities for asset
impairments and yield stabilization on fixed maturity dispositions prior to
maturity with asset valuation reserves based on statutory determined formulae
and interest stabilization reserves designed to level yields over their
original purchase maturities; (5) valuation of investments in fixed maturities
at amortized cost; (6) net presentation of reinsurance balances; (7)
presentation of indirect cash flows; (8) exclusion of comprehensive income
disclosures; and (9) recognition of deposits and withdrawals on universal life
policies as revenues and expenses.

  The stockholder's equity (surplus) and net income of the Company at December
31, 1999, 1998 and 1997, as determined using statutory accounting practices, is
summarized as follows (000's):

<TABLE>
<CAPTION>
                                                          1999    1998   1997
                                                         ------- ------ ------
      <S>                                                <C>     <C>    <C>
      Statutory surplus as reported to regulatory
       authorities...................................... $13,545 10,500 10,725
      Net income as reported to regulatory authorities.. $   300  1,596  1,397
</TABLE>

(10) Dividend Restrictions

  Dividend payments by Paragon are restricted by state insurance laws as to the
amount that may be paid without prior notice or approval of the Missouri
Department of Insurance. The maximum amount of dividends which can be paid
without prior approval of the insurance commissioner is limited to the maximum
of (1) 10% of statutory surplus or (2) net gain from operations. The maximum
dividend distribution that can be paid by Paragon during 1999 without prior
notice or approval is $300,406. Paragon did not pay dividends in 1999, 1998 or
1997.

(11) Risk-Based Capital

  The insurance departments of various states, including the Company's
domiciliary state of Missouri, impose risk-based capital (RBC) requirements on
insurance enterprises. The RBC calculation serves as a

                                      F-12
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)
benchmark for the regulation of life insurance companies by state insurance
regulators. The requirements apply various weighted factors to financial
balances or activity levels based on their perceived degree of risk.

  The RBC guidelines define specific capital levels where action by the Company
or regulators is required based on the ratio of a company's actual total
adjusted capital to control levels determined by the RBC formula. At December
31, 1999, the Company's actual total adjusted capital was in excess of minimum
levels which would require action by the Company or regulatory authorities
under the RBC formula.

(12) Commitments and Contingencies

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

<TABLE>
      <S>                                                                <C>
      Year ended December 31:
        2000............................................................ $   750
        2001............................................................     321
        2002............................................................     130
        2003............................................................      99
                                                                         -------
                                                                         $ 1,300
                                                                         =======
</TABLE>

  Rent expense totaled $507,512, $489,999, and $433,864 in 1999, 1998 and 1997,
respectively.

(13) Comprehensive Income

  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", effective for years beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. The most significant items of comprehensive
income are net income and changes in unrealized gains and losses on securities.
The adoption of SFAS No. 130 does not affect results of operations or financial
position, but affects their presentation and disclosure. The Company has
adopted SFAS No. 130 as of January 1, 1998, and the following summaries present
the components of the Company's comprehensive income, other than net income,
for the periods ending December 31, 1999, 1998 and 1997 (000s):

<TABLE>
<CAPTION>
                                                             1999
                                                -------------------------------
                                                              Tax
                                                Before-Tax (Expense) Net-of-Tax
                                                  Amount   Benefit     Amount
                                                ---------- --------  ----------
      <S>                                       <C>        <C>       <C>
      Unrealized holding losses arising during
       period..................................  $(8,492)   2,972      (5,520)
      Less: reclassification adjustment for
       gains realized in net income............      (57)      20         (37)
                                                 -------    -----      ------
      Other comprehensive loss.................   (8,549)   2,992      (5,557)
                                                 =======    =====      ======
</TABLE>

                                      F-13
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

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

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

                                      F-14
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Paragon Life Insurance Company and
 Policyholders of Separate Account B's Scudder Divisions:

  We have audited the accompanying statements of net assets, including the
schedule of investments, of the Money Market, International, Capital Growth,
Balanced, Bond, Growth & Income and Global Discovery Divisions of Paragon
Separate Account B as of December 31, 1999, and related statements of
operations and changes in net assets for each of the periods in the three year
period then ended. These financial statements are the responsibility of the
management of Paragon Separate Account B. Our responsibility is to express an
opinion on these financial statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at December 31, 1999 by
correspondence with the Scudder Variable Life Investment Fund. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Money Market,
International, Capital Growth, Balanced, Bond, Growth & Income and Global
Discovery Divisions of Paragon Separate Account B as of December 31, 1999, and
the results of their operations and changes in their net assets for each of the
periods in the three year period then ended, in conformity with generally
accepted accounting principles.


March 10, 2000

KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is a member of KPMG
International, a Swiss association.

                                      F-15
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                            STATEMENTS OF NET ASSETS
                               December 31, 1999

<TABLE>
<CAPTION>
                          Money                  Capital                    Growth &  Global
                          Market  International  Growth   Balanced   Bond    Income  Discovery
                         Division   Division    Division  Division Division Division Division
                         -------- ------------- --------- -------- -------- -------- ---------
<S>                      <C>      <C>           <C>       <C>      <C>      <C>      <C>
Net Assets:
  Investments in Scudder
   Investments, at
   Market Value (See
   Schedule of
   Investments)......... $107,458    976,038    2,249,701 983,502  209,666  476,350   18,386
  Receivable from
   (payable to) Paragon
   Life Insurance
   Company..............      --          55           83      55      --        84      --
                         --------    -------    --------- -------  -------  -------   ------
    Total Net Assets.... $107,458    976,093    2,249,784 983,557  209,666  476,434   18,386
                         ========    =======    ========= =======  =======  =======   ======
Net Assets, represent-
 ing:
  Equity of Contract
   Owners............... $107,409    975,679    2,248,803 983,119  209,571  476,222   18,378
  Equity of Paragon Life
   Insurance Company....       49        414          981     438       95      212        8
                         --------    -------    --------- -------  -------  -------   ------
                         $107,458    976,093    2,249,784 983,557  209,666  476,434   18,386
                         ========    =======    ========= =======  =======  =======   ======
Total Units Held........   85,564     37,559       55,141  44,991   23,315   33,437    1,387
Net Asset Value Per
 Unit................... $   1.26      25.98        40.78   21.85     8.99    14.24    13.25
Cost of Investments..... $107,458    627,557    1,447,076 775,896  218,557  470,926   12,184
                         ========    =======    ========= =======  =======  =======   ======
</TABLE>



                See Accompanying Notes to Financial Statements.

                                      F-16
<PAGE>

                          PARAGON SEPARATE ACCOUNT B

                           STATEMENTS OF OPERATIONS

 For the Years Ended December 31, 1999, 1998, and 1997, except for the Global
                              Discovery Division
  which is for the period from May 15, 1998 (Inception) to December 31, 1998.

<TABLE>
<CAPTION>
                     Money Market Division   International Division     Capital Growth Division       Balanced Division
                     ----------------------  ------------------------ ----------------------------- ----------------------
                      1999     1998   1997    1999     1998     1997    1999       1998      1997    1999    1998    1997
                     -------  ------ ------  -------  -------  ------ ---------  ---------  ------- ------- ------- ------
<S>                  <C>      <C>    <C>     <C>      <C>      <C>    <C>        <C>        <C>     <C>     <C>     <C>
Investment Income:
 Dividend Income...  $ 4,524   2,514  1,697    3,862    9,586   6,239     4,505     10,625   67,231  10,818  16,634 12,268
Expenses:
 Mortality and
 Expense Charge....      730     364    260    5,713    4,279   3,814    14,587     10,303    8,396   6,948   4,734  3,712
                     -------  ------ ------  -------  -------  ------ ---------  ---------  ------- ------- ------- ------
   Net Investment
   Income
   (Expense).......    3,794   2,150  1,437   (1,851)   5,307   2,425   (10,082)       322   58,835   3,870  11,900  8,556
Net Realized Gain
on Investments
 Realized Gain
 from
 Distributions.....      --      --     --    54,461   63,044   3,268   159,059     67,200    2,366  54,670  26,776 20,984
 Proceeds from
 Sales.............   18,828  11,296 18,673  156,952  112,597  68,547   294,883    264,342  149,231 165,754  83,851 70,741
 Cost of
 Investments Sold..   18,828  11,296 18,673  132,987  100,354  56,471   220,294    202,151  104,692 136,484  69,758 56,070
                     -------  ------ ------  -------  -------  ------ ---------  ---------  ------- ------- ------- ------
   Net Realized
   Gain on
   Investments.....      --      --     --    78,426   75,287  15,344   233,648    129,391   46,905  83,940  40,869 35,655
Net Unrealized Gain
(Loss) on
Investments:
 Unrealized Gain
 (Loss) Beginning
 of Year...........      --      --     --    86,528   78,522  59,971   457,526    316,515  120,746 173,652  97,262 43,162
 Unrealized Gain
 (Loss) End of
 Year..............      --      --     --   348,481   86,528  78,522   802,625    457,526  316,515 207,606 173,652 97,262
                     -------  ------ ------  -------  -------  ------ ---------  ---------  ------- ------- ------- ------
 Net Unrealized
 Gain (Loss) on
 Investments.......      --      --     --   261,953    8,006  18,551   345,099    141,011  195,769  33,954  76,390 54,100
                     -------  ------ ------  -------  -------  ------ ---------  ---------  ------- ------- ------- ------
   Net Gain (Loss)
   on Investments..      --      --     --   340,379   83,293  33,895   578,747    270,402  242,674 117,894 117,259 89,755
                     -------  ------ ------  -------  -------  ------ ---------  ---------  ------- ------- ------- ------
Increase (Decrease)
in Net Assets
Resulting from
Operations.........  $ 3,794   2,150  1,437  338,528   88,600  36,320   568,665    270,724  301,509 121,764 129,159 98,311
                     =======  ====== ======  =======  =======  ====== =========  =========  ======= ======= ======= ======
<CAPTION>
                                                Growth & Income             Global
                         Bond Division              Division          Discovery Division
                     ----------------------  ------------------------ --------------------
                      1999     1998   1997    1999     1998     1997    1999       1998
                     -------  ------ ------  -------  -------  ------ ---------  ---------
<S>                  <C>      <C>    <C>     <C>      <C>      <C>    <C>        <C>        <C>     <C>     <C>     <C>
Investment Income:
 Dividend Income...  $ 7,739   8,740  5,950    4,300    6,710   3,833       --         --
Expenses:
 Mortality and
 Expense Charge....    1,585   1,121    930    3,390    2,254   1,275        58          1
                     -------  ------ ------  -------  -------  ------ ---------  ---------
   Net Investment
   Income
   (Expense).......    6,154   7,619  5,020      910    4,456   2,558       (58)        (1)
Net Realized Gain
on Investments
 Realized Gain
 from
 Distributions.....      773     481  1,659   24,411   15,633   3,309        18
 Proceeds from
 Sales.............   32,355  30,061 27,553  106,367   67,098  26,569     1,402         52
 Cost of
 Investments Sold..   33,369  30,206 24,606  102,472   62,590  22,348     1,237         51
                     -------  ------ ------  -------  -------  ------ ---------  ---------
   Net Realized
   Gain on
   Investments.....     (241)    336  4,606   28,306   20,141   7,530       183          1
Net Unrealized Gain
(Loss) on
Investments:
 Unrealized Gain
 (Loss) Beginning
 of Year...........      535      35     51   20,860   37,619   7,630        59        --
 Unrealized Gain
 (Loss) End of
 Year..............   (8,891)    535     35    5,424   20,860  37,619     6,202         59
                     -------  ------ ------  -------  -------  ------ ---------  ---------
 Net Unrealized
 Gain (Loss) on
 Investments.......   (9,426)    500    (16) (15,436) (16,759) 29,989     6,143         59
                     -------  ------ ------  -------  -------  ------ ---------  ---------
   Net Gain (Loss)
   on Investments..   (9,667)    836  4,590   12,870    3,382  37,519     6,326         60
                     -------  ------ ------  -------  -------  ------ ---------  ---------
Increase (Decrease)
in Net Assets
Resulting from
Operations.........  $(3,513)  8,455  9,610   13,780    7,838  40,077     6,268         59
                     =======  ====== ======  =======  =======  ====== =========  =========
</TABLE>
                See Accompanying Notes to Financial Statements.

                                      F-17
<PAGE>

                          PARAGON SEPARATE ACCOUNT B

                      STATEMENTS OF CHANGES IN NET ASSETS

 For the Years ended December 31, 1999, 1998, and 1997, except for the Global
                           Discovery Division which
     is for the period from May 15, 1998 (inception) to December 31, 1998.

<TABLE>
<CAPTION>
                          Money Market Division   International Division       Capital Growth Division
                         ------------------------ ------------------------  -------------------------------
                           1999    1998    1997    1999     1998    1997      1999       1998       1997
                         -------- ------- ------- -------  ------- -------  ---------  ---------  ---------
<S>                      <C>      <C>     <C>     <C>      <C>     <C>      <C>        <C>        <C>       <C>     <C>
Operations:
 Net Investment Income
 (Expense).............  $  3,794   2,150   1,437  (1,851)   5,307   2,425    (10,082)       322     58,835
 Net Realized Gain
 (Loss) on Investments.       --      --      --   78,426   75,287  15,344    233,648    129,391     46,905
 Net Unrealized Gain
 (Loss) on Investments.       --      --      --  261,953    8,006  18,551    345,099    141,011    195,769
                         -------- ------- ------- -------  ------- -------  ---------  ---------  ---------
   Increase (Decrease)
   in Net Assets Re-
   sulting from
   Operations..........     3,794   2,150   1,437 338,528   88,600  36,320    568,665    270,724    301,509
    Net Deposits into
    Separate Account...    26,053  42,677   5,480  31,554    5,924  73,456    115,249     75,940    140,956
                         -------- ------- ------- -------  ------- -------  ---------  ---------  ---------
     Increase in Net
     Assets............    29,847  44,827   6,917 370,082   94,524 109,776    683,914    346,664    442,465
 Net Assets, Beginning
 of Year...............    77,611  32,784  25,867 606,011  511,487 401,711  1,565,870  1,219,206    776,741
                         -------- ------- ------- -------  ------- -------  ---------  ---------  ---------
 Net Assets, End of
 Year..................  $107,458  77,611  32,784 976,093  606,011 511,487  2,249,784  1,565,870  1,219,206
                         ======== ======= ======= =======  ======= =======  =========  =========  =========
<CAPTION>
                                                                                                              Global
                            Balanced Division          Bond Division          Growth & Income Division       Discovery
                         ------------------------ ------------------------  ------------------------------- ------------
                           1999    1998    1997    1999     1998    1997      1999       1998       1997     1999   1998
                         -------- ------- ------- -------  ------- -------  ---------  ---------  --------- ------  ----
<S>                      <C>      <C>     <C>     <C>      <C>     <C>      <C>        <C>        <C>       <C>     <C>
Operations:
 Net Investment Income
 (Expense).............  $  3,870  11,900   8,556   6,154    7,619   5,020        910      4,456      2,558    (58)  (1)
 Net Realized Gain
 (Loss) on Investments.    83,940  40,869  35,655    (241)     336   4,606     28,306     20,141      7,530    183    1
 Net Unrealized Gain
 (Loss) on Investments.    33,954  76,390  54,100  (9,426)     500     (16)   (15,436)   (16,759)    29,989  6,143   59
                         -------- ------- ------- -------  ------- -------  ---------  ---------  --------- ------  ---
   Increase (Decrease)
   in Net Assets Re-
   sulting from
   Operations..........   121,764 129,159  98,311  (3,513)   8,455   9,610     13,780      7,838     40,077  6,268   59
    Net Deposits into
    Separate Account...   101,725  93,743  69,393  35,257   41,324  14,364    104,619    131,034     97,894 11,545  514
                         -------- ------- ------- -------  ------- -------  ---------  ---------  --------- ------  ---
     Increase in Net
     Assets............   223,489 222,902 167,704  31,744   49,779  23,974    118,399    138,872    137,971 17,813  573
 Net Assets, Beginning
 of Year...............   760,068 537,166 369,462 177,922  128,143 104,169    358,035    219,163     81,192    573  --
                         -------- ------- ------- -------  ------- -------  ---------  ---------  --------- ------  ---
 Net Assets, End of
 Year..................  $983,557 760,068 537,166 209,666  177,922 128,143    476,434    358,035    219,163 18,386  573
                         ======== ======= ======= =======  ======= =======  =========  =========  ========= ======  ===
</TABLE>

                See Accompanying Notes to Financial Statements.

                                      F-18
<PAGE>

                           PARAGON SEPARATE ACCOUNT B
                         Notes to Financial Statements

                               December 31, 1999

(1) Organization

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

(2) Significant Accounting Policies

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

 Investments

  The Separate Account's investments in the Funds of Scudder are valued daily
based on the net asset values of the respective fund shares held. The average
cost method is used in determining the cost of shares sold on withdrawals by
the Separate Account. Share transactions are recorded consistent with trade
date accounting. All dividends received are immediately reinvested on the ex-
dividend date.

 Federal Income Taxes

  The operations of the Separate Account are treated as part of Paragon for
income tax purposes. Under existing Federal income tax law, capital gains from
sales of investments of the Separate Account are not taxable. Therefore, no
Federal income tax has been provided.

 Use of Estimates

  The preparation of financial statements requires management to make estimates
and assumptions with respect to amounts reported in the financial statements.
Actual results could differ from those estimates.

(3) Policy Charges

  Charges are deducted from the policies and the Separate Account to compensate
Paragon for providing the insurance benefits set forth in the contracts and any
additional benefits added by rider, administering the policies, incurring
expenses in distributing the policies, and assuming certain risks in connection
with the policy.

 Premium Expense Charge

  Certain policies include a provision that premium payments may be reduced by
a premium expense charge. The premium expense charge is determined by the costs
associated with distributing the policy and, if applicable, is equal to 1% of
the premium paid. The premium expense charge compensates Paragon for providing
the insurance benefits set forth in the policies, incurring expenses of
distributing the policies, and

                                      F-19
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                   Notes to Financial Statements--(Continued)
assuming certain risks in connection with the policies. In addition, some
polices have a premium tax assessment equal to 2% or 2.25% to reimburse Paragon
for premium taxes incurred. The premium payment less premium expense and
premium tax charges equals the net premium that is invested in the underlying
separate account.

 Monthly Expense Charge

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

 Cost of Insurance

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

 Optional Rider Benefits Charge

  The optional rider benefits charge is a monthly deduction for any additional
benefits provided by policy riders.

 Surrender or Contingent Deferred Sales Charge

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

 Mortality and Expense Charge

  In addition to the above contract charges, a daily charge against the
operations of each division is made for the mortality and expense risks assumed
by Paragon. Paragon deducts a daily charge from the Separate Account at the
rate of .0020471% of the net assets of each division of the Separate Account
which equals an annual rate of .75% of those net assets. The mortality risk
assumed by Paragon is that insureds may die sooner than anticipated and that,
therefore, Paragon will pay an aggregate amount of death benefits greater than
anticipated. The expense risk assumed is that expenses incurred in issuing and
administering the policy will exceed the amounts realized from the
administrative charges assessed against the policy.

                                      F-20
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                   Notes to Financial Statements--(Continued)

(4) Purchases and Sales of Scudder Investment Series Shares

  For the years ended December 31, 1999, 1998, and 1997 except for the Global
Discovery Division which is for the period from May 15, 1998 (Inception) to
December 31, 1998; purchases and proceeds from sales of Scudder Variable Life
Investment Funds were as follows:

<TABLE>
<CAPTION>
                         Money Market Division International Division  Capital Growth Division
                         --------------------- ----------------------- -----------------------
                          1999    1998   1997   1999    1998    1997    1999    1998    1997
                         ------- ------ ------ ------- ------- ------- ------- ------- -------
<S>                      <C>     <C>    <C>    <C>     <C>     <C>     <C>     <C>     <C>
Purchases............... $44,371 53,364 23,916 185,087 111,520 138,552 407,432 317,123 282,658
Sales................... $18,828 11,296 18,673 156,952 112,597  68,547 294,883 264,342 149,231
                         ======= ====== ====== ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
                                                                           Growth & Income       Global
                            Balanced Division        Bond Division            Division          Discovery
                         ------------------------ -------------------- ----------------------- -----------
                           1999    1998    1997    1999   1998   1997   1999    1998    1997    1999  1998
                         -------- ------- ------- ------ ------ ------ ------- ------- ------- ------ ----
<S>                      <C>      <C>     <C>     <C>    <C>    <C>    <C>     <C>     <C>     <C>    <C>
Purchases............... $274,510 158,435 136,801 66,448 69,750 41,077 208,443 194,789 123,344 12,889 565
Sales................... $165,754  83,851  70,741 32,355 30,061 27,553 106,367  67,098  26,569  1,402  52
                         ======== ======= ======= ====== ====== ====== ======= ======= ======= ====== ===
</TABLE>

(5) Accumulation of Unit Activity

  The following is a reconciliation of the accumulation of unit activity for
the years ended December 31, 1999, 1998, and 1997, except for the Global
Discovery Division which is for the period from May 15, 1998 (inception) to
December 31, 1998.

<TABLE>
<CAPTION>
                             Money Market        International        Capital Growth
                               Division             Division             Division
                         -------------------- -------------------- --------------------
                          1999   1998   1997   1999   1998   1997   1999   1998   1997
                         ------ ------ ------ ------ ------ ------ ------ ------ ------
<S>                      <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
Net Increase in Units
 Deposits............... 35,974 45,369 21,325 10,022  7,107 10,046 12,248 11,935 13,559
 Withdrawals............ 14,831  9,370 16,319  8,240  6,829  4,720  8,642  9,447  6,577
                         ------ ------ ------ ------ ------ ------ ------ ------ ------
   Net Increase in
    Units............... 21,143 35,999  5,006  1,782    278  5,326  3,606  2,488  6,982
Outstanding Units,
 Beginning of Year...... 64,421 28,422 23,416 35,777 35,499 30,173 51,535 49,047 42,065
                         ------ ------ ------ ------ ------ ------ ------ ------ ------
Outstanding Units, End
 of Year................ 85,564 64,421 28,422 37,559 35,777 35,499 55,141 51,535 49,047
                         ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
                                                                                          Global
                                                                     Growth & Income    Discovery
                          Balanced Division      Bond Division           Division        Division
                         -------------------- -------------------- -------------------- ----------
                          1999   1998   1997   1999   1998   1997   1999   1998   1997  1999  1998
                         ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ----
<S>                      <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>   <C>
Net Increase in Units
 Deposits............... 13,201 10,163 10,116  7,282  7,938  5,071 14,411 14,262 11,243 1,460  78
 Withdrawals............  8,020  4,734  4,939  3,425  3,295  3,293  7,439  4,975  2,275   144   7
                         ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ---
   Net Increase in
    Units...............  5,181  5,429  5,177  3,857  4,643  1,778  6,972  9,287  8,968 1,316  71
Outstanding Units,
 Beginning of Year...... 39,810 34,381 29,204 19,458 14,815 13,037 26,465 17,178  8,210    71 --
                         ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ---
Outstanding Units, End
 of Year................ 44,991 39,810 34,381 23,315 19,458 14,815 33,437 26,465 17,178 1,387  71
                         ====== ====== ====== ====== ====== ====== ====== ====== ====== ===== ===
</TABLE>


                                      F-21
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                   Notes to Financial Statements--(Continued)
(6) Reconciliation of Gross and Net Deposits into the Separate Account

  Deposits into the Separate Account purchase shares of Scudder Variable Life
Investment Fund. Net deposits represent the amount available for investment in
such shares after deduction of premium expense charges, monthly expense
charges, cost of insurance and the cost of optional benefits added by rider.
The following is a summary of net deposits made for the years ended December
31, 1999, 1998, and 1997, except for the Global Discovery Division which is for
the period from May 15, 1998 (inception) to December 31, 1998.

<TABLE>
<CAPTION>
                        Money Market Division      International Division      Capital Growth Division
                       --------------------------  -------------------------  ---------------------------
                         1999     1998     1997     1999     1998     1997      1999      1998     1997
                       --------  -------  -------  -------  -------  -------  --------  --------  -------
<S>                    <C>       <C>      <C>      <C>      <C>      <C>      <C>       <C>       <C>      <C>    <C>
Total Gross Deposits.. $ 33,424   25,225   18,433  176,515  164,286  172,592   431,496   377,928  334,899
Surrenders and
 Withdrawals..........   (4,670)    (505) (13,596) (82,647) (84,896) (30,987) (170,285) (150,589) (56,497)
Transfers Between
 Funds and General
 Account..............    9,057   25,891    8,319   (8,662) (15,319) (12,712)    1,787      (101)  (1,888)
                       --------  -------  -------  -------  -------  -------  --------  --------  -------
 Total Gross Deposits
  net of Surrenders,
  Withdrawals, and
  Transfers...........   37,811   50,611   13,156   85,206   64,071  128,893   262,998   227,238  276,514
Deductions:
 Premium Expense
  Charges.............      981      740      543    5,186    4,819    5,084    12,684    11,085    9,865
 Monthly Expense
  Charges.............      779      497      433    3,504    3,685    4,050     9,764     9,690    7,859
 Cost of Insurance
  and Optional
  Benefits............    9,998    6,697    6,700   44,962   49,643   46,303   125,301   130,523  117,834
                       --------  -------  -------  -------  -------  -------  --------  --------  -------
   Total Deductions...   11,758    7,934    7,676   53,652   58,147   55,437   147,749   151,298  135,558
                       --------  -------  -------  -------  -------  -------  --------  --------  -------
Net Deposits from
 Policyholders........ $ 26,053   42,677    5,480   31,554    5,924   73,456   115,249    75,940  140,956
                       ========  =======  =======  =======  =======  =======  ========  ========  =======
<CAPTION>
                                                                                                              Global
                          Balanced Division             Bond Division         Growth & Income Division      Discovery
                       --------------------------  -------------------------  ---------------------------  ------------
                         1999     1998     1997     1999     1998     1997      1999      1998     1997     1999  1998
                       --------  -------  -------  -------  -------  -------  --------  --------  -------  ------ -----
<S>                    <C>       <C>      <C>      <C>      <C>      <C>      <C>       <C>       <C>      <C>    <C>
Total Gross Deposits.. $279,270  208,733  168,771   73,305   79,806   52,193   233,644   209,544  129,485  13,335 1,239
Surrenders and
 Withdrawals..........  (97,872) (28,227) (34,296)  (8,447)  (4,783)  (9,875)  (36,802)  (17,789)  (7,167)    --    (11)
Transfers Between
 Funds and General
 Account..............   15,106  (14,287)  (2,412)  (8,709) (12,203)  (9,318)  (27,875)    1,021   15,123     715   --
                       --------  -------  -------  -------  -------  -------  --------  --------  -------  ------ -----
 Total Gross Deposits
  net of Surrenders,
  Withdrawals, and
  Transfers...........  196,504  166,219  132,063   56,149   62,820   33,000   168,967   192,776  137,441  14,050 1,228
Deductions:
 Premium Expense
  Charges.............    8,207    6,122    4,971    2,152    2,341    1,537     6,865     6,146    3,814     393    36
 Monthly Expense
  Charges.............    6,259    4,586    3,961    1,355    1,324    1,225     4,156     3,842    3,039     153    47
 Cost of Insurance
  and Optional
  Benefits............   80,313   61,768   53,738   17,385   17,831   15,874    53,327    51,754   32,694   1,959   631
                       --------  -------  -------  -------  -------  -------  --------  --------  -------  ------ -----
   Total Deductions...   94,779   72,476   62,670   20,892   21,496   18,636    64,348    61,742   39,547   2,505   714
                       --------  -------  -------  -------  -------  -------  --------  --------  -------  ------ -----
Net Deposits from
 Policyholders........ $101,725   93,743   69,393   35,257   41,324   14,364   104,619   131,034   97,894  11,545   514
                       ========  =======  =======  =======  =======  =======  ========  ========  =======  ====== =====
</TABLE>

                                      F-22
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                   Notes to Financial Statements--(Continued)

(7) Subsequent Event

  On January 6, 2000, Paragon Life Insurance Co.'s ultimate parent, GenAmerica
Corporation, was purchased by Metropolitan Life Insurance Company.

                                      F-23
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                            SCHEDULE OF INVESTMENTS

                               December 31, 1999

<TABLE>
<CAPTION>
                                                  Number
                                                    of      Market
                                                  Shares    Value       Cost
                                                  ------- ---------- ----------
<S>                                               <C>     <C>        <C>
Scudder Variable Insurance Series:
  Money Market Division.......................... 107,458 $  107,458 $  107,458
  International Division.........................  47,988 $  976,038 $  627,557
  Capital Growth Division........................  77,232 $2,249,701 $1,447,076
  Balanced Division..............................  61,049 $  983,502 $  775,896
  Bond Division..................................  32,306 $  209,666 $  218,557
  Growth & Income Division.......................  43,463 $  476,350 $  470,926
  Global Discovery...............................   1,395 $   18,386 $   12,184
</TABLE>




                 See Accompanying Independent Auditor's Report.

                                      F-24
<PAGE>

                                  APPENDIX A

                Illustrations of Death Benefits and Cash Values

  The following tables illustrate how the Cash Value and Death Benefit of a
Policy change with the investment experience of a Division of the Separate
Account. The tables show how the Cash Value and Death Benefit of a Policy
issued to an Insured of a given age and at a given premium would vary over
time if the investment return on the assets held in each Division of the
Separate Account were a uniform, gross, after-tax annual rate of 0%, 6% or
12%. In addition, the Cash Values and Death Benefits would be different from
those shown if the gross annual investment rates of return averaged 0%, 6%,
and 12% over a period of years, but fluctuated above and below those averages
for individual Policy years.

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

  The Cash Value column under the "Guaranteed" heading shows the accumulated
value of the premiums paid reflecting deduction of the charges described above
and monthly charges for the cost of insurance based on the guaranteed rate
which is 125% of the maximum allowed under the 1980 Commissioners Standard
Ordinary Mortality Table C. The "Cash Value" column under the "Current"
heading shows the accumulated value of the premiums paid reflecting deduction
of the charges described above and monthly charges for the cost of insurance
at the current level for an Executive Program, which is less than or equal to
125% of the maximum allowed by the 1980 Commissioners Standard Ordinary
Mortality Table C. The illustrations of Death Benefits reflect the above
assumptions. The Death Benefits also vary between tables depending upon
whether Level Type (Option A) or Increasing Type (Option B) Death Benefits are
illustrated.

  The amounts shown for the Cash Value and Death Benefit reflect the fact that
the investment rate of return is lower than the gross after-tax return on the
assets held in a Division of the Separate Account. The charges include a .90%
charge for mortality and expense risk, an investment advisory fee of .454%,
representing the average of the fees incurred by the Funds in which the
Divisions invest (the actual investment advisory fee is shown in the Fund
prospectus), and a .435% charge that is an estimate of the Funds' expenses
based on the average of the actual expenses incurred in fiscal year 1999.
These charges take into account expense reimbursement arrangements expected to
be in place for 2000 for some of the Funds. In the absence of the
reimbursement arrangements for some of the Funds, the charges would have
totaled .634% and .657%, respectively. After deduction for these amounts, with
expense reimbursements the illustrated gross annual investment rates of return
of 0%, 6% and 12% correspond to approximate net annual rates of -1.790%,
4.210%, and 10.210%, respectively.

  The hypothetical values shown in the tables reflect all fees and charges
under the Policy, including the premium expense charge, the premium tax
charge, and all components of the monthly deduction. They do not reflect any
charges for federal income taxes against the Separate Account, since the
Company is not currently making any such charges. However, such charges may be
made in the future and, in that event, the gross annual investment rate of
return of the divisions of the Separate Account would have to exceed 0%, 6%,
and 12% by an amount sufficient to cover the tax charges in order to produce
the Death Benefit and Cash Value illustrated. (See "Federal Tax Matters.")
Additionally, the hypothetical values shown in the tables assume that the
Policy for which values are illustrated is not deemed an individual policy
under OBRA, and therefore the values do not reflect the additional 1% premium
expense charge for the Company's increased federal tax liabilities.

  The tables illustrate the Policy values that would result based upon the
investment rates of return if premiums are paid as indicated, and if no Policy
Loans have been made. The tables are also based on the assumptions that the
Owner has not requested an increase or decrease in the Face Amount, that no
partial withdrawals have been made, that no transfer charges were incurred,
and that no optional riders have been requested.

  Upon request, the Company will provide a comparable illustration based upon
the proposed Insured's age, group size and gender mix, the Face Amount and
premium requested and the proposed frequency of premium payments.

                                      A-1
<PAGE>

                   FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000                     AGE 45
DEATH BENEFIT OPTION: A                               ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00%                         $6,000.00
PREMIUM TAX: 2.25%                                    (Monthly Premium:
                                                      $500.00)

<TABLE>
<CAPTION>
                                FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
                                ANNUAL RATE OF RETURN at 0.00% (NET RATE at
                                                  1.790%)
                              --------------------------------------------------------------------
                                   GUARANTEED*                           CURRENT**
                              -------------------------------      -------------------------------
             PREM              CASH              DEATH              CASH              DEATH
 YR        at 5.00%            VALUE            BENEFIT             VALUE            BENEFIT
 ---       --------           -------           --------           -------           --------
 <S>       <C>                <C>               <C>                <C>               <C>
  1        $  6,161           $ 3,089           $500,000           $ 4,948           $500,000
  2          12,630             5,970            500,000             9,722            500,000
  3          19,423             8,600            500,000            14,362            500,000
  4          26,555            10,972            500,000            18,814            500,000
  5          34,045            13,063            500,000            23,077            500,000
  6          41,908            14,854            500,000            27,155            500,000
  7          50,165            16,317            500,000            31,061            500,000
  8          58,834            17,410            500,000            34,736            500,000
  9          67,937            18,099            500,000            38,242            500,000
 10          77,496            18,353            500,000            41,529            500,000
 11          87,532            18,164            500,000            44,548            500,000
 12          98,070            17,501            500,000            47,359            500,000
 13         109,134            16,359            500,000            49,914            500,000
 14         120,752            14,709            500,000            52,166            500,000
 15         132,951            12,497            500,000            54,115            500,000
 16         145,760             9,661            500,000            55,773            500,000
 17         159,209             6,087            500,000            57,086            500,000
 18         173,331             1,641            500,000            58,009            500,000
 19         188,159                 0                  0            58,546            500,000
 20         203,728                 0                  0            58,643            500,000
 25         294,060                 0                  0            49,836            500,000
 30         409,348                 0                  0            13,179            500,000
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
   rates.
**These values reflect investment results using current cost of insurance
   rates.

  The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value and Death
Benefit for a Policy would be different from those shown if the actual rates
of return averaged the rate shown above over a period of years, but also
fluctuated above or below that average for individual years. No representation
can be made by the Company, Walnut Street Securities, the investment
management company, or any representative thereof, that this hypothetical rate
of return can be achieved for any one year, or sustained over any period of
time.

  Illustrated values shown above are as of the end of the years indicated and
assume any additional premiums shown are received monthly on the Policy
Anniversary and further assume there is no Policy Indebtedness outstanding.

                                      A-2
<PAGE>

                   FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000                     AGE 45
DEATH BENEFIT OPTION: A                               ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00%                         $6,000.00
PREMIUM TAX: 2.25%                                    (Monthly Premium:
                                                      $500.00)

<TABLE>
<CAPTION>
                                FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
                                 ANNUAL RATE OF RETURN at 6.00% (NET RATE at
                                                   4.210%)
                              ---------------------------------------------------------------------
                                   GUARANTEED*                           CURRENT**
                              -------------------------------      --------------------------------
             PREM              CASH              DEATH               CASH              DEATH
 YR        at 5.00%            VALUE            BENEFIT             VALUE             BENEFIT
 ---       --------           -------           --------           --------           --------
 <S>       <C>                <C>               <C>                <C>                <C>
  1        $  6,161           $ 3,190           $500,000           $  5,109           $500,000
  2          12,630             6,358            500,000             10,347            500,000
  3          19,423             9,456            500,000             15,757            500,000
  4          26,555            12,470            500,000             21,287            500,000
  5          34,045            15,371            500,000             26,941            500,000
  6          41,908            18,131            500,000             32,726            500,000
  7          50,165            20,713            500,000             38,658            500,000
  8          58,834            23,062            500,000             44,685            500,000
  9          67,937            25,130            500,000             50,870            500,000
 10          77,496            26,871            500,000             57,169            500,000
 11          87,532            28,259            500,000             63,540            500,000
 12          98,070            29,242            500,000             70,043            500,000
 13         109,134            29,795            500,000             76,639            500,000
 14         120,752            29,865            500,000             83,288            500,000
 15         132,951            29,372            500,000             89,994            500,000
 16         145,760            28,225            500,000             96,775            500,000
 17         159,209            26,275            500,000            103,588            500,000
 18         173,331            23,345            500,000            110,398            500,000
 19         188,159            19,237            500,000            117,217            500,000
 20         203,728            13,743            500,000            124,005            500,000
 25         294,060                 0                  0            155,570            500,000
 30         409,348                 0                  0            174,421            500,000
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
   rates.
**These values reflect investment results using current cost of insurance
   rates.

  The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value and Death
Benefit for a Policy would be different from those shown if the actual rates
of return averaged the rate shown above over a period of years, but also
fluctuated above or below that average for individual years. No representation
can be made by the Company, Walnut Street Securities, the investment
management company, or any representative thereof, that this hypothetical rate
of return can be achieved for any one year, or sustained over any period of
time.

  Illustrated values shown above are as of the end of the years indicated and
assume any additional premiums shown are received monthly on the Policy
Anniversary and further assume there is no Policy Indebtedness outstanding.

                                      A-3
<PAGE>

                   FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000                     AGE: 45
DEATH BENEFIT OPTION: A                               ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00%                         $6,000.00
PREMIUM TAX: 2.25%                                    (Monthly Premium:
                                                      $500.00)

<TABLE>
<CAPTION>
                                FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
                                ANNUAL RATE OF RETURN at 12.00% (NET RATE at
                                                  10.210%)
                              ---------------------------------------------------------------------
                                   GUARANTEED*                           CURRENT**
                              -------------------------------      --------------------------------
             PREM              CASH              DEATH               CASH              DEATH
 YR        at 5.00%            VALUE            BENEFIT             VALUE             BENEFIT
 ---       --------           -------           --------           --------           --------
 <S>       <C>                <C>               <C>                <C>                <C>
  1        $  6,161           $ 3,290           $500,000           $  5,269           $500,000
  2          12,630             6,755            500,000             10,986            500,000
  3          19,423            10,367            500,000             17,238            500,000
  4          26,555            14,131            500,000             24,021            500,000
  5          34,045            18,040            500,000             31,389            500,000
  6          41,908            22,087            500,000             39,405            500,000
  7          50,165            26,258            500,000             48,149            500,000
  8          58,834            30,524            500,000             57,639            500,000
  9          67,937            34,861            500,000             68,018            500,000
 10          77,496            39,250            500,000             79,330            500,000
 11          87,532            43,693            500,000             91,633            500,000
 12          98,070            48,172            500,000            105,095            500,000
 13         109,134            52,693            500,000            119,802            500,000
 14         120,752            57,243            500,000            135,857            500,000
 15         132,951            61,786            500,000            153,424            500,000
 16         145,760            66,277            500,000            172,694            500,000
 17         159,209            70,623            500,000            193,836            500,000
 18         173,331            74,706            500,000            217,053            500,000
 19         188,159            78,396            500,000            242,619            500,000
 20         203,728            81,558            500,000            270,813            500,000
 25         294,060            84,735            500,000            464,718            539,073
 30         409,348            36,085            500,000            782,765            837,558
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
   rates.
**These values reflect investment results using current cost of insurance
   rates.

  The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value and Death
Benefit for a Policy would be different from those shown if the actual rates
of return averaged the rate shown above over a period of years, but also
fluctuated above or below that average for individual years. No representation
can be made by the Company, Walnut Street Securities, the investment
management company, or any representative thereof, that this hypothetical rate
of return can be achieved for any one year, or sustained over any period of
time.

  Illustrated values shown above are as of the end of the years indicated and
assume any additional premiums shown are received monthly on the Policy
Anniversary and further assume there is no Policy Indebtedness outstanding.

                                      A-4
<PAGE>

                   FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000                    AGE: 45
DEATH BENEFIT OPTION: B                              ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00%                        $12,000.00
PREMIUM TAX: 2.25%                                   (Monthly Premium:
                                                     $1,000.00)

<TABLE>
<CAPTION>
                                FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
                                ANNUAL RATE OF RETURN at 0.00% (NET RATE at--
                                                   1.790%)
                              ---------------------------------------------------------------------
                                   GUARANTEED*                           CURRENT**
                              -------------------------------      --------------------------------
             PREM              CASH              DEATH               CASH              DEATH
 YR        at 5.00%            VALUE            BENEFIT             VALUE             BENEFIT
 ---       --------           -------           --------           --------           --------
 <S>       <C>                <C>               <C>                <C>                <C>
  1        $ 12,322           $ 8,887           $508,887           $ 10,751           $510,751
  2          25,261            17,445            517,445             21,216            521,216
  3          38,846            25,630            525,630             31,434            531,434
  4          53,111            33,439            533,439             41,352            541,352
  5          68,090            40,847            540,847             50,967            550,967
  6          83,817            47,840            547,840             60,287            560,287
  7         100,330            54,387            554,387             69,321            569,321
  8         117,669            60,452            560,452             78,010            578,010
  9         135,875            65,999            565,999             86,420            586,420
 10         154,992            71,005            571,005             94,496            594,496
 11         175,064            75,465            575,465            102,186            602,186
 12         196,140            79,355            579,355            109,554            609,554
 13         218,269            82,678            582,678            116,548            616,548
 14         241,505            85,417            585,417            123,116            623,116
 15         265,903            87,526            587,526            129,259            629,259
 16         291,521            88,960            588,960            134,991            634,991
 17         318,419            89,622            589,622            140,253            640,253
 18         346,663            89,404            589,404            144,997            644,997
 19         376,319            88,196            588,196            149,229            649,229
 20         407,457            85,904            585,904            152,896            652,896
 25         588,120            56,561            556,561            160,027            660,027
 30         818,697                 0                  0            137,628            637,628
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
   rates.
**These values reflect investment results using current cost of insurance
   rates.

  The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value and Death
Benefit for a Policy would be different from those shown if the actual rates
of return averaged the rate shown above over a period of years, but also
fluctuated above or below that average for individual years. No representation
can be made by the Company, Walnut Street Securities, the investment
management company, or any representative thereof, that this hypothetical rate
of return can be achieved for any one year, or sustained over any period of
time.

  Illustrated values shown above are as of the end of the years indicated and
assume any additional premiums shown are received monthly on the Policy
Anniversary and further assume there is no Policy Indebtedness outstanding.

                                      A-5
<PAGE>

                   FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000                    AGE: 45
DEATH BENEFIT OPTION: B                              ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00%                        $12,000.00
PREMIUM TAX: 2.25%                                   (Monthly Premium:
                                                     $1,000.00)

<TABLE>
<CAPTION>
                            FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
                        ANNUAL RATE OF RETURN at 6.00% (NET RATE at 4.210%)
                        -----------------------------------------------------------------
                              GUARANTEED*                        CURRENT**
                        -------------------------------   -------------------------------
           PREM            CASH            DEATH             CASH            DEATH
 YR      at 5.00%         VALUE           BENEFIT           VALUE           BENEFIT
 ---     --------       ----------       -----------      ----------       -----------
 <S>     <C>            <C>              <C>              <C>              <C>
  1      $ 12,322       $    9,178       $  509,178       $   11,103       $  511,103
  2        25,261           18,566          518,566           22,576          522,576
  3        38,846           28,123          528,123           34,471          534,471
  4        53,111           37,845          537,845           46,745          546,745
  5        68,090           47,707          547,707           59,408          559,408
  6        83,817           57,692          557,692           72,475          572,475
  7       100,330           67,768          567,768           85,971          585,971
  8       117,669           77,889          577,889           99,846          599,846
  9       135,875           88,016          588,016          114,176          614,176
 10       154,992           98,111          598,111          128,921          628,921
 11       175,064          108,162          608,162          144,037          644,037
 12       196,140          118,130          618,130          159,600          659,600
 13       218,269          128,005          628,005          175,569          675,569
 14       241,505          137,753          637,753          191,899          691,899
 15       265,903          147,313          647,313          208,600          708,600
 16       291,521          156,618          656,618          225,693          725,693
 17       318,419          165,546          665,546          243,128          743,128
 18       346,663          173,954          673,954          260,858          760,858
 19       376,319          181,691          681,691          278,897          778,897
 20       407,457          188,614          688,614          297,190          797,190
 25       588,120          207,262          707,262          389,553          889,553
 30       818,697          179,367          679,367          469,966          969,966
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
   rates.
**These values reflect investment results using current cost of insurance
   rates.

  The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value and Death
Benefit for a Policy would be different from those shown if the actual rates
of return averaged the rate shown above over a period of years, but also
fluctuated above or below that average for individual years. No representation
can be made by the Company, Walnut Street Securities, the investment
management company, or any representative thereof, that this hypothetical rate
of return can be achieved for any one year, or sustained over any period of
time.

  Illustrated values shown above are as of the end of the years indicated and
assume any additional premiums shown are received monthly on the Policy
Anniversary and further assume there is no Policy Indebtedness outstanding.

                                      A-6
<PAGE>

                   FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000                    AGE: 45
DEATH BENEFIT OPTION: B                              ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00%                        $12,000.00
PREMIUM TAX: 2.25%                                   (Monthly Premium:
                                                     $1,000.00)

<TABLE>
<CAPTION>
                             FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
                        ANNUAL RATE OF RETURN at 12.00% (NET RATE at 10.210%)
                        -------------------------------------------------------------------
                              GUARANTEED*                         CURRENT**
                        -------------------------------   ---------------------------------
           PREM           CASH             DEATH             CASH              DEATH
 YR      at 5.00%         VALUE           BENEFIT            VALUE            BENEFIT
 ---     --------       ----------      ------------      -----------       ------------
 <S>     <C>            <C>             <C>               <C>               <C>
  1      $ 12,322       $   9,464       $   509,464       $    11,448       $   511,448
  2        25,261          19,711           519,711            23,966           523,966
  3        38,846          30,773           530,773            37,698           537,698
  4        53,111          42,718           542,718            52,706           552,706
  5        68,090          55,607           555,607            69,115           569,115
  6        83,817          69,509           569,509            87,067           587,067
  7       100,330          84,491           584,491           106,726           606,726
  8       117,669         100,613           600,613           128,198           628,198
  9       135,875         117,947           617,947           151,730           651,730
 10       154,992         136,580           636,580           177,470           677,470
 11       175,064         156,632           656,632           205,580           705,580
 12       196,140         178,209           678,209           236,366           736,366
 13       218,269         201,462           701,462           270,038           770,038
 14       241,505         226,532           726,532           306,828           806,828
 15       265,903         253,546           753,546           347,049           847,049
 16       291,521         282,641           782,641           391,057           891,057
 17       318,419         313,916           813,916           439,170           939,170
 18       346,663         347,464           847,464           491,745           991,745
 19       376,319         383,385           883,385           549,239         1,049,239
 20       407,457         421,802           921,802           612,085         1,112,085
 25       588,120         658,552         1,158,552         1,024,264         1,524,264
 30       818,697         985,792         1,485,792         1,656,905         2,156,905
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
   rates.
**These values reflect investment results using current cost of insurance
   rates.

  The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value and Death
Benefit for a Policy would be different from those shown if the actual rates
of return averaged the rate shown above over a period of years, but also
fluctuated above or below that average for individual years. No representation
can be made by the Company, Walnut Street Securities, the investment
management company, or any representative thereof, that this hypothetical rate
of return can be achieved for any one year, or sustained over any period of
time.

  Illustrated values shown above are as of the end of the years indicated and
assume any additional premiums shown are received monthly on the Policy
Anniversary and further assume there is no Policy Indebtedness outstanding.

                                      A-7
<PAGE>

      Underlying Funds Through:

      Fidelity Variable Insurance Products Fund
      Fidelity Variable Insurance Products Fund II
      MFS Variable Insurance Trust
      Putnam Variable Trust
      Scudder Variable Life Investment Fund
      T. Rowe Price Equity Series, Inc.
      T. Rowe Price Fixed Income Series, Inc.


            . GROUP AND INDIVIDUAL
              FLEXIBLE PREMIUM VARIABLE LIFE
              INSURANCE POLICIES

              Prospectus dated May 1, 2000
                                                                           50452
                                                                             Dir


<PAGE>

                     GROUP AND INDIVIDUAL FLEXIBLE PREMIUM
                        VARIABLE LIFE INSURANCE POLICIES
                                   ISSUED BY
                         PARAGON LIFE INSURANCE COMPANY
                              100 South Brentwood
                              St. Louis, MO 63105
                                 (314) 862-2211

  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 Income 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>

                The date of this Prospectus is May 1, 2000.
<PAGE>

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

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

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

                                       2
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Summary..................................................................   4
The Company, The Separate Account, and The Funds.........................  10
  The Company
  The Separate Account
  The Funds
  Addition, Deletion, or Substitution of Investments
Payment and Allocation of Premiums.......................................  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.............................................  25
  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...................................................  29
  Premium Expense Charges
  Premium Tax Charge
  Monthly Deduction
  Partial Withdrawal Transaction Charge
  Separate Account Charges
General Matters Relating to the Policy...................................  33
Distribution of the Policies.............................................  36
General Provisions of the Group Contract.................................  36
Federal Tax Matters......................................................  38
Safekeeping of the Separate Account's Assets.............................  40
Voting Rights............................................................  41
State Regulation of the Company..........................................  41
Management of the Company................................................  42
Legal Matters............................................................  43
Legal Proceedings........................................................  43
Experts..................................................................  43
Additional Information...................................................  43
Definitions..............................................................  44
Financial Statements..................................................... F-1
Appendix A............................................................... A-1
</TABLE>

                 The Policies are not available in all states.

                                       3
<PAGE>

                             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. An Executive
Program Policy is issued with a maximum Face Amount in excess of $500,000 under
a Group contract or an employer-sponsored insurance program. 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 The Separate Account and The Funds" for a complete description of the
available Funds. An Owner may change future allocations of net premiums at any
time by notifying the Company directly.

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

Premium Expense Charge. Generally, there are no sales charges under a Policy.
However, we deduct an additional charge on Policies that are deemed to be
individual Policies under the Omnibus Budget Reconciliation Act of 1990
("OBRA"). The additional charge, which is for federal income taxes measured by
premiums, is equal to 1% of each premium payment, and compensates the Company
for a significantly higher corporate income tax liability resulting from
changes made to the Internal Revenue Code by OBRA.

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

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 as a percentage
    of net assets (after fee waiver and reimbursement as applicable) for the
    year ended December 31, 1999. The prospectus for each Fund contains more
    detail concerning a Fund's fees and expenses. (See "The Company The
    Separate Account and The Funds.")

<TABLE>
<CAPTION>
                                            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
       VIP Growth Portfolio(/1/)                 .58%              .08%        .66%
       VIP Equity-Income Portfolio(/1/)          .48%              .09%        .57%
      Fidelity Variable Insurance Products
       Fund II
       VIP II Index 500 Portfolio(/2/)           .24%              .04%        .28%
       VIP II Contrafund Portfolio(/1/)          .58%              .09%        .67%
      MFS Variable Insurance Trust
       Emerging Growth Series(/3/)               .75%              .09%        .84%
      Putnam Variable Trust
       Putnam VT High Yield Fund                 .65%              .07%        .72%
       Putnam VT New Opportunities Fund          .54%              .05%        .59%
       Putnam VT Income Fund                     .60%              .07%        .67%
       Putnam VT Voyager Fund                    .53%              .04%        .57%
      Scudder Variable Life Investment
       Fund
       Money Market Portfolio                    .37%              .06%        .43%
       International Portfolio                   .85%              .18%       1.03%
      T. Rowe Price Equity Series, Inc.
       New America Growth Portfolio              .85%            (/4/)         .85%
       Personal Strategy Balanced
        Portfolio                                .90%            (/4/)         .90%
      T. Rowe Price Income Series, Inc.
       Limited-Term Bond Portfolio               .70%            (/4/)         .70%

  (/1/)A portion of the brokerage commissions that certain Funds pay was used
  to reduce Fund expenses. In addition, through arrangements with certain
  Funds, or FMR on behalf of certain funds, custodian credits realized as a
  result of uninvested cash balances were used to reduce a portion of each
  applicable Fund's expenses. Including these reductions, the Funds'
  management fee, other expenses and total annual expenses were as follows:

      VIP Growth Portfolio                       .58%              .07%        .65%
      VIP Equity-Income Portfolio                .48%              .08%        .56%
      VIP II Contrafund Portfolio                .58%              .07%        .65%

  (/2/)FMR agreed to reimburse a portion of the Index 500 Portfolio expenses
  during the period. Without this reimbursement, the Portfolio's management
  fee, other expenses and total expenses would have been:

      VIP II Index 500 Portfolio                 .24%              .11%        .35%
</TABLE>

  (/3/)Each series has an expense offset arrangement which reduces the
  series' custodian fee based upon the amount of cash maintained by the
  series with its custodian and dividend disbursing agent. Each series may

                                       7
<PAGE>


  enter into other such arrangements and directed brokerage arrangements,
  which would also have the effect of reducing the series' expenses. "Other
  Expenses" do not take into account these expense reductions. Had these
  reductions been taken into account, "Total Annual Expenses" would have been
  0.83% for the Emerging Growth Series.

  (/4/)T. Rowe Price Associates, Inc. does not provide separate Management
  Fees and Other Expenses Fees, rather management fees include operating
  expenses.

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

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

Policy Loans

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

Surrender and Partial Withdrawals

At any time that a Policy is in effect, an Owner may elect to surrender the
Policy and receive its Cash Surrender Value. An Owner may also request a
partial withdrawal of the Cash Value of the Policy. A partial withdrawal may
reduce the Face Amount and the death benefit payable under the Policy 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.

                                       8
<PAGE>

If a Certificate was issued in connection with the Group Contract, the
Certificate will be amended automatically to continue in force as an Individual
Policy. The new Individual Policy will provide benefits which are identical to
those provided under the Certificate. If an Individual Policy was issued in
connection with a Group Contract, the Individual Policy will continue in force
following the termination of the Group Contract. (See "Policy Rights and
Privileges--Eligibility Change Conversion.")

Illustrations

Illustrations in Appendix A show how death benefits and Cash 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 Value payable will be low
compared to premiums accumulated with interest, and consequently the insurance
protection provided prior to surrender will be costly.

Policy Tax Compliance

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

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

Specialized Uses of the Policy

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

Questions

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

                                       9
<PAGE>

                THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUNDS

The Company

Paragon Life Insurance Company is a stock life insurance company incorporated
under the laws of Missouri. We were organized in 1981 as General American
Insurance Company and on December 31, 1987, our name was changed. No change in
operations or ownership took place in connection with the name change. Our main
business is writing individual and group life insurance policies and annuity
contracts. As of December 31, 1999, it had assets $400 million. We are admitted
to do business in 49 states and the District of Columbia. Our principal offices
are at 100 South Brentwood, St. Louis, Missouri 63105 ("Home Office"). Our
Internal Revenue Service Employer Identification Number is 43-1235869.

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

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

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

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

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

                                       10
<PAGE>

The Separate Account

We established separate Account B (the "Separate Account") as a separate
investment account on January 4, 1993 under Missouri law. The Separate Account
receives and invests the net premiums paid under the Policies. In addition, the
Separate Account receives and invests net premiums for other flexible premium
variable life insurance policies issued by us.

The 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 we may conduct. The assets of the Separate Account are
available to cover the general liabilities of the Company only to the extent
that the Separate Account's assets exceed its Policy liabilities. From time to
time, these excess assets may be transferred from the Separate Account and
included in the Company's general assets. Before making any such transfers, we
will consider any possible adverse impact the transfer may have on the Separate
Account.

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

The Funds

The Separate Account invests in shares of the Funds. The Funds 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.

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

The following summarizes the investment policies of each Fund 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

   Investment objective: seeks capital appreciation.

                                       11
<PAGE>

  . VIP Equity-Income Portfolio

   Investment objective: seeks reasonable income. The fund will also
   consider the potential for capital appreciation. The fund seeks a yield
   which exceeds the composite yield on the securities comprising the S&P
   500.

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. FMR is
the manager of the Funds.

  . VIP II Index 500 Portfolio

   Investment objective: seeks investment results that correspond to the
   total return of common stocks publicly traded in the United States, as
   represented by the S&P 500.

  . VIP II Contrafund Portfolio

   Investment objective: seeks long-term capital appreciation.

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

   Investment objective: seeks long-term growth of capital. The series may
   invest up to 25% of its net assets in foreign securities, including
   emerging market securities.

Putnam Variable Trust

Putnam Variable Trust is an open-end management investment company, and each of
the funds of Putnam Variable Trust described in this section of the prospectus
is a diversified 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. Capital growth is a secondary goal, when
   consistent with achieving high current income. The Fund invests in
   higher-yielding, lower-rated securities commonly referred to as "junk
   bonds." See the special considerations for and risks associated with
   investments in these securities described in the Fund prospectus.

  . Putnam VT New Opportunities Fund

   Seeks long-term capital appreciation.

  . Putnam VT Income Fund

   Seeks high current income consistent with capital preservation.

  . Putnam VT Voyager Fund

   Seeks capital appreciation.

                                       12
<PAGE>

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 Money Market Portfolio seeks to maintain the stability of capital
   and, consistent therewith, to maintain the liquidity of capital and to
   provide current income. The Portfolio seeks to maintain a net asset value
   of $1.00 per share. Unless otherwise indicated, the Portfolio's
   investment objective and policies may be changed without a vote of
   shareholders.

  . International Portfolio

   The International Portfolio seeks long-term growth of capital primarily
   through diversified holdings of marketable foreign equity investments.
   Unless otherwise indicated, the Portfolio's investment objective and
   policies may be changed without a vote of shareholders.

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 Fund seeks to achieve long-term growth of capital by investing
   primarily in the common stocks of companies operating in sectors T. Rowe
   Price believes will be the fastest growing in the United States. Fast-
   growing companies can be found across an array of industries in today's
   "new America". The choice of industry sectors would reflect such factors
   as the overall revenue growth of the component companies and the sector's
   contribution to GDP from year to year.

  . Personal Strategy Balanced Portfolio

   The Fund objective is to seek the highest total return over time
   consistent with an emphasis on both capital appreciation and income. The
   fund pursues its objective by investing in a diversified portfolio
   typically consisting of approximately 60% stocks, 30% bonds, and 10%
   money market securities.

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 Fund seeks a high level of income consistent with moderate
   fluctuations in principal value. The fund invests primarily in a short-
   term and intermediate-term bonds. There are no maturity limitations on
   individual securities purchased, but the Fund's dollar-weighted average
   effective maturity will not exceed five years.

                                       13
<PAGE>


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

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

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

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

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

  . Eliminate or combine one or more Divisions;

  . Substitute one Division for another Division; or

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

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

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

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

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

  (c) combined with other separate accounts of the Company.

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

We cannot guarantee that the shares of the Funds will always be available. The
Funds each sell shares to the Separate Account in accordance with the terms of
a participation agreement between the Fund distributors and us. Should this
agreement terminate or should shares become unavailable for any other reason,
the Separate Account will not be able to purchase the existing Fund shares.
Should this occur, we will be unable to honor Owner requests to allocate Cash
Values or premium payments to the Divisions of the Separate Account

                                       14
<PAGE>

investing in such shares. In the event that a Fund is no longer available, we
will take reasonable steps to obtain alternative investment options.

                       PAYMENT AND ALLOCATION OF PREMIUMS

Issuance of a Policy

We will generally issue a Group Contract to employers whose employees and/or
their spouses may become Owners (and/or Insureds) under the Group Contract so
long as the employee is within the class of employees eligible to be included
in the Group Contract. The class(es) of employees covered by a particular Group
Contract are set forth in that Group Contract's specifications pages.

The Group Contract will be issued upon receipt of an application for a Group
Contract signed by an appropriate officer of the employer and acceptance by us
at our Home Office. (See "General Provisions of the Group Contract--Issuance.")
Individuals (i.e., eligible employees and/or their spouses) wishing to purchase
a Policy, whether under a Group Contract or an employer-sponsored insurance
program, must complete the appropriate application for Individual Insurance and
submit it to our authorized representative or us at our Home Office. We will
issue to each Contractholder either a Certificate or an Individual Policy to
give to each Owner.

Individual Policies, rather than Certificates, will be issued

  (1) to independent contractors of the employer;

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

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

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

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

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

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

Employee Eligibility. In order for an employee to be eligible to purchase a
Policy, the employee must be actively at work at the time the application for
Individual Insurance is signed. In addition, the Contractholder may determine
specific classes to which the employee must belong to be eligible to purchase a
Policy. "Actively at work" means that the employee must work for the
Contractholder or sponsoring employer at the employee's usual place of work (or
such other places as required by the Contractholder or sponsoring employer) in
the course of such work for the full number of hours and the full rate of pay,
as set by the employment practices of the employer. Ordinarily the time worked
per week must not be less than 30 hours. However, we reserve the right to waive
or modify the "actively at work" requirement at our discretion.

In addition, the Contractholder may require that an employee must be employed
by the employer as of a certain date or for a certain period of time. We will
set forth this date or time period in the Group Contract specifications pages.
Employees of any Associated Companies of the Contractholder will be considered
employees of the Contractholder. We may also allow an individual who is an
independent contractor working primarily for the sponsoring employer to be
considered an eligible employee. An independent contractor may receive an
Individual Policy rather than a Certificate depending upon state law applicable
to the contracts. An employee may include a partner in a partnership if the
employer is a partnership.

                                       15
<PAGE>

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

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

  . where the Face Amount exceeds the guaranteed issue limits;

  . where the Policy has been offered previously to the employee;

  . where the guaranteed issue requirements set forth in the application for
    Individual Insurance are not met; or

  . in connection with certain programs that may be offered without
    guaranteed issue.

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

Simplified underwriting must be followed in connection with the issuance of any
children's rider, if the employee is not eligible for guaranteed issue
underwriting, or, (even when the employee is eligible,) if the child does not
satisfy the guaranteed issue requirements set forth in the application for
Individual Insurance.

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

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

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

  . the appropriate application for Individual Insurance is signed;

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

  . the Insured is eligible for it; and

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

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

  . the date insurance begins on the Policy applied for;

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


                                       16
<PAGE>

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

  . 60 days from the date of application; or

  . termination of employment with the Contractholder or sponsoring employer.

Premiums

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

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

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

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

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

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

Premium Limitations. Every premium payment paid must be at least $20. Total
premiums paid under a Policy may not exceed the current maximum premium
limitations established by federal tax laws in any Policy Year. The maximum
premium limitation for a Policy Year is the sum of the premiums paid under the
Policy that will

                                       17
<PAGE>

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

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

Allocation of Net Premiums and Cash Value

Net Premiums. The net premium equals:

  (1) the premium paid; less

  (2) the premium expense charge;

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

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

Allocation of Net Premiums. In the application for a Policy, the Owner
indicates how net premiums are to be allocated among the 14 Divisions of the
Separate Account. Beginning with the initial premium payment, all premiums will
be allocated in accordance with the Owner's instructions upon our receipt of
the premiums. However, the minimum percentage, of any allocation to a Division
is 10 percent of the net premium, and fractional percentages may not be used.

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

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

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

Policy Lapse and Reinstatement

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

                                       18
<PAGE>

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

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

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

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

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

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

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

                                POLICY BENEFITS

Death Benefit

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

If a rider permitting the accelerated payment of death benefit proceeds has
been added to the Policy, the death benefit may be paid in a single sum prior
to the death of the Insured and may be less than otherwise would be paid upon
the death of the Insured. (See "General Matters Relating to the Policy--
Additional Insurance Benefits.")

The amount of the death benefit proceeds payable will be determined at the end
of the Valuation Period during which the Insured's death occurred. The proceeds
may be paid in a single sum or under one or more of the settlement options set
forth in the Policy. (See "Policy Rights and Privileges--Payment of Policy
Benefits.") Death benefit proceeds will be paid to the surviving Beneficiary or
Beneficiaries specified in the application or as subsequently changed.

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

                                       19
<PAGE>

death benefit under either option will never be less than the current Face
Amount of the Policy as long as the Policy remains in force. (See "Payment and
Allocation of Premiums--Policy Lapse and Reinstatement.") The minimum Face
Amount currently is $25,000. The maximum Face Amount is generally $500,000.
However, in connection with a particular Group Contract or employer sponsored
insurance program, we may establish a substantially higher Face Amount for
Policies issued under that Contract or program.

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

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

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

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

                          APPLICABLE PERCENTAGE TABLE

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

The applicable percentages in the foregoing table are based on federal tax law
requirements described in Section 7702(d) of the Code. The Company reserves the
right to alter the applicable percentage to the extent necessary to comply with
changes to Section 7702(d) or any successor provision thereto.

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

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

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

                                       20
<PAGE>

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

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

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

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

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

A change in death benefit option will not in itself result in an immediate
change in the amount of a Policy's death benefit or Cash Value. No charges will
be imposed upon a change from death benefit Option B to Option A. Changing from
Option A to Option B, however, will result in a decrease in the Face Amount. In
addition, if, prior to or accompanying a change in the death benefit option,
there has been an increase in the Face Amount, the cost of insurance charge may
be different for the increased amount. (See "Charges and Deductions--Monthly
Deduction--Cost of Insurance.")

No change in death benefit option will be permitted that results in the death
benefit under a Policy being included in gross income because the federal tax
law requirements are not satisfied. (See "Federal Tax Matters.")

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

Face Amount Decreases. Any decrease in the Face Amount will become effective on
the Monthly Anniversary on or following our receipt of the written request. The
amount of the requested decrease must be at least $5,000 and the Face Amount
remaining in force after any requested decrease may not be less than the
minimum amount Face Amount, generally $25,000. If, following a decrease in Face
Amount, the Policy would not comply with the maximum premium limitations
required by federal tax law (see "Payment and Allocation of Premiums"), the
decrease may be limited or Cash Value may be returned to the Owner (at the
Owner's election), to the extent necessary to meet those requirements. A
decrease in the Face Amount will reduce the Face Amount in the following order:

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

  (2) The next most recent increases successively; and

  (3) The initial Face Amount.

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").


                                       21
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                       22
<PAGE>

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

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

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

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

Cash Value

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

  . the investment performance of the chosen Divisions;

  . the frequency and amount of net premiums paid;

  . transfers;

  . partial withdrawals;

  . Policy Loans;

  . Loan account interest rate credited; and

  . the charges assessed in connection with the Policy.

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

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

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

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

                                       23
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       24
<PAGE>

                          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 us in writing at our Home Office. We will send all
reports and other notices described herein or in the Policy directly to the
Owner.

Loans

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

  . (a) is 85% of the Cash Value of the Policy on the date the Policy Loan is
    requested; and

  . (b) is the amount of any outstanding Indebtedness.

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

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

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

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

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

Whether or not a Policy Loan is repaid, it will permanently affect the Cash
Value of a Policy, and may permanently affect the amount of the death benefit.
This is because the collateral for the Policy Loan (the amount held in the Loan
Account) does not participate in the performance of the Separate Account while
the

                                       25
<PAGE>

loan is outstanding. If the Loan Account interest credited is less than the
investment performance of the selected Division, the Policy values will be
lower as a result of the loan. Conversely, if the Loan Account interest
credited is higher than the investment performance of the Division, the Policy
values may be higher.

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

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

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

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

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

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

Surrender and Partial Withdrawals

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

Surrender. To effect a surrender, the Policy must be returned to us along with
the request, or the request must be accompanied by a completed affidavit of
lost Policy. Upon request, we can provide a lost Policy Certificate. Upon
surrender, we will pay the Cash Surrender Value to the Owner. The Cash
Surrender Value equals the Cash Value on the date of surrender, less any
Indebtedness. Surrender proceeds will be paid in a single sum. If the request
is received on a Monthly Anniversary, the monthly deduction otherwise
deductible will be included in the amount paid. Coverage under a Policy will
terminate as of the date of surrender.

Partial Withdrawals. After the first Policy Year, an Owner may make up to one
partial withdrawal each Policy Month from the Separate Account. The minimum
amount of a partial withdrawal, net of any transaction charges, is $500. The
minimum amount that can be withdrawn from a Division is $50, or the Policy's
Cash Value in a Division, if smaller. The maximum amount that may be withdrawn,
including the partial withdrawal transaction charge, is the Loan Value. The
partial withdrawal transaction charge is equal to the lesser of $25 or 2% of
the amount withdrawn. The Owner may allocate the amount withdrawn, subject to
the above conditions, among the Divisions. If no allocation is specified, then
the partial withdrawal will be allocated among the Divisions in the same
proportion that the Policy's Cash Value in each Division bears to the total
Cash Value of the Policy (not including the Cash Value in the Loan Account) on
the date the request for the partial withdrawal is received.

                                       26
<PAGE>


A partial withdrawal will decrease the Face Amount in two situations. First, if
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 in the same proportion as the partial withdrawal is allocated.
If, following a partial withdrawal, insufficient funds remain in a Division to
pay the partial withdrawal transaction charge allocated to a Division, the
unpaid charges will be allocated equally among the remaining Divisions. In
addition, an Owner may request that the partial withdrawal transaction charge
be paid from the Owner's Cash Value in another Division.

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

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

Transfers

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

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

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

Right to Examine Policy

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

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

                                       27
<PAGE>

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

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

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

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

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

Conversion Right to a Fixed Benefit Policy

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

Eligibility Change Conversion

If an Insured's eligibility under a Group Contract or employer-sponsored
insurance program ends due to its termination or due to the termination of the
employee's employment, the Insured's coverage will continue unless the Policy
is no longer in force. Even if the Policy is not in force due to lapse, the
right to reinstate and thus to convert a lapsed Policy will not be affected by
the change in the employee's eligibility during the reinstatement period.

If a Certificate was issued under the Group Contract, the Certificate will be
amended automatically so that it will continue in force as an Individual
Policy. The rights, benefits, and guaranteed charges will not be altered by
this amendment. The amendment will be mailed to the Owner within 31 days (a)
after we receive written notice that the employee's employment ended or (b)
after the termination of the Group Contract. If, at the time the conversion
occurs, the Policy is in a grace period (see "Payment and Allocation of
Premiums--Policy Lapse and Reinstatement"), any premium necessary to prevent
the Policy from lapsing must be paid us before the new Individual Policy will
be mailed. A new planned premium schedule will be established which will have
the same planned annual premium utilized under the Group Contract. The new
planned payment intervals will be no more frequent than quarterly. The Company
may allow payment of planned premium through periodic (usually monthly)
authorized electronic funds transfer. Of course, unscheduled premium payments
can be made at any time. (See "Payment and Allocation of Premiums--Premiums.")

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


                                       28
<PAGE>

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 to be 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 our agreement.

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

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

                             CHARGES AND DEDUCTIONS

We will be deducting charges in connection with the Policies to compensate us
for providing the insurance benefits set forth in the Policies and any
additional benefits added by rider, administering the Policies, incurring
expenses in distributing the Policies, and assuming certain risks in connection
with the Policies. We may realize a profit on one or more of these charges. We
may use any such profit for any corporate purpose, including, among other
things, payments of sales and distribution expenses.

Premium Expense Charges

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

Prior to allocation of net premiums among the Divisions, premium payments will
be reduced by any premium expense charge. The premium expense charge is equal
to a percentage of each premium paid as set forth on the specifications pages
of the Policy. The charge will either be zero ("0") or 1%, depending on whether
the Policy is determined to be a group or individual contract under OBRA. Among
other possible employer-sponsored programs, Corporate Program Policies are
deemed to be individual contracts. As a result of OBRA, insurance companies are
generally required to capitalize and amortize certain policy acquisition
expenses over a ten year period rather than currently deducting such expenses.
A high 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,

                                       29
<PAGE>

under Policies that are deemed to be individual contracts under OBRA, we charge
1% of each premium payment for the anticipated higher corporate income taxes
that result from the sale of such a Policy.

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

  . the premium expense charge;

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

  . the premium tax charge (described below).

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

Premium Tax Charge

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

Monthly Deduction

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

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

<TABLE>
<CAPTION>
                                                                      Subsequent
   Eligible Employees                                      First Year   Years
   ------------------                                      ---------- ----------
   <S>                                                     <C>        <C>
   250-499................................................   $5.00      $2.50
   500-999................................................   $4.75      $2.25
   1,000+.................................................   $4.50      $2.00
</TABLE>

For Group Contracts or other employer-sponsored insurance programs (1) with
fewer than 250 eligible employees, (2) with additional administrative costs, or
(3) that are offered as Executive Programs or Corporate Programs, the monthly
administrative charge may be higher, but will not exceed $6.00 per month during
the first Policy Year and $3.50 per month in renewal years.

These charges are guaranteed not to increase over the life of the Policy. The
administrative charge will not change in the event that the Insured is no
longer eligible for group coverage, but continues coverage on an individual
basis. In addition, when we believe that lower administrative costs will be
incurred in connection

                                       30
<PAGE>

with a particular Group Contract or employer-sponsored insurance program we may
modify the above schedule for that Group Contract or other employer-sponsored
insurance program. The amount of the administrative charge applicable to a
particular Policy will be set forth in specifications pages for that Policy.

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

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

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

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

The current cost of insurance rates will not be greater than the guaranteed
cost of insurance rates set forth in the Policy. These guaranteed rates are
125% of the maximum rates that could be charged based on the 1980 Commissioners
Standard Ordinary Mortality Table C ("1980 CSO Table"). The guaranteed rates
are higher than 100% of the maximum rates in the 1980 CSO Table because we use
guaranteed or simplified underwriting procedures whereby the insured is not
required to submit to a medical or paramedical examination. The current cost of
insurance rates are generally lower than 100% of the 1980 CSO Table. Any change
in the actual cost of insurance rates, will apply to all persons of the same
Attained Age and rate class whose Face Amounts have been in force for the same
length of time. Any change in the actual cost of insurance rates will not
include changes made to adjust for changes in the gener mix of the pool of
Insureds under a particular Group Contract or employer-sponsored insurance
program. (For purposes of computing guideline premiums under Section 7702 of
the Internal Revenue Code of 1986, as amended, the Company will use 100% of the
1980 CSO Table.)

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

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<PAGE>

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

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

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

Additional Insurance Benefits. The monthly deduction will include charges for
any additional benefits provided by rider. (See "General Matters Relating to
the Policy--Additional Insurance Benefits.")

Partial Withdrawal Transaction Charge

A transaction charge which is the lesser of $25 or 2% of the amount withdrawn
will be assessed on each partial withdrawal, to cover administrative costs
incurred in processing the partial withdrawal.

Separate Account Charges

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

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

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

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

                                       32
<PAGE>

                     GENERAL MATTERS RELATING TO THE POLICY

Postponement of Payments

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

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

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

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

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

The Contract

The Policy, the attached application, any riders, endorsements, any application
for an increase in Face Amount, and any application for reinstatement together
make the entire contract between the Owner and us. Apart from the rights and
benefits described in the Certificate or Individual Policy and incorporated by
reference into the Group Contract, the Owner has no rights under the Group
Contract. All statements made by the Insured in the application are considered
representations and not warranties, except in the case of fraud. Only
statements in the application and any supplemental applications can be used to
contest a claim or the validity of the Policy. Any change to the Policy must be
approved in writing by the President, a Vice President, or the Secretary of the
Company. No agent has the authority to alter or modify any of the terms,
conditions, or agreements of the Policy or to waive any of its provisions.

Control of Policy

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

Beneficiary

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

Change of Owner or Beneficiary

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

                                       33
<PAGE>


taken before we receive the written request for change. If the Owner is also a
Beneficiary of the Policy at the time of the Insured's death, the Owner may,
within 60 days of the Insured's death, designate another person to receive the
Policy proceeds. Changing the Owner may have adverse tax consequences.

Policy Changes

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

Conformity with Statutes

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

Claims of Creditors

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

Incontestability

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

Assignment

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

Suicide

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

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

                                       34
<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 we make in good faith, relying on our records or
evidence supplied with respect to such payment, will fully discharge our duty.
We reserve the right to correct any errors in the Policy.

Additional Insurance Benefits

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

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

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 us that death resulted directly from accidental injury
and independently of all other causes; occurred within 120 days from the date
of injury; and occurred before the Policy Anniversary nearest age 70 of the
Insured.

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

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

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

Accelerated Death Benefit Settlement Option Rider. Provides for the accelerated
payment of a portion of death benefit proceeds in a single sum to the Owner if
the Insured is terminally ill or permanently confined to a nursing home. Under
the rider, which is available at no additional cost, the Owner may make a
voluntary election to completely settle the Policy in return for accelerated
payment of a reduced death benefit. The Owner

                                       35
<PAGE>

may make such an election under the rider if evidence, including a
certification from a licensed physician, is provided to us that the Insured (1)
has a life expectancy of 12 months or less or (2) is permanently confined to a
qualified nursing home and is expected to remain there until death. Any
irrevocable Beneficiary and assignees of record must provide written
authorization in order for the Owner to receive the accelerated benefit. The
Accelerated Death Benefit Settlement Option Rider is not available with
Corporate Programs.

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

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

Records and Reports

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

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

                          DISTRIBUTION OF THE POLICIES

Walnut Street Securities, Inc. ("Walnut Street") acts as principal underwriter
of the Policies pursuant to an Underwriting Agreement with us. Walnut Street is
a wholly-owned subsidiary of GenAmerica Corporation, a Missouri general
business corporation, which is also a parent company of the Company. GenAmerica
Corporation is wholly owned by Metropolitan Life Insurance Company, a New York
insurance company. Walnut Street is registered with the SEC under the
Securities Exchange Act of 1934 as a broker-dealer and is a member of the
National Association of Securities Dealers. Walnut Street's Internal Revenue
Service employer identification No. is 43-1333368. It is a Missouri corporation
formed May 4, 1984. Walnut Street's address is 400 South 4th Street, Suite
1000, St. Louis, MO 63102. The Policies are distributed by the Company on
behalf of Walnut Street or through broker-dealers who have entered into written
sales agreements with Walnut Street. No commissions are paid for distribution
of the Policies. Sales of the Policies may take place in all states (except New
York) and the District of Columbia.

                    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.

                                       36
<PAGE>

Premium Payments

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

Grace Period

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

Termination

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

Right to Examine Group Contract

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

Entire Contract

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

Incontestability

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

Ownership of Group Contract

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

                                       37
<PAGE>


                            FEDERAL TAX MATTERS

Introduction

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

Tax Status of the Policy

In order to qualify as a life insurance contract for federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that the
Policy should satisfy the applicable requirements. If it is subsequently
determined that a Policy does not satisfy the applicable requirements, we may
take appropriate steps to bring the Policy into compliance with such
requirements and we reserve the right to restrict Policy transactions in order
to do so.

In certain circumstances, owners of variable life insurance contracts have been
considered for federal income tax purposes to be the owners of the assets of
the variable account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of a Owner to allocate
premiums and cash values, have not been explicitly addressed in published
rulings. While we believe that the Policies do not give Owners investment
control over Variable Account assets, we reserve the right to modify the
Policies as necessary to prevent a Owner from being treated as the owner of the
Variable Account assets supporting the Policy.

In addition, the Code requires that the investments of the Variable Account be
"adequately diversified" in order for the Policies to be treated as life
insurance contracts for federal income tax purposes. It is intended that the
Variable Account, through its decisions, will satisfy these diversification
requirements.

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

Tax Treatment of Policy Benefits

In General. We believe that the death benefit under a Policy should be
excludible from the gross income of the beneficiary. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on the circumstances of each Owner or beneficiary. A tax advisor should
be consulted on these consequences.

Generally, the Owner will not be deemed to be in constructive receipt of the
Policy cash value until there is a distribution. When distributions from a
Policy occur, or when loans are taken out from or secured by a Policy, the tax
consequences depend on whether the Policy is classified as a "modified
endowment contract."

Modified Endowment Contracts. Under the Internal Revenue Code, certain life
insurance contracts are classified as "modified endowment contracts," with less
favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policies as to premiums and benefits, the individual
circumstances of each Policy will determine whether it is classified as a
modified endowment contract. The rules are too

                                       38
<PAGE>


complex to be summarized here, but generally depend on the amount of premiums
paid during the first seven Policy years. Certain changes in a Policy after it
is issued could also cause it to be classified as a modified endowment
contract. A current or prospective Owner should consult with a competent
advisor to determine whether a Policy transaction will cause the Policy to be
classified as a modified endowment contract.

Distributions Other Than Death Benefits from Modified Endowment Contracts.
Policies classified as modified endowment contracts are subject to the
following tax rules:

  (1) All distributions other than death benefits, including distributions
      upon surrender and withdrawals, from a modified endowment contract will
      be treated first as distributions of gain taxable as ordinary income
      and as tax-free recovery of the Owner's investment in the Policy only
      after all gain has been distributed.

  (2) Loans taken from or secured by a Policy classified as a modified
      endowment contract are treated as distributions and taxed accordingly.

  (3) A 10 percent additional income tax is imposed on the amount subject to
      tax except where the distribution or loan is made when the Owner has
      attained age 59 1/2 or is disabled, or where the distribution is part
      of a series of substantially equal periodic payments for the life (or
      life expectancy) of the Owner or the joint lives (or joint life
      expectancies) of the Owner and the Owner's beneficiary or designated
      beneficiary.

If a Policy becomes a modified endowment contract, distributions that occur
during the contract year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a Policy within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a Policy that is not a modified
endowment contract could later become taxable as a distribution from a modified
endowment contract.

Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions other than death benefits from a Policy that
is not classified as a modified endowment contract are generally treated first
as a recovery of the Owner's investment in the Policy and only after the
recovery of all investment in the Policy as taxable income. However, certain
distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance contract for federal income tax purposes if Policy
benefits are reduced during the first 15 Policy years may be treated in whole
or in part as ordinary income subject to tax.

Loans from or secured by a Policy that is not a modified endowment contract are
generally not treated as distributions.

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

Investment in the Policy. Your investment in the Policy is generally your
aggregate premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that is
tax-free.

Policy Loans. In general, interest on a Policy loan will not be deductible. If
a Policy loan is outstanding when a Policy is canceled or lapses, the amount of
the outstanding indebtedness will be added to the amount distributed and will
be taxed accordingly. Before taking out a Policy loan, you should consult a tax
adviser as to the tax consequences.

Multiple Policies. All modified endowment contracts that are issued by us (or
our affiliates) to the same Owner during any calendar year are treated as one
modified endowment contract for purposes of determining the amount includible
in the Owner's income when a taxable distribution occurs.

                                       39
<PAGE>


Accelerated Death Benefit Settlement Option Rider. We believe that payments
received under the Accelerated Death Benefit Settlement Option Rider should be
fully excludable from the gross income of the beneficiary if the beneficiary is
the insured under the Policy. However, you should consult a qualified tax
adviser about the consequences of adding this rider to a Policy or requesting
payment under this rider.

HIV Acceleration of Death Benefit Rider. The tax consequences association with
the HIV Acceleration of Death Benefit Rider are uncertain and a tax advisor
should be consulted.

Business Uses of Policy. Businesses can use the Policies in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, tax
exempt and nonexempt welfare benefit plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances. If you are purchasing the Policy for any arrangement
the value of which depends in part on its tax consequences, you should consult
a qualified tax adviser. In recent years, moreover, Congress has adopted new
rules relating to life insurance owned by businesses. Any business
contemplating the purchase of a new Policy or a change in an existing Policy
should consult a tax adviser.

Other Tax Considerations. The transfer of the Policy or designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate, and generation-skipping
transfer taxes. For example, the transfer of the Policy to, or the designation
as a beneficiary of, or the payment of proceeds to, a person who is assigned to
a generation which is two or more generations below the generation assignment
of the owner may have generation skipping transfer tax consequences under
federal tax law. The individual situation of each owner or beneficiary will
determine the extent, if any, to which federal, state, and local transfer and
inheritance taxes may be imposed and how ownership or receipt of Policy
proceeds will be treated for purposes of federal, state and local estate,
inheritance, generation skipping and other taxes.

Possible Tax Law Changes. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the Policy
could change by legislation or otherwise. Consult a tax adviser with respect to
legislative developments and their effect on the Policy.

Our Income Taxes

Under current federal income tax law, we are not taxed on the Separate
Account's operations. Thus, currently we do not deduct a charge from the
Separate Account for federal income taxes. We reserve the right to charge the
Separate Account for any future federal income taxes or economic burdens we may
incur.

Under current laws in several states, we may incur state and local taxes (in
addition to premium taxes). These taxes are not now significant and we are not
currently charging for them. If they increase, we may deduct charges for such
taxes.

                  SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS

The Company holds assets of the Separate Account. The assets are kept
physically segregated and held separate and apart from our general assets. We
maintain records of all purchases and redemptions of Fund shares by each of the
Divisions. Additional protection for the assets of the Separate Account is
afforded by Financial Institution Bonds issued by St. Paul Fire and Marine
Company with a limit of $25 million, covering all officers and employees of the
Company who have access to the assets of the Separate Account.

                                       40
<PAGE>

                                 VOTING RIGHTS

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

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

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

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

                                      IMSA

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

                        STATE REGULATION OF THE COMPANY

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

                                       41
<PAGE>

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

                           MANAGEMENT OF THE COMPANY

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

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

    Matthew K. Duffy/4/      Vice President and Chief Financial Officer since
                             June 1996. Formerly Director of Accounting,
                             Prudential Insurance Company of America, March
                             1987-June 1996.

    E. Thomas Hughes, Jr./4/ Treasurer since December 1994. Corporate Actuary
    General American Life    and Treasurer, GenAm since October 1994.
    Insurance Company
    700 Market Street
    St. Louis, MO 63101

    Matthew P. McCauley/4/   Vice President and General Counsel since 1984.
    General American Life    Secretary since August 1981. Vice President and
    Insurance Company        Associate General Counsel, GenAm, since December
    700 Market Street        30, 1995.
    St. Louis, MO 63101

    Craig K. Nordyke/4/      Executive Vice President and Chief Actuary since
                             November 1996. Vice President and Chief Actuary
                             August 1990-November 1996.

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

 Directors/3/
    Richard A. Liddy         Chairman and Chief Executive Officer, GenAm, since
                             January 2000. Chairman, President, and Chief
                             Executive Officer, GenAm, May 1992-January 2000.
    Warren J. Winer          Executive Vice President--Group, GenAm, since
                             September 1995. Formerly, Managing Director, Wm.
                             M. Mercer, July 1993-August 1995.

    Bernard H Wolzenski      Executive Vice President--Individual, GenAm, since
                             October 1991.

    A. Greig Woodring        President and CEO, Reinsurance Group of America,
                             Inc., since May 1993, and
                             Executive Vice President--Reinsurance, GenAm,
                             since January 1990.
</TABLE>
- --------
/1/All positions listed are with the Company unless otherwise indicated.
/2/The principal business address of each person listed is Paragon Life
   Insurance Company, 100 South Brentwood, St. Louis, MO 63105 unless otherwise
   noted.

/3/The principal business address of each person listed is General American
   Life Insurance Company, 700 Market Street, St. Louis, MO 63101, except A.
   Greig Woodring--Reinsurance Group of America, 1370 Timberlake Manor Parkway,
   Chesterfield, MO 63017.
/4/Indicates Executive Officers who are also Directors.

                                       42
<PAGE>

                                 LEGAL MATTERS

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

                               LEGAL PROCEEDINGS

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

                                    EXPERTS

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

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

                             ADDITIONAL INFORMATION

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

                              FINANCIAL STATEMENTS

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

                                       43
<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.

                                       44
<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.

                                       45
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Paragon Life Insurance Company:

  We have audited the accompanying balance sheets of Paragon Life Insurance
Company as of December 31, 1999 and 1998, and the related statements of
operations and comprehensive income, stockholder's equity, and cash flows for
each of the years in the three-year period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Paragon Life Insurance Company
as of December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1999, in conformity with generally accepted accounting principles.


March 10, 2000

KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is a member of KPMG
International, a Swiss association.

                                      F-1
<PAGE>

                         PARAGON LIFE INSURANCE COMPANY

                                 Balance Sheets
                           December 31, 1999 and 1998
                           (in thousands of dollars)

<TABLE>
<CAPTION>
                               1999     1998
                             --------  -------
<S>                          <C>       <C>
           Assets
Fixed maturities, available
 for sale................... $ 81,421   83,384
Policy loans................   16,954   14,135
Cash and cash equivalents...   10,591    7,439
                             --------  -------
    Total cash and invested
     assets.................  108,966  104,958
                             --------  -------
Reinsurance recoverables....    1,314    1,170
Deposits relating to
 reinsured policyholder
 account balances...........    7,020    6,688
Accrued investment income...    1,853    1,545
Deferred policy acquisition
 costs......................   24,357   20,602
Fixed assets and leasehold
 improvements, net..........    1,031    4,504
Other assets................      262      105
Separate account assets.....  255,190  168,222
                             --------  -------
    Total assets............ $399,993  307,794
                             ========  =======
      Liabilities and
    Stockholder's Equity
Policyholder account
 balances...................  101,665   93,334
Policy and contract claims..    1,691    1,672
Federal income taxes
 payable....................    1,007      281
Other liabilities and
 accrued expenses...........    3,734    3,943
Payable to affiliates.......    3,803    2,062
Due to separate account.....      192      183
Deferred tax liability......    3,070    5,591
Separate account
 liabilities................  255,126  168,222
                             --------  -------
    Total liabilities....... $370,288  275,288
                             --------  -------
Stockholder's equity:
  Common stock, par value
   $25; 100,000 shares
   authorized;
   82,000 shares issued and
   outstanding..............    2,050    2,050
  Additional paid-in
   capital..................   17,950   17,950
  Accumulated other
   comprehensive (loss)
   income...................   (2,748)   2,809
  Retained earnings.........   12,453    9,697
                             --------  -------
    Total stockholder's
     equity................. $ 29,705   32,506
                             --------  -------
    Total liabilities and
     stockholder's equity... $399,993  307,794
                             ========  =======
</TABLE>

                See accompanying notes to financial statements.

                                      F-2
<PAGE>

                         PARAGON LIFE INSURANCE COMPANY

               Statements of Operations and Comprehensive Income
                  Years ended December 31, 1999, 1998 and 1997
                           (in thousands of dollars)

<TABLE>
<CAPTION>
                                                          1999     1998   1997
                                                         -------  ------ ------
<S>                                                      <C>      <C>    <C>
Revenues:
  Policy contract charges............................... $24,577  20,437 16,417
  Net investment income.................................   7,726   6,983  6,288
  Commissions and expense allowances on reinsurance
   ceded................................................     292     124     10
  Net realized investment gains.........................      57      53     69
                                                         -------  ------ ------
    Total revenues......................................  32,652  27,597 22,784
                                                         =======  ====== ======
Benefits and expenses:
  Policy benefits.......................................   4,616   4,774  3,876
  Interest credited to policyholder account balances....   5,524   5,228  4,738
  Commissions, net of capitalized costs.................     445     167    227
  General and administration expenses, net of
   capitalized costs....................................  11,394   9,042  7,743
  Policy administration system expenses.................   4,787     469    --
  Amortization of deferred policy acquisition costs.....   1,631   1,150    424
                                                         -------  ------ ------
    Total benefits and expenses.........................  28,397  20,830 17,008
                                                         =======  ====== ======
    Income before federal income tax expense............   4,255   6,766  5,775
Federal income tax expense..............................   1,499   2,368  1,885
                                                         -------  ------ ------
Net income.............................................. $ 2,756   4,398  3,890
Other comprehensive (loss) income.......................  (5,557)    851  1,636
                                                         -------  ------ ------
Comprehensive (loss) income............................. $(2,801)  5,249  5,526
                                                         =======  ====== ======
</TABLE>


                See accompanying notes to financial statements.

                                      F-3
<PAGE>

                         PARAGON LIFE INSURANCE COMPANY

                       Statements of Stockholder's Equity
                 Years ended December 31, 1999, 1998, and 1997
                           (in thousands of dollars)

<TABLE>
<CAPTION>
                                            Accumulated
                                Additional     other                  Total
                         Common  paid-in   comprehensive Retained stockholder's
                         Stock   capital      income     earnings    equity
                         ------ ---------- ------------- -------- -------------
<S>                      <C>    <C>        <C>           <C>      <C>
Balance at December 31,
 1996................... $2,050   17,950         322       1,409     21,731
  Net income............    --       --          --        3,890      3,890
  Other comprehensive
   income...............    --       --        1,636         --       1,636
                         ------   ------      ------      ------     ------
Balance at December 31,
 1997................... $2,050   17,950       1,958       5,299     27,257
  Net income............    --       --          --        4,398      4,398
  Other comprehensive
   income...............    --       --          851         --         851
                         ------   ------      ------      ------     ------
Balance at December 31,
 1998................... $2,050   17,950       2,809       9,697     32,506
  Net income............    --       --          --        2,756      2,756
  Other comprehensive
   loss.................    --       --       (5,557)        --      (5,557)
                         ------   ------      ------      ------     ------
Balance at December 31,
 1999................... $2,050   17,950      (2,748)     12,453     29,705
                         ======   ======      ======      ======     ======
</TABLE>


                See accompanying notes to financial statements.

                                      F-4
<PAGE>

                         PARAGON LIFE INSURANCE COMPANY

                            Statements of Cash Flows
                  Years ended December 31, 1999, 1998 and 1997
                           (in thousands of dollars)

<TABLE>
<CAPTION>
                                                      1999     1998     1997
                                                    --------  -------  -------
<S>                                                 <C>       <C>      <C>
Cash flows from operating activities:
  Net income....................................... $  2,756    4,398    3,890
  Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
    Change in:
      Reinsurance recoverables.....................     (144)     563     (892)
      Deposits relating to reinsured policyholder
       account balances............................     (332)    (272)    (342)
      Accrued investment income....................     (308)    (168)     (79)
      Federal income tax payable...................      726      118     (648)
      Other assets.................................    3,316   (1,821)  (1,280)
      Policy and contract claims...................       19      587      (23)
      Other liabilities and accrued expenses.......     (209)     457      782
      Payable to affiliates........................    1,741      442     (669)
      Company ownership of separate account........      (64)     --       --
      Due to separate account......................        9      122      (34)
    Deferred tax expense...........................      469      740      732
    Policy acquisition costs deferred..............   (4,185)  (3,808)  (2,972)
    Amortization of deferred policy acquisition
     costs.........................................    1,631    1,150      424
    Interest credited to policyholder accounts.....    5,524    5,228    4,738
    Net gain on sales and calls of fixed
     maturities....................................      (57)     (53)     (69)
                                                    --------  -------  -------
Net cash provided by operating activities..........   10,892    7,683    3,558
                                                    --------  -------  -------
Cash flows from investing activities:
  Purchase of fixed maturities.....................  (12,423) (14,915) (12,557)
  Sale or maturity of fixed maturities.............    4,695    8,632    5,255
  Increase in policy loans, net....................   (2,819)  (2,648)  (1,923)
                                                    --------  -------  -------
Net cash used in investing activities                (10,547)  (8,931)  (9,225)
                                                    --------  -------  -------
Cash flows from financing activities:
  Net policyholder account deposits................    2,807    2,954    2,294
                                                    --------  -------  -------
Net increase (decrease) in cash and cash
 equivalents.......................................    3,152    1,706   (3,373)
Cash and cash equivalents at beginning of year.....    7,439    5,733    9,106
                                                    --------  -------  -------
Cash and cash equivalents at end of year........... $ 10,591    7,439    5,733
                                                    --------  -------  -------
Income taxes paid.................................. $   (346)  (1,460)  (1,801)
                                                    ========  =======  =======
</TABLE>

                See accompanying notes to financial statements.

                                      F-5
<PAGE>

                         PARAGON LIFE INSURANCE COMPANY

                         Notes to Financial Statements

(1) Summary of Significant Accounting Policies

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

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

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

  The significant accounting policies of the Company are as follows:

 (a) Recognition of Policy Revenue and Related Expenses

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

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

 (b) Invested Assets

  Investment securities are accounted for at fair value. At December 31, 1999
and 1998, fixed maturity securities are classified as available-for-sale and
are carried at fair value with the unrealized gain or loss, net of taxes, being
reflected as accumulated other comprehensive income, a separate component of
stockholder's equity. Policy loans are valued at aggregate unpaid balances.

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

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

                                      F-6
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

 (c) Policyholder Account Balances

  Policyholder account balances are equal to the policyholder account value
before deduction of any surrender charges. The policyholder account value
represents an accumulation of gross premium payments plus credited interest
less expense and mortality charges and withdrawals. These expense charges are
recognized in income as earned. Certain variable life policies allow
policyholders to exchange accumulated assets from the variable rate separate
accounts to a fixed-interest general account policy. The fixed-interest general
account guaranteed minimum crediting rates of 4% in 1999, 1998 and 1997. The
actual crediting rate ranged from 6.1% to 6.5% in 1999, and was 6.5% in 1998
and 1997.

 (d) Federal Income Taxes

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

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

 (e) Reinsurance

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

 (f) Deferred Policy Acquisition Costs

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

 (g) Separate Account Business

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

                                      F-7
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

 (h) Fair Value of Financial Instruments

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

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

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

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

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

 (i) Cash and Cash Equivalents

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

 (j) Subsequent Event

    (i) On January 6, 2000, the Company's ultimate parent, GenAmerica
  Corporation, was purchased by Metropolitan Life Insurance Company.

    (ii) Subsequent to December 31, 1999 a significant customer notified
  Paragon of its intent to terminate its group contract, effective April 30,
  2000. This group represents 29% and 8% of Paragon's policies inforce and
  separate account assets, as of December 31, 1999.

(2) Investments

  The amortized cost and estimated fair value of fixed maturities at December
31, 1999 and 1998 are as follows (000's):

<TABLE>
<CAPTION>
                                                         1999
                                       -----------------------------------------
                                                   Gross      Gross    Estimated
                                       Amortized unrealized unrealized   fair
                                         cost      gains      losses     value
                                       --------- ---------- ---------- ---------
      <S>                              <C>       <C>        <C>        <C>
      U.S. Treasury securities........ $  8,728      53         (162)    8,619
      Corporate securities............   70,312     276       (4,830)   65,758
      Mortgage-backed securities......    6,911      36         (394)    6,553
      Asset-backed securities.........      500     --            (9)      491
                                       --------     ---       ------    ------
                                       $ 86,451     365       (5,395)   81,421
                                       ========     ===       ======    ======
</TABLE>

                                      F-8
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

<TABLE>
<CAPTION>
                                                         1998
                                       -----------------------------------------
                                                   Gross      Gross    Estimated
                                       Amortized unrealized unrealized   fair
                                         cost      gains      losses     value
                                       --------- ---------- ---------- ---------
      <S>                              <C>       <C>        <C>        <C>
      U.S. Treasury securities........  $ 6,705      267        --       6,972
      Corporate securities............   64,607    4,481       (208)    68,880
      Mortgage-backed securities......    6,854      193        (25)     7,022
      Asset-backed securities.........      500       10        --         510
                                        -------    -----       ----     ------
                                        $78,666    4,951       (233)    83,384
                                        =======    =====       ====     ======
</TABLE>

  The amortized cost and estimated fair value of fixed maturities at December
31, 1999, by contractual maturity, are shown below (000's). Expected maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                                       Estimated
                                                             Amortized   Fair
                                                               cost      value
                                                             --------- ---------
      <S>                                                    <C>       <C>
      Due in one year or less............................... $    471      480
      Due after one year through five years.................   22,034   21,893
      Due after five years through ten years................    8,853    8,317
      Due after ten years through twenty years..............   48,182   44,178
      Mortgage-backed securities............................    6,911    6,553
                                                             --------   ------
                                                             $ 86,451   81,421
                                                             ========   ======
</TABLE>

  Proceeds from sales of fixed maturities during 1999, 1998 and 1997 were
$4,695,414, $4,068,639 and $1,328,585 respectively. Gross gains of $56,686,
$53,180 and $68,876 were realized on those sales in 1999, 1998 and 1997,
respectively.

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

<TABLE>
<CAPTION>
                                                              1999   1998  1997
                                                             ------- ----- -----
      <S>                                                    <C>     <C>   <C>
      Fixed Maturities...................................... $ 6,077 5,603 4,941
      Short-term investments................................     486   535   608
      Policy loans and other................................   1,244   924   807
                                                             ------- ----- -----
                                                             $ 7,807 7,062 6,356
      Investment expenses...................................     (81)  (79)  (68)
                                                             ------- ----- -----
          Net investment income............................. $ 7,726 6,983 6,288
                                                             ======= ===== =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                         1999     1998    1997
                                                        -------  ------  ------
      <S>                                               <C>      <C>     <C>
      Unrealized appreciation (depreciation):
        Fixed maturities available-for-sale............ $(5,030)  4,717   3,373
        Deferred policy acquisition costs..............     803    (396)   (361)
      Deferred income taxes............................   1,479  (1,512) (1,054)
                                                        -------  ------  ------
      Net unrealized appreciation (depreciation)....... $(2,748)  2,809   1,958
                                                        =======  ======  ======
</TABLE>

  The Company has fixed maturities on deposit with various state insurance
departments with an amortized cost of approximately $4,082,871 and $4,120,850
at December 31, 1999 and 1998 respectively.

                                      F-9
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

(3) Reinsurance

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

  Premiums and related reinsurance amounts for the years ended December 31,
1999, 1998 and 1997 as they relate to transactions with affiliates are
summarized as follows (000's):

<TABLE>
<CAPTION>
                                                            1999    1998   1997
                                                           ------- ------ ------
      <S>                                                  <C>     <C>    <C>
      Reinsurance transactions with affiliates:
        Premiums for reinsurance ceded.................... $16,869 14,723 13,001
        Policy benefits ceded.............................  16,823 17,071 14,070
        Commissions and expenses ceded....................     292    123    195
        Reinsurance recoverables..........................   1,268  1,109  1,661
</TABLE>

  Ceded premiums and benefits to nonaffiliates for 1999, 1998 and 1997 were
insignificant.

(4) Deferred Policy Acquisition Costs

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

<TABLE>
<CAPTION>
                                                         1999     1998    1997
                                                        -------  ------  ------
      <S>                                               <C>      <C>     <C>
      Balance at beginning of year....................  $20,602  17,980  15,776
      Policy acquisition costs deferred...............    4,185   3,808   2,972
      Policy acquisition costs amortized..............   (1,631) (1,150)   (424)
      Deferred policy acquisition costs relating to
       change in unrealized (gain) loss on investments
       available for sale.............................    1,201     (36)   (344)
                                                        -------  ------  ------
      Balance at end of year..........................  $24,357  20,602  17,980
                                                        =======  ======  ======
</TABLE>

(5) Administration System Write-off

  In 1999 Paragon expensed $4,787,275 relating to the termination of a system
development project for policy administration. The one-time write-off in 1999
of previously capitalized amounts was $3,963,450 and other costs incurred in
1999 relating to the project were $823,825. Other costs incurred and expensed
in 1998 and 1997 were $468,794 and $0, respectively.

(6) Federal Income Taxes

  The Company is taxed as a life insurance company. A summary of Federal income
tax expense is as follows (000s):

<TABLE>
<CAPTION>
                                                              1999   1998  1997
                                                             ------- ----- -----
      <S>                                                    <C>     <C>   <C>
      Current tax expense................................... $ 1,030 1,628 1,153
      Deferred tax expense..................................     469   740   732
                                                             ------- ----- -----
      Federal income tax expense............................ $ 1,499 2,368 1,885
                                                             ======= ===== =====
</TABLE>

                                      F-10
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

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

<TABLE>
<CAPTION>
                                                             1999   1998  1997
                                                            ------- ----- -----
      <S>                                                   <C>     <C>   <C>
      Computed "expected" tax expense...................... $ 1,489 2,368 2,022
      Other, net...........................................      10     0  (137)
                                                            ------- ----- -----
      Federal income tax expense........................... $ 1,499 2,368 1,885
                                                            ======= ===== =====
</TABLE>

  The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1999, 1998 and
1997 are presented below (000's):

<TABLE>
<CAPTION>
                                                              1999   1998  1997
                                                             ------- ----- -----
      <S>                                                    <C>     <C>   <C>
      Deferred tax assets:
        Unearned reinsurance allowances..................... $   194   218   217
        Policy and contract liabilities.....................     583   709 1,031
        Tax capitalization of acquisition costs.............   2,559 2,147 1,755
        Other, net..........................................     359    58    76
        Unrealized Loss on investments, net.................   1,479   --    --
                                                             ------- ----- -----
          Total deferred tax assets......................... $ 5,174 3,132 3,079
                                                             ======= ===== =====
      Deferred tax liabilities:
        Unrealized gain on investments, net................. $   --  1,512 1,054
        Deferred policy acquisition costs...................   8,244 7,211 6,419
                                                             ------- ----- -----
          Total deferred tax liabilities.................... $ 8,244 8,723 7,473
                                                             ------- ----- -----
          Net deferred tax liabilities...................... $ 3,070 5,591 4,394
                                                             ======= ===== =====
</TABLE>

  The Company believes that a valuation allowance with respect to the
realization of the total gross deferred tax asset is not necessary. In
assessing the realization of deferred tax assets, the Company considers whether
it is more likely than not that the deferred tax assets will be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. The Company files a consolidated tax return with its Parent.
Realization of the gross tax asset will not be dependent solely on the
Company's ability to generate its own taxable income. General American has a
proven history of earnings and it appears more likely than not that the
Company's gross deferred tax asset will ultimately be fully realized.

(7) Related-Party Transactions

  Paragon purchases certain administrative services from General American.
Charges for services performed are based upon personnel and other costs
involved in providing such service. Charges for services during 1999, 1998 and
1997 were $2,247,302, $1,513,433 and $1,348,198, respectively. See Note 3 for
reinsurance transactions with affiliates.

(8) Pension Plan

  Associates of Paragon participate in a non-contributory multi-employer
defined benefit pension plan jointly sponsored by Paragon and General American.
The benefits are based on years of service and compensation level. No pension
expense was recognized in 1999, 1998 or 1997 due to overfunding of the plan.

                                      F-11
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

  In addition, Paragon has adopted an associate incentive plan applicable to
full-time salaried associates with at least one year of service. Contributions
to the plan are determined annually by General American and are based on
salaries of eligible associates. Full vesting occurs after five years of
continuous service. Total expenses to the Company for the incentive plan were
$0, $188,316 and $198,972 for 1999, 1998 and 1997, respectively.

  As a result of the Metropolitan Life Insurance purchase, Paragon implemented
a new bonus program covering all associates employed from October 1, 1999
through March 31, 2000 with at least 1000 hours of service during 1999. Total
expense to the Company for this program was $422,700 in 1999.

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

(9) Statutory Financial Information

  The Company is subject to financial statement filing requirements of the
State of Missouri Department of Insurance, its state of domicile, as well as
the states in which it transacts business. Such financial statements, generally
referred to as statutory financial statements, are prepared on a basis of
accounting which varies in some respects from generally accepted accounting
principles (GAAP). Statutory accounting principles include: (1) charging of
policy acquisition costs to income as incurred; (2) establishment of policy and
contract liabilities computed using required valuation standards which may vary
in methodology utilized; (3) nonprovision of deferred federal income taxes
resulting from temporary differences between financial reporting and tax bases
of assets and liabilities; (4) recognition of statutory liabilities for asset
impairments and yield stabilization on fixed maturity dispositions prior to
maturity with asset valuation reserves based on statutory determined formulae
and interest stabilization reserves designed to level yields over their
original purchase maturities; (5) valuation of investments in fixed maturities
at amortized cost; (6) net presentation of reinsurance balances; (7)
presentation of indirect cash flows; (8) exclusion of comprehensive income
disclosures; and (9) recognition of deposits and withdrawals on universal life
policies as revenues and expenses.

  The stockholder's equity (surplus) and net income of the Company at December
31, 1999, 1998 and 1997, as determined using statutory accounting practices, is
summarized as follows (000's):

<TABLE>
<CAPTION>
                                                          1999    1998   1997
                                                         ------- ------ ------
      <S>                                                <C>     <C>    <C>
      Statutory surplus as reported to regulatory
       authorities...................................... $13,545 10,500 10,725
      Net income as reported to regulatory authorities.. $   300  1,596  1,397
</TABLE>

(10) Dividend Restrictions

  Dividend payments by Paragon are restricted by state insurance laws as to the
amount that may be paid without prior notice or approval of the Missouri
Department of Insurance. The maximum amount of dividends which can be paid
without prior approval of the insurance commissioner is limited to the maximum
of (1) 10% of statutory surplus or (2) net gain from operations. The maximum
dividend distribution that can be paid by Paragon during 1999 without prior
notice or approval is $300,406. Paragon did not pay dividends in 1999, 1998 or
1997.

(11) Risk-Based Capital

  The insurance departments of various states, including the Company's
domiciliary state of Missouri, impose risk-based capital (RBC) requirements on
insurance enterprises. The RBC calculation serves as a

                                      F-12
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)
benchmark for the regulation of life insurance companies by state insurance
regulators. The requirements apply various weighted factors to financial
balances or activity levels based on their perceived degree of risk.

  The RBC guidelines define specific capital levels where action by the Company
or regulators is required based on the ratio of a company's actual total
adjusted capital to control levels determined by the RBC formula. At December
31, 1999, the Company's actual total adjusted capital was in excess of minimum
levels which would require action by the Company or regulatory authorities
under the RBC formula.

(12) Commitments and Contingencies

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

<TABLE>
      <S>                                                                <C>
      Year ended December 31:
        2000............................................................ $   750
        2001............................................................     321
        2002............................................................     130
        2003............................................................      99
                                                                         -------
                                                                         $ 1,300
                                                                         =======
</TABLE>

  Rent expense totaled $507,512, $489,999, and $433,864 in 1999, 1998 and 1997,
respectively.

(13) Comprehensive Income

  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", effective for years beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. The most significant items of comprehensive
income are net income and changes in unrealized gains and losses on securities.
The adoption of SFAS No. 130 does not affect results of operations or financial
position, but affects their presentation and disclosure. The Company has
adopted SFAS No. 130 as of January 1, 1998, and the following summaries present
the components of the Company's comprehensive income, other than net income,
for the periods ending December 31, 1999, 1998 and 1997 (000s):

<TABLE>
<CAPTION>
                                                             1999
                                                -------------------------------
                                                              Tax
                                                Before-Tax (Expense) Net-of-Tax
                                                  Amount   Benefit     Amount
                                                ---------- --------  ----------
      <S>                                       <C>        <C>       <C>
      Unrealized holding losses arising during
       period..................................  $(8,492)   2,972      (5,520)
      Less: reclassification adjustment for
       gains realized in net income............      (57)      20         (37)
                                                 -------    -----      ------
      Other comprehensive loss.................   (8,549)   2,992      (5,557)
                                                 =======    =====      ======
</TABLE>

                                      F-13
<PAGE>

                         PARGON LIFE INSURANCE COMPANY

                   Notes to Financial Statements--(Continued)

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

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

                                      F-14
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors Paragon Life Insurance Company and Policyholders of
 Separate Account B's MultiManager Divisions:

  We have audited the accompanying statements of net assets, including the
schedule of investments, of the Scudder Money Market, Scudder International,
Fidelity Equity Income, Fidelity Growth, Fidelity Index 500, Fidelity
Contrafund, Putnam High Yield, Putnam Voyager, Putnam Income, Putnam New
Opportunities, TR Price New America Growth, TR Price Limited-Term Bond, TR
Price Personal Strategy Balanced, and MFS Emerging Growth Divisions of Paragon
Separate Account B as of December 31, 1999 and the related statements of
operations and changes in net assets for each of the periods in the three year
period then ended. These financial statements are the responsibility of the
management of Paragon Separate Account B. Our responsibility is to express an
opinion on these financial statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at December 31, 1999 by
correspondence with the Scudder Variable Life Investment Fund, the Fidelity
Variable Insurance Products Fund, the Fidelity Variable Insurance Products Fund
II, the Putnam Variable Trust, the T. Rowe Price Equity Series Inc., the T.
Rowe Price Fixed Income Series, Inc. and the MFS Variable Insurance Trust. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Scudder Money Market,
Scudder International, Fidelity Equity Income, Fidelity Growth, Fidelity Index
500, Fidelity Contrafund, Putnam High Yield, Putnam Voyager, Putnam Income,
Putnam New Opportunities, TR Price New America Growth, TR Price Limited-Term
Bond, TR Price Personal Strategy Balanced, and MFS Emerging Growth Divisions of
Paragon Separate Account B as of December 31, 1999, and the results of their
operations and changes in their net assets for each of the periods in the three
year period then ended, in conformity with generally accepted accounting
principles.


March 10, 2000

KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is a member of KPMG
International, a Swiss association.

                                      F-15
<PAGE>

                          PARAGON SEPARATE ACCOUNT B

                           STATEMENTS OF NET ASSETS

                               December 31, 1999

<TABLE>
<CAPTION>
                      Scudder Money    Scudder       Fidelity       Fidelity                       Fidelity       Putnam
                         Market     International  Equity Income     Growth     Fidelity Index    Contrafund    High Yield
                        Division      Division       Division       Division     500 Division      Division      Division
                      ------------- ------------- --------------- ------------- --------------- --------------- ----------
                          1999          1999           1999           1999           1999            1999          1999
                      ------------- ------------- --------------- ------------- --------------- --------------- ----------
<S>                   <C>           <C>           <C>             <C>           <C>             <C>             <C>
Net Assets:
  Investments in
   Multiple Fund
   Investments, at
   Market Value (See
   Schedule of
   Investments).....   $   541,708    2,978,926      2,808,576      4,947,495      9,960,873       6,664,237     544,465
  Receivable from
   (payable to)
   Paragon Life
   Insurance
   Company..........           272          (50)        (1,594)          (233)        (2,137)          1,805        (276)
                       -----------    ---------      ---------      ---------      ---------       ---------     -------
    Total Net
     Assets.........   $   541,980    2,978,876      2,806,982      4,947,262      9,958,736       6,666,042     544,189
                       ===========    =========      =========      =========      =========       =========     =======
Net Assets,
 representing:
  Equity of Contract
   Owners...........   $   541,754    2,977,614      2,805,751      4,945,157      9,954,408       6,663,206     543,947
  Equity of Paragon
   Life Insurance
   Company..........           226        1,262          1,231          2,105          4,328           2,836         242
                       -----------    ---------      ---------      ---------      ---------       ---------     -------
                       $   541,980    2,978,876      2,806,982      4,947,262      9,958,736       6,666,042     544,189
                       ===========    =========      =========      =========      =========       =========     =======
Total Units Held....       480,932      117,600         99,470         71,051         57,495         211,032      38,414
Net Asset Value Per
 Unit...............   $      1.13        25.32          28.21          69.60         173.13           31.57       14.16
Cost of Investments.   $   541,708    2,141,088      2,664,727      3,784,255      7,871,414       5,194,948     583,953
                       ===========    =========      =========      =========      =========       =========     =======
<CAPTION>
                                     Putnam New     T.R. Price     T.R. Price     T.R. Price
                      Putnam Income Opportunities   New America   Limited-Term  Personal Strat.  MFS Emerging
                        Division      Division    Growth Division Bond Division  Bal. Division  Growth Division
                      ------------- ------------- --------------- ------------- --------------- ---------------
                          1999          1999           1999           1999           1999            1999
                      ------------- ------------- --------------- ------------- --------------- ---------------
<S>                   <C>           <C>           <C>             <C>           <C>             <C>             <C>
Net Assets:
  Investments in
   Multiple Fund
   Investments, at
   Market Value (See
   Schedule of
   Investments).....   $ 1,376,135    2,980,187      2,371,545        530,432      2,166,163       5,771,340
  Receivable from
   (payable to)
   Paragon Life
   Insurance
   Company..........             2         (570)        (1,361)          (163)          (877)         (1,139)
                       -----------    ---------      ---------      ---------      ---------       ---------
    Total Net
     Assets.........   $ 1,376,137    2,979,617      2,370,184        530,269      2,165,286       5,770,201
                       ===========    =========      =========      =========      =========       =========
Net Assets,
 representing:
  Equity of Contract
   Owners...........   $ 1,375,519    2,978,387      2,369,191        530,031      2,164,409       5,767,900
  Equity of Paragon
   Life Insurance
   Company..........           618        1,230            993            238            877           2,301
                       -----------    ---------      ---------      ---------      ---------       ---------
                       $ 1,376,137    2,979,617      2,370,184        530,269      2,165,286       5,770,201
                       ===========    =========      =========      =========      =========       =========
Total Units Held....        93,853       68,100         84,624         97,853        112,991         155,321
Net Asset Value Per
 Unit...............   $     14.66        43.74          28.00           5.39          19.16           37.14
Cost of Investments.   $ 1,411,684    1,687,209      2,048,739        543,883      2,140,001       3,044,843
                       ===========    =========      =========      =========      =========       =========
<CAPTION>
                       Putnam
                       Voyager
                      Division
                      ----------
                        1999
                      ----------
<S>                   <C>
Net Assets:
  Investments in
   Multiple Fund
   Investments, at
   Market Value (See
   Schedule of
   Investments).....  2,378,749
  Receivable from
   (payable to)
   Paragon Life
   Insurance
   Company..........       (279)
                      ----------
    Total Net
     Assets.........  2,378,470
                      ==========
Net Assets,
 representing:
  Equity of Contract
   Owners...........  2,377,468
  Equity of Paragon
   Life Insurance
   Company..........      1,002
                      ----------
                      2,378,470
                      ==========
Total Units Held....     30,147
Net Asset Value Per
 Unit...............      78.87
Cost of Investments.  1,539,013
                      ==========
<CAPTION>
<S>                   <C>
Net Assets:
  Investments in
   Multiple Fund
   Investments, at
   Market Value (See
   Schedule of
   Investments).....
  Receivable from
   (payable to)
   Paragon Life
   Insurance
   Company..........
    Total Net
     Assets.........
Net Assets,
 representing:
  Equity of Contract
   Owners...........
  Equity of Paragon
   Life Insurance
   Company..........

Total Units Held....
Net Asset Value Per
 Unit...............
Cost of Investments.
</TABLE>

                See Accompanying Notes to Financial Statements.

                                      F-16
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                            STATEMENTS OF OPERATIONS

                                  Page 1 of 2

  For the Years Ended December 31, 1999, 1998 and the period from February 26,
                     1997 (inception) to December 31, 1997

<TABLE>
<CAPTION>
                        Scudder Money Market       Scudder International      Fidelity Equity Income
                              Division                   Division                    Division
                     --------------------------  ---------------------------  ------------------------
                        1999     1998    1997      1999      1998     1997     1999     1998     1997
                     ---------- ------- -------  ---------  -------  -------  -------  -------  ------
<S>                  <C>        <C>     <C>      <C>        <C>      <C>      <C>      <C>      <C>
Investment Income:
 Dividend Income...  $   20,414  10,143   3,261     10,925   16,096        1   30,539   14,639     --
Expenses:
 Mortality and
 Expense Charge....       3,042   1,460     455     14,321    8,335    2,631   18,098   10,564   2,552
                     ---------- ------- -------  ---------  -------  -------  -------  -------  ------
 Net Investment
 Income (Expense)..      17,372   8,683   2,806     (3,396)   7,761   (2,630)  12,441    4,075  (2,552)
Net Realized Gain
on Investments
 Realized Gain from
 Distributions.....         --              --     154,037  105,862      --    67,508   52,096     --
 Proceeds from
 Sales.............     455,692  51,234 289,611    386,233  102,947  173,610  416,382  124,813  38,007
 Cost of
 Investments Sold..     455,692  51,234 289,611    372,342  106,571  177,689  390,205  119,169  36,223
                     ---------- ------- -------  ---------  -------  -------  -------  -------  ------
   Net Realized
   Gain (Loss) on
   Investments.....         --      --      --     167,928  102,238   (4,079)  93,685   57,740   1,784
Net Unrealized Gain
(Loss) on
Investments:
 Unrealized
 Gain(Loss)
 Beginning of Year.         --      --      --      27,148  (25,879)     --   141,690   56,580     --
 Unrealized
 Gain(Loss) End of
 Year..............         --      --      --     837,838   27,148  (25,879) 143,849  141,690  56,580
                     ---------- ------- -------  ---------  -------  -------  -------  -------  ------
 Net Unrealized
 Gain(Loss) on
 Investments.......         --      --      --     810,690   53,027  (25,879)   2,159   85,110  56,580
                     ---------- ------- -------  ---------  -------  -------  -------  -------  ------
   Net Gain(Loss)
   on Investments..         --      --      --     978,618  155,265  (29,958)  95,844  142,850  58,364
                     ---------- ------- -------  ---------  -------  -------  -------  -------  ------
Increase (Decrease)
in Net Assets
Resulting from
Operations.........  $   17,372   8,683   2,806    975,222  163,026  (32,588) 108,285  146,925  55,812
                     ========== ======= =======  =========  =======  =======  =======  =======  ======
<CAPTION>
                         Fidelity Index 500         Fidelity Contrafund         Putnam High Yield
                              Division                   Division                    Division
                     --------------------------  ---------------------------  ------------------------
                        1999     1998    1997      1999      1998     1997     1999     1998     1997
                     ---------- ------- -------  ---------  -------  -------  -------  -------  ------
<S>                  <C>        <C>     <C>      <C>        <C>      <C>      <C>      <C>      <C>
Investment Income:
 Dividend Income...  $   59,680  27,845     --      15,792   10,800      --    42,401   17,896     277
Expenses:
 Mortality and
 Expense Charge....      53,104  23,600   6,310     33,475   15,117    4,049    3,311    1,965     775
                     ---------- ------- -------  ---------  -------  -------  -------  -------  ------
 Net Investment
 Income (Expense)..       6,576   4,245  (6,310)   (17,683)  (4,317)  (4,049)  39,090   15,931    (498)
Net Realized Gain
on Investments
 Realized Gain from
 Distributions.....      26,892  64,495     --     115,805   79,460      --       --     2,808      32
 Proceeds from
 Sales.............     598,077 172,866 153,926    537,241  103,003   45,697   63,617   57,532  22,023
 Cost of
 Investments Sold..     490,860 152,050 146,855    445,480   94,211   42,658   70,444   53,897  20,837
                     ---------- ------- -------  ---------  -------  -------  -------  -------  ------
   Net Realized
   Gain (Loss) on
   Investments.....     134,109  85,311   7,071    207,566   88,252    3,039   (6,827)   6,443   1,218
Net Unrealized Gain
(Loss) on
Investments:
 Unrealized
 Gain(Loss)
 Beginning of Year.     867,561 158,189     --     576,541   83,162      --   (29,078)  14,350     --
 Unrealized
 Gain(Loss) End of
 Year..............   2,089,459 867,561 158,189  1,469,289  576,541   83,162  (39,488) (29,078) 14,350
                     ---------- ------- -------  ---------  -------  -------  -------  -------  ------
 Net Unrealized
 Gain(Loss) on
 Investments.......   1,221,898 709,372 158,189    892,748  493,379   83,162  (10,410) (43,428) 14,350
                     ---------- ------- -------  ---------  -------  -------  -------  -------  ------
   Net Gain(Loss)
   on Investments..   1,356,007 794,683 165,260  1,100,314  581,631   86,201  (17,237) (36,985) 15,568
                     ---------- ------- -------  ---------  -------  -------  -------  -------  ------
Increase (Decrease)
in Net Assets
Resulting from
Operations.........  $1,362,583 798,928 158,950  1,082,631  577,314   82,152   21,853  (21,054) 15,070
                     ========== ======= =======  =========  =======  =======  =======  =======  ======
<CAPTION>
                         Fidelity Growth
                             Division
                     ---------------------------
                       1999      1998     1997
                     ---------- -------- -------
<S>                  <C>        <C>      <C>
Investment Income:
 Dividend Income...     71,157    3,814     --
Expenses:
 Mortality and
 Expense Charge....     22,207    7,802   1,885
                     ---------- -------- -------
 Net Investment
 Income (Expense)..     48,950   (3,988) (1,885)
Net Realized Gain
on Investments
 Realized Gain from
 Distributions.....    134,264   99,760     --
 Proceeds from
 Sales.............    207,171   74,918  26,952
 Cost of
 Investments Sold..    181,132   70,769  25,580
                     ---------- -------- -------
   Net Realized
   Gain (Loss) on
   Investments.....    160,303  103,909   1,372
Net Unrealized Gain
(Loss) on
Investments:
 Unrealized
 Gain(Loss)
 Beginning of Year.    296,448   30,076     --
 Unrealized
 Gain(Loss) End of
 Year..............  1,163,240  296,448  30,076
                     ---------- -------- -------
 Net Unrealized
 Gain(Loss) on
 Investments.......    866,792  266,372  30,076
                     ---------- -------- -------
   Net Gain(Loss)
   on Investments..  1,027,095  370,281  31,448
                     ---------- -------- -------
Increase (Decrease)
in Net Assets
Resulting from
Operations.........  1,076,045  366,293  29,563
                     ========== ======== =======
<CAPTION>
                          Putnam Voyager
                             Division
                     ---------------------------
                       1999      1998     1997
                     ---------- -------- -------
<S>                  <C>        <C>      <C>
Investment Income:
 Dividend Income...      1,294    1,303      32
Expenses:
 Mortality and
 Expense Charge....     10,881    4,710   1,503
                     ---------- -------- -------
 Net Investment
 Income (Expense)..     (9,587)  (3,407) (1,471)
Net Realized Gain
on Investments
 Realized Gain from
 Distributions.....    103,773   31,790     692
 Proceeds from
 Sales.............    220,253   72,208  39,294
 Cost of
 Investments Sold..    182,126   63,834  36,437
                     ---------- -------- -------
   Net Realized
   Gain (Loss) on
   Investments.....    141,900   40,164   3,549
Net Unrealized Gain
(Loss) on
Investments:
 Unrealized
 Gain(Loss)
 Beginning of Year.    159,171   46,424     --
 Unrealized
 Gain(Loss) End of
 Year..............    839,736  159,171  46,424
                     ---------- -------- -------
 Net Unrealized
 Gain(Loss) on
 Investments.......    680,565  112,748  46,424
                     ---------- -------- -------
   Net Gain(Loss)
   on Investments..    822,465  152,912  49,973
                     ---------- -------- -------
Increase (Decrease)
in Net Assets
Resulting from
Operations.........    812,878  149,505  48,502
                     ========== ======== =======
</TABLE>

                See Accompanying Notes to Financial Statements.

                                      F-17
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                            STATEMENTS OF OPERATIONS

                                  Page 2 of 2

  For the Years Ended December 31, 1999, 1998 and the period from February 26,
                     1997 (inception) to December 31, 1997

<TABLE>
<CAPTION>
                              Putnam                     Putnam                   T.R. Price              T.R. Price
                              Income               New Opportunities             New America           Limited-Term Bond
                             Division                   Division               Growth Division             Division
                      ------------------------  --------------------------  ------------------------  --------------------
                        1999     1998   1997      1999      1998     1997    1999     1998     1997    1999    1998  1997
                      --------  ------ -------  ---------  -------  ------  -------  -------  ------  -------  ----- -----
<S>                   <C>       <C>    <C>      <C>        <C>      <C>     <C>      <C>      <C>     <C>      <C>   <C>
Investment Income:
 Dividend Income....  $ 48,830  24,286      24        --       --      --       --       --      --    18,708  3,964 1,148
Expenses:
 Mortality and
 Expense Charge.....     7,593   3,672   1,336     12,257    5,408   1,771   13,731    8,308   2,619    2,466    521   141
                      --------  ------ -------  ---------  -------  ------  -------  -------  ------  -------  ----- -----
 Net Investment
 Income (Expense)...    41,237  20,614  (1,312)   (12,257)  (5,408) (1,771) (13,731)  (8,308) (2,619)  16,242  3,443 1,007
Net Realized Gain on
Investments
 Realized Gain from
 Distributions......     4,295     632     --      17,711    8,780     --   130,662   29,621   1,910      --     201   --
 Proceeds from
 Sales..............    50,661   9,892  13,191    160,862   88,851  21,590  318,715   64,424  25,684   25,275  5,557 3,027
 Cost of Investments
 Sold...............    51,645   9,414  12,846    127,758   75,941  19,924  266,456   56,227  24,158   25,631  5,494 2,981
                      --------  ------ -------  ---------  -------  ------  -------  -------  ------  -------  ----- -----
   Net Realized Gain
   (Loss) on
   Investments......     3,311   1,110     345     50,815   21,690   1,666  182,921   37,818   3,436     (356)   264    46
Net Unrealized Gain
(Loss) on
Investments:
 Unrealized
 Gain(Loss)
 Beginning of Year..    38,849  20,067     --     220,882   58,379     --   249,666   74,143     --     1,054    348   --
 Unrealized
 Gain(Loss) End of
 Year...............   (35,549) 38,849  20,067  1,292,978  220,882  58,379  322,806  249,666  74,143  (13,451) 1,054   348
                      --------  ------ -------  ---------  -------  ------  -------  -------  ------  -------  ----- -----
 Net Unrealized
 Gain(Loss) on
 Investments........   (74,398) 18,782  20,067  1,072,096  162,503  58,379   73,140  175,523  74,143  (14,505)   706   348
                      --------  ------ -------  ---------  -------  ------  -------  -------  ------  -------  ----- -----
   Net Gain(Loss) on
   Investments......   (71,087) 19,892  20,412  1,122,911  184,193  60,045  256,061  213,341  77,579  (14,861)   970   394
                      --------  ------ -------  ---------  -------  ------  -------  -------  ------  -------  ----- -----
Increase (Decrease)
in Net Assets
Resulting from
Operations..........  $(29,850) 40,506  19,100  1,110,654  178,785  58,274  242,330  205,033  74,960    1,381  4,413 1,401
                      ========  ====== =======  =========  =======  ======  =======  =======  ======  =======  ===== =====
<CAPTION>
                            T.R. Price                    MFS
                             Personal                   Emerging
                       Strat. Bal. Division         Growth Division
                      ------------------------  --------------------------
                        1999     1998   1997      1999      1998     1997
                      --------  ------ -------  ---------  -------  ------
<S>                   <C>       <C>    <C>      <C>        <C>      <C>     <C>      <C>      <C>     <C>      <C>   <C>
Investment Income:
 Dividend Income....  $ 52,237  22,815   8,442        --     7,893     --
Expenses:
 Mortality and
 Expense Charge.....    11,512   5,220   1,615     22,579    9,802   3,269
                      --------  ------ -------  ---------  -------  ------
 Net Investment
 Income (Expense)...    40,725  17,595   6,827    (22,579)  (1,909) (3,269)
Net Realized Gain on
Investments
 Realized Gain from
 Distributions......   100,774  32,671   7,070        --     2,818     --
 Proceeds from
 Sales..............   494,695  81,578 128,464    292,638  104,262  85,782
 Cost of Investments
 Sold...............   483,517  77,738 125,119    222,677   91,161  80,415
                      --------  ------ -------  ---------  -------  ------
   Net Realized Gain
   (Loss) on
   Investments......   111,952  36,511  10,415     69,961   15,919   5,367
Net Unrealized Gain
(Loss) on
Investments:
 Unrealized
 Gain(Loss)
 Beginning of Year..    48,761  10,497     --     467,020   68,906     --
 Unrealized
 Gain(Loss) End of
 Year...............    26,162  48,761  10,497  2,726,497  467,020  68,906
                      --------  ------ -------  ---------  -------  ------
 Net Unrealized
 Gain(Loss) on
 Investments........   (22,599) 38,264  10,497  2,259,477  398,114  68,906
                      --------  ------ -------  ---------  -------  ------
   Net Gain(Loss) on
   Investments......    89,353  74,775  20,912  2,329,438  414,033  74,273
                      --------  ------ -------  ---------  -------  ------
Increase (Decrease)
in Net Assets
Resulting from
Operations..........  $130,078  92,370  27,739  2,306,859  412,124  71,004
                      ========  ====== =======  =========  =======  ======
</TABLE>

                See Accompanying Notes to Financial Statements.

                                      F-18
<PAGE>

                          PARAGON SEPARATE ACCOUNT B

                      STATEMENTS OF CHANGES IN NET ASSETS

                                  Page 1 of 2

 For the Years Ended December 31, 1999, 1998 and the Period from February 26,
                     1997 (Inception) to December 31, 1997

<TABLE>
<CAPTION>
                                                                                              Fidelity
                               Scudder                         Scudder                         Equity
                             Money Market                   International                      Income
                               Division                       Division                        Division
                    ------------------------------  -------------------------------  -----------------------------
                       1999      1998      1997       1999       1998       1997       1999       1998      1997
                    ---------- --------- ---------  ---------  ---------  ---------  ---------  ---------  -------
<S>                 <C>        <C>       <C>        <C>        <C>        <C>        <C>        <C>        <C>
Operations:
 Net Investment
 Income (Expense).. $   17,372     8,683     2,806     (3,396)     7,761     (2,630)    12,441      4,075   (2,552)
 Net Realized Gain
 (Loss) on
 Investments.......        --        --        --     167,928    102,238     (4,079)    93,685     57,740    1,784
 Net Unrealized
 Gain (Loss) on
 Investments.......        --        --        --     810,690     53,027    (25,879)     2,159     85,110   56,580
                    ---------- --------- ---------  ---------  ---------  ---------  ---------  ---------  -------
 Increase
 (Decrease) in Net
 Assets Resulting
 from Operations...     17,372     8,683     2,806    975,222    163,026    (32,588)   108,285    146,925   55,812
 Net Deposits into
 Separate Account..    245,044   145,966   122,109    582,890    502,178    788,148    811,876    780,846  903,238
                    ---------- --------- ---------  ---------  ---------  ---------  ---------  ---------  -------
   Increase in Net
   Assets..........    262,416   154,649   124,915  1,558,112    665,204    755,560    920,161    927,771  959,050
Net Assets,
Beginning of Year..    279,564   124,915       --   1,420,764    755,560        --   1,886,821    959,050      --
                    ---------- --------- ---------  ---------  ---------  ---------  ---------  ---------  -------
Net Assets, End of
Year............... $  541,980   279,564   124,915  2,978,876  1,420,764    755,560  2,806,982  1,886,821  959,050
                    ========== ========= =========  =========  =========  =========  =========  =========  =======
<CAPTION>
                          Fidelity Index 500             Fidelity Contrafund              Putnam High Yield
                               Division                       Division                        Division
                    ------------------------------  -------------------------------  -----------------------------
                       1999      1998      1997       1999       1998       1997       1999       1998      1997
                    ---------- --------- ---------  ---------  ---------  ---------  ---------  ---------  -------
<S>                 <C>        <C>       <C>        <C>        <C>        <C>        <C>        <C>        <C>
Operations:
 Net Investment
 Income (Expense).. $    6,576     4,245    (6,310)   (17,683)    (4,317)    (4,049)    39,090     15,931     (498)
 Net Realized Gain
 (Loss) on
 Investments.......    134,109    85,311     7,071    207,566     88,252      3,039     (6,827)     6,443    1,218
 Net Unrealized
 Gain (Loss) on
 Investments.......  1,221,898   709,372   158,189    892,748    493,379     83,162    (10,410)   (43,428)  14,350
                    ---------- --------- ---------  ---------  ---------  ---------  ---------  ---------  -------
 Increase
 (Decrease) in Net
 Assets Resulting
 from Operations...  1,362,583   798,928   158,950  1,082,631    577,314     82,152     21,853    (21,054)  15,070
 Net Deposits into
 Separate Account..  4,030,169 1,595,868 2,012,238  2,585,342    996,842  1,341,761    196,219    125,158  206,943
                    ---------- --------- ---------  ---------  ---------  ---------  ---------  ---------  -------
   Increase in Net
   Assets..........  5,392,752 2,394,796 2,171,188  3,667,973  1,574,156  1,423,913    218,072    104,104  222,013
Net Assets,
Beginning of Year..  4,565,984 2,171,188       --   2,998,069  1,423,913        --     326,117    222,013      --
                    ---------- --------- ---------  ---------  ---------  ---------  ---------  ---------  -------
Net Assets, End of
Year............... $9,958,736 4,565,984 2,171,188  6,666,042  2,998,069  1,423,913    544,189    326,117  222,013
                    ========== ========= =========  =========  =========  =========  =========  =========  =======
<CAPTION>
                          Fidelity Growth
                             Division
                    ------------------------------
                      1999       1998      1997
                    ---------- ---------- --------
<S>                 <C>        <C>        <C>
Operations:
 Net Investment
 Income (Expense)..    48,950     (3,988)  (1,885)
 Net Realized Gain
 (Loss) on
 Investments.......   160,303    103,909    1,372
 Net Unrealized
 Gain (Loss) on
 Investments.......   866,792    266,372   30,076
                    ---------- ---------- --------
 Increase
 (Decrease) in Net
 Assets Resulting
 from Operations... 1,076,045    366,293   29,563
 Net Deposits into
 Separate Account.. 2,274,602    542,595  658,164
                    ---------- ---------- --------
   Increase in Net
   Assets.......... 3,350,647    908,888  687,727
Net Assets,
Beginning of Year.. 1,596,615    687,727      --
                    ---------- ---------- --------
Net Assets, End of
Year............... 4,947,262  1,596,615  687,727
                    ========== ========== ========
<CAPTION>
                          Putnam Voyager
                             Division
                    ------------------------------
                      1999       1998      1997
                    ---------- ---------- --------
<S>                 <C>        <C>        <C>
Operations:
 Net Investment
 Income (Expense)..    (9,587)    (3,407)  (1,471)
 Net Realized Gain
 (Loss) on
 Investments.......   141,900     40,164    3,549
 Net Unrealized
 Gain (Loss) on
 Investments.......   680,565    112,748   46,424
                    ---------- ---------- --------
 Increase
 (Decrease) in Net
 Assets Resulting
 from Operations...   812,878    149,505   48,502
 Net Deposits into
 Separate Account..   649,592    317,314  400,679
                    ---------- ---------- --------
   Increase in Net
   Assets.......... 1,462,470    466,819  449,181
Net Assets,
Beginning of Year..   916,000    449,181      --
                    ---------- ---------- --------
Net Assets, End of
Year............... 2,378,470    916,000  449,181
                    ========== ========== ========
</TABLE>

                See Accompanying Notes to Financial Statements.

                                      F-19
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                      STATEMENTS OF CHANGES IN NET ASSETS

                                  Page 2 of 2

  For the Years Ended December 31, 1999, 1998 and the period from February 26,
                     1997 (inception) to December 31, 1997

<TABLE>
<CAPTION>
                                                  Putnam New Opportunities        T.R. Price New America
                      Putnam Income Division              Division                    Growth Division
                    ---------------------------  -----------------------------  -----------------------------
                       1999      1998    1997      1999       1998      1997      1999       1998      1997
                    ----------  ------- -------  ---------  ---------  -------  ---------  ---------  -------
<S>                 <C>         <C>     <C>      <C>        <C>        <C>      <C>        <C>        <C>
Operations:
 Net Investment
 Income (Expense).  $   41,237   20,614  (1,312)   (12,257)    (5,408)  (1,771)   (13,731)    (8,308)  (2,619)
 Net Realized Gain
 (Loss) on
 Investments......       3,311    1,110     345     50,815     21,690    1,666    182,921     37,818    3,436
 Net Unrealized
 Gain (Loss) on
 Investments......     (74,398)  18,782  20,067  1,072,096    162,503   58,379     73,140    175,523   74,143
                    ----------  ------- -------  ---------  ---------  -------  ---------  ---------  -------
 Increase
 (Decrease) in Net
 Assets Resulting
 from Operations..     (29,850)  40,506  19,100  1,110,654    178,785   58,274    242,330    205,033   74,960
 Net Deposits into
 Separate Account.     797,051  176,598 372,732    791,294    359,780  480,830    582,656    514,647  750,558
                    ----------  ------- -------  ---------  ---------  -------  ---------  ---------  -------
  Increase in Net
  Assets..........     767,201  217,104 391,832  1,901,948    538,565  539,104    824,986    719,680  825,518
Net Assets,
Beginning of Year.     608,936  391,832     --   1,077,669    539,104      --   1,545,198    825,518      --
                    ----------  ------- -------  ---------  ---------  -------  ---------  ---------  -------
Net Assets, End of
Year..............  $1,376,137  608,936 391,832  2,979,617  1,077,669  539,104  2,370,184  1,545,198  825,518
                    ==========  ======= =======  =========  =========  =======  =========  =========  =======
<CAPTION>
                    T.R. Price Personal Strat.       MFS Emerging Growth
                          Bal. Division                   Division
                    ---------------------------  -----------------------------
                       1999      1998    1997      1999       1998      1997
                    ----------  ------- -------  ---------  ---------  -------
<S>                 <C>         <C>     <C>      <C>        <C>        <C>      <C>        <C>        <C>
Operations:
 Net Investment
 Income (Expense).  $   40,725   17,595   6,827    (22,579)    (1,909)  (3,269)
 Net Realized Gain
 (Loss) on
 Investments......     111,952   36,511  10,415     69,961     15,919    5,367
 Net Unrealized
 Gain (Loss) on
 Investments......     (22,599)  38,264  10,497  2,259,477    398,114   68,906
                    ----------  ------- -------  ---------  ---------  -------
 Increase
 (Decrease) in Net
 Assets Resulting
 from Operations..     130,078   92,370  27,739  2,306,859    412,124   71,004
 Net Deposits into
 Separate Account.   1,062,037  377,161 475,901  1,526,112    582,487  871,615
                    ----------  ------- -------  ---------  ---------  -------
  Increase in Net
  Assets..........   1,192,115  469,531 503,640  3,832,971    994,611  942,619
Net Assets,
Beginning of Year.     973,171  503,640     --   1,937,230    942,619      --
                    ----------  ------- -------  ---------  ---------  -------
Net Assets, End of
Year..............  $2,165,286  973,171 503,640  5,770,201  1,937,230  942,619
                    ==========  ======= =======  =========  =========  =======
<CAPTION>
                     T.R. Price Limited-
                      Term Bond Division
                    -----------------------
                     1999     1998    1997
                    -------- ------- ------
<S>                 <C>      <C>     <C>
Operations:
 Net Investment
 Income (Expense).   16,242    3,443  1,007
 Net Realized Gain
 (Loss) on
 Investments......     (356)     264     46
 Net Unrealized
 Gain (Loss) on
 Investments......  (14,505)     706    348
                    -------- ------- ------
 Increase
 (Decrease) in Net
 Assets Resulting
 from Operations..    1,381    4,413  1,401
 Net Deposits into
 Separate Account.  419,557   62,044 41,473
                    -------- ------- ------
  Increase in Net
  Assets..........  420,938   66,457 42,874
Net Assets,
Beginning of Year.  109,331   42,874    --
                    -------- ------- ------
Net Assets, End of
Year..............  530,269  109,331 42,874
                    ======== ======= ======
<CAPTION>
<S>                 <C>      <C>     <C>
Operations:
 Net Investment
 Income (Expense).
 Net Realized Gain
 (Loss) on
 Investments......
 Net Unrealized
 Gain (Loss) on
 Investments......
 Increase
 (Decrease) in Net
 Assets Resulting
 from Operations..
 Net Deposits into
 Separate Account.
  Increase in Net
  Assets..........
Net Assets,
Beginning of Year.
Net Assets, End of
Year..............
</TABLE>

                See Accompanying Notes to Financial Statements.

                                      F-20
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                         Notes to Financial Statements

                               December 31, 1999

(1) Organization

  Paragon Life Insurance Company (Paragon) established Paragon Separate Account
B on January 4, 1993. Paragon Separate Account B (the Separate Account)
commenced operations on March 3, 1994 and is registered under the Investment
Company Act of 1940 as a unit investment trust. The Division options included
herein commenced operations on February 26, 1997. The Separate Account receives
and invests net premiums for flexible premium group variable life insurance
policies that are issued by Paragon. The Separate Account is divided into
fourteen divisions which invest exclusively in shares of Scudder Variable Life
Investment Fund (Scudder), Fidelity Variable Insurance Products Fund (Fidelity
VIPI), Fidelity Variable Insurance Products Fund II (Fidelity VIPII), Putnam
Variable Trust (Putnam), T. Rowe Price Equity Series, Inc. (TR Price I),
T. Rowe Price Fixed Income Series, Inc. (TR Price II) and MFS Variable
Insurance Trust (MFS), open-end, diversified management investment companies.
These funds are the Scudder Money Market, Scudder International, Fidelity
Equity Income, Fidelity Growth, Fidelity Index 500, Fidelity Contrafund, Putnam
High Yield, Putnam Voyager, Putnam Income, Putnam New Opportunities, TR Price
New America Growth, TR Price Limited-Term Bond, TR Price Personal Strategy
Balanced and MFS Emerging Growth (the Divisions). Policyholders have the option
of directing their premium payments into any or all of the Divisions.

(2) Significant Accounting Policies

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

 Investments

  The Separate Account's investments in the Funds of Scudder, Fidelity VIPI,
Fidelity VIPII, Putnam, TR Price I, TR Price II and MFS are valued daily based
on the net asset values of the respective fund shares held. The average cost
method is used in determining the cost of shares sold on withdrawals by the
Separate Account. Share transactions are recorded consistent with trade date
accounting. All dividends received are immediately reinvested on the ex-
dividend date.

 Federal Income Taxes

  The operations of the Separate Account are treated as part of Paragon for
income tax purposes. Under existing Federal income tax law, capital gains from
sales of investments of the Separate Account are not taxable. Therefore, no
Federal income tax has been provided.

 Use of Estimates

  The preparation of financial statements requires management to make estimates
and assumptions with respect to amounts reported in the financial statements.
Actual results could differ from those estimates.

(3) Policy Charges

  Charges are deducted from the policies and the Separate Account to compensate
Paragon for providing the insurance benefits set forth in the contracts and any
additional benefits added by rider, administering the policies, incurring
expenses in distributing the policies, and assuming certain risks in connection
with the policy.

                                      F-21
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                   Notes to Financial Statements--(Continued)

 Premium Expense Charge

  Certain policies include a provision that premium payments may be reduced by
a premium expense charge. The premium expense charge is determined by the costs
associated with distributing the policy and, if applicable, is equal to 1% of
the premium paid. The premium expense charge compensates Paragon for providing
the insurance benefits set forth in the policies, incurring expenses of
distributing the policies, and assuming certain risks in connection with the
policies. In addition, some policies have a premium tax assessment equal to 2%
or 2.25% to reimburse Paragon for premium taxes incurred. The premium payment
less premium expense and premium tax charges equals the net premium that is
invested in the underlying separate account.

 Monthly Expense Charge

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

 Cost of Insurance

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

 Optional Rider Benefits Charge

  The optional rider benefits charge is a monthly deduction for any additional
benefits provided by policy riders.

 Surrender or Contingent Deferred Sales Charge

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

 Mortality and Expense Charge

  In addition to the above contract charges a daily charge against the
operations of each division is made for the mortality and expense risks assumed
by Paragon. Paragon deducts a daily charge from the Separate Account at the
rate of .0020471% of the net assets of each division of the Separate Account
which equals an annual rate of .75% of those net assets. The mortality risk
assumed by Paragon is that insureds may die sooner than anticipated and that,
therefore, Paragon will pay an aggregate amount of death benefits greater than
anticipated. The expense risk assumed is that expenses incurred in issuing and
administering the policy will exceed the amounts realized from the
administrative charges assessed against the policy.

                                      F-22
<PAGE>

                          PARAGON SEPARATE ACCOUNT B

                  Notes to Financial Statements--(Continued)
Note 4 -- Purchases and Sales

  For the Years Ended December 31, 1999, 1998 and the period from February 26,
1997 (inception) to December 31, 1997, purchases and proceeds from the sales
of the Scudder Variable Insurance Products Fund, Fidelity Variable Insurance
Products Fund, Fidelity Variable Insurance Products Fund II, Putnam Variable
Trust, T.Rowe Price Equity Series, Inc., T.Rowe Price Fixed Income Series,
Inc. and MFS Variable Insurance Trust

<TABLE>
<CAPTION>
                                                         Scudder
                          Scudder Money               International           Fidelity Equity           Fidelity Growth
                         Market Division                Division              Income Division              Division
                 ------------------------------- ----------------------- ------------------------- -------------------------
                    1999       1998      1997     1999    1998    1997     1999     1998    1997     1999     1998    1997
                 ----------- --------- --------- ------- ------- ------- --------- ------- ------- --------- ------- -------
<S>              <C>         <C>       <C>       <C>     <C>     <C>     <C>       <C>     <C>     <C>       <C>     <C>
Purchases....... $   698,371   194,773   411,282 955,621 596,570 958,562 1,217,400 889,293 938,848 2,462,102 607,056 683,583
Sales........... $   455,692    51,234   289,611 386,233 102,947 173,610   416,382 124,813  38,007   207,171  74,918  26,952
                 =========== ========= ========= ======= ======= ======= ========= ======= ======= ========= ======= =======
<CAPTION>
                       Fidelity Contrafund             Putnam High            Putnam Voyager             Putnam Income
                            Division                 Yield Division              Division                  Division
                 ------------------------------- ----------------------- ------------------------- -------------------------
                    1999       1998      1997     1999    1998    1997     1999     1998    1997     1999     1998    1997
                 ----------- --------- --------- ------- ------- ------- --------- ------- ------- --------- ------- -------
<S>              <C>         <C>       <C>       <C>     <C>     <C>     <C>       <C>     <C>     <C>       <C>     <C>
Purchases....... $ 3,091,892 1,080,030 1,383,519 257,628 180,347 227,743   860,525 383,609 438,392   841,873 180,773 384,876
Sales........... $   537,241   103,003    45,697  63,617  57,532  22,023   220,253  72,208  39,294    50,661   9,892  13,191
                 =========== ========= ========= ======= ======= ======= ========= ======= ======= ========= ======= =======
<CAPTION>
                         T.R. Price New                                     T.R. Price Personal
                         America Growth            T.R. Price Limited-       Strategy Balanced           MFS Emerging
                            Division               Term Bond Division            Division               Growth Division
                 ------------------------------- ----------------------- ------------------------- -------------------------
                    1999       1998      1997     1999    1998    1997     1999     1998    1997     1999     1998    1997
                 ----------- --------- --------- ------- ------- ------- --------- ------- ------- --------- ------- -------
<S>              <C>         <C>       <C>       <C>     <C>     <C>     <C>       <C>     <C>     <C>       <C>     <C>
Purchases....... $   896,759   564,498   772,129 444,973  64,606  44,390 1,548,177 454,551 599,637 1,801,453 673,884 952,779
Sales........... $   318,715    64,424    25,684  25,275   5,557   3,027   494,695  81,578 128,464   292,638 104,262  85,782
                 =========== ========= ========= ======= ======= ======= ========= ======= ======= ========= ======= -------
<CAPTION>
                      Fidelity Index 500
                           Division
                 -----------------------------
                   1999      1998      1997
                 --------- --------- ---------
<S>              <C>       <C>       <C>
Purchases....... 4,588,369 1,735,116 2,158,781
Sales...........   598,077   172,866   153,926
                 ========= ========= =========
<CAPTION>
                          Putnam New
                         Opportunities
                           Division
                 -----------------------------
                   1999      1998      1997
                 --------- --------- ---------
<S>              <C>       <C>       <C>
Purchases.......   941,211   442,543   500,587
Sales...........   160,862    88,851    21,590
                 ========= ========= =========
<CAPTION>
<S>              <C>       <C>       <C>
Purchases.......
Sales...........
</TABLE>
<TABLE>
<CAPTION>
                                                 Scudder          Fidelity Equity          Fidelity
                       Scudder Money          International            Income               Growth           Fidelity Index
                      Market Division           Division              Division             Division          500  Division
                  ----------------------- --------------------- -------------------- -------------------- --------------------
                   1999    1998    1997    1999    1998   1997   1999   1998   1997   1999   1998   1997   1999   1998   1997
                  ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S>               <C>     <C>     <C>     <C>     <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
Net Increase in
Units
 Deposits........ 634,186 185,432 406,623  52,999 38,766 65,985 43,661 35,673 41,371 43,315 14,418 19,373 29,736 13,795 20,471
 Withdrawals..... 411,882  47,582 285,844  21,472  6,564 12,114 14,773  4,810  1,652  3,554  1,748    753  3,781  1,322  1,404
                  ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Increase in
Units............ 222,304 137,849 120,779  31,527 32,202 53,871 28,888 30,863 39,719 39,761 12,670 18,620 25,955 12,473 19,067
Outstanding
Units,
 Beginning of
 Year............ 258,628 120,779     --   86,073 53,871    --  70,582 39,719    --  31,290 18,620    --  31,540 19,067    --
                  ------- ------- ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Outstanding
Units,
 End of Year..... 480,932 258,628 120,779 117,600 86,073 53,871 99,470 70,582 39,719 71,051 31,290 18,620 57,495 31,540 19,067
                  ======= ======= ======= ======= ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

  The purchases above do not include dividends and realized gains from
distributions that have been reinvested into the respective divisions.

Note 5 -- Accumulation of Unit Activity
  The following is a reconciliation of the accumulation of unit activity for
the Years ended December 31, 1999, 1998 and the period from February 26, 1997
(inception) to December 31, 1997:


                                      F-23
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                   Notes to Financial Statements--(Continued)
Note 5--Accumulation of Unit Activity (continued)
  The following is a reconciliation of the accumulation of unit activity for
the Year ended December 31, 1998 and the period from February 26, 1997
(Inception) to December 31, 1997:

<TABLE>
<CAPTION>
                                                                                                             Putnam New
                   Fidelity Contrafund    Putnam High Yield      Putnam Voyager       Putnam Income        Opportunities
                         Division              Division             Division             Division             Division
                  ---------------------- -------------------- -------------------- -------------------- --------------------
                   1999    1998    1997   1999   1998   1997   1999   1998   1997   1999   1998   1997   1999   1998   1997
                  ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S>               <C>     <C>     <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
Net Increase in
Units
 Deposits........ 112,850  50,010 74,108 18,391 13,125 16,908 15,394  9,055 12,048 57,047 12,927 28,842 31,975 20,017 26,662
 Withdrawals.....  18,908   4,628  2,401  4,597  3,862  1,551  3,728  1,599  1,023  3,431    600    932  5,647  3,804  1,103
                  ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Increase in
Units............  93,942  45,383 71,707 13,794  9,263 15,357 11,666  7,456 11,025 53,616 12,327 27,910 26,328 16,213 25,559
Outstanding
Units, Beginning
of Year.......... 117,090  71,707    --  24,620 15,357    --  18,481 11,025    --  40,237 27,910    --  41,772 25,559    --
                  ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Outstanding
Units, End of
Year............. 211,032 117,090 71,707 38,414 24,620 15,357 30,147 18,481 11,025 93,853 40,237 27,910 68,100 41,772 25,559
                  ======= ======= ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

  The following is a reconciliation of the accumulation of unit activity for
the Years ended December 31, 1999, 1998 and the period from February 26, 1997
(inception) to December 31, 1997:


<TABLE>
<CAPTION>
                            T.R. Price New
                            America Growth    T.R. Price Limited-  T.R. Price Personal   MFS Emerging Growth
                               Division       Term Bond Division  Strat. Bal. Division        Division
                         -------------------- ------------------- --------------------- ---------------------
                          1999   1998   1997   1999   1998  1997   1999    1998   1997   1999    1998   1997
                         ------ ------ ------ ------ ------ ----- ------- ------ ------ ------- ------ ------
<S>                      <C>    <C>    <C>    <C>    <C>    <C>   <C>     <C>    <C>    <C>     <C>    <C>
Net Increase in Units
 Deposits............... 35,123 25,749 40,110 82,401 12,759 8,977  84,895 27,507 40,523  75,477 38,091 64,495
 Withdrawals............ 12,250  2,811  1,297  4,655  1,025   604  26,535  4,947  8,452  11,671  5,702  5,369
                         ------ ------ ------ ------ ------ ----- ------- ------ ------ ------- ------ ------
Net Increase in Units... 22,873 22,938 38,813 77,746 11,734 8,373  58,360 22,560 32,071  63,806 32,389 59,126
Outstanding Units,
Beginning of Year....... 61,751 38,813    --  20,107  8,373   --   54,631 32,071    --   91,515 59,126    --
                         ------ ------ ------ ------ ------ ----- ------- ------ ------ ------- ------ ------
Outstanding Units, End
of Year................. 84,624 61,751 38,813 97,853 20,107 8,373 112,991 54,631 32,071 155,321 91,515 59,126
                         ====== ====== ====== ====== ====== ===== ======= ====== ====== ======= ====== ======
</TABLE>

                                      F-24
<PAGE>

                          PARAGON SEPARATE ACCOUNT B

                  Notes to Financial Statements--(Continued)

Note 6--Reconciliation of Gross and Net Deposits into the Separate Account

  Deposits into the Separate Account purchase shares of various funds. Net
deposits represent the amount available for investment in such shares after
deduction of premium expense charges, monthly expense charges, cost of
insurance and the cost of optional benefits added by rider. The following is a
summary of net deposits made for the years ended December 31, 1999, 1998 and
for the period from February 26, 1997 (inception) to December 31, 1997.

<TABLE>
<CAPTION>
                                                          Scudder International            Fideliy Equity Income
                    Scudder Money Market Division               Division                         Division
                    --------------------------------  -------------------------------  -------------------------------
                       1999       1998       1997       1999       1998       1997       1999       1998       1997
                    ----------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                 <C>         <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Total Gross
Deposits........... $  744,650    454,499    572,646    859,804    722,702    806,785  1,583,555  1,044,412  1,039,412
Surrenders and
Withdrawals........    (67,368)    (4,278)       (74)   (90,393)   (20,489)       (72)  (127,451)   (56,750)   (14,044)
Transfers Between
Funds and General
Account............      2,545     17,780   (206,826)    (6,036)   (59,542)    66,433   (251,955)    63,313     20,328
                    ----------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
   Total Gross
   Deposits net of
   Surrenders,
   Withdrawals, and
   Transfers.......    679,827    468,001    365,746    763,375    642,671    873,146  1,204,149  1,050,975  1,045,696
Deductions:
 Premium Expense
 Charges...........     20,523     12,204     16,024     23,697     19,405     22,575     43,644     28,044     29,085
 Monthly Expense
 Charges...........     20,640     17,632      4,660      7,812      6,891      6,565     17,370     13,776      8,458
 Cost of Insurance
 and Optional
 Benefits..........    393,620    292,199    222,953    148,976    114,197     55,858    331,259    228,309    104,915
                    ----------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                       434,783    322,035    243,637    180,485    140,493     84,998    392,273    270,129    142,458
                    ----------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Net Deposits from
Policyholders...... $  245,044    145,966    122,109    582,890    502,178    788,148    811,876    780,846    903,238
                    ==========  =========  =========  =========  =========  =========  =========  =========  =========
<CAPTION>
                     Fidelity Index 500 Division      Fidelity Contrafund Division      Putnam High Yield Division
                    --------------------------------  -------------------------------  -------------------------------
                       1999       1998       1997       1999       1998       1997       1999       1998       1997
                    ----------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                 <C>         <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Total Gross
Deposits........... $5,793,752  2,259,997  2,274,729  3,747,692  1,429,506  1,858,957    353,898    241,285    263,896
Surrenders and
Withdrawals........   (420,055)   (84,913)   (15,614)  (411,457)   (55,117)    (2,130)   (22,356)    (7,840)    (7,735)
Transfers Between
Funds and General
Account............     68,815     61,916     76,287    (15,777)   (16,713)  (283,887)   (38,545)   (41,786)    (1,230)
                    ----------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
   Total Gross
   Deposits net of
   Surrenders,
   Withdrawals, and
   Transfers.......  5,442,512  2,237,000  2,335,402  3,320,458  1,357,676  1,572,940    292,997    191,659    254,931
Deductions:
 Premium Expense
 Charges...........    159,679     60,684     63,651    103,288     38,384     52,017      9,754      6,479      7,384
 Monthly Expense
 Charges...........     62,412     33,032     18,511     31,480     18,350     15,127      4,336      3,416      2,147
 Cost of Insurance
 and Optional
 Benefits..........  1,190,253    547,416    241,002    600,348    304,100    164,035     82,688     56,606     38,457
                    ----------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                     1,412,344    641,132    323,164    735,116    360,834    231,179     96,778     66,501     47,988
                    ----------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
Net Deposits from
Policyholders...... $4,030,168  1,595,868  2,012,238  2,585,342    996,842  1,341,761    196,219    125,158    206,943
                    ==========  =========  =========  =========  =========  =========  =========  =========  =========
<CAPTION>
                    Fidelity Growth Division
                    ----------------------------
                      1999      1998     1997
                    ---------- -------- --------
<S>                 <C>        <C>      <C>
Total Gross
Deposits........... 2,956,035  828,226  756,226
Surrenders and
Withdrawals........  (132,900) (61,120)  (2,270)
Transfers Between
Funds and General
Account............   129,655    1,791  (56,593)
                    ---------- -------- --------
   Total Gross
   Deposits net of
   Surrenders,
   Withdrawals, and
   Transfers....... 2,952,790  768,897  697,363
Deductions:
 Premium Expense
 Charges...........    81,470   22,239   21,161
 Monthly Expense
 Charges...........    29,730   11,613    6,154
 Cost of Insurance
 and Optional
 Benefits..........   566,988  192,450   11,884
                    ---------- -------- --------
                      678,188  226,302   39,199
                    ---------- -------- --------
Net Deposits from
Policyholders...... 2,274,602  542,595  658,164
                    ========== ======== ========
<CAPTION>
                     Putnam Voyager Division
                    ----------------------------
                      1999      1998     1997
                    ---------- -------- --------
<S>                 <C>        <C>      <C>
Total Gross
Deposits........... 1,105,508  507,398  454,188
Surrenders and
Withdrawals........  (164,260) (26,810) (14,199)
Transfers Between
Funds and General
Account............   (22,810)  (8,874)  48,745
                    ---------- -------- --------
   Total Gross
   Deposits net of
   Surrenders,
   Withdrawals, and
   Transfers.......   918,438  471,714  488,734
Deductions:
 Premium Expense
 Charges...........    30,468   13,624   12,709
 Monthly Expense
 Charges...........    11,878    8,011    3,696
 Cost of Insurance
 and Optional
 Benefits..........   226,500  132,765   71,650
                    ---------- -------- --------
                      268,846  154,400   88,055
                    ---------- -------- --------
Net Deposits from
Policyholders......   649,592  317,314  400,679
                    ========== ======== ========
</TABLE>

                                      F-25
<PAGE>

                          PARAGON SEPARATE ACCOUNT B

                  Notes to Financial Statements--(Continued)

Note 6--Reconciliation of Gross and Net Deposits into the Separate Account
(continued)

  Deposits into the Separate Account purchase shares of various funds. Net
deposits represent the amount available for investment in such shares after
deduction of premium expense charges, monthly expense charges, cost of
insurance and the cost of optional benefits added by rider. The following is a
summary of net deposits made for the years ended December 31, 1999, 1998 and
for the period from February 26, 1997 (inception) to December 31, 1997.

<TABLE>
<CAPTION>
                                                   Putnam New Opportunities       T.R. Price New America
                      Putnam Income Division               Division                   Growth Division
                    ----------------------------  -----------------------------  ---------------------------
                       1999      1998     1997      1999      1998      1997       1999      1998     1997
                    ----------  -------  -------  ---------  -------  ---------  ---------  -------  -------
<S>                 <C>         <C>      <C>      <C>        <C>      <C>        <C>        <C>      <C>
Total Gross
Deposits........... $  981,178  240,997  269,041  1,067,229  588,576    597,955  1,065,174  733,553  809,931
Surrenders and
Withdrawals........    (20,921)  (1,926)      (1)   (59,380) (13,945)      (214)   (79,000) (27,696)  (1,562)
Transfers Between
Funds and General
Account............     20,905    5,082  150,618     33,779  (54,349)     8,343   (100,173)  20,602   81,731
                    ----------  -------  -------  ---------  -------  ---------  ---------  -------  -------
   Total Gross
   Deposits net of
   Surrenders,
   Withdrawals, and
   Transfers.......    981,162  244,153  419,658  1,041,628  520,282    606,084    886,001  726,459  890,100
Deductions:
 Premium Expense
 Charges...........     27,042    6,471    7,528     29,413   15,804     16,732     29,357   19,697   22,663
 Monthly Expense
 Charges...........      7,825    3,476    2,189     11,006    8,234      4,866     13,651   10,933    6,591
 Cost of Insurance
 and Optional
 Benefits..........    149,244   57,608   37,209    209,915  136,464    103,656    260,337  181,182  110,288
                    ----------  -------  -------  ---------  -------  ---------  ---------  -------  -------
                       184,111   67,555   46,926    250,334  160,502    125,254    303,345  211,812  139,542
                    ----------  -------  -------  ---------  -------  ---------  ---------  -------  -------
Net Deposits from
Policyholders...... $  797,051  176,598  372,732    791,294  359,780    480,830    582,656  514,647  750,558
                    ==========  =======  =======  =========  =======  =========  =========  =======  =======
<CAPTION>
                    T.R. Price Personal Strat.        MFS Emerging Growth
                          Bal. Division                    Division
                    ----------------------------  -----------------------------
                       1999      1998     1997      1999      1998      1997
                    ----------  -------  -------  ---------  -------  ---------
<S>                 <C>         <C>      <C>      <C>        <C>      <C>        <C>        <C>      <C>
Total Gross
Deposits........... $1,651,162  537,081  617,298  2,141,360  906,166    937,102
Surrenders and
Withdrawals........   (201,604) (25,095) (12,595)  (137,188) (29,602)    (1,608)
Transfers Between
Funds and General
Account............    (51,312)  13,297  (42,168)   (25,838) (60,221)    80,406
                    ----------  -------  -------  ---------  -------  ---------
   Total Gross
   Deposits net of
   Surrenders,
   Withdrawals, and
   Transfers.......  1,398,246  525,283  562,535  1,978,334  816,343  1,015,900
Deductions:
 Premium Expense
 Charges...........     45,507   14,421   17,273     59,017   24,324     26,222
 Monthly Expense
 Charges...........     14,483    7,609    5,023     19,591   11,924      7,626
 Cost of Insurance
 and Optional
 Benefits..........    276,219  126,092   64,338    373,614  197,608    110,437
                    ----------  -------  -------  ---------  -------  ---------
                       336,209  148,122   86,634    452,222  233,856    144,285
                    ----------  -------  -------  ---------  -------  ---------
Net Deposits from
Policyholders...... $1,062,037  377,161  475,901  1,526,112  582,487    871,615
                    ==========  =======  =======  =========  =======  =========
<CAPTION>
                     T.R. Price Limited
                     Term Bond Division
                    -----------------------
                     1999     1998    1997
                    -------- ------- ------
<S>                 <C>      <C>     <C>
Total Gross
Deposits........... 471,331  79,889  43,399
Surrenders and
Withdrawals........  (5,509)   (145)    --
Transfers Between
Funds and General
Account............  44,830    (854)  4,089
                    -------- ------- ------
   Total Gross
   Deposits net of
   Surrenders,
   Withdrawals, and
   Transfers....... 510,652  78,890  47,488
Deductions:
 Premium Expense
 Charges...........  12,990   2,145   1,214
 Monthly Expense
 Charges...........   3,891     837     353
 Cost of Insurance
 and Optional
 Benefits..........  74,214  13,864   4,448
                    -------- ------- ------
                     91,095  16,846   6,015
                    -------- ------- ------
Net Deposits from
Policyholders...... 419,557  62,044  41,473
                    ======== ======= ======
<CAPTION>
<S>                 <C>      <C>     <C>
Total Gross
Deposits...........
Surrenders and
Withdrawals........
Transfers Between
Funds and General
Account............
   Total Gross
   Deposits net of
   Surrenders,
   Withdrawals, and
   Transfers.......
Deductions:
 Premium Expense
 Charges...........
 Monthly Expense
 Charges...........
 Cost of Insurance
 and Optional
 Benefits..........

Net Deposits from
Policyholders......
</TABLE>


                                      F-26
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                   Notes to Financial Statements--(Continued)

Note 7--Subsequent Event

  On January 6, 2000, Paragon Life Insurance Co.'s ultimate parent, GenAmerica
Corporation, was purchased by Metropolitan Life Insurance Company.

                                      F-27
<PAGE>

                           PARAGON SEPARATE ACCOUNT B

                            SCHEDULE OF INVESTMENTS

                               December 31, 1999

<TABLE>
<CAPTION>
                                                  Number
                                                    of      Market
                                                  Shares    Value       Cost
                                                  ------- ---------- ----------
<S>                                               <C>     <C>        <C>
Scudder Variable Life Investment Fund:
  Scudder Money Market Division.................. 541,708 $  541,708 $  541,708
  Scudder International Division................. 146,457 $2,978,926 $2,141,088
Fidelity Variable Insurance Products Fund:
  Fidelity Equity Income Division................ 109,241 $2,808,576 $2,664,727
  Fidelity Growth Division.......................  90,069 $4,947,495 $3,784,255
Fidelity Variable Insurance Products Fund II:
  Fidelity Index 500 Division....................  59,500 $9,960,873 $7,871,414
  Fidelity Contrafund Division................... 228,619 $6,664,237 $5,194,948
Putnam Variable Trust:
  Putnam High Yield Division.....................  49,095 $  544,465 $  583,953
  Putnam Voyager Division........................  35,906 $2,378,749 $1,539,013
  Putnam Income Division......................... 109,915 $1,376,135 $1,411,684
  Putnam New Opportunities Division..............  68,447 $2,980,187 $1,687,209
T.Rowe Price Fixed Income Series, Inc.:
  T.R. Price New America Growth Division.........  90,586 $2,371,545 $2,048,739
  T.R. Price Limited Term Bond Division.......... 110,737 $  530,432 $  543,883
  T.R. Price Personal Strategy Balanced.......... 135,385 $2,166,163 $2,140,001
MFS Variable Insurance Trust:
  MFS Emerging Growth Division................... 152,118 $5,771,340 $3,044,843
</TABLE>



                 See Accompanying Independent Auditors' Report.

                                      F-28
<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 1999) of .674%. These
charges take into account expense reimbursement arrangements expected to be in
place for 2000 for some of the Funds. In the absence of the reimbursement
arrangements for some of the Funds, the charges would have also totaled an
average of .674%. 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 --
1.574%, 4.426%, and 10.426%, respectively.

  The hypothetical values shown in the tables reflect all fees and charges
under the Policy, including the premium expense charge, the premium tax
charge, and all components of the monthly deduction. They do not reflect any
charges for federal income taxes against the Separate Account, since the
Company is not currently making any such charges. However, such charges may be
made in the future and, in that event, the gross annual investment rate of
return of the divisions of the Separate Account would have to exceed 0%, 6%,
and 12% by an amount sufficient to cover the tax charges in order to produce
the Death Benefit and Cash Value illustrated. (See "Federal Tax Matters.")
Additionally, the hypothetical values shown in the tables assume that the
Policy for which values are illustrated is not deemed an individual policy
under OBRA, and therefore the values do not reflect the additional 1% premium
expense charge for the Company's increased federal tax liabilities.

  The tables illustrate the Policy values that would result based upon the
investment rates of return if premiums are paid as indicated, and if no Policy
Loans have been made. The tables are also based on the assumptions that the
Owner has not requested an increase or decrease in the Face Amount, that no
partial withdrawals have been made, that no transfer charges were incurred,
and that no optional riders have been requested.

  Upon request, the Company will provide a comparable illustration based upon
the proposed Insured's age, group size and gender mix, the Face Amount and
premium requested and the proposed frequency of premium payments.

                                      A-1
<PAGE>

                    FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000                     AGE 45
DEATH BENEFIT OPTION: A                               ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00%                         $6,000.00
PREMIUM TAX: 2.25%                                    (Monthly Premium:
                                                      $500.00)

<TABLE>
<CAPTION>
                                FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
                               ANNUAL RATE OF RETURN at 0.00% (NET RATE at -
                                                  1.574%)
                              --------------------------------------------------------------------
                                   GUARANTEED*                           CURRENT**
                              -------------------------------      -------------------------------
             PREM              CASH              DEATH              CASH              DEATH
 YR        at 5.00%            VALUE            BENEFIT             VALUE            BENEFIT
 ---       --------           -------           --------           -------           --------
 <S>       <C>                <C>               <C>                <C>               <C>
  1        $  6,161           $ 3,093           $500,000           $ 5,077           $500,000
  2          12,630             5,984            500,000            10,048            500,000
  3          19,423             8,630            500,000            14,889            500,000
  4          26,555            11,024            500,000            19,542            500,000
  5          34,045            13,140            500,000            24,017            500,000
  6          41,908            14,962            500,000            28,369            500,000
  7          50,165            16,458            500,000            32,550            500,000
  8          58,834            17,587            500,000            36,561            500,000
  9          67,937            18,314            500,000            40,409            500,000
 10          77,496            18,607            500,000            44,094            500,000
 11          87,532            18,457            500,000            47,512            500,000
 12          98,070            17,833            500,000            50,777            500,000
 13         109,134            16,727            500,000            53,838            500,000
 14         120,752            15,110            500,000            56,596            500,000
 15         132,951            12,928            500,000            59,103            500,000
 16         145,760            10,116            500,000            61,370            500,000
 17         159,209             6,561            500,000            63,351            500,000
 18         173,331             2,126            500,000            64,992            500,000
 19         188,159                 0                  0            66,351            500,000
 20         203,728                 0                  0            67,329            500,000
 25         294,060                 0                  0            64,647            500,000
 30         409,348                 0                  0            40,035            500,000
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
   rates.
**These values reflect investment results using current cost of insurance
   rates.

  The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value and Death
Benefit for a Policy would be different from those shown if the actual rates of
return averaged the rate shown above over a period of years, but also
fluctuated above or below that average for individual years. No representation
can be made by the Company, Walnut Street Securities, the investment management
companies, or any representative thereof, that this hypothetical rate of return
can be achieved for any one year, or sustained over any period of time.

  Illustrated values shown above are as of the end of the years indicated and
assume any additional premiums shown are received monthly on the Policy
anniversary and further assume there is no Policy Indebtedness outstanding.

                                      A-2
<PAGE>

                    FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000                     AGE 45
DEATH BENEFIT OPTION: A                               ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00%                         $6,000.00
PREMIUM TAX: 2.25%                                    (Monthly Premium:
                                                      $500.00)

<TABLE>
<CAPTION>
                                FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
                                 ANNUAL RATE OF RETURN at 6.00% (NET RATE at
                                                   4.426%)
                              ---------------------------------------------------------------------
                                   GUARANTEED*                           CURRENT**
                              -------------------------------      --------------------------------
             PREM              CASH              DEATH               CASH              DEATH
 YR        at 5.00%            VALUE            BENEFIT             VALUE             BENEFIT
 ---       --------           -------           --------           --------           --------
 <S>       <C>                <C>               <C>                <C>                <C>
  1        $  6,161           $ 3,194           $500,000           $  5,243           $500,000
  2          12,630             6,373            500,000             10,691            500,000
  3          19,423             9,488            500,000             16,328            500,000
  4          26,555            12,527            500,000             22,101            500,000
  5          34,045            15,461            500,000             28,025            500,000
  6          41,908            18,261            500,000             34,161            500,000
  7          50,165            20,891            500,000             40,469            500,000
  8          58,834            23,296            500,000             46,955            500,000
  9          67,937            25,429            500,000             53,637            500,000
 10          77,496            27,241            500,000             60,522            500,000
 11          87,532            28,709            500,000             67,515            500,000
 12          98,070            29,779            500,000             74,735            500,000
 13         109,134            30,426            500,000             82,144            500,000
 14         120,752            30,598            500,000             89,657            500,000
 15         132,951            30,213            500,000             97,331            500,000
 16         145,760            29,179            500,000            105,189            500,000
 17         159,209            27,349            500,000            113,199            500,000
 18         173,331            24,543            500,000            121,327            500,000
 19         188,159            20,561            500,000            129,639            500,000
 20         203,728            15,196            500,000            138,065            500,000
 25         294,060                 0                  0            181,075            500,000
 30         409,348                 0                  0            221,034            500,000
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
   rates.
**These values reflect investment results using current cost of insurance
   rates.

  The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value and Death
Benefit for a Policy would be different from those shown if the actual rates of
return averaged the rate shown above over a period of years, but also
fluctuated above or below that average for individual years. No representation
can be made by the Company, Walnut Street Securities, the investment management
companies, or any representative thereof, that this hypothetical rate of return
can be achieved for any one year, or sustained over any period of time.

  Illustrated values shown above are as of the end of the years indicated and
assume any additional premiums shown are received monthly on the Policy
anniversary and further assume there is no Policy Indebtedness outstanding.

                                      A-3
<PAGE>

                    FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000                     AGE: 45
DEATH BENEFIT OPTION: A                               ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00%                         $6,000.00
PREMIUM TAX: 2.25%                                    (Monthly Premium:
                                                      $500.00)

<TABLE>
<CAPTION>
                                FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
                                ANNUAL RATE OF RETURN at 12.00% (NET RATE at
                                                  10.426%)
                              ---------------------------------------------------------------------
                                   GUARANTEED*                           CURRENT**
                              -------------------------------      --------------------------------
             PREM              CASH              DEATH               CASH              DEATH
 YR        at 5.00%            VALUE            BENEFIT             VALUE             BENEFIT
 ---       --------           -------           --------           --------           --------
 <S>       <C>                <C>               <C>                <C>                <C>
  1        $  6,161           $ 3,293           $500,000           $  5,406           $500,000
  2          12,630             6,769            500,000             11,348            500,000
  3          19,423            10,400            500,000             17,857            500,000
  4          26,555            14,194            500,000             24,931            500,000
  5          34,045            18,143            500,000             32,637            500,000
  6          41,908            22,243            500,000             41,100            500,000
  7          50,165            26,482            500,000             50,352            500,000
  8          58,834            30,832            500,000             60,475            500,000
  9          67,937            35,273            500,000             71,576            500,000
 10          77,496            39,786            500,000             83,757            500,000
 11          87,532            44,378            500,000             97,040            500,000
 12          98,070            49,033            500,000            111,658            500,000
 13         109,134            53,761            500,000            127,714            500,000
 14         120,752            58,554            500,000            145,287            500,000
 15         132,951            63,380            500,000            164,605            500,000
 16         145,760            68,201            500,000            185,885            500,000
 17         159,209            72,930            500,000            209,329            500,000
 18         173,331            77,457            500,000            235,169            500,000
 19         188,159            81,663            500,000            263,747            500,000
 20         203,728            85,422            500,000            295,354            500,000
 25         294,060            93,380            500,000            513,588            595,762
 30         409,348            55,436            500,000            871,491            932,495
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
   rates.
**These values reflect investment results using current cost of insurance
   rates.

  The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value and Death
Benefit for a Policy would be different from those shown if the actual rates of
return averaged the rate shown above over a period of years, but also
fluctuated above or below that average for individual years. No representation
can be made by the Company, Walnut Street Securities, the investment management
companies, or any representative thereof, that this hypothetical rate of return
can be achieved for any one year, or sustained over any period of time.

  Illustrated values shown above are as of the end of the years indicated and
assume any additional premiums shown are received monthly on the Policy
Anniversary and further assume there is no Policy Indebtedness outstanding.

                                      A-4
<PAGE>

                    FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000                    AGE: 45
DEATH BENEFIT OPTION: B                              ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00%                        $12,000.00
PREMIUM TAX: 2.25%                                   (Monthly Premium:
                                                     $1,000.00)

<TABLE>
<CAPTION>
                                FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
                               ANNUAL RATE OF RETURN at 0.00% (NET RATE at --
                                                  1.574%%)
                              ---------------------------------------------------------------------
                                   GUARANTEED*                           CURRENT**
                              -------------------------------      --------------------------------
             PREM              CASH              DEATH               CASH              DEATH
 YR        at 5.00%            VALUE            BENEFIT             VALUE             BENEFIT
 ---       --------           -------           --------           --------           --------
 <S>       <C>                <C>               <C>                <C>                <C>
  1        $ 12,322           $ 8,898           $508,898           $ 10,888           $510,888
  2          25,261            17,485            517,485             21,571            521,571
  3          38,846            25,717            525,717             32,025            532,025
  4          53,111            33,590            533,590             42,191            542,191
  5          68,090            41,078            541,078             52,079            552,079
  6          83,817            48,164            548,164             61,746            561,746
  7         100,330            54,819            554,819             71,142            571,142
  8         117,669            61,002            561,002             80,267            580,267
  9         135,875            66,679            566,679             89,129            589,129
 10         154,992            71,824            571,824             97,728            597,728
 11         175,064            76,431            576,431            105,948            605,948
 12         196,140            80,475            580,475            113,915            613,915
 13         218,269            83,959            583,959            121,574            621,574
 14         241,505            86,860            586,860            128,810            628,810
 15         265,903            89,136            589,136            135,684            635,684
 16         291,521            90,737            590,737            142,207            642,207
 17         318,419            91,567            591,567            148,326            648,326
 18         346,663            91,513            591,513            153,981            653,981
 19         376,319            90,466            590,466            159,241            659,241
 20         407,457            88,328            588,328            163,991            663,991
 25         588,120            59,576            559,576            178,143            678,143
 30         818,697                 0                  0            167,317            667,317
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
   rates.
**These values reflect investment results using current cost of insurance
   rates.

  The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value and Death
Benefit for a Policy would be different from those shown if the actual rates of
return averaged the rate shown above over a period of years, but also
fluctuated above or below that average for individual years. No representation
can be made by the Company, Walnut Street Securities, the investment management
companies, or any representative thereof, that this hypothetical rate of return
can be achieved for any one year, or sustained over any period of time.

  Illustrated values shown above are as of the end of the years indicated and
assume any additional premiums shown are received monthly on the Policy
Anniversary and further assume there is no Policy Indebtedness outstanding.

                                      A-5
<PAGE>

                    FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000                    AGE: 45
DEATH BENEFIT OPTION: B                              ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00%                        $12,000.00
PREMIUM TAX: 2.25%                                   (Monthly Premium:
                                                     $1,000.00)

<TABLE>
<CAPTION>
                        FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
                    ANNUAL RATE OF RETURN at 6.00% (NET RATE at 4.426%)
                  ------------------------------------------------------------
                         GUARANTEED*                     CURRENT**
                  ----------------------------- ------------------------------
         PREM         CASH          DEATH           CASH           DEATH
 YR    at 5.00%      VALUE         BENEFIT         VALUE          BENEFIT
 ---   --------   ------------   -------------  ------------   --------------
 <S>   <C>        <C>            <C>            <C>            <C>
  1    $ 12,322       $  9,188       $509,188       $ 11,244       $  511,244
  2      25,261         18,607        518,607         22,949          522,949
  3      38,846         28,216        528,216         35,112          535,112
  4      53,111         38,012        538,012         47,684          547,684
  5      68,090         47,973        547,973         60,691          560,691
  6      83,817         58,082        558,082         74,206          574,206
  7     100,330         68,308        568,308         88,198          588,198
  8     117,669         78,608        578,608        102,680          602,680
  9     135,875         88,942        588,942        117,681          617,681
 10     154,992         99,276        599,276        133,218          633,218
 11     175,064        109,597        609,597        149,192          649,192
 12     196,140        119,868        619,868        165,746          665,746
 13     218,269        130,081        630,081        182,843          682,843
 14     241,505        140,202        640,202        200,385          700,385
 15     265,903        150,173        650,173        218,448          718,448
 16     291,521        159,926        659,926        237,060          737,060
 17     318,419        169,342        669,342        256,185          756,185
 18     346,663        178,277        678,277        275,778          775,778
 19     376,319        186,583        686,583        295,922          795,922
 20     407,457        194,114        694,114        316,519          816,519
 25     588,120        216,407        716,407        424,621          924,621
 30     818,697        193,034        693,034        531,504        1,031,504
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
   rates.
**These values reflect investment results using current cost of insurance
   rates.

  The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value and Death
Benefit for a Policy would be different from those shown if the actual rates of
return averaged the rate shown above over a period of years, but also
fluctuated above or below that average for individual years. No representation
can be made by the Company, Walnut Street Securities, the investment management
companies, or any representative thereof, that this hypothetical rate of return
can be achieved for any one year, or sustained over any period of time.

  Illustrated values shown above are as of the end of the years indicated and
assume any additional premiums shown are received monthly on the Policy
Anniversary and further assume there is no Policy Indebtedness outstanding.

                                      A-6
<PAGE>

                    FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000                    AGE: 45
DEATH BENEFIT OPTION: B                              ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00%                        $12,000.00
PREMIUM TAX: 2.25%                                   (Monthly Premium:
                                                     $1,000.00)

<TABLE>
<CAPTION>
                         FOR SEPARATE ACCOUNT B--A HYPOTHETICAL GROSS
                     ANNUAL RATE OF RETURN at 12.00% (NET RATE at 10.426%)
                     --------------------------------------------------------------
                            GUARANTEED*                      CURRENT**
                     ------------------------------  ------------------------------
          PREM          CASH            DEATH           CASH            DEATH
 YR     at 5.00%        VALUE          BENEFIT          VALUE          BENEFIT
 ---    --------     -----------     ------------    -----------     ------------
 <S>    <C>          <C>             <C>             <C>             <C>
  1     $ 12,322     $     9,474     $   509,474     $    11,593     $   511,593
  2       25,261          19,753         519,753          24,358         524,358
  3       38,846          30,871         530,871          38,390         538,390
  4       53,111          42,903         542,903          53,754         553,754
  5       68,090          55,912         555,912          70,593         570,593
  6       83,817          69,975         569,975          89,119         589,119
  7      100,330          85,164         585,164         109,450         609,450
  8      117,669         101,547         601,547         131,769         631,769
  9      135,875         119,204         619,204         156,289         656,289
 10      154,992         138,230         638,230         183,233         683,233
 11      175,064         158,755         658,755         212,729         712,729
 12      196,140         180,898         680,898         245,169         745,169
 13      218,269         204,822         704,822         280,796         780,796
 14      241,505         230,682         730,682         319,817         819,817
 15      265,903         258,622         758,622         362,644         862,644
 16      291,521         288,798         788,798         409,678         909,678
 17      318,419         321,330         821,330         461,297         961,297
 18      346,663         356,331         856,331         517,910       1,017,910
 19      376,319         393,928         893,928         580,101       1,080,101
 20      407,457         434,273         934,273         648,326       1,148,326
 25      588,120         685,678       1,185,678       1,101,883       1,601,883
 30      818,697       1,040,522       1,540,522       1,815,597       2,315,597
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
   rates.
**These values reflect investment results using current cost of insurance
   rates.

  The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value and Death
Benefit for a Policy would be different from those shown if the actual rates of
return averaged the rate shown above over a period of years, but also
fluctuated above or below that average for individual years. No representation
can be made by the Company, Walnut Street Securities, the investment management
companies, or any representative thereof, that this hypothetical rate of return
can be achieved for any one year, or sustained over any period of time.

  Illustrated values shown above are as of the end of the years indicated and
assume any additional premiums shown are received monthly on the Policy
Anniversary and further assume there is no Policy Indebtedness outstanding.

                                      A-7
<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 Direct Prospectus consisting of 74 pages and the Multiple
      Manager Direct Prospectus consisting of 80 pages.
      The undertaking to file reports required by Section 15 (d), 1934 Act.
      The undertaking pursuant to Rule 484.
      Representation concerning fees and charges.
      The signatures.

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 4

      (2) Not applicable.

      (3) (a)  Form of Underwriting Agreement. 4

          (b)  Form of Selling Agreement. 2

      (4)  Not applicable.

      (5)  (a)  Form of Group Contract.

                . Scudder (30020) 4

                . Multi-Manager (30037) 4

           (b) Form of Individual Policy and Policy Riders.

                . Scudder (30018) 4,3

                . Multi-Manager (30040) 4,3

           (c) Form of Certificate and Certificate Riders.

                . Scudder (30018) 4,3

                . Multi-Manager (30036) 4,3

      (6)  (a)  Amended Charter and Articles of Incorporation of
                the Company 2

           (b)  By-Laws of the Company 2

      (7)  Not applicable.

      (8)  Participation Agreement:

           (a)  Form of Participation Agreement with Scudder Variable Life
                Investment Fund. 2

           (b)  Form of Participation Agreement with Fidelity Variable
                Insurance Products Fund. 2

           (c)  Form of Participation Agreement with Fidelity Variable Insurance
                Products Fund II. 2

           (d)  Form of Participation Agreement with MFS Variable Insurance
                Trust. 2

           (e)  Form of Participation Agreement with Putnam Capital Manager
                Trust. 2

           (f)  Form of Participation Agreement with T. Rowe Price Investment
                Services, Inc. 6


                                      II-3
<PAGE>

     (9) Not applicable.

     (10) (a)  Form of Application for Group Contract (10914). 5

          (b) Form of Application for Employee Insurance
             Guaranteed Issue (Group Contract 10915). 5

          (c) Form of Application for Employee Insurance
             (Simplified Issue) (Group Contract 10921, 10920). 5

          (d) Form of Application for Spouse Insurance
             (Group Contract 10917). 5

          (e) Form of Application for Employee Insurance
             Guaranteed Issue (Individual Policy 10352, 33100). 5

          (f) Form of Application for Employee Insurance
             (Simplified Issue) (Individual Policy 10357). 5

          (g) Form of Application for Spouse Insurance
             (Individual Policy 10354). 5

          (h) Form of Application Supplement for Scudder Direct Policy
             (33105). 4

          (i) Form of Application Supplement for Multi-Manager Direct Policy
             (33116). 4

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. 4

3.   Opinion of Matthew P. McCauley, Esquire, General Counsel of Paragon Life
     Insurance Company. 1

4.   Not Applicable

5.   Not Applicable

6.   Not Applicable


                                      II-4
<PAGE>


7.      Opinion and consent of Craig K. Nordyke, F.S.A., M.A.A.A., Executive
        Vice President and Chief Actuary. 1

8(a).   The consent of KPMG LLP, Independent Certified Public Accountants. 1

 (b).   Written consent of Sutherland Asbill & Brennan LLP. 1

9.      Original powers of attorney authorizing Matthew P. McCauley, Carl H.
        Anderson, and Craig K. Nordyke, and each of them singly, to sign this
        Registration Statement and Amendments thereto on behalf of the Board of
        Directors of Paragon Life Insurance Company. 4

                                     * * *

1.      Filed Herewith.

2.      Incorporated by reference to the Pre-Effective Amendment No. 1 on Form
        S-6 found in File No. 333-80393, filed with the Securities and Exchange
        Commission on September 1, 1999.

3.      Incorporated by reference to the Post Effective Amendment No. 12 on Form
        S-6 found on file No. 33-18341, filed with the Securities and Exchange
        Commission on April 28, 2000 for Policy and Certificate Riders only.

4.      Incorporated by reference to the Post-Effective Amendment No. 12 on Form
        S-6 found in File No. 33-58796, filed with the Securities and Exchange
        Commission on April 28, 2000.

5.      Incorporated by reference to the Post-Effective Amendment No. 12 on Form
        S-6 found in File 33-18341, filed with the Securities and Exchange
        Commission on April 28, 2000.

6.      Incorporated by reference to the Pre-Effective Amendment No. 1 on Form
        S-6 found in File No. 333-36515, filed with the Securities and Exchange
        Commission on February 26, 1999.

                                     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(b) under the Securities Act of l933
and have duly caused this amended Registration Statement to be signed on their
behalf by the undersigned thereunto duly authorized, and the seal of Paragon
Life Insurance Company to be hereunto affixed and attested, all in the City of
St. Louis, State of Missouri, on the 28th day of April, 2000.


(Seal)                                  Paragon Life Insurance Company


Attest: /s/Matthew P. McCauley          By: /s/Carl H. Anderson
        -------------------------           ---------------------------
        Matthew P. McCauley,                Carl H. Anderson, President
        Secretary                           and Chief Executive Officer


     Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.


Signature               Title       Date



/s/Carl H. Anderson                                   4/28/00
- ------------------------
Carl H. Anderson        President and Director
                        (Chief Executive Officer)



/s/Matthew K. Duffy                                   4/28/00
- ------------------------
Matthew K. Duffy        Vice President and Chief
                        Financial Officer (Principal
                        Accounting Officer and
                        Principal Financial Officer)
                        and Director

- ------------------------
E. Thomas Hughes, Jr.*  Director and Treasurer


- ------------------------
Richard A. Liddy*       Director



                                     II-6
<PAGE>


Signature               Title                         Date


   Matthew P. McCauley
/s/---------------------                              4/28/00
Matthew P. McCauley     Vice President
                        General Counsel,
                        Secretary and Director


   Craig K. Nordyke
/s/---------------------                              4/28/00

Craig K. Nordyke        Executive Vice President,
                        Chief Actuary, and
                        Director


- ------------------------
Warren J. Winer*        Director


- ------------------------
Bernard H Wolzenski*    Director


- ------------------------
A. Greig Woodring*      Director


      Craig K. Nordyke
By:/s/------------------                              4/28/00
 Craig K. Nordyke


*Original powers of attorney authorizing Matthew P. McCauley, Carl H. Anderson,
and Craig K. Nordyke, and each of them singly, to sign this Registration
Statement and Amendments thereto on behalf of the Board of Directors of Paragon
Life Insurance Company have been filed with the Securities and Exchange
Commission.

                                     II-7
<PAGE>

                                 EXHIBIT INDEX



Exhibit

1.        Opinion of Matthew P. McCauley, Esquire, General Counsel of Paragon
          Life Insurance Company.

2.        Opinion and Consent of Craig K. Nordyke, F.S.A., M.A.A.A., Executive
          Vice President and Chief Actuary.

3.        Written consent of KPMG LLP, Independent Certified Public Accountants.

4.        Written consent of Sutherland Asbill & Brennan LLP





<PAGE>


                                   Exhibit 1


               OPINION of MATTHEW P. McCAULEY, ESQUIRE, GENERAL
                   COUNSEL of PARAGON LIFE INSURANCE COMPANY
<PAGE>

                                         February 22, 1993



       Paragon Life Insurance Company
       100 South Brentwood Boulevard
       St. Louis, MO 63105

       Gentlemen:

       This opinion is furnished in connection with the offering of certain
       group variable life insurance contracts ("Group Contracts") and certain
       individual variable life insurance contracts ("Individual Contracts")
       (collectively, "Contracts") under Registration Statement No. 33-75778
       filed by Paragon Life Insurance Company ("Paragon") and Separate Account
       B of Paragon Life Insurance Company (the "Separate Account") under the
       Securities Act of 1933, as amended (the "Act").



       I am the Vice President and General Counsel of Paragon, and in such
       capacity I am familiar with Paragon's Articles of Incorporation and
       By-Laws and have reviewed all statements, records, instruments and
       documents which I have deemed it necessary to examine for the purpose of
       this opinion. I have examined the form of registration statement to be
       filed with the Securities and Exchange Commission on Form S-6 in
       connection with the registration, under the Act, of the Contracts. I have
       supervised the establishment of the Separate Account on January 4, 1993,
       by the Board of Directors of Paragon as a Separate Account for assets
       designed to support the Contracts. I am familiar with the proceedings
       taken and proposed to be taken in connection with the authorization,
       issuance and sale of the Contracts. Based upon a review of these
       documents and such laws that I consider appropriate, I am of the opinion
       that:



          1.   Paragon is validly organized and in good standing under the
               laws of the State of Missouri and a validly existing corporation.

          2.   The Separate Account is duly created and validly existing as a
               Separate Account pursuant to the provisions of Section 309 of
               Chapter 376 of the Revised Statutes of Missouri.

          3.   Both the Group Contracts and the Individual Contracts to be
               issued pursuant to the terms of the Registration Statement have
               been duly authorized and, when issued and delivered as provided
               therein, will constitute legal, validly issued, and binding
               obligations of Paragon in accordance with their terms.

          4.   To the extent so provided in the Contracts, the portion of the
               assets to be held in the Separate Account equal to the reserves
               and liabilities under the Contracts will not be chargeable with
               liabilities arising out of any other business Paragon may
               conduct.
<PAGE>

    Paragon Life Insurance Company    2      February 22, 1993



         5.    General American Life Insurance Company's resolution dated May
               23, 1991 stating that it will ensure that Paragon will have
               sufficient funds to meet all of its contractual obligations and
               agreeing that its guarantee of Paragon's insurance policies will
               be and remain enforceable by Paragon policyholders against
               General American Life Insurance Company directly does not
               constitute a guarantee of the investment experience or cash
               values of any Contract issued by Paragon.

         5.    The disclosure in the Registration Statement regarding the
               resolution described in Item 5 has been prepared or reviewed by
               me, and is fair, correct, and complete in all material respects.

         I hereby consent to the use of this opinion as an exhibit to the
         Registration Statement.

                                         Respectfully submitted,


                                         /s/ Matthew P. McCauley


                                         Matthew P. McCauley
                                         Vice President and General
                                                       Counsel

<PAGE>


                                   Exhibit 2


                OPINION AND CONSENT OF CRAIG K. NORDYKE, F.S.A,
             M.A.A.A., EXECUTIVE VICE PRESIDENT AND CHIEF ACTUARY
<PAGE>

                                                  RE:  33-75778
                                                  Prospectus #1 Scudder Direct



Gentlemen:

In my capacity as Executive Vice President and Chief Actuary for Paragon Life
Insurance Company, I have provided actuarial advice concerning: (a) the
preparation of a registration statement for Separate Account B filed on Form S-6
with the Securities and Exchange Commission under the Securities Act of 1933
(the "Registration Statement") regarding the offer and sale of flexible premium
variable life insurance policies (the "Policies"); and (b) the preparation of
policy forms for the Policies described in the Registration Statement.

It is my professional opinion that:

   1. The illustrations of cash values, death benefits, and accumulated premiums
      in the Appendix to the prospectus contained in the Registration Statement,
      are based on the assumptions stated in the illustration, and are
      consistent with the provisions of the Policies.  The rate structure of the
      Policies has not been designed so as to make the relationship between
      premiums and benefits, as shown in the illustrations, appear to be more
      favorable to prospective purchasers of Policies aged 45 and 50 in the rate
      class illustrated than to prospective purchasers of Policies at other
      ages.

   2. The information contained in the examples set forth in the section of the
      prospectus entitled "Death Benefits", is based on the assumption stated in
      the examples, and is consistent with the provisions of the Policies.

I hereby consent to the filing of this opinion as an exhibit to the Post-
Effective Amendment No. 7 to the Registration Statement and to the use of my
name under the heading "Experts" in the prospectus.



      /s/ Craig K. Nordyke
         ------------------------
      Craig K. Nordyke, FSA, MAAA
      Executive Vice President and Chief Actuary
<PAGE>

                                                            RE:  33-75778
                                                            Prospectus #2
                                                            Multi Manager Direct


Gentlemen:

In my capacity as Executive Vice President and Chief Actuary for Paragon Life
Insurance Company, I have provided actuarial advice concerning: (a) the
preparation of a registration statement for Separate Account B filed on Form S-6
with the Securities and Exchange Commission under the Securities Act of 1933
(the "Registration Statement") regarding the offer and sale of flexible premium
variable life insurance policies (the "Policies"); and (b) the preparation of
policy forms for the Policies described in the Registration Statement.

It is my professional opinion that:

   1. The illustrations of cash values, death benefits, and accumulated premiums
      in the Appendix to the prospectuses contained in the Registration
      Statement, are based on the assumptions stated in the illustration, and
      are consistent with the provisions of the Policies. The rate structure of
      the Policies has not been designed so as to make the relationship between
      premiums and benefits, as shown in the illustrations, appear to be more
      favorable to prospective purchasers of Policies aged 45 in the rate class
      illustrated than to prospective purchasers of Policies at other ages.

   2. The information contained in the examples set forth in the section of the
      prospectus entitled "Death Benefits", is based on the assumption stated in
      the examples, and is consistent with the provisions of the Policies.

I hereby consent to the filing of this opinion as an exhibit to the Post-
Effective Amendment No. 7 to the Registration Statement and to the use of my
name under the heading "Experts" in the prospectus.



                                      /s/Craig K. Nordyke
                                      --------------------------
                                      Craig K. Nordyke, FSA, MAAA
                                      Executive Vice President and Chief Actuary

<PAGE>

                                   Exhibit 3


              CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>

                         Independent Auditors' Consent

The Board of Directors
Paragon Life Insurance Company

We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the Registration Statement and Prospectus of
Separate Account B of Paragon Life Insurance Company.

                                              KPMG LLP

St. Louis, Missouri

April 28, 2000

<PAGE>

                                   Exhibit 4


              WRITTEN CONSENT OF SUTHERLAND, ASBILL & BRENNAN LLP
<PAGE>


                                April 25, 2000


Board of Directors
Paragon Life Insurance Company
100 South Brentwood Boulevard
St. Louis, Missouri  63105

Ladies and Gentlemen:

      We hereby consent to the reference to our name under the caption "Legal
matters" in the Prospectus filed as part of Post-Effective Amendment No. 7 to
the registration statement on Form S-6 for Separate Account B of Paragon Life
Insurance Company (File No. 33-75778). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.

                                 Very truly yours,

                                 SUTHERLAND ASBILL & BRENNAN LLP


                                 By:  /s/ Stephen E. Roth
                                         --------------------------
                                         Stephen E. Roth



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