<PAGE>
As filed with the Securities and Exchange Commission on 28 April 2000
Registration No. 33-67970
811-7982
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 C 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 box)
[_] 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
Life Insurance Policies
<PAGE>
Variable Insurance
Products Funds
. GROUP AND INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICIES
Prospectus dated May 1, 2000
50408 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 C (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
corresponding Funds of either Variable Insurance Products Fund, Variable
Insurance Products Fund II, or Variable Insurance Products Fund III investment
companies:
FUND FUND
- --------------------------------------------------------------------------------
VIP Money Market Portfolio VIP II Index 500 Portfolio
VIP High Income Portfolio VIP II Contrafund Portfolio
VIP Equity-Income Portfolio VIP II Asset Manager: Growth
VIP Growth Portfolio Portfolio
VIP Overseas Portfolio VIP III Growth & Income Portfolio
VIP II Investment Grade Bond Portfolio VIP III Balanced Portfolio
VIP II Asset Manager Portfolio VIP III Growth Opportunities
Portfolio
- --------------------------------------------------------------------------------
VIP III Mid Cap Portfolio
The date of this Prospectus is May 1, 2000.
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Please read this Prospectus carefully and keep it. A full description of the
Funds is contained in the prospectus for each Fund, which must accompany this
Prospectus.
It may not be a good decision to purchase a Policy as a replacement for another
type of life insurance or as a means to obtain additional insurance protection
if the purchaser already owns another flexible premium variable life insurance
policy.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
2
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
The Company, The Separate Accounts, and The Funds........................ 10
The Company
The Separate Account
The Funds
Addition, Deletion, or Substitution of Investments
Payment and Allocation of Premiums....................................... 14
Issuance of a Policy
Premiums
Allocation of Net Premiums and Cash Value
Policy Lapse and Reinstatement
Policy Benefits.......................................................... 18
Death Benefit
Cash Value
Policy Rights and Privileges............................................. 24
Exercising Rights and Privileges Under the Policies
Loans
Surrender and Partial Withdrawals
Transfers
Right to Examine Policy
Conversion Right to a Fixed Benefit Policy
Eligibility Change Conversion
Payment of Benefits at Maturity
Payment of Policy Benefits
Charges and Deductions................................................... 28
Premium Expense Charges
Premium Tax Charge
Monthly Deduction
Partial Withdrawal Transaction Charge
Separate Account Charges
General Matters Relating to the Policy................................... 31
Distribution of the Policies............................................. 35
General Provisions of the Group Contract................................. 35
Federal Tax Matters...................................................... 37
Safekeeping of the Separate Account's Assets............................. 39
Voting Rights............................................................ 39
State Regulation of the Company.......................................... 40
Management of the Company................................................ 41
Legal Matters............................................................ 42
Legal Proceedings........................................................ 42
Experts.................................................................. 42
Additional Information................................................... 43
Definitions.............................................................. 43
Financial Statements..................................................... F-1
Appendix A............................................................... A-1
</TABLE>
The Policies are not available in all states.
3
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SUMMARY OF THE POLICY
The following summary of Prospectus information should be read with the
detailed information which follows in this Prospectus. Unless we provide
otherwise, the description of the Policies contained in this Prospectus assumes
that a Policy is in effect and that there is no outstanding Indebtedness.
The Policy
The Policies (either an Individual Policy or a Certificate) described in this
Prospectus are designed for use in employer-sponsored insurance programs and
are issued in three situations.
. First--Policies in the form of Certificates are issued pursuant to Group
Contracts entered into between the Company and Contractholders (see
"General Provisions of the Group Contract");
. Second--Individual Policies can be issued in connection with employer-
sponsored insurance programs where Group Contracts are not issued; and
. Third--Individual Policies can be issued in connection with Corporate
Programs, where Group Contracts are not issued.
The Insured under a Policy is usually an employee of the Contractholder or
sponsoring employer or the employee's spouse. 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 employee-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
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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
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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
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. 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 and the
Separate Account--The Underlying Funds.")
<TABLE>
<CAPTION>
Other Expenses
Management Fees (after Total
(after fee waiver reimbursement as Annual
Fund as applicable) applicable) Expenses
<S> <C> <C> <C>
Fidelity Variable Insurance
Products Fund
VIP Money Market Portfolio.. 0.18% 0.09% 0.27%
VIP High Income Portfolio... 0.58% 0.11% 0.69%
VIP Equity-Income
Portfolio(/1/)............. 0.48% 0.09% 0.57%
VIP Growth Portfolio(/1/)... 0.58% 0.08% 0.66%
VIP Overseas Portfolio(/1/). 0.73% 0.18% 0.91%
Fidelity Variable Insurance
Products Fund II
VIP II Investment Grade Bond
Portfolio.................. 0.43% 0.11% 0.54%
VIP II Asset Manager
Portfolio(/1/)............. 0.53% 0.10% 0.63%
VIP II Index 500
Portfolio(/2/)............. 0.24% 0.04% 0.28%
VIP II Contrafund
Portfolio(/1/)............. 0.58% 0.09% 0.67%
VIP II Asset Manager: Growth
Portfolio(/1/)............. 0.58% 0.13% 0.71%
Fidelity Variable Insurance
Products Fund III
VIP III Growth & Income
Portfolio(/1/)............. 0.48% 0.12% 0.60%
VIP III Balanced
Portfolio(/1/)............. 0.43% 0.14% 0.57%
VIP III Growth Opportunities
Portfolio(/1/)............. 0.58% 0.11% 0.69%
VIP III Mid Cap
Portfolio(/2/)............. 0.57% 0.40% 0.97%
</TABLE>
(/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 uninvesting 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 expenses were as follows:
<TABLE>
<CAPTION>
Other Expenses
(before Total
Management reimbursement Annual
Fund Fees as applicable) Expenses
<S> <C> <C> <C>
Fidelity Variable Insurance Products
Fund
VIP Equity-Income Portfolio 0.48% 0.08% 0.56%
VIP Growth Portfolio 0.58% 0.07% 0.65%
VIP Overseas Portfolio 0.73% 0.14% 0.87%
Fidelity Variable Insurance Products
Fund II
VIP II Asset Manager Portfolio 0.53% 0.09% 0.62%
VIP II Contrafund Portfolio 0.58% 0.07% 0.65%
VIP II Asset Manager: Growth
Portfolio 0.58% 0.12% 0.70%
Fidelity Variable Insurance Products
Fund III
VIP III Growth & Income Portfolio 0.48% 0.11% 0.59%
VIP III Balanced Portfolio 0.43% 0.12% 0.55%
VIP III Growth Opportunities
Portfolio 0.58% 0.10% 0.68%
</TABLE>
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(/2/FMR)agreed to reimburse a portion of Index 500 Portfolio's and Mid Cap
Portfolio's expenses during the period. Without this reimbursement, the
Portfolio's management fee, other expenses and total expenses would
have been:
<TABLE>
<CAPTION>
Management Other Total Annual
Fees Expenses Expenses
---------- -------- ------------
<S> <C> <C> <C>
VIP II Index 500 Portfolio 0.24% 0.10% 0.34%
VIP III Mid Cap Portfolio 0.57% 2.77% 3.34%
</TABLE>
The expense information regarding the Funds was provided by those Funds. We
have not independently verified this information. We cannot guarantee that the
reimbursements provided by certain Funds will continue.
Partial Withdrawal Transaction Charge. We deduct a transaction charge equal to
the lesser of $25 or 2% of the amount withdrawn on each partial withdrawal of
amounts from the Separate Account. Currently, there are no transaction charges
imposed for transfers of amounts between Divisions. In addition, transfers and
withdrawals are subject to restrictions relative to amount and frequency. (See
"Payment and Allocation of Premiums--Allocation of Net Premiums and Cash
Value," "Policy Rights and Privileges--Surrender and Partial Withdrawals--
Transfers," and "Charges and Deductions--Partial Withdrawal Transaction
Charge.")
Policy Loans
After the first Policy Anniversary an Owner may borrow against the Cash Value
of a Policy. All outstanding Indebtedness will be deducted from proceeds
payable at the Insured's death, upon maturity, or upon surrender. We transfer a
portion of the Policy's Cash Value in each Division of the Separate Account to
which the loan is allocated to the Loan Account as security for the loan.
Therefore, a Policy Loan may have a permanent impact on the Policy's Cash Value
even if it is repaid. A Policy Loan may be repaid in whole or in part at any
time while the Policy is in force. (See "Policy Rights and Privileges--Loans.")
Loans taken from, or secured by, a Policy may in certain circumstances be
treated as taxable distributions from the Policy. Moreover, with certain
exceptions, a 10% additional income tax would be imposed on the portion of any
loan that is included in income. (See "Federal Tax Matters.")
Surrender and Partial Withdrawals
At any time that a Policy is in effect, an Owner may elect to surrender the
Policy and receive its Cash Surrender Value. An Owner may also request a
partial withdrawal of the Cash Value of the Policy. A partial withdrawal may
reduce the Face Amount and the death benefit payable under the Policy. (See
"Policy Rights and Privileges--Surrender and Partial Withdrawals.") Surrenders
and partial withdrawals may have federal income tax consequences. (See "Federal
Tax Matters.")
Conversion Right
During the first 24 Policy Months following a Policy's Issue Date, the Owner
may convert the Policy to a life insurance policy that provides for benefits
that do not vary with the investment return of the Divisions. The Owner also
has a similar right with respect to increases in the Face Amount. (See "Policy
Rights and Privileges--Conversion Right to a Fixed Benefit Policy.")
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Eligibility Change Conversion
In the event that the Insured is no longer eligible for coverage under the
Group Contract, either because the Group Contract has terminated or because the
employee is no longer employed by the Contractholder, the Individual Insurance
provided by the Policy issued in connection with the Group Contract will
continue unless the Policy is cancelled or surrendered by the Owner or there is
insufficient Cash Surrender Value to prevent the Policy from lapsing.
If a Certificate was issued in connection with the Group Contract, the
Certificate will be amended automatically to continue in force as an Individual
Policy. The new Individual Policy will provide benefits which are identical to
those provided under the Certificate. If an Individual Policy was issued in
connection with a Group Contract, the Individual Policy will continue in force
following the termination of the Group Contract. (See "Policy Rights and
Privileges--Eligibility Change Conversion.")
Illustrations
Illustrations in Appendix A show how death benefits and Cash 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.
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THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUNDS
The Company
Paragon Life Insurance Company is a stock life insurance company incorporated
under the laws of Missouri. We were organized in 1981 as General American
Insurance Company and on December 31, 1987, our name was changed. No change in
operations or ownership took place in connection with the name change. Our main
business is writing individual and group life insurance policies and annuity
contracts. As of December 31, 1999, it had assets of $400 million. We are
admitted to do business in 49 states and the District of Columbia. Our
principal offices are at 100 South Brentwood, St. Louis, Missouri 63105 ("Home
Office"). Our Internal Revenue Service Employer Identification Number is
43-1235869.
We are a wholly-owned subsidiary of General American Life Insurance Company
(the "Parent Company"), a Missouri life insurance company. The Parent Company
is wholly owned by GenAmerica Corporation, a Missouri general business
corporation, which is wholly owned by Metropolitan Life Insurance Company, a
New York insurance company.
Guarantee. The Parent Company agrees to guarantee that we will have sufficient
funds to meet all of our contractual obligations. In the event a Policyholder
presents a legitimate claim for payment on a Paragon insurance Policy, the
Parent Company will pay such claim directly to the Policyholder if Paragon is
unable to make such payment. This guarantee, which does not have a
predetermined termination date, can be modified or ended only as to policies
not yet issued. The guarantee agreement is binding on the Parent Company, its
successor or assignee and shall end only if the guarantee is assigned to an
organization having a financial rating from Standard & Poor's equal to or
better than the Parent Company's rating. The Parent Company does not intend
that this guarantee cover the investment experience or Cash Values of the
Policy.
Ratings. We may from time to time publish in advertisements, sales literature,
and reports to Owners or Contractholders, the ratings and other information
assigned to us by one or more independent rating organizations such as A. M.
Best Company, Standard & Poor's, and Duff & Phelps. The purpose of the ratings
is to reflect our financial strength and/or claims paying ability and should
not be considered as bearing on the investment performance of assets held in
the Separate Account. Each year the A. M. Best Company reviews the financial
status of thousands of insurers, culminating in the assignment of Best's
ratings. These ratings reflect Best's current opinion of the relative financial
strength and operating performance of an insurance company in comparison to the
norms of the life/health insurance industry. In addition, the claims paying
ability of the Company as measured by Standard & Poor's Insurance Ratings
Services or Duff & Phelps may be referred to in advertisements or sales
literature or in reports to Owners or Contractholders. These ratings are
opinions of an operating insurance company's financial capacity to meet the
obligations of its insurance policies in accordance with their terms. These
ratings do not reflect the investment performance of the Separate Account or
the degree of risk associated with an investment in the Separate Account.
Advertisements. We also may include in advertisements and other literature
certain rankings assigned to us by the National Association of Insurance
Commissioners ("NAIC"), and our analyses of statistical information produced by
the NAIC. These rankings and analyses of statistical information may describe,
among other things, our growth, premium income, investment income, capital
gains and losses, policy reserves, policy claims, and life insurance in force.
Our use of such rankings and statistical information is not an endorsement by
the NAIC.
Advertisements and literature prepared by the Company also may include
discussions of taxable and tax-deferred investment programs (including
comparisons based on selected tax brackets), alternative investment vehicles,
and general economic conditions.
10
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The Separate Account
We established Separate Account C (the "Separate Account") as a separate
investment account on August 1, 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 arising under
the Policies. 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, the Company will consider any possible adverse
impact the transfer may have on the Separate Account.
The Separate Account has been registered with the Securities and Exchange
Commission ("SEC" or "Commission") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act") and meets the definition of a
"separate account" under federal securities laws. Registration with the SEC
does not involve supervision of the management or investment practices or
policies of the Separate Account or the Company by the Commission.
The Funds
The Separate Account invests in shares of Variable Insurance Products Fund,
Variable Insurance Products Fund II and Variable Insurance Products Fund III
(together referred to as "VIP, VIP II or VIP III), a series-type mutual fund
registered with the SEC as open-end, diversified management investment
companies. The assets of each Fund used by the Policies are held separate from
the assets of the other Funds, and each Fund has investment objectives and
policies which are generally different from those of the other Funds. The
income or losses of one Fund generally have no effect on the investment
performance of any other Fund.
The investment objectives and policies of certain Funds are similar to the
investment objectives and policies of other portfolios. 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.
The following summarizes the investment policies of each Fund:
Fidelity Variable Insurance Products Fund
. VIP Money Market Portfolio
Investment objective: seeks as high a level of current income as is
consistent with the preservation of capital and liquidity.
. VIP High Income Portfolio
Investment objective: seeks a high level of current income while also
considering growth of capital.
. VIP Equity-Income Portfolio
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<PAGE>
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.
. VIP Growth
Investment objective: seeks capital appreciation.
. VIP Overseas Portfolio
Investment objective: seeks long-term growth of capital.
Fidelity Variable Insurance Products Fund II
. VIP II Investment Grade Bond Portfolio
Investment objective: seeks as high a level of current income as is
consistent with the preservation of capital.
. VIP II Asset Manager Portfolio
Investment objective: seeks high total return with reduced risk over the
long term by allocating its assets among stocks, bonds, and short-term
instruments.
. 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.
. VIP II Asset Manager: Growth Portfolio
Investment objective: seeks to maximize total return by allocating its
assets among stocks, bonds, short-term instruments, and other
investments.
Fidelity Variable Insurance Products Fund III
. VIP III Growth & Income Portfolio
Investment objective: seeks high total return through a combination of
current income and capital appreciation.
. VIP III Balanced Portfolio
Investment objective: seeks both income and growth of capital.
. VIP III Growth Opportunities Portfolio
Investment objective: seeks to provide capital growth.
. VIP III Mid Cap Portfolio
Investment objective: seeks long-term growth of capital.
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.
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<PAGE>
Agreements. We have has 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
confitions warrant. Any new Division will be made available to existing Owners
on a basis to be determined by the Company. To the extent approved by the SEC,
we may also:
. Eliminate or combine one or more Divisions;
.Substitute one Division for another Division; or
.Transfer assets between Divisions if marketing, tax, or investment
conditions warrant.
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 investing
in such shares. In the event that a Fund is no longer available, we will take
reasonable steps to obtain alternative investment options.
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<PAGE>
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.
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<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;
.the date the Company notifies the applicant that the application for any
proposed Insured is declined;
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<PAGE>
.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 not at any time exceed the guideline premium limitations
referred to in Section 7702(c) of the Internal Revenue
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<PAGE>
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.
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.
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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
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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,
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(2) the applicable percentage of the Cash Value on the date of death. The
applicable percentage is the same as under Option A.
Under Option B, the amount of the death benefit will always vary as the Cash
Value varies (but will never be less than the Face Amount).
Owners who prefer to have favorable investment performance reflected in higher
death benefits for the same Face Amount generally should select Option B. All
other factors equal, for the same premium dollar, Option B provides lower
initial Face Amount resulting in earlier cash accumulation.
Change in Death Benefit Option. After the first Policy Anniversary, the Owner
may change the death benefit option. We reserve the right to limit the number
of changes in death benefit options to one each Policy Year. A request for a
change must be made directly to us in writing. The effective date of such a
change will be the Monthly Anniversary on or following the date we receive the
change request.
If the death benefit option is changed from Option A to Option B, the Face
Amount after the change will equal the Face Amount before the change less the
Cash Value on the effective date of the change. Satisfactory evidence of
insurability must be submitted directly to us with a request for a change from
Option A to Option B. This change may not be made if it would result in a Face
Amount of less than $25,000.
If the death benefit option is changed from Option B to Option A, the Face
Amount after the change will equal the Face Amount before the change plus the
Cash Value on the effective date of change.
A change in death benefit option will not in itself result in an immediate
change in the amount of a Policy's death benefit or Cash Value. No charges will
be imposed upon a change from death benefit Option B to Option A. Changing from
Option A to Option B, however, will result in a decrease in the Face Amount. In
addition, if, prior to or accompanying a change in the death benefit option,
there has been an increase in the Face Amount, the cost of insurance charge may
be different for the increased amount. (See "Charges and Deductions--Monthly
Deduction--Cost of Insurance.")
No change in death benefit option will be permitted that results in the death
benefit under a Policy being included in gross income because the federal tax
law requirements are not satisfied. (See "Federal Tax Matters.")
Change in Face Amount. Subject to certain limitations set forth below, an Owner
may increase or decrease the Face Amount of a Policy (without changing the
death benefit option) after the first Policy Anniversary. A written request for
a change in the Face Amount must be sent directly to us. A change in Face
Amount may affect the cost of insurance rate and the net amount at risk, both
of which affect an Owner's cost of insurance charge. (See "Charges and
Deductions--Monthly Deduction--Cost of Insurance.") In addition, a change in
Face Amount may have federal income tax consequences. (See "Federal Tax
Matters.")
Face Amount Decreases. Any decrease in the Face Amount will become effective on
the Monthly Anniversary on or following our receipt of the written request. The
amount of the requested decrease must be at least $5,000 and the Face Amount
remaining in force after any requested decrease may not be less than the
minimum amount Face Amount, generally $25,000. If, following a decrease in Face
Amount, the Policy would not comply with the maximum premium limitations
required by federal tax law (see "Payment and Allocation of Premiums"), the
decrease may be limited or Cash Value may be returned to the Owner (at the
Owner's election), to the extent necessary to meet those requirements. A
decrease in the Face Amount will reduce the Face Amount in the following order:
(1) The Face Amount provided by the most recent increase;
(2) The next most recent increases successively; and
(3) The initial Face Amount.
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<PAGE>
This order of reduction will be used to determine the amount of subsequent cost
of insurance charges (see "Charges and Deductions--Monthly Deduction--Cost of
Insurance").
Face Amount Increases. For an increase in the Face Amount, we require that
satisfactory evidence of insurability be submitted. If approved, the increase
will become effective on the Monthly Anniversary on or following receipt of the
satisfactory evidence of insurability. In addition, the Insured must have an
Attained Age of 80 or less on the effective date of the increase. The amount of
the increase may not be less than $5,000. The Face Amount may not be increased
more than the maximum Face Amount for that Policy, generally $500,000. However,
in connection with a particular Group Contract or employer-sponsored insurance
program, we may establish a substantially higher Face Amount for Policies
issued under that Contract or program. Although an increase need not
necessarily be accompanied by additional premium, the Cash Surrender Value in
effect immediately after the increase must be sufficient to cover the next
monthly deduction. (See "Charges and Deductions--Monthly Deduction.") An
increase in the Face Amount may result in certain additional charges. (See
"Charges and Deductions.")
Cancellation of an Increase. An increase in Face Amount may be cancelled within
the later of:
. 20 days from the date the Owner received the new Policy specifications
page for the increase;
. within 10 days of mailing the right to cancellation notice to the Owner;
or
. within 45 days after the application for an increase was signed.
Upon cancellation, any additional charges, which would not have been assessed
without the increase, will be refunded to the Owner if requested. If a request
for a refund is not made, the charges will be restored to the Policy's Cash
Value and allocated to Divisions in the same manner as they were deducted.
Premiums paid following an increase in Face Amount and prior to the time the
right to cancel the increase expires will become part of the Policy's Cash
Value and will not be subject to refund. (See "Policy Rights and Privileges--
Right to Examine Policy.")
Methods of Affecting Insurance Protection. An Owner may increase or decrease
the pure insurance protection provided by a Policy--the difference between the
death benefit and the Cash Value--in several ways as insurance needs change.
Examples include increasing or decreasing the Face Amount, changing the level
of premium payments, and, to a lesser extent, making partial withdrawals from
the Policy. Although the consequences of each of these methods will depend upon
the individual circumstances, they may be generally summarized as follows:
(a) A decrease in the Face Amount will, subject to the applicable percentage
limitations (see "Policy Benefits--Death Benefit"), decrease the pure insurance
protection and the cost of insurance charges under the Policy without reducing
the Cash Value.
(b) An increase in the Face Amount may increase the amount of pure insurance
protection, depending on the amount of Cash Value and the resultant applicable
percentage limitation. If the insurance protection is increased, the Policy
charges generally will increase as well.
(c) An increased level of premium payments will reduce the pure insurance
protection if Option A is in effect. However, when the applicable percentage of
Cash Value exceeds either the Face Amount (if Option A is in effect) or the
Cash Value plus the Face Amount (if Option B is in effect), increased premium
payments will increase the pure insurance protection. Increased premiums should
also increase the amount of funds available to keep the Policy in force.
(d) A reduced level of premium payments generally will increase the amount of
pure insurance protection, depending on the applicable percentage limitations.
If the reduced level of premium payments is insufficient to cover monthly
deductions or to offset negative investment performance, Cash Value may also
decrease, which
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<PAGE>
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 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
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<PAGE>
(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.
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<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 loan is outstanding. If the Loan Account interest credited is less than the
investment performance of the
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<PAGE>
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.
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<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.")
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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.
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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
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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>
First Subsequent
Eligible Employees 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
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<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 rates will continue to reflect the
gender mix of the pool of Insureds at the time the Insured's eligibility
ceased. However, at some time in the future, we reserve the right to base the
gender mix and rate class on the group consisting of those Insureds who are no
longer under a Group Contract or employer-sponsored program.
The current cost of insurance rates will not be greater than the guaranteed
cost of insurance rates set forth in the Policy. These guaranteed rates are
125% of the maximum rates that could be charged based on the 1980 Commissioners
Standard Ordinary Mortality Table C ("1980 CSO Table"). The guaranteed rates
are higher than 100% of the maximum rates in the 1980 CSO Table because we use
guaranteed or simplified underwriting procedures whereby the insured is not
required to submit to a medical or paramedical examination. The current cost of
insurance rates are generally lower than 100% of the 1980 CSO Table. Any change
in the actual cost of insurance rates will apply to all persons of the same
Attained Age and rate class whose Face Amounts have been in force for the same
length of time. Any change in the actual cost of insurance rates will not
include changes made to adjust for changes in the gender mix of the pool of
Insureds under a particular Group Contract or employer-sponsored insurance
program. (For purposes of computing guideline premiums under Section 7702 of
the Internal Revenue Code of 1986, as amended, the Company will use 100% of the
1980 CSO Table.)
Net Amount at Risk. The net amount at risk for a Policy Month is (a) the death
benefit at the beginning of the Policy Month divided by 1.0040741), less (b)
the Cash Value at the beginning of the Policy Month. Dividing the death benefit
by 1.0040741 reduces the net amount at risk, solely for purposes of computing
the cost of insurance, by taking into account assumed monthly earnings at an
annual rate of 5%.
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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.")
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;
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(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,
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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.
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.
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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 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.
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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.
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
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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.
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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 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.
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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.
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.
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Business Uses of Policy. Businesses can use the Policies in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, tax
exempt and nonexempt welfare benefit plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances. If you are purchasing the Policy for any arrangement
the value of which depends in part on its tax consequences, you should consult
a qualified tax adviser. In recent years, moreover, Congress has adopted new
rules relating to life insurance owned by businesses. Any business
contemplating the purchase of a new Policy or a change in an existing Policy
should consult a tax adviser.
Other Tax Considerations. The transfer of the Policy or designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate, and generation-skipping
transfer taxes. For example, the transfer of the Policy to, or the designation
as a beneficiary of, or the payment of proceeds to, a person who is assigned to
a generation which is two or more generations below the generation assignment
of the owner may have generation skipping transfer tax consequences under
federal tax law. The individual situation of each owner or beneficiary will
determine the extent, if any, to which federal, state, and local transfer and
inheritance taxes may be imposed and how ownership or receipt of Policy
proceeds will be treated for purposes of federal, state and local estate,
inheritance, generation skipping and other taxes.
Possible Tax Law Changes. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the Policy
could change by legislation or otherwise. Consult a tax adviser with respect to
legislative developments and their effect on the Policy.
Our Income Taxes
Under current federal income tax law, we are not taxed on the Separate
Account's operations. Thus, currently we do not deduct a charge from the
Separate Account for federal income taxes. We reserve the right to charge the
Separate Account for any future federal income taxes or economic burdens we may
incur.
Under current laws in several states, we may incur state and local taxes (in
addition to premium taxes). These taxes are not now significant and we are not
currently charging for them. If they increase, we may deduct charges for such
taxes.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
The Company holds assets of the Separate Account. The assets are kept
physically segregated and held separate and apart from our general assets. We
maintain records of all purchases and redemptions of Fund shares by each of the
Divisions. Additional protection for 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.
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.
39
<PAGE>
The Owners of Policies ordinarily are the persons having a voting interest in
the Divisions of the Separate Account. The number of votes which an Owner has
the right to instruct will be calculated separately for each Division. The
number of votes which each Owner has the right to instruct will be determined
by dividing a Policy's Cash Value in a Division by the net asset value per
share of the corresponding Fund in which the Division invests. Fractional
shares will be counted. The number of votes of the Fund which the Owner has
right to instruct will be determined as of the date coincident with the date
established by that Fund for determining shareholders eligible to vote at the
meeting of the underlying Funds. Voting instructions will be solicited by
written communications prior to such meeting in accordance with procedures
established by the underlying Funds.
Because the Funds serve as investment vehicles for this Policy as well as for
other variable life insurance policies sold by insurers other than the Company
and funded through other separate investment accounts, persons owning the other
policies will enjoy similar voting rights. We will vote Fund shares held in the
Separate Account for which no timely voting instructions are received and Fund
shares that we own as a consequence of accrued charges under the Policies, in
proportion to the voting instructions which are received with respect to all
Policies participating in a Fund. Each person having a voting interest in a
Division will receive proxy material, reports, and other materials relating to
the appropriate Fund.
Disregard of Voting Instructions. The Company may, when required by state
insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
subclassification or investment objective of or one or more of the Funds or to
approve or disapprove an investment advisory contract for a Fund. In addition,
the Company itself may disregard voting instructions in favor of changes
initiated by an Owner in the investment policy or by the investment adviser or
sub-adviser of a Fund if the Company reasonably disapproves of such changes. A
proposed change would be disapproved only if the proposed change is contrary to
state law or prohibited by state regulatory authorities, or we determine that
the change would have an adverse effect on its general assets in that the
proposed investment policy for a Fund may result in overly speculative or
unsound investments. In the event we do disregard voting instructions, a
summary of that action and the reasons for such action will be included in the
next annual report to Owners.
IMSA
The Company is a member of the Insurance Market place Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
STATE REGULATION OF THE COMPANY
We are a stock life insurance company organized under the laws of Missouri and
subject to regulation by the Missouri Division of Insurance. An annual
statement is filed with the Director of Insurance on or before March 1 each
year covering the operations and reporting on the financial condition of the
Company as of December 31 of the preceding year. Periodically, the Director of
Insurance examines our liabilities and reserves and the liabilities and
reserves of the Separate Account and certifies their adequacy. A full
examination of the Company's operations is conducted by the National
Association of Insurance Commissioners at least once every three years.
In addition, we are subject to the insurance laws and regulations of other
states within which it is licensed or may become licensed to operate.
Generally, the insurance departments of other states apply the laws of the
state of domicile in determining permissible investments.
40
<PAGE>
MANAGEMENT OF THE COMPANY
<TABLE>
<CAPTION>
Name Principal Occupation(s) During Past Five Years/1/
---- -------------------------------------------------
<S> <C>
Executive Officers/2/
Carl H. Anderson/4/ President and Chief Executive Officer since June 1986.
Vice President, New Ventures, since June 1986, General
American Life Insurance Co., St. Louis, Mo. (GenAm).
Matthew K. Duffy/4/ Vice President and Chief Financial Officer since June
1996. Formerly Director of Accounting, Prudential
Insurance Company of America, March 1987-June 1996.
E. Thomas Hughes, Jr./4 Treasurer since December 1994. Corporate Actuary and
/ General American Life 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. Secretary
/ General American Life since August 1981. Vice President and Associate General
Insurance Company Counsel, GenAm, since December 30, 1995.
700 Market Street
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.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Name Principal Occupation(s) During Past Five Years/1/
---- -------------------------------------------------
<S> <C>
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.
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.
42
<PAGE>
Actuarial matters included in this Prospectus have been examined by Craig K.
Nordyke, FSA, MAAA, Executive Vice President and Chief Actuary of the Company,
as stated in the opinion filed as an exhibit to the registration statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This Prospectus does not contain all the information
set forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Separate Account, the Company and the Policy offered
hereby. Statements contained in this Prospectus as to the contents of the
Policy and other legal instruments are summaries. For a complete statement of
the terms thereof reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of the Company which are included in this Prospectus
should be distinguished from the financial statements for the Separate Account
included in this Prospectus, and should be considered only as bearing on the
ability of the Company to meet its obligations under the Policy. They should
not be considered as bearing on the investment performance of the assets held
in the Separate Account.
DEFINITIONS
Attained Age--The Issue Age of the Insured plus the number of completed Policy
Years.
Associated Companies--The companies listed in a Group Contract's specifications
pages that are under common control through stock ownership, contract or
otherwise, with the Contractholder.
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.
43
<PAGE>
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.
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 C, a separate investment account
established by the Company to receive and invest the net premiums paid under
the Policy.
44
<PAGE>
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 aValuation 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 C:
We have audited the accompanying statements of net assets, including the
schedule of investments, of the Money Market, High Income, Growth, Equity-
Income, Overseas, Investment Grade Bond, Asset Manager, Index 500, Contrafund,
Asset Manager Growth, Growth & Income, Growth Opportunities, Balanced, and Mid
Cap Divisions of Paragon Separate Account C 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 C. 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 Fidelity Investments Variable Insurance Products Funds.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Money Market, High Income,
Growth, Equity-Income, Overseas, Investment Grade Bond, Asset Manager, Index
500, Contrafund, Asset Manager Growth, Growth & Income, Growth Opportunities,
Balanced and Mid Cap Divisions of Paragon Separate Account C 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 C
STATEMENTS OF NET ASSETS
December 31, 1999
<TABLE>
<CAPTION>
Money High Investment Asset
Market Income Growth Equity-Income Overseas Grade Bond Manager Index 500
Division Division Division Division Division Division Division Division
---------- --------- ---------- ------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets:
Investments in Fidelity
Investments, at Market
Value (See Schedule of
Investments).......... $1,725,164 2,225,402 19,082,626 6,157,354 5,843,216 1,155,641 5,999,046 7,857,147
Receivable from
(payable to) Paragon
Life Insurance
Company............... 6,096 2,208 8,539 (12,532) 2,202 (2,027) 5,575 10,237
---------- --------- ---------- --------- --------- --------- --------- ---------
Total Net Assets....... $1,731,260 2,227,610 19,091,165 6,144,822 5,845,418 1,153,614 6,004,621 7,867,384
========== ========= ========== ========= ========= ========= ========= =========
Net Assets,
representing:
Equity of Contract
Owners................ $1,730,950 2,227,243 19,087,689 6,143,696 5,844,376 1,153,402 6,003,525 7,865,943
Equity of Paragon Life
Insurance............. 310 367 3,476 1,126 1,042 212 1,096 1,441
---------- --------- ---------- --------- --------- --------- --------- ---------
$1,731,260 2,227,610 19,091,165 6,144,822 5,845,418 1,153,614 6,004,621 7,867,384
========== ========= ========== ========= ========= ========= ========= =========
Total Units Held........ 1,329,987 118,558 236,878 165,860 175,245 75,431 210,818 41,977
Net Asset Value Per
Unit................... $ 1.30 18.79 80.58 37.04 33.35 15.29 28.48 187.39
Cost of Investments..... $1,725,164 2,327,588 11,961,412 5,188,169 3,989,233 1,162,852 5,198,305 5,339,600
========== ========= ========== ========= ========= ========= ========= =========
<CAPTION>
Asset
Manager Growth & Growth
Contrafund Growth Income Opportunities Balanced Mid Cap
Division Division Division Division Division Division
---------- --------- ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets:
Investments in Fidelity
Investments, at Market
Value (See Schedule of
Investments).......... $5,398,295 2,229,100 990,119 513,222 257,308 60,592
Receivable from
(payable to) Paragon
Life Insurance
Company............... (10,825) 3,269 1,599 1,792 153 124
---------- --------- ---------- --------- --------- ---------
Total Net Assets....... $5,387,470 2,232,369 991,718 515,014 257,461 60,716
========== ========= ========== ========= ========= =========
Net Assets,
representing:
Equity of Contract
Owners................ $5,386,491 2,231,963 991,536 514,921 257,414 60,706
Equity of Paragon Life
Insurance............. 979 406 182 93 47 10
---------- --------- ---------- --------- --------- ---------
$5,387,470 2,232,369 991,718 515,014 257,461 60,716
========== ========= ========== ========= ========= =========
Total Units Held........ 164,490 93,627 55,470 20,915 14,592 3,969
Net Asset Value Per
Unit................... $ 32.75 23.84 17.88 24.62 17.64 15.29
Cost of Investments..... $3,812,717 1,851,650 883,336 470,274 249,223 50,090
========== ========= ========== ========= ========= =========
</TABLE>
See Accompanying Notes to Financial Statements.
F-16
<PAGE>
PARAGON SEPARATE ACCOUNT C
STATEMENTS OF OPERATIONS
Page 1 of 2
For the Years ended December 31, 1999, 1998 and 1997, except for the Growth
Opportunities Division, the Growth & Income Division and the Balanced Division
which are for the period from May 1, 1997 (inception) through December 31,
1997, and for the Mid Cap Division which is for the period of June 1, 1999
(inception) through December 31, 1999.
<TABLE>
<CAPTION>
Money Market Division High Income Division Growth Division
-------------------------- --------------------------- ------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---------- ------- ------- -------- -------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Income... $ 71,713 53,148 42,724 181,093 132,173 90,958 507,612 43,123 40,552
Expenses:
Mortality and
Expense Charge.... 10,322 7,186 30,043 15,674 13,890 53,923 110,375 72,408 11,352
---------- ------- ------- -------- -------- ------- --------- --------- ---------
Net Investment
Income
(Expense)....... 61,391 45,962 12,681 165,419 118,283 37,035 397,237 (29,285) 29,200
Net Realized Gain
(Loss) on
Investments:
Realized Gain
from
Distributions..... -- -- -- 6,770 83,985 11,242 957,800 1,128,004 181,519
Proceeds from
Sales............. 465,565 430,484 361,687 371,746 348,524 261,073 1,369,431 1,143,057 1,277,824
Cost of
Investments Sold.. 465,565 430,484 361,687 395,944 346,067 215,116 993,679 929,866 965,252
---------- ------- ------- -------- -------- ------- --------- --------- ---------
Net Realized
Gain (Loss) on
Investments..... -- -- -- (17,428) 86,442 57,199 1,333,552 1,341,195 494,091
Net Unrealized Gain
(Loss) on
Investments:
Unrealized Gain
(Loss) Beginning
of Year........... -- -- -- (99,543) 197,466 97,472 3,895,427 1,780,153 815,011
Unrealized Gain
(Loss) End of
Year.............. -- -- -- (102,186) (99,543) 197,466 7,121,214 3,895,427 1,780,153
---------- ------- ------- -------- -------- ------- --------- --------- ---------
Net Unrealized
Gain (Loss) on
Investments....... -- -- -- (2,643) (297,009) 99,994 3,225,787 2,115,274 965,142
---------- ------- ------- -------- -------- ------- --------- --------- ---------
Net Gain (Loss)
on Investments.. -- -- -- (20,071) (210,567) 157,193 4,559,339 3,456,469 1,459,233
---------- ------- ------- -------- -------- ------- --------- --------- ---------
Increase (Decrease)
in Assets Resulting
from Operations.... $ 61,391 45,962 12,681 145,348 (92,284) 194,228 4,956,576 3,427,184 1,488,433
========== ======= ======= ======== ======== ======= ========= ========= =========
<CAPTION>
Investment Grade Bond
Overseas Division Division Asset Manager Division
-------------------------- --------------------------- ------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---------- ------- ------- -------- -------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Income... $ 57,689 124,096 41,728 57,357 36,974 32,241 179,630 141,971 119,551
Expenses:
Mortality and
Expense Charge.... 31,373 24,639 20,849 8,334 6,648 4,735 41,345 34,895 29,484
---------- ------- ------- -------- -------- ------- --------- --------- ---------
Net Investment
Income
(Expense)....... 26,316 99,457 20,879 49,023 30,326 27,506 138,285 107,076 90,067
Net Realized Gain
(Loss) on
Investments:
Realized Gain from
Distributions...... 93,047 111,515 165,650 1,765 4,387 -- 227,532 425,914 299,891
Proceeds from
Sales............. 415,458 450,216 427,375 227,276 190,192 101,264 744,862 677,529 590,969
Cost of
Investments Sold.. 361,069 414,709 344,492 229,921 182,659 92,815 682,236 627,961 453,620
---------- ------- ------- -------- -------- ------- --------- --------- ---------
Net Realized
Gain (Loss) on
Investments..... 147,436 147,022 248,533 (880) 11,920 8,449 290,158 475,482 437,240
Net Unrealized Gain
(Loss) on
Investments:
Unrealized Gain
(Loss) Beginning
of Year........... 371,354 251,644 259,928 62,777 32,785 15,818 663,498 585,799 403,420
Unrealized Gain
(Loss) End of
Year.............. 1,853,983 371,354 251,644 (7,211) 62,777 32,785 800,741 663,498 585,799
---------- ------- ------- -------- -------- ------- --------- --------- ---------
Net Unrealized
Gain (Loss) on
Investments....... 1,482,629 119,710 (8,284) (69,988) 29,992 16,967 137,243 77,699 182,379
---------- ------- ------- -------- -------- ------- --------- --------- ---------
Net Gain (Loss)
on Investments.. 1,630,065 266,732 240,248 (70,868) 41,912 25,416 427,401 553,181 619,619
---------- ------- ------- -------- -------- ------- --------- --------- ---------
Increase (Decrease)
in Assets Resulting
from Operations.... $1,656,381 366,189 261,127 (21,845) 72,238 52,922 565,686 660,257 709,686
========== ======= ======= ======== ======== ======= ========= ========= =========
<CAPTION>
Equity-Income Division
----------------------------
1999 1998 1997
---------- --------- -------
<S> <C> <C> <C>
Investment Income:
Dividend Income... 85,707 68,582 55,877
Expenses:
Mortality and
Expense Charge.... 44,707 38,256 5,941
---------- --------- -------
Net Investment
Income
(Expense)....... 41,000 30,326 49,936
Net Realized Gain
(Loss) on
Investments:
Realized Gain
from
Distributions..... 189,458 244,069 280,940
Proceeds from
Sales............. 862,581 893,537 687,118
Cost of
Investments Sold.. 718,576 761,637 508,210
---------- --------- -------
Net Realized
Gain (Loss) on
Investments..... 333,463 375,969 459,848
Net Unrealized Gain
(Loss) on
Investments:
Unrealized Gain
(Loss) Beginning
of Year........... 1,025,883 894,273 425,944
Unrealized Gain
(Loss) End of
Year.............. 969,185 1,025,883 894,273
---------- --------- -------
Net Unrealized
Gain (Loss) on
Investments....... (56,698) 131,610 468,329
---------- --------- -------
Net Gain (Loss)
on Investments.. 276,765 507,579 928,177
---------- --------- -------
Increase (Decrease)
in Assets Resulting
from Operations.... 317,765 537,905 978,113
========== ========= =======
<CAPTION>
Index 500 Division
----------------------------
1999 1998 1997
---------- --------- -------
<S> <C> <C> <C>
Investment Income:
Dividend Income... 63,858 40,232 18,952
Expenses:
Mortality and
Expense Charge.... 47,617 30,877 18,612
---------- --------- -------
Net Investment
Income
(Expense)....... 16,241 9,355 340
Net Realized Gain
(Loss) on
Investments:
Realized Gain from
Distributions...... 28,774 93,185 38,457
Proceeds from
Sales............. 641,071 708,844 495,360
Cost of
Investments Sold.. 462,175 548,567 381,643
---------- --------- -------
Net Realized
Gain (Loss) on
Investments..... 207,670 253,462 152,174
Net Unrealized Gain
(Loss) on
Investments:
Unrealized Gain
(Loss) Beginning
of Year........... 1,528,347 713,917 226,612
Unrealized Gain
(Loss) End of
Year.............. 2,517,547 1,528,347 713,917
---------- --------- -------
Net Unrealized
Gain (Loss) on
Investments....... 989,200 814,430 487,305
---------- --------- -------
Net Gain (Loss)
on Investments.. 1,196,870 1,067,892 639,479
---------- --------- -------
Increase (Decrease)
in Assets Resulting
from Operations.... 1,213,111 1,077,247 639,819
========== ========= =======
</TABLE>
See Accompanying Notes to Financial Statements.
F-17
<PAGE>
PARAGON SEPARATE ACCOUNT C
STATEMENTS OF OPERATIONS
Page 2 of 2
For the Years ended December 31, 1999, 1998 and 1997, except for the Growth
Opportunities Division, the Growth & Income Division and the Balanced Division
which are for the period from May 1, 1997 (inception) through December 31,
1997, and for the Mid Cap Division which is for the period of June 1, 1999
(inception) through December 31, 1999.
<TABLE>
<CAPTION>
Growth
Asset Manager Growth Growth & Income Opportunities
Contrafund Division 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>
Investment Income:
Dividend Income....... $ 17,945 14,536 7,171 42,934 23,796 -- 4,586 -- 171 3,346 894 --
Expenses:
Mortality and Expense
Charge................ 31,786 19,255 10,409 13,954 10,195 5,459 5,862 1,568 66 3,052 1,284 28
---------- ------- ------- ------- ------- ------- ------- ------ ----- ------ ------ -----
Net Investment
Income (Expense).... (13,841) (4,719) (3,238) 28,980 13,601 (5,459) (1,276) (1,568) 105 294 (390) (28)
Net Realized Gain
(Loss) on Investments:
Realized Gain from
Distributions......... 131,597 106,941 18,955 71,208 111,282 633 5,997 223 556 6,256 3,108 --
Proceeds from Sales... 612,548 449,921 264,897 323,782 216,210 96,531 204,921 95,947 1,778 86,174 36,617 17
Cost of Investments
Sold.................. 474,844 382,497 227,114 290,426 201,656 85,443 184,218 95,348 1,801 79,214 35,214 17
---------- ------- ------- ------- ------- ------- ------- ------ ----- ------ ------ -----
Net Realized Gain
(Loss) on
Investments......... 269,301 174,365 56,738 104,564 125,836 11,721 26,700 822 533 13,216 4,511
Net Unrealized Gain
(Loss) on Investments:
Unrealized Gain
(Loss) Beginning of
Year.................. 874,070 304,878 78,527 238,853 148,372 9,001 71,924 (65) -- 40,020 1,991 --
Unrealized Gain
(Loss) End of Year.... 1,585,578 874,070 304,878 377,450 238,853 148,372 106,783 71,924 (65) 42,948 40,020 1,991
---------- ------- ------- ------- ------- ------- ------- ------ ----- ------ ------ -----
Net Unrealized Gain
(Loss) on
Investments........... 711,508 569,192 226,351 138,597 90,481 139,370 34,859 71,989 (65) 2,928 38,029 1,991
---------- ------- ------- ------- ------- ------- ------- ------ ----- ------ ------ -----
Net Gain (Loss) on
Investments......... 980,809 743,557 283,088 243,161 216,317 151,091 61,559 72,811 468 16,144 42,540 1,991
Increase (Decrease) in
Assets Resulting from
Operations............. $ 966,968 738,838 279,851 272,141 229,918 145,632 60,283 71,243 573 16,438 42,150 1,963
========== ======= ======= ======= ======= ======= ======= ====== ===== ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Mid-Cap
Balanced Division Division
-------------------- --------
1999 1998 1997 1999
------- ------ ---- --------
<S> <C> <C> <C> <C>
Investment Income:
Dividend Income................................. $ 3,068 82 -- 395
Expenses:
Mortality and Expense Charge.................... 1,410 299 -- 91
------- ------ --- ------
Net Investment Income (Expense)............... 1,658 (217) -- 304
Net Realized Gain (Loss) on Investments:
Realized Gain from Distributions................ 3,566 125 -- --
Proceeds from Sales............................. 28,111 25,371 -- 364
Cost of Investments Sold........................ 27,779 25,085 -- 355
------- ------ --- ------
Net Realized Gain (Loss) on Investments....... 3,898 411 -- 9
Net Unrealized Gain (Loss) on Investments:
Unrealized Gain (Loss) Beginning of Year........ 7,478 5 -- --
Unrealized Gain (Loss) End of Year.............. 8,085 7,478 5 10,502
------- ------ --- ------
Net Unrealized Gain (Loss) on Investments....... 607 7,473 5 10,502
------- ------ --- ------
Net Gain (Loss) on Investments................ 4,505 7,884 5 10,511
Increase (Decrease) in Assets Resulting from
Operations....................................... $ 6,163 7,667 5 10,815
======= ====== === ======
</TABLE>
See Accompanying Notes to Financial Statements.
F-18
<PAGE>
PARAGON SEPARATE ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS
Page 1 of 2
For the Years ended December 31, 1999, 1998 and 1997, except for the Growth
Opportunities Division, the Growth & Income Division and the Balanced Division
which are for the period from May 1, 1997 (inception) through December 31,
1997, and for the Mid Cap Division which is for the period of June 1, 1999
(inception) through December 31, 1999.
<TABLE>
<CAPTION>
Money Market Division High lncome 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).. $ 61,391 45,962 12,681 165,419 118,283 37,035 397,237 (29,285) 29,200
Net Realized Gain
(Loss) on
Investments....... -- -- -- (17,428) 86,442 57,199 1,333,552 1,341,195 494,091
Net Unrealized
Gain (Loss) on
Investments....... -- -- -- (2,643) (297,009) 99,994 3,225,787 2,115,274 965,142
---------- --------- --------- --------- --------- --------- ---------- ---------- ---------
Increase
(Decrease) in Net
Assets Resulting
from Operations... 61,391 45,962 12,681 145,348 (92,284) 194,228 4,956,576 3,427,184 1,488,433
Net Deposits into
Separate Account.. 492,353 254,531 235,662 98,681 245,648 385,491 1,400,159 979,135 842,260
---------- --------- --------- --------- --------- --------- ---------- ---------- ---------
Increase in Net
Assets.......... 553,744 300,493 248,343 244,029 153,364 579,719 6,356,735 4,406,319 2,330,693
Net Assets,
Beginning of Year.. 1,177,516 877,023 628,680 1,983,581 1,830,217 1,250,498 12,734,430 8,328,111 5,997,418
---------- --------- --------- --------- --------- --------- ---------- ---------- ---------
Net Assets, End of
Year............... $1,731,260 1,177,516 877,023 2,227,610 1,983,581 1,830,217 19,091,165 12,734,430 8,328,111
========== ========= ========= ========= ========= ========= ========== ========== =========
<CAPTION>
Investment Grade Bond
Overseas Division Division Asset Manager 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).. $ 26,316 99,457 20,879 49,023 30,326 27,506 138,285 107,076 90,067
Net Realized Gain
(Loss) on
Investments....... 147,436 147,022 248,533 (880) 11,920 8,449 290,158 475,482 437,240
Net Unrealized
Gain (Loss) on
Investments....... 1,482,629 119,710 (8,284) (69,988) 29,992 16,967 137,243 77,699 182,379
---------- --------- --------- --------- --------- --------- ---------- ---------- ---------
Increase
(Decrease) in Net
Assets Resulting
from Operations... 1,656,381 366,189 261,128 (21,845) 72,238 52,922 565,686 660,257 709,686
Net Deposits into
Separate Account.. 486,862 351,730 395,966 71,802 261,540 199,830 67,636 261,189 359,058
---------- --------- --------- --------- --------- --------- ---------- ---------- ---------
Increase in Net
Assets.......... 2,143,243 717,919 657,094 49,957 333,778 252,752 633,322 921,446 1,068,744
Net Assets,
Beginning of Year.. 3,702,175 2,984,256 2,327,162 1,103,657 769,879 517,127 5,371,299 4,449,853 3,381,109
---------- --------- --------- --------- --------- --------- ---------- ---------- ---------
Net Assets, End of
Year............... $5,845,418 3,702,175 2,984,256 1,153,614 1,103,657 769,879 6,004,621 5,371,299 4,449,853
========== ========= ========= ========= ========= ========= ========== ========== =========
<CAPTION>
Equity-Income Division
------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Operations:
Net Investment
Income (expense).. 41,000 30,326 49,936
Net Realized Gain
(Loss) on
Investments....... 333,463 375,969 459,848
Net Unrealized
Gain (Loss) on
Investments....... (56,698) 131,610 468,329
---------- --------- ---------
Increase
(Decrease) in Net
Assets Resulting
from Operations... 317,765 537,905 978,113
Net Deposits into
Separate Account.. 119,323 334,183 658,415
---------- --------- ---------
Increase in Net
Assets.......... 437,088 872,088 1,636,528
Net Assets,
Beginning of Year.. 5,707,734 4,835,646 3,199,118
---------- --------- ---------
Net Assets, End of
Year............... 6,144,822 5,707,734 4,835,646
========== ========= =========
<CAPTION>
Index 500 Division
------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Operations:
Net Investment
Income (expense).. 16,241 9,355 340
Net Realized Gain
(Loss) on
Investments....... 207,670 253,462 152,174
Net Unrealized
Gain (Loss) on
Investments....... 989,200 814,430 487,305
---------- --------- ---------
Increase
(Decrease) in Net
Assets Resulting
from Operations... 1,213,111 1,077,247 639,819
Net Deposits into
Separate Account.. 1,200,075 975,934 1,246,576
---------- --------- ---------
Increase in Net
Assets.......... 2,413,186 2,053,181 1,886,395
Net Assets,
Beginning of Year.. 5,454,198 3,401,017 1,514,622
---------- --------- ---------
Net Assets, End of
Year............... 7,867,384 5,454,198 3,401,017
========== ========= =========
</TABLE>
See Accompanying Notes to Financial Statements.
F-19
<PAGE>
PARAGON SEPARATE ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS--(Continued)
Page 2 of 2
For the Years ended December 31, 1999, 1998 and 1997, except for the Growth
Opportunities Division, the Growth & Income Division and the Balanced Division
which are for the period from May 1, 1997 (inception) through December 31,
1997 and for the Mid Cap Division which is for the period of June 1, 1999
(inception) through December 31, 1999.
<TABLE>
<CAPTION>
Contrafund Division Asset Manager Growth Division Growth Income Division
-------------------------------- ----------------------------- ------------------------ -----------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---------- --------- --------- --------- --------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment
Income (expense)... $ (13,841) (4,719) (3,238) 28,980 13,601 (5,459) (1,276) (1,568) 105
Net Realized Gain
(Loss) on
Investments........ 269,301 174,365 56,738 104,564 125,836 11,721 26,700 822 533
Net Unrealized Gain
(Loss) on
Investments........ 711,508 569,192 226,351 138,597 90,481 139,370 34,859 71,989 (65)
---------- --------- --------- --------- --------- --------- ------- ------- ------
Increase (Decrease)
in Net Assets
Resulting from
Operations......... 966,968 738,838 279,851 272,141 229,918 145,632 60,283 71,243 573
Net Deposits into
Separate Account... 880,791 782,459 981,087 212,655 410,137 682,573 409,384 422,507 27,728
---------- --------- --------- --------- --------- --------- ------- ------- ------
Increase in Net
Assets............ 1,847,759 1,521,297 1,260,938 484,796 640,055 828,205 469,667 493,750 28,301
Net Assets,
Beginning of Year.. 3,539,711 2,018,414 757,476 1,747,573 1,107,518 279,313 522,051 28,301 --
---------- --------- --------- --------- --------- --------- ------- ------- ------
Net Assets, End of
Year............... $5,387,470 3,539,711 2,018,414 2,232,369 1,747,573 1,107,518 991,718 522,051 28,301
========== ========= ========= ========= ========= ========= ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
Growth Opportunities Mid-Cap
Division Balanced Division Division
------------------------ --------------------- --------
1999 1998 1997 1999 1998 1997 1999
-------- ------- ------ ------- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income
(expense).............. $ 294 (390) (28) 1,658 (217) -- 304
Net Realized Gain
(Loss) on Investments.. 13,216 4,511 0 3,898 411 -- 9
Net Unrealized Gain
(Loss) on Investments.. 2,928 38,029 1,991 607 7,473 5 10,502
-------- ------- ------ ------- ------- --- ------
Increase (Decrease) in
Net Assets Resulting
from Operations........ 16,438 42,150 1,963 6,163 7,667 5 10,815
Net Deposits into
Separate Account....... 197,891 201,947 54,625 137,054 106,201 371 49,901
-------- ------- ------ ------- ------- --- ------
Increase in Net
Assets................ 214,329 244,097 56,588 143,217 113,868 376 60,716
Net Assets, Beginning
of Year................ 300,685 56,588 -- 114,244 376 -- --
-------- ------- ------ ------- ------- --- ------
Net Assets, End of
Year................... $515,014 300,685 56,588 257,461 114,244 376 60,716
======== ======= ====== ======= ======= === ======
</TABLE>
See Accompanying Notes to Financial Statements.
F-20
<PAGE>
PARAGON SEPARATE ACCOUNT C
Notes to Financial Statements
December 31, 1999
(1) Organization
Paragon Life Insurance Company (Paragon) established Paragon Separate Account
C on August 1, 1991. Paragon Separate Account C (the Separate Account)
commenced operations on November 1, 1993 and is registered under the Investment
Company Act of 1940 as a unit investment trust. The Separate Account receives
and invests net premiums for flexible premium group variable life insurance
policies that are issued by Paragon. The Separate Account is divided into
fourteen divisions, which invest exclusively in shares of a single fund of
Fidelity Investments Variable Insurance Product Fund or Variable Insurance
Product Fund II (Fidelity), an open-end, diversified management investment
company. These funds are the Money Market, High Income, Growth, Equity-Income,
Overseas, Investment Grade Bond, Asset Manager, Index 500, Contrafund, Asset
Manager Growth, Growth & Income, Growth Opportunities, Balanced, and Mid Cap
(the Divisions). Policyholders have the option of directing their premium
payments into any or all of the Divisions.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Separate Account in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
Investments
The Separate Account's investments in the Funds of the Fidelity 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
F-21
<PAGE>
PARAGON SEPARATE ACCOUNT C
Notes to Financial Statements--(Continued)
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 charge 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 C
Notes to Financial Statements--(Continued)
Note 4--Purchases and Sales of Fidelity Investments Variable Insurance
Products Funds Shares
For the Years ended December 31, 1999, 1998 and 1997, except for the Growth
Opportunities Division, the Growth & Income Division and the Balanced Division
which are for the period from May 1, 1997 (inception) through December 31,
1997 and for the Mid Cap Division which is for the period of June 1, 1999
(inception) through December 31, 1999.
<TABLE>
<CAPTION>
Money Market Division
------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Purchases....... $ 944,283 679,398 564,613
Sales........... $ 465,565 430,484 361,687
========== ========= =========
<CAPTION>
Overseas Division
------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Purchases....... $ 859,297 793,206 798,156
Sales........... $ 415,458 450,216 427,375
========== ========= =========
<CAPTION>
Contrafund Division
------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Purchases....... $1,437,383 1,243,614 1,240,031
Sales........... $ 612,548 449,921 264,897
========== ========= =========
<CAPTION>
Balanced Division
------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Purchases....... $ 163,687 131,197 364
Sales........... $ 28,111 25,371 --
========== ========= =========
<CAPTION>
High Income Division Growth Division Equity-Income Division
------------------------ ----------------------------- -----------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- ------- ------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases....... 447,453 590,515 588,503 2,651,575 2,079,194 2,082,815 956,325 1,198,930 1,325,565
Sales........... 371,746 348,524 261,073 1,369,431 1,143,057 1,277,824 862,581 893,537 687,118
======== ======= ======= ========= ========= ========= ========= ========= =========
<CAPTION>
Investment Grade Bond
Division Asset Manager Division Index 500 Division
------------------------ ----------------------------- -----------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- ------- ------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases....... 294,502 445,819 293,908 746,978 930,821 914,848 1,789,833 1,656,894 1,715,662
Sales........... 227,276 190,192 101,264 744,862 677,529 590,969 641,071 708,844 495,360
======== ======= ======= ========= ========= ========= ========= ========= =========
<CAPTION>
Asset Manager Growth
Division Growth & Income Division Growth Opportunities Division
------------------------ ----------------------------- -----------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- ------- ------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases....... 500,775 640,034 770,463 606,905 517,101 29,164 279,519 237,330 54,265
Sales........... 323,782 216,210 96,531 204,921 95,947 1,778 86,174 36,617 17
======== ======= ======= ========= ========= ========= ========= ========= =========
<CAPTION>
Mid-Cap
Division
--------
1999
--------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases....... 50,051
Sales........... 364
========
</TABLE>
The purchases above do not include dividends and realized gains from
distributions that have been reinvested into the respective divisions.
F-23
<PAGE>
PARAGON SEPARATE ACCOUNT C
Notes to Financial Statements--(Continued)
Note 5--Accumulation of Unit Activity
The following is a reconciliation of the accumulation of unit activity for
the Years ended December 31, 1999, 1998, and 1997 except for the Growth
Opportunities Division, the Growth & Income Division and the Balanced Division
which is for the period from May 1, 1997 (inception) through December 31,
1997, and for the Mid Cap Division which is for the period of June 1, 1999
(inception) through December 31, 1999.
<TABLE>
<CAPTION>
Money Market Division High Income Division Growth Division Equity-Income 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........... 749,240 558,257 492,306 25,024 32,784 35,371 41,375 43,755 54,962 26,610 36,603 47,547
Withdrawals........ 363,684 350,561 308,607 19,815 18,744 15,295 20,075 23,388 32,051 23,368 26,637 23,297
--------- ------- ------- ------- ------- ------ ------- ------- ------- ------- ------- -------
Net Increase in
Units............ 385,556 207,696 183,699 5,209 14,040 20,076 21,300 20,367 22,911 3,242 9,966 24,250
Outstanding Units,
Beginning of Year... 944,431 736,735 553,036 113,349 99,309 79,233 215,578 195,211 172,300 162,618 152,652 128,402
--------- ------- ------- ------- ------- ------ ------- ------- ------- ------- ------- -------
Outstanding Units,
End of Year......... 1,329,987 944,431 736,735 118,558 113,349 99,309 236,878 215,578 195,211 165,860 162,618 152,652
========= ======= ======= ======= ======= ====== ======= ======= ======= ======= ======= =======
<CAPTION>
Investment Grade Bond
Overseas Division Division Asset Manager Division Index 500 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........... 33,619 35,088 39,281 19,434 29,900 21,839 29,439 39,833 45,318 10,890 12,289 15,753
Withdrawals........ 15,526 19,708 19,916 14,891 12,436 7,259 26,597 28,615 27,581 3,728 5,127 4,321
--------- ------- ------- ------- ------- ------ ------- ------- ------- ------- ------- -------
Net Increase in
Units............ 18,093 15,380 19,365 4,543 17,464 14,580 2,842 11,218 17,737 7,162 7,162 11,432
Outstanding Units,
Beginning of Year... 157,152 141,772 122,407 70,888 53,424 38,844 207,976 196,758 179,021 34,815 27,653 16,221
--------- ------- ------- ------- ------- ------ ------- ------- ------- ------- ------- -------
Outstanding Units,
End of Year......... 175,245 157,152 141,772 75,431 70,888 53,424 210,818 207,976 196,758 41,977 34,815 27,653
========= ======= ======= ======= ======= ====== ======= ======= ======= ======= ======= =======
</TABLE>
F-24
<PAGE>
PARAGON SEPARATE ACCOUNT C
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 Years ended December 31, 1999, 1998 and 1997 except for the Growth
Opportunities Division, the Growth & Income Division and the Balanced Division
which is for the period from May 1, 1997 (inception) through December 31, 1997,
and for the Mid Cap Division which is for the period of June 1, 1999
(inception) through December 31, 1999.
<TABLE>
<CAPTION>
Growth
Asset Manager Growth Growth & Income Opportunities
Contrafund Division 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>
Net Increase in Units
Deposits............... 51,269 55,808 67,021 23,696 33,939 48,480 35,798 36,264 2,350 11,829 11,416 2,942
Withdrawals............ 20,091 20,572 14,297 13,931 12,087 5,884 11,976 6,822 144 3,553 1,719 --
------- ------- ------ ------ ------ ------ ------ ------ ----- ------ ------ -----
Net Increase in
Units................ 31,178 35,236 52,724 9,765 21,852 42,596 23,822 29,442 2,206 8,276 9,697 2,942
Outstanding Units,
Beginning of Year....... 133,312 98,076 45,352 83,862 62,010 19,414 31,648 2,206 -- 12,639 2,942 --
------- ------- ------ ------ ------ ------ ------ ------ ----- ------ ------ -----
Outstanding Units, End
of Year................. 164,490 133,312 98,076 93,627 83,862 62,010 55,470 31,648 2,206 20,915 12,639 2,942
======= ======= ====== ====== ====== ====== ====== ====== ===== ====== ====== =====
<CAPTION>
Mid Cap
Balanced Division Division
---------------------- --------
1999 1998 1997 1999
------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in Units
Deposits............... 9,485 8,308 26 3,999
Withdrawals............ 1,613 1,614 -- 30
------- ------- ------ ------
Net Increase in
Units................ 7,872 6,694 26 3,969
Outstanding Units,
Beginning of Year....... 6,720 26 -- --
------- ------- ------ ------
Outstanding Units, End
of Year................. 14,592 6,720 26 3,969
======= ======= ====== ======
</TABLE>
F-25
<PAGE>
PARAGON SEPARATE ACCOUNT C
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 Fidelity. 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 the 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 the Growth
Opportunities Division, the Growth & Income Division, and the Balanced
Division which are for the period from May 1, 1997 (inception) through
December 31, 1997, and for the Mid Cap Division which is for the period June
1, 1999 (inception) through December 31, 1999.
<TABLE>
<CAPTION>
Money Market High Income Growth
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.......... $4,168,901 3,710,558 3,432,146 836,570 884,861 962,793 4,026,413 3,783,266 3,912,833
Surrenders and
Withdrawals...... (168,107) (159,389) (132,139) (261,567) (254,023) (132,328) (1,328,507) (953,412) (1,097,957)
Transfers Between
Funds and General
Account.......... 186,842 123,961 (12,097) (158,771) (39,308) (124,356) 392,236 (230,476) (490,759)
---------- --------- --------- -------- -------- -------- ---------- --------- ----------
Total Gross
Deposits net of
Surrenders,
Withdrawals, and
Transfers....... 4,187,636 3,675,130 3,287,910 416,232 591,530 706,109 3,090,142 2,599,378 2,324,117
Deductions:
Premium Expense
Charges.......... 89,676 80,430 73,638 17,996 19,178 20,657 86,610 82,005 83,952
Monthly Expense
Charges.......... 156,655 140,433 66,219 13,015 13,736 18,576 69,663 64,674 75,494
Cost of Insurance
and Optional
Benefits......... 3,448,952 3,199,736 2,912,391 286,540 312,968 281,385 1,533,710 1,473,564 1,322,411
---------- --------- --------- -------- -------- -------- ---------- --------- ----------
Total
Deductions...... 3,695,283 3,420,599 3,052,248 317,551 345,882 320,618 1,689,983 1,620,243 1,481,857
---------- --------- --------- -------- -------- -------- ---------- --------- ----------
Net Deposits from
Policyholders..... $ 492,353 254,531 235,662 98,681 245,648 385,491 1,400,159 979,135 842,260
========== ========= ========= ======== ======== ======== ========== ========= ==========
<CAPTION>
Equity-Income
Division
--------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Total Gross
Deposits.......... 1,831,377 2,106,387 1,997,498
Surrenders and
Withdrawals...... (496,198) (613,816) (593,847)
Transfers Between
Funds and General
Account.......... (491,204) (365,020) (29,993)
---------- ---------- ----------
Total Gross
Deposits net of
Surrenders,
Withdrawals, and
Transfers....... 843,975 1,127,551 1,373,658
Deductions:
Premium Expense
Charges.......... 39,393 45,658 42,857
Monthly Expense
Charges.......... 29,774 31,436 38,540
Cost of Insurance
and Optional
Benefits......... 655,485 716,274 633,846
---------- ---------- ----------
Total
Deductions...... 724,652 793,368 715,243
---------- ---------- ----------
Net Deposits from
Policyholders..... 119,323 334,183 658,415
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Overseas Investment Grade Bond Asset Manager
Division Division Divison
-------------------------------- -------------------------- -------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---------- --------- --------- -------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross
Deposits.......... $1,257,046 1,308,610 1,351,561 459,129 444,085 437,708 1,611,215 1,937,983 1,865,644
Surrenders and
Withdrawals...... (353,459) (257,626) (394,377) (116,173) (74,179) (51,606) (527,985) (519,392) (423,726)
Transfers Between
Funds and General
Account.......... 55,356 (203,595) (89,922) (99,862) 74,082 (29,252) (236,616) (324,475) (231,672)
---------- --------- --------- -------- ------- ------- --------- --------- ---------
Total Gross
Deposits net of
Surrenders,
Withdrawals, and
Transfers....... 958,943 847,389 867,262 243,094 443,988 356,850 846,614 1,094,116 1,210,246
Deductions:
Premium Expense
Charges.......... 27,040 28,365 28,998 9,876 9,626 9,391 34,658 42,007 40,028
Monthly Expense
Charges.......... 19,336 19,647 26,077 7,013 7,266 8,445 32,339 33,253 35,996
Cost of Insurance
and Optional
Benefits......... 425,705 447,647 416,221 154,403 165,556 139,184 711,981 757,667 775,164
---------- --------- --------- -------- ------- ------- --------- --------- ---------
Total
Deductions...... 472,081 495,659 471,296 171,292 182,448 157,020 778,978 832,927 851,188
---------- --------- --------- -------- ------- ------- --------- --------- ---------
Net Deposits from
Policyholders..... $ 486,862 351,730 395,966 71,802 261,540 199,830 67,636 261,189 359,058
========== ========= ========= ======== ======= ======= ========= ========= =========
<CAPTION>
Index 500
Divison
--------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Total Gross
Deposits.......... 2,707,017 2,399,327 1,945,857
Surrenders and
Withdrawals...... (621,424) (606,853) (350,692)
Transfers Between
Funds and General
Account.......... 43,648 35,956 246,092
---------- ---------- ----------
Total Gross
Deposits net of
Surrenders,
Withdrawals, and
Transfers....... 2,129,241 1,828,430 1,841,257
Deductions:
Premium Expense
Charges.......... 58,230 52,007 41,749
Monthly Expense
Charges.......... 37,840 33,655 37,543
Cost of Insurance
and Optional
Benefits......... 833,096 766,834 515,389
---------- ---------- ----------
Total
Deductions...... 929,166 852,496 594,681
---------- ---------- ----------
Net Deposits from
Policyholders..... 1,200,075 975,934 1,246,576
========== ========== ==========
</TABLE>
F-26
<PAGE>
PARAGON SEPARATE ACCOUNT C
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 Fidelity. 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 the 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 the Growth
Opportunities Division, the Growth & Income Division, and the Balanced
Division which are for the period from May 1, 1997 (inception) through
December 31, 1997, and for the Mid Cap Division which is for the period June
1, 1999 (inception) through December 31, 1999.
<TABLE>
<CAPTION>
Asset Manager Growth & Income
Contrafund Division Growth Division Division
-------------------------------- --------------------------- -------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---------- --------- --------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross
Deposits........... $1,943,100 1,780,498 1,436,206 776,689 888,926 753,819 729,337 302,186 5,624
Surrenders and
Withdrawals....... (563,495) (361,388) (274,418) (191,296) (151,736) (68,324) (72,303) (36,024) (26,316)
Transfers Between
Funds and General
Account........... 82,138 (70,515) 195,274 (108,896) (47,830) 198,103 (58,571) 252,093 49,376
---------- --------- --------- -------- -------- ------- ------- ------- -------
Total Gross
Deposits net of
Surrenders,
Withdrawals, and
Transfers......... 1,461,743 1,348,595 1,357,062 476,497 689,360 883,598 598,463 518,255 28,684
Deductions:
Premium Expense
Charges........... 41,797 38,593 30,815 16,707 19,268 16,174 15,690 6,550 121
Monthly Expense
Charges........... 23,425 22,180 27,710 10,737 10,929 14,544 7,533 3,750 109
Cost of Insurance
and Optional
Benefits.......... 515,730 505,363 317,450 236,398 249,026 170,307 165,856 85,448 726
---------- --------- --------- -------- -------- ------- ------- ------- -------
Total
Deductions...... 580,952 566,136 375,975 263,842 279,223 201,025 189,079 95,748 956
---------- --------- --------- -------- -------- ------- ------- ------- -------
Net Deposits from
Policyholders...... $ 880,791 782,459 981,087 212,655 410,137 682,573 409,384 422,507 27,728
========== ========= ========= ======== ======== ======= ======= ======= =======
<CAPTION>
Mid-Cap
Balanced Division Division
-------------------------------- --------
1999 1998 1997 1999
---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross
Deposits........... $ 191,420 91,759 392 19,463
Surrenders and
Withdrawals....... (10,005) (4,973) 1 (1,754)
Transfers Between
Funds and General
Account........... 7,589 48,979 33 34,640
---------- --------- --------- --------
Total Gross
Deposits net of
Surrenders,
Withdrawals, and
Transfers......... 189,004 135,765 426 52,349
Deductions:
Premium Expense
Charges........... 4,118 1,989 8 419
Monthly Expense
Charges........... 2,078 1,159 8 88
Cost of Insurance
and Optional
Benefits.......... 45,754 26,416 39 1,941
---------- --------- --------- --------
Total
Deductions...... 51,950 29,564 55 2,448
---------- --------- --------- --------
Net Deposits from
Policyholders...... $ 137,054 106,201 371 49,901
========== ========= ========= ========
<CAPTION>
Growth
Opportunities Division
------------------------
1999 1998 1997
-------- -------- ------
<S> <C> <C> <C>
Total Gross
Deposits........... 362,736 244,828 7,579
Surrenders and
Withdrawals....... (64,375) (21,439) 27,394
Transfers Between
Funds and General
Account........... (13,992) 43,157 20,308
-------- -------- ------
Total Gross
Deposits net of
Surrenders,
Withdrawals, and
Transfers......... 284,369 266,546 55,281
Deductions:
Premium Expense
Charges........... 7,802 5,306 163
Monthly Expense
Charges........... 3,418 2,493 146
Cost of Insurance
and Optional
Benefits.......... 75,258 56,800 347
-------- -------- ------
Total
Deductions...... 86,478 64,599 656
-------- -------- ------
Net Deposits from
Policyholders...... 197,891 201,947 54,625
======== ======== ======
<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..........
Total
Deductions......
Net Deposits from
Policyholders......
</TABLE>
F-27
<PAGE>
PARAGON SEPARATE ACCOUNT C
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-28
<PAGE>
PARAGON SEPARATE ACCOUNT C
SCHEDULE OF INVESTMENTS
December 31, 1999
<TABLE>
<CAPTION>
Number Market
of Shares Value Cost
---------- ----------- -----------
<S> <C> <C> <C>
Fidelity Investments Variable Insurance
Products Funds:
Money Market Division.................... $1,725,164 $ 1,725,164 $ 1,725,164
High Income Division..................... 196,764 2,225,402 2,327,588
Growth Division.......................... 347,399 19,082,626 11,961,412
Equity-Income Division................... 239,493 6,157,354 5,188,169
Overseas Division........................ 212,945 5,843,216 3,989,233
Investment Grade Bond Division........... 95,036 1,155,641 1,162,852
Asset Manager Division................... 321,320 5,999,046 5,198,305
Index 500 Division....................... 46,934 7,857,147 5,339,600
Contrafund Division...................... 185,190 5,398,295 3,812,717
Asset Manager Growth Division............ 121,279 2,229,100 1,851,650
Growth & Income Division................. 57,232 990,119 883,336
Growth Opportunities Division............ 22,169 513,222 470,274
Balanced Division........................ 16,082 257,308 249,223
Mid Cap Division......................... 3,973 60,592 50,090
</TABLE>
See Accompanying Independent Auditors' Report
F-29
<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 as well as an Insured, age 50, in a
Corporate Program. 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 .498%
representing the average of the fees incurred in 1999 by the Funds in which the
Divisions invest (the actual investment advisory fee is shown in the VIP Funds
prospectuses), and a .118% 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 .498% and
.132%, respectively. After deduction for these amounts, with expense
reimbursement the illustrated gross annual investment rates of return of 0%, 6%
and 12% correspond to approximate net annual rates of--1.516%, 4.484% and
10.484%, 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: $6,000.00
PREMIUM EXPENSE CHARGE: 0.00% (Monthly Premium:
PREMIUM TAX: 2.25% $500.00)
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN at 0.00% (NET RATE at--
1.516%)
--------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- -------------------------------
PREM CASH DEATH CASH DEATH
YR at 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,094 $500,000 $ 4,955 $500,000
2 12,630 5,988 500,000 9,751 500,000
3 19,423 8,638 500,000 14,424 500,000
4 26,555 11,037 500,000 18,922 500,000
5 34,045 13,161 500,000 23,241 500,000
6 41,908 14,991 500,000 27,388 500,000
7 50,165 16,496 500,000 31,371 500,000
8 58,834 17,635 500,000 35,135 500,000
9 67,937 18,372 500,000 38,738 500,000
10 77,496 18,676 500,000 42,130 500,000
11 87,532 18,537 500,000 45,262 500,000
12 98,070 17,922 500,000 48,194 500,000
13 109,134 16,827 500,000 50,876 500,000
14 120,752 15,220 500,000 53,261 500,000
15 132,951 13,046 500,000 55,348 500,000
16 145,760 10,241 500,000 57,148 500,000
17 159,209 6,691 500,000 58,609 500,000
18 173,331 2,259 500,000 59,681 500,000
19 188,159 0 0 60,371 500,000
20 203,728 0 0 60,623 500,000
25 294,060 0 0 52,589 500,000
30 409,348 0 0 16,595 500,000
</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, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown above over a period of years,
but also fluctuated above or below that average for individual years. No
representation can be made by the Company, Walnut Street Securities, the
investment management company, or any representative thereof, that this
hypothetical rate of return can be achieved for any one year, or sustained over
any period of time.
Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the Policy Anniversary and further
assume there is no Policy Indebtedness outstanding.
A-2
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $500,000 AGE: 45
DEATH BENEFIT OPTION: A ANNUAL PREMIUM: $6,000.00
PREMIUM EXPENSE CHARGE: 0.00% (Monthly Premium:
$500.00)
PREMIUM TAX: 2.25%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN at 6.00% (NET RATE at
4.484%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR at 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,195 $500,000 $ 5,117 $500,000
2 12,630 6,376 500,000 10,376 500,000
3 19,423 9,496 500,000 15,822 500,000
4 26,555 12,543 500,000 21,406 500,000
5 34,045 15,485 500,000 27,131 500,000
6 41,908 18,296 500,000 33,006 500,000
7 50,165 20,939 500,000 39,048 500,000
8 58,834 23,360 500,000 45,205 500,000
9 67,937 25,509 500,000 51,544 500,000
10 77,496 27,342 500,000 58,023 500,000
11 87,532 28,831 500,000 64,598 500,000
12 98,070 29,925 500,000 71,334 500,000
13 109,134 30,598 500,000 78,193 500,000
14 120,752 30,797 500,000 85,136 500,000
15 132,951 30,442 500,000 92,171 500,000
16 145,760 29,440 500,000 99,318 500,000
17 159,209 27,643 500,000 106,536 500,000
18 173,331 24,871 500,000 113,794 500,000
19 188,159 20,925 500,000 121,106 500,000
20 203,728 15,595 500,000 128,438 500,000
25 294,060 0 0 163,651 500,000
30 409,348 0 0 188,563 500,000
</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, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown above over a period of years,
but also fluctuated above or below that average for individual years. No
representation can be made by the Company, Walnut Street Securities, the
investment management company, or any representative thereof, that this
hypothetical rate of return can be achieved for any one year, or sustained over
any period of time.
Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the Policy Anniversary day and further
assume there is no Policy Indebtedness outstanding.
A-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
(Monthly Premium:
$500.00)
PREMIUM TAX: 2.25%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN at 12.00% (NET RATE at
10.495%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR at 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,294 $500,000 $ 5,276 $500,000
2 12,630 6,773 500,000 11,016 500,000
3 19,423 10,409 500,000 17,308 500,000
4 26,555 14,211 500,000 24,153 500,000
5 34,045 18,171 500,000 31,607 500,000
6 41,908 22,286 500,000 39,740 500,000
7 50,165 26,543 500,000 48,634 500,000
8 58,834 30,916 500,000 58,316 500,000
9 67,937 35,384 500,000 68,932 500,000
10 77,496 39,931 500,000 80,537 500,000
11 87,532 44,564 500,000 93,195 500,000
12 98,070 49,266 500,000 107,087 500,000
13 109,134 54,051 500,000 122,309 500,000
14 120,752 58,911 500,000 138,978 500,000
15 132,951 63,815 500,000 157,272 500,000
16 145,760 68,725 500,000 177,403 500,000
17 159,209 73,560 500,000 199,560 500,000
18 173,331 78,210 500,000 223,970 500,000
19 188,159 82,557 500,000 250,938 500,000
20 203,728 86,482 500,000 280,775 500,000
25 294,060 95,771 500,000 487,827 565,879
30 409,348 60,844 500,000 829,860 887,951
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.
The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the policyowner,
and the investment results for the Funds. The cash value, cash surrender value
and death benefit for a policy would be different from those shown if the
actual rates of return averaged the rate shown above over a period of years,
but also fluctuated above or below that average for individual years. No
representation can be made by the Company, Walnut Street Securities, the
investment management company, or any representative thereof, that this
hypothetical rate of return can be achieved for any one year, or sustained over
any period of time.
Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the Policy Anniversary day and further
assume there is 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: $12,000.00
PREMIUM EXPENSE CHARGE: 0.00% (Monthly Premium:
PREMIUM TAX: 2.25% $1,000.00)
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN at 0.00% (NET RATE at-
1.516%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR at 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 8,901 $508,901 $ 10,767 $510,767
2 25,261 17,495 517,495 21,278 521,278
3 38,846 25,741 525,741 31,569 531,569
4 53,111 33,630 533,630 41,586 541,586
5 68,090 41,140 541,140 51,327 551,327
6 83,817 48,251 548,251 60,796 560,796
7 100,330 54,935 554,935 70,003 570,003
8 117,669 61,150 561,150 78,887 578,887
9 135,875 66,863 566,863 87,512 587,512
10 154,992 72,046 572,046 95,823 595,823
11 175,064 76,693 576,693 103,765 603,765
12 196,140 80,779 580,779 111,404 611,404
13 218,269 84,306 584,306 118,684 618,684
14 241,505 87,252 587,252 125,551 625,551
15 265,903 89,574 589,574 132,007 632,007
16 291,521 91,221 591,221 138,064 638,064
17 318,419 92,097 592,097 143,662 643,662
18 346,663 92,089 592,089 148,748 648,748
19 376,319 91,086 591,086 153,332 653,332
20 407,457 88,991 588,991 157,355 657,355
25 588,120 60,406 560,406 166,285 666,285
30 818,697 0 0 145,463 645,463
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.
The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown above over a period of years,
but also fluctuated above or below that average for individual years. No
representation can be made by the Company, Walnut Street Securities, the
investment management company, or any representative thereof, that this
hypothetical rate of return can be achieved for any one year, or sustained over
any period of time.
Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the Policy Anniversary and further
assume there is no Policy Indebtedness outstanding.
A-5
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $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 C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN at 6.00% (NET RATE at
4.484%)
----------------------------------------------------------------------
GUARANTEED* CURRENT**
-------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR at 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 9,191 $509,191 $ 11,119 $511,119
2 25,261 18,618 518,618 22,639 522,639
3 38,846 28,241 528,241 34,614 534,614
4 53,111 38,057 538,057 47,005 547,005
5 68,090 48,045 548,045 59,822 559,822
6 83,817 58,187 558,187 73,086 573,086
7 100,330 68,454 568,454 86,823 586,823
8 117,669 78,802 578,802 100,986 600,986
9 135,875 89,193 589,193 115,656 615,656
10 154,992 99,591 599,591 130,795 630,795
11 175,064 109,986 609,986 146,362 646,362
12 196,140 120,339 620,339 162,437 662,437
13 218,269 130,644 630,644 178,984 678,984
14 241,505 140,868 640,868 195,961 695,961
15 265,903 150,951 650,951 213,382 713,382
16 291,521 160,828 660,828 231,273 731,273
17 318,419 170,377 670,377 249,588 749,588
18 346,663 179,458 679,458 268,286 768,286
19 376,319 187,919 687,919 287,382 787,382
20 407,457 195,619 695,619 306,830 806,830
25 588,120 218,925 718,925 406,582 906,582
30 818,697 196,824 696,824 497,496 997,496
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.
The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown above over a period of years,
but also fluctuated above or below that average for individual years. No
representation can be made by the Company, Walnut Street Securities, the
investment management company, or any representative thereof, that this
hypothetical rate of return can be achieved for any one year, or sustained over
any period of time.
Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the Policy Anniversary and further
assume there is no Policy Indebtedness outstanding.
A-6
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $500,000 AGE: 45
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00% $12,000.00
(Monthly Premium:
PREMIUM TAX: 2.25% $1,000.00)
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN at 12.00% (NET RATE at
10.484%)
----------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------ ------------------------------
PREM CASH DEATH CASH DEATH
YR at 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 9,476 $ 509,476 $ 11,464 $ 511,464
2 25,261 19,764 519,764 24,030 524,030
3 38,846 30,898 530,898 37,850 537,850
4 53,111 42,953 542,953 52,993 552,993
5 68,090 55,994 555,994 69,591 569,591
6 83,817 70,101 570,101 87,797 587,797
7 100,330 85,346 585,346 107,786 607,786
8 117,669 101,800 601,800 129,676 629,676
9 135,875 119,544 619,544 153,728 653,728
10 154,992 138,676 638,676 180,107 680,107
11 175,064 159,330 659,330 208,994 708,994
12 196,140 181,627 681,627 240,715 740,715
13 218,269 205,734 705,734 275,504 775,504
14 241,505 231,810 731,810 313,620 813,620
15 265,903 260,004 760,004 355,405 855,405
16 291,521 290,475 790,475 401,252 901,252
17 318,419 323,351 823,351 451,518 951,518
18 346,663 358,751 858,751 506,602 1,006,602
19 376,319 396,809 896,809 567,011 1,067,011
20 407,457 437,685 937,685 633,235 1,133,235
25 588,120 693,143 1,193,143 1,071,754 1,571,754
30 818,697 1,055,678 1,555,678 1,755,931 2,255,931
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.
The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown above over a period of years,
but also fluctuated above or below that average for individual years. No
representation can be made by the Company, Walnut Street Securities, the
investment management company, or any representative thereof, that this
hypothetical rate of return can be achieved for any one year, or sustained over
any period of time.
Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the Policy Anniversary and further
assume there is no Policy Indebtedness outstanding.
A-7
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $500,000 AGE: 50
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 0.00% $12,000.00
PREMIUM TAX: 2.25% (Monthly Premium:
$1,000.00)
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN at 0.00% (NET RATE at--
1.516%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR at 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 7,619 $500,000 $ 10,112 $500,000
2 25,261 14,898 500,000 20,014 500,000
3 38,846 21,773 500,000 29,620 500,000
4 53,111 28,217 500,000 38,996 500,000
5 68,090 34,209 500,000 48,095 500,000
6 83,817 39,752 500,000 56,874 500,000
7 100,330 44,823 500,000 65,398 500,000
8 117,669 49,430 500,000 73,624 500,000
9 135,875 53,555 500,000 81,513 500,000
10 154,992 57,160 500,000 89,072 500,000
11 175,064 60,200 500,000 96,320 500,000
12 196,140 62,588 500,000 103,215 500,000
13 218,269 64,219 500,000 109,723 500,000
14 241,505 64,986 500,000 115,858 500,000
15 265,903 64,787 500,000 121,584 500,000
16 291,521 63,555 500,000 126,867 500,000
17 318,419 61,208 500,000 131,727 500,000
18 346,663 57,676 500,000 135,949 500,000
19 376,319 52,862 500,000 139,458 500,000
20 407,457 46,573 500,000 142,223 500,000
25 588,120 0 0 141,405 500,000
30 818,697 0 0 102,539 500,000
</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, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown above over a period of years,
but also fluctuated above or below that average for individual years. No
representation can be made by the Company, Walnut Street Securities, the
investment management company, or any representative thereof, that this
hypothetical rate of return can be achieved for any one year, or sustained over
any period of time.
Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the Policy Anniversary and further
assume there is no Policy Indebtedness outstanding.
A-8
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $500,000 AGE: 50
DEATH BENEFIT OPTION: A ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 1.00% $12,000.00
PREMIUM TAX: 2.25% (Monthly Premium:
$1,000.00)
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN at 6.00% (NET RATE at
4.484%
--------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- -------------------------------
PREM
at CASH DEATH CASH DEATH
YR 5.00% VALUE BENEFIT VALUE BENEFIT
--- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1 $12,322 $ 7,868 $500,000 $10,442 $500,000
2 25,261 15,861 500,000 21,296 500,000
3 38,846 23,918 500,000 32,490 500,000
4 53,111 32,015 500,000 44,106 500,000
5 68,090 40,132 500,000 56,116 500,000
6 83,817 48,276 500,000 68,495 500,000
7 100,330 56,430 500,000 81,325 500,000
8 117,669 64,606 500,000 94,588 500,000
9 135,875 72,796 500,000 108,270 500,000
10 154,992 80,971 500,000 122,407 500,000
11 175,064 89,101 500,000 137,043 500,000
12 196,140 97,112 500,000 152,175 500,000
13 218,269 104,921 500,000 167,811 500,000
14 241,505 112,439 500,000 184,006 500,000
15 265,903 119,589 500,000 200,778 500,000
16 291,521 126,326 500,000 218,158 500,000
17 318,419 132,599 500,000 236,224 500,000
18 346,663 138,368 500,000 254,895 500,000
19 376,319 143,577 500,000 274,212 500,000
20 407,457 148,094 500,000 294,270 500,000
25 588,120 151,508 500,000 409,478 500,000
30 818,697 81,945 500,000 564,920 593,166
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.
The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown above over a period of years,
but also fluctuated above or below that average for individual years. No
representation can be made by the Company, Walnut Street Securities, the
investment management company, or any representative thereof, that this
hypothetical rate of return can be achieved for any one year, or sustained over
any period of time.
Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the Policy Anniversary and further
assume there is no Policy Indebtedness outstanding.
A-9
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $500,000 AGE: 50
DEATH BENEFIT OPTION: A ANNUAL PREMIUM: $12,000.00
PREMIUM EXPENSE CHARGE: 1.00% (Monthly Premium:
PREMIUM TAX: 2.25% $1,000.00)
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN at 12.00% (NET RATE at
10.484%)
----------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------ ------------------------------
PREM CASH DEATH CASH DEATH
YR at 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 8,113 $ 500,000 $ 10,767 $ 500,000
2 25,261 16,845 500,000 22,605 500,000
3 38,846 26,200 500,000 35,539 500,000
4 53,111 36,221 500,000 49,755 500,000
5 68,090 46,969 500,000 65,345 500,000
6 83,817 58,538 500,000 82,417 500,000
7 100,330 71,014 500,000 101,203 500,000
8 117,669 84,527 500,000 121,858 500,000
9 135,875 99,204 500,000 144,563 500,000
10 154,992 115,175 500,000 169,572 500,000
11 175,064 132,590 500,000 197,180 500,000
12 196,140 151,596 500,000 227,676 500,000
13 218,269 172,363 500,000 261,404 500,000
14 241,505 195,109 500,000 298,795 500,000
15 265,903 220,120 500,000 340,316 500,000
16 291,521 247,778 500,000 386,519 500,000
17 318,419 278,545 500,000 438,026 521,251
18 346,663 312,996 500,000 494,911 583,995
19 376,319 351,820 500,000 557,500 652,275
20 407,457 395,835 500,000 626,361 726,579
25 588,120 707,990 757,550 1,091,970 1,168,407
30 818,697 1,218,070 1,278,973 1,853,345 1,946,013
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.
The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value, Cash Surrender
value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown above over a period of years,
but also fluctuated above or below that average for individual years. No
representation can be made by the Company, Walnut Street Securities, the
investment management company, or any representative thereof, that this
hypothetical rate of return can be achieved for any one year, or sustained over
any period of time.
Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the Policy Anniversary and further
assume there is no Policy Indebtedness outstanding.
A-10
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $500,000 AGE: 50
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 1.00% $26,000.00
PREMIUM TAX: 2.25% (Monthly Premium:
$2,166.67)
PREMIUM TAX: 2.25%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN at 0.00% (NET RATE at--
1.516%)
---------------------------------------------------------------
GUARANTEED* CURRENT**
----------------------------- -----------------------------
PREM CASH DEATH CASH DEATH
YR at 5.00% VALUE BENEFIT VALUE BENEFIT
--- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 26,698 $ 21,018 $521,018 $ 23,531 $523,531
2 54,732 41,429 541,429 46,617 546,617
3 84,168 61,163 561,163 69,170 569,170
4 115,075 80,191 580,191 91,257 591,257
5 147,528 98,486 598,486 112,825 612,825
6 181,603 116,050 616,050 133,825 633,825
7 217,382 132,856 632,856 154,323 654,323
8 254,950 148,911 648,911 174,268 674,268
9 294,397 164,197 664,197 193,609 693,609
10 335,816 178,672 678,672 212,349 712,349
11 379,305 192,289 692,289 230,505 730,505
12 424,970 204,955 704,955 248,019 748,019
13 472,917 216,561 716,561 264,842 764,842
14 523,262 226,997 726,997 280,985 780,985
15 576,124 236,171 736,171 296,393 796,393
16 631,629 244,035 744,035 311,018 811,018
17 689,909 250,538 750,538 324,879 824,879
18 751,104 255,654 755,654 337,679 837,679
19 815,358 259,339 759,339 349,311 849,311
20 882,825 261,461 761,461 359,732 859,732
25 1,274,261 240,337 740,337 389,387 889,387
30 1,773,845 144,342 644,342 369,481 869,481
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.
The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown above over a period of years,
but also fluctuated above or below that average for individual years. No
representation can be made by the Company, Walnut Street Securities, the
investment management company, or any representative thereof, that this
hypothetical rate of return can be achieved for any one year, or sustained over
any period of time.
Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the Policy Anniversary and further
assume there is no Policy Indebtedness outstanding.
A-11
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $500,000 AGE: 50
DEATH BENEFIT OPTION: B ANNUAL PREMIUM: $26,000.00
PREMIUM EXPENSE CHARGE: 1.00% (Monthly Premium:
PREMIUM TAX: 2.25% $2,166.67)
PREMIUM TAX: 2.25%
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN at 6.00% (NET RATE at
4.484%)
--------------------------------------------------------------
GUARANTEED* CURRENT**
---------------------------- ------------------------------
PREM CASH DEATH CASH DEATH
YR at 5.00% VALUE BENEFIT VALUE BENEFIT
--- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 26,698 $ 21,704 $ 521,704 $ 24,299 $ 524,299
2 54,732 44,083 544,083 49,596 549,596
3 84,168 67,087 567,087 75,838 575,838
4 115,075 90,701 590,701 103,129 603,129
5 147,528 114,916 614,916 131,455 631,455
6 181,603 139,748 639,748 160,800 660,800
7 217,382 165,187 665,187 191,273 691,273
8 254,950 191,255 691,255 222,862 722,862
9 294,397 217,949 717,949 255,557 755,557
10 335,816 245,244 745,244 289,401 789,401
11 379,305 273,104 773,104 324,452 824,452
12 424,970 301,447 801,447 360,698 860,698
13 472,917 330,166 830,166 398,131 898,131
14 523,262 359,149 859,149 436,804 936,804
15 576,124 388,294 888,294 476,707 976,707
16 631,629 417,541 917,541 517,835 1,017,835
17 689,909 446,822 946,822 560,248 1,060,248
18 751,104 476,091 976,091 603,688 1,103,688
19 815,358 505,280 1,005,280 648,074 1,148,074
20 882,825 534,229 1,034,229 693,388 1,193,388
25 1,274,261 665,094 1,165,094 930,046 1,430,046
30 1,773,845 740,426 1,240,426 1,170,486 1,670,486
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.
The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown above over a period of years,
but also fluctuated above or below that average for individual years. No
representation can be made by the Company, Walnut Street Securities, the
investment management company, or any representative thereof, that this
hypothetical rate of return can be achieved for any one year, or sustained over
any period of time.
Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the Policy Anniversary and further
assume there is no Policy Indebtedness outstanding.
A-12
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FACE AMOUNT OF COVERAGE: $500,000 AGE: 50
DEATH BENEFIT OPTION: B ANNUAL PREMIUM: $26,000.00
PREMIUM EXPENSE CHARGE: 1.00% (Monthly Premium:
PREMIUM TAX: 2.25% $2,166.67)
<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN at 12.00% (NET RATE at
10.484%)
----------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------ ------------------------------
PREM CASH DEATH CASH DEATH
YR at 5.00% VALUE BENEFIT VALUE BENEFIT
--- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 26,698 $ 22,378 $ 522,378 $ 25,053 $ 525,053
2 54,732 46,794 546,794 52,639 552,639
3 84,168 73,380 573,380 82,922 582,922
4 115,075 102,320 602,320 116,248 616,248
5 147,528 133,822 633,822 152,873 652,873
6 181,603 168,143 668,143 193,080 693,080
7 217,382 205,541 705,541 237,308 737,308
8 254,950 246,333 746,333 285,915 785,915
9 294,397 290,843 790,843 339,299 839,299
10 335,816 339,407 839,407 397,953 897,953
11 379,305 392,386 892,386 462,439 962,439
12 424,970 450,130 950,130 533,297 1,033,297
13 472,917 513,010 1,013,010 611,134 1,111,134
14 523,262 581,433 1,081,433 696,683 1,196,683
15 576,124 655,862 1,155,862 790,684 1,290,684
16 631,629 736,860 1,236,860 893,961 1,393,961
17 689,909 825,043 1,325,043 1,007,496 1,507,496
18 751,104 921,117 1,421,117 1,132,039 1,632,039
19 815,358 1,025,843 1,525,843 1,268,617 1,768,617
20 882,825 1,139,971 1,639,971 1,418,431 1,918,431
25 1,274,261 1,879,471 2,379,471 2,414,373 2,914,373
30 1,773,845 2,998,360 3,498,360 3,993,178 4,493,178
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.
The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Policy
Owner, and the investment results for the Funds. The Cash Value, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown above over a period of years,
but also fluctuated above or below that average for individual years. No
representation can be made by the Company, Walnut Street Securities, the
investment management company, or any representative thereof, that this
hypothetical rate of return can be achieved for any one year, or sustained over
any period of time.
Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the Policy Anniversary and further
assume there is no Policy Indebtedness outstanding.
A-13
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities and
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore, or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article III, Section 13 of the Company's Bylaws provide: "The Corporation
may indemnify any person who is made a party to any civil or criminal suit, or
made a subject of any administrative or investigative proceeding by reason of
the fact that he is or was a director, officer, or agent of the Corporation.
This indemnity may extend to expenses, including attorney's fees, judgments,
fine, and amounts paid in settlement. The indemnity shall not be available to
persons being sued by or upon the information of the Corporation not to person
who are being investigated by the Corporation. The indemnity shall be
discretionary with the Board of Directors and shall not be granted until the
Board of Directors has made a determination that the person who would be
indemnified acted in good faith and in a manner he reasonably believed to be in
the best interest of the Corporation. The Corporation shall have such other and
further powers of indemnification as are not inconsistent with the laws of
Missouri."
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Charter and Articles of Incorporation of the Company,
the By-Laws of the Company, agreement, statute, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
<PAGE>
REPRESENTATION CONCERNING FEES AND CHARGES
Paragon Life Insurance Company hereby represents that the fees and charges
deducted under the terms of the Contract are, in the aggregate, reasonable in
relationship to the services rendered, the expenses expected, and the risks
assumed by Paragon.
II-2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The facing sheet.
The Prospectus consisting of 87 pages.
The undertaking to file reports required by Section 15 (d), 1934 Act.
The undertaking pursuant to Rule 484.
Representation concerning fees and charges.
The signatures.
The following exhibits:
1. The following exhibits (which correspond in number to the numbers under
paragraph A of the instructions as to exhibits for Form N-8B-2):
(1) Resolution of the Board of Directors of the Company authorizing
establishment of the Separate Account. 1
(2) Not applicable.
(3) (a) Proposed form of Underwriting Agreement. 1
(b) Proposed form of Selling Agreement. 2
(4) Not applicable.
(5) (a) Proposed form of Group Contract (30023). 1
(b) Proposed form of Individual Policy (30021) and Policy Riders. 1,3
(c) Proposed form of Certificate (30022) and Certificate Riders. 1,3
(6) (a) Amended Charter and Articles of Incorporation of the Company. 2
(b) By-Laws of the Company. 2
(7) Not applicable.
(8) Series Participation Agreement.
(a) Form of Participation Agreement with Fidelity Variable Insurance
Products Fund. 2
(b) Form of Participation Agreement with Fidelity Variable Insurance
Products Fund II. 2
(c) Form of Participation Agreement with Fidelity Variable Insurance
Products Fund III. 1
(9) Not applicable.
(10) (a) Form of Application for Group Contract (10914). 4
(b) Form of Application for Individual Insurance Guaranteed Issue
(Group Contract 33109). 1
II-3
<PAGE>
2. Memorandum describing the Company's issuance, transfer, and redemption
procedures for the Policies and the Company's procedure for conversion to a
fixed benefit policy. 1
3. Opinion of Matthew P. McCauley, Esquire, General Counsel of Paragon
Life Insurance Company. 1
4. Not Applicable
5. Not Applicable.
6. Not Applicable
7. Opinion and consent of Craig K. Nordyke, F.S.A., M.A.A.A., Executive Vice
President and Chief Actuary. 1
8. (a) The consent of KPMG LLP, Independent Certified Public Accountants. 1
(b) Written consent of Sutherland Asbill & Brennan LLP. 1
9. Original powers of attorney authorizing Matthew P. McCauley, Carl H.
Anderson, and Craig K. Nordyke, and each of them singly, to sign this
Registration Statement and Amendments thereto on behalf of the Board of
Directors of Paragon Life Insurance Company. 1
* * *
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 in 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. 33-18341, filed with the Securities and Exchange
Commission on April 28, 2000.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Paragon Life
Insurance Company and Separate Account C 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)
- ------------------------
E. Thomas Hughes, Jr.* Director and Treasurer
- ------------------------
Richard A. Liddy* Director
II-5
<PAGE>
Signature Title Date
/s/Matthew P. McCauley 4/28/00
________________________
Matthew P. McCauley Vice President,
General Counsel,
Secretary and Director
/s/Craig K. Nordyke 4/28/00
________________________
Craig K. Nordyke Executive Vice President, Chief
Actuary, and Director
- ------------------------
Warren J. Winer* Director
- ------------------------
Bernard H. Wolzenski* Director
- ------------------------
A. Greig Woodring* Director
By:/s/Craig K. Nordyke 4/28/00
______________________
Craig K. Nordyke
*Original powers of attorney authorizing Matthew P. McCauley, Carl H. Anderson,
and Craig K. Nordyke, and each of them singly, to sign this Registration
Statement and Amendments thereto on behalf of the Board of Directors of Paragon
Life Insurance Company have been filed with the Securities and Exchange
Commission.
II-6
33-67970
<PAGE>
EXHIBIT INDEX
1. Resolution of the Board of Directors authorizing establishment of Separate
Account C.
2. Proposed form of Underwriting Agreement.
3. (a) Proposed form of Group Contract (30023).
(b) Proposed form of Individual Policy (30021).
(c) Proposed form of Certificate (30022).
4. Form of Participation Agreement with Fidelity Variable Insurance Products
Fund III.
5. Form of Application for Individual Insurance GI (Group Contract, 33109).
6. Issue, Transfer, and Redemption Memo.
7. Opinion of Matthew P. McCauley, Esquire, General Counsel of Paragon Life
Insurance Company.
8. Opinion and consent of Craig K. Nordyke, F.S.A., M.A.A.A., Executive Vice
President and Chief Actuary.
9. Written consent of KPMG LLP, Independent Certified Public Accountants.
10. Written consent of Sutherland Asbill & Brennan LLP.
11. Powers of Attorney.
33-67970
<PAGE>
Exhibit 1
RESOLUTION OF THE BOARD OF DIRECTORS AUTHORIZING
ESTABLISHMENT OF SEPARATE ACCOUNT C
<PAGE>
CERTIFICATE OF ASSISTANT SECRETARY
----------------------------------
I, Joyce W. Hillebrand, Assistant Secretary of Paragon Life Insurance
Company, a corporation duly organized under the laws of Missouri, do hereby
certify that the attached is a true and correct copy of a resolution adopted by
the Board of Directors of Paragon Life Insurance Company by Unanimous Consent as
of 1 August 1993.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of August,
1993
/s/ Joyce W. Hillebrand
-----------------------
Joyce W. Hillebrand, Assistant Secretary
<PAGE>
PARAGON LIFE INSURANCE COMPANY
Consent by Directors to Resolutions
In Lieu of Meeting As of 1 August, 1993
The undersigned, being all of the members of the Board of
Directors of Paragon Life Insurance Company, a Missouri corporation,
acting pursuant to the Corporate By-laws and the General and Business
Corporation Law of Missouri, hereby consent to the adoption of the
following resolutions, so that the same may have the same force and
effect as if adopted by unanimous vote at a meeting of the Board:
* * * * * * *
RESOLUTIONS ESTABLISHING
------------------------
PARAGON LIFE INSURANCE COMPANY
------------------------------
SEPARATE ACCOUNT C
------------------
"BE IT RESOLVED, that Paragon Life Insurance Company (hereinafter
"Paragon" or "the Company"), pursuant to the provisions of Section
376.309 R. S. Mo. (1959), hereby establishes a separate account
designated "Paragon Separate Account C" (hereinafter "Separate Account
C) for the following use and purposes, and subject to the conditions
set forth below:
RESOLVED FURTHER, that Separate Account C shall be established for the
purpose of providing for the issuance by the Company of such variable
life insurance or such other contracts ("Contracts") as Paragon may
designate for such purpose, and shall constitute a separate account
into which are allocated amounts paid to or held by the Company under
such Contracts; and
RESOLVED FURTHER, that the income, gains, and losses, whether or not
realized, from assets allocated to Separate Account C shall, in
accordance with the Contracts, be credited to or charged against such
account without regard to other income, gains, or losses of Paragon;
and
RESOLVED FURTHER, that to the extent so provided under the Contracts,
that portion of the assets of Separate Account C equal to the reserves
and other contract liabilities of such Account shall not be chargeable
with liabilities arising out of any other business Paragon may
conduct; and
RESOLVED FURTHER, that the fundamental investment policy of Separate
Account C shall be to invest or reinvest its assets in securities
issued by investment companies registered under the Investment Company
Act of 1940 as may be specified in the respective Contracts; and
RESOLVED FURTHER, that specialized investment divisions may be
established within Separate Account C to which net payments under the
Contracts will be allocated in accordance with instructions received
from contractholder, and that Paragon is hereby authorized to create
such divisions and to increase, or decrease, the number of investment
divisions as it deems necessary or appropriate; and
<PAGE>
2
RESOLVED FURTHER, that each such investment division shall invest only
in the shares of a single mutual fund or a single mutual fund portfolio
of an investment company organized as a series fund pursuant to the
Investment Company Act of 1940; and
RESOLVED FURTHER, that the President, the Treasurer, or their delegates
be, and they hereby are, authorized to transfer funds from time to time
between Paragon's general account and Separate Account C to start
Separate Account C or as deemed necessary or appropriate and consistent
with the terms of the Contracts; and
RESOLVED FURTHER, that the appropriate officers of the Company, with
such assistance from the Company's auditors, legal counsel, and others
as they may require, be, and they hereby are, authorized and directed
to take all action necessary to: (a) register Separate Account C as a
unit investment trust under the Investment Company Act of 1940, as
amended; (b) register the Contracts in such amounts, which may be an
indefinite amount, as the officers of the Company shall from time to
time deem appropriate under the Securities Act of 1933; and (c) take
all other actions which are necessary in connection with the offering
of said Contracts for sale and the operation of Separate Account C in
order to comply with the Investment Company Act of 1940, the Securities
Exchange Act of 1934, the Securities Act of 1933 and other applicable
federal laws, including the filing of any amendments to registration
statement, any undertakings, and any applications for exemptions from
the Investment Company Act of 1940 or other applicable federal laws as
the officers of the Company shall deem necessary or appropriate; and
RESOLVED FURTHER, that the President, the Treasurer, and the General
Counsel, and each of them with full power to act without the others,
hereby are severally authorized and empowered to prepare, execute, and
cause to be filed with the Securities and Exchange Commission on behalf
of Separate Account C and by the Company as sponsor and depositor a
Form of Notification of Registration Statement under the Securities Act
of 1933 registering the Contracts, and any and all amendments to the
foregoing on behalf of Separate Account C and the Company and on behalf
of and as attorneys for the principal executive officer and/or the
principal financial officer and/or the principal accounting officer
and/or any other officer of the Company; and
RESOLVED FURTHER, that the General Counsel is hereby appointed as agent
for service under any such registration statement and is duly
authorized to receive communications and notices from the Securities
and Exchange Commission with respect thereto; and
<PAGE>
3
RESOLVED FURTHER, that the appropriate officers of the Company be, and
they hereby are, authorized on behalf of Separate Account C and on
behalf of the Company to take any and all action that they may deem
necessary or advisable in order to sell the Contracts, including any
registrations, filings and qualifications of Paragon, its officers,
agents and employees, and the Contracts under the insurance and
securities laws of any of the states of the United States of America
or other jurisdictions, and in connection therewith to prepare,
execute, deliver, and file all such applications, reports, covenants,
resolutions, applications for exemptions, consents to service of
process, and other instruments as may be required under such laws, and
to take any and all further action which said officers or counsel of
the Company may deem necessary or desirable (including entering into
whatever agreements and contracts may be necessary) in order to
maintain such registrations or qualifications for as long as said
officers seem it to be In the best interest of Separate Account C and
Paragon; and
RESOLVED FURTHER, that the President and the Vice President and
General Counsel of the Company be, and they hereby are, authorized in
the names and on behalf of Separate Account C and Paragon to execute
and file irrevocable written consents on the part of Separate Account
C and of the Company to be used in such states wherein such consents
to service of process may be requisite under the insurance or
securities laws therein connection with said registration or
qualification of Contracts and to appoint the appropriate state
official, or such other person as may be allowed by said insurance or
securities laws, agent of Separate Account C and of Paragon for the
purpose of receiving and accepting process; and
RESOLVED FURTHER, that the President of the Company be, and hereby Is,
authorized to establish procedures under which the Company will
provide voting rights for owners of such Contracts with respect to
securities owned by Separate Account C; and
RESOLVED FURTHER, that the President of the Company Is hereby
authorized to execute such agreement or agreements as deemed necessary
and appropriate (i) with Walnut Street Securities, Inc. (Walnut
Street) or another qualified entity under which Walnut Street or such
other entity will be appointed principal underwriter and distributor
for the Contracts and (ii) with one or more qualified banks or other
qualified entities to provide administrative and/or custodial services
in connection with the establishment and maintenance of Separate
Account C and the design, issuance, and administration of the
Contracts; and
RESOLVED FURTHER, that, since It Is expected the Separate Account C
will invest in the securities issued by one or more investment
companies, the appropriate officers of the Company are hereby
authorized to execute whatever agreement or agreements as may be
necessary or appropriate to enable such investments to be made; and
<PAGE>
4
RESOLVED FURTHER, that the appropriate officers of Paragon, and each
of them are hereby authorized to execute and deliver all such
documents and papers and to do or cause to be done all such acts and
things as they may deem necessary or desirable to carry out the
foregoing resolutions and the intent and purposes thereof."
* * * * * * *
STANDARDS OF CONDUCT WITH RESPECT TO
------------------------------------
SEPARATE ACCOUNT C
------------------
"BE IT RESOLVED, that Paragon Life Insurance Company on its own behalf
and on behalf of its officers, directors, employees, and affiliates,
shall endeavor to ensure that business dealings between Paragon
Separate Account C and the Company are fair to both parties, and
specifically:
i. That Separate Account C shall be used only in connection with
variable life insurance contracts;
ii. That the Company will not sell to or buy from Separate Account C
any securities of which the Company or its affiliates is the issuer;
and
iii. Neither the Company nor any officer, director, employee, or
affiliate shall accept any compensation for the sale or purchase of
securities to or from Separate Account C, except that if the Company
or an affiliate acts as a broker-dealer in connection with the sale of
securities to or by Separate Account C a commission fee not to exceed
normal charges for such transactions conducted at arm's length in the
ordinary course of business in St. Louis or any other community in
which such transaction is effected may be charged."
<PAGE>
Exhibit 2
PROPOSED FORM OF UNDERWRITING AGREEMENT
<PAGE>
PARAGON LIFE INSURANCE COMPANY
PRINCIPAL UNDER WRITING AGREEMENT
This UNDERWRITING AGREEMENT made this _____ day of February 1993, by
and between Walnut Street Securities, Inc. (hereinafter "the Underwriter")
and Paragon Life Insurance Company (hereinafter "the Insurance Company"), on
its own behalf and of Paragon Life Insurance Company Separate Account C
(hereinafter "the Account"), a separate account of the Insurance Company;
WITNESSETH as follows:
WHEREAS, the Account was established under authority of a resolution of
the Insurance Company's Board of Directors as of January 4, 1993, in order
to set aside and invest assets attributable to certain flexible premium life
variable contracts (hereinafter "Contracts") issued by the Insurance
Company;
WHEREAS, the Insurance Company has registered the Account as a unit
investment trust under the Investment Company Act of 1940 (the "Investment
Company Act") and has registered the Contracts under the Securities Act of 1933;
WHEREAS, the Underwriter is registered as a broker-dealer with the
Securities and Exchange Commission (the "SEC") under the Securities Exchange Act
of 1934, as amended (the "1934 Act"), and is a member of the National
Association of Securities Dealers, Inc. (the NASD"); and
WHEREAS, the Insurance Company and the Account desire to have Contracts
sold and distribute through the Underwriter and the Underwriter is willing to
sell and distribute such Contracts under the terms stated herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. The Insurance Company grants to the Underwriter the right to be, and
the Underwriter agrees to serve as distributor and principal underwriter of the
Contracts during the term of this Agreement. The Underwriter agrees to use its
best efforts to solicit applications for the Contracts at its own expense, and
otherwise to perform all duties and functions which are necessary and proper for
the distribution of the Contracts.
<PAGE>
2. All premiums for Contracts shall be remitted promptly to the Insurance
Company in full together with appropriate application forms and any other
required documentation. Checks or money orders in payment of premiums shall be
drawn to the order of "Paragon Life Insurance Company
3. The Underwriter agrees to offer the Contracts for sale in accordance
with the prospectus for them then in effect. The Underwriter is not authorized
to give any information or to make any representations concerning the Contracts
other than those contained in the current prospectus filed with the SEC or in
such sales literature as may be developed and authorized by the Insurance
Company in conjunction with the Underwriter.
4. On behalf of the Account, the Insurance Company shall furnish the
Underwriter with copies of all prospectuses, financial statements, and other
documents which the Underwriter reasonably requests for use in connection with
the distribution of the Contracts.
5. The Underwriter represents that it is duly registered as a broker-
dealer under the 1934 Act, and is a member in good standing of the NASD, and --
to the extent necessary to offer the Contracts -- shall be duly registered or
otherwise qualified under the securities laws of any state or other
jurisdiction. The Underwriter shall be responsible for carrying out its sales
and underwriting obligations hereunder in continued compliance with the NASD
Rules of Fair Practice, and applicable federal and state securities laws and
regulations. Without limiting the generality of the foregoing, the Underwriter
agrees that it shall be fully responsible for:
(a) ensuring that no person shall offer or sell the Contracts on its
behalf until such person is duly registered as a representative of the
Underwriter; duly licensed and appointed by the Insurance Company; and
appropriately licensed, registered, or otherwise qualified to offer and
sell such Contracts under the federal securities laws and any applicable
securities laws of each state or other jurisdiction in which the Insurance
Company is licensed to sell the Contracts and in which such persons shall
offer or sell the Contracts; and
(b) training, supervising, and controlling of all such persons for
purposes of complying on a continuous basis with the NASD Rules of Fair
Practice and with federal and state securities law requirements applicable
in connection with the offering and sale of the Contracts. In this
connection, the Underwriter shall:
<PAGE>
(1) conduct such training (including the preparation and utilization
of training materials) as in the opinion of the Underwriter is necessary to
accomplish the purposes of this Agreement;
(2) establish and implement reasonable written procedures for
supervision of sales practices of agents, representatives, or brokers selling
the Contracts; and
(3) take reasonable steps to ensure that its associated persons shall
not make recommendations to an applicant to purchase a Contract and shall not
sell a Contract in the absence of reasonable grounds to believe that the
purchase of the Contract is Suitable for such applicant.
6. Notwithstanding anything in this Agreement to the contrary, the
Underwriter is hereby authorized to enter into sales agreements with other
independent broker-dealers for the sale of the Contracts. All such sales
agreements entered into by the Underwriter shall provide that each independent
broker-dealer will assume full responsibility for continued compliance by itself
and its associated persons with the NASD Rules of Fair Practice and applicable
federal and state securities laws. All associated persons of such independent
broker-dealers soliciting applications for the Contracts shall be duly and
appropriately licensed or appointed by the Insurance Company for the sale of the
Contracts under the insurance laws of the applicable states of jurisdictions in
which such persons shall offer or sell the Contracts.
7. The Insurance Company shall apply for the proper insurance licenses in
the appropriate states or jurisdictions for persons associated with the
Underwriter; or with other independent broker-dealers which have entered into
agreements with the Underwriter for the sale of the Contracts and are designated
to sell the contracts provided that the Insurance Company reserves the right to
refuse to appoint any proposed associated person as an agent or broker, and to
terminate an agent or broker once appointed.
8. The Insurance Company and the Underwriter shall cause to be maintained
and preserved for the periods prescribed such accounts, books, and other
documents as are required of them by the Investment Company Act, the 1934 Act,
and any other applicable laws and regulations. The books, accounts and records
of the Insurance
<PAGE>
Company, the Account, and the Underwriter as to all transactions hereunder shall
be maintained so as to disclose clearly and accurately the nature and details of
the transactions. The Insurance Company shall maintain such books and records of
the Underwriter pertaining to the sale of the Contracts and required by the 1934
Act as may be mutually agreed upon from time to time by the Insurance Company
and the Underwriter, and shall at all times be subject to such reasonable
periodic, special, or other examination by the SEC and all other regulatory
bodies having jurisdiction. The Insurance Company shall be responsible for
sending all required confirmations on customer transactions in compliance with
applicable regulations, as modified by an exemption or other relief obtained by
the Insurance Company. The Underwriter shall cause the Insurance Company to be
furnished with such reports as the Insurance Company may reasonably request for
the purpose of meeting its reporting and recordkeeping obligations under the
insurance laws of the State of Missouri and any other states or jurisdictions.
9. Ownership and control of records shall not be affected by this
Agreement.
10. Each party to this Agreement has the right to inspect, audit, and copy
all pertinent records of the other party pertaining to performance under this
Agreement.
11. Each party to this Agreement will keep any information obtained in the
course of its relationship to the other party in confidence and will not use
such information for its own benefit or disclose it except as authorized by the
other party or as required by regulatory authorities having jurisdictions.
12. The Insurance Company shall pay commissions as per Maximum Commission
Schedule to the Underwriter. The Underwriter shall have the responsibility for
paying (i) all commissions or other fees to its associated person and (ii) any
compensation to other independent broker-dealers and their associated persons
due under the terms of any sales agreement between the Underwriter and such
broker-dealers. Notwithstanding the preceding sentence, no associated person or
broker-dealer shall have an interest in any deductions or other fees payable to
the Underwriter as set forth herein.
<PAGE>
13. The Insurance Company agrees to indemnify the Underwriter for any
losses incurred as a result of any action taken or omitted by the Underwriter,
or any of its officers, agents or employees, in performing their
responsibilities under this Agreement in good faith and without willful
misfeasance, gross negligence, or reckless disregard of such obligations.
14. The Insurance Company undertakes to guarantee the performance of all
Underwriter's obligations imposed by Section 27(f) of the Investment Company
Act, as amended, and Rule 27d-2 adopted by the SEC, to make refunds of the
premiums or charges to owners of Contracts required by Section 27(t) or the
conditions of any exemptions therefrom.
15. (a) This Agreement may be terminated by either party hereto upon 60
days' written notice to the other party.
(b) This Agreement may be terminated upon written notice of one party
to the other party hereto in the event of bankruptcy or insolvency of such party
to which notice is given.
(c) This Agreement may be terminated at any time upon the mutual
written consent of the parties thereto.
(d) The Underwriter shall not assign or delegate its responsibilities
under this Agreement without the written consent of the Insurance Company.
Without limiting the generality of the foregoing, the term "assigned" shall not
include any transaction exempted from section 15(b)(2) of the Investment Company
Act.
(e) This Agreement may be terminated by either party without penalty.
(f) In the event either party to this Agreement fails to perform in a
satisfactory manner the other party may cancel this Agreement.
<PAGE>
(g) Upon termination of this Agreement, all authorizations, rights,
and obligations shall cease except the obligation to settle accounts hereunder,
including payments (or premiums or contributions) subsequently received for
Contracts in effect at the time of termination or issued pursuant to
applications received by the Insurance Company prior to termination.
(h) In the event this Agreement is ended for any reason each party
agrees to return all records belonging to the other party promptly and free from
all claims.
16. This Agreement shall be subject to the provisions of the Investment
Company Act and the 1934 Act and the rules, regulations, and rulings thereunder
and the NASD, from time to time in effect, including such exemptions from the
Investment Company Act as the SEC may grant, and the terms hereof shall be
interpreted and construed in accordance therewith.
17. Each party to this Agreement expressly reserves unto itself the
ultimate authority and responsibility for conduct of its business.
18. Each party to this Agreement shall furnish to regulatory authorities
having jurisdiction such information as may be requested in order for such
authorities to ascertain that Insurance Company's variable life insurance
operations are being conducted in accordance with applicable laws and
regulations.
19. Each party to this Agreement shall be liable for its own misconduct
and negligence.
20. Neither party to this Agreement shall attempt to immunize itself from
liability solely in reliance upon an opinion of that party's own counsel.
21. Neither party to this Agreement shall undertake any activity which
might conflict with its faithful discharge of the duties outlined in this
Agreement.
22. The statutes of limitations contained in the laws applicable to this
Agreement shall govern.
23. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
24. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Missouri.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officials thereunder duly authorized and
seals to be affixed, as of the day and year first above written.
WALNUT STREET SECURITES, INC.
Attest:
_____________________________ By: ______________________________
Secretary President
PARAGON LIFE INSURANCE COMPANY
Attest:
_____________________________ By: ______________________________
Secretary President
<PAGE>
Exhibit 3 (a)
(a) PROPOSED FORM OF GROUP CONTRACT (30023)
<PAGE>
This contract is a legal contract between the contract-holder and Paragon Life
Insurance Company. PLEASE READ YOUR CONTRACT CAREFULLY.
This cover sheet provides only a brief outline of some of the important features
of your contract. This cover sheet is not the complete insurance contract and
only the actual contract provisions will control. The contract itself sets
forth, in detail, the rights and obligations of both you and your insurance
company.
IT IS THEREFORE IMPORTANT THAT YOU READ YOUR CONTRACT.
ISSUED BY: PARAGON LIFE INSURANCE COMPANY
A STOCK COMPANY
100 SOUTH BRENTWOOD
ST. LOUIS, MISSOURI 63105
(314) 862-2211
GROUP CONTRACT NUMBER
CONTRACTHOLDER
RIGHT TO EXAMINE CONTRACT
You may return this contract within twenty days after receiving it or within 45
days after the application is signed, whichever period ends later. It may be
delivered or mailed to us or the agent through whom it was purchased. The
contract shall then be deemed void from the start. Any premium paid will be
returned.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 95
Flexible Premiums are payable during the lifetime of the insured to age 95. The
death benefit is payable at the death of the insured prior to age 95 and while
the contract is in force. Cash surrender value, if any, is payable at the
insured's age 95.
<PAGE>
ALPHABETIC GUIDE TO YOUR CONTRACT
Page
2.04 Agency
2.03 Authority
2.03 Certificate of Insurance
2.02 Conversion Privilege
2.01 Definitions
2.02 Effective Date of Dependent Term Insurance and Additional Benefits
2.02 Effective Date of Individual Insurance
2.03 Entire Contract
2.02 Grace Period
2.03 Incontestability
2.04 Monies Payable
2.03 Ownership and Control of This Contract
2.02 Premiums
2.01 Premium Payments
2.03 Records Required
2.04 Sex and Number
2.02 Termination of Insurance
2.03 Termination of This Contract
The Certificate of Insurance will be attached to and made a part of this
Contract.
<PAGE>
Contract Specifications
Contract Effective Date:
Contract Anniversary Date:
Contract Jurisdiction State:
Contract Execution Date:
ContracthoIder:
Associated Companies:
Eligible Class or Classes of Employees:
Individual Eligibility Date:
<PAGE>
Contract Specifications (continued)
Employee Insurance Benefits:
For Employee:
Guaranteed Issue:
Simplified Issue:
For Spouse:
Simplified Issue:
Additional Benefits:
Premium Due Date:
<PAGE>
Contract Specifications (continued)
<PAGE>
TABLE OF GUARANTEED MONTHLY COST OF INSURANCE RATES
RATES ARE PER $1,000
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE RATE AGE RATE AGE RATE
- -------- ------ -------- ------ -------- -------
<S> <C> <C> <C> <C> <C>
18 0.155 19 0.161 20 0.163
21 0.165 22 0.163 23 0.163
24 0.161 25 0.159 26 0.158
27 0.158 28 0.159 29 0.163
30 0.167 31 0.172 32 0.178
33 0.187 34 0.196 35 0.207
36 0.221 37 0.238 38 0.257
39 0.278 40 0.303 41 0.329
42 0.357 43 0.386 44 0.416
45 0.449 46 0.483 47 0.520
48 0.559 49 0.603 50 0.651
51 0.705 52 0.767 53 0.836
54 0.911 55 0.988 56 1.071
57 1.155 58 1.244 59 1.342
60 1.450 61 1.576 62 1.723
63 1.891 64 2.078 65 2.276
66 2486 67 2.704 68 2.933
69 3.188 70 3.478 71 3.813
72 4.208 73 4.661 74 5.163
75 5.708 76 6.284 77 6.884
78 7.517 79 8.203 80 8.968
81 9.837 82 10.829 83 11.941
84 13.150 85 14.440 86 15.795
87 17.213 88 18.699 89 20.262
90 21.925 91 23.733 92 25.762
93 28.155 94 31.307
</TABLE>
THESE RATES ARE FOR THE BASE COVERAGE AT ISSUE. They are based on 125 percent of
the 1980 Commissioners Standard Ordinary Mortality Table C Age Last Birthday.
Any values guaranteed in this contract are based on these rates.
<PAGE>
1. DEFINITIONS IN THIS CONTRACT
We, Us and Our
The Paragon Life Insurance Company.
Employee
A person who is employed and paid for services by the employer on a regular
basis. In no event will the amount of time worked per week be less than 30
hours.
Insured
An employee or an employee's spouse who is insured for life insurance under this
contract.
Spouse
The employee's legal spouse and does not include a spouse who is legally
separated from the employee.
Actively at Work
The employee must work for his employer at his usual place of work or such other
places as required by his employer in the course of such work for the full
number of hours and full rate of pay, as set by the employment practices of his
employer. In no event will the amount of time worked per week be less than 30
hours.
Associated Company
Those companies listed on the contract specifications page that are under common
control through stock ownership, contract or otherwise, with the contractholder.
Employees of each Associated Company will be considered employees of the
contract-holder.
Service with an Associated Company will be considered service with the
contract-holder.
The records of an Associated Company which have a bearing on this contract will
be considered records of the contractholder.
If an Associated Company ceases to be under common control with the
contractholder, the insureds of the Associated Company may continue the
insurance as an individual policy.
The inclusion of any Associated Company will not affect the ownership of this
contract by the contractholder or the rights of ownership of this contract by
the contractholder.
Individual Insurance
Insurance on the employee or the employee's spouse provided through this
contract.
Dependent Term Insurance
Insurance on the dependent of an employee provided by a rider to the
certificate.
2. PROVISIONS RELATING TO INDIVIDUAL AND DEPENDENT TERM INSURANCE
Premium Payments
Premium payments for individual and dependent term insurance coverage may be
made by the employee and/or the contractholder. The employee's premium paid
under this contract is the amount authorized by the employee to be deducted from
his wages. Premiums may be paid in addition to the authorized deductions as set
forth in the contract. The authorization for payroll deduction may be cancelled
at any time upon written request.
If for any reason, premiums for this coverage are no longer being deducted from
the employee's wages, the insurance under the certificate will be continued (in
the form of an individual policy as a result of the conversion privilege) and
planned premiums will be direct billed basis.
<PAGE>
Eligibility for Individual Insurance
Within an eligible class, individual insurance is available only if the employee
is actively at work at the time of application for personal insurance.
Effective Date of Individual Insurance
Subject to the conditions listed below, the individual insurance, subject to
eligibility, will be made effective on the latest of the date on which:
1) the application for the certificate is signed;
2) the first premium for the individual insurance is paid to us; and
3) the information provided in the application for the certificate is
determined to be acceptable to us for issuance of coverage under our
current rules and practices.
If individual insurance ends at the request of the owner or, prior to the
maturity date, when a certificate's cash surrender value is insufficient to
cover the monthly deductions, individual insurance will be restored only as
stated in the certificate section titled "Reinstatement."
Effective Date of Dependent Term Insurance and Additional Benefits
Subject to the conditions listed below, the dependent term insurance and
additional benefits, subject to eligibility, will be made effective on the
latest of the date on which:
1) the individual insurance that such coverage is issued in connection with
is effective; and
2) the information provided in the application for the particular coverage
is determined to be acceptable to us for issuance of coverage under our
current rules and practices.
Termination of Insurance
Individual and dependent term insurance will terminate according to the terms of
the certificate.
Conversion Privilege
If an insured's eligibility under this contract ends due to the termination of
this contract or the employment of the employee, such insured's coverage, if not
already in the form of an individual policy, will automatically be converted by
amendment to an individual policy. Such individual policy will provide benefits
which are identical to those provided under the certificate.
An amendment to convert the certificate to an individual policy will be mailed:
1) within 31 days after we receive written notification that the employee's
employment ended, or after the termination date of the contract; and
2) once any planned premium necessary to prevent the policy from lapsing is
paid to us at our home office.
The planned premiums for this individual policy may be paid annually,
semiannually, quarterly or at other intervals we establish from time to time.
Additional premiums may be paid as set forth in the policy.
3. PREMIUMS
Premium Payment
All planned premiums must be remitted in advance by the contractholder to our
home office. This includes any adjustments in premiums.
Grace Period
If planned premium payments after the first such payment are not made in a
timely fashion, this contract will be in default. A grace period of 31 days wijl
be granted for the remittance of the planned premiums after the first payment.
This contract will be in force during the grace period. If such premium is not
paid in the grace period, the contract will terminate at the end of that period.
The contract will terminate before that date if the contractholder gives us
written notice in advance.
<PAGE>
Entire Contract
We have issued this contract in consideration of the application of the
contractholder and remittance of premiums by the contractholder. This contract,
with the attached copy of the contractholder's application and other attached
papers, if any, is the entire contract between the contractholder and us. All
statements made by the contractholder, any certificate owner or any insured will
be deemed representations and not warranties. Misstatements will not be used in
any contest or to reduce claim under this contract, unless it is in writing. A
copy of the application containing such misstatement must have been given to the
contractholder or to the insured or to his beneficiary, if any.
Authority
No agent may change this contract or waive any of its provisions. No change in
this contract, other than a change of rates, will be effective until the form
making such change is signed by our executive officer and accepted by the
contractholder.
Incontestability
We cannot contest this contract after it has been in force for two years from
the contract effective date.
Ownership and Control of This Contract
The contractholder owns this contract. This 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 this contract.
Records Required
The contractholder will promptly give us, at our home office, any facts that we
may need to administer the insurance under this contract and to determine the
premiums. All of the contractholder's records which have a bearing on this
insurance will be ready for us to inspect when and as often as we may, within
reason, require.
Clerical error by the contractholder or us will not make the insurance of an
ineligible person valid nor continue insurance which was ended by valid means.
Certificate of Insurance
We will issue to the contractholder, to give to each insured under this
contract, a certificate of insurance or an individual policy. If an individual
policy is issued, then all reference herein to a certificate will mean an
individual policy. The certificate will state the owner's rights and benefits
under the certificate and to whom benefits are payable. Also, stated are the
limits and requirements in this contract that may apply to the insured and his
insured dependents, if any.
The terms and provisions of the certificate, a copy of which is attached, are
incorporated herein by reference and made a part of this contract. The rights
and benefits of the insured under or owner of the certificate will not inure to
the benefit of the contractholder.
Termination of This Contract
Except as provided in the grace period section of this contract, this contract
will be terminated immediately upon default.
We may end this contract or any of its provisions by giving notice in writing to
the contractholder at least 31 days prior to the termination date.
If this contract is terminated any insurance in effect will remain in force on
an individual basis, provided it is not cancelled or surrendered by the
certificate owner. Any planned premiums will no longer be deducted from the
employee's wages and will be remitted directly to us.
<PAGE>
Sex and Number
When used in this contract, the masculine includes the feminine, the singular
the plural, and the plural the singular.
Monies Payable
All monies payable by us as benefits under this contract will be paid, subject
to the laws which govern such payment, at our home office or authorized claim
offices. All monies payable to us or by us will be in the lawful currency of the
United States.
Agency
Neither us nor the contractholder is an agent of the other under this contract
for any purpose
<PAGE>
Exhibit 3 (b)
(b) PROPOSED FORM OF INDIVIDUAL POLICY (30021)
<PAGE>
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE DEATH BENEFIT MAY
INCREASE OR DECREASE UNDER THE CONDITIONS DESCRIBED ON PAGES 3.02 AND 3.03.
THE POLICY'S CASH VALUE IN EACH INVESTMENT DIVISION OF THE SEPARATE ACCOUNT IS
BASED ON THE INVESTMENT EXPERIENCE OF THAT INVESTMENT DIVISION AND MAY INCREASE
OR DECREASE DAILY. IT IS NOT GUARANTEED AS TO DOLLAR AMOUNT. SEE THE SEPARATE
ACCOUNT PROVISION.
This policy is a legal contract between the policy owner and Paragon Life
Insurance Company. PLEASE READ YOUR POLICY CAREFULLY. This cover sheet provides
only a brief outline of some of the important features of your policy. This
cover sheet is not the complete insurance contract and only the actual policy
provisions will control. The policy itself sets forth, in detail, the rights and
obligations of both you and your insurance company. IT IS THEREFORE IMPORTANT
THAT YOU READ YOUR POLICY.
ISSUED BY: PARAGON LIFE INSURANCE CO.
A STOCK COMPANY
100 SOUTH BRENTWOOD
ST. LOUIS, MISSOURI 63105
(314) 862-2211
POLICY NUMBER:
INSURED:
RIGHT TO EXAMINE POLICY
Please read this policy. You may return this policy to us or to the agent
through whom it was purchased within 20 days from the date you receive it or
within 45 days after the application is signed, whichever period ends later. If
you return it within this period, the policy will be void from the beginning. We
will refund any premium paid.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 95
Flexible Premiums are payable during the lifetime of the insured to age 95. The
death benefit is payable at the death of the insured prior to age 95 and while
the policy is in force Cash surrender value, if any, is payable at the insured's
age 95.
<PAGE>
ALPHABETIC GUIDE TO YOUR POLICY
Page
6.04 Addition, Deletion or Substitution of
Investments
3.04 Allocation of Net Premiums
6.01 Assignments
4.05 Basis of Computation
6.01 Beneficiary
4.03 Cash Surrender Value
4.01 Cash Values
3.03 Change in Contract Type
3.03 Change in Face Amount
6.01 Change of Owner or Beneficiary
6.02 Claims of Creditors
6.01 Conformity with Statutes
6.02 Conversion Rights
3.02 Death Benefit
3.01 Definitions
3.04 Grace Period
6.02 Incontestability
7.01 Interest on Proceeds
3.01 Issue Date
4.03 Loan Account Cash Value
4.01 Loans
3.01 Maturity Date
6.02 Misstatement of Age and
Corrections
4.03 Monthly Cost of Insurance
4.03 Monthly Deduction
4.02 Net Investment Factor
3.04 Net Premium
6.01 Owner
4.04 Partial Withdrawals
7.01 Payment of Policy Benefits
3.04 Payment of Premiums
3.03 Policy Changes
3.02 Policy Proceeds
4.05 Postponement of Payments
3.05 Reinstatement
6.02 Right to Examine Increase in Face
Amount
4.02 Separate Account Cash Value
6.03 Separate Account Provisions
6.02 Statements in Application
6.03 Suicide Exclusion
6.04 Transfers
Additional Benefit Riders, Modifications and Amendments, if any, and a copy of
the Application are found following the final section.
<PAGE>
POLICY SPECIFICATIONS
DESCRIPTION OF SEPARATE ACCOUNT C FUNDS
Variable Insurance Products Fund and Variable Insurance Products Fund II
collectively as "VIP" are open-end diversified management investment companies
incorporated in Massachusetts. VIP offers eight separate portfolios which
operate as distinct investment vehicles. The names and investment objectives of
the portfolios are as follows:
Money Market Portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The Portfolio
invests in high quality U.S. dollar denominated money market securities of
domestic and foreign issuers.
High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital.
Equity-Income Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the Portfolio
will also consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
Growth Portfolio seeks to achieve capital appreciation. The Portfolio normally
purchases common stocks, although its investments are not restricted to any one
type of security. Capital appreciation may also be found in other types of
securities, including bonds and preferred stocks.
Overseas Portfolio seeks long term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
Investment Grade Bond Portfolio seeks as high a level of current income as is
consistent with the preservation of capital. Under normal conditions, at least
65% of the Portfolio's total assets are invested in investment-grade
fixed-income securities. The Portfolio will maintain a dollar-weighted average
portfolio maturity of ten years or less.
Asset Manager Portfolio seeks high total return with reduced risk over the
long-term by allocating its assets among stocks, bonds and short-term
fixed-income instruments.
Index 500 Portfolio seeks to provide investment results that correspond to the
total return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index while keeping transaction costs and other
expenses low. The Portfolio is designed as a long-term investment option.
There can be no assurance that the investment objectives of these Funds, or any
other Funds that the Company may create, will be achieved.
<PAGE>
SURRENDER CHARGE SCHEDULE
INSURED: John Doe POLICY # 5,000,000
AMOUNT OF INSURANCE: $50,000 EFFECTIVE DATE
OF INSURANCE: October 1, 1993
SURRENDER CHARGE FACTOR: 30% GUIDELINE ANNUAL PREMIUM: $1,000.00
<TABLE>
<CAPTION>
POLICY SURRENDER
YEAR CHARGE PERCENTAGE
- ------------------------------------------------------------
<S> <C>
1 100%
2 90%
3 80%
4 70%
5 60%
6 50%
7 40%
8 30%
9 20%
10 10%
11+ 0%
</TABLE>
If this amount of insurance is fully surrendered during the 10 years following
the effective date, the surrender charge is the appropriate percentage shown
above times the surrender charge amount defined in Section 5, Cash Values. If
this amount of insurance is decreased by some fraction of the total amount
during the 10 years following the effective date, the surrender charge amount
will be the previously defined surrender charge times the fraction. A new
Surrender Charge Schedule page will be mailed to you for the remaining coverage.
If the amount of insurance is increased, a surrender charge will apply during
the 10 years following the effective date of the increase. A new Surrender
Charge Schedule page for the increase will be mailed to you. The Surrender
Charge factor will not change for the increase.
<PAGE>
TABLE OF GUARANTEED MONTHLY COST OF INSURANCE RATES
RATES ARE PER $1,000
INSURED: POLICY NUMBER:
ISSUE DATE:
ATTAINED ATTAINED ATTAINED
AGE RATE AGE RATE AGE RATE
- -------- ------- -------- ------- -------- -------
18 0.155 19 0.161 20 0.163
21 0.165 22 0.163 23 0.163
24 0.161 25 0.159 26 0.158
27 0.158 28 0.159 29 0.163
30 0.167 31 0.172 32 0.178
33 0.187 34 0.196 35 0.207
36 0.221 37 0.238 38 0.257
39 0.278 40 0.303 41 0.329
42 0.357 43 0.386 44 0.416
45 0.449 46 0.483 47 0.520
48 0.559 49 0.603 50 0.651
51 0.705 52 0.767 53 0.836
54 0.911 55 0.988 56 1.071
57 1.155 58 1.244 59 1.342
60 1.450 61 1.576 62 1.723
63 1.891 64 2.078 65 2.276
66 2.486 67 2.704 68 2.933
69 3.188 70 3.478 71 3.813
72 4.208 73 4.661 74 5.163
75 5.708 76 6.284 77 6.884
78 7.517 79 8.203 80 8.968
81 9.837 82 10.829 83 11.941
84 13.150 85 14.440 86 15.795
87 17.213 88 18.699 89 20.262
90 21.925 91 23.733 92 25.762
93 28.155 94 31.307
THESE RATES ARE FOR THE BASE COVERAGE AT ISSUE. They are based on 125 percent of
the 1980 Commissioners Standard Ordinary Mortality Table C Age Last Birthday.
Any values guaranteed in this policy are based on these rates.
<PAGE>
1. DEFINITIONS IN THIS POLICY
We, Us and Our
The Paragon Life Insurance Company.
You and Your
The owner of this policy. The owner may be someone other than the insured.
Insured
In the application the words "You' and "Your" refer to the proposed insured
person(s).
Issue Age
The person whose life is insured under this policy. See the policy
specifications page.
Attained Age
The insured's age at his or her last birthday as of the issue date. The issue
age plus the number of completed policy years.
Issue Date
The effective date of the coverage under this policy. It is also the date from
which policy anniversaries, policy years, and policy months are measured.
Investment Start Date
The date the first premium is applied to the Divisions of the Separate Account.
This date will be the later of:
- - The issue date of the policy; or
- - The date we receive the first premium at our home office.
Maturity Date
The policy anniversary on which the insured attains age 95. If the insured is
living and the policy is in force on this date, the cash surrender value is
payable. It is possible that insurance coverage may not continue to the maturity
date even if planned premiums are paid in a timely manner.
Monthly 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.
Business Day
Any day that we are open for business.
Separate Account
A separate investment account created by us to receive and invest net premiums
received for this policy. The particular Separate Account for this policy is
indicated on the policy specifications page.
Loan Account
The account to which we will transfer from the Divisions of the Separate Account
the amount of any policy loan.
Loan SubAccount
A Loan SubAccount exists for each Division of the Separate Account. Any cash
value transferred to the Loan Account will be allocated to the appropriate Loan
SubAccount to reflect the origin of the cash value. At any point in time, the
Loan Account will equal the sum of all the Loan SubAccounts.
<PAGE>
2. POLICY BENEFITS
Policy Proceeds
The policy proceeds are:
1. The death benefit under the contract type then in effect; plus
2. The monthly cost of insurance for the portion of the policy month from
the date of death to the end of the month of death; less
3. Any loan and loan interest due.
Death Benefit
The death benefit depends upon the contract type in effect on the date of the
insured's death. The contract type in effect is shown on the policy
specifications page.
Level Contract Type: (Death benefit is level except when it equals a percentage
of cash value.)
The death benefit is the greater of:
1. The face amount; or
2. The applicable percentage of the cash value on the date of death as
described in Section 7702(d) of the Internal Revenue Code of 1986 or
any applicable successor provision thereto.
Increasing Contract Type:
The death benefit is the greater of:
1. The face amount plus the cash value on the date of death; or
2. The applicable percentage of the cash value on the date of death as
described in Section 7702(d) of the Internal Revenue Code of 1986 or
any applicable successor provision thereto.
Not withstanding anything in this policy, the death benefit will in no case be
less than the amount necessary to cause the policy to meet the guideline premium
test set forth in Section 7702(c) of the 1986 Internal Revenue Code or any
applicable successor.
Applicable Percentage
The percentages as currently described in Section 7702(d) of the Internal
Revenue Code of 1986 are as follows:
In the case of an insured with an The applicable percentage attained age as of
the beginning will decrease by a ratable of the of the policy year of: portion
for each full year:
<TABLE>
<CAPTION>
More than: But not more than: From: To:
<S> <C> <C> <C>
0.............. 40 250............ 250
40.............. 45 250............ 215
45.............. 50 215............ 185
50.............. 55 185............ 150
55.............. 60 150............ 130
60.............. 65 130............ 120
65.............. 70 120............ 115
70.............. 75 115............ 105
75.............. 90 105............ 105
90.............. 95 105............ 100
95.............. 100 100............ 100
100............. 100 100............ 100
Or higher
</TABLE>
<PAGE>
2. Policy Benefits
Policy Changes
You may request policy changes at any time unless we specifically indicate
otherwise. We reserve the right to limit the number of changes to one per policy
year and to restrict the changes in the first policy year. The types of changes
allowed are explained below.
No change will be permitted that would result in this policy not satisfying the
requirements of Section 7702 of the Internal Revenue Code of 1986 or any
applicable successor provision thereto.
Change In Face Amount
The face amount may be changed by sending us a written request.
Any decrease in face amount will be subject to the following conditions:
1. The decrease will become effective on the monthly anniversary on or
following our receipt of the request.
2. The decrease will reduce the face amount in the following order:
a. The face amount provided by the most recent increase;
b. Face amounts provided by the next most recent increases
successively; and
c. The face amount when the policy was issued.
3. The face amount remaining in force after any requested decrease may
not be less than the minimum face amount shown on the policy specifications
page.
4. Any decrease must be at least $5,000.
Any increase in face amount will be subject to the following conditions:
1. Proof that the insured is insurable by our standards on the date of
the requested increase must be submitted.
2. The increase will become effective on the monthly anniversary on or
following our receipt of such proof.
3. Any increase must be at least $5,000.
4. The insured must have an attained age not greater than age 80 on the
anniversary date that the increase will become effective.
We will amend your policy to show the effective date of the decrease or
increase.
Change in Contract Type
The contract type in effect may be changed by sending us a written request. The
effective date of change will be the monthly anniversary on or following the
date we receive the request. On the effective date of this change the death
benefit payable does not change.
If the contract type in effect is increasing, it may be changed to level. The
face amount will be increased to equal the death benefit on the effective date
of change.
If the contract type in effect is level, it may be changed to increasing. Proof
that the insured is insurable by our standards on the date of the change must be
submitted. The face amount will be decreased to equal the death benefit less the
cash value on the effective date of change. This change may not be made if it
would result in a face amount which is less than the minimum face amount shown
on the policy specifications page.
<PAGE>
3. PREMIUMS AND GRACE PERIOD
Payment of Premiums
Your first premium is due as of the issue date. While the insured is living,
premiums after the first must be paid at our home office. If this policy is in
your possession and you have not paid the first premium, it is not in force. It
will be considered that you have the policy for inspection only.
Premiums after the first may be paid in any amount and at any interval subject
to the following conditions:
1. No premium payment may be less than $20.00.
2. Total premiums paid in any policy year may not exceed the maximum
premium limit for that policy year. The maximum premium limit for a policy
year is the largest amount of premium which can be paid in that policy year
such that the sum of the premiums paid under the policy will not at any
time exceed the guideline premium limitation referred to in Section 7702(c)
of the Internal Revenue Code of 1986, or as set forth in any applicable
successor provision thereto. The maximum premium limit for the following
policy year will be shown on your annual report.
On any date that we receive a premium which causes the death benefit to
increase by an amount that exceeds that premium received, we reserve the
right to refuse the premium payment. We may require additional evidence of
insurability before we accept the premium payment.
Net Premium
The premium paid times the net premium percentage from the policy specifications
page is the net premium.
Allocation of Net Premiums
You determine the allocation of net premiums among the Divisions of the Separate
Account. The minimum percentage (other than zero) that may be allocated to any
Division of the Separate Account is 10%. Percentages must be in whole numbers.
The initial allocation is shown on the policy specifications page.
Your Right to Change Allocation
You may change the allocation of future net premiums among the Divisions of the
Separate Account subject to the conditions outlined in the Allocation of the Net
Premiums provision. The change in allocation percentages will take effect
immediately upon our receipt of your written request.
Grace Period
We will allow a grace period of 62 days. The grace period will start on any
monthly anniversary when the cash surrender value is not large enough to cover
the next monthly deduction. (Monthly deduction is defined in the Cash Values
Section.) At that time, we will send you and any assignee of record a notice.
The notice will indicate the minimum premium needed to keep the policy in force
and the date such payment is due.
If you do not pay a premium large enough to cover the monthly deduction by the
end of the grace period, your policy will lapse at the end of that 62 day
period. It will then terminate without cash value. If the insured dies during
the grace period, any past due monthly deductions will be deducted from the
death benefit.
<PAGE>
Reinstatement
You may reinstate your lapsed policy within 5 years after the date of lapse.
This must be done before the insured's age 95.
You must submit the following items:
1. A written request for reinstatement.
2. Proof satisfactory to us that the insured is insurable by our standards.
3. A premium large enough to cover:
a. The monthly deductions due at the time of lapse; and
b. Two times the monthly deduction due at the time of reinstatement.
The insured must be alive on the date we approve the request for reinstatement.
If the insured is not alive, such approval is void and of no effect.
The reinstated policy will be in force from the date we approve the
reinstatement application. There will be a full monthly deduction for the policy
month which includes that date. The only accumulation value of this policy upon
reinstatement will be the amount provided by the premium then paid. The
application for reinstatement will be contestable for two years during the
lifetime of the insured from the date of its approval.
Any loan and loan interest due on the date of lapse may be paid or reinstated.
Any loan and loan interest reinstated will cause a cash value of an equal amount
to also be reinstated.
Any loan paid at the time of reinstatement will cause an increase in cash value
equal to the amount of the repaid loan.
The surrender charge at the time of reinstatement will be the surrender charge
in effect at the time of lapse. If only a portion of the coverage is reinstated
then only the applicable portion of the surrender charge will be reinstated. We
will amend your policy to show the new surrender charge. The cash value
following reinstatement will be increased by the amount of the surrender charge
imposed at the time of lapse.
<PAGE>
4. LOANS
After the first policy anniversary, you may borrow an amount not in excess of
the loan value of your policy while it is in force. The minimum amount of your
net loan request at any one time must be at least $100. Your policy will be the
sole security for such loan. We have the right to require your policy for
endorsement.
The loan value is 85% of the cash value of your policy at the date
of the loan request,
reduced by:
1. Any existing loans and loan interest due; and
2. Any surrender charges.
You may allocate the policy loan and any loan interest due on this loan among
the Divisions of the Separate Account. If you do not specify the allocation,
then the policy loan will be allocated among the Divisions of the Separate
Account in the same proportion that the cash value in each Division bears to the
total cash value of the policy, minus the cash value in the Loan Account, on the
date of the policy loan.
Cash value equal to the policy loan and the loan interest due on this loan
allocated to each Division of the Separate Account will be transferred to the
Loan Account, reducing the cash value allocated to the Divisions of the Separate
Account accordingly.
Cash value held in the Loan Account for loan collateral will earn interest daily
at an annual rate not less than the Loan Account guaranteed interest rate shown
on the policy specifications page.
Interest payable on a loan accrues daily. Loan interest is due and payable in
arrears on each policy anniversary or on a pro rata basis for any shorter period
as the loan may exist. If you do not pay the interest when it is due, we will
add it to your existing loan if your policy has sufficient loan value. We will
charge the same rate of interest on this amount as on the policy loan. The total
loan rate will be 8.0% per year.
Loan Repayments
All funds received will be credited to your policy as a premium unless clearly
marked for loan repayment.
You may repay your loan in whole or in part at any time before the death of the
insured while the policy is in force. When a loan repayment is made, cash value
securing the debt in the Loan Account equal to the loan repayment will be repaid
to the Divisions of the Separate Account in the same proportion that the cash
value in the Loan Account bears to the cash value in each Loan SubAccount as of
the date the original loan was made, unless you indicate a specific allocation
to the Divisions of the Separate Account. Unpaid loans and loan interest will be
deducted from any settlement of your policy.
If you fail to make repayment when the total loan and loan interest due would
exceed the cash value, less any surrender charges, your policy will terminate.
We will allow you a grace period for such payment of loans and loan interest
due. In such event the policy becomes void at the end of the grace period, we
will mail a notice to your last known address, the last known address of the
insured, and that of any assignee of record. This grace period will expire 62
days from the monthly anniversary immediately before the date the total loan and
loan interest due exceeds the cash value less any surrender charges and any
unpaid monthly expense charges; or 31 days after such notice has been mailed, if
later.
5. CASH VALUES
Cash Value
The cash value of your policy is equal to the total of:
- - The cash value in the Divisions of the Separate Account; plus
- - The cash value in the Loan Account.
<PAGE>
You may borrow against the loan value of your policy. The interest rate used to
calculate the interest earned on the cash values in the Loan Account securing
any policy loan will be at an effective annual rate not less than the Loan
Account guaranteed interest rate shown on the policy specifications page.
Separate Account Cash Value
The cash value in each Division of the Separate Account on the Investment Start
Date is equal to:
- - The portion of the initial net premium received and allocated to the
Division; minus
- - The portion of the monthly deductions due from the issue date through
the Investment Start Date charged to the Division.
The cash value in each Division of the Separate Account on a subsequent
valuation date is equal to:
- - The cash value in the Division on the preceding valuation date multiplied by
that Division's
net investment factor for the current valuation period; plus
- - Any portion of net premium received and allocated to the Division during the
current valuation period; plus
- - Any net amounts transferred to the Division from another Division during the
current valuation period; plus
- - Any loan repayments allocated to the Division during the current valuation
period; plus
- - That portion of any interest credited on outstanding loans which is allocated
to the Division during the current valuation period; minus
- - Any amounts transferred plus any transfer charge from the Division during the
current valuation period; minus
- - Any partial withdrawal plus any withdrawal transaction charge from the
Division during the current valuation period; minus.
- - Any surrender charges incurred during the current valuation period; minus
- - Any amount transferred from the Division to the Loan Account during that
valuation period; minus
- - If a monthly anniversary occurs during the current valuation period, the
portion of the monthly deduction charged to the Division during the current
valuation period to cover the policy month which starts during that valuation
period.
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:
- - The value of the assets at the end of the preceding valuation period; plus
- - The investment income and capital gains---realized or unrealized---credited to
the assets in the valuation period for which the net investment factor is
being determined; minus
- - The capital losses---realized or unrealized---charged against those assets
during the valuation period; minus
- - Any amount charged against each Division for taxes, including any tax or other
economic burden resulting from the application of tax laws that we determine
to be properly attributable to the Divisions of the Separate Account, or any
amount we set aside during the valuation period as a reserve for taxes
attributable to the operation or maintenance of each Division; minus
- - A charge not to exceed .0024547% for each day in the valuation period. This
corresponds to 0.90% per year for mortality and expense risks; divided by
- - The value of the assets at the end of the preceding valuation period.
<PAGE>
Loan Account Cash Value
The cash value of the Loan Account as of the Investment Start Date is zero
The cash value of the Loan Account on any day after the Investment Start Date is
equal to:
- - The cash value of the Loan Account on the preceding business day, with
interest; plus
- - Any net amount transferred to the Loan Account from the Divisions of the
Separate Account on that day; minus
- - Any loan repayments on that day.
Monthly Cost Of Insurance
The monthly cost of insurance for the following month is deducted on the monthly
anniversary date. The monthly cost of insurance is 1, below, multiplied by the
difference between 2 and 3 below:
1. The monthly cost of insurance rate.
2. The death benefit at the beginning of the policy month divided by
1.0040741.
3. The cash value at the beginning of the policy month, before the
deduction of the monthly cost of insurance.
If the contract type is level and if there has been an increase in the face
amount, then the cash value will first be considered a part of the face amount
when the policy was issued. If the cash value is greater than the initial face
amount, the excess cash value will then be considered a part of each increase in
order, starting with the first increase.
Monthly Cost Of Insurance Rates
At the beginning of each policy year, the monthly cost of insurance rate is
determined using the insured's attained age. The monthly cost of insurance rate
is based on the attained age and rate class. For the initial face amount, we
will use the rate class on the issue date. For each increase, we will use the
rate class applicable to the increase. If the death benefit equals a percentage
of the cash value, any increase in cash value will cause an automatic increase
in the death benefit. The rate class for such increase will be the same as that
used for the most recent increase that required proof that the insured was
insurable by our standards.
The monthly cost of insurance rates will never exceed the rates shown on the
Table of Guaranteed Monthly Cost of Insurance Rates page divided by 1,000. Any
change in the cost of insurance rates will apply to all persons of the same age,
and classification whose policies have been in force for the same length of
time.
The amount of additional monthly expense to be charged during the first policy
year is shown on the policy specifications page.
The amount of the monthly expense charge is shown on the policy specifications
page.
First Year Monthly Expense Charge
The amount of additional monthly expense to be charge during the first policy
year is shown on the policy specifications page.
Monthly Deduction
The monthly deduction is:
1. The monthly cost of insurance; plus
2. The monthly cost of insurance for any rider included with this policy;
plus
3. The monthly expense charge; plus
4. For the first policy year, the first year monthly expense charge.
The monthly deduction for a policy month will be allocated among the Divisions
of the Separate Account in the same proportion that the cash value in each
Division bears to the total cash value of the policy, minus the cash value in
the Loan Account on the monthly anniversary.
Cash Surrender Value
The cash surrender value of this policy is:
1. The cash value at the time of surrender; less
2. Any loan and loan interest due; less
3. Any surrender charge.
<PAGE>
Surrender
You may surrender your policy for its cash surrender value at any time during
the lifetime of the insured by sending us a written request. The cash surrender
value will be determined as of the date we receive your written request at our
home office. The cash surrender value will not be reduced by any monthly
deduction due on that date for a subsequent policy month.
Partial Withdrawals
After the first policy year, you can make a partial withdrawal of cash subject
to the following conditions:
- - You may make up to one partial withdrawal each policy month.
- - The minimum amount of your net partial withdrawal request from any one
Division must be at least $50.00 of a Division or your entire balance in that
Division, if smaller.
- - The total amount of your net partial withdrawal request at any one time must
be at least $500.
- - The amount of withdrawal obtained by partial withdrawal may not exceed the
loan value.
Allocation of Partial Withdrawals
You may allocate the partial withdrawal, subject to the above conditions, among
the Divisions of the Separate Account. If you do not specify the allocation,
then the partial withdrawal will be allocated among the Divisions of the
Separate Account in the same proportion that the cash value in each Division
bears to the total cash value of the policy, minus the cash value in the Loan
Account on the date of the partial withdrawal.
If the contract type is level and the death benefit equals the face amount, then
a partial withdrawal will decrease the face amount by an amount equal to the
partial withdrawal plus the applicable surrender charge. The surrender charge
will be allocated among the Divisions of the Separate Account in the same
proportion that the partial withdrawal was allocated among the Divisions of the
Separate Account. If the death benefit equals a percentage of the cash value
then a partial withdrawal will decrease the face amount by any amount by which
the partial withdrawal plus the applicable surrender charge exceeds the
difference between the death benefit and the face amount. The face amount will
be decreased in the following order:
1. The face amount at issue; and
2. Any increases in the same order in which they were issued.
No partial withdrawal will be processed which will result in the face amount
being decreased below the minimum face amount shown on the policy specifications
page.
We reserve the right to change the minimum amount or the number of times you may
make a partial withdrawal. Each partial withdrawal is subject to an
administrative charge equal to the lesser of $25.00 or 2% of the amount of the
partial withdrawal.
Surrender Charge
If the policy is surrendered, a surrender charge will be applied:
1. With respect to the initial face amount and the number of completed policy
years from the issue date; and
2. With respect to each increase in face amount and the number of completed
years from the effective date of that increase.
The surrender charge amount for the initial face amount for the first policy
year will be the lesser of:
1. The Surrender Charge Factor multiplied by actual premiums paid during the
first policy year to meet our minimum premium requirements; or
2. The Surrender Charge Factor multiplied by the guideline annual premium. The
guideline annual premium is shown on the surrender charge schedule page.
This amount as calculated at the end of the first policy year will be used to
determine the surrender charge for any decrease in the initial face amount or
full cash surrender of the initial face amount in subsequent years.
<PAGE>
The surrender charge amount for an increase in face amount during the twelve
policy months following any increase will be the lesser of:
1. The Surrender Charge Factor multiplied by the premiums that are allocated to
that increase during the twelve policy months following the increase; or
2. The Surrender Charge Factor multiplied by the guideline annual premium for
the increase. The guideline annual premium for the increase will be shown on
the surrender charge schedule page for the increase.
This amount as calculated at the end of the first year following the effective
date of the increase will be used to determine the surrender charge for any
decrease in increased face amount or full cash surrender following the increase
in subsequent years.
The premium allocated to an increase for purposes of determining the surrender
charge will be based on the rules established by the Securities and Exchange
Commission and may include a part of the existing cash value.
The Surrender Charge Percentage for the initial face amount and any increase in
face amount is shown on the surrender charge schedule page for the respective
face amount. The Surrender Charge Percentage multiplied by the surrender charge
amount determines the appropriate surrender charge to be assessed.
The Surrender Charge Factor is shown on the surrender charge schedule page.
A surrender charge will apply to any decrease in face amount. A decrease in face
amount may decrease some of the initial face amount and some or all of any
increases in face amount as provided in Section 2. A partial withdrawal may
cause a decrease in face amount as provided above and, therefore, a surrender
charge may be taken. The amount of surrender charge applied because of a
decrease in face amount is defined on the surrender charge schedule page for the
face amount being decreased. The surrender charge for a decrease in face amount
is deducted from the cash value on the effective date of the decrease.
Postponement of Payments
We will usually pay any amounts payable on surrender, partial withdrawal or
policy loan allocated to the Divisions of the Separate Account within seven days
after written notice is received. We will usually pay any death benefit proceeds
within seven days after we receive due proof of claim. Payment of any amount
payable on surrender, partial withdrawal, policy loan or death may be postponed
whenever:
1. The New York Stock Exchange or our home office are closed (other than
customary weekend and holiday closing) or trading on the New York Stock Exchange
is restricted as determined by the Securities and Exchange Commission;
2. The Securities and Exchange Commission, by order, permits postponement for
the protection of policy owners; or
3. An emergency exists as determined by the Securities and Exchange Commission,
as a result of which disposal of securities is not reasonably practicable or it
is not reasonably practicable to determine the value of the net assets of the
Separate Account.
Transfers may also be postponed under the circumstances listed above.
Continuation of Insurance
If all premium payments cease, the insurance provided under this policy,
including benefits provided by any rider attached to this policy will continue
in accordance with the provisions of this policy for as long as the cash
surrender value is sufficient to cover the monthly deductions. Any remaining
cash surrender value will be payable on the maturity date.
Basis of Computation
The minimum cash values and net single premiums, if any, are based on 1) 125
percent of the Commissioner's 1980 Standard Ordinary Mortality Table C age last
birthday; and 2) compound interest at 5% a year.
All values are at least equal to those required by any applicable law of the
state that governs your policy. We have filed a detailed statement of the method
of calculating cash values and reserves with the insurance supervisory official
of that state.
<PAGE>
6. PERSONS WITH AN INTEREST IN THE POLICY
Owner
The owner is as shown in the application or in any supplemental agreement
attached to this policy, unless later changed as provided in this policy. You,
as owner, are entitled to all rights provided by this policy, prior to its
maturity date. Ownership may be changed in accordance with the Change of Owner
or Beneficiary provision. After the maturity date, you cannot change the payee
nor the mode of payment, unless otherwise provided in this 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 you should die, and you are not
the insured, your interest will go to your estate unless otherwise provided.
Beneficiary
The original beneficiary is shown in the application. You may change the
beneficiary in accordance with the Change of Owner or Beneficiary provision.
Unless otherwise stated, the beneficiary has no rights in this 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. If no
beneficiary is living at the death of the insured the proceeds will be payable
to you, if you are living, or to your estate.
Change of Owner or Beneficiary
During the insured's lifetime you may change the ownership and beneficiary
designations, subject to any restrictions as stated in the Owner or Beneficiary
provisions. You must make the change in written form satisfactory to us. If
acceptable to us it will take effect as of the time you signed the request,
whether or not the insured is living when we receive your request at our home
office. The change will be subject to any assignment of this policy or other
legal restrictions. It will also be subject to any payment we made or action we
took before we received your written notice of the change. We have the right to
require the policy for endorsement before we accept the change.
If you are also the beneficiary of the policy at the time of the insured's
death, you may designate some other person to receive the proceeds of the policy
within 60 days after the insured's death.
Assignments
We will not be bound by an assignment of the policy or of any interest in it
unless:
1. The assignment is made as a written instrument,
2. You file the original instrument or a certified copy with us at our home
office, and
3. We send you an acknowledged copy.
We are not responsible for determining the validity of any assignment. If a
claim is based on an assignment, we may require proof of interest of the
claimant. A valid assignment will take precedence over any claim of a
beneficiary.
7. THE CONTRACT
The Contract
We have issued this policy in consideration of the application and payment of
premiums. The policy, the application for it, any riders, and any application
for an increase in face amount constitute the entire contract and are attached
to and made a part of the policy when the insurance applied for is accepted. A
copy of any application for reinstatement will be sent to you for attachment to
this policy and will become part of the contract of reinstatement and of this
policy. The policy may be changed by mutual agreement. Any change must be in
writing and approved by our President, Vice President, or Secretary. Our agents
have no authority to alter or modify any terms, conditions, or agreements of
this policy, or to waive any of its provisions.
Conformity with Statutes
If any provision in this policy is in conflict with the laws of the state which
govern this policy, the provision will be deemed to be amended to conform with
such laws. In addition, we reserve the right to change this policy if we
determine that a change is necessary to meet the requirements of the Internal
Revenue Code, or its regulations or published rulings.
<PAGE>
Statements in Application
All statements made by the insured or on his or her behalf, or by the applicant,
will be deemed representations and not warranties, except in the case of fraud.
Material misstatements will not be used to void the policy, any rider or any
increase in face amount or deny a claim unless made in the application for a
policy, rider or an increase in face amount.
Claims of Creditors
To the extent permitted by law, neither the policy nor any payment under it will
be subject to the claim of creditors or to any legal process.
Right to Examine Increase in Face Amount
You have the right to request us to cancel an increase in face amount and
receive a refund. The request must be made no later than:
- - 20 days from the date you received the new policy specifications page for the
increase; or
- - 45 days after the date you signed the application for the increase.
The refund will equal the monthly deductions associated with that increase. If
you do request us to cancel the increase but do not request a refund, the
monthly deductions associated with that increase will be restored to the
policy's cash value. This amount will be allocated to the Divisions of the
Separate Account in the same manner as it was deducted.
Conversion Rights
Once during the first two policy years you have the right, upon written
request, to exchange this policy for a life insurance policy that provides for
benefits that do not vary with the investment return of the Divisions of the
Separate Account. No evidence of insurability will be required. However, we
will require that this policy be in force and that you repay any existing
indebtedness. At the time of the conversion, the new policy will have, at your
option, either the same death benefit or the same difference between death
benefit and cash value as this policy. Any excess cash value above the minimum
for the new policy will be applied to the new policy unless requested in cash by
you. The new policy will also have the same issue date and issue age as this
policy. The planned premiums for the new policy will be based on our rates in
effect for the same issue age and risk class as the original policy.
You also have the right once during the first two years following the effective
date of an increase in face amount to exchange the increased portion of this
policy for a life insurance policy that provides for fixed benefits. The
provisions applicable to the conversion of the entire policy described above are
also applicable to a conversion of an increase in face amount.
Misstatement of Age
If there is a misstatement of age in the application, the amount of the death
benefit will be that which would be purchased by the most recent mortality
charge at the correct age.
Incontestability
We cannot contest this policy after it has been in force during the lifetime of
the insured for two years from its issue date. We cannot contest an increase in
face amount with regard to material misstatements made concerning such increase
after it has been in force during the lifetime of the insured for two years from
its effective date. We cannot contest any reinstatement of this policy, with
regard to material misstatements made concerning such reinstatement, after it
has been in force during the lifetime of the insured for a period of two years
from the date we approve the reinstatement. This provision will not apply to any
rider which contains its own incontestability clause.
<PAGE>
Suicide Exclusion
If the insured dies by suicide, while sane or insane, within two years from the
issue date (or within the maximum period permitted by law of the state in which
this policy was delivered, if less than two years), the amount payable will be
limited to the amount of premiums paid, less any outstanding policy loans with
interest to the date of death, and less any partial withdrawals.
If the insured, while sane or insane, commits suicide within two years after the
effective date of any increase in face amount, the death benefit for that
increase will be limited to the monthly deductions for the increase.
If this policy is issued to a person who is a Missouri citizen at the time of
issue, this provision does not apply unless the insured intended suicide when
this policy was applied for. If on the effective date of an increase in the face
amount, the owner is a Missouri citizen, this provision does not apply to that
increase unless the insured intended suicide when the increase in face amount
was applied for.
Annual Report
Each year a report will be sent to you which shows the current policy values,
premiums paid and deductions made since the last report, and any outstanding
policy loans.
Projection of Benefits and Values
You may make a written request to us for a projection of illustrative future
cash values and death benefits. This projection will be furnished to you for a
nominal fee.
8. SEPARATE ACCOUNT PROVISIONS
Separate Account
The variable benefits under this policy are provided through investments in the
Separate Account. This account is used for flexible premium variable life
insurance policies and, if permitted by law, may be used for other policies or
contracts as well.
We hold the assets of the Separate Account. These assets are held separately
from the Company's general assets. Income, gains and losses --- whether or not
realized --- from assets allocated to the Separate Account will be credited to
or charged against the account without regard to our other income, gains or
losses.
Assets held by the Separate Account will not be charged with liabilities that
arise from any other business we may conduct. We have the right to transfer to
the Company's general assets any assets of the Separate Account which are in
excess of the reserves and other policy liabilities of the Separate Account.
The Separate Account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940. The
Separate Account is also subject to the laws of the State of Missouri, which
regulate the operations of insurance companies incorporated in Missouri. The
investment policy of the Separate Account will not be changed without the
approval of the Insurance Commissioner of the State of Missouri. The approval
process is on file with the Insurance Commissioner of the state in which this
policy was delivered.
Divisions
The Separate Account has several Divisions which are shown on the policy
specifications page. The Separate Account will buy shares in the Funds
identified on the policy specifications page. Each Fund corresponds to a
different investment portfolio.
Income, gains and losses --- whether or not realized --- from the assets of each
Division of the Separate Account are credited to or charged against that
Division without regard to income, gains or losses in other Divisions of the
Separate Account.
We will value the assets of each Division of the Separate Account at the end of
each valuation period. A valuation period is the period between two successive
valuation dates, commencing at the close of trading (currently 4:00 p.m. New
York time) each valuation date and ending at the close of trading (currently
4:00 p.m. New York time) on the next succeeding valuation date. A valuation date
is each day that the New York Stock Exchange and our home office are open for
business or any other day that may be required by any applicable Securities and
Exchange Commission Rules and Regulations.
<PAGE>
Transfers
You may transfer amounts among the Divisions of the Separate Account.
These transfers will be subject to the following conditions:
- - We must receive a written request for transfer.
- - Transfers from or among the Divisions of the Separate Account may be made at
any time and must be at least $250.00 or the entire amount you have in a
Division, if smaller.
We may modify the transfer privilege at any time, including the minimum amount
transferable, the frequency, and the transfer charge, if any. If a transfer
charge is imposed, this charge will not exceed $25.00.
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 a fund that are
held by the Separate Account or that the Separate Account may purchase. We
reserve the right to eliminate the shares of any of the Funds and to substitute
shares of another fund or of another registered open-end, investment company, if
the shares or funds are no longer available for investment or if in our
judgement, further investment in any fund should become inappropriate in view of
the purpose of the policy. We will not substitute any shares attributable to the
owner's interest in a Division of the Separate Account without notice to the
owner and compliance with the Investment Company Act of 1940. This will not
prevent the Separate Account from purchasing other securities for other series
or classes of policies, or from permitting conversion between series or classes
of policies or contracts on the basis of requests made by owners.
We reserve the right to establish additional Divisions of the Separate Account,
each of which would invest in a new fund or in shares of another open-end
investment company and to make such Divisions available to such class or series
of policies as we deem appropriate. Subject to any required regulatory approval,
we also reserve the right to eliminate or combine existing Divisions of the
Separate Account or to transfer assets between Divisions.
Subject to obtaining any necessary regulatory or owner approval, the Separate
Account may be operated as a management company under the Investment Company Act
of 1940; it may be deregistered under that Act in the event registration is no
longer required; it may be combined with other separate accounts; or its assets
may be transferred to other separate accounts.
<PAGE>
9. PAYMENT OF POLICY BENEFITS
Payment
A lump sum payment will be made as provided on the face page.
Interest on Proceeds
We will pay interest on proceeds from the date of the insured's death to the
date of payment. Interest will be at an annual rate determined by us, but never
less than the guaranteed rate of 4.0%.
Extended Provisions
Provisions for settlement of proceeds different from those stated in this policy
may only be made upon written agreement with us.
<PAGE>
Exhibit 3 (c)
(c) PROPOSED FORM OF CERTIFICATE (30022)
<PAGE>
** DATA PAGE **
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE DEATH BENEFIT MAY
INCREASE OR DECREASE UNDER THE CONDITIONS DESCRIBED ON PAGES 3.02 AND 3.03.
THE CERTIFICATE'S CASH VALUE IN EACH INVESTMENT DIVISION OF THE SEPARATE ACCOUNT
IS BASED ON THE INVESTMENT EXPERIENCE OF THAT INVESTMENT DIVISION AND MAY
INCREASE OR DECREASE DAILY. IT IS NOT GUARANTEED AS TO DOLLAR AMOUNT. SEE THE
SEPARATE ACCOUNT PROVISION.
The provisions on the pages which follow are a part of this certificate. This
contains a summary of the terms of the Group Contract which is the contract
between the Contract-holder and Paragon Life Insurance Company. This certificate
is evidence of life insurance under the Group Contract and is subject to all of
the terms and limits of the Group Contract and any amendments thereto. PLEASE
READ YOUR CERTIFICATE CAREFULLY.
ISSUED BY: PARAGON LIFE INSURANCE CO.
A STOCK COMPANY
100 SOUTH BRENTWOOD
ST. LOUIS, MISSOURI 63105
(314) 862-2211
CERTIFICATE NUMBER:
INSURED:
RIGHT TO EXAMINE CERTIFICATE
Please read this certificate. You may return this certificate to us or to the
agent through whom it was purchased within 20 days from the date you receive it
or within 45 days after the application is signed, whichever period ends later.
If you return it within this period, the certificate will be void from the
beginning. We will refund any premium paid.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO AGE 95
Flexible Premiums are payable during the lifetime of the insured to age 95. The
death benefit is payable at the death of the insured prior to age 95 and while
the certificate is in force, Cash surrender value, if any, is payable at the
insured's age 95.
<PAGE>
ALPHABETIC GUIDE TO YOUR CERTIFICATE
Page
6.04 Addition, Deletion or Substitution of
Investments
3.04 Allocation of Net Premiums
6.01 Assignments
4.06 Basis of Computation
6.01 Beneficiary
4.04 Cash Surrender Value
4.01 Cash Values
3.03 Certificate Changes
3.01 Certificate Date
3.03 Change in Contract Type
3.03 Change in Face Amount
6.01 Change of Owner or Beneficiary
6.02 Claims of Creditors
6.01 Conformity with Statutes
6.02 Conversion Rights
3.02 Death Benefit
3.01 Definitions
6.02 Eligibility Change Conversion Privilege
Application
3.04 Grace Period
3.01 Incontestability
7.01 Interest on Proceeds
4.03 Loan Account Cash Value
4.01 Loans
3.01 Maturity Date
6.03 Misstatement of Age and
Corrections
4.03 Monthly Cost of Insurance
4.03 Monthly Deduction
4.02 Net Investment Factor
3.04 Net Premium
6.01 Owner
4.04 Partial Withdrawals
7.01 Payment of Benefits
3.04 Payment of Premiums
4.05 Postponement of Payments
3.02 Proceeds
3.05 Reinstatement
6.02 Right to ExamineIncrease in Face
Amount
4.02 Separate Account Cash Value
6.03 Separate Account Provisions
6.02 Statements in
6.03 Suicide Exclusion
6.04 Transfers
Additional Benefit Riders, Modifications and Amendments, if any, and a copy of
the Application are found following the final section.
<PAGE>
CERTIFICATE SPECIFICATIONS
DESCRIPTION OF SEPARATE ACCOUNT C FUNDS
Variable Insurance Products Fund and Variable Insurance Products Fund II
(collectively as "VIP") are open-end diversified management investment companies
incorporated in Massachusetts. VIP offers eight separate portfolios ("Funds")
which operate as distinct investment vehicles. The names and investment
objectives of the portfolios are as follows:
Money Market Portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The Portfolio
invests in high quality U.S. dollar denominated money market securities of
domestic and foreign issuers.
High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital.
Equity-Income Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the Portfolio
will also consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.
Growth Portfolio seeks to achieve capital appreciation. The Portfolio normally
purchases common stocks, although its investments are not restricted to any one
type of security. Capital appreciation may also be found in other types of
securities, including bonds and preferred stocks.
Overseas Portfolio seeks long term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside tyf the United States.
Investment Grade Bond Portfolio seeks as high a level of current income as is
consistent with the preservation of capital. Under normal conditions, at least
65% of the Portfolio's total assets are invested in investment-grade
fixed-income securities. The Portfolio will maintain a dollar-weighted average
portfolio maturity of ten years or less.
Asset Manager Portfolio seeks high total return with reduced risk over the
long-term by allocating its assets among stocks, bonds and short-term
fixed-income instruments.
Index 500 Portfolio seeks to provide investment results that correspond to the
total return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index while keeping transaction costs and other
expenses low. The Portfolio is designed as a long-term investment option.
There can be no assurance that the investment objectives of these Funds, or any
other Funds that the Company may create, will be achieved.
<PAGE>
SURRENDER CHARGE SCHEDULE
INSURED: John Doe CERTIFICATE #: 6,000,000
AMOUNT OF INSURANCE: $50,000 CERTIFICATE DATE: October 1, 1993
SURRENDER CHARGE FACTOR: 30% GUIDELINE ANNUAL $1,000.00
PREMIUM:
CERTIFICATE SURRENDER
YEAR CHARGE PERCENTAGE
- ----------------------------------------------------------------------
1 100%
2 90%
3 80%
4 70%
5 60%
6 50%
7 40%
8 30%
9 20%
10 10%
11+ 0%
If this amount of insurance is fully surrendered during the 10 years following
the effective date, the surrender charge is the appropriate percentage shown
above times the surrender charge amount defined in Section 5 Cash Values. If
this amount of insurance is decreased by some fraction of the total amount
during the 10 years following the effective date, the surrender charge amount
will be the previously defined surrender charge times the fraction. A new
Surrender Charge Schedule page will be mailed to you for the remaining coverage.
If the amount of insurance is increased, a surrender charge will apply during
the 10 years following the effective date of the increase. A new Surrender
Charge Schedule page for the increase will be mailed to you. The Surrender
Charge factor will not change for the increase.
<PAGE>
TABLE OF GUARANTEED MONTHLY COST OF INSURANCE RATES
RATES ARE PER $1000
INSURED: CERTIFICATE NUMBER:
CERTIFICATE DATE:
ATTAINED ATTAINED ATTAINED
AGE RATE AGE RATE AGE RATE
--- ---- --- ---- --- ----
18 0.155 19 0.161 20 0.163
21 0.165 22 0.163 23 0.163
24 0.161 25 0.159 26 0.158
27 0.158 28 0.159 29 0.163
30 0.167 31 0.172 32 0.178
33 0.187 34 0.196 35 0.207
36 0.221 37 0.238 38 0.257
39 0.278 40 0.303 41 0.329
42 0.357 43 0.386 44 0.416
45 0.449 46 0.483 47 0.520
48 0.559 49 0.603 50 0.651
51 0.705 52 0.767 53 0.836
54 0.911 55 0.988 56 1.071
57 1.155 58 1.244 59 1.342
60 1.450 61 1.576 62 1.723
63 1.891 64 2.078 65 2.276
66 2.486 67 2.704 68 2.933
69 3.188 70 3.478 71 3.813
72 4.208 73 4.66 74 5.163
75 5.708 76 6.284 77 6.884
78 7.517 79 8.203 80 8.968
81 9.837 82 10.829 83 11.941
84 13.150 85 14.440 86 15.795
87 17.213 88 18.699 89 20.262
90 21.925 91 23.733 92 25.762
93 28.155 94 31.307
THESE RATES ARE FOR THE BASE COVERAGE AT ISSUE. They are based on 125 percent of
the 1980 Commissioners Standard Ordinary Mortality Table C Age Last Birthday.
Any values guaranteed in this certificate are based on these rates.
<PAGE>
1. DEFINITIONS IN THIS CERTIFICATE
We, Us and Our
The Paragon Life Insurance Company.
You and Your
The owner of this certificate. The owner may be someone other than the insured.
In the application the words "You" and "Your" refer to the proposed insured
person(s).
Insured
The person whose life is insured under this certificate. See the certificate
specifications page. The insured must be eligible to participate in the plan
sponsored by the contractholder at the time this certificate is issued.
Issue Age
The insured's age at his or her last birthday as of the certificate date.
Attained Age
The issue age plus the number of completed certificate years.
Certificate Date
The date of issue of this certificate is the effective date of coverage under
this certificate. It is also the date from which certificate anniversaries,
certificate years, and certificate months are measured.
Investment Start Date
The date the first premium is applied to the Divisions of the Separate Account.
This date will be the later of:
- - The certificate date; or
- - The date we receive the first premium at our home office.
Maturity Date
The certificate anniversary on which the insured attains age 95. If the insured
is living and the certificate is in force on this date, the cash surrender value
is payable. It is possible that insurance coverage may not continue to the
maturity date even if planned premiums are paid in a timely manner.
Monthly Anniversary
The same date in each succeeding month as the certificate date except that
whenever the monthly anniversary falls on a date other than a valuation date,
the monthly anniversary will be deemed the next valuation date. If any monthly
anniversary would be the 29th, 30th, or 31st day of a month that does not have
that number of days, then the monthly anniversary will be the last day of that
month.
Business Day
Any day that we are open for business.
Separate Account
A separate investment account created by us to receive and invest net premiums
received for this certificate. The particular Separate Account for this
certificate is indicated on the certificate specifications page.
Loan Account
The account to which we will transfer from the Divisions of the Separate Account
the amount of any certificate loan.
Loan SubAccount
A Loan SubAccount exists for each Division of the Separate Account. Any cash
value transferred to the Loan Account will be allocated to the appropriate Loan
SubAccount to reflect the origin of the cash value. At any point in time, the
Loan Account will equal the sum of all the Loan SubAccounts.
Actively at Work
The employee must work for his employer at his usual place of work or such other
places as required by his employer in the course of such work for the full
number of hours and full rate of pay, as set by the employment practices of his
employer. In no event will the amount of time worked per week be less than 30
hours.
Contract
The Group Flexible Premium Variable Life Insurance Contract issued to the
contractholder by us.
<PAGE>
2. DEATH BENEFITS
Proceeds
The certificate proceeds are:
1. The death benefit under the contract type then in effect; plus
2. The monthly cost of insurance for the portion of the certificate month from
the date of death to the end of the month of death; less
3. Any loan and loan interest due.
Death Benefit
The death benefit depends upon the contract type in effect on the date of the
insured's death. The contract type in effect is shown on the certificate
specifications page.
Level Contract Type: (Death benefit is level except when it equals a percentage
of cash value.)
The death benefit is the greater of:
1. The face amount; or
2. The applicable percentage of the cash value on the date of death as
described in Section 7702(d) of the Internal Revenue Code of 1986 or any
applicable successor provision thereto.
Increasing Contract Type:
The death benefit is the greater of:
1. The face amount plus the cash value on the date of death; or
2. The applicable percentage of the cash value on the date of death as
described in Section 7702(d) of the Internal Revenue Code of 1986 or any
applicable successor provision thereto.
Not withstanding anything in this certificate, the death benefit will in no case
be less than the amount necessary to cause the certificate to meet the guideline
premium test set forth in Section 7702(c) of the 1986 Internal Revenue Code or
any applicable successor.
Applicable Percentage
The percentages as currently described in Section 7702(d) of the Internal
Revenue Code of 1986 are as follows:
In the case of an insured with an attained age as of the beginning of the
certificate year of:
More than: But not more than:
0 .......... 40
40 .......... 45
45 .......... 50
50 .......... 55
55 .......... 60
60 .......... 65
65 .......... 70
70 .......... 75
75 .......... 90
90 .......... 95
95 .......... 100
100 .......... 100
or higher
The applicable percentage will decrease by a ratable portion for each full year:
From: To:
250 ......... 250
250 ......... 215
215 ......... 185
185 ......... 150
150 ......... 130
130 ......... 120
120 ......... 115
115 ......... 105
105 ......... 105
105 ......... 100
100 ......... 100
100 ......... 100
<PAGE>
Certificate Changes
You may request certificate changes at any time unless we specifically indicate
otherwise. We reserve the right to limit the number of changes to one per
certificate year and to restrict the changes in the first certificate year. The
types of changes allowed are explained below.
No change will be permitted that would result in this certificate not satisfying
the requirements of Section 7702 of the Internal Revenue Code of 1986 or any
applicable successor provision thereto.
Change in Face Amount
The face amount may be changed by sending us a written request.
Any decrease in face amount will be subject to the following conditions:
1. The decrease will become effective on the monthly anniversary on or
following our receipt of the request.
2. The decrease will reduce the face amount in the following order:
a. The face amount provided by the most recent increase;
b. Face amounts provided by the next most recent increases, successively;
and
c. The face amount when the certificate was issued.
3. The face amount remaining in force after any requested decrease may not be
less than the minimum face amount shown on the certificate specifications page.
4. Any decrease must be at least $5,000.
Any increase in face amount will be subject to the following conditions:
1. Proof that the insured is insurable by our standards on the date of the
requested increase must be submitted.
2. The increase will become effective on the monthly anniversary on or
following our receipt of such proof.
3. Any increase must be at least $5,000.
4. The insured must have an attained age not greater than age 80 on the
anniversary date that the increase will become effective.
We will amend your certificate to show the effective date of the decrease or
increase.
Change in Contract Type
The contract type in effect may be changed by sending us a written request. The
effective date of change will be the monthly anniversary on or following the
date we receive the request. On the effective date of this change the death
benefit payable does not change.
If the contract type in effect is increasing, it may be changed to level. The
face amount will be increased to equal the death benefit on the effective date
of change.
If the contract type in effect is level, it may be changed to increasing. Proof
that the insured is insurable by our standards on the date of the change must be
submitted. The face amount will be decreased to equal the death benefit less the
cash value on the effective date of change. This change may not be made if it
would result in a face amount which is less than the minimum face amount shown
on the certificate specifications page.
<PAGE>
3. PREMIUMS AND GRACE PERIOD
Payment of Premiums
Your first premium is due as of the certificate date. While the insured is
living, premiums after the first must be paid at our home office. If this
certificate is in your possession and you have not paid the first premium, it is
not in force. It will be considered that you have the certificate for inspection
only.
Premiums after the first may be paid in any amount and at any interval subject
to the following conditions:
1. No premium payment may be less than $20.00.
2. Total premiums paid in any certificate year may not exceed the maximum
premium limit for that certificate year. The maximum premium limit for a
certificate year is the largest amount of premium which can be paid in that
certificate year such that the sum of the premiums paid under the certificate
will not at any time exceed the guideline premium limitation referred to in
Section 7702(c) of the Internal Revenue Code of 1986, or as set forth in any
applicable successor provision thereto. The maximum premium limit for
following certificate year will be shown on your annual report.
On any date that we receive a premium which causes the death benefit to
increase by an amount that exceeds that premium received, we reserve the
right to refuse the premium payment. We may require additional evidence of
insurability before we accept the premium payment.
Net Premium
The premium paid times the net premium percentage from the certificate
specifications page is the net premium.
Allocation of Net Premiums
You determine the allocation of net premiums among the Divisions of the Separate
Account. The minimum percentage (other than zero) that may be allocated to any
Division of the Separate Account is 10%. Percentages must be in whole numbers.
The initial allocation is shown on the certificate specifications page.
Your Right to Change Allocation
You may change the allocation of future net premiums among the Divisions of the
Separate Account subject to the conditions outlined in the Allocation of the Net
Premiums provision. The change in allocation percentages will take effect
immediately upon our receipt of your written request.
Grace Period
We will allow a grace period of 62 days. The grace period will start on any
monthly anniversary when the cash surrender value is not large enough to cover
the next monthly deduction. (Monthly deduction is defined in the Cash Values
Section.) At that time, we will send you and any assignee of record a notice.
The notice will indicate the minimum premium needed to keep the certificate in
force and the date such payment is due.
If you do not pay a premium large enough to cover the monthly deduction by the
end of the grace period, your certificate will lapse at the end of that 62 day
period. It will then terminate without cash value. If the insured dies during
the grace period, any past due monthly deductions will be deducted from the
death benefit.
<PAGE>
Reinstatement
You may reinstate your lapsed certificate within 5 years after the date of
lapse. This must be done before the insured's age 95. You must submit the
following items:
1. A written request for reinstatement.
2. Proof satisfactory to us that the insured is insurable by our standards.
3. A premium large enough to cover:
a. The monthly deductions due at the time of lapse; and
b. Two times the monthly deduction due at the time of reinstatement.
The insured must be alive on the date we approve the request for reinstatement.
If the insured is not alive, such approval is void and of no effect.
The reinstated certificate will be in force from the date we approve the
reinstatement application. There will be a full monthly deduction for the
certificate month which includes that date. The only accumulation value of this
certificate upon reinstatement will be the amount provided by the premium then
paid. The application for reinstatement will be contestable for two years during
the lifetime of the insured from the date of its approval.
Any loan and loan interest due on the date of lapse may be paid or reinstated.
Any loan and loan interest reinstated will cause a cash value of an equal amount
to also be reinstated.
Any loan paid at the time of reinstatement will cause an increase in cash value
equal to the amount of the repaid loan.
<PAGE>
4. LOANS
After the first certificate anniversary, you may borrow an amount not in excess
of the loan value of your certificate while it is in force. The minimum amount
of your net loan request at any one time must be at least $100. Your certificate
will be the sole security for such loan. We have the right to require your
certificate for endorsement.
The loan value is 85% of the cash value of your certificate at the date of the
loan request, reduced by:
1. Any existing loans and loan interest due; and
2. Any surrender charges.
You may allocate the certificate loan and loan interest due on this loan among
the Divisions of the Separate Account. If you do not specify the allocation,
then the certificate loan will be allocated among the Divisions of the Separate
Account in the same proportion that the cash value in each Division bears to the
total cash value of the certificate, minus the cash value in the Loan Account,
on the date of the certificate loan.
Cash value equal to the certificate loan and the loan interest due on this loan
allocated to each Division of the Separate Account will be transferred to the
Loan Account, reducing the cash value allocated to the Divisions of the Separate
Account accordingly.
Cash value held in the Loan Account for loan collateral will earn interest daily
at an annual rate not less than the Loan Account guaranteed interest rate shown
on the certificate specifications page.
Interest payable on a loan accrues daily. Loan interest is due and payable in
arrears on each certificate anniversary or on a pro rata basis for any shorter
period as the loan may exist. If you do not pay the interest when it is due, we
will add it to your existing loan if your certificate has sufficient loan value.
We will charge the same rate of interest on this amount as on the certificate
loan. The total loan rate will be 8.0% per year.
Loan Repayments
All funds received will be credited to your certificate as a premium unless
clearly marked for loan repayment.
You may repay your loan in whole or in part at any time before the death of the
insured while the certificate is in force. When a loan repayment is made, cash
value securing the debt in the Loan Account equal to the loan repayment will be
repaid to the Divisions of the Separate Account in the same proportion that the
cash value in the Loan Account bears to the cash value in each Loan SubAccount
as of the date the original loan was made, unless you indicate a specific
allocation to the Divisions of the Separate Account. Unpaid loans and loan
interest will be deducted from any settlement of your certificate.
If you fail to make repayment when the total loan and loan interest due would
exceed the cash value, less any surrender charges, your certificate will
terminate. We will allow you a grace period for such payment of loans and loan
interest due. In such event the certificate becomes void at the end of the grace
period, we will mail a notice to your last known address, the last known address
of the insured, and that of any assignee of record. This grace period will
expire 62 days from the monthly anniversary immediately before the date the
total loan and loan interest due exceeds the cash value less any surrender
charges and any unpaid monthly expense charges; or 31 days after such notice has
been mailed, if later.
5. CASH VALUES
Cash Value
The cash value of your certificate is equal to the total of:
- - The cash value in the Divisions of the Separate Account; plus
- - The cash value in the Loan Account.
<PAGE>
You may borrow against the loan value of your certificate. The interest rate
used to calculate the interest earned on the cash values in the Loan Account
securing any certificate loan will be at an effective annual rate not less than
the Loan Account guaranteed interest rate shown on the certificate
specifications page.
Separate Account Cash Value
The cash value in each Division of the Separate Account on the Investment Start
Date is equal to:
- - The portion of the initial net premium received and allocated to the
Division; minus
- - The portion of the monthly deductions due from the certificate date
through the Investment Start Date charged to the Division.
The cash value in each Division of the Separate Account on a subsequent
valuation date is equal to:
- - The cash value in the Division on the preceding valuation date
multiplied by that Division's net investment factor for the current
valuation period; plus
- - Any portion of net premium received and allocated to the Division during
the current valuation period; plus
- - Any net amounts transferred to the Division from another Division during
the current valuation period; plus
- - Any loan repayments allocated to the Division during the current
valuation period; plus
- - That portion of any interest credited on outstanding loans which is
allocated to the Division during the current valuation period; minus
- - Any amounts transferred plus any transfer charge from the Division
during the current valuation period; minus
- - Any partial withdrawal plus any withdrawal transaction charge from the
Division during the current valuation period; minus
- - Any surrender charges incurred during the current valuation period;
minus
- - Any amount transferred from the Division to the Loan Account during that
valuation period; minus
- - If a monthly anniversary occurs during the current valuation period, the
portion of the deduction charged to the Division during the current
valuation period to cover the certificate month which starts during that
valuation period.
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:
- - The value of the assets at the end of the preceding valuation
period; plus
- - The investment income and capital gains---realized or unrealized ---
credited to the assets in the valuation period for which the net
investment factor is being determined; minus
- - The capital losses --- realized or unrealized--- charged against those
assets during the valuation period; minus
- - Any amount charged against each Division for taxes, including any tax or
other economic burden resulting from the application of tax laws that we
determine to be properly attributable to the Divisions of the Separate
Account, or any amount we set aside during the valuation period as a
reserve for taxes attributable to the operation or maintenance of each
Division; minus
- - A charge not to exceed .0024547% for each day in the valuation period.
This corresponds to 0.90% per year for mortality and expense risks;
divided by
- - The value of the assets at the end of the preceding valuation period.
<PAGE>
Loan Account Cash Value
The cash value of the Loan Account as of the Investment Start Date is zero.
The cash value of the Loan Account on any day after the Investment Start Date is
equal to:
- - The cash value of the Loan Account on the preceding business day, with
interest; plus
- - Any net amount transferred to the Loan Account from the Divisions of the
Separate Account on that day; minus
- - Any loan repayments on that day.
Monthly Cost of Insurance
The monthly cost of insurance for the following month is deducted on the monthly
anniversary date. The monthly cost of insurance is 1, below, multiplied by the
difference between 2 and 3 below:
1. The monthly cost of insurance rate.
2. The death benefit at the beginning of the certificate month divided by
1.0040741.
3. The cash value at the beginning of the certificate month, before the
deduction of the monthly cost of insurance.
If the contract type is level and if there has been an increase in the face
amount, then the cash value will first be considered a part of the face amount
when the certificate was issued. If the cash value is greater than the initial
face amount, the excess cash value will then be considered a part of each
increase in order, starting with the first increase.
Monthly Cost of Insurance Rates
At the beginning of each certificate year, the monthly cost of insurance rate is
determined using the insured's attained age. The monthly cost of insurance rate
is based on the attained age and rate class. For the initial face amount, we
will use the rate class on the certificate date. For each increase, we will use
the rate class applicable to the increase. If the death benefit equals a
percentage of the cash value, any increase in cash value will cause an automatic
increase in the death benefit. The rate class for such increase will be the same
as that used for the most recent increase that required proof that the insured
was insurable by our standards.
The monthly cost of insurance rates will never exceed the rates shown on the
Table of Guaranteed Monthly Cost of Insurance Rates page divided by 1,000. Any
change in the cost of insurance rates will apply to all persons of the same age,
and classification whose certificates have been in force for the same length of
time.
First Year Monthly Expense Charge
The amount of additional monthly expense to be charged during the first
certificate year is shown on the certificate specifications page.
Monthly Expense Charge
The amount of the monthly expense charge is shown on the certificate
specifications page.
Monthly Deduction
The monthly deduction is:
1. The monthly cost of insurance; plus
2. The monthly cost of insurance for any rider included with this
certificate; plus
3. The monthly expense charge; plus
4. For the first certificate year, the first year monthly expense charge.
The monthly deduction for a certificate month will be allocated among the
Divisions of the Separate Account in the same proportion that the cash value in
each Division bears to the total cash value of the certificate, minus the cash
value in the Loan Account on the monthly anniversary.
<PAGE>
Cash Surrender Value
The cash surrender value of this certificate is:
1. The cash value at the time of surrender; less
2. Any loan and loan interest due; less
3. Any surrender charge.
Surrender
You may surrender your certificate for its cash surrender value at any time
during the lifetime of the insured by sending us a written request. The cash
surrender value will be determined as of the date we receive your written
request at our home office. The cash surrender value will not be reduced by any
monthly deduction due on that date for a subsequent certificate month.
Partial Withdrawals
After the first certificate year, you can make a partial withdrawal of cash
subject to the following conditions:
- - You may make up to one partial withdrawal each certificate month.
- - The minimum amount of your net partial withdrawal request from any one
Division must be at least $50.00 of a Division or your entire balance in
that Division, if smaller.
- - The total amount of your net partial withdrawal request at any one time
must be at least $500.
- - The amount of withdrawal obtained by partial withdrawal may not exceed
the loan value.
Allocation of Partial Withdrawals
You may allocate the partial withdrawal, subject to the above conditions, among
the Divisions of the Separate Account. If you do not specify the allocation,
then the partial withdrawal will be allocated among the Divisions of the
Separate Account in the same proportion that the cash value in each Division
bears to the total cash value of the certificate, minus the cash value in the
Loan Account on the date of the partial withdrawal.
If the contract type is level and the death benefit equals the face amount, then
a partial withdrawal will decrease the face amount by an amount equal to the
partial withdrawal plus the applicable surrender charge. The surrender charge
will be allocated among the Divisions of the Separate Account in the same
proportion that the partial withdrawal was allocated among the Divisions of the
Separate Account. If the death benefit equals a percentage of the cash value
then a partial withdrawal will decrease the face amount by any amount by which
the partial withdrawal plus the applicable surrender charge exceeds the
difference between the death benefit and the face amount. The face amount will
be decreased in the following order:
1. The face amount at issue; and
2. Any increases in the same order in which they were issued.
No partial withdrawal will be processed which will result in the face amount
being decreased below the minimum face amount shown on the certificate
specifications page.
We reserve the right to change the minimum amount or the number of times you may
make a partial withdrawal. Each partial withdrawal is subject to an
administrative charge equal to the lesser of $25.00 or 2% of the amount of the
partial withdrawal.
Surrender Charge
If the certificate is surrendered, a surrender charge will be applied:
1. With respect to the initial face amount and the number of completed
certificate years from the certificate date; and
2. With respect to each increase in face amount and the number of completed
years from the effective date of that increase.
<PAGE>
The surrender charge amount for the initial face amount for the first
certificate year will be the lesser of:
1. The Surrender Charge Factor multiplied by actual premiums paid during
the first certificate year to meet our minimum premium requirements; or
2. The Surrender Charge Factor multiplied by the guideline annual premium.
The guideline annual premium is shown on the surrender charge schedule
page.
This amount as calculated at the end of the first certificate year will be used
to determine the surrender charge for any decrease in the initial face amount or
full cash surrender of the initial face amount in subsequent years.
The surrender charge amount for an increase in face amount during the twelve
certificate months following any increase will be the lesser of:
1. The Surrender Charge Factor multiplied by the premiums that are
allocated to that increase during the twelve certificate months
following the increase; or
2. The Surrender Charge Factor multiplied by the guideline annual premium
for the increase. The guideline annual premium for the increase will be
shown on the surrender charge schedule page for the increase.
This amount as calculated at the end of the first year following the effective
date of the increase will be used to determine the surrender charge for any
decrease in increased face amount or full cash surrender following the increase
in subsequent years.
The premium allocated to an increase for purposes of determining the surrender
charge will be based on the rules established by the Securities and Exchange
Commission and may include a part of the existing cash value.
The Surrender Charge Percentage for the initial face amount and any increase in
face amount is shown on the surrender charge schedule page for the respective
face amount. The Surrender Charge Percentage multiplied by the surrender charge
amount determines the appropriate surrender charge to be assessed.
The Surrender Charge Factor is shown on the surrender charge schedule page.
A surrender charge will apply to any decrease in face amount. A decrease in face
amount may decrease some of the initial face amount and some or all of any
increases in face amount as provided in Section 2. A partial withdrawal may
cause a decrease in face amount as provided above and, therefore, a surrender
charge may be taken. The amount of surrender charge applied because of a
decrease in face amount is defined on the surrender charge schedule page for the
face amount being decreased. The surrender charge for a decrease in face amount
is deducted from the cash value on the effective date of the decrease.
Postponement of Payments
We will usually pay any amounts payable on surrender, partial withdrawal or
certificate loan allocated to the Divisions of the Separate Account within seven
days after written notice is received. We will usually pay any death benefit
proceeds within seven days after we receive due proof of claim. Payment of any
amount payable on surrender, partial withdrawal, certificate loan or death may
be postponed whenever:
1. The New York Stock Exchange or our home office are closed (other than
customary weekend and holiday closing) or trading on the New York Stock
Exchange is restricted as determined by the Securities and Exchange
Commission;
2. The Securities and Exchange Commission, by order, permits postponement
for the protection of certificate owners; or
3. An emergency exists as determined by the Securities and Exchange
Commission, as a result of which disposal of securities is not
reasonably practicable or it is not reasonably practicable to determine
the value of the net assets of the Separate Account.
Transfers may also be postponed under the circumstances listed above.
<PAGE>
Continuation of Insurance
If all premium payments cease, the insurance provided under this certificate,
including benefits provided by any rider attached to this certificate will
continue in accordance with the provisions of this certificate for as long as
the cash surrender value is sufficient to cover the monthly deductions. Any
remaining cash surrender value will be payable on the maturity date.
Basis of Computation
The minimum cash values and net single premiums, if any, are based on 1) 125
percent of the Commissioner's 1980 Standard Ordinary Mortality Table C age last
birthday; and 2) compound interest at 5% a year.
All values are at least equal to those required by any applicable law of the
state that governs your certificate. We have filed a detailed statement of the
method of calculating cash values and reserves with the insurance supervisory
official of that state.
<PAGE>
6. PERSONS WITH AN INTEREST IN THE CERTIFICATE
Owner
The owner is as shown in the application or in any supplemental agreement
attached to this certificate, unless later changed as provided in this
certificate. You, as owner, are entitled to all rights provided by this
certificate, prior to its maturity date. Ownership may be changed in accordance
with the Change of Owner or Beneficiary provision. After the maturity date, you
can not change the payee nor the mode of payment, unless otherwise provided in
this certificate. Any person whose rights of ownership depend upon some future
event will not possess any present rights of ownership. If there is more than
one owner at a given time, all must exercise the rights of ownership. If you
should die, and you are not the insured, your interest will go to your estate
unless otherwise provided.
Beneficiary
The original beneficiary is shown in the application. You may change the
beneficiary in accordance with the Change of Owner or Beneficiary provision.
Unless otherwise stated, the beneficiary has no rights in this certificate
before the death of the insured. If there is more than one beneficiary at the
death of the insured, each will receive equal payments unless otherwise
provided. If no beneficiary is living at the death of the insured the proceeds
will be payable to you, if you are living, or to your estate.
Change of Owner or Beneficiary
During the insured's lifetime you may change the ownership and beneficiary
designations, subject to any restrictions as stated in the Owner or Beneficiary
provisions. You must make the change in written form satisfactory to us. If
acceptable to us it will take effect as of the time you signed the request,
whether or not the insured is living when we receive your request at our home
office. The change will be subject to any assignment of this certificate or
other legal restrictions. It will also be subject to any payment we made or
action we took before we received your written notice of the change. We have the
right to require the certificate for endorsement before we accept the change.
If you are also the beneficiary of the certificate at the time of the insured's
death, you may designate some other person to receive the proceeds of the
certificate within 60 days after the insured's death.
Assignments
We will not be bound by an assignment of the certificate or of any interest in
it unless:
1. The assignment is made as a written instrument,
2. You file the original instrument or a certified copy with us at our home
office, and
3. We send you an acknowledged copy.
We are not responsible for determining the validity of any assignment. If a
claim is based on an assignment, we may require proof of interest of the
claimant. A valid assignment will take precedence over any claim of a
beneficiary.
7. GENERAL PROVISIONS
Entire Contract
We have issued this certificate in consideration of the application and payment
of premiums. The certificate, the application for it, any riders, and any
application for an increase in face amount constitute the entire contract and
are attached to and made a part of the certificate when the insurance applied
for is accepted. A copy of any application for reinstatement will be sent to you
for attachment to this certificate and will become part of the contract of
reinstatement and of this certificate. The certificate may be changed by mutual
agreement. Any change must be in writing and approved by our President, Vice
President, or Secretary. Our agents have no authority to alter or modify any
terms, conditions, or agreements of this certificate, or to waive any of its
provisions.
Conformity with Statutes
If any provision in this certificate is in conflict with the laws of the state
which govern this certificate, the provision will be deemed to be amended to
conform with such laws. In addition, we reserve the right to change this
certificate if we determine that a change is necessary to meet the requirements
of the Internal Revenue Code, or its regulations or published rulings.
<PAGE>
Statements in Application
All statements made by the insured or on his or her behalf, or by the applicant,
will be deemed representations and not warranties, except in the case of fraud.
Material misstatements will not be used to void the certificate, any rider or
any increase in face amount or deny a claim unless made in the application for a
certificate, rider or an increase in face amount.
Claims of Creditors
To the extent permitted by law, neither the certificate nor any payment under it
will be subject to the claim of creditors or to any legal process.
Right to Examine Increase in Face Amount
You have the right to request us to cancel an increase in face amount and
receive a refund. The request must be made no later than:
- - 20 days from the date you received the new certificate specifications
page for the increase; or
- - 45 days after the date you signed the application for the increase.
The refund will equal the monthly deductions associated with that increase. If
you do request us to cancel the increase but do not request a refund, the
monthly deductions associated with that increase will be restored to the
certificate's cash value. This amount will be allocated to the Divisions of the
Separate Account in the same manner as it was deducted.
Conversion Rights
Once during the first two certificate years you have the right, upon written
request, to exchange this certificate for a life insurance policy that provides
for benefits that do not vary with the investment return of the Divisions of the
Separate Account. No evidence of insurability will be required. However, we will
require that this certificate be in force and that you repay any existing
indebtedness. At the time of the conversion, the new policy will have, at your
option, either the same death benefit or the same difference between death
benefit and cash value as this certificate. The new policy will also have the
same issue date and issue age as this certificate. The planned premiums for the
new policy will be based on our rates in effect for the same issue age and risk
class as the original certificate.
You also have the right once during the first two years following the effective
date of an increase in face amount to exchange the increased portion of this
certificate for a life insurance policy that provides for fixed benefits. The
provisions applicable to the conversion of the entire certificate described
above are also applicable to a conversion of an increase in face amount.
Eligibility Change Conversion Privilege
If an insured's eligibility under the Contract ends due to the termination of
the contract or termination of the employee's employment, your coverage, if
still in force, will convert automatically to an individual policy. Such
individual policy will provide benefits which are identical to those provided
under this certificate.
An amendment to convert the certificate to an individual policy will be mailed:
1. Within 31 days after we receive written notification that the employee's
employment ended; or after the termination of the contract; and
2. Once any premium necessary to prevent the policy from lapsing is paid to
us at our home office.
The planned premiums for this individual policy may be paid annually,
semiannually, quarterly, or at other intervals we may establish from time to
time. Additional premium payments may be made at any time subject to limitations
identical to those contained in this certificate.
<PAGE>
Misstatement of Age and Corrections
If there is a misstatement of age in the application, the amount of the death
benefit will be that which would be purchased by the most recent mortality
charge at the correct age.
If we make any payment or certificate changes in good faith, relying on our
records, or evidence supplied to us, our duty will be fully discharged. We
reserve the right to correct any errors in the certificate.
Incontestability
We can not contest this certificate after it has been in force during the
lifetime of the insured for two years from its certificate date. We can not
contest an increase in face amount with regard to material misstatements made
concerning such increase after it has been in force during the lifetime of the
insured for two years from its effective date. We can not contest any
reinstatement of this certificate after it has been in force during the lifetime
of the insured for a period of two years from the date we approve the
reinstatement. This provision will not apply to any rider which contains its own
incontestability clause.
Suicide Exclusion
If the insured dies by suicide, while sane or insane, within two years from the
certificate date (or within the maximum period permitted by law of the state in
which this certificate was delivered, if less than two years), the amount
payable will be limited to the amount of premiums paid, less any outstanding
certificate loans with interest to the date of death, and less any partial
withdrawals.
If the insured, while sane or insane, commits suicide within two years after the
effective date of any increase in face amount, the death benefit for that
increase will be limited to the monthly deductions for the increase.
If the group contract is issued to a contractholder in the state of Missouri,
then this certificate is considered issued to a Missouri citizen. This provision
does not apply unless we prove that the insured intended suicide when this
certificate was applied for. This provision does not apply to an increase in
face amount unless the insured intended suicide when the increase in face amount
was applied for.
Annual Report
Each year a report will be sent to you which shows the current certificate
values, premiums paid and deductions made since the last report, and any
outstanding certificate loans.
Projection of Benefits and Values
You may make a written request to us for a projection of illustrative future
cash values and death benefits. This projection will be furnished to you for a
nominal fee.
8. SEPARATE ACCOUNT PROVISIONS
Separate Account
The variable benefits under this certificate are provided through investments in
the Separate Account. This account is used for flexible premium variable life
insurance policies and, if permitted by law, may be used for other policies or
contracts as well.
We hold the assets of the Separate Account. These assets are held separately
from the Company's general assets. Income, gains and losses --- whether or not
realized --- from assets allocated to the Separate Account will be credited to
or charged against the account without regard to our other income, gains or
losses.
Assets held by the Separate Account will not be charged with liabilities that
arise from any other business we may conduct. We have the right to transfer to
the Company's general assets any assets of the Separate Account which are in
excess of the reserves and other policy liabilities of the Separate Account.
<PAGE>
The Separate Account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940. The
Separate Account is also subject to the laws of the State of Missouri, which
regulate the operations of insurance companies incorporated in Missouri. The
investment policy of the Separate Account will not be changed without the
approval of the Insurance Commissioner of the State of Missouri. The approval
process is on file with the Insurance Commissioner of the state in which the
contract was delivered.
Divisions
The Separate Account has several Divisions which are shown on the certificate
specifications page. The Separate Account will buy shares in the Funds
identified on the certificate specifications page. Each Fund corresponds to a
different investment portfolio.
Income, gains and losses---whether or not realized---from the assets of each
Division of the Separate Account are credited to or charged against that
Division without regard to income, gains or losses in other Divisions of the
Separate Account.
We will value the assets of each Division of the Separate Account at the end of
each valuation period. A valuation period is the period between two successive
valuation dates, commencing at the close of trading (currently 4:00 p.m. New
York time) each valuation date and ending at the close of trading (currently
4:0O p.m. New York time) on the next succeeding valuation date. A valuation date
is each day that the New York Stock Exchange and our home office are open for
business or any other day that may be required by any applicable Securities and
Exchange Commission Rules and Regulations.
Transfers
You may transfer amounts among the Divisions of the Separate Account.
These transfers will be subject to the following conditions:
- - We must receive a written request for transfer.
- - Transfers from or among the Divisions of the Separate Account may be made
at any time and must be at least $250.00 or the entire amount you have in a
Division, if smaller.
We may modify the transfer privilege at any time, including the minimum amount
transferable, the frequency, and the transfer charge, if any.
Addition, Deletion 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 a fund that are
held by the Separate Account or that the Separate Account may purchase. We
reserve the right to eliminate the shares of any of the Funds and to substitute
shares of another fund or of another registered open-end, investment company, if
the shares or funds are no longer available for investment or if in our
judgment, further investment in any fund should become inappropriate in view of
the purpose of the policy or contract. We will not substitute any shares
attributable to the owner's interest in a Division of the Separate Account
without notice to the owner and compliance with the Investment Company Act of
1940. This will not prevent the Separate Account from purchasing other
securities for other series or classes of policies, or from permitting
conversion between series or classes of policies or contracts on the basis of
requests made by owners.
We reserve the right to establish additional Divisions of the Separate Account,
each of which would invest in a new fund or in shares of another open-end
investment company and to make such Divisions available to such class or series
of policies as we deem appropriate. Subject to any required regulatory approval,
we also reserve the right to eliminate or combine existing Divisions of the
Separate Account or to transfer assets between Divisions.
Subject to obtaining any necessary regulatory or owner approval, the Separate
Account may be operated as a management company under the Investment Company Act
of 1940; it may be deregistered under that Act in the event registration is no
longer required; it may be combined with other separate accounts; or its assets
may be transferred to other separate accounts.
<PAGE>
9. PAYMENT OF CERTIFICATE BENEFITS
Payment
A lump sum payment will be made as provided on the face page.
Interest on Proceeds
We will pay interest on proceeds from the date of the insured's death to the
date of payment. Interest will be at an annual rate determined by us, but never
less than the guaranteed rate of 4.0%.
Extended Provisions
Provisions for settlement of proceeds different from a lump sum payment may only
be made upon written agreement with us.
<PAGE>
Exhibit 4
FORM OF PARTICIPATION AGREEMENT WITH FIDELITY
VARIABLE INSURANCE PRODUCTS FUND III
<PAGE>
PARTICIPATION AGREEMENT
-----------------------
Among
VARIABLE INSURANCE PRODUCTS FUND III,
------------------------------------
FIDELITY DISTRIBUTORS CORPORATION
---------------------------------
and
PARAGON LIFE INSURANCE COMPANY
------------------------------
THIS AGREEMENT, made and entered into as of the 1st day of March, 1997
by and among PARAGON LIFE INSURANCE COMPANY, (hereinafter the "Company"), a
Missouri corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and
FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
<PAGE>
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable life insurance and
variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 9:00 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
<PAGE>
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of selected
Portfolios offered by the then-current prospectus of the Fund and in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable life and variable annuity contracts with the form
number(s) which are listed on Schedule B attached hereto and incorporated herein
by this reference, as such Schedule B may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Fund, in such other Funds advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an investment
company other than the Fund if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Portfolios of the Fund;
or (b) the Company gives the Fund and the Underwriter 45 days written notice of
its intention to make such other investment company available as a funding
vehicle for the Contracts; or (c) such other investment company was available as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement; or (d) the Fund or Underwriter consents to the use of such other
investment company.
<PAGE>
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 376.309 of the Insurance Code of the State of
Missouri and has registered or, prior to any issuance or sale of the Contracts,
will register each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for the
Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Missouri and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and
<PAGE>
qualify the shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated
as endowment, annuity or life insurance contracts, under applicable provisions
of the Code and that it will make every effort to maintain such treatment and
that it will notify the Fund and the Underwriter immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Missouri and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Missouri to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of Missouri and all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and
<PAGE>
that the Adviser shall perform its obligations for the Fund in compliance in all
material respects with the laws of the State of Missouri and any applicable
state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other entities dealing with the
money or securities of the Fund are and shall continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund, in an amount not less than five million dollars ($5 million). The
aforesaid Bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have the
Statement of Additional Information for the Fund and the Statement of Additional
Information for the Contracts printed together in one document. Alternatively,
the Company may print the Fund's prospectus and/or its Statement of Additional
Information in combination with other fund companies' prospectuses and
statements of additional information. Except as provided in the following three
sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall be
borne by the Fund. If the Company chooses to receive camera-ready film in lieu
of receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of A and B where A is the number
of such prospectuses distributed to owners of the Contracts, and B is the Fund's
per unit cost of typesetting and printing the Fund's prospectus. The same
procedures shall be followed with respect to the Fund's Statement of Additional
Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the
<PAGE>
cost of printing any prospectuses or Statements of Additional Information other
than those actually distributed to existing owners of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule B attached hereto and incorporated herein by this reference, which
standards will also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use.
<PAGE>
No such material shall be used if the Fund or its designee object to such use
within fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company or its separate
account(s), is named at least fifteen Business Days prior to its use. No such
material shall be used if the Company or its designee object to such use within
fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
----
available to
<PAGE>
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. Diversification
---------------
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
<PAGE>
ARTICLE VII. Potential Conflicts
-------------------
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
----
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being
<PAGE>
implemented, and until the end of that six month period the Underwriter and Fund
shall continue to accept and implement orders by the Company for the purchase
(and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification By The Company
------------------------------
<PAGE>
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or contained in
the Contracts or sales literature for the Contracts (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on behalf of
the Fund for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Fund not supplied by
the Company, or persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus,
or sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
<PAGE>
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such
may arise from such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement or to the Fund, whichever is
applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Company in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent),
but failure to notify the Company of any such claim shall not relieve
the Company from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of
this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to
participate, at its own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice
from the Company to such party of the Company's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses
of any additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the
Contracts or the operation of the Fund.
8.2. Indemnification by the Underwriter
----------------------------------
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
<PAGE>
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or sales literature
of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on
behalf of the Company for use in the Registration Statement
or prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature for
the Contracts not supplied by the Underwriter or persons
under its control) or wrongful conduct of the Fund, Adviser
or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, or sales literature covering the Contracts, or
any amendment thereof or supplement thereto, or the omission
or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
<PAGE>
or gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
---------------------------
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the
diversification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
<PAGE>
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
--------------
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
-----------
<PAGE>
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by one year's advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes the
use of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Fund may
fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified
in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written notice
to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in
good faith, that the Company and/or its affiliated companies has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.6(b) hereof and at the time
such notice was given there was no notice of termination outstanding
under any other provision of this Agreement;
<PAGE>
provided, however any termination under this Section 10.1(h) shall
be effective forty five (45) days after the notice specified in
Section 1.6(b) was given.
In the event of a termination under subparagraph (f) above, the Company
agrees that the Company shall make a good faith effort to secure another
underlying investment medium as soon as reasonably possible, and the Fund
and the Underwriter agree that Fund shares will continue to be made
available to new and existing contracts for such period, not to exceed one
year, as may be necessary for the Company to effect the change of investment
medium.
10.2. Effect of Termination. Notwithstanding any termination of this
---------------------
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund and the Underwriter
the opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
ARTICLE XI. Notices
-------
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
<PAGE>
If to the Company:
100 South Brentwood
St. Louis, MO 63105
Attn: VUL Administrator
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
-------------
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
<PAGE>
12.7 The Fund and Underwriter agree that to the extent any advisory or
other fees received by the Fund, the Underwriter or the Adviser are determined
to be unlawful in legal or administrative proceedings under the 1973 NAIC model
variable life insurance regulation in the states of California, Colorado,
Maryland or Michigan, the Underwriter shall indemnify and reimburse the Company
for any out of pocket expenses and actual damages the Company has incurred as a
result of any such proceeding; provided however that the provisions of Section
8.2(b) of this and 8.2(c) shall apply to such indemnification and reimbursement
obligation. Such indemnification and reimbursement obligation shall be in
addition to any other indemnification and reimbursement obligations of the Fund
or the Underwriter under this Agreement.
12.8 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.9. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
The Company shall promptly notify the Fund and the Underwriter of any change in
control of the Company.
12.10. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory
accounting principles), as soon as practical and in any event
within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory), as soon as
practical and in any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy statement, notice or report of
the Company sent to stockholders or policyholders, as soon as
practical after the delivery thereof;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as
practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
PARAGON LIFE INSURANCE COMPANY
By: /s/ Craig K. Nordyke
----------------------------
Name: Craig K. Nordyke
---------------------------
Title: Executive Vice President and Chief Actuary
------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND III
By: /s/ J. Gary Burkhead
---------------------------
J. Gary Burkhead
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Paul J. Hondros
---------------------------
Paul J. Hondros
President
<PAGE>
Schedule A
----------
The following separate accounts and contract forms for which one or more
portfolios of Variable Insurance Products Fund is to be made available by
Paragon Life Insurance Company:
<TABLE>
<CAPTION>
Name of Date Established Contract
Separate Account by Board of Directors Form Numbers
- ------------------------ ------------------------------ ---------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Separate Account B January 4, 1993 30022, 30037 Group Certificate
30023, 30036 Group Master Contract
30021, 30040 Individual Policy
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Separate Account C August 1, 1993 30022, 30037 Group Certificate
30023, 30036 Group Master Contract
30021, 30040 Individual Policy
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Separate Account D January 3, 1995 30041 Individual Policy
30042 Joint and Last Survivor Policy
- -------------------------------------------------------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be
executed in its name and on its behalf by its duly authorized representative as
of the date first specified above.
PARAGON LIFE INSURANCE COMPANY VARIABLE INSURANCE PRODUCTS FUND
By: /s/ Craig K. Nordyke By: /s/ Robert Pozen
-------------------------- --------------------------
Craig K. Nordyke Robert Pozen
Executive Vice President & Senior Vice President
Chief Actuary
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Kevin Kelly
--------------------------
Kevin Kelly
Vice President
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of units
which are attributed to each contractowner/policyholder (the "Customer") as
of the Record Date. Allowance should be made for account adjustments made
after this date that could affect the status of the Customers' accounts as
of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the Card
before it is printed. Allow approximately 2-4 business days for printing
information on the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion into
envelopes (envelopes and return envelopes are provided and paid for by the
Insurance Company). Contents of envelope sent to Customers by Company will
include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
----
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but not including) the
---
meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and is
the signature needed on the Card.
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be not received for purposes of vote tabulation. Any
--- --------
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) Fidelity Legal must
------
review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be required
from the Company as well as an original copy of the final vote. Fidelity
Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal will
be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
<PAGE>
Exhibit 5
FORM OF APPLICATION FOR INDIVIDUAL INSURANCE GI
(GROUP CONTRACT 33109)
<PAGE>
APPLICATION FOR
GROUP INSURANCE WITH: [LOGO OF PARAGON INSURANCE COMPANY APPEARS HERE]
1 Employee
Name: Social Security No.
----------------------------------- ----------------
Last First MI Sex: [_] Male [_] Female
Mailing Date of Hire: / /
Address: -----------------
-------------------------------- Date of Birth: / /
-----------------
Mo. Day Yr.
Daytime Phone:
-------------------------------- -----------------
City State Zip
- --------------------------------------------------------------------------------
2 Insurance Applied For: Benefits and Options
FLIP PART A FLIP PART B [X] INCREASING CONTRACT TYPE
-------------------------------------------
(Death benefit is equal to insurance amount
plus cash value)
AUTOMATIC OPTIONAL [X] WAIVER OF MONTHLY DEDUCTION RIDER
------------------ -------------------------------------------
+ =
------------------- ------------------- ---------------
Amount of Insurance Amount of Insurance Total Insurance
+ + =
------------------- ------------------- ---------------- ---------------
Monthly Premium Monthly Premium Monthly VIP Fund Total Monthly
Investment Premium
- --------------------------------------------------------------------------------
3 Beneficiary: Relationship:
--------------------------- ---------------------
(Beneficiary will be Estate
unless otherwise indicated)
Address:
---------------------------------------------------------------------
Owner (Employee will be Owner unless otherwise indicated)
--------------------
Important Note: Naming an Owner is optional. Do not assign ownership
without reading the instructions.
- --------------------------------------------------------------------------------
4 Are you now actively working for compensation at least
thirty (30) hours per week for Fidelity? To be eligible
for coverage, you must satisfy this requirement. [_] Yes [_] No
- --------------------------------------------------------------------------------
5 Have you smoked cigarettes, cigars, or a pipe or used
tobacco in any form within the last 12 months? [_] Yes [_] No
- --------------------------------------------------------------------------------
6 Indicate below how you want your contributions to be invested among the
Fidelity VIP Funds.
Fixed Income Portfolios Equity Portfolios
VIP Money Market Portfolio % VIP Equity-Income Portfolio %
--- ---
VIP High Income Portfolio % VIP Growth Portfolio %
--- ---
VIP II Investment Grade Bond Port % VIP Overseas Portfolio %
--- ---
VIP II Asset Manager Portfolio %
---
VIP II Index 500 Portfolio %
---
VIP II Contrafund Portfolio %
---
VIP II Asset Manager: Growth Port %
---
VIP III Growth & Income Portfolio %
---
VIP III Balanced Portfolio %
---
VIP III Growth Opportunities Port %
---
VIP III Mid Cap Portfolio %
---
Percentages must be in whole numbers with a minimum of 10%.
Total must equal 100%. Default will be 100% in Money Market Portfolio.
- --------------------------------------------------------------------------------
HOME OFFICE ENDORSEMENT: Plan #
--------------------------
Date of Issue:
------------------
Date Effective:
-----------------
- --------------------------------------------------------------------------------
(Home Office Use Only)
33109
<PAGE>
7 Suitability Information:
A. Have you received a prospectus for this plan
dated ? [_] Yes [_] No
--------------
B. Have you received an illustration of the benefits,
including death benefits and cash surrender values? [_] Yes [_] No
C. Do you understand that the cash surrender value is
invested in the funds above and therefore may increase,
decrease or even be reduced to zero depending on
investment experience and there is no guaranteed cash
value? [_] Yes [_] No
D. Do you believe that the coverage applied for meets your
insurance objectives and your anticipated financial
needs? [_] Yes [_] No
E. Investment Objectives:
[__] Long Term Capital Appreciation [__] Aggressive Growth [__] Safety
[__] Balanced Growth with Income [__] Income [__] Other (describe)
---------------------
- --------------------------------------------------------------------------------
-----------------------------------------------------------------------------
8 DECLINATION OF ALL COVERAGE. Complete this section only if you wish to
decline all coverage.
If you do not wish to participate in the FLIP Plan you can elect not to
participate. If you do this, you will receive a one-time payment equal to the
premium for this year's Part A coverage. This election is permanent and will
prevent you from participating in the Plan in the future regardless of your
continuing service. Any election must be received by Paragon no more than
fifteen days after the date you are sent the application.
I hereby certify that I have been given the opportunity to apply for the
insurance and after careful consideration have decided not to do so, and I
understand I cannot apply for coverage in the future.
---------- ---------------------------------- ---------------------------
Date Employee Name (please print) Signature of Employee
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
INTERIM INSURANCE DESCRIPTION
Guaranteed Issue not available for particular proposed insured if applying
after his/her first enrollment period. Any person who qualifies in all
respects for guaranteed issue coverage shall be considered covered on an
interim basis from the date of application for the amount of insurance
applied for up to the applicable "GUARANTEED ISSUE AMOUNT". If death is due
to suicide on the basis stated in the certificate, the Company's liability
under this interim insurance may be limited to the return of the amount paid
or withheld. Interim insurance ends on the earliest of the following dates:
(a) the date insurance begins on the certificate applied for; (b) the date a
certificate, other than applied for, is offered to the applicant; (c) the
date the company notifies the applicant that the application for any proposed
insured is declined; (d) 60 days from the date of application; or (e)
termination of employment with Fidelity. Date of application shall be the
later of date signed or .
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
YOUR SIGNATURE. Please sign to complete your application.
I hereby authorize payroll deductions of any premiums to be paid for
insurance purchased from Paragon Life Insurance Company.
I have read the above questions and answers. I declare that the answers are
complete and true to the best of my knowledge and belief. I agree that this
application will be part of the certificate, if one is issued.
Dated
------------------------------------
Month Day Year
-----------------------------------------
Signature of Applicant
(if other than Proposed Insured Employee)
-----------------------------------------
Signature of Proposed Insured Employee
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 6
ISSUE, TRANSFER, AND REDEMPTION MEMO
<PAGE>
PARAGON LIFE INSURANCE COMPANY
SEPARATE ACCOUNT C
DESCRIPTION OF ISSUANCE, TRANSFER
AND REDEMPTION PROCEDURES FOR
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
Pursuant to Rule 6e-3(T) (b) (12) (ii)
and
METHOD OF COMPUTING ADJUSTMENTS IN
PAYMENTS AND CASH VALUES UPON
CONVERSION TO FIXED BENEFIT POLICIES
This document set forth the administrative procedures that will be followed
by Paragon Life Insurance Company (the "Company") in connection with the
issuance of Flexible Premium Variable Life Insurance Policies for use in the
employer-sponsored marketing, the transfer of assets held thereunder, and the
redemption by Owners of their interests in such Policies. In circumstances where
a Group Contract is issued, Individual Policies or Certificates setting forth or
summarizing the rights and privileges of the Owners and/or Insureds, will be
issued under the Group Contract. Individual policies can also be issued in
connection with employer-sponsored insurance programs in circumstances where a
Group Contract is not issued. The terms of the Certificate and the Individual
Policy, whether or not the Individual Policy is issued under a Group Contract,
are substantially the same and are collectively referred to as "Policy" or
"Policies". The document also explains the method that the Company will follow
in making a cash adjustment when a Policy is exchanged for a fixed benefit
insurance policy.
<PAGE>
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF POLICIES
A. Premium Payments and Underwriting
Premiums for the Policies will not be the same for all owners of
Policies ("Owners"). Payment of or payroll deduction authorization for the
initial premium, together with a completed application, must be received by the
Company before a Policy will be issued. The Company requires that the initial
premium for a Policy be at least equal to one-twelfth of the planned annual
premium. Minimum first year planned annual premiums will be established.
Following the initial premium, subject to the limitations described
below, premiums may be paid in any amount and at any interval. For the first
Policy year, the amount of the planned premiums can be no less than the minimum
annual premium. The Company establish a billed or planned premium for each
Policy. Although not required, the typical payment of planned premiums is
through payroll deduction by the sponsoring employer while the Owner is
employed. While the employee is a part of the sponsoring employer relationship
this is typically a monthly premium or annual premium divided by thirteen.
Failure to pay planned premiums, however, will not itself cause the Policy to
lapse.
Once the employee is no longer eligible for group coverage (the group
arrangement is terminated or the employee's relationship with the sponsoring
employer ceases) the Policy will automatically continue on an individual basis.
Each Certificate is amended to make it an Individual Policy. The planned premium
billed quarterly, semiannually, or annually at the Owner's option. Premium
payments need not be made on this scheduled basis,
<PAGE>
however. The Company also makes available an option for payment of premium
through periodic (generally monthly) authorized electronic funds transfer. This
procedure is only for Company billing.
An Owner may make unscheduled premium payments at any time in any
amount, or skip planned premium payments, subject to the following limitations.
Every premium payment must be at least $20. In no event may the total of all
premiums paid in any Policy year exceed the current maximum premium limitations
for that year established by Federal tax laws. The maximum premium limit for a
Policy year is the largest amount of premium that can be paid in that Policy
year such that the sum of the premiums paid under the Policy will not at any
time exceed the guideline premium limitations referred to in section 7702 (c) of
the Internal Revenue Code of 1986, as amended, or any successor provision. If at
any time a premium is paid which would result in total premiums exceeding the
current maximum premium limitation, the Company will only accept that portion of
the premium which will make total premiums equal the maximum. Any part of the
premium in excess of that amount will be returned or applied as otherwise agreed
and no further premiums will be accepted until allowed by the current maximum
premium limitations prescribed by Federal tax law. The Company may require
additional evidence of insurability if any premium payment would cause an
increase in the Policy's death benefit exceeding the premium received.
Net premiums will be priced based upon the share price as of the close
of the day the premiums are received. The Company has two main methods of
premium receipt for premiums received via payroll deduction method. The first is
through a sponsoring employer for a lump-sum check attached to a list billing
for each policyowner with the employer or via an automated medium to verify the
amount. The Company does not reconcile receipts to
<PAGE>
billed amounts. The Company does verify that the amount received matches the
supporting data indicating the amount paid per individual. For receipts received
through a sponsoring employer, allocations among multiple policies for one
employee Owner are made for the employee Owner based upon the following
procedure. Premiums are applied as billed for the spouse Policy (where employee
is Owner but not the insured), and the balance of the amount received is
allocated to the employee's Policy. The second method of premium receipt is if
the employee is no longer a part of the sponsoring employer or pays unscheduled
premiums, in which case, the premiums are received by cash, check, or automatic
electronic funds transfer.
A Policy will remain in force so long as the cash surrender value is
sufficient to pay the monthly deduction. Thus, the amount of a premium, if any,
that must be paid to keep the Policy in force depends upon the cash value of the
Policy, which in turn depends on such factors as the investment experience and
the cost of insurance charge. The cost of insurance rate utilized in computing
the cost of insurance charge will not be the same for each insured. The chief
reason is that the principle of pooling and distribution of mortality risks is
based on assumption that each insured incurs an insurance rate commensurate with
his mortality risk which is actuarially determined based on such factors as
attained age and rate class. Accordingly, while not all insureds will be subject
to the same cost of insurance rate, there will be a single "rate" for all
insureds in a given actuarial category.
Current cost of insurance rates will be determined by the Company
based upon expectations as to future mortality experience. The cost of
insurance rates are guaranteed not to exceed rates based upon 125% of the
Commissioners' 1980 Standard Ordinary Mortality Table C.
<PAGE>
The Policies will be offered and sold pursuant to established underwriting
standards and in accordance with state insurance laws. State insurance laws may
prohibit unfair discrimination among insureds but recognize that premiums may be
based upon factors such as age, sex, health, and occupation.
Policies that are deemed to be "individual contracts" under the
Omnibus Budget Reconciliation Act of 1990, will be subject to a 1 % charge
deducted from premiums received to reimburse the Company for its additional
federal income tax costs resulting from its receipt of such premiums. Such
charge will be treated as a sales charge for purposes of determining compliance
with the limitations on sales loads imposed by the Investment Company Act of
1940 and regulations thereunder.
B. Application and Initial Premium Processing
Upon receipt of a completed application, the Company will follow
certain insurance underwriting (e.g., evaluation of risks) procedures designed
to determine whether the applicant is insurable. This process may involve such
verification procedures as consulting the Medical Information Bureau and may
require that further information be provided by the proposed insured before a
determination can be made. A Policy will not be issued until the underwriting
procedure has been completed.
The underwriting will be based upon the particular application
received. The first time an employee is given the opportunity to purchase a
Policy, the applicant may qualify for guaranteed issue if he/she is actively at
work and has not missed 10 consecutive days or a total of 30 days of work within
the past year. No medical or paramedical examination is
<PAGE>
required. However, a blood test may be required especially for Policies with
large face amounts available per Policy and for the addition of certain
insurance benefits by rider. The maximum face amount that an employee can
generally apply for under the guaranteed issue procedure is three times the
employee's salary up to a ceiling that is based on the number of eligible
employees under a group arrangement. Guaranteed issue may also be available for
programs with high maximum face amounts dependent upon number of eligible lives
or whether existing coverage is being cancelled.
Where the face amount exceeds the guaranteed issue limits, where the
Policy has been offered previously to the employee, where the guaranteed issue
requirements set forth in the application are not met, or for programs in which
guaranteed issue is not offered, the employee must submit to a simplified
underwriting procedure which requires the employee to respond satisfactorily to
certain health questions in the application. Similarly, such questions must be
answered or blood testing may be required if, in connection with the issuance of
any children's rider or acceleration of death benefits riders, 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. However, regardless of which underwriting procedure is
used, acceptance of an application is subject to the Company's underwriting
rules, and the Company reserves the right to reject an application for any
reason.
If a Policy is to be issued to a spouse of an employee who is eligible
to purchase a Policy under a group arrangement, the appropriate application must
be supplied. The spouse will be subject to the simplified underwriting procedure
described above. Guaranteed issue is not available.
<PAGE>
No substandard or extra rating will apply. There in no distinction is
rates based on the underwriting method once a risk is determined acceptable.
Insurance coverage under a Policy will begin on the issue date, which
is the date as of which the Policy is delivered and the initial premium has been
received prior to the insured's death and prior to any change in health as shown
in the application. The issue date is used to determine Policy anniversaries,
Policy years, and Policy months. However, for those who qualify for the
guaranteed issue category, interim insurance for the amount applied for, not to
exceed the guaranteed issue amount, will be produced from the date the
application and payroll deduction authorization is signed until the issue date.
The interim insurance may cease under other conditions that may occur earlier:
1) the date a policy other than applied for is offered; 2) the date the Company
notifies the applicant that the application for a proposed insured is declined;
3) 60 days from the date of application; or 4) termination of employment with
the sponsoring employer. These conditions are indicated on the application.
The Company will allocate the net premiums according to the allocation
indicated on the application for insurance. The allocation of net premiums may
be changed for future premium receipts by the Owner's written request. Pricing
of the initial premiums will be as of the latter of the day received or the date
of issue of the Policy.
The minimum face amount at issue is currently $25,000. For those
programs with large maximum Face Amounts, i.e. Executive Program Policies, the
minimum is generally $100,000. For Executive Program Policies, the maximum is
generally in excess of $500,000.
<PAGE>
C. Reinstatement Procedures
The Policy may be reinstated within five years after lapse and before
the maturity date unless the Policy has been surrendered. A Policy will be
reinstated upon receipt by the Company of a written application for
reinstatement, production of evidence of insurability satisfactory to the
Company (including evidence of insurability of any person covered by a rider to
reinstate the rider) and payment of sufficient premium to cover the monthly
deductions due at the time of lapse, and two times the monthly deduction due at
the time of reinstatement. Any indebtedness must also be paid or reinstated.
The amount of cash value on the date of reinstatement will be equal to
the amount of any loan reinstated, increased by the net premiums paid at
reinstatement, and any loans paid at the time of reinstatement. The effective
date of reinstatement will be the date of approval by the Company of the
application for reinstatement. There will be a full monthly deduction for the
Policy month that includes that date.
II. REDEMPTION PROCEDURES: SURRENDER AND RELATED TRANSACTIONS
Set forth below is a summary of the principal Policy provisions and
administrative procedures which might be deemed to constitute, either directly
or indirectly, a "redemption" transaction. The summary shows that because of the
insurance nature of the Policies, the procedures involved necessarily differ in
certain significant respects from the redemption procedures for mutual funds and
contractual plans.
<PAGE>
A. Surrenders and Partial Withdrawals
At any time during the lifetime of the insured and while a Policy is
in effect, the Owner may surrender, or make a partial withdrawal under, the
Policy by sending a written request to the Company. The amount available for
surrender is the cash surrender value at the end of the valuation period during
which the surrender request is received at the Company's home office. Amounts
payable upon surrender or a partial withdrawal will ordinarily be paid within
seven days of receipt of the written request.
If the Policy is being surrendered, the Policy itself must be returned
to the Company along with the request. If the Policy cannot be returned, a lost
policy affidavit is required. Upon surrender, the Company will pay the cash
surrender value (the cash value less any applicable surrender charge less any
indebtedness). Surrender proceeds will be paid in a single sum. Coverage under a
Policy will terminate as of the date of surrender.
After the first Policy year, an Owner may make up to one partial
withdrawal each Policy month from the Separate Account. The total amount of a
partial withdrawal request must be at least $500 or the Policy's cash value if
smaller. The minimum amount that can be withdrawn from any one division is $50,
or the cash value in the division, if smaller. The maximum amount that may be
withdrawn from a division is the Policy's cash value in that division. The total
that may be obtained by partial withdrawal including the partial withdrawal
transaction charge is the Loan Value. A transaction charge equal to the lesser
of $25 or two percent of the amount withdrawn applies to each partial
withdrawal.
<PAGE>
The Owner may allocate the amount withdrawn, subject to the above
conditions, among the divisions of the Separate Account. If no allocation is
specified, then the partial withdrawal will be allocated among the divisions of
the Separate Account in the same proportion that the Policy's cash value in each
division bears to the total cash value of the Policy, less the cash value in the
Loan Account, on the date the request for the partial withdrawal is received.
Generally, any surrender charge imposed in connection with a partial
withdrawal and any transaction charge will be allocated among the divisions of
the Separate Account in the same proportion as the partial withdrawal is
allocated. An Owner may request, however, that a surrender charge applicable to
an amount withdrawn from a division be paid from the cash value in another
division. No amount may be withdrawn that would result in there being
insufficient cash value to meet any surrender charge that would be payable
immediately following the withdrawal upon the surrender of the remaining cash
value.
The death benefit will be affected by a partial withdrawal. If Option
A is in effect and the death benefit equals the face amount, then a partial
withdrawal will decrease the face amount by an amount equal to the partial
withdrawal resulting from the change in face amount. If the death benefit is
based on a percentage of the cash value, then a partial withdrawal will decrease
the face amount by the amount by which the partial withdrawal exceeds the
difference between the death benefit and the face amount. If Option B is in
effect, the face amount will not change.
The face amount remaining in force after a partial withdrawal may not
be less than $25,000 or the applicable minimum issue amount. Any request for a
partial withdrawal
<PAGE>
that would reduce the face amount below this amount will not be implemented.
Partial withdrawals will be applied first to reduce the initial face amount and
then to each increase in face amount in order, starting with the first increase.
If a Policy is surrendered, the surrender charge, if any, will be a
percentage of premiums paid during the first Policy year up to the guideline
annual premium for the Policy. The charge decreases evenly each year to zero (0)
at the end of ten Policy years. Additional surrender charges will be deducted if
the Policy is surrendered following one or more increases in face amount. The
surrender charge applicable to each increase will be a percentage of the lesser
of premiums associated with the increase which are received within 12 Policy
months of the increase and the guideline annual premium for the increase. The
surrender charge applicable to an increase in face amount decreases evenly each
year to zero at the end of ten years from the effective date of the increase.
A surrender charge also will apply to any decrease in face amount. The
amount of the surrender charge assessed because of a decrease in face amount is
a portion of the surrender charge that would be deducted upon surrender or
lapse. The portion is based on the relationship between the decrease in face
amount and face amount before the decrease.
B. Change in Face Amount
An Owner may increase or decrease the face amount of a Policy (without
changing the death benefit option) once each Policy year after the first Policy
anniversary. A written request is required for a change in the face amount. Any
change is subject to the following conditions:
<PAGE>
1. Any decrease will become effective on the monthly anniversary on or
next following receipt of the written request.
2. The minimum decrease allowed is $5,000, and the face amount may not be
decreased below $25,000. If, following the decrease in face amount,
the Policy would not comply with maximum premium limitations required
by Federal tax law, the decrease may be limited or cash value may be
returned to the Owner, at his or her election, to the extent necessary
to meet these requirements. Any decrease will reduce the face amount
in the following order:
a. The face amount provided by the most recent increase;
b. The next most recent increases successively; and
c. The initial face amount.
3. For an increase in the face amount, the Company requires that
satisfactory evidence of insurability be submitted. If approved, the
increase will become effective as of the monthly anniversary following
receipt of satisfactory evidence of insurability. In addition, the
insureds must have an attained age of not greater than 80 on the
effective date of the increase. The increase may generally not be less
than $5,000.
C. Change in Death Benefit Option
<PAGE>
After the first Policy anniversary, the Owner may request in writing to
change the death benefit option. If the request is to change from Option A to
Option B, the face amount will be decreased by the amount of the cash value.
Evidence of insurability satisfactory to the Company will be required on a
change from Option A to Option B. This change cannot be made if it would result
in a face amount of less than $5,000. If the request is to change from Option B
to Option A, the face amount will be increased by the amount of the cash value.
The effective date of a change will be the monthly anniversary on or following
the date the request for change is received by the Company. The option may be
changed once each Policy year.
D. Benefit Claims
While the Policy remains in force, the Company will pay a death
benefit to the named beneficiary in accordance with the designated death benefit
option within seven days after receipt in its home office of due proof of death
of the insured. Payment of death benefits may be postponed under certain
circumstances, such as the New York Stock Exchange being closed for reasons
other than customary weekend and holiday closings.
The amount of the death benefit is determined at the end of the
valuation period during which the insured dies. The amount of the death benefit
will never be less than the current face amount of the Policy as long as the
Policy remains in force. The proceeds will be reduced by any outstanding
indebtedness. The proceeds will be increased by the amount of the monthly cost
of insurance for the portion of the month from the date of death to the end of
the month. The death benefit may exceed the face amount of the Policy depending
on the death benefit option in effect, the cash value of the Policy, and the
applicable percentage in effect at
<PAGE>
the date of death. Under Option A, the death benefit is the greater of the face
amount or the cash value on the date of death multiplied by the applicable
percentage. Under Death Benefit Option B, the death benefit is equal to the face
amount plus the cash value on the date of death or, if greater, the applicable
percentage (as per Option A) of the cash value on the date of death.
If the insured is living on the maturity date (the date on which the
insured reaches attained age 95), the Company will pay the cash surrender value
of the Policy on the maturity date.
Death benefit proceeds may be paid in a single-sum, or under one of
the settlement options described in the Policy. The election may be made by the
Owner during the insured's lifetime, or, if no election is in effect at death,
by the beneficiary. An option is available only if the proceeds to be applied
are $5,000 or more. The settlement options are subject to the restrictions and
limitations set forth in the Policy.
Proceeds may also be payable through riders that may be available
under the Policy. These riders include HIV Acceleration of Death Benefits Rider
and the Accelerated Death Benefit Settlement Option Rider. These specific riders
are described below.
HIV Acceleration of Death Benefits Rider. Provides for the Owner's
election for the Company to make an accelerated payment, prior to the death of
the Insured upon receipt of satisfactory evidence that the Insured has tested
seropositive for the human immunodeficiency virus ("HIV") after both the Policy
and rider are issued. The Company will pay the Policy's death benefit (less any
Indebtedness and any term insurance added by
<PAGE>
riders), calculated on the date that the Company receives satisfactory evidence
that the Insured has tested seropositive for HIV, reduced by a $100
administrative processing fee. The Company will pay the accelerated benefit to
the Owner in a single payment in full settlement of the Company's obligations
under the Policy. The rider may be added to the Policy only after the Insured
satisfactorily meets certain underwriting requirements which will generally
include a negative HIV test result to a blood or other screening test acceptable
to the Company.
Accelerated Death Benefit Settlement Option Rider. Provides for the
accelerated payment of a portion of death benefit proceeds in a single sum to
the Owner if the Insured is terminally ill or permanently confined to a nursing
home. Under the rider, which is available at no additional cost, the Owner may
make a voluntary election to completely settle the Policy in return for the
Company's accelerated payment of a reduced death benefit. The Owner may make
such an election under the rider if the Insured (1) has a life expectancy of 12
months or less or (2) is permanently confined to a qualified nursing home and is
expected to remain there until death. Any irrevocable beneficiary and assignees
of record must provide written authorization in order for the Owner to receive
the accelerated benefit.
The amount of the death benefit payable under the rider will equal the
cash surrender value under the Policy on the date the Company receives
satisfactory evidence of either (1) or (2), above, (less any Indebtedness and
any term insurance added by other riders) plus the product of the applicable
"benefit factor" multiplied by the difference of (a) minus (b), where (a) equals
the Policy's death benefit proceeds, and (b) equals the Policy's cash surrender
value. The "benefit factor", in the case of terminal illness, is 0.85 and, in
the case of permanent nursing home confinement, is 0.70.
<PAGE>
E. Policy Loans
After the first Policy anniversary, the Owner may, by written request
to the Company, borrow an amount up to the loan value of the Policy, with the
Policy servicing as sole security for such loan. The loan value is equal to 85%
of the cash value of the Policy on the date the Policy loan is requested,
reduced by the amount of any existing loans and interest payable on those loans,
and any surrender charges. The minimum amount that may be borrowed is $100. Any
amount due to an owner under a loan ordinarily will be paid within seven days
after the Company received a loan request at its home office, although payments
may be postponed under certain circumstances.
When a loan is made, cash value equal to the amount of the loan will
be transferred to the "Loan Account" (part of the Company's general assets) as
security for the loan. Unless the Owner requests a different allocation, amounts
will be transferred from the divisions of the Separate Account to the Loan
Account in the same proportion that the Policy's cash value in each division
bears to the total cash value, less the cash value in the Loan Account. Cash
value transferred to the Loan Account will accrue interest daily at an annual
rate not less than 5%. The Loan Account crediting rate will be determined by
Company officers as authorized by the Board of Directors. The interest rate
charged will be 8%.
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. When a loan
repayment is made, an amount securing the indebtedness in the Loan Account equal
to the loan repayment will be transferred to the divisions of the Separate
Account in the same proportion that cash value in the Loan Account bears to the
cash value in each Loan division.
<PAGE>
E. TRANSFERS
The Separate Account currently has five divisions. Under the Company's
current rules, a Policy's cash value, except amounts credited to the Loan
Account, may be transferred among the divisions of the Separate Account.
Requests for transfers from or among divisions of the Separate Account must be
in writing and may be made once each Policy month. Transfers must be in amounts
of at least $250 or, if smaller, the Policy's cash value in a division. The
Company will effectuate transfers and determine all values in connection with
transfers as of the end of the valuation period during which the transfer
request is received.
The Company currently intends to continue to permit transfers for the
foreseeable future. The Policy provides that the Company may at any time modify
the transfer privilege, including the minimum amount transferable, and may in
the future impose a charge of no more than $25 per transfer request.
IV. REFUNDS
A. Right to Examine Policy Period
An Owner may cancel a Policy within the latest of 20 days after
receiving it, 45 days after the application was signed, or 10 days of mailing a
notice of the cancellation right. If a Policy is cancelled within this time
period, a refund will be paid. The refund will equal all premiums paid under the
Policy or any different amount required by state law.
<PAGE>
The Company will apply premiums to the divisions of the separate
account as initially requested. Any refund of premiums due to the "free look"
provision would be paid from the Separate Account. Any insufficiencies in funds
from the Separate Account will be paid from our general assets.
To cancel the Policy, the Owner must mail or deliver the Policy
directly to the Company. A refund of premiums paid by check may be delayed until
the check has cleared the Owner's bank.
A request for an increase in face amount may also be cancelled. The
request for cancellation must be made within the latest of 20 days from the date
the Owner received the new Policy specifications page from the increase, 45 days
after the application for the increase was signed, or 10 days of mailing the
right to cancellation notice.
Upon cancellation of an increase, the Owner may request that the
Company refund the amount of the additional charges deducted in connection with
the increase. This will equal the amount by which the monthly deductions since
the increase went into effect exceeded the monthly deductions which would have
been made absent the increase.
If no request is made, the Company will increase the Policy's cash
value by the amount of these additional charges. This amount will be allocated
among the divisions of the Separate Account in the same manner as it was
deducted.
<PAGE>
B. Suicide
In the event the insured commits suicide, whether sane or insane,
within two years of the issue date (or within the maximum period permitted by
the laws of the state in which the policy was delivered, if less than two
years), the amount payable will be limited to the return of premiums paid, less
any indebtedness or partial withdrawals. In the event of suicide within two
years of the effective date of any increase will be limited to the amount of the
monthly deductions for the increase.
C. Incontestability Clause
The Policy is incontestable after it has been in force for two years
from the issue date during the lifetime of the insured. An increase in the face
amount or addition of a rider after the issue date is incontestable after such
increase or addition has been in force for two years from its effective date
during the lifetime of the insured. Any reinstatement of a Policy is
incontestable, except for nonpayment of premiums, only after it has been in
force during the lifetime of the insured for two years after the effective date
of the reinstatement.
D. Misstatement of Age.
If the age of the insured has been misstated in the application, the
amount of the death benefit will be that which the most recent cost of insurance
charge would have purchased for the correct age.
<PAGE>
V. METHOD OF COMPUTING EXCHANGE ADJUSTMENTS
Once during the first 24 Policy months following the issue date of the
Policy, the Owner may, upon written request, convert a Policy still in force to
a life insurance policy that provides for benefits that do not vary with the
investment return of the divisions of the Separate Account. No evidence of
insurability will be required when this right is exercised. However, the Company
will require that the Policy be in force and that the Owner repay any existing
indebtedness. At the time of the conversion, the new Policy will have, at the
Owner's option, either the same death benefit or the same net amount at risk as
the original Policy. The new Policy will also have the same issue date and issue
age as the original Policy. The premiums for the new Policy will be based on the
company's rates in effect for the same issue age and rate class as the original
Policy.
In addition, once during the first 24 Policy months following the
effective date of a requested increase in face amount (i.e., an increase that is
not the result of a change in death benefit options), the Owner may, upon
written request, convert the amount of the increase in face amount to a life
insurance policy which also provides for fixed benefits. Premiums under this new
contract will be based on the Company's rates in effect for the same issue age
and rate class of the insured as were applied on the effective date of the
increase in the face amount. The conditions and principles, described above,
which are applicable to a conversion of the entire Policy, will be equally
applicable to the conversion of an increase in face amount to a fixed-benefit
policy.
<PAGE>
Exhibit 7
OPINION of MATTHEW P. McCAULEY, ESQUIRE, GENERAL COUNSEL
of PARAGON LIFE INSURANCE COMPANY
<PAGE>
August 17, 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. _______ filed by Paragon Life
Insurance Company ("Paragon") and Separate Account C 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
August 1, 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.
<PAGE>
Paragon Life Insurance Company 2 August 17, 1993
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.
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 guaranteed 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.
6. 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 hearby 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 8
OPINION AND CONSENT OF CRAIG K. NORDYKE, F.S.A., M.A.A.A.,
EXECUTIVE VICE PRESIDENT AND CHIEF ACTUARY
<PAGE>
RE: 33-67970
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 C filed on Form S-6
with the Securities and Exchange Commission under the Securities Act of 1933
(the "Registration Statement") regarding the offer and sale of flexible premium
variable life insurance policies (the "Policies"); and (b) the preparation of
policy forms for the Policies described in the Registration Statement.
It is my professional opinion that:
1. The illustrations of cash values, cash surrender values, death benefits,
and accumulated premiums in the Appendix to the prospectus contained in
the Registration Statement, are based on the assumptions stated in the
illustration, and are consistent with the provisions of the Policies. The
rate structure of the Policies has not been designed so as to make the
relationship between premiums and benefits, as shown in the illustrations,
appear to be more favorable to prospective purchasers of Policies aged 45
or 50 in the rate class illustrated than to prospective purchasers of
Policies at other ages.
2. The information contained in the examples set forth in the section of the
prospectus entitled "Death Benefits", is based on the assumption stated in
the examples, and is consistent with the provisions of the Policies.
I hereby consent to the filing of this opinion as an exhibit to the Post-
Effective Amendment No. 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 9
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
<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 C of Paragon Life Insurance Company.
KPMG LLP
St. Louis, Missouri
April 28, 2000
<PAGE>
Exhibit 10
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 C of Paragon Life
Insurance Company (File No. 33-67970). 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
<PAGE>
Exhibit 11
POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
-----------------
As a member of the Board of Directors of Paragon Life Insurance Company, I
hereby constitute Matthew P. McCauley, Carl H. Anderson and Craig K. Nordyke,
and each of them singly, with full power to them and each of them singly to sign
for me, and in my name and in the capacity mentioned below, any and all
Registration Statements, documents, instruments, and exhibits related thereto,
and any and all amendments to Registration Statements filed with the Securities
and Exchange Commission for the purpose of registering securities issued by
Separate Account C of Paragon Life Insurance Company, and I hereby ratify and
confirm my signature as it may be signed by the above-mentioned people to said
Registration Statements and to any and all amendments thereto.
Witness my hand on the date set forth below.
Signature
/s/ Carl H. Anderson Member, Board of Directors
- -------------------------
Paragon Life Insurance Company
Carl H. Anderson
- -------------------------
Name (typed or printed)
Date August 23, 1993
-------------------
<PAGE>
POWER OF ATTORNEY
-----------------
As a member of the Board of Directors of Paragon Life Insurance Company, I
hereby constitute Matthew P. McCauley, Carl H. Anderson and Craig K. Nordyke,
and each of them singly, with full power to them and each of them singly to sign
for me, and in my name and in the capacity mentioned below, any and all
Registration Statements, documents, instruments, and exhibits related thereto,
and any and all amendments to Registration Statements filed with the Securities
and Exchange Commission for the purpose of registering securities issued by
Separate Account C of Paragon Life Insurance Company, and I hereby ratify and
confirm my signature as it may be signed by the above-mentioned people to said
Registration Statements and to any and all amendments thereto.
Witness my hand on the date set forth below.
Signature
/s/ Craig K. Nordyke Member, Board of Directors
- --------------------------
Paragon Life Insurance Company
Craig K. Nordyke
- --------------------------
Name (typed or printed)
Date August 23, 1993
--------------------
<PAGE>
POWER OF ATTORNEY
-----------------
As a member of the Board of Directors of Paragon Life Insurance Company, I
hereby constitute Matthew P. McCauley, Carl H. Anderson and Craig K. Nordyke,
and each of them singly, with full power to them and each of them singly to sign
for me, and in my name and in the capacity mentioned below, any and all
Registration Statements, documents, instruments, and exhibits related thereto,
and any and all amendments to Registration Statements filed with the Securities
and Exchange Commission for the purpose of registering securities issued by
Separate Account C of Paragon Life Insurance Company, and I hereby ratify and
confirm my signature as it may be signed by the above-mentioned people to said
Registration Statements and to any and all amendments thereto.
Witness my hand on the date set forth below.
Signature
/s/ Matthew P. McCauley Member, Board of Directors
- -------------------------
Paragon Life Insurance Company
Matthew P. McCauley
- -------------------------
Name (typed or printed)
Date August 18, 1993
-------------------
<PAGE>
POWER OF ATTORNEY
-----------------
As a member of the Board of Directors of Paragon Life Insurance Company, I
hereby constitute Matthew P. McCauley, Carl H. Anderson and Craig K. Nordyke,
and each of them singly, with full power to them and each of them singly to sign
for me, and in my name and in the capacity mentioned below, any and all
Registration Statements, documents, instruments, and exhibits related thereto,
and any and all amendments to Registration Statements filed with the Securities
and Exchange Commission for the purpose of registering securities issued by
Separate Account C of Paragon Life Insurance Company, and I hereby ratify and
confirm my signature as it may be signed by the above-mentioned people to said
Registration Statements and to any and all amendments thereto.
Witness my hand on the date set forth below.
Signature
/s/ E. Thomas Hughes, Jr. Member, Board of Directors
- -------------------------
Paragon Life Insurance Company
Thomas Hughes, Jr.
- -------------------------
Name (typed or printed)
Date August 18, 1993
-------------------
<PAGE>
POWER OF ATTORNEY
-----------------
As a member of the Board of Directors of Paragon Life Insurance Company, I
hereby constitute Matthew P. McCauley, Carl H. Anderson and Craig K. Nordyke,
and each of them singly, with full power to them and each of them singly to sign
for me, and in my name and in the capacity mentioned below, any and all
Registration Statements, documents, instruments, and exhibits related thereto,
and any and all amendments to Registration Statements filed with the Securities
and Exchange Commission for the purpose of registering securities issued by
Separate Account C of Paragon Life Insurance Company, and I hereby ratify and
confirm my signature as it may be signed by the above-mentioned people to said
Registration Statements and to any and all amendments thereto.
Witness my hand on the date set forth below.
Signature
/s/ Bernard H. Wolzenski Member, Board of Directors
- ------------------------
Paragon Life Insurance Company
Bernard H. Wolzenski
- ------------------------
Name (typed or printed)
Date August 19, 1993
------------------
<PAGE>
POWER OF ATTORNEY
-----------------
As a member of the Board of Directors of Paragon Life Insurance Company, I
hereby constitute Matthew P. McCauley, Carl H. Anderson and Craig K. Nordyke,
and each of them singly, with full power to them and each of them singly to sign
for me, and in my name and in the capacity mentioned below, any and all
Registration Statements, documents, instruments, and exhibits related thereto,
and any and all amendments to Registration Statements filed with the Securities
and Exchange Commission for the purpose of registering securities issued by
Separate Account C of Paragon Life Insurance Company, and I hereby ratify and
confirm my signature as it may be signed by the above-mentioned people to said
Registration Statements and to any and all amendments thereto.
Witness my hand on the date set forth below.
Signature
/s/ A. Greig Woodring Member, Board of Directors
- -----------------------
Paragon Life Insurance Company
A. Greig Woodring
- -----------------------
Name (typed or printed)
Date August 20, 1993
-----------------
<PAGE>
POWER OF ATTORNEY
-----------------
As a member of the Board of Directors of Paragon Life Insurance Company, I
hereby constitute Matthew P. McCauley, Carl H. Anderson and Craig K. Nordyke,
and each of them singly, with full power to them and each of them singly to sign
for me, and in my name and in the capacity mentioned below, any and all
Registration Statements, documents, instruments, and exhibits related thereto,
and any and all amendments to Registration Statements filed with the Securities
and Exchange Commission for the purpose of registering securities issued by
Separate Account C of Paragon Life Insurance Company, and I hereby ratify and
confirm my signature as it may be signed by the above-mentioned people to said
Registration Statements and to any and all amendments thereto.
Witness my hand on the date set forth below.
Signature
/s/ Richard A. Liddy Member, Board of Directors
- -----------------------
Paragon Life Insurance Company
Richard A Liddy
- -----------------------
Name (typed or printed)
Date August 20, 1993
-----------------
