As filed with the Securities and Exchange Commission on Sept 1, 1999
Registration No. 333-80393
811-08385
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
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 D OF PARAGON LIFE INSURANCE COMPANY
(Exact Name of Registrant)
PARAGON LIFE INSURANCE COMPANY
(Name of Depositor)
100 South Brentwood Boulevard
St. Louis, MO 63105
(Address of Depositor's 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
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of the registration statement
Title of securities being registered: Joint and Last Survivor Flexible
Premium Variable Life Insurance Policies.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay is effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration shall become effective on
such date as the Commission, acting pursuant to Section 8(a), may determine.
[Paragon - VUL Logo Appears Here]
Underlying Funds Through:
Fidelity Variable Insurance Products Fund
Fidelity Variable Insurance Products Fund II
MFS Variable Insurance Trust
Putnam Variable Trust
Scudder Variable Life Investment Fund
T. Rowe Price Equity Series, Inc.
T. Rowe Price Fixed Income Series, Inc.
. Joint and Last Survivor
Flexible Premium Variable Life
Insurance Policy
[Paragon Logo Appears Here]
Prospectus dated , 1999
50415
FLEXIBLE PREMIUM JOINT AND LAST SURVIVOR
VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PARAGON LIFE INSURANCE COMPANY
100 South Brentwood
St. Louis, MO 63105
(314) 862-2211
This Prospectus describes a flexible premium joint and last survivor variable
life insurance Policy ("the Policy") offered by Paragon Life Insurance Company
("we," "our," "us" "Paragon" or "the Company"). The Policy is designed to
provide lifetime insurance protection and to provide maximum flexibility to
vary premium payments and change the level of death benefits payable under the
Policy. This flexibility allows you to provide for changing insurance needs
under a single insurance policy. You also have the opportunity to allocate Net
Premiums among several investment portfolios with different investment
objectives.
The Policy provides:
(1) a Cash Surrender Value that can be obtained by surrendering the Policy;
(2) Policy Loans; and
(3) a death benefit payable at the death of the Last Insured. As long as a
Policy remains in force before the younger Insured's Attained Age 100,
the death benefit will be at least the current Face Amount of the
Policy. A Policy will remain in force as long as its Cash Surrender
Value is sufficient to pay the monthly charges.
After the end of the "Right to Examine Policy" period, you may allocate the
Net Premiums to one or more of the Divisions of Paragon's Separate Account D
("the Separate Account") or in certain contracts to Paragon's General Account.
You will find a list of the Funds in the Separate Account, the fund managers,
and the investment objectives in the Summary on page 3. Note that investment
results in the Separate Account are not guaranteed--you may either make money
or lose money. Depending on investment results, the Policy could lapse or the
death benefit could change. The Prospectus of each Fund contains a full
description of the Fund, including the investment policies, restrictions,
risks, and charges. You should receive a Prospectus for each Fund along with
this Prospectus for the Policy.
In most Policies you may also invest all or part of your Cash Value in the
General Account, which guarantees at least 4% annual interest.
It may not be advantageous to purchase a Policy as a replacement for another
type of life insurance or as a means to obtain additional insurance protection
if the purchaser already owns another flexible premium joint and last survivor
variable life insurance policy.
These securities have not been approved or disapproved by the Securities and
Exchange Commission, nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
Please read this Prospectus carefully and retain it for future reference. The
date of this Prospectus is July 1, 1999. The Policies are not available in all
states.
This prospectus does not constitute an offering in any jurisdiction in which
such offering may not be lawfully made. No dealer, salesman, or other person is
authorized to give any information or make any representations in connection
with this offering other than those contained in this prospectus, and, if given
or made, such other information or representations must not be relied upon.
2
TABLE OF CONTENTS
Page
----
Summary.................................................................. 1
Definitions.............................................................. 9
The Company, the Separate Account, and the Funds......................... 10
The Company
The Separate Account
The Funds
Fidelity Variable Insurance Products Fund
Fidelity Variable Insurance Products Fund II
Putnam Variable Trust
Scudder Variable Life Investment Fund
T. Rowe Price Equity Series, Inc.
T. Rowe Price Fixed Income Series, Inc.
Addition, Deletion, or Substitution of Investments....................... 13
Policy Benefits.......................................................... 14
Death Benefit
Cash Value
Policy Rights............................................................ 17
Loans
Surrender, Partial Withdrawals and Pro Rata Surrender
Transfers
Portfolio Rebalancing
Dollar Cost Averaging
Right to Examine Policy
Death Benefit at Attained Age 100
Payment and Allocation of Premiums....................................... 22
Issuance of a Policy
Premiums
Allocation of Net Premiums and Cash Value
Policy Lapse and Reinstatement
Charges and Deductions................................................... 24
Premium Expense Charges
Monthly Deduction
Separate Account Charges
The General Account...................................................... 26
General Matters.......................................................... 28
Distribution of the Policies............................................. 30
Federal Tax Matters...................................................... 31
Safekeeping of the Separate Account's Assets............................. 34
Voting Rights............................................................ 34
State Regulation of the Company.......................................... 34
Management of the Company................................................ 35
Legal Matters............................................................ 36
Legal Proceedings........................................................ 38
Experts.................................................................. 38
Additional Information................................................... 38
Financial Statements
Appendix A--Illustration of Death Benefits and Cash Values
3
SUMMARY
Throughout this summary, the terms "you" and "your" refer to the owner of the
policy. The owner may or may not be one of the persons insured under the
policy. The terms "we," "us," and "our" refer to Paragon Life Insurance
Company.
The information in this section is just a summary, written in "laymen's terms"
to help you understand the policy. However, both your policy and this
prospectus are legal documents. If you have questions about them, you should
contact your agent or other competent professional advisers.
In preparing this summary, we assume that the Policy is in force, and that you
have not borrowed any of the cash value.
The Policy
You are purchasing a life insurance policy. Like many life insurance policies,
it has both a death benefit and a cash value. The death benefit is the amount
of money that we will pay to the beneficiary if both of the persons insured
under the policy die while the policy is in force. The cash value is the amount
of money accumulated in your policy as an investment at any time. The cash
value consists of the premiums you have paid, reduced by the expenses deducted
for operation of the policy, and either increased or decreased by investment
results.
You have certain rights, including the right to borrow or withdraw money from
the policy's cash value and the right to select the funds in which you will
invest your premiums.
You have the right to review the policy and decide whether you want to keep it.
If you decide not to keep the policy, you may return it to us or to your agent
during the "Right to Examine Policy Period." This period is sometimes referred
to as the "Free Look Period." It normally ends on the later of:
1. twenty days after you receive the policy or
2. forty-five days after you signed the application.
In some states the period may be longer. Your agent can tell you if this is the
case.
During the "Right to Examine Policy Period" we will hold any premiums you have
paid in the money market fund. If you return the policy before the end of the
free look period, we will cancel the policy and return any premiums you have
paid. (For policies issued in Kansas, the rules are different. Your agent can
provide you with the details.) (See Policy Rights--Right to Examine Policy.)
When the "Right to Examine Policy Period" ends, we will deduct any charges due
and transfer the rest of the money (your "net premium") into the investment
funds that you have selected. We will continue to transfer future net premiums
into the investments that you select as soon as we receive the premiums.
The policy is a "flexible premium" policy. This means that you may, within
limits described below, make premium payments at any time and in any amount you
choose. You do not have to make premium payments according to a fixed schedule,
although you may choose to do so.
There are limits on the amount that you may pay into the policy without
creating tax consequences. If you make a premium payment that exceeds the
limit, we will notify you and offer to refund the excess paid.
We will deduct certain expenses from your cash value. These expenses are
described below. In addition, your cash value may increase or decrease,
depending on the investment experience of the funds you select. Because
4
it is possible for your cash value to decrease, you may have to pay additional
premiums in order to keep the policy in force.
As long as there is enough money in your cash value to pay the monthly charges,
your death benefit will always be at least the face amount of your policy,
minus any amount that you have borrowed from the policy. The face amount of
your policy means the amount of insurance that you have purchased. It is shown
on the specifications page of your policy
We will notify you if your cash value is not enough to pay the monthly charges.
If that happens, you will have 62 days to make a premium payment big enough to
bring your cash value up to the amount required to pay the charges. If you make
the premium payment, the policy will stay in force. If you don't, the policy
will lapse, or end with no value. (See Payment and Allocation of Premiums--
Policy Lapse and Reinstatement.)
Investing Your Cash Value
You may tell us to invest your cash value in either the general account or the
separate account, or you may split your cash value between them.
The General Account
The general account is an interest-bearing account. Money in the general
account is guaranteed to earn at least 4% annual interest, and it may earn
more. Paragon determines the current interest rate from time to time. We have
the right to limit the amount of money that you may put into the general
account.
The Separate Account
The separate account consists of divisions, which represent different types of
investments. Each division may either make money or lose money. Therefore if
you invest in a division of the separate account, you may either make money or
lose money, depending on the investment experience of that division. There is
no guaranteed rate of return in the separate account.
There are currently fourteen divisions, or investment options, available in the
separate account. These divisions represent funds run by various investment
companies. The investment companies hire advisers to operate or advise on the
day-to-day operation of the funds.
The following list shows the investment companies whose funds are available
under the policy, along with the managers or advisers and the divisions that
they oversee:
Investment Company Investment Manager/Adviser
------------------ --------------------------
Fidelity Investments Variable
Insurance Products Fund or Fidelity
Investments Variable Insurance
Products Fund II.................... Fidelity Management & Research Company
MFS Variable Insurance Trust......... Massachusetts Financial Services Company
Putnam Variable Trust................ Putnam Investment Management, Inc.
Scudder Variable Life Investment
Fund................................ Scudder, Kemper Investments
T. Rowe Price Equity Series, Inc. and
T. Rowe Price Fixed Income Series,
Inc................................. T. Rowe Price Associates, Inc.
5
These funds have different goals and strategies, which we have summarized in
the following table. You should review the prospectus of each fund, or seek
professional guidance in determining which fund(s) best meet your objectives.
Investment Manager Fund Name Investment Type Objective
------------------ ----------------- -------------------- ------------------------
Fidelity Management VIP Growth Capital Appreciation To achieve long-term
& Portfolio capital appreciation by
Research Company investing primarily in
common stocks.
Fidelity Management VIP Equity-Income Income To obtain reasonable
& Portfolio income by investing
Research Company primarily in income-
producing equity
securities. In choosing
these securities, the
fund will also consider
potential for capital
appreciation. The
Portfolio's goal is to
achieve a yield which
exceeds the composite
yield of the securities
comprising the S&P 500
Composite Stock Price
Index.
Fidelity Management VIP II Index 500 Long-Term To provide investment
& Research Company Portfolio Investment results that correspond
to the total return
(i.e., the combination
of capital change and
income)
of common stocks
publicly traded in the
United States as
represented by the
Standard & Poor's 500
Composite Stock Price
Index while keeping
transaction costs and
other expenses low. The
Portfolio is designed as
a long-term investment
option.
Fidelity Management VIP III Long-Term Capital To obtain long-term
& Research Company Contrafund Appreciation capital appreciation by
Portfolio investing in securities
of companies whose value
FMR believes is not
fully recognized by the
public.
Massachusetts MFS Emerging Long-Term Capital To provide long-term
Financial Services Growth Series Growth growth of capital.
Company Dividend and interest
income from portfolio
securities, if any, is
incidental to the
Series' investment
objective of long-term
growth of capital. The
Series' policy is to
invest primarily (i.e.,
at least 80%
of its assets under
normal circumstances) in
common stocks of small
and medium-sized
companies that are early
in their life cycle but
which have the potential
to become major
enterprises (emerging
growth companies).
6
Investment Manager Fund Name Investment Type Objective
------------------ --------------- -------------------- ------------------------
Putnam Investment Putnam VT High Current Income and To attain high current
Management, Inc. Yield Fund Capital Growth income and, when
consistent with this
objective, a secondary
objective of capital
growth, by investing
primarily in high-
yielding, lower-rated
fixed income securities
(commonly known as "junk
bonds"),
constituting a portfolio
that Putnam Management
believes does not
involve undue risk to
income or principal. See
the special
considerations for
investments in high
yield securities
described in the Putnam
Variable Trust
prospectus.
Putnam Investment Putnam VT New Long-Term Capital To attain long-term
Management, Inc. Opportunities Appreciation capital appreciation by
Fund investing primarily in
common stocks of
companies in sectors of
the economy that Putnam
Management believes
possess above-average
long-term growth
potential.
Putnam Investment Putnam Current Income and To obtain current income
Management, Inc. VT Income Preservation of consistent with
Fund Capital preservation of capital
(Previously by investing primarily
named in securities issued by
Putnam VT U.S. or guaranteed by the
Government and U.S. Government, or its
High Quality agencies or
Bond instrumentalitites, and
Fund) in other debt
obligations rated at
least A by a nationally
recognized securities
rating agency such as
Standard & Poor's or
Moody's Investors
Service, Inc., or, if
not rated, determined by
Putnam Management to be
of comparable quality.
Putnam Investment Putnam VT Capital Appreciation To obtain capital
Management, Inc. Voyager Fund appreciation by
investing primarily in
common stocks of
companies that Putnam
Management believes have
potential for capital
appreciation that is
significantly greater
than that of market
averages.
Scudder, Kemper Money Market Current Income with To maintain the
Investments Portfolio Liquidity and stability of capital
Stability of Capital and, consistent
therewith, to maintain
the liquidity of capital
and to provide current
income. The Fund seeks
to maintain a constant
net asset value
of $1.00 per share,
although there can be no
assurance that this will
be achieved.
7
Investment Manager Fund Name Investment Type Objective
------------------ --------------- -------------------- ------------------------
Scudder, Kemper International Long-Term Capital To obtain long-term
Investments Portfolio Appreciation growth of capital,
primarily through
diversified holding of
marketable foreign
equity investments. The
Fund invests in
companies, wherever
organized, that do
business outside the
United States. The Fund
intends to diversify
among several countries
and to have represented
in its holdings, in
substantial portions,
business activities in
not less than three
different countries. The
Fund does not intend to
concentrate investments
in any particular
industry.
T. Rowe Price New America Long-Term Capital To obtain long-term
Associates, Inc. Growth Appreciation capital growth of
Portfolio capital through
investment in common
stock of U.S. companies
which operate in the
service sector of the
economy.
T. Rowe Price Personal Highest Total Return To obtain the highest
Associates, Inc. Strategy Consistent with total return consistent
Balanced Capital Appreciation with an emphasis on both
Portfolio and Income capital appreciation and
income by investing in a
diversified portfolio,
typically consisting of
approximately 60%
stocks, 30% bonds, and
10% money market
securities.
T. Rowe Price Limited-Term High Current Income To obtain a high level
Associates, Inc. Bond with Modest Price of current income,
Portfolio Fluctuations consistent with modest
price fluctuations, by
investing primarily in
short term and
intermediate term
investment grade debt
securities.
You may change the funds that you want to use for your future premiums by
notifying our Home Office.
You may transfer your cash value among the various funds, and you may withdraw
money, but there are certain rules. We don't charge you a transaction fee for
the first twelve transfers or withdrawals in a policy year, but we charge a $25
fee for each transfer or withdrawal after the first twelve. (A policy year is
measured beginning on the anniversary of the date that the policy was issued,
and ending on the day before the next anniversary.)
We have the right to change or eliminate transfers in the future, although we
don't currently intend to do so.
Charges and Deductions
There are certain costs that we charge you for issuing your policy and keeping
it in force. This section describes those charges--what they are and what they
cover.
Sales Charge
There is a sales charge of 2.25% of the premium paid on policies issued in the
state of Oregon. There is no sales charge on policies issued in any other
state.
8
Tax Charge
The Federal government and many states and territories impose taxes or charges
on insurance premiums. We deduct from your premium payment the amount required
to pay these taxes and charges. We deduct 1.3% of each premium payment to pay
the Federal charge, and, except in Oregon, we deduct a premium tax charge of
2.25% of each premium payment to pay the state tax.
If the tax rates change, we may change the amount of the deduction to cover the
new charge. (See Charges and Deductions--Premium Expense Charges.)
If we are required by law to pay taxes based on the separate account, we may
charge an appropriate share to policies that invest in the separate account.
(See Federal Tax Matters.)
Monthly Policy Charge
We charge a monthly fee to cover your policy's administrative cost. This charge
is $6 for each month that your policy is in force. We will deduct the charge
from your cash value each month. If you surrender your policy during the first
policy year, we will deduct from the cash surrender value the monthly policy
fee for the months remaining in the first policy year.
Selection and Issue Expense Charge
This charge allows us to recover part of the costs of issuing your policy. We
determine the amount of the charge based on the size of your policy and on the
age, sex, and risk class of the persons insured under the policy.
This is an annual charge, which is currently 45 cents per $1,000 of Face
Amount, and is guaranteed never to exceed 90 cents per $1,000. We deduct one-
twelfth of this charge each month. This charge ends after the policy has been
in force for ten years. If you surrender your policy during the first policy
year, we will deduct from the cash surrender value the selection and issue
expense charge for the months remaining in the first policy year.
Cost of Insurance
Because this is a life insurance policy, it has a death benefit. We charge an
insurance cost each month to cover the risk that you will die and we will have
to pay the death benefit.
The amount of this charge varies with the age, sex, risk class of the persons
insured under the policy, and the amount of the death benefit at risk--if the
risk of death or the amount of the death benefit is greater, then the cost of
insurance is also greater. We deduct the cost of insurance from your cash value
each month.
Mortality and Expense Risk Charge
We make another charge to cover mortality and expense risks due to guaranteed
maximums under the Policy. We calculate this charge based on a percentage of
the net assets in each division of the separate account. Rather than deducting
the charge from the cash value, we apply the charge by adjusting the net rate
of return in the separate account. We guarantee that the charge will not exceed
the following amounts, shown on an annual percentage basis:
Policy years 1-10 .55% of net separate account assets
Policy years 11-20 .45% of net separate account assets
Policy years 21+ .35% of net separate account Assets
(See Charges and Deductions--Separate Account Charges.)
Fund Expenses
We pay the operating expenses of the separate account. The funds pay for their
own operating expenses and investment fees. For a description of these charges,
see Charges and Deductions--Separate Account Charges.
9
The following chart shows the operating expenses of the funds as reported for
the fiscal year ending December 31, 1998:
Annual Fund Operating Expenses
As a Percentage of Average Net Assets
Investment
Advisory /
Management Other
Fund Fee Expenses Total
---- ---------- -------- -----
Fidelity Investments Variable Insurance Products Fund
and
Fidelity Investments Variable Insurance Products
Fund II (1)
VIP Growth Portfolio............................... .59% .09% .68%
VIP Equity-Income Portfolio........................ .49% .09% .58%
VIP II Index 500 Portfolio......................... .24% .11% .35%
VIP II Contrafund Portfolio........................ .59% .11% .70%
MFS Variable Insurance Trust
MFS Emerging Growth Series......................... .75% .10% .85%
Putnam Variable Trust
Putnam VT High Yield Fund.......................... .64% .07% .71%
Putnam VT New Opportunities Fund................... .56% .05% .61%
Putnam VT Income Fund (Previously U.S. Government &
High Quality Bond Fund............................ .60% .07% .67%
Putnam VT Voyager Fund............................. .54% .04% .58%
Scudder Variable Life Investment Fund
Money Market Portfolio............................. .37% .07% .44%
International Portfolio............................ .87% .18% 1.05%
T. Rowe Price Equity Series, Inc. and
T. Rowe Price Fixed Income Series, Inc.
New America Growth Portfolio....................... .85% (2) .85%
Personal Strategy Balanced Portfolio............... .90% (2) .90%
Limited-Term Bond Portfolio........................ .70% (2) .70%
- --------
(1) A portion of the brokerage commissions that certain funds pay was used to
reduce Funds' expenses. In addition, certain Funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances, were used to reduce custodian expenses. With
these reductions, the total operating expenses as a percentage of net
assets would have been: Fidelity Variable Insurance Products Fund--VIP
Growth Portfolio .66% and VIP Equity-Income Portfolio .57%; Fidelity
Variable Insurance Products Fund II--VIP II Index 500 Portfolio .28% and
VIP II Contrafund Portfolio .66%.
(2) T. Rowe Price Associates, Inc. does not provide separate Management Fees
and Other Expenses Fees. Rather, management fees include operating
expenses.
The expense information regarding the Funds was provided by those Funds. We
have not independently verified this information. We cannot guarantee that the
reimbursements provided by certain Funds will continue.
Premiums.
Within limits, you decide how much money you want to put into the policy. There
is a minimum premium that you have to pay to put the policy in force. That
amount is 1/12 of the "minimum initial annual premium amount" shown on the
specifications page of your policy.
After the policy is in force, you may pay any amount you want as long as the
cash value is always enough to cover the current month's expenses. If you
continue to pay at least 1/12 of the minimum initial annual premium
10
each month (or prepay it), and if you don't withdraw or borrow cash from the
policy, we guarantee that the policy will not lapse during the first five
policy years, even if the cash value is not enough to cover the charges.
If you have borrowed or withdrawn money from your cash value, you can still
keep your no-lapse guarantee in force for the first five years. Here is how it
works. Each month, we look at the total amount of premium that you have paid
into the policy since it was issued. We then subtract the amount of money that
you have withdrawn or borrowed. If the amount left is at least equal to 1/12 of
the annual minimum premium, multiplied by the number of months the policy has
been in force, then your no-lapse guarantee still applies. If not, then we will
notify you that you have 62 days to make enough of a premium payment to restore
the no-lapse guarantee. If you do not make the payment, your policy could
lapse, or end with no value, depending on the investment experience of the
funds.
You can set up a schedule of payments, and we will send you reminders, but you
are not required to make the payments as long as the cash value covers the
current month's expenses. (See Payment and Allocation of Premiums.)
Death Benefit.
If both of the persons insured under the policy die while the policy is in
force, we will pay a death benefit to the beneficiary following the second
death. You can select one of three death benefits at the time the policy is
issued:
. Option A: The death benefit is the greater of the face amount of the
policy or an "applicable percentage" of the cash value.
. Option B: The death benefit is the greater of the face amount of the
policy plus the cash value, or an "applicable percentage" of the cash
value.
. Option C: The death benefit is the greater of the face amount of the
policy, or the cash value multiplied by an attained age factor.
As long as the policy remains in force and the younger person insured is less
than 100 years old, the minimum death benefit under any death benefit option
will be at least the current face amount.
We will increase the death benefit by the cost of insurance from the date of
the second death to the end of the month, and will reduce it by any outstanding
loans and interest. We will pay the death benefit according to the settlement
options available at the time of death. (See Policy Benefits--Death Benefit.)
The minimum face amount at issue is generally $250,000 under our current rules.
Subject to certain restrictions, you may change the face amount and the death
benefit option. In certain cases we may require evidence that the person
insured under the policy is still insurable. (See Change in Death Benefit
Option, and Change In Face Amount.)
You may include additional insurance benefits with your policy. These are
described under General Matters--Additional Insurance Benefits. If you elect
any additional benefits, we will deduct the charges for those benefits from
your Cash Value.
Cash Value.
Your Policy has a cash value that is the total amount credited to you in the
separate account, the loan account, and the general account. The cash value
increases by the amount of net premium payments, and decreases by partial
withdrawals and expense charges for the policy. It may either increase or
decrease based on the investment experience of the separate account divisions
that you have selected. (See Policy Benefits--Cash Value.)
There is no minimum guaranteed cash value.
11
Policy Loans.
You may borrow against the cash value of your policy. The loan value is the
maximum amount that you may borrow. The loan value is:
the cash value on the date we receive the loan request;
plus interest on the loan balance to the next anniversary date, calculated
at the guaranteed general account interest rate;
minus interest on the new loan to the next policy anniversary;
minus any loans and interest already outstanding;
minus monthly deductions to the next policy anniversary.
When you borrow against the policy, we will take the money from the general
account and the divisions of the separate account in proportion to your
balances in each account.
Loan interest is due at each policy anniversary If you don't pay the loan
interest, we will add it to the amount of the loan.
You may repay all or part of the loan at any time. When you make a loan
payment, we will put the money back into the general account or the divisions
of the separate account in the same percentages used to make the loan.
When we pay out the proceeds of your policy, either as a death benefit or as a
policy surrender, we will deduct any outstanding loans and interest from the
amount we pay. (See Policy Rights--Loans.)
Loans taken from or secured by a policy may have Federal income tax
consequences. (See Federal Tax Matters.)
Surrender, Partial Withdrawals, and Pro-Rata Surrender.
You may surrender the policy at any time while it is in force. We will pay you
the cash surrender value of your policy. The cash surrender value is
the cash value,
minus any outstanding loans and unpaid loan interest,
minus any unpaid selection and issue expense charge due for the remainder
of the first policy year,
minus any unpaid monthly policy charge due for the remainder of the first
policy year.
After the first year you may request a partial withdrawal of your cash
surrender value. Normally, withdrawing a portion of your cash surrender value
will reduce your death benefit by the amount of the withdrawal. However, if you
have included the Anniversary Partial Withdrawal Rider on your policy, you may
withdraw a portion of your cash surrender value without reducing the death
benefit. Under this rider, there are limits on how much you can withdraw, and
the withdrawal must be at the policy anniversary. You can find more information
about the rider under General Matters--Additional Insurance Benefits.
You may also request a pro-rata surrender of the policy, which allows you to
surrender part of the policy and keep the rest in force. You can find more
information under Policy Rights--Surrender, Partial Withdrawals, and Pro-Rata
Surrender.
A surrender, partial withdrawal, or Pro-Rata Surrender may have Federal income
tax consequences. We suggest that you discuss your situation with a competent
tax adviser before taking one of these steps. (See Federal Tax Matters.)
12
Illustrations of Death Benefits and Cash Surrender Values.
The death benefit and cash surrender value of your policy will depend on how
well your investments perform. In Appendix A we have illustrated some sample
policies. Depending on the rate of return, the values may increase or decrease.
In order to help you to understand the cost of the policy, we also show how
your premium would grow if you simply invested it at 5% interest, compounded
annually.
We will provide you with an illustration showing projected future cash values
if you request it in writing. We may charge a fee of up to $25 for preparing
the illustration.
Tax Consequences of the Policy.
Although the IRS has provided very limited guidance in this area, we believe it
is reasonable to conclude that the Policy qualifies as a life insurance
contract for Federal income tax purposes.
Assuming that the policy does qualify as a life insurance contract for Federal
income tax purposes, then we believe that the cash value should be subject to
the same tax treatment as the cash value of a conventional fixed-benefit
contract. This means that growth in the cash value will not be taxed until you
receive a distribution.
There are some actions that may trigger a tax. If you transfer ownership to
someone else, or if you surrender the policy or withdraw cash from it, you may
have to pay a tax. Similarly, if you let the policy lapse while there is an
outstanding loan, or if you exchange the policy for another policy, you may owe
a tax. (See Federal Tax Matters.)
If you pay too much in premium, your policy may become a "modified endowment
contract." If that happens, then some pre-death distributions of cash will be
taxable income. In general, if there is more cash value in the policy than what
you actually paid in premiums, you will be taxed on the excess in the year in
which you receive a distribution. You may withdraw the amount that you paid
into the policy without being taxed, but only after you have received the
excess as taxable income. In addition, any taxable distribution that you
receive before age 59 1/2 will generally be subject to an additional 10% tax.
On the other hand, if the policy is not a modified endowment contract, then
distributions are normally treated first as a return of your "cost basis," or
investment in the contract. In this case, you may generally withdraw up to the
amount of the premiums you paid with no tax consequences. After that, any
additional distributions are treated as taxable income. Finally, if your policy
is not a modified endowment contract, neither distributions nor loans are
subject to the 10% additional tax (See Federal Tax Matters.)
Please note that Paragon is neither a law firm nor a tax adviser, so we cannot
give you legal or tax advice. If you have specific legal or tax questions, we
suggest that you consult a qualified professional in these fields.
* * *
This Prospectus describes only those aspects of the Policy that relate to the
Separate Account, except where General Account matters are specifically
mentioned. For a brief summary of the aspects of the Policy relating to the
General Account, see The General Account.
13
DEFINITIONS
Attained Age--The Issue Age of an Insured plus the number of completed Policy
Years.
Beneficiary--The person(s) named in the application or by later designation to
receive Policy proceeds in the event of the Last 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 the General Account, including the Loan Account.
Cash Surrender Value--The Cash Value of a Policy on the date of surrender, less
any Indebtedness, and less any unpaid selection and issue expense charges and
any unpaid monthly policy charges due for the remainder of the first Policy
Year.
Division--A subaccount of the Separate Account. Each Division invests
exclusively in the shares of a corresponding Fund of either Fidelity Variable
Insurance Products Fund, Fidelity Variable Insurance Products Fund II, MFS
Variable Insurance Trust, Putnam Variable Trust, Scudder Variable Life
Investment Fund,
T. Rowe Price Equity Series, Inc., or T. Rowe Price Fixed Income Series, Inc.
Effective Date--The date as of which insurance coverage begins under a policy.
Face Amount--The minimum death benefit under the Policy so long as the Policy
remains in force.
Fund--A separate investment portfolio of Fidelity Variable Insurance Products
Fund, Fidelity Variable Insurance Products Fund II, MFS Variable Insurance
Trust, Putnam Variable Trust, Scudder Variable Life Investment Fund, T. Rowe
Price Equity Series, Inc., or T. Rowe Price Fixed Income Series, Inc. Although
sometimes referred to elsewhere as "portfolios," they are referred to in this
prospectus as "Funds," except where "Portfolio" is part of their name.
General Account--The assets of the Company other than those allocated to the
Separate Account or any other separate account. The Loan Account is part of the
General Account.
Home Office--The service center of Paragon Life Insurance Company, the mailing
address of which is P.O. 66757, St. Louis, Missouri 63166-6757.
Indebtedness--The sum of all unpaid Policy Loans and accrued interest on loans.
Insured--The persons whose lives are insured under the Policy.
Investment Start Date--The date the initial premium is applied to the General
Account and/or the Divisions of the Separate Account. This date is the later of
the Issue Date or the date the initial premium is received at Paragon's Home
Office.
Issue Age--The age of each Insured at his or her nearest birthday as of the
date the Policy is issued.
Issue Date--The date from which Policy Anniversaries, Policy Years, and Policy
Months are measured.
Last Insured--The Insured whose death succeeds the death of all other Insureds
under the Policy.
Loan Account--The account of the Company to which amounts securing Policy Loans
are allocated. The Loan Account is part of Paragon's General Account.
Loan Subaccount--A Loan Subaccount exists for the General Account and 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.
14
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 the premium expense charges (consisting of the
sales charge, the premium tax charge, and the federal tax charge).
Owner--The Owner of a Policy, as designated in the application or as
subsequently changed.
Policy--The flexible premium joint and last survivor variable life insurance
Policy offered by the Company and described in this Prospectus.
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.
Portfolio--see Fund.
Pro-Rata Surrender--A requested reduction of both the Face Amount and the Cash
Value by a given percentage.
SEC--The United States Securities and Exchange Commission.
Separate Account--Paragon Separate Account D, a separate investment account
established by the Company to receive and invest the Net Premiums paid under
the Policy, and certain other variable life policies, and allocated by the
Owner to provide variable benefits.
Target Premium--A premium calculated when a Policy is issued, based on the
Insureds' joint age, sex (except in unisex policies) and risk class. The target
premium is used to calculate the marketing allowance compensation under the
Policy. (See Charges and Deductions.)
Valuation Date--Each day that the New York Stock Exchange is open for trading
and the Home Office is open for business. The Home Office is not open for
business the day after Thanksgiving.
Valuation Period--The period between two successive Valuation Dates, commencing
at 4:00 p.m. (Eastern Standard Time) on a Valuation Date and ending 4:00 p.m.
on the next succeeding Valuation Date.
15
THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUNDS
The Company
Paragon Life Insurance Company (the "Company") is a stock life insurance
company incorporated under the laws of Missouri. The Company was organized in
1981 as General American Insurance Company, and on December 31, 1987 its name
was changed. No change in operations or ownership took place in connection with
the name change. The Company is principally engaged in writing individual and
group life insurance policies and annuity contracts. As of December 31, 1998,
it has assets in excess of $300 million. The Company is admitted to do business
in 49 states and the District of Columbia. The principal offices of the Company
are at 100 South Brentwood, St. Louis, Missouri 63105.
The Company is a wholly owned subsidiary of General American Life Insurance
Company ("General American"). General American was originally incorporated as a
stock company in 1933. In 1936, General American initiated a program to convert
to a mutual life insurance company. In 1997, General American's policyholders
approved a reorganization of the Company into a mutual holding company
structure under which General American became a stock company wholly owned by
GenAmerica Corporation, an intermediate stock holding company. GenAmerica is
wholly owned by General American Mutual Holding Company, a mutual holding
company organized under Missouri law. On January 28, 1999, the Board of General
American Mutual Holding Company instructed its management to develop a plan for
demutualization and a public offering of stock.
GenAmerica Corporation and Metropolitan Life Insurance Company (MetLife) have
announced a definitive agreement whereby MetLife will acquire GenAmerica and
its subsidiaries, including Paragon Life Insurance Company. The acquisition
will not affect any of the terms or conditions of your Policy or make MetLife a
party to your Policy. The transaction is expected to be completed in
approximately four to six months and is subject to regulatory approval and
certain other conditions.
Headquartered in New York City since 1868, MetLife is a leading provider of
insurance and financial services to a broad spectrum of individual and group
customers. MetLife with approximately $357.7 billion worth of assets under
management as of December 31, 1998, provides individual insurance and
investment products to approximately 9 million households in the United States.
MetLife also serves over 33 million people by providing group insurance and
investment products to corporations and other institutions.
General American agrees to guarantee that the Company will have sufficient
funds to meet all of its contractual obligations. In the event a policyholder
presents a legitimate claim for payment on a Paragon insurance policy, General
American will pay such claim directly to the policyholder if Paragon is unable
to make such a 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 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. General American does not intend this guarantee to
be a guarantee with regard to the investment experience or cash values of the
Policy.
The Separate Account
Paragon's Separate Account D ("the Separate Account") was established by the
Company as a separate investment account on January 3, 1995 under Missouri law.
The Separate Account receives and invests the Net Premiums paid under this
Policy and allocated to it. In addition, the Separate Account currently
receives and invests net premiums for other classes of flexible premium
variable life insurance policies issued by the Company and might do so for
additional classes in the future.
The Separate Account has been registered with the SEC 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 SEC.
16
The Separate Account currently is divided into fourteen Divisions. Divisions
invest in corresponding Funds from one of several open-end, diversified
management investment companies described below. 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 Paragon, the
assets in the Separate Account equal to the reserves and other liabilities of
the Separate Account are not chargeable with liabilities arising out of any
other business which the Company may conduct. The assets of the Separate
Account are available to cover the general liabilities of Paragon only to the
extent that the Separate Account's assets exceed its liabilities arising under
the Policies. From time to time, the Company may transfer to its General
Account any assets of the Separate Account that exceed the reserves and the
Policy liabilities of the Separate Account (which will always be at least equal
to the aggregate Policy value allocated to the Separate Account under the
Policies). Before making any such transfers, Paragon will consider any possible
adverse impact the transfer may have on the Separate Account.
The Funds
There is no assurance that any of the Funds will achieve its stated objective.
It is conceivable that in the future it may be disadvantageous for Funds to
offer shares to separate accounts of various insurance companies to serve as
the investment medium for their variable products, or for both variable life
and annuity separate accounts to invest simultaneously in a Fund. The Boards of
Trustees of each Fund, the respective Advisors of each Fund, and the Company
and any other insurance companies participating in the Funds are required to
monitor events to identify any material irreconcilable conflicts that may
possibly arise, and to determine what action, if any, should be taken in
response to those events or conflicts. A more detailed description of the
Funds, their investment policies, restrictions, risks, and charges is in the
prospectuses for each Fund, which must accompany or precede this Prospectus and
which should be read carefully.
The investment objectives and policies of certain Funds are similar to the
investment objectives and policies of other portfolios that may be managed by
the same investment adviser or manager. The investment results of the Funds,
however, may differ from the results of such other portfolios. There can be no
assurance, and no representation is made, that the investment results of any of
the Funds will be comparable to the investment results of any other portfolio,
even if the other portfolio has the same investment adviser or manager.
We have entered into or may enter into arrangements with Funds pursuant to
which we receive a fee based upon an annual percentage of the average net asset
amount invested by us on behalf of the Separate Account and other separate
accounts of the Company. These arrangements are entered into because of
administrative services we provide.
Fidelity Variable Insurance Products Fund
Variable Insurance Products Fund ("VIP") is an open-end, diversified management
investment company. Only the Funds described in this section of the prospectus
are currently available as investment choices of the Policies, even though
additional Funds may be described in the prospectus for VIP. Fidelity
Management & Research Company ("FMR") of Boston, Massachusetts is the manager
of the Funds.
The investment objectives and policies of each Fund are summarized below:
. Growth Portfolio
The investment objective seeks to achieve long-term capital appreciation
by investing primarily in common stocks.
. Equity-Income Portfolio
17
The investment objective seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities, the
Portfolio will also consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield
on the securities comprising the Standard & Poor's 500 Composite Stock
Price Index.
Fidelity Variable Insurance Products Fund II
Variable Insurance Products Fund II (VIP II) is an open-end diversified
management investment company. Only the Funds described in this section of the
prospectus are currently available as investment choices of the Policies even
though additional Funds may be described in the prospectus for VIP II. Fidelity
Management & Research Company of Boston, Massachusetts is the manager of the
Funds.
The investment objectives and policies of each Fund are summarized below:
. Index 500 Portfolio
The investment objective seeks to provide investment results that
correspond to the total return (i.e., the combination of capital change
and income) of common stocks publicly traded in the United States as
represented by the Standard & Poor's 500 Composite Stock Price Index,
while keeping transaction costs and other expenses low. The portfolio is
designed as a long-term investment option.
. Contrafund Portfolio
The investment objective seeks long-term capital appreciation by
investing in securities of companies whose value FMR believes is not
fully recognized by the public.
MFS Variable Insurance Trust
MFS Variable Insurance Trust ("MFS Trust") is an open-end diversified
management investment company. Only the Fund described in this section of the
prospectus is currently available as an investment choice of the Policies even
though additional Funds may be described in the prospectus for MFS Trust.
Massachusetts Financial Services Company ("MFS") provides investment advisory
services to MFS Trust for fees in accordance with the terms of the current
prospectus for the Fund.
The investment objective and policies of the Fund are summarized below:
. Emerging Growth Series The investment objective of this Fund is to
provide long-term growth of capital. Dividend and interest income from
portfolio securities, if any, is incidental to the Series' investment
objective of long-term growth of capital. The Series' policy is to invest
primarily (i.e., at least 80% of its assets under normal circumstances)
in common stocks of small and medium sized companies that are early in
their life cycle but which have the potential to become major enterprises
(emerging growth companies).
Putnam Variable Trust
Putnam Variable Insurance Trust ("Putnam VT") is an open-end diversified
management investment company. Only the Funds described in this section of the
prospectus are currently available as investment choices of the Policies even
though additional Funds may be described in the prospectus for Putnam Variable
Trust. Putnam Investment Management, Inc. ("Putnam Management") provides
investment advisory services to Putnam Variable Trust for fees in accordance
with the terms of the current Fund prospectuses.
The investment objective and policies of the Funds are summarized below:
. Putnam VT High Yield Fund
This Fund seeks high current income and, when consistent with this
objective, a secondary objective of capital growth, by investing
primarily in high-yielding, lower-rated fixed income securities (commonly
known as "junk bonds"), constituting a diversified portfolio which Putnam
Management believes does not involve undue risk to income or principal.
See the special considerations for investments in high yield securities
described in the Putnam Variable Trust prospectus.
18
. Putnam VT New Opportunities Fund
This Fund seeks long-term capital appreciation by investing principally
in common stocks of companies in sectors of the economy which Putnam
Management believes possess above-average long-term growth potential.
. Putnam VT Income Fund (formerly the Putnam VT U.S. Government and High
Quality Bond Fund)
This Fund seeks current income consistent with preservation of capital by
investing primarily in securities issued or guaranteed as to principal
and interest by the U.S. Government or by its agencies or
instrumentalities, and in other debt obligations rated at least A by a
nationally recognized securities rating agency such as Standard & Poor's
or Moody's Investors Service, Inc. or, if not rated, determined by Putnam
Management to be of comparable quality.
. Putnam VT Voyager Fund:
This Fund seeks capital appreciation by investing principally in common
stocks of companies that Putnam Management believes have potential for
capital appreciation that is significantly greater than that of market
averages.
Scudder Variable Life Investment Fund
Scudder Variable Life Investment Fund ("Scudder VLI") is a series-type mutual
fund registered with the SEC as an open-end, diversified management investment
company. Only the Money Market Portfolio and the Class A shares of the
International Portfolio described herein are currently available as investment
choices of the Policies even though other classes and other Funds may be
described in the prospectus for Scudder VLI. Scudder, Kemper Investments
("Scudder") provides investment advisory services to Scudder VLI whose terms
and fees are set forth in the Scudder VLI prospectus.
The investment objectives and policies of each Fund are summarized below:
. Money Market Portfolio
The investment objective of this Fund is to maintain the stability of
capital and, consistent therewith, to maintain the liquidity of capital
and to provide current income. The Fund seeks to maintain a constant net
asset value of $1.00 per share, although there can be no assurance that
this will be achieved.
. International Portfolio
The investment objective of this Fund seeks long-term growth of capital,
primarily through diversified holdings of marketable foreign equity
investments. The Fund invests in companies, wherever organized, which do
business primarily outside the United States. The Fund intends to
diversify investments among several countries and to have represented in
its holdings, in substantial portions, business activities in not less
than three different countries. The Fund does not intend to concentrate
investments in any particular industry.
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Series, Inc. (referred to as "TRP") is an open-end
management investment company. Only the Funds described in this section of the
prospectus are currently available as investment choices of the Policies even
though additional Funds may be described in the prospectus for TRP. T. Rowe
Price Associates, Inc. provides investment advisory services to TRP for fees in
accordance with the terms described in the current Fund prospectus.
The investment objective and policies of the Funds are summarized below:
.New America Growth Portfolio
The investment objective of this Fund is to seek long-term growth of
capital through investment in common stock of U.S. companies which
operate in the service sector of the economy.
19
. Personal Strategy Balanced Portfolio
The investment objective of this Fund is to obtain the highest total
return consistent with an emphasis on both capital appreciation and
income by investing in a diversified portfolio, typically consisting of
approximately 60% stocks, 30% bonds, and 10% money market securities.
T. Rowe Price Fixed Income Series, Inc.
T. Rowe Price Fixed Income Series, Inc. (referred to as "TRP") is an open-end
management investment company. Only the Fund described in this section of the
prospectus is currently available as an investment choice of the Policies even
though additional Funds may be described in the prospectus for TRP. T. Rowe
Price Associates, Inc. provides investment advisory services to TRP for fees in
accordance with the terms described in the current Fund prospectus.
The investment objectives and policies of the Fund are summarized below:
. Limited-Term Bond Portfolio
The investment objective of this Fund is to obtain a high level of
current income consistent with modest price fluctuations by investing
primarily in short-term and intermediate-term investment-grade debt
securities.
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 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. Nothing contained in this Prospectus
shall prevent the Separate Account from purchasing other securities for other
series or classes of policies, or from permitting a conversion between series
or classes of policies on the basis of requests made by Owners.
We also reserve the right to establish additional Divisions of the Separate
Account. 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
(1) eliminate or combine one or more Divisions, (2) substitute one Division for
another Division, or (3) 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 deemed by the Company to be in the best interests of persons having voting
rights under the Policy, and to the extent any necessary SEC approvals or Owner
votes are obtained, the Separate Account may be: (a) operated as a management
company under the 1940 Act; (b) de-registered under that Act in the event such
registration is no longer required; or (c) combined with other separate
accounts of the Company. To the extent permitted by applicable law, the Company
may also transfer the assets of the Separate Account associated with the Policy
to another separate account.
POLICY BENEFITS
Death Benefit
As long as the Policy remains in force (See Payment and Allocation of
Premiums--Policy Lapse and Reinstatement), the Company will, upon receipt at
its Home Office of proof of the Last Insured's death, pay the death benefit in
a lump sum. The amount of the death benefit payable will be determined at the
end of the Valuation Period during which the Last Insured's death occurred. The
death benefit will be paid to the surviving Beneficiary or Beneficiaries
specified in the application or as subsequently changed.
20
The Policy provides three death benefit options: "Death Benefit Option A,"
"Death Benefit Option B," and "Death Benefit Option C." The death benefit under
all options will never be less than the current Face Amount of the Policy (less
Indebtedness) as long as the Policy remains in force. (See Payment and
Allocation of Premiums--Policy Lapse and Reinstatement.) The current minimum
Face Amount is generally $250,000.
Death Benefit Option A. Under Death Benefit Option A, the death benefit until
the younger Insured reaches Attained Age 100 is the current Face Amount of the
Policy or, if greater, the applicable percentage of Cash Value. At the younger
Insured's Attained Age 100 and above, the death benefit is 101% of the Cash
Value. The applicable percentage is 250% for a younger Insured reaching
Attained Age 40 or below on the Policy Anniversary prior to the date of death.
For younger Insureds with an a Attained Age over 40 on that Policy Anniversary,
the percentage is lower and declines with age as shown in the Applicable
Percentage of Cash Value Table shown below. Accordingly, under Death Benefit
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. (See
Illustrations of Death Benefits and Cash Values, Appendix A.)
Death Benefit Option B. Under Death Benefit Option B, the death benefit until
the younger Insured reaches Attained Age 100 is equal to the current Face
Amount plus the Cash Value of the Policy or, if greater, the applicable
percentage of the Cash Value. At the younger Insured's Attained Age 100 and
above, the death benefit is 101% of the Cash Value. The applicable percentage
is the same as under Death Benefit Option A: 250% for a younger Insured
Attained Age 40 or below on the Policy Anniversary prior to the date of death,
and for younger Insureds with an Attained Age over 40 on that Policy
Anniversary the percentage declines as shown in the Applicable Percentage of
Cash Value Table shown below. Accordingly, under Death Benefit 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). (See Illustrations of Death Benefits and
Cash Values, Appendix A.)
Applicable Percentage of Cash Value Table For Younger Insureds Less Than Age
100*
Younger Insured Policy Account Multiple
Peron's Age Percentaqe
--------------- -----------------------
40 or under............... 250%
45........................ 215%
50........................ 185%
55........................ 150%
60........................ 130%
65........................ 120%
70........................ 115%
78 to 90.................. 105%
95 to 99.................. 101%
*For ages that are not shown on this table, the applicable percentage multiples
will decrease by a ratable portion for each full year.
Death Benefit Option C. Under Death Benefit Option C, the death benefit is
equal to the current Face Amount of the Policy or, if greater, the Cash Value
multiplied by the "Attained Age factor" for the younger Insured (a list of
sample Attained Age factors is shown in the Sample Attained Age Factor Table
below). At the younger Insured's Attained Age 100 and above, the death benefit
is 101% of the Cash Value. Accordingly, under Death Benefit Option C the death
benefit will remain level at the Face Amount unless the Cash Value multiplied
by the younger Insured's Attained Age factor exceeds the current Face Amount,
in which case the amount of the death benefit will vary as the Cash Value
varies. (See Illustrations of Death Benefits and Cash Values, Appendix A.)
21
Death Benefit Option C Sample Attained Age Factor Table
Based on Male and Female Insureds Both Age 35 at Issue, Standard Smoker Rates
Attained
Age Lives Factor
-------- ------------
35 5.641840
40 4.640444
45 3.825569
50 3.166936
55 2.638797
60 2.220327
65 1.891312
70 1.640024
75 1.449651
80 1.314918
85 1.219345
90 1.152999
95 1.090450
100+ 1.010000
Changes In Death Benefit Option. If the Policy was issued with either Death
Benefit Option A or Death Benefit Option B, the death benefit option may be
changed. A request for change must be made to the Company in writing. The
effective date of such a change will be the Monthly Anniversary on or following
the date the Company receives the change request. A change in death benefit
option may have Federal income tax consequences. (See Federal Tax Matters.)
A Death Benefit Option A Policy may be changed to have Death Benefit Option B.
The Face Amount will be decreased to equal the death benefit less the Cash
Value on the effective date of change. A Death Benefit Option B Policy may be
changed to have Death Benefit Option A. The Face Amount will be increased to
equal the death benefit on the effective date of change. A Policy issued under
Death Benefit Option C may not change to either Death Benefit Option A or Death
Benefit Option B for the entire lifetime of the Contract. Similarly, a Policy
issued under either Death Benefit Option A or B may not change to Death Benefit
Option C for the lifetime of the Policy.
Satisfactory evidence of insurability must be submitted to the Company in
connection with a request for a change from Death Benefit Option A to Death
Benefit Option B. A change may not be made if it would result in a Face Amount
of less than the minimum Face Amount.
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. (See Monthly
Deduction--Cost of Insurance.)
Reduction in Face Amount. Subject to certain limitations set forth below, an
Owner may decrease (but not increase) the Face Amount of a Policy once each
Policy Year, but not before the first Policy Anniversary. A written request is
required for a reduction in the Face Amount. A reduction 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 Monthly Deduction--Cost of
Insurance.) A reduction in the Face Amount of a Policy may have Federal income
tax consequences. (See Federal Tax Matters.)
Any decrease in the Face Amount will become effective on the Monthly
Anniversary on or following receipt of the written request by the Company. The
amount of the requested decrease must be at least the amount shown on the
Policy's specifications page (generally $5,000) and the Face Amount remaining
in force after any requested decrease may not be less than minimum Face Amount.
If following a decrease in Face Amount, the Policy would not comply with the
maximum premium limitations required by Federal tax law (see Payment and
Allocation of Premiums), the decrease may be limited or Cash Value may be
returned to the Owner (at the Owner's election), to the extent necessary to
meet these requirements. (See Monthly Deduction--Cost of Insurance.)
22
Payment of the Policy Proceeds. The proceeds under the Policy will ordinarily
be paid in a lump sum within seven days after the Company receives all
documentation required for such a payment. Payment may, however, be postponed
in certain circumstances. (See General Matters--Postponement of Payment from
the Separate Account.) 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 payment due under the grace period
provision as of the date of the Last Insured's death and by any outstanding
Indebtedness. (See General Matters--Additional Insurance Benefits and Charges
and Deductions.) The Company will pay interest on the death benefit from the
date of the Last Insured's death to the date of payment. Interest will be at an
annual rate determined by the Company, but will never be less than the
guaranteed rate of 4%. Provisions for settlement of proceeds other than a lump
sum payment may only be made upon written agreement with the Company.
Cash Value
The Cash Value of the Policy is equal to the total of the amounts credited to
the Owner in the Separate Account, the Loan Account (securing Policy Loans),
and, in certain contracts, the General Account. The Policy's Cash Value in the
Separate Account will reflect the investment performance of the chosen
Divisions of the Separate Account as measured by each Division's Net Investment
Factor (defined below), the frequency and amount of Net Premiums paid,
transfers, partial withdrawals, loans and the charges assessed in connection
with the Policy. An Owner may at any time surrender the Policy and receive the
Policy's Cash Surrender Value. (See Policy Rights--Surrender, Partial
Withdrawals, and Pro-Rata Surrender.) The Policy's Cash Value in the Separate
Account equals the sum of the Policy's Cash Values in each Division. There is
no guaranteed minimum Cash Value.
Determination of Cash Value. For each Division of the Separate Account, the
Cash Value is determined on each Valuation Date. 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 allocated to that Division of
the monthly deduction(s) due from the Issue Date through the Investment Start
Date. (See Payment and Allocation of Premiums.) Thereafter, on each Valuation
Date, the Cash Value in a Division of the Separate Account will equal:
(1) The Cash Value in the Division on the preceding Valuation Date,
multiplied by the Division's Net Investment Factor (defined below) for
the current Valuation Period; plus
(2) Any Net Premium payments received during the current Valuation Period
which are allocated to the Division; plus
(3) Any loan repayments allocated to the Division during the current
Valuation Period; plus
(4) Any amounts transferred to the Division from the General Account or
from another Division during the current Valuation Period; plus
(5) That portion of the interest credited on outstanding loans which is
allocated to the Division during the current Valuation Period; minus
(6) Any amounts transferred from the Division to the General Account, Loan
Account, or to another Division during the current Valuation Period
(including any transfer charges); minus
(7) Any partial withdrawals from the Division during the current Valuation
Period; minus
(8) Any withdrawal due to a Pro-Rata Surrender from the Division during the
current Valuation Period; minus
(9) 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.).
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
23
(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, including any tax
or other economic burden resulting from the application of the tax laws
determined by the Company to be properly attributable to the Divisions
of the Separate Account, 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 equal to a percentage of the average net assets for each day
in the Valuation Period. This charge, for mortality and expense risks,
is determined by the length of time the Policy has been in force. It
will not exceed the amounts shown in the following table:
Policy Percentage of Effective
Years Avg. Net Assets Annual Rate
------ --------------- -----------
1-10 0.0015027 0.55%
11-20 0.0012301 0.45%
21+ 0.0009572 0.35%;
divided by
(6) The value of the assets at the end of the preceding Valuation Period.
POLICY RIGHTS
Loans
Loan Privileges. The Owner may, by written request to the Company, borrow an
amount up to the Loan Value of the Policy, with the Policy serving as sole
security for such loan. A loan taken from, or secured by, a Policy may have
Federal income tax consequences. (See Federal Tax Matters.)
The Loan Value is the Cash Value of the Policy on the date the loan request is
received, less interest to the next loan interest due date, less anticipated
monthly deductions to the next loan interest due date, less any existing loan,
plus interest expected to be earned on the loan balance to the next loan
interest due date. Policy Loan interest is payable on each Policy Anniversary.
The minimum amount that may be borrowed is $500. 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
Paragon receives the loan request at its Home Office, although payments may be
postponed under certain circumstances. (See General Matters--Postponement of
Payments from the Separate Account.)
When a Policy Loan is made, Cash Value equal to the amount of the loan plus
interest due will be transferred to the Loan Account as security for the loan.
A Loan Subaccount exists within the Loan Account for the General Account and
each Division of the Separate Account. Amounts transferred to the Loan Account
to secure Indebtedness are allocated to the appropriate Loan Subaccount to
reflect its origin.
Unless the Owner requests a different allocation, amounts will be transferred
from the Divisions of the Separate Account and the General Account in the same
proportion that the Policy's Cash Value in each Division and the General
Account, if any, bears to the Policy's total Cash Value, less the Cash Value in
the Loan Account, at the end of the Valuation Period during which the request
for a Policy Loan is received.
The amount of the Cash Value in the Loan Account on any Valuation Date after
the Investment Start Date is:
(1) the Cash Value in the Loan account on the preceding Valuation date,
with interest; plus
(2) any amount transferred to the Loan Account from the General Account or
from a Division of the Separate Account on that day; minus
24
(3) any loan repayments made on that day; plus;
(4) if the Valuation Date is also a Policy Anniversary, the amount due to
cover any unpaid loan interest.
This will reduce the Policy's Cash Value in the General Account and in the
Separate Account. These transactions will not be considered transfers for
purposes of the limitations on transfers between Divisions or to or from the
General Account.
Cash Value in the Loan Account is expected to earn interest at a rate ("the
earnings rate") which is lower than the rate charged on the Policy Loan ("the
borrowing rate"). Cash Value in the Loan Account will accrue interest daily at
an annual earnings rate of 4%.
Interest credited on the Cash Value held in the Loan Account will be allocated
on Policy Anniversaries to the General Account and the Divisions of the
Separate Account in the same proportion that the Cash Value in each Loan
Subaccount bears to the Cash Value in the Loan Account. The interest credited
will also be transferred: (1) when a new loan is made; (2) when a loan is
partially or fully repaid; and (3) when an amount is needed to meet a monthly
deduction.
Interest Charged. The borrowing rate we charge for Policy Loan interest will be
based on the following schedule:
For Loans Annual
Outstanding During Interest Rate
------------------ -------------
Policy Years 1-10................... 4.50%
Policy Years 11-20.................. 4.25%
Policy Years 21+.................... 4.15%
Paragon will inform the Owner of the current borrowing rate when a Policy Loan
is requested.
Policy Loan interest is due and payable annually on each Policy Anniversary. If
the Owner does not pay the interest when it is due, the unpaid loan interest
will be added to the outstanding Indebtedness as of the due date and will be
charged interest at the same rate as the rest of the Indebtedness. (See Effect
of Policy Loans below.) The amount of Policy Loan interest which is transferred
to the Loan Account will be deducted from the Divisions of the Separate Account
and from the General Account in the same proportion that the portion of the
Cash Value in each Division and in the General Account, respectively, bears to
the total Cash Value of the Policy minus the Cash Value in the Loan Account.
Effect of Policy Loans. 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. The collateral for the 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 earnings rate is
less than the investment performance of the selected Division(s), the Cash
Value of the Policy will be lower as a result of the Policy Loan. Conversely,
if the Loan Account earnings rate is higher than the investment performance of
the Division(s), the Cash Value may be higher.
In addition, if the Indebtedness (See Definitions) exceeds the Cash Value on
any Monthly Anniversary, the Policy will lapse, subject to a grace period. (See
Payment and Allocation of Premiums--Policy Lapse and Reinstatement.) A
sufficient payment must be made within the later of the grace period of 62 days
from the Monthly Anniversary immediately before the date Indebtedness exceeds
the Cash Value, or 31 days after notice that a Policy will terminate, or the
Policy will lapse and terminate without value. A lapsed Policy, however, may
later be reinstated subject to certain limitations. (See Payment and Allocation
of Premiums--Policy Lapse and Reinstatement.)
Any outstanding Indebtedness will be deducted from the proceeds payable upon
the death of the Last Insured or the surrender of the Policy. Upon a complete
surrender or lapse of any Policy, if the amount received plus the amount of
outstanding Indebtedness exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to tax. A Policy loan may
also have other tax consequences. (See Federal Tax Matters.)
25
Repayment of Indebtedness. A Policy Loan may be repaid in whole or in part at
any time prior to the death of the Last Insured and as long as a Policy is in
force. 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 and the General Account in the same
proportion that the Cash Value in each Loan Subaccount bears to Cash Value in
the Loan Account. Amounts paid while a Policy Loan is outstanding will be
treated as premiums unless the Owner requests in writing that they be treated
as repayment of Indebtedness.
Surrender, Partial Withdrawals and Pro-Rata Surrender
At any time during the lifetime of either Insured and while a Policy is in
force, the Owner may surrender the Policy by sending a written request to the
Company. After the first Policy Year, an Owner may make a partial withdrawal 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
from the Separate Account upon surrender, partial withdrawal, or a Pro-Rata
Surrender will ordinarily be paid within seven days of receipt of the written
request. (See General Matters--Postponement of Payments from the Separate
Account.)
Surrenders. To effect a surrender, either the Policy itself must be returned to
the Company along with the request, or the request must be accompanied by a
completed affidavit of loss, which is available from the Company. Upon
surrender, the Company will pay the Cash Surrender Value to the Owner in a
single sum. The Cash Surrender Value equals the Cash Value on the date of
surrender, less any Indebtedness, and less any unpaid selection and issue
expense charges and any unpaid monthly policy charges due for the remainder of
the first policy year.. The Company will determine the Cash Surrender Value as
of the date that an Owner's written request is received at the Company's Home
Office. 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. The Last Insured
must be living at the time of a surrender. A surrender may have Federal income
tax consequences. (See Federal Tax Matters.)
Partial Withdrawals. After the first Policy Year, an Owner may make partial
withdrawals from the Policy's Cash Surrender Value. There is no transaction
charge for the first twelve partial withdrawals or requested transfers in a
Policy Year. Paragon will impose a charge of $25 for each partial withdrawal or
requested transfer in excess of twelve in a Policy Year. A partial withdrawal
may have Federal income tax consequences. (See Federal Tax Matters.)
The minimum amount of a partial withdrawal request is the lesser of (a) $500
from a Division of the Separate Account, or (b) the Policy's Cash Value in a
Division. Partial withdrawals made during a Policy Year may not exceed the
following limits. The maximum amount that may be withdrawn from a Division of
the Separate Account is the Policy's Cash Value in that Division. The total
partial withdrawals and transfers from the General Account over the Policy Year
may not exceed a maximum amount equal to the greatest of the following: (1) 25%
of the Cash Surrender Value in the General Account at the beginning of the
Policy Year, multiplied by the withdrawal percentage limit shown in the policy,
or (2) the previous Policy Year's maximum amount.
The Owner may allocate the amount, subject to the above conditions, among the
Divisions of the Separate Account and the General Account. If no allocation is
specified, then the partial withdrawal will be allocated among the Divisions of
the Separate Account and the General Account in the same proportion that the
Policy's Cash Value in each Division and the General Account 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. If the limitations on
withdrawals from the General Account will not permit this proportionate
allocation, the Owner will be requested to provide an alternate allocation.
(See The General Account.)
The death benefit will be affected by a partial withdrawal, unless Death
Benefit Option A or Option C is in effect and the withdrawal is made under the
terms of an anniversary partial withdrawal rider. (See General Matters--
Additional Insurance Benefits.) If Death Benefit Option A or Death Benefit
Option C is in effect and
26
the death benefit equals the Face Amount, then a partial withdrawal will
decrease the Face Amount by an amount equal to the partial withdrawal. If the
death benefit is based on a percentage of the Cash Value, then a partial
withdrawal will decrease the Face Amount by an amount by which the partial
withdrawal exceeds the difference between the death benefit and the Face
Amount. If Death 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 the minimum Face Amount. Any request for a partial withdrawal that would
reduce the Face Amount below this amount will not be implemented.
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 Monthly Deduction--Cost of Insurance.) The Company may change the minimum
amount required for a partial withdrawal or the number of times partial
withdrawals may be made.
Pro-Rata Surrender. After the first Policy Year, an Owner can make a Pro-Rata
Surrender of the Policy. The Pro-Rata Surrender will reduce the Face Amount and
the Cash Value by a percentage chosen by the Owner. This percentage must be any
whole number. A Pro-Rata Surrender may have Federal income tax consequences.
(See Federal Tax Matters.) The percentage will be applied to the Face Amount
and the Cash Value on the Monthly Anniversary on or following our receipt of
the request.
The Owner may allocate the amount of decrease in Cash Value among the Divisions
of the Separate Account and the General Account. If no allocation is specified,
then the decrease in Cash Value will be allocated among the Divisions of the
Separate Account and the General Account in the same proportion that the
Policy's Cash Value in each Division and the General Account bears to the total
Cash Value of the Policy, less the Cash Value in the Loan Account, on the date
the request for Pro-Rata Surrender is received.
A Pro-Rata Surrender can not be processed if it will reduce the Face Amount
below the minimum Face Amount of the Policy. No Pro-Rata Surrender will be
processed for more Cash Surrender Value than is available on the date of the
Pro-Rata Surrender. A cash payment will be made to the Owner for the amount of
Cash Value reduction.
Pro-Rata Surrenders may affect the way in which the cost of insurance charge is
calculated and the amount of the pure insurance protection afforded under the
Policy. (See Monthly Deduction--Cost of Insurance.)
Differences Between Partial Withdrawal and Pro-Rata Surrender. While partial
withdrawals and Pro-Rata Surrenders are each methods of reducing a Policy's
Cash Value, a Pro-Rata Surrender differs from a partial withdrawal in that a
partial withdrawal does not typically have a proportionate effect on a Policy's
death benefit by reducing the Policy's Face Amount, while a Pro-Rata Surrender
does. Assuming that a Policy's death benefit is not a percentage of the
Policy's Cash Value, a Pro-Rata Surrender will reduce the Policy's death
benefit in the same proportion that the Policy's Cash Value is reduced, while a
partial withdrawal will reduce the death benefit by one dollar for each dollar
of Cash Value withdrawn. Partial Withdrawals and Pro-Rata Surrenders will also
result in there being different cost of insurance charges subsequently
deducted. (See Monthly Deduction--Cost of Insurance; Surrender, Partial
Withdrawals and Pro-Rata Surrender--Partial Withdrawals; and Surrenders,
Partial Withdrawals, and Pro-Rata Surrenders--Pro-Rata Surrender.)
Transfers
Under Paragon's current practices, a Policy's Cash Value, except amounts
credited to the Loan Account, may be transferred among the Divisions of the
Separate Account and for certain contracts, between the General Account and the
Divisions. Transfers to and from the General Account are subject to
restrictions (See The General Account). Requests for transfers from or among
Divisions of the Separate Account may be made in writing or by telephone.
Transfers from or among the Divisions of the Separate Account must be in
amounts of
27
at least $500 or, if smaller, the Policy's Cash Value in a Division. The first
twelve requested transfers or partial withdrawals per policy year will be
allowed free of charge. Thereafter, the Company will impose a charge of $25 for
each requested transfer or partial withdrawal. Paragon ordinarily 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 Date will be considered a single
transfer request. Each transfer must meet the minimum requirement of $500 or
the entire Cash Value in a Division, whichever is smaller. Where a single
transfer request calls for more than one transfer, and not all of the transfers
would meet the minimum requirements, Paragon 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 Policy Month or Policy Year.
Although Paragon currently intends to continue to permit transfers for the
foreseeable future, the Policy provides that the Company may at any time
revoke, modify, or limit the transfer privilege, including the minimum amount
transferable, the maximum General Account allocation percent, and the frequency
of such transfers.
Portfolio Rebalancing
Over time, the amounts in the General Account and the Divisions of the Separate
Account will accumulate at different rates as a result of different investment
returns. The Owner may direct that from time to time we automatically restore
the balance of the Cash Value in the General Account and in the Divisions of
the Separate Account to the percentages determined in advance. There are two
methods of rebalancing
available--periodic and variance.
Periodic Rebalancing. Under this option the Owner elects a frequency (monthly,
quarterly, semiannually or annually), measured from the Policy Anniversary. On
each date elected, we will rebalance the Funds by generating transfers to
reallocate the amounts according to the investment percentages elected.
Variance Rebalancing. Under this option the Owner elects a specific allocation
percentage for the General Account and each Division of the Separate Account.
For each such account, the allocation percentage (if not zero) must be a whole
percentage and must not be less than five percent (5%). The Owner also elects a
maximum variance percentage (5%, 10%, 15%, or 20% only), and can exclude
specific Funds from being rebalanced. On each Monthly Anniversary we will
review the current balances to determine whether any balance is outside of the
variance range (either above or below) as a percentage of the specified
allocation percentage for that fund. If any fund is outside of the variance
range, we will generate transfers to rebalance all of the specified funds back
to the predetermined percentages.
Owners should consider that portfolio rebalancing entails the transfer of Cash
Value from better performing portfolios to lesser performing portfolios.
Transfers resulting from portfolio rebalancing will not be counted against the
total number of transfers allowed in a Policy Year before a charge is applied.
The Owner may elect either form of portfolio rebalancing by specifying it on
the policy application, or may elect it later for an in-force Policy, or may
cancel it, by submitting a change form acceptable to Paragon under its
administrative rules.
Only one form of portfolio rebalancing may be elected at any one time, and
portfolio rebalancing may not be used in conjunction with dollar cost averaging
(see below).
Paragon does not currently charge for portfolio rebalancing. The Company
reserves the right to suspend portfolio rebalancing at any time on any class of
Policies on a nondiscriminatory basis, or to charge an administrative fee for
election changes in excess of a specified number in a Policy Year in accordance
with its administrative rules.
28
Dollar Cost Averaging
The Owner may direct the Company to transfer amounts on a monthly basis from
the Money Market Fund to any other Division of the Separate Account. This
service is intended to allow the Owner to utilize "dollar cost averaging"
("DCA"), a long-term investment technique which provides for regular, level
investments over time. The Company makes no guarantee that DCA will result in a
profit or protect against loss.
The following rules and restrictions apply to DCA transfers:
(1) The minimum DCA transfer amount is $100.
(2) A written election of the DCA service, on a form provided by the
Company, must be completed by the Owner and on file with the Company in
order to begin DCA transfers.
(3) In the written election of the DCA service, the Owner indicates how DCA
transfers are to be allocated among the Divisions of the Separate
Account. For any Division chosen to receive DCA transfers, the minimum
percentage that may be allocated to a Division is 5% of the DCA
transfer amount, and fractional percentages may not be used.
(4) DCA transfers can only be made from the Money Market Fund, and DCA
transfers will not be allowed to the General Account.
(5) The DCA transfers will not count against the Policy's normal transfer
restrictions. (See Policy Rights--Transfers.)
(6) The DCA transfer percentages may differ from the allocation percentages
the Owner specifies for the allocation of Net Premiums. (See Payment
and Allocation of Premiums--Allocation of Net Premiums and Cash
Values.)
(7) Once elected, DCA transfers from the Money Market Fund will be
processed monthly until either the value in the Money Market Fund is
completely depleted or the Owner instructs the Company in writing to
cancel the DCA service.
(8) Transfers as a result of a Policy Loan or repayment, or in exercise of
the conversion privilege, are not subject to the DCA rules and
restrictions. (The conversion right allows the Owner to transfer the
entire Cash Value into the General Account at any time during the first
two Policy Years, with no transfer charge or transfer limits. There is
no effect on the Policy's death benefit, Face Amount, net amount at
risk, risk class, or Issue Age. If the Owner elects to exercise this
right, all future Net Premiums are allocated to the General Account,
and no future transfers to the Separate Account are allowed.) The DCA
service terminates at the time the conversion privilege is exercised,
when any outstanding amount in any Division of the Separate Account is
immediately transferred to the General Account. (See The General
Account--Transfers, Surrenders, Partial Withdrawals and Policy Loans--
Conversion Right.)
(9) DCA transfers will not be made until the Right to Examine Policy period
has expired (See Policy Rights--Right to Examine Policy).
The Company reserves the right to assess a processing fee for the DCA service.
The Company reserves the right to discontinue offering DCA upon 30 days'
written notice to Owners. However, any such discontinuation will not affect DCA
services already commenced. The Company reserves the right to impose a minimum
total Cash Value, less outstanding Indebtedness, in order to qualify for DCA
service. Also, the Company reserves the right to change the minimum necessary
Cash Value and the minimum required DCA transfer amount.
Transfers made under Dollar Cost Averaging do not count against the total of
twelve requested transfers or partial withdrawals allowed without charge in a
Policy Year. There is currently no charge for exercising this option.
Right to Examine Policy
The Owner may cancel a Policy within 20 days after receiving it (30 days if the
Owner is a resident of California and is age 60 or older) or within 45 days
after the application was signed, whichever is later.
29
If a Policy is canceled within this time period, a refund will be paid. Where
required by state law, the refund will equal all premiums paid under the
Policy. Where required by state law, Paragon will refund an amount equal to the
greater of premiums paid or (1) plus (2), where (1) is the difference between
the premiums paid, including any policy fees or other charges, and the amounts
allocated to the Separate Account under the Policy and (2) is the value of the
amounts allocated to the Separate Account under the Policy on the date the
returned Policy is received by Paragon or its agent.
To cancel the Policy, the Owner should mail or deliver the Policy to either
Paragon or the agent who sold it. A refund of premiums paid by check may be
delayed until the Owner's check has cleared the bank upon which it was drawn.
(See General Matters--Postponement of Payments from the Separate Account.)
Death Benefit at Attained Age 100
If the Last Insured is living and the Policy is in force when the younger
Insured reaches Attained Age 100, the death benefit will be equal to 101% of
the Cash Value of the Policy unless the Lifetime Coverage Rider is in effect.
(See Additional Insurance Benefits.) At that point, no further premium payments
will be required or accepted, and no further monthly deductions will be taken
to cover the cost of insurance.
PAYMENT AND ALLOCATION OF PREMIUMS
Issuance of a Policy
Individuals wishing to purchase a Policy must complete an application and
submit it to an authorized registered agent of Paragon or to Paragon's Home
Office. A Policy will generally be issued to Insureds of Issue Ages 0 through
90. (Issue age requirements vary for policies issued in Texas.) Paragon may, in
its sole discretion, issue Policies to individuals falling outside of those
Issue Ages. Acceptance of an application is subject to Paragon's underwriting
rules and the Company reserves the right to reject an application for any
reason.
The Issue Date is determined by Paragon in accordance with its standard
underwriting procedures for variable life insurance policies. The Issue Date is
used to determine Policy Anniversaries, Policy Years, and Policy Months.
Insurance coverages under a Policy will not take effect until the Policy has
been delivered and the initial premium has been paid during the lifetimes of
both Insureds and prior to any change in health as shown in the application.
Premiums
The initial premium is due on the Issue Date, and is to be paid to Paragon at
its Home Office. The Company currently requires that the initial premium for a
Policy be at least equal to one-twelfth ( 1/12) of the Minimum Premium for the
Policy. The Minimum Premium is the amount specified for each Policy based on
the requested initial Face Amount and the charges under the Policy which vary
according to the Issue Age, sex, underwriting risk class, and smoker status of
the Insured. (See Charges and Deductions.)
Following the initial premium, subject to the limitations described below,
premiums may be paid in any amount and at any interval. Premiums after the
first premium payment must be paid to Paragon at its Home Office. An Owner may
establish a schedule of planned premiums which will be billed by the Company at
regular intervals. Failure to pay planned premiums, however, will not itself
cause the Policy to lapse. (See Policy Lapse and Reinstatement.) Premium
receipts will be furnished upon request.
An Owner may make unscheduled premium payments at any time in any amount, or
skip planned premium payments, subject to the minimum and maximum premium
limitations described below.
If a Policy is in the intended Owner's possession but the initial premium has
not been paid, the Policy is not in force. The intended Owner is deemed to have
the Policy for inspection only.
30
Premium Limitations. Every premium payment must be at least $10. In no event
may the total of all premiums paid in any Policy Year exceed the current
maximum premium limitations for that Policy Year. Maximum premium limits for
the Policy Year will be shown in an Owner's annual report.
In general, for policies issued with Death Benefit Option A or Death Benefit
Option B, 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
limitation needed to comply with the tax definition of life insurance. For
policies issued with Death Benefit Option C, the company reserves the right to
impose other restrictions upon the amount of premium that may be paid into the
Policy. If at any time a premium is paid which would result in total premiums
exceeding the current maximum premium limitations, 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 under
the current maximum premium limitations.
In addition to the foregoing tax definitional limits on premiums, for purposes
of determining whether distributions (including loans) are a return of income
first, the Company monitors the Policy to detect whether the "seven pay limit"
has been exceeded. If the seven pay limit is exceeded, the Policy becomes a
"Modified Endowment." The Company has adopted administrative steps designed to
notify an Owner when it is believed that a premium payment will cause a Policy
to become a modified endowment contract. The Owner will be given a limited
amount of time to request that the premium be reversed in order to avoid the
Policy's being classified as a modified endowment contract. (See Federal Tax
Matters.)
If the Company receives a premium payment which would cause the death benefit
to increase by an amount that exceeds the Net Premium portion of the payment,
then the Company reserves the right to (1) refuse that premium payment, or (2)
require additional evidence of insurability before it accepts the premium.
Allocation of Net Premiums and Cash Value
Allocation of Net Premiums. In the application for a Policy, the Owner
indicates how Net Premiums are to be allocated among the Divisions of the
Separate Account, to the General Account (if available), or both. For each
Division chosen, the minimum percentage that may be allocated to a Division is
5% of the Net Premium, and fractional percentages may not be used. Certain
other restrictions apply to allocations made to the General Account (see
General Account). For policies issued with an allowable percentage to the
General Account of more than 5%, the minimum percentage is 5%, and fractional
percentages may not be used.
The allocation for future Net Premiums may be changed without charge at any
time by providing notice to the Company. Any change in allocation will take
effect immediately upon receipt by the Company of written notice. No charge is
imposed for changing the allocations of future premiums. The initial allocation
will be shown on the application which is attached to the Policy. The Company
may at any time modify the maximum percentage of future Net Premiums that may
be allocated to the General Account.
During the period from the Issue Date to the end of the Right to Examine Policy
Period (See Policy Rights--Right to Examine Policy), Net Premiums will
automatically be allocated to the Division that invests in the Money Market
Fund. When this period expires, the Policy's Cash Value in that Division will
be transferred to the Divisions of the Separate Account and to the General
Account (if available) in accordance with the allocation requested in the
application for the Policy, or any allocation instructions received subsequent
to receipt of the application. Net Premiums received after the Right to Examine
Policy Period will be allocated according to the allocation instructions most
recently received by the Company unless otherwise instructed for that
particular premium receipt.
The Right to Examine Policy Period generally expires 20 days after the Owner
receives the Policy (30 days if the Owner is a resident of California and is
age 60 or older) or 45 days after the application was signed, whichever is
later. For purposes of our allocation rules, the Owner is deemed to have
received the Policy five days after the Company mails the Policy to the Owner.
31
The Policy's Cash Value may also be transferred between Divisions of the
Separate Account, and, if the General Account is available under the Policy,
between those Divisions and the General Account. (See Policy Rights--
Transfers.)
The value of amounts allocated to Divisions of the Separate Account will vary
with the investment performance of the chosen Divisions and the Owner bears the
entire investment risk. This will affect the Policy's Cash Value, and may
affect the death benefit as well. Owners should periodically review their
allocations of Net Premiums and the Policy's Cash Value in light of market
conditions and their overall financial planning requirements.
Policy Lapse and Reinstatement
Lapse. Unlike conventional whole life insurance policies, the failure to make a
premium payment following the initial premium will not itself cause a Policy to
lapse. If, during the first five Policy Years, the sum of all premiums paid on
the Policy, reduced by any partial withdrawals and any outstanding loan
balance, is greater than or equal to the sum of the No Lapse Monthly Premiums
for the elapsed months since the Issue Date, the Policy will not lapse as a
result of the Cash Value less any loans and loan interest due being
insufficient to pay the monthly deduction. Lapse will occur (except as
described above) when the Cash Surrender Value is insufficient to cover the
monthly deduction, and a grace period expires without a sufficient payment
being made.
The grace period, which is 62 days, begins on the Monthly Anniversary on which
the Cash Surrender Value becomes insufficient to meet the next monthly
deduction. The Company will notify the Owner at the beginning of the grace
period by mail addressed to the last known address on file with the Company.
The notice to the Owner will indicate the amount of additional premium that
must be paid. The amount of the premium required to keep the Policy in force
will be the amount to cover the outstanding monthly deductions and premium
expense charges. (See Charges and Deductions--Monthly Deduction.) If the
Company does not receive the required amount within the grace period, the
Policy will lapse and terminate without Cash Value.
If the Last Insured dies during the grace period, any overdue monthly
deductions will be deducted from the death benefit otherwise payable.
Reinstatement. The Owner may reinstate a lapsed Policy by written application
any time within five years after the date of lapse and before the younger
Insured's Attained Age 100. Reinstatement is subject to the following
conditions:
1. Evidence of the insurability of the Insureds (or if one of the Insureds
was deceased when the Policy lapsed, evidence of the insurability of the
surviving Insured) satisfactory to the Company (including evidence of
insurability of any person covered by a rider to reinstate the rider).
2. Payment of a premium that, after the deduction of premium expense
charges, is large enough to cover: (a) the monthly deductions due at the
time of lapse, and (b) two times the monthly deduction due at the time
of reinstatement.
3. Payment or reinstatement of any Indebtedness. Any Indebtedness
reinstated will cause Cash Value of an equal amount also to be
reinstated. Any loan interest due and unpaid on the Policy Anniversary
prior to reinstatement must be repaid at the time of reinstatement. Any
loan paid at the time of reinstatement will cause an increase in Cash
Value equal to the amount to be reinstated.
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 Policy Loan reinstated, increased by the Net Premiums paid at
reinstatement and any Policy Loan paid at the time of reinstatement.
32
If both Insureds were alive on the date the Policy lapsed, then both Insureds
must be alive on the date the Company approves the application for
reinstatement. If only one Insured was alive on the date the Policy lapsed,
then that Insured must be alive on the date the Company approves the request
for reinstatement. If any Insured who was alive on the date the Policy lapsed
is not then alive when the Company approves the request for reinstatement, such
approval is void and of no effect.
The effective date of reinstatement will be the date the Company approves the
application for reinstatement. There will be a full monthly deduction for the
Policy Month which includes that date. (See Charges and Deductions--Monthly
Deduction.)
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate the
Company for providing the insurance benefits set forth in the Policy 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 Charges
Prior to allocation of Net Premiums, premium payments will be reduced by
premium expense charges consisting of a sales charge (if applicable) and a
charge for premium taxes and federal taxes. The premium payment less the
premium expense charge equals the Net Premium.
Sales Charge. For policies issued in the state of Oregon, a sales charge of
2.25% of the premium paid will be deducted from each premium payment to
partially compensate the Company for expenses incurred in distributing the
Policy and any additional benefits provided by riders. There is no sales charge
in any other state.
To the extent that sales expenses are not recovered from the sales charge,
those expenses may be recovered from other sources, including the mortality and
expense risk charge described below.
Premium Tax Charge. Various states or other governing jurisdictions and their
subdivisions impose a tax on premiums received by insurance companies. Except
on policies issued in the state of Oregon, a deduction of 2.25% of the premium
paid is taken from each premium payment for these taxes. No state tax deduction
is taken on policies issued in Oregon. The deduction compensates the Company
for taxes imposed on the policy by the state or other governing jurisdiction
and any subdivisions thereof
Federal Tax Charge. This charge is designed to pass through the equivalent of
the federal tax consequences applicable to the policy. The charge is currently
1.3% of premium paid, and is guaranteed not to increase except to the extent of
any increases in the federal tax.
Monthly Deduction
Charges will be deducted monthly from the Cash Value of each Policy ("the
monthly deduction") to compensate the Company for (a) certain administrative
costs; (b) the cost of insurance; and (c) the cost of optional benefits added
by rider. The monthly deduction will be taken on the Investment Start Date and
on each Monthly Anniversary. It will be allocated among the General Account and
each Division of the Separate Account in the same proportion that a Policy's
Cash Value in the General Account and the Policy's Cash Value in each Division
bear to the total Cash Value of the Policy, less the Cash Value in the Loan
Account, on the date the deduction is taken. Because portions of the monthly
deduction, such as the cost of insurance, can vary from month to month, the
monthly deduction itself can vary in amount from month to month.
Selection and Issue Expense Charge. During the first ten Policy Years, the
Company generally assesses a charge to cover the costs associated with the
underwriting and issue of the policy. The annual charge is currently $0.45 (45
cents) per $1,000 of face amount for all Issue Ages, risk classes, and (except
on unisex
33
Policies) sex of the Insureds, and is guaranteed never to exceed $0.90 per
$1,000. We deduct one-twelfth of this charge each month. For policies issued in
some states, the selection and issue expenses may be required to remain level
for longer than ten years, up to the life of the policy, to comply with state
insurance laws and regulations. You agent can tell you if this situation
applies to your state. On a current basis, as of the date of this prospectus,
the charges stop after ten Policy Years.
Monthly Policy Charge. The Company has responsibility for the administration of
the Policies and the Separate Account. Administrative expenses include premium
billing and collection, record keeping, processing death benefit claims, cash
surrenders, partial withdrawals, Policy changes, and reporting and overhead
costs, processing applications, and establishing Policy records. As
reimbursement for administrative expenses related to the maintenance of each
Policy and the Separate Account, the Company assesses a monthly administration
charge from each Policy. This charge is $6 for each Policy month, and is
guaranteed not to increase while the Policy is in force. If you surrender your
policy during the first policy year, we will deduct from the cash surrender
value the monthly policy fee for the months remaining in the first policy year.
The Company may administer the Policy itself, or may purchase administrative
services from such sources (including affiliates) as may be available. Such
services will be acquired on a basis which, in the Company's sole discretion,
affords the best services at the lowest cost. The Company reserves the right to
select a company to provide services which the Company deems, in its sole
discretion, is the best able to perform such services in a satisfactory manner
even though the costs for such services may be higher than would prevail
elsewhere.
Cost of Insurance. The cost of insurance is deducted on each Monthly
Anniversary for the following Policy Month. The cost of insurance is determined
in a manner that reflects the anticipated mortality of both Insureds and the
fact that the death benefit is not payable until the death of the Last Insured.
Because the cost of insurance depends upon a number of variables, the cost will
vary for each Policy Month. The Company will determine the cost of insurance
charge by multiplying the applicable cost of insurance rate or rates by the net
amount at risk (defined below) for each Policy Month.
The cost of insurance rates are determined at the beginning of each Policy
Year. The rates will be based on the Attained Age, duration, rate class, and
(except for unisex Policies) sex of the Insureds at issue. (See Unisex
Requirements Under Montana Law.) The cost of insurance rates generally increase
as the Insureds' Attained Age increases.
The rate class of an Insured also will affect the cost of insurance rate. For
the initial Face Amount, the Company will use the rate class on the Issue Date.
If the death benefit equals a percentage of Cash Value, an increase in Cash
Value will cause an automatic increase in the death benefit. The risk class for
such increase will be the same as that used for the initial Face Amount.
The Company currently places Insureds into a select standard risk class, a
standard rate class, or into risk classes involving a higher mortality risk.
Actual cost of insurance rates may change, and the actual monthly cost of
insurance rates will be determined by the Company based on its expectations as
to future mortality experience. However, the actual cost of insurance rates
will not be greater than the guaranteed cost of insurance rates set forth in
the Policy. For Policies which are not in a substandard risk class, the
guaranteed cost of insurance rates are equal to 100% of the rates set forth in
the male/female smoker/non-smoker 1980 CSO Mortality Tables. All Policies are
based on the age nearest birthday. Higher rates apply if either Insured is
determined to be in a substandard risk class.
In two otherwise identical Policies, an Insured in the select standard rate
class will have a lower cost of insurance than an Insured in a rate class
involving higher mortality risk. Each rate class is also divided into two
categories: smokers and nonsmokers. Nonsmoker Insureds will generally incur a
lower cost of insurance than similarly situated Insureds who smoke. (Insureds
under Attained Age 20 are automatically assigned to the non-smoker rate class.)
34
The net amount at risk for a Policy Month is (a) the death benefit at the
beginning of the Policy Month, adjusted by dividing the Face Amount by
1.0032737 (which reduces the net amount at risk, solely for purposes of
computing the cost of insurance, by taking into account assumed monthly
earnings at an annual rate of 4%), less (b) the Cash Value at the beginning of
the Policy Month. In calculating the cost of insurance charges, the cost of
insurance rate for a Face Amount is applied to the net amount at risk for that
Face Amount.
Additional Insurance Benefits. The monthly deduction will include charges for
any additional benefits provided by rider. (See General Matters--Additional
Insurance Benefits.)
Transaction Charges. There are no transaction charges for processing the first
twelve transfers or partial withdrawals in a policy year. There is a charge of
$25 for each transfer or partial withdrawal in excess of twelve.
Adjustment of Charges. The Policy is available for purchase by individuals,
corporations, and other institutions. For certain individuals and certain
corporate or other group or sponsored arrangements purchasing one or more
Policies, Paragon may waive or adjust the amount of the Sales Charge, monthly
administrative charge, or other charges where the expenses associated with the
sale of the Policy or Policies or the underwriting or other administrative
costs associated with the Policy or Policies warrant an adjustment.
Sales, underwriting, or other administrative expenses may be reduced for
reasons such as expected economies resulting from a corporate purchase or a
group or sponsored arrangement; from the amount of the initial premium payment
or payments; or from the amount of projected premium payments. Paragon will
determine in its discretion if, and in what amount, an adjustment is
appropriate. The Company may modify its criteria for qualification for
adjustment of charges as experience is gained, subject to the limitation that
such adjustments will not be unfairly discriminatory against the interests of
any Owner.
Separate Account Charges
Mortality and Expense Risk Charge. Paragon will deduct a daily charge from the
Separate Account. The amount of the deduction is determined as a percentage of
the average net assets of each Division of the Separate Account. The daily
deduction percentages, and the equivalent effective annual rate, are:
Daily Charge Annual
Policy Years Factor Equivalent
------------ ------------ ----------
1-10 .0015027% 0.55%
11-20 .0012301% 0.45%
21+ .0009572% 0.35%
This deduction is guaranteed not to increase while the Policy is in force.
Paragon may realize a profit from this charge. Any profit may be used to
finance distribution expenses.
The mortality risk assumed by Paragon is that Insureds may die sooner than
anticipated and that therefore the Company will pay an aggregate amount of
death benefits greater than anticipated. The expense risk assumed is that
expenses incurred in issuing and administering the Policy will exceed the
amounts realized from the administrative charges assessed against the Policy.
Fund Expenses. The value of the net assets of the Separate Account will reflect
the investment advisory fee and other expenses incurred by the underlying
investment companies. A summary of the annual Fund operating expenses in
provided on page 3 of this prospectus. See the prospectuses for the respective
Funds for a description of investment advisory fees and other expenses.
Taxes. No charges are currently made to the Separate Account for Federal,
state, or local taxes that the Company incurs which may be attributable to such
Separate Account or to the Policy. The Company may make such a charge for any
such taxes or economic burden resulting from the application of the tax laws
that it determines to be properly attributable to the Separate Account or to
the Policy. (See Federal Tax Matters.)
35
THE GENERAL ACCOUNT
Because of exemptive and exclusionary provisions, interests in the General
Account have not been registered under the Securities Act of 1933 and the
General Account has not been registered as an investment company under the 1940
Act. Accordingly, neither the General Account nor any interests therein are
subject to the provisions of these Acts and, as a result, the staff of the SEC
has not reviewed the disclosure in this Prospectus relating to the General
Account. The disclosure regarding the General Account may, however, be subject
to certain generally applicable provisions of the Federal securities laws
relating to the accuracy and completeness of statements made in prospectuses.
General Description
The General Account consists of all assets owned by Paragon other than those in
the Separate Account and other separate accounts. Subject to applicable law,
the Company has sole discretion over the investment of the assets of the
General Account.
At issue, Paragon will determine the maximum percentage of the non-borrowed
Cash Value that may be allocated, either initially or by transfer, to the
General Account. The ability to allocate Net Premiums or to transfer Cash Value
to the General Account may not be made available, in the Company's discretion,
under certain Policies. Further, the option may be limited with respect to some
Policies. The Company may, from time to time, adjust the extent to which
premiums or Cash Value may be allocated to the General Account (the "maximum
allocation percentage"). Such adjustments may not be uniform as to all
Policies. Paragon may at any time modify the General Account maximum allocation
percent. Subject to this maximum, an Owner may elect to allocate Net Premiums
to the General Account, the Separate Account, or both. Subject to this maximum,
the Owner may also transfer Cash Value from the Divisions of the Separate
Account to the General Account, or from the General Account to the Divisions of
the Separate Account. The allocation of Net Premiums or the transfer of Cash
Value to the General Account does not entitle an Owner to share in the
investment experience of the General Account. Instead, Paragon guarantees that
Cash Value allocated to the General Account will accrue interest at a rate of
at least 4%, compounded annually, independent of the actual investment
experience of the General Account.
The Loan Account is part of the General Account.
The Policy
This Prospectus describes a flexible premium joint and last survivor variable
life insurance policy. This Prospectus is generally intended to serve as a
disclosure document only for the aspects of the Policy relating to the Separate
Account. For complete details regarding the General Account, see the Policy
itself.
General Account Benefits
If the Owner allocates all Net Premiums only to the General Account and makes
no transfers, partial withdrawals, Pro-Rata Surrenders, or Policy Loans, the
entire investment risk will be borne by Paragon, and Paragon guarantees that it
will pay at least a minimum specified death benefit. The Owner may select Death
Benefit Option A, B or C under the Policy and may change the Policy's Face
Amount subject to satisfactory evidence of insurability.
General Account Cash Value
Net Premiums allocated to the General Account are credited to the Cash Value.
Paragon bears the full investment risk for these amounts and guarantees that
interest will be credited to each Owner's Cash Value in the General Account at
a rate of no less than 4% per year, compounded annually. Paragon may, at its
sole discretion, credit a higher rate of interest, although it is not obligated
to credit interest in excess of 4% per year, and might not do so. Any interest
credited on the Policy's Cash Value in the General Account in excess of the
guaranteed minimum rate of 4% per year will be determined in the sole
discretion of Paragon. The Policy Owner assumes the risk that interest credited
may not exceed the guaranteed minimum rate of 4% per year. If excess interest
is credited, a different rate of interest may be applied to the Cash Value in
the Loan Account. The Cash Value in the General Account will be calculated on
each Monthly Anniversary of the Policy.
36
Paragon guarantees that, on each Valuation Date, the Cash Value in the General
Account will be the amount of the Net Premiums allocated or Cash Value
transferred to the General Account, plus interest at the rate of 4% per year,
plus any excess interest which Paragon credits and any amounts transferred into
the General Account, less the sum of all Policy charges allocable to the
General Account and any amounts deducted from the General Account in connection
with partial withdrawals, Pro-Rata Surrenders or transfers to the Separate
Account.
Paragon may limit the percentage of the Policy's total Cash Value that may be
allocated to or transferred to the General Account. The total amount that may
be allocated to the General Account at any time may not exceed the product of:
(1) the Policy's total Cash Value in the General Account and the Divisions
of the Separate account, multiplied by
(2) the General Account maximum allocation percent.
The initial General Account maximum allocation percent is shown on the Policy's
specifications page. However, Paragon reserves the right to change the
allocation percent in the future.
Transfers, Surrenders, Partial Withdrawals and Policy Loans
After the first Policy Year, a portion of Cash Value may be withdrawn from the
General Account or transferred from the General Account to the Separate
Account. A partial withdrawal and any transfer must be at least $500 or, the
Policy's entire Cash Value in the General Account if less than $500. The total
amount of transfers and withdrawals in a Policy Year may not exceed a Maximum
Amount equal to the greater of:
(a) the Policy's Cash Surrender Value in the General Account at the
beginning of the Policy Year, multiplied by the withdrawal percentage
limit shown on the Policy's specifications page, or
(b) the previous Policy Year's General Account maximum withdrawal amount
The total amount available for withdrawal may not exceed the total Cash
Surrender Value of the Policy.
Transfers to the General Account are limited by the maximum allocation
percentage (described above) in effect for a Policy at the time a transfer
request is made.
Policy Loans may also be made from the Policy's Cash Value in the General
Account.
Loans and withdrawals from the General Account may have Federal income tax
consequences. (See Federal Tax Matters.)
There is no transaction charge for the first twelve partial withdrawals or
requested transfers in a Policy Year. Paragon will impose a charge of $25 for
each partial withdrawal or requested transfer in excess of twelve in a Policy
Year. The Company may revoke or modify the privilege of transferring amounts to
or from the General Account at any time.
Transfers, surrenders, partial withdrawals and Pro-Rata Surrenders payable from
the General Account and the payment of Policy Loans allocated to the General
Account may, subject to certain limitations, be delayed for up to six months.
However, if payment is deferred for 30 days or more, Paragon will pay interest
at the rate of 4% per year for the period of the deferment.
Conversion Right. While your policy is in force during the first two Policy
Years, you may transfer all of your Cash Value from the Divisions of the
Separate Account to the General Account.
If during the first two Policy Years you request in writing that we transfer
all of your Cash Value into the General Account, and you indicate that you are
exercising your conversion right, the transfer will not be subject to a
transaction charge or to transfer limits. At the time of the transfer there
will be no effect on the Policy's death benefit, Face Amount, net amount at
risk, risk class or Issue Age.
37
If you exercise your one-time conversion right, we will automatically allocate
all future Net Premiums to the General Account, and no future transfers to the
Separate Account will be allowed.
GENERAL MATTERS
Postponement of Payments from the Separate Account
The Company usually pays amounts payable on partial withdrawal, Pro-Rata
Surrender, surrender, or Policy Loan allocated to the Separate Account
Divisions within seven days after written notice is received. Payment of any
amount payable from the Divisions of the Separate Account upon surrender,
partial withdrawals, Pro-Rata Surrender, death of the Last Insured, or payments
of a Policy Loan and transfers, may be postponed whenever: (1) the New York
Stock Exchange is closed other than customary weekend and holiday closings, or
trading on the New York Stock Exchange is restricted as determined by the SEC;
(2) the SEC by order permits postponement for the protection of Owners; or (3)
an emergency exists, as determined by the SEC, as a result of which disposal of
securities is not reasonably practicable or it is not reasonably practicable to
determine the value of the Separate Account's net assets. The Company may defer
payment of the portion of any Policy Loan from the General Account for not more
than six months.
Payments under the Policy of any amounts derived from premiums paid by check
may be delayed until the Owner's check has cleared the bank upon which it was
drawn.
The Contract
The Policy, the attached application, any riders, endorsements, and any
application for reinstatement constitute the entire contract. All statements
made by the Insureds 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 in writing and approved 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 Insureds jointly are the Owner of the Policy unless another person or
entity is shown as the Owner in the application. Ownership may be changed,
however, as described below. The Owner is entitled to all rights provided by
the Policy. Any person whose rights of ownership depend upon some future event
does not possess any present rights of ownership. If there is more than one
Owner at a given time, all Owners must exercise the rights of ownership by
joint action. If the Owner dies, and the Owner is not one or both of the
Insureds, the Owner's interest in the Policy becomes the property of his or her
estate unless otherwise provided. Unless otherwise provided, the Policy is
jointly owned by all Owners named in the Policy or by the survivors of those
joint Owners. Unless otherwise stated in the Policy, the final Owner is the
estate of the last joint Owner to die. The Company may rely on the written
request of any trustee of a trust which is the Owner of the Policy, and the
Company is not responsible for the proper administration of any such trust.
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 Last Insured. If there is more
than one Beneficiary at the death of the Last Insured, each Beneficiary will
receive equal payments unless otherwise provided by the Owner. If no
Beneficiary is living at the death of the Last Insured, the proceeds will be
payable to the Owner or, if the Owner is not living, to the Owner's estate.
The Company permits the designation of various types of trusts as
Beneficiary(ies), including trusts for minor beneficiaries, trusts under a
will, and trusts under a separate written agreement. An Owner is also permitted
to designate several types of beneficiaries, including business beneficiaries.
38
Change of Owner or Beneficiary
The Owner may change the ownership and/or Beneficiary designation by written
request in a form acceptable to the Company at any time during the lifetime of
either Insured, subject to any restrictions stated in the Policy and this
Prospectus. The Company may require that the Policy be returned for endorsement
of any change. If acceptable to us, the change will take effect as of the date
the request is signed, whether or not the Last Insured is living when the
request is received at the Company's Home Office. The Company is not liable for
any payment made or action taken before the Company received the written
request for change. If the Owner is also a Beneficiary of the Policy at the
time of the Last Insured's death, the Owner may, within sixty days of the Last
Insured's death, designate another person to receive the Policy proceeds. Any
change will be subject to any assignment of the Policy or any other legal
restrictions.
Policy Changes
The Company reserves the right to limit the number of changes to a Policy to
one per Policy Year and to restrict changes in the first Policy Year.
Currently, only one change is permitted during any Policy Year and no change
may be made during the first Policy Year. For this purpose, changes include
decreases in Face Amount and changes in the death benefit option. No change
will be permitted, if as a result, the Policy would fail to satisfy the
definition of life insurance in 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. In addition, the Company reserves the right to change the Policy if
it determines that a change is necessary to cause this Policy to comply with,
or give the Owner the benefit of any Federal or state statute, rule, or
regulation, including, but not limited to, requirements of the Internal Revenue
Code, or its regulations or published rulings.
Claims of Creditors
To the extent permitted by law, neither the Policy nor any payment under it
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 either Insured. An addition of a rider after
the Issue Date is incontestable after such addition has been in force for two
years from its effective date during the lifetime of either Insured. Any
reinstatement of a Policy is incontestable only after it has been in force
during the lifetime of either Insured for two years after the effective date of
the reinstatement.
Assignment
The Company will be bound by an assignment of a Policy only if: (a) the
assignment is in writing; (b) the original assignment instrument or a certified
copy thereof is filed with the Company at its Home Office; and (c) the Company
returns an acknowledged copy of the assignment instrument to the Owner. The
Company is not responsible for determining the validity of any assignment.
Payment of Policy proceeds is subject to the rights of any assignee of record.
If a claim is based on an assignment, the Company may require proof of the
interest of the claimant. A valid assignment will take precedence over the
claim of any Beneficiary.
Suicide
Suicide within two years of the Issue Date is not covered by the Policy. If
either 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
39
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 subject to certain limitations.
If the either Insured is a Missouri citizen when the Policy is issued, this
provision does not apply on the Issue Date of the Policy, unless that Insured
intended suicide when the Policy was applied for.
Misstatement of Age or Sex and Corrections
If the age or sex (except in unisex Policies) of the Insureds 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 and sex.
Any payment or Policy changes made by the Company in good faith, relying on its
records or evidence supplied with respect to such payment, will fully discharge
the Company's duty. The Company reserves the right to correct any errors in the
Policy.
Additional Insurance Benefits
Subject to certain requirements, one or more of the following additional
insurance benefits may be added to a Policy by rider. 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 which require
additional charges will be deducted as part of the monthly deduction from the
Policy's Cash Value. (See Charges and Deductions--Monthly Deduction.) Certain
restrictions may apply and are described in the applicable rider. An insurance
agent authorized to sell the Policy can describe these extra benefits further.
Samples of the provisions are available from Paragon upon written request.
Anniversary Partial Withdrawal Rider. This rider allows the owner to withdraw
up to 15% of the Policy's Cash Surrender Value on any Policy Anniversary
without reducing the Face Amount.
Secondary Guarantee Rider. This rider guarantees that if, during the secondary
guarantee period, the sum of all premiums paid on the Policy, reduced by any
partial withdrawals and any outstanding loan balance, is greater than or equal
to the sum of the secondary guarantee premiums required since the Issue Date,
the Policy will not lapse as a result of a Cash Value less any loans and loan
interest due being insufficient to pay the monthly deduction.
The secondary guarantee period is the number of Policy Years until the younger
Insured reaches Attained Age 100.
Lifetime Coverage Rider. This rider provides the continuation of the Policy's
face amount beyond the younger Insured's Attained Age 100, provided the policy
remains in force to that date with a positive cash surrender value. If the
Policy is in force after the younger Insured's Attained Age 100, the death
benefit will be the greater of the face amount or 101% of the Cash Value. (See
Federal Tax Matters.)
Divorce Split Rider. This rider allows the Policy to be split into two separate
fixed policies in the event of the divorce of a married couple who are the
Insureds under the Policy. (See Federal Tax Matters.)
Tax Split Rider. This rider allows the Policy to be split into two separate
fixed policies in the event of significant changes in tax laws affecting the
Policy. (See Federal Tax Matters.)
Estate Preservation Term Rider. This rider provides joint level term insurance,
payable at the death of the Last Insured, for a period of four years from the
date of the rider. The cost of this rider is a charge per $1,000 of death
benefit provided by the rider. The charge is determined by the joint Issue Age,
risk classification, and sex of the Insureds. This charge is shown on the
Policy's specifications page. The rider terminates on the earliest of:
(a) our receipt of your written request to terminate the rider;
40
(b) a decrease in the Face Amount of the Policy;
(c) termination of the Policy; or
(d) the end of the fourth Policy Year.
Records and Reports
The Company will maintain all records relating to the Separate Account and will
mail to the Owner once each Policy Year, at the last known address of record, a
report which shows the current Policy values, premiums paid, deductions made
since the last report, and any outstanding Policy Loans. The Owner will also be
sent a periodic report for each Fund. Receipt of premium payments, transfers,
partial withdrawals, Pro-Rata Surrenders, Policy Loans, loan repayments,
changes in death benefit options, decreases in Face Amount, surrenders and
reinstatements will be confirmed promptly following each transaction.
An Owner may request in writing an illustration of future Cash Surrender Values
and death benefits. This illustration will be furnished by the Company for a
nominal fee which will not exceed $25.
DISTRIBUTION OF THE POLICIES
Walnut Street Securities, Inc. ("Walnut Street") acts as principal underwriter
of the Policies pursuant to an Underwriting Agreement with the Company. Walnut
Street is a wholly-owned subsidiary of GenAmerica Corporation. Walnut Street, a
Missouri corporation formed May 4, 1994, 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 Securities' Internal
Revenue Service Employer Identification Number is 43-1333368. It is a Missouri
Corporation and was formed May 4, 1984.
Broker-dealers may receive a marketing allowance to assist in marketing the
product. This allowance may include an amount up to five thousand dollars per
Policy at issue, and an on-going annual percentage up to 0.15% of Cash Value to
reimburse the broker-dealer for expenses and due diligence efforts performed in
connection with marketing the product. This allowance will generally be
retained by the broker-dealer in order to offset its expenses. Generally, no
compensation will be paid by the Company, Walnut Street, or the broker-dealer
to the individual directly involved in the sale of the product.
FEDERAL TAX MATTERS
Introduction
The following summary provides a general description of the Federal income tax
considerations associated with the Policy and does not purport to be complete
or to cover all situations. This discussion is not intended as tax advice.
Counsel or other competent tax Advisors should be consulted for more complete
information. This discussion is based upon the Company's understanding of the
present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of
continuation of the present Federal income tax laws or of the current
interpretations by the Internal Revenue Service.
Tax Status of the Policy
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code")
includes a definition of a life insurance contract for Federal tax purposes.
The Secretary of the Treasury (the "Treasury") issued proposed regulations
which specify what will be considered reasonable mortality charges under
Section 7702. Guidance as to how Section 7702 is to be applied is, however,
limited. If a Policy were determined not to be a life insurance contract for
purposes of Section 7702, such Policy would not provide most of the tax
advantages normally provided by a life insurance policy.
41
While there is some uncertainty due to the limited guidance under Section 7702,
the Company believes that it is reasonable to conclude that a Policy should
meet the Section 7702 definition of a life insurance contract. If it is
subsequently determined that a Policy does not satisfy Section 7702, the
Company will take whatever steps are appropriate and necessary to attempt to
cause the Policy to comply with Section 7702, including possibly refunding any
premiums paid that exceed the limitations allowable under Section 7702
(together with interest or other earnings on any such premiums refunded as
required by law or the IRS). For these reasons, the Company reserves the right
to modify the Policy as necessary to attempt to qualify it as a life insurance
contract under Section 7702.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Separate Account to be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for Federal tax purposes. The Separate Account, intends to
comply with the diversification requirements prescribed by the Treasury in
Regulation Section 1.817-5, which affect how assets may be invested. Although
Paragon does not control the Funds, it has entered into agreements, which
require these investment companies to be operated in compliance with the
requirements prescribed by the Treasury.
The IRS has stated in published rulings that a variable contract owner will be
considered the owner of separate account assets, for federal income tax
purposes, if the contract owner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. If
that were to be determined to be the case, income and gains from the separate
account assets would be includible in the variable contract owner's gross
income. The Treasury Department has also announced, in connection with the
issuance of regulations concerning diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor (i.e., the
Owner), rather than the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
owners of the underlying assets."
The ownership rights under the Policy are different in certain respects from
those described by the IRS in rulings in which it was determined that policy
owners were not owners of separate account assets. For example, the Owner has
additional flexibility in allocating Premium payments and Policy Values. These
differences could result in an Owner being treated as the owner of a pro rata
portion of the assets of the Separate Account. In addition, the Company does
not know what standards will be set forth, if any, in the regulations or
rulings which the Treasury Department has stated it expects to issue. The
Company therefore reserves the right to modify the Policy as necessary to
attempt to prevent an Owner from being considered the owner of a pro rata share
of the assets of the Separate Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
l. Tax Treatment of Policy Benefits. In general, the Company believes that the
proceeds and Cash Value increases of a Policy should be treated in a manner
consistent with a fixed-benefit life insurance policy for Federal income tax
purposes. Thus, the death benefit under the Policy should be excludable from
the gross income of the Beneficiary under Section 101(a)(1) of the Code, unless
a transfer for value (generally a sale of the policy) has occurred.
Many changes or transactions involving a Policy may have tax consequences,
depending on the circumstances. Such changes include, but are not limited to,
the exchange of the Policy, a change of the Policy's Face Amount, a Policy
Loan, an additional premium payment, a Policy lapse with an outstanding Policy
Loan, a partial withdrawal, or a surrender of the Policy. In addition, Federal
estate and state and local estate, inheritance, and other tax consequences of
ownership or receipt of Policy proceeds depend upon the circumstances of each
Owner or Beneficiary. A competent tax adviser should be consulted for further
information.
42
A Policy may also be used in various arrangements, including non-qualified
deferred compensation or salary continuation plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Policy in any arrangement the value of which depends
in part on its tax consequences, you should be sure to consult a qualified tax
adviser regarding the tax attributes of the particular arrangement. 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.
Generally, the Owner will not be deemed to be in constructive receipt of the
Policy's Cash Value, including increments thereof, under the Policy until there
is a distribution. The tax consequences of distributions from, and Policy Loans
taken from or secured by, a Policy depend upon whether the Policy is classified
as a "modified endowment contract." However, upon a complete surrender or lapse
of any Policy, if the amount received plus the amount of outstanding
Indebtedness exceeds the total investment in the Policy, the excess will
generally be treated as ordinary income subject to tax.
2. Modified Endowment Contracts. A policy may be treated as a modified
endowment contract depending upon the amount of premiums paid in relation to
the death benefit provided under such Policy. The premium limitation rules for
determining whether a Policy is a modified endowment contract are extremely
complex. In general, however, a Policy will be a modified endowment contract if
the accumulated premiums paid at any time during the first seven Policy Years
exceed the sum of the net level premiums which would have been paid on or
before such time if the Policy provided for paid-up future benefits (based on
the lowest level of benefits in effect for the Policy) after the payment of
seven level annual premiums.
In addition, if a Policy is "materially changed" it may cause such Policy to be
treated as a modified endowment contract. The material change rules for
determining whether a Policy is a modified endowment contract are also
extremely complex. In general, however, the determination of whether a Policy
will be a modified endowment contract after a material change generally depends
upon the relationship among the death benefit at the time of such change, the
Cash Value at the time of the change and the additional premiums paid in the
seven Policy Years starting with the date on which the material change occurs.
Moreover, a life insurance contract received in exchange for a life insurance
contract classified as a modified endowment contract will also be treated as a
modified endowment contract. A reduction in a Policy's benefits may also cause
such Policy to become a modified endowment contract.
Due to the Policy's flexibility, classification of a Policy as a modified
endowment contract will depend upon the circumstances of each Policy. The
Company has, however, adopted administrative steps designed to protect an Owner
against the possibility that the Policy might become a modified endowment
contract. The Company believes the safeguards are adequate for most situations,
but it cannot provide complete assurance that a Policy will not be classified
as a modified endowment contract. At the time a premium is credited which would
cause the Policy to become a modified endowment contract, the Company will
notify the Owner that unless a refund of the excess premium is requested by the
Owner, the Policy will become a modified endowment contract. The Owner will
have 30 days after receiving such notification to request the refund. The
excess premium paid will be returned to the Owner upon receipt by the Company
of the refund request. The amount to be refunded will be deducted from the
Policy Cash Value in the Divisions of the Separate Account and in the General
Account in the same proportion as the premium payment was allocated to such
Divisions.
Accordingly, a prospective Owner should contact a competent tax adviser before
purchasing a Policy to determine the circumstances under which the Policy would
be a modified endowment contract. In addition, an Owner should contact a
competent tax adviser before paying any additional premiums or making any other
change to, including an exchange of, a Policy to determine whether such premium
or change would cause the Policy (or the new Policy in the case of an exchange)
to be treated as a modified endowment contract.
43
3. Distributions (other than Death Benefits) from Policies Classified as
Modified Endowment Contract. Policies classified as modified endowment
contracts will be subject to the following tax rules: First, all distributions,
including distributions upon surrender and benefits paid at maturity, from such
a Policy are treated as ordinary income subject to tax up to the amount equal
to the excess (if any) of the Cash Value immediately before the distribution
over the investment in the Policy (described below) at such time. Second,
Policy Loans taken from or secured by such a Policy, including collateral
assignments, as well as due but unpaid interest thereon, are treated as
distributions from such a Policy and taxed accordingly. Third, a
10 percent additional income tax is imposed on the portion of any distribution
from, or Policy Loan taken from or secured by, such a Policy that (a) is
included in income, except where the distribution or Policy Loan is made on or
after the Owner attains age 59, (b) is attributable to the Owner's becoming
disabled, or (c) 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.
4. Distributions (other than Death Benefits) from Policies Not Classified as
Modified Endowment Contract. Distributions from Policies not classified as a
modified endowment contract are generally treated as first recovering the
investment in the Policy (described below) and then, only after the return of
all such investment in the Policy, as distributing taxable income. An exception
to this general rule occurs in the case of a decrease in the Policy's death
benefit (possibly including a partial withdrawal) or any other change that
reduces benefits under the Policy in the first 15 years after the Policy is
issued and that results in cash distribution to the Owner in order for the
Policy to continue complying with the Section 7702 definitional limits. Such a
cash distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
Policy Loans from or secured by a Policy that is not a modified endowment
contract are generally not treated as distributions. Instead, such loans are
treated as indebtedness of the Owner. However, the treatment of Policy Loans
from or secured by a Policy that is not a modified endowment contract after the
tenth Policy Year is uncertain. You should consult a tax adviser as to such
consequences.
Upon a complete surrender or lapse of a Policy that is not a modified endowment
contract, if the amount received plus the amount of indebtedness exceeds the
total investment in the Policy, the excess will generally be treated as
ordinary income subject to tax.
Neither distributions (including distributions upon surrender or lapse) nor
Policy Loans from, or secured by, a Policy that is not a modified endowment
contract are subject to the 10 percent additional income tax.
If a Policy which is not a modified endowment contract subsequently becomes a
modified endowment contract, then any distribution made from the Policy within
two years prior to the date of such change in status may become taxable.
5. Policy Loan Interest. Generally, interest paid on any loan under a life
insurance Policy owned by an individual is not deductible. In addition,
interest on any loan under a life insurance Policy owned by a business taxpayer
on the life of any individual who is an officer of or is financially interested
in the business carried on by that taxpayer is deductible only under certain
very limited circumstances. An Owner should consult a competent tax adviser
before deducting any loan interest.
6. Interest Expense on Unrelated Indebtedness. Under provisions added to the
Code in 1997 for policies issued after June 8, 1997, if a business taxpayer
owns or is the beneficiary of a Policy on the life of any individual who is not
an officer, director, employee, or 20 percent owner of the business, and the
taxpayer also has debt unrelated to the Policy, a portion of the taxpayer's
unrelated interest expense deductions may be lost. No business taxpayer should
purchase or exchange a Policy on the life of any individual who is not an
officer, director, employee, or 20 percent owner of the business without first
consulting a competent tax Advisor.
7. Investment in the Policy. Investment in the Policy means (i) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (ii) the
aggregate amount received under the Policy which is
44
excluded from gross income of the Owner (except that the amount of any Policy
Loan from, or secured by, a Policy that is a modified endowment contract, to
the extent such amount is excluded from gross income, will be disregarded),
plus (iii) the amount of any Policy Loan from, or secured by, a Policy that is
a modified endowment contract to the extent that such amount is included in the
gross income of the Owner.
8. Multiple Policies. All modified endowment contracts that are issued by the
Company (or its affiliates) to the same Owner during any calendar year are
treated as one modified endowment contract for purposes of determining the
amount includible in gross income under Section 72(e) of the Code.
9. Tax Treatment of Divorce Split. The Divorce Split Rider permits a Policy to
be split into two individual fixed policies. It is not clear whether exercising
the Divorce Split Rider will be treated as a taxable transaction or whether the
individual policies that result would be classified as modified endowment
contracts. A competent tax adviser should be consulted before exercising the
Divorce Split Rider.
10. Continuation Beyond Younger Insured's Attained Age 100. The tax
consequences of continuing the Policy beyond the younger Insured's Attained Age
100 are unclear. You should consult a tax adviser if you intend to keep the
Policy in force beyond the younger Insured's Attained Age 100.
11. 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. It is possible that any legislative
change could be retroactive (that is, effective prior to the date of the
change). Consult a tax adviser with regard to legislative developments and
their effect on the Policy.
12. Possible Charge for Taxes. At the present time, the Company makes no charge
to the Separate Account for any Federal, state, or local taxes (as opposed to
Premium Tax Charges which are deducted from premium payments) that it incurs
which may be attributable to such Separate Account or to the Policies. The
Company, however, reserves the right in the future to make a charge for any
such tax or other economic burden resulting from the application of the tax
laws that it determines to be properly attributable to the Separate Account or
to the Policies.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
Paragon holds the assets of the Separate Account. The assets are kept
physically segregated and held separate and apart from the Company's general
assets. The Company maintains records of all purchases and redemptions of Fund
shares by each of the Divisions. Additional protection for the assets of the
Separate Account is afforded by a blended executive risk insurance program,
including blanket fidelity coverage issued by CAN and Chubb Insurance Companies
with a limit of $25 million, covering all officers and employees of the Company
who have access to the assets of the Separate Account.
VOTING RIGHTS
Based on its understanding of current applicable legal requirements, the
Company will vote the shares of the Funds held in the Separate Account at
regular and special shareholder meetings of the mutual funds in accordance with
the 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 Fund in its own right, it may elect to do so.
No voting privileges apply to the Policies with respect to Cash Value removed
from the Separate Account as a result of a Policy Loan.
The number of votes which an Owner has the right to instruct will be calculated
separately for each Division. Voting rights reflect the dollar value of the
total number of units of each Division of the Separate Account credited to the
Owner at the record date, rather than the number of units alone. Fractional
shares will be counted. The number of votes of the Fund which the Owner has the
right to instruct will be determined as of the date coincident with the date
established by that Fund for determining shareholders eligible. Voting
instructions will be solicited by written communications prior to such meeting
in accordance with procedures established by the mutual funds.
45
The company will vote shares of a Fund for which no timely instructions are
received in proportion to the voting instructions which are received with
respect to that Fund. The Company will also vote any shares of the Funds which
are not attributable to Policies in the same proportion.
Each person having a voting interest in a Division will receive any 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 the Fund 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 the investment adviser or sub-adviser of a
Fund if the Company reasonably disapproves of such changes. A proposed change
would be disapproved only if the proposed change is contrary to state law or
prohibited by state regulatory authorities, or the Company determined that the
change would have an adverse effect on its General Account in that the proposed
investment policy for a Fund may result in overly speculative or unsound
investments. If the Company disregards voting instructions, a summary of that
action and the reasons for such action will be included in the next annual
report to Owners.
STATE REGULATION OF THE COMPANY
The Company, a stock life insurance company organized under the laws of
Missouri, and the Separate Account are subject to regulation by the Missouri
Department of Insurance. An annual statement is filed with the Director of
Insurance on or before March 1st of each year covering the operations and
reporting on the financial condition of the Company as of December 31 of the
preceding year. Periodically, the Director of Insurance examines the
liabilities and reserves of the Company and the Separate Account and certifies
their adequacy, and a full examination of the Company's operations is conducted
by the National Association of Insurance Commissioners at least once every
three years.
In addition, the Company is subject to the insurance laws and regulations of
other states within which it is licensed or may become licensed to operate.
Generally, the insurance departments of other states apply the laws of the
state of domicile in determining permissible investments.
46
MANAGEMENT OF THE COMPANY
Principal Occupation(s)
Name During Past Five Years
---- -----------------------
Principal Officers
Carl H. Anderson # President and Chief Executive Officer,
6/86-present. Vice President, New
Ventures, General American, 6/86-present.
Matthew K. Duffy Vice President and Chief Financial
Officer, 7/96-present. Formerly Director
of Accounting, Prudential Insurance
Company of America, 3/87-6/96.
E. Thomas Hughes, Jr. # Treasurer, 12/94-present. Corporate
General American Life Insurance Co. Actuary and Treasurer, General American,
700 Market Street 10/94-present. Formerly Executive Vice
St. Louis, MO 63101 President, General American, 1/90-10/94.
Matthew P. McCauley # Vice President and General Counsel, 1984-
General American Life Insurance Co. present. Secretary, 1981-present. Vice
700 Market Street President and Associate General Counsel,
St. Louis, MO 63101 General American, 12/95-present
Craig K. Nordyke # Executive Vice President and Chief
Actuary, 11/96-present. Formerly Vice
President and Chief Actuary, 11/90-11/96;
Second Vice President and Chief Actuary,
5/87-8/90.
John R. Tremmel Vice President, Operations and System
Development, 1/99-present. Formerly Chief
Operating Officer, ISP Alliance, 4/98-
12/98; Vice President and General Manager
of National Operations Centers, Citicorp
Insurance Group, 9/86-12/95.
All positions listed are with Paragon unless otherwise indicated.
The principal business address of each person listed is Paragon Life Insurance
Company, 100 South Brentwood, St. Louis, MO 63105 unless otherwise listed.
# Mr. Anderson, Mr. Hughes, Mr. McCauley and Mr. Nordyke are members of the
Board of Directors as well as Executive Officers of the Company.
Non-Officer Directors
Richard A. Liddy
General American Life Chairman, President and Chief Executive Officer, General
Insurance Co. American Life Insurance Company, 5/92-present. Formerly
700 Market Street President and Chief Operating Officer, General American,
St. Louis, MO 63101 5/88-5/92.
Leonard M. Rubenstein Chairman and Chief Executive Officer, Conning Corporation and
Conning Corporation Conning Asset Management Company, 1/97-present. Formerly
700 Market Street Executive Vice President--Investments, General American,
St. Louis, MO 63101 2/91-1/97.
Warren J. Winer Executive Vice President--Group, General American, 9/95-present.
General American Life Formerly Managing Director, William M. Mercer, 7/93-8/95;
Insurance Co. President, W. F. Corroon, 9/90-7/93.
13045 Tesson Ferry
Road
St. Louis, MO 63128
Bernard H. Wolzenski Executive Vice President--Individual, General
General American Life American, 11/91-present.
Insurance Co.
13045 Tesson Ferry
Road
St. Louis, MO 63128
A. Greig Woodring President and Chief Executive Officer, Reinsurance Group of
Reinsurance Group of America, 5/93-present.
America
660 Mason Ridge Center
Drive
Suite 300
St. Louis, MO 63141
47
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 Policy, including the validity of the
Policy and Paragon's right to issue the Policy under Missouri insurance law,
and all legal matters relating to General Americans resolution concerning
policies issued by Paragon have been passed upon by Matthew P. McCauley, Vice
President and General Counsel of Paragon.
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. Paragon 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 audited financial statements of Paragon have been included in this
Prospectus in reliance on the reports of KPMG LLP independent certified public
accountants, and on the authority of said firm as experts in accounting and
auditing.
Actuarial matters included in this Prospectus have been examined by Craig K.
Nordyke, FSA, MAAA, Executive Vice President and Chief Actuary of Paragon, 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
Policy 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.
Like all financial services providers, Paragon utilizes systems that may be
affected by the Year 2000 transition issues, and it relies on services
providers, including the Funds, that may also be affected. The Company has
developed, and is in the process of implementing, a Year 2000 transition plan,
and is confirming that its services providers are also so engaged. The
resources that are being devoted to this effort are substantial. It is
difficult to predict with precision whether the amount of resources ultimately
devoted, or the outcome of these efforts, will have any negative impact on the
Company. However, as of the date of this prospectus, we do not anticipate that
Policy Owners will experience negative effects on their investment, or on the
services provided in connection therewith, as a result of Year 2000 transition
implementation. Paragon currently anticipates that its systems will be Year
2000 compliant, but there can be no assurance that the Company will be
successful, or that interaction with other service providers will not impair
the Company's services at that time.
FINANCIAL STATEMENTS
The financial statements of Paragon which are included in this Prospectus
should be distinguished from the financial statements of the Separate Account,
and should be considered only as bearing on the ability of Paragon 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.
48
Interim financial statements for Paragon or the Separate Account are not part
of this prospectus. The Company does not prepare audited financial statements
more often than annually, and believes that any incremental benefit to
prospective Policy Owners that may result from preparing and delivering more
current financial statements, though unaudited, does not justify the additional
cost that would be incurred. No Financial Statements of the Divisions of the
Separate Account used in these Policies are included in this prospectus
because, as of the date of this prospectus, those Divisions had not yet
commenced operations and had no assets, liabilities, income or expenses.
Paragon represents that there have been no adverse changes in the financial
condition or operations of Paragon or the Separate Account between the end of
the most recent fiscal year and the date of this prospectus.
49
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Paragon Life Insurance Company:
We have audited the accompanying balance sheets of Paragon Life Insurance
Company as of December 31, 1998 and 1997, and the related statements of
operations and comprehensive income, stockholder's equity, and cash flows for
each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
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, 1998 and 1997, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
February 3, 1999
F-1
PARAGON LIFE INSURANCE COMPANY
Balance Sheets
December 31, 1998 and 1997
(in thousands of dollars)
1998 1997
--------- -------
Assets
Fixed maturities, available for sale....................... $ 83,384 75,704
Policy loans............................................... 14,135 11,487
Cash and cash equivalents.................................. 7,439 5,733
--------- -------
Total cash and invested assets......................... 104,958 92,924
Reinsurance recoverables................................... 1,170 1,733
Deposits relating to reinsured policyholder account
balances.................................................. 6,688 6,416
Accrued investment income.................................. 1,545 1,377
Deferred policy acquisition costs.......................... 20,602 17,980
Fixed assets and leasehold improvements, net............... 4,504 2,609
Other assets............................................... 105 179
Separate account assets.................................... 168,222 118,051
--------- -------
Total assets........................................... $ 307,794 241,269
========= =======
Liabilities and Stockholder's Equity
Policyholder account balances.............................. 93,334 85,152
Policy and contract claims................................. 1,672 1,085
Federal income taxes payable............................... 281 163
Other liabilities and accrued expenses..................... 3,943 3,486
Payable to affiliates...................................... 2,062 1,620
Due to separate account.................................... 183 61
Deferred tax liability..................................... 5,591 4,394
Separate account liabilities............................... 168,222 118,051
--------- -------
Total liabilities...................................... $ 275,288 214,012
--------- -------
Stockholder's equity:
Common stock, par value $25; 100,000 shares authorized;
82,000 shares issued and outstanding.................... 2,050 2,050
Additional paid-in capital............................... 17,950 17,950
Accumulated other comprehensive income................... 2,809 1,958
Retained earnings........................................ 9,697 5,299
--------- -------
Total stockholder's equity............................. $ 32,506 27,257
--------- -------
Total liabilities and stockholder's equity............. $ 307,794 241,269
========= =======
See accompanying notes to financial statements.
F-2
PARAGON LIFE INSURANCE COMPANY
Statements of Operations and Comprehensive Income
Years ended December 31, 1998, 1997 and 1996
(in thousands of dollars)
1998 1997 1996
------- ------ ------
Revenues:
Policy contract charges............................... $20,437 16,417 13,719
Net investment income................................. 6,983 6,288 5,663
Commissions and expense allowances on reinsurance
ceded................................................ 124 10 114
Net realized investment gains......................... 53 69 72
------- ------ ------
Total revenues...................................... 27,597 22,784 19,568
======= ====== ======
Benefits and expenses:
Policy benefits....................................... 4,774 3,876 3,326
Interest credited to policyholder account balances.... 5,228 4,738 4,126
Commissions, net of capitalized costs................. 167 227 79
General and administration expenses, net of
capitalized costs.................................... 9,512 7,743 6,798
Amortization of deferred policy acquisition costs..... 1,150 424 285
------- ------ ------
Total benefits and expenses......................... 20,831 17,008 14,614
======= ====== ======
Income before federal income tax expense............ 6,766 5,775 4,954
Federal income tax expense.............................. 2,368 1,885 1,738
------- ------ ------
Net income.............................................. $ 4,398 3,890 3,216
Other comprehensive income (loss)....................... 851 1,636 (1,261)
------- ------ ------
Comprehensive income.................................... $ 5,249 5,526 1,955
======= ====== ======
See accompanying notes to financial statements.
F-3
PARAGON LIFE INSURANCE COMPANY
Statements of Stockholder's Equity
Years ended December 31, 1998, 1997, and 1996
(in thousands of dollars)
Accumulated
Additional other Retained Total
Common paid-in comprehensive earnings stockholder's
Stock capital income (deficit) equity
------ ---------- ------------- -------- -------------
Balance at December 31,
1995................... $2,050 17,950 1,583 (1,807) 19,776
Net income............ -- -- -- 3,216 3,216
Other comprehensive
income............... -- -- (1,261) -- (1,261)
------ ------ ------ ------ ------
Balance at December 31,
1996................... $2,050 17,950 322 1,409 21,731
Net income............ -- -- -- 3,890 3,890
Other comprehensive
income............... -- -- 1,636 -- 1,636
------ ------ ------ ------ ------
Balance at December 31,
1997................... $2,050 17,950 1,958 5,299 27,257
Net income............ -- -- -- 4,398 4,398
Other comprehensive
income............... -- -- 851 -- 851
------ ------ ------ ------ ------
Balance at December 31,
1998................... $2,050 17,950 2,809 9,697 32,506
====== ====== ====== ====== ======
See accompanying notes to financial statements.
F-4
PARAGON LIFE INSURANCE COMPANY
Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
(in thousands of dollars)
1998 1997 1996
-------- ------- -------
Cash flows from operating activities:
Net income....................................... $ 4,398 3,890 3,216
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in:
Reinsurance recoverables..................... 563 (892) 407
Deposits relating to reinsured policyholder
account balances............................ (272) (342) (378)
Accrued investment income.................... (168) (79) (257)
Federal income tax payable................... 118 (648) 811
Other assets................................. (1,821) (1,280) (1,019)
Policy and contract claims................... 587 (23) 12
Other liabilities and accrued expenses....... 457 782 741
Payable to affiliates........................ 442 (669) 397
Due to separate account...................... 122 (34) (108)
Deferred tax expense........................... 740 732 615
Policy acquisition costs deferred.............. (3,808) (2,972) (2,447)
Amortization of deferred policy acquisition
costs......................................... 1,150 424 285
Interest credited to policyholder accounts..... 5,228 4,738 4,126
Net gain on sales and calls of fixed
maturities.................................... (53) (69) (72)
-------- ------- -------
Net cash provided by operating activities.......... 7,683 3,558 6,329
-------- ------- -------
Cash flows from investing activities:
Purchase of fixed maturities..................... (14,915) (12,557) (15,290)
Sale or maturity of fixed maturities............. 8,632 5,255 6,860
Increase in policy loans, net.................... (2,648) (1,923) (2,358)
-------- ------- -------
Net cash used in investing activities.............. (8,931) (9,225) (10,788)
-------- ------- -------
Cash flows from financing activities:
Net policyholder account deposits................ 2,954 2,294 6,509
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 1,706 (3,373) 2,050
Cash and cash equivalents at beginning of year..... 5,733 9,106 7,056
-------- ------- -------
Cash and cash equivalents at end of year........... $ 7,439 5,733 9,106
======== ======= =======
Income taxes paid.................................. $ (1,460) (1,801) (198)
======== ======= =======
See accompanying notes to financial statements.
F-5
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, 1998
and 1997, fixed maturity securities are classified as available-for-sale and
are carried at fair value with the unrealized gain or loss, net of taxes, being
reflected as accumulated other comprehensive income, a separate component of
stockholder's equity. Policy loans are valued at aggregate unpaid balances.
Realized gains or losses on the sale of securities are determined on the
basis of specific identification and include the impact of any related
amortization of premiums or accretion of discounts which is generally computed
consistent with the interest method.
Amortization of the premium or discount on mortgage-backed securities is
recognized using a level-yield method which considers the estimated timing and
amount of prepayments of underlying mortgage loans. Actual prepayment
experience is periodically reviewed and effective yields are recalculated when
differences arise between the prepayments originally anticipated and the actual
prepayments received and currently anticipated. When such differences occur,
the net investment in the mortgage-backed security is adjusted to the amount
that would have existed had the new effective yield been applied since the
acquisition of the security with a corresponding charge or credit to interest
income.
F-6
PARAGON 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 1998, 1997 and 1996. The
actual crediting rate was 6.5% in 1998 and 1997, and ranged from 6.5% to 7.0%
in 1996.
(d) Federal Income Taxes
The Company establishes deferred taxes under the asset and liability method,
and deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The Company files its federal income tax return on a consolidated basis with
its Parent and other subsidiaries. In accordance with a tax allocation
agreement between Paragon and General American, taxes are computed as if
Paragon was filing its own income tax return, and tax expense (benefit) is paid
to, or received from, General American. Paragon recognizes a tax benefit to the
extent that its tax losses are utilized by other members of the General
American consolidated tax group.
(e) Reinsurance
Balances resulting from agreements which transfer funds relating to
policyholder account balances have been accounted for as deposits. Other
reinsurance activities are accounted for consistent with terms of the risk
transfer reinsurance contracts. Premiums for reinsurance ceded to other
companies have been reported as a reduction of policy contract charges. Amounts
applicable to reinsurance ceded for future policy benefits and claim
liabilities have been reported as assets for these items, and commissions and
expense allowances received in connection with reinsurance ceded have been
accounted for in income as earned. Reinsurance does not relieve the Company
from its primary responsibility to meet claim obligations.
(f) Deferred Policy Acquisition Costs
The costs of acquiring new business which vary with, and are primarily
related to, the production of new business have been deferred to the extent
that such costs are deemed recoverable from future gross profits. Such costs
include commissions, premium taxes, as well as certain costs of policy issuance
and underwriting. Deferred policy acquisition costs are adjusted for the impact
on estimated gross margins of net unrealized gains and losses on investment
securities. The estimates of expected gross margins are evaluated regularly and
are revised if actual experience or other evidence indicates that revision is
appropriate. Upon revision, total amortization recorded to date is adjusted by
a charge or credit to income.
(g) Separate Account Business
The assets and liabilities of the separate accounts represent segregated
funds administered and invested by the Company for purposes of funding variable
life insurance contracts for the exclusive benefit of variable life insurance
contract holders. The Company charges the separate accounts for risks it
assumes in issuing a policy and retains varying amounts of withdrawal charges
to cover expenses in the event of early withdrawals by contract holders. The
assets and liabilities of the separate account are carried at fair value.
F-7
PARAGON LIFE INSURANCE COMPANY
Notes to Financial Statements--(Continued)
(h) Fair Value of Financial Instruments
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Although fair value estimates are calculated using
assumptions that management believes are appropriate, changes in assumption
could significantly affect the estimates and such estimates should be used with
care. The following assumptions were used to estimate the fair value of each
class of financial instrument for which it was practicable to estimate fair
value:
Fixed maturities--Fixed maturities are valued using quoted market prices,
if available. If quoted market prices are not available, fair value is
estimated using quoted market prices of similar securities.
Policy loans--Policy loans are carried at their unpaid balances which
approximates fair value.
Separate account assets and liabilities--The separate account assets are
carried at fair value as determined by quoted market prices. Accordingly,
the carrying value of separate account liabilities is equal to their fair
value since it represents the contractholders' interest in the separate
account assets.
Cash and cash equivalents--The carrying amount is a reasonable estimate
of fair value.
(i) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents represent
demand deposits and highly liquid short-term investments, which include U.S.
Treasury bills, commercial paper, and repurchase agreements with original or
remaining maturities of 90 days or less when purchased.
(j) Reclassifications
The Company has reclassified the presentation of certain prior period
information to conform to the 1998 presentation.
(2) Investments
The amortized cost and estimated fair value of fixed maturities at December
31, 1998 and 1997 are as follows (000's):
1998
-----------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
U.S. Treasury securities........ $ 6,705 267 -- 6,972
Corporate securities............ 64,607 4,481 (208) 68,881
Mortgage-backed securities...... 6,854 192 (25) 7,021
Asset-backed securities......... 500 10 -- 510
------- ----- ---- ------
$78,666 4,950 (233) 83,384
======= ===== ==== ======
1997
-----------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
U.S. Treasury securities........ $ 4,472 131 -- 4,603
Corporate securities............ 56,973 3,098 (142) 59,929
Mortgage-backed securities...... 9,124 233 (48) 9,309
Asset-backed securities......... 1,762 101 -- 1,863
------- ----- ---- ------
$72,331 3,563 (190) 75,704
======= ===== ==== ======
F-8
PARAGON LIFE INSURANCE COMPANY
Notes to Financial Statements--(Continued)
The amortized cost and estimated fair value of fixed maturities at December
31, 1998, by contractual maturity, are shown below (000's). Expected maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Estimated
Amortized fair
cost value
--------- ---------
Due in one year or less............................... $ 605 616
Due after one year through five years................. 20,733 21,528
Due after five years through ten years................ 12,600 13,338
Due after ten years through twenty years.............. 37,873 40,881
Mortgage-backed securities............................ 6,855 7,021
------- ------
$78,666 83,384
======= ======
Proceeds from sales of fixed maturities during 1998, 1997 and 1996 were
$4,069,000, $1,328,585 and $4,129,254 respectively. Gross gains of $53,180,
$68,876 and $71,604 were realized on those sales in 1998, 1997 and 1996,
respectively.
The sources of net investment income follow (000s):
1998 1997 1996
------ ----- -----
Fixed Maturities.................................... $5,603 4,941 4,626
Short-term investments.............................. 535 608 449
Policy loans and other.............................. 924 807 680
------ ----- -----
$7,062 6,356 5,755
Investment expenses................................. (79) (68) (92)
------ ----- -----
Net investment income........................... $6,983 6,288 5,663
====== ===== =====
A summary of the components of the net unrealized appreciation (depreciation)
on invested assets carried at fair value is as follows (in 000's):
1998 1997 1996
------- ------ ----
Unrealized appreciation (depreciation):
Fixed maturities available-for-sale.............. $ 4,717 3,373 513
Deferred policy acquisition costs................ (396) (361) (17)
Deferred income taxes.............................. (1,512) (1,054) (174)
------- ------ ----
Net unrealized appreciation (depreciation)......... $ 2,809 1,958 322
======= ====== ====
The Company has fixed maturities on deposit with various state insurance
departments with an amortized cost of approximately $4,121,000 and $3,982,000
at December 31, 1998 and 1997, respectively.
(3) Reinsurance
The Company reinsures certain risks with other insurance companies above a
maximum retention amount (currently $50,000) to help reduce the loss on any
single policy.
F-9
PARAGON LIFE INSURANCE COMPANY
Notes to Financial Statements--(Continued)
Premiums and related reinsurance amounts for the years ended December 31,
1998, 1997 and 1996 as they relate to transactions with affiliates are
summarized as follows (000's):
1998 1997 1996
------- ------ ------
Reinsurance transactions with affiliates:
Premiums for reinsurance ceded.................... $14,723 13,001 10,264
Policy benefits ceded............................. 17,071 14,070 6,274
Commissions and expenses ceded.................... 123 195 114
Reinsurance recoverables.......................... 1,109 1,661 774
Ceded premiums and benefits to nonaffiliates for 1998, 1997 and 1996 were
insignificant.
(4) Deferred Policy Acquisition Costs
A summary of the policy acquisition costs deferred and amortized is as
follows (000's):
1998 1997 1996
------- ------ ------
Balance at beginning of year.................... $17,980 15,776 13,006
Policy acquisition costs deferred............... 3,808 2,972 2,447
Policy acquisition costs amortized.............. (1,150) (424) (285)
Deferred policy acquisition costs relating to
change in unrealized (gain) loss on investments
available for sale............................. (36) (344) 608
------- ------ ------
Balance at end of year.......................... $20,602 17,980 15,776
======= ====== ======
(5) Federal Income Taxes
The Company is taxed as a life insurance company. A summary of Federal income
tax expense is as follows (000s):
1998 1997 1996
------ ----- -----
Current tax (benefit) expense.......................... $1,628 1,153 1,123
Deferred tax expense................................... 740 732 615
------ ----- -----
Federal income tax expense............................. $2,368 1,885 1,738
====== ===== =====
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):
1998 1997 1996
------ ----- -----
Computed "expected" tax expense....................... $2,368 2,022 1,734
Other, net............................................ 0 (137) 4
------ ----- -----
Federal income tax expense............................ $2,368 1,885 1,738
====== ===== =====
F-10
PARAGON LIFE INSURANCE COMPANY
Notes to Financial Statements--(Continued)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1998 and 1997
are presented below (000's):
1998 1997 1996
------ ----- -----
Deferred tax assets:
Unearned reinsurance allowances...................... $ 218 217 153
Policy and contract liabilities...................... 709 1,031 1,305
Tax capitalization of acquisition costs.............. 2,147 1,755 1,386
Other, net........................................... 58 76 69
------ ----- -----
Total deferred tax assets.......................... $3,132 3,079 2,913
====== ===== =====
Deferred tax liabilities:
Unrealized gain on investments....................... $1,512 1,054 174
Deferred policy acquisition costs.................... 7,211 6,419 5,520
------ ----- -----
Total gross deferred tax liabilities............... $8,723 7,473 5,694
------ ----- -----
Net deferred tax liabilities....................... $5,591 4,394 2,781
====== ===== =====
The Company believes that a valuation allowance with respect to the
realization of the total gross deferred tax asset is not necessary. In
assessing the realization of deferred tax assets, the Company considers whether
it is more likely than not that the deferred tax assets will be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. The Company files a consolidated tax return with its Parent.
Realization of the gross tax asset will not be dependent solely on the
Company's ability to generate its own taxable income. General American has a
proven history of earnings and it appears more likely than not that the
Company's gross deferred tax asset will ultimately be fully realized.
(6) Related-Party Transactions
Paragon purchases certain administrative services from General American.
Charges for services performed are based upon personnel and other costs
involved in providing such service. Charges for services during 1998, 1997 and
1996 were $1,513,433, $1,348,198 and $1,250,396, respectively. See Note 3 for
reinsurance transactions with affiliates.
(7) Pension Plan
Associates of Paragon participate in a non-contributory multi-employer
defined benefit pension plan jointly sponsored by Paragon and General American.
The benefits are based on years of service and compensation level. No pension
expense was recognized in 1998, 1997 or 1996 due to overfunding of the plan.
In addition, Paragon has adopted an associate incentive plan applicable to
full-time salaried associates with at least one year of service. Contributions
to the plan are determined annually by General American and are based on
salaries of eligible associates. Full vesting occurs after five years of
continuous service. Total expenses to the Company for the incentive plan were
$188,316, $198,972 and $80,434 for 1998, 1997 and 1996, respectively.
Paragon provides for certain health care and life insurance benefits for
retired employees. The Company accounts for these benefits in accordance with
SFAS No. 106--Employer's Accounting for Postretirement Benefits Other Than
Pensions. The amounts involved are not material.
F-11
PARAGON LIFE INSURANCE COMPANY
Notes to Financial Statements--(Continued)
(8) Statutory Financial Information
The Company is subject to financial statement filing requirements of the
State of Missouri Department of Insurance, its state of domicile, as well as
the states in which it transacts business. Such financial statements, generally
referred to as statutory financial statements, are prepared on a basis of
accounting which varies in some respects from generally accepted accounting
principles (GAAP). Statutory accounting principles include: (1) charging of
policy acquisition costs to income as incurred; (2) establishment of policy and
contract liabilities computed using required valuation standards which may vary
in methodology utilized; (3) nonprovision of deferred federal income taxes
resulting from temporary differences between financial reporting and tax bases
of assets and liabilities; (4) recognition of statutory liabilities for asset
impairments and yield stabilization on fixed maturity dispositions prior to
maturity with asset valuation reserves based on statutory determined formulae
and interest stabilization reserves designed to level yields over their
original purchase maturities; (5) valuation of investments in fixed maturities
at amortized cost; (6) net presentation of reinsurance balances; and (7)
recognition of deposits and withdrawals on universal life policies as revenues
and expenses.
The stockholder's equity (surplus) and net income (loss) of the Company at
December 31, 1998, 1997 and 1996, as determined using statutory accounting
practices, is summarized as follows (000's):
1998 1997 1996
------- ------ ------
Statutory surplus as reported to regulatory
authorities...................................... $10,500 10,725 10,751
Net income (loss) as reported to regulatory
authorities...................................... $ 1,596 1,397 982
(9) Dividend Restrictions
Dividend payments by Paragon are restricted by state insurance laws as to the
amount that may be paid without prior notice or approval of the Missouri
Department of Insurance. The maximum amount of dividends which can be paid
without prior approval of the insurance commissioner is limited to the maximum
of (1) 10% of statutory surplus or (2) net gain from operations. The maximum
dividend distribution that can be paid by Paragon during 1998 without prior
notice or approval is $1,596,000. Paragon did not pay dividends in 1998, 1997
or 1996.
(10) Risk-Based Capital
The insurance departments of various states, including the Company's
domiciliary state of Missouri, impose risk-based capital (RBC) requirements on
insurance enterprises. The RBC calculation serves as a benchmark for the
regulation of life insurance companies by state insurance regulators. The
requirements apply various weighted factors to financial balances or activity
levels based on their perceived degree of risk.
The RBC guidelines define specific capital levels where action by the Company
or regulators is required based on the ratio of a company's actual total
adjusted capital to control levels determined by the RBC formula. At December
31, 1998, the Company's actual total adjusted capital was in excess of minimum
levels which would require action by the Company or regulatory authorities
under the RBC formula.
F-12
PARAGON LIFE INSURANCE COMPANY
Notes to Financial Statements--(Concluded)
(11) Commitments and Contingencies
The Company leases certain of its facilities and equipment under
noncancellable leases the majority of which expires March 2001. The future
minimum lease obligations under the terms of the leases are summarized as
follows (000s):
Year ended December 31:
1999............................................................. $ 626
2000............................................................. 598
2001............................................................. 256
2002............................................................. 53
------
$1,533
======
Rent expense totaled $489,999, $433,864 and $388,976 in 1998, 1997 and 1996,
respectively.
(12) Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income", effective for years beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. The most significant items of comprehensive
income are net income and changes in unrealized gains and losses on securities.
The adoption of SFAS No. 130 does not affect results of operations or financial
position, but affects their presentation and disclosure. The Company has
adopted SFAS No. 130 as of January 1, 1998, and the following summaries present
the components of the Company's comprehensive income, other than net income,
for the periods ending December 31, 1998, 1997 and 1996 (000s):
1998
-------------------------
Before- Tax Net-
Tax (Expense) of-Tax
Amount Benefit Amount
------- -------- ------
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
------- ---- ------
1997
-------------------------
Before- Tax Net-
Tax (Expense) of-Tax
Amount Benefit Amount
------- -------- ------
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
------- ---- ------
1996
-------------------------
Before- Tax Net-
Tax (Expense) of-Tax
Amount Benefit Amount
------- -------- ------
Unrealized holding gains arising during
period....................................... $(1,868) 654 (1,214)
Less: reclassification adjustment for gains
realized in net income....................... (72) 25 (47)
------- ---- ------
Other comprehensive income (loss)............. (1,940) 679 (1,261)
------- ---- ------
F-13
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 Insureds 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%. The
tables illustrate a Policy issued to a male and a female Insured, age 45, in a
select standard nonsmoker rate class. If either Insured falls into a smoker
rate class, the Cash Values and death and benefits would be lower than those
shown in the tables. 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 Cash Value column under the "Guaranteed" heading shows the accumulated
value of the Net Premiums paid at the stated interest rate, reflecting
deduction of all policy charges described in this prospectus at the guaranteed
maximum rate. The Cash value column under the "Current" heading shows the
accumulated value of the Net Premiums paid at the stated interest rate,
reflecting deduction of all policy charges as described in this prospectus at
the current rate. The illustrations of death benefits reflect the above
assumptions. The death benefits also vary between tables depending upon whether
Death Benefit Options A or C (Level Type) or Death Benefit Option B (Increasing
Type) are illustrated.
The amounts deducted from the Cash Value in the illustrations include the sales
charge, premium tax, federal tax charge, selection and issue expense charge,
monthly administrative charge, and cost of insurance. These charges are
described in the prospectus under Charges and Deductions.
The amounts shown for Cash Value and death benefit reflect charges that produce
an investment rate of return that is lower than the gross after-tax return on
the assets held in a Division of the Separate Account. The charges include a
charge for mortality and expense risk (equivalent to 0.55% for Policy Years 1-
10, 0.45% for Policy Years 11-20, and 0.35% thereafter), and an assumed 0.68%
charge for the investment Advisory fees and Fund administrative expenses
combined, based on the average Fund expense for all available investment Funds.
This average charge for the investment advisory fees and fund administrative
expenses reflects 1998 fee levels and takes into account expense reimbursement
arrangements to be in place for 1999 for some of the Funds. Without waivers or
reimbursements the average investment Advisory fee and Fund administrative
expense would be 0.69%. The actual investment advisory fee applicable to each
Division is shown in the respective Prospectuses of each Fund. After deduction
for these amounts, the illustrated gross annual investment rates of return of
0%, 6%, and 12% correspond to approximate initial net annual rates of -1.23%,
4.77%, and 10.77%, respectively. The Prospectuses for each Fund should be
consulted for details about the nature and extent of their expenses.
The hypothetical values shown in the tables do not reflect any charges for
Federal income taxes against the Separate Account (as opposed to Premium
Charges which are deducted from premium payments), 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 illustration. (See Federal Tax Matters.)
The tables illustrate the Policy values that would result based upon the
investment rates of return if premiums are paid as indicated, if all Net
Premiums are allocated to the Separate Account, if no Policy Loans have been
made. The tables are also based on the assumptions that the Owner has not
requested a 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 Insureds' age, sex, and rate class, the Face Amount or premium
requested, the proposed frequency of premium payments, and any available riders
requested.
A-1
PARAGON LIFE INSURANCE COMPANY
JOINT AND SURVIVOR VARIABLE UNIVERSAL LIFE INSURANCE
CONTRACT FACE AMOUNT: $250,000 MALE AND FEMALE INSUREDS AGE 45
DEATH BENEFIT OPTION: A--LEVEL SELECT STANDARD, NONSMOKERS
FOR SEPARATE ACCOUNT D
HYPOTHETICAL GROSS ANNUAL RATE OF
RETURN: 0%
------------------------------------
CURRENT
CHARGES GUARANTEED CHARGES
(-1.23% NET) (-1.23% NET)
AGE @ PREMIUM --------------- ------------------
POLICY BEGINNING ANNUAL ACCUM @ CASH DEATH CASH DEATH
YEAR OF YEAR PREMIUM 5% VALUE BENEFIT VALUE BENEFIT
- ------ --------- ------- ------- ----- ------- --------- ----------
1 45 5,000 5,250 4,610 250,000 4,610 250,000
2 46 5,000 10,763 9,189 250,000 9,189 250,000
3 47 5,000 16,551 13,736 250,000 13,736 250,000
4 48 5,000 22,628 18,254 250,000 18,251 250,000
5 49 5,000 29,010 22,747 250,000 22,733 250,000
6 50 5,000 35,710 27,214 250,000 27,180 250,000
7 51 5,000 42,746 31,656 250,000 31,590 250,000
8 52 5,000 50,133 36,073 250,000 35,962 250,000
9 53 5,000 57,889 40,463 250,000 40,294 250,000
10 54 5,000 66,034 44,828 250,000 44,582 250,000
11 55 5,000 74,586 49,327 250,000 48,984 250,000
12 56 5,000 83,565 53,803 250,000 53,340 250,000
13 57 5,000 92,993 58,254 250,000 57,646 250,000
14 58 5,000 102,893 62,678 250,000 61,899 250,000
15 59 5,000 113,287 67,076 250,000 66,094 250,000
16 60 5,000 124,202 71,443 250,000 70,226 250,000
17 61 5,000 135,662 75,783 250,000 74,287 250,000
18 62 5,000 147,695 80,094 250,000 78,266 250,000
19 63 5,000 160,330 84,375 250,000 82,152 250,000
20 64 5,000 173,596 88,624 250,000 85,928 250,000
25 69 5,000 250,567 109,793 250,000 103,146 250,000
30 74 5,000 348,804 129,630 250,000 114,629 250,000
The amounts shown under "Current Charges" reflect investment results using
current mortality and expense risk charges, monthly policy charges, and cost of
insurance rates for the exact combination of premiums and benefits shown.
The amounts shown under "Guaranteed Charges" reflect investment results using
guaranteed mortality and expense risk charges, monthly policy charges, and cost
of insurance rates for the exact combination of premiums and benefits shown.
If no Cash Value or Death Benefit is shown, the Policy would lapse under the
assumptions used. Additional premium payments would be required to keep the
Policy in force.
The hypothetical investment rate of return shown 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
Holder and the investment results for the Underlying Portfolios. The Cash Value
and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown over a period of years, but also
fluctuated above or below that average for individual Policy Years. No
representation can be made by Paragon, Walnut Street Securities, the Funds,
their various investment managers, 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 Policy Years indicated
and assume any additional premiums shown are received on the Policy
Anniversaries.
A-2
PARAGON LIFE INSURANCE COMPANY
JOINT AND SURVIVOR VARIABLE UNIVERSAL LIFE INSURANCE
CONTRACT FACE AMOUNT: $250,000 MALE AND FEMALE INSUREDS AGE 45
DEATH BENEFIT OPTION: A--LEVEL SELECT STANDARD, NONSMOKERS
FOR SEPARATE ACCOUNT D
HYPOTHETICAL GROSS ANNUAL RATE OF
RETURN: 6%
------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
(4.77% NET) (4.77% NET)
AGE @ PREMIUM --------------- ------------------
POLICY BEGINNING ANNUAL ACCUM @ CASH DEATH CASH DEATH
YEAR OF YEAR PREMIUM 5% VALUE BENEFIT VALUE BENEFIT
- ------ --------- ------- ------- ----- ------- --------- ----------
1 45 5,000 5,250 4,893 250,000 4,893 250,000
2 46 5,000 10,763 10,047 250,000 10,047 250,000
3 47 5,000 16,551 15,476 250,000 15,476 250,000
4 48 5,000 22,628 21,195 250,000 21,193 250,000
5 49 5,000 29,010 27,227 250,000 27,213 250,000
6 50 5,000 35,710 33,586 250,000 33,551 250,000
7 51 5,000 42,746 40,292 250,000 40,223 250,000
8 52 5,000 50,133 47,362 250,000 47,245 250,000
9 53 5,000 57,889 54,817 250,000 54,635 250,000
10 54 5,000 66,034 62,676 250,000 62,410 250,000
11 55 5,000 74,586 71,145 250,000 70,773 250,000
12 56 5,000 83,565 80,081 250,000 79,578 250,000
13 57 5,000 92,993 89,510 250,000 88,850 250,000
14 58 5,000 102,893 99,458 250,000 98,614 250,000
15 59 5,000 113,287 109,954 250,000 108,897 250,000
16 60 5,000 124,202 121,027 250,000 119,727 250,000
17 61 5,000 135,662 132,711 250,000 131,134 250,000
18 62 5,000 147,695 145,042 250,000 143,152 250,000
19 63 5,000 160,330 158,055 250,000 155,815 250,000
20 64 5,000 173,596 171,790 250,000 169,165 250,000
25 69 5,000 250,567 253,943 294,574 249,063 288,913
30 74 5,000 348,804 361,855 387,185 353,259 377,988
The amounts shown under "Current Charges" reflect investment results using
current mortality and expense risk charges, monthly policy charges, and cost of
insurance rates for the exact combination of premiums and benefits shown.
The amounts shown under "Guaranteed Charges" reflect investment results using
guaranteed mortality and expense risk charges, monthly policy charges, and cost
of insurance rates for the exact combination of premiums and benefits shown.
If no Cash Value or Death Benefit is shown, the Policy would lapse under the
assumptions used. Additional premium payments would be required to keep the
Policy in force.
The hypothetical investment rate of return shown 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
Holder and the investment results for the Underlying Portfolios. The Cash Value
and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown over a period of years, but also
fluctuated above or below that average for individual Policy Years. No
representation can be made by Paragon, Walnut Street Securities, the Funds,
their various investment managers, 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 Policy Years indicated
and assume any additional premiums shown are received on the Policy
Anniversaries.
A-3
PARAGON LIFE INSURANCE COMPANY
JOINT AND SURVIVOR VARIABLE UNIVERSAL LIFE INSURANCE
CONTRACT FACE AMOUNT: $250,000 MALE AND FEMALE INSUREDS AGE 45
DEATH BENEFIT OPTION: A--LEVEL SELECT STANDARD, NONSMOKERS
FOR SEPARATE ACCOUNT D
HYPOTHETICAL GROSS ANNUAL RATE OF
RETURN: 12%
---------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
(10.77% NET) (10.77% NET)
AGE @ PREMIUM ------------------- -------------------
POLICY BEGINNING ANNUAL ACCUM @ CASH DEATH CASH DEATH
YEAR OF YEAR PREMIUM 5% VALUE BENEFIT VALUE BENEFIT
- ------ --------- ------- ------- ----- --------- --------- ---------
1 45 5,000 5,250 5,176 250,000 5,176 250,000
2 46 5,000 10,763 10,940 250,000 10,940 250,000
3 47 5,000 16,551 17,357 250,000 17,357 250,000
4 48 5,000 22,628 24,504 250,000 24,501 250,000
5 49 5,000 29,010 32,469 250,000 32,454 250,000
6 50 5,000 35,710 41,346 250,000 41,309 250,000
7 51 5,000 42,746 51,239 250,000 51,166 250,000
8 52 5,000 50,133 62,264 250,000 62,141 250,000
9 53 5,000 57,889 74,551 250,000 74,359 250,000
10 54 5,000 66,034 88,245 250,000 87,964 250,000
11 55 5,000 74,586 103,718 250,000 103,325 250,000
12 56 5,000 83,565 120,977 250,000 120,449 250,000
13 57 5,000 92,993 140,230 250,000 139,545 250,000
14 58 5,000 102,893 161,706 250,000 160,845 250,000
15 59 5,000 113,287 185,665 250,000 184,614 250,000
16 60 5,000 124,202 212,391 276,108 211,133 274,473
17 61 5,000 135,662 242,199 310,014 240,685 308,077
18 62 5,000 147,695 275,443 347,058 273,614 344,754
19 63 5,000 160,330 312,520 387,524 310,299 384,771
20 64 5,000 173,596 353,870 431,722 351,164 428,420
25 69 5,000 250,567 646,825 750,317 639,178 741,446
30 74 5,000 348,804 1,154,054 1,234,838 1,133,664 1,213,021
The amounts shown under "Current Charges" reflect investment results using
current mortality and expense risk charges, monthly policy charges, and cost of
insurance rates for the exact combination of premiums and benefits shown.
The amounts shown under "Guaranteed Charges" reflect investment results using
guaranteed mortality and expense risk charges, monthly policy charges, and cost
of insurance rates for the exact combination of premiums and benefits shown.
If no Cash Value or Death Benefit is shown, the Policy would lapse under the
assumptions used. Additional premium payments would be required to keep the
Policy in force.
The hypothetical investment rate of return shown 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
Holder and the investment results for the Underlying Portfolios. The Cash Value
and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown over a period of years, but also
fluctuated above or below that average for individual Policy Years. No
representation can be made by Paragon, Walnut Street Securities, the Funds,
their various investment managers, 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 Policy Years indicated
and assume any additional premiums shown are received on the Policy
Anniversaries.
A-4
PARAGON LIFE INSURANCE COMPANY
JOINT AND SURVIVOR VARIABLE UNIVERSAL LIFE INSURANCE
CONTRACT FACE AMOUNT: $250,000 MALE AND FEMALE INSUREDS AGE 45
DEATH BENEFIT OPTION: B--INCREASING SELECT STANDARD, NONSMOKERS
FOR SEPARATE ACCOUNT D
HYPOTHETICAL GROSS ANNUAL RATE OF
RETURN: 0%
-----------------------------------
CURRENT CHARGES GUARANTEED CHARGES
(-1.23% NET) (-1.23% NET)
AGE @ PREMIUM --------------- ------------------
POLICY BEGINNING ANNUAL ACCUM @ CASH DEATH CASH DEATH
YEAR OF YEAR PREMIUM 5% VALUE BENEFIT VALUE BENEFIT
- ------ --------- ------- ------- ------- ------- ----- -------
1 45 5,000 5,250 4,610 254,610 4,610 254,610
2 46 5,000 10,763 9,188 259,188 9,188 259,188
3 47 5,000 16,551 13,735 263,735 13,735 263,735
4 48 5,000 22,628 18,251 268,251 18,248 268,248
5 49 5,000 29,010 22,742 272,742 22,727 272,727
6 50 5,000 35,710 27,207 277,207 27,169 277,169
7 51 5,000 42,746 31,647 281,647 31,572 281,572
8 52 5,000 50,133 36,059 286,059 35,933 285,933
9 53 5,000 57,889 40,445 290,445 40,249 290,249
10 54 5,000 66,034 44,804 294,804 44,514 294,514
11 55 5,000 74,586 49,297 299,297 48,886 298,886
12 56 5,000 83,565 53,764 303,764 53,200 303,200
13 57 5,000 92,993 58,205 308,205 57,452 307,452
14 58 5,000 102,893 62,615 312,615 61,634 311,634
15 59 5,000 113,287 66,994 316,994 65,738 315,738
16 60 5,000 124,202 71,338 321,338 69,754 319,754
17 61 5,000 135,662 75,649 325,649 73,666 323,666
18 62 5,000 147,695 79,924 329,924 77,458 327,458
19 63 5,000 160,330 84,160 334,160 81,103 331,103
20 64 5,000 173,596 88,356 338,356 84,575 334,575
25 69 5,000 250,567 108,967 358,967 98,693 348,693
30 74 5,000 348,804 127,088 377,088 101,809 351,809
The amounts shown under "Current Charges" reflect investment results using
current mortality and expense risk charges, monthly policy charges, and cost of
insurance rates for the exact combination of premiums and benefits shown.
The amounts shown under "Guaranteed Charges" reflect investment results using
guaranteed mortality and expense risk charges, monthly policy charges, and cost
of insurance rates for the exact combination of premiums and benefits shown.
If no Cash Value or Death Benefit is shown, the Policy would lapse under the
assumptions used. Additional premium payments would be required to keep the
Policy in force.
The hypothetical investment rate of return shown 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
Holder and the investment results for the Underlying Portfolios. The Cash Value
and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown over a period of years, but also
fluctuated above or below that average for individual Policy Years. No
representation can be made by Paragon, Walnut Street Securities, the Funds,
their various investment managers, 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 Policy Years indicated
and assume any additional premiums shown are received on the Policy
Anniversaries.
A-5
PARAGON LIFE INSURANCE COMPANY
JOINT AND SURVIVOR VARIABLE UNIVERSAL LIFE INSURANCE
CONTRACT FACE AMOUNT: $250,000 MALE AND FEMALE INSUREDS AGE 45
DEATH BENEFIT OPTION: B--INCREASING SELECT STANDARD, NONSMOKERS
FOR SEPARATE ACCOUNT D
HYPOTHETICAL GROSS ANNUAL RATE OF
RETURN: 6%
-----------------------------------
CURRENT CHARGES GUARANTEED CHARGES
(4.77% NET) (4.77% NET)
AGE @ PREMIUM --------------- ------------------
POLICY BEGINNING ANNUAL ACCUM @ CASH DEATH CASH DEATH
YEAR OF YEAR PREMIUM 5% VALUE BENEFIT VALUE BENEFIT
- ------ --------- ------- ------- ------- ------- ----- -------
1 45 5,000 5,250 4,893 254,893 4,893 254,893
2 46 5,000 10,763 10,047 260,047 10,047 260,047
3 47 5,000 16,551 15,474 265,474 15,474 265,474
4 48 5,000 22,628 21,192 271,192 21,189 271,189
5 49 5,000 29,010 27,221 277,221 27,205 277,205
6 50 5,000 35,710 33,578 283,578 33,537 283,537
7 51 5,000 42,746 40,280 290,280 40,199 290,199
8 52 5,000 50,133 47,344 297,344 47,205 297,205
9 53 5,000 57,889 54,791 304,791 54,571 304,571
10 54 5,000 66,034 62,641 312,641 62,312 312,312
11 55 5,000 74,586 71,098 321,098 70,624 320,624
12 56 5,000 83,565 80,019 330,019 79,359 329,359
13 57 5,000 92,993 89,428 339,428 88,534 338,534
14 58 5,000 102,893 99,348 349,348 98,166 348,166
15 59 5,000 113,287 109,808 359,808 108,272 358,272
16 60 5,000 124,202 120,833 370,833 118,866 368,866
17 61 5,000 135,662 132,455 382,455 129,961 379,961
18 62 5,000 147,695 144,705 394,705 141,565 391,565
19 63 5,000 160,330 157,615 407,615 153,680 403,680
20 64 5,000 173,596 171,219 421,219 166,305 416,305
25 69 5,000 250,567 251,934 501,934 237,992 487,992
30 74 5,000 348,804 355,756 605,756 320,123 570,123
The amounts shown under "Current Charges" reflect investment results using
current mortality and expense risk charges, monthly policy charges, and cost of
insurance rates for the exact combination of premiums and benefits shown.
The amounts shown under "Guaranteed Charges" reflect investment results using
guaranteed mortality and expense risk charges, monthly policy charges, and cost
of insurance rates for the exact combination of premiums and benefits shown.
If no Cash Value or Death Benefit is shown, the Policy would lapse under the
assumptions used. Additional premium payments would be required to keep the
Policy in force.
The hypothetical investment rate of return shown 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
Holder and the investment results for the Underlying Portfolios. The Cash Value
and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown over a period of years, but also
fluctuated above or below that average for individual Policy Years. No
representation can be made by Paragon, Walnut Street Securities, the Funds,
their various investment managers, 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 Policy Years indicated
and assume any additional premiums shown are received on the Policy
Anniversaries.
A-6
PARAGON LIFE INSURANCE COMPANY
JOINT AND SURVIVOR VARIABLE UNIVERSAL LIFE INSURANCE
CONTRACT FACE AMOUNT: $250,000 MALE AND FEMALE INSUREDS AGE 45
DEATH BENEFIT OPTION: B--INCREASING SELECT STANDARD, NONSMOKERS
FOR SEPARATE ACCOUNT D
HYPOTHETICAL GROSS ANNUAL RATE OF
RETURN: 12%
---------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
(10.77% NET) (10.77% NET)
AGE @ PREMIUM ------------------- ------------------
POLICY BEGINNING ANNUAL ACCUM @ CASH DEATH CASH DEATH
YEAR OF YEAR PREMIUM 5% VALUE BENEFIT VALUE BENEFIT
- ------ --------- ------- ------- --------- --------- --------- ---------
1 45 5,000 5,250 5,176 255,176 5,176 255,176
2 46 5,000 10,763 10,939 260,939 10,939 260,939
3 47 5,000 16,551 17,355 267,355 17,355 267,355
4 48 5,000 22,628 24,500 274,500 24,497 274,497
5 49 5,000 29,010 32,462 282,462 32,445 282,445
6 50 5,000 35,710 41,335 291,335 41,291 291,291
7 51 5,000 42,746 51,222 301,222 51,135 301,135
8 52 5,000 50,133 62,239 312,239 62,087 312,087
9 53 5,000 57,889 74,515 324,515 74,269 324,269
10 54 5,000 66,034 88,193 338,193 87,819 337,819
11 55 5,000 74,586 103,646 353,646 103,098 353,098
12 56 5,000 83,565 120,877 370,877 120,103 370,103
13 57 5,000 92,993 140,092 390,092 139,025 389,025
14 58 5,000 102,893 161,515 411,515 160,079 410,079
15 59 5,000 113,287 185,402 435,402 183,502 433,502
16 60 5,000 124,202 212,030 462,030 209,555 459,555
17 61 5,000 135,662 241,720 491,720 238,528 488,528
18 62 5,000 147,695 274,821 524,821 270,738 520,738
19 63 5,000 160,330 311,725 561,725 306,532 556,532
20 64 5,000 173,596 352,868 602,868 346,293 596,293
25 69 5,000 250,567 643,954 893,954 624,058 874,058
30 74 5,000 348,804 1,146,254 1,396,254 1,092,180 1,342,180
The amounts shown under "Current Charges" reflect investment results using
current mortality and expense risk charges, monthly policy charges, and cost of
insurance rates for the exact combination of premiums and benefits shown.
The amounts shown under "Guaranteed Charges" reflect investment results using
guaranteed mortality and expense risk charges, monthly policy charges, and cost
of insurance rates for the exact combination of premiums and benefits shown.
If no Cash Value or Death Benefit is shown, the Policy would lapse under the
assumptions used. Additional premium payments would be required to keep the
Policy in force.
The hypothetical investment rate of return shown 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
Holder and the investment results for the Underlying Portfolios. The Cash Value
and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown over a period of years, but also
fluctuated above or below that average for individual Policy Years. No
representation can be made by Paragon, Walnut Street Securities, the Funds,
their various investment managers, 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 Policy Years indicated
and assume any additional premiums shown are received on the Policy
Anniversaries.
A-7
PARAGON LIFE INSURANCE COMPANY
JOINT AND SURVIVOR VARIABLE UNIVERSAL LIFE INSURANCE
CONTRACT FACE AMOUNT: $250,000 MALE AND FEMALE INSUREDS AGE 45
DEATH BENEFIT OPTION: C--NET SINGLE PREMIUM SELECT STANDARD, NONSMOKERS
FOR SEPARATE ACCOUNT D
HYPOTHETICAL GROSS ANNUAL RATE OF
RETURN: 0%
------------------------------------
CURRENT
CHARGES GUARANTEED CHARGES
(-1.23% NET) (-1.23% NET)
AGE @ PREMIUM --------------- ------------------
POLICY BEGINNING ANNUAL ACCUM @ CASH DEATH CASH DEATH
YEAR OF YEAR PREMIUM 5% VALUE BENEFIT VALUE BENEFIT
- ------ --------- ------- ------- ------- ------- --------- ----------
1 45 5,000 5,250 4,610 250,000 4,610 250,000
2 46 5,000 10,763 9,189 250,000 9,189 250,000
3 47 5,000 16,551 13,736 250,000 13,736 250,000
4 48 5,000 22,628 18,254 250,000 18,251 250,000
5 49 5,000 29,010 22,747 250,000 22,733 250,000
6 50 5,000 35,710 27,214 250,000 27,180 250,000
7 51 5,000 42,746 31,656 250,000 31,590 250,000
8 52 5,000 50,133 36,073 250,000 35,962 250,000
9 53 5,000 57,889 40,463 250,000 40,294 250,000
10 54 5,000 66,034 44,828 250,000 44,582 250,000
11 55 5,000 74,586 49,327 250,000 48,984 250,000
12 56 5,000 83,565 53,803 250,000 53,340 250,000
13 57 5,000 92,993 58,254 250,000 57,646 250,000
14 58 5,000 102,893 62,678 250,000 61,899 250,000
15 59 5,000 113,287 67,076 250,000 66,094 250,000
16 60 5,000 124,202 71,443 250,000 70,226 250,000
17 61 5,000 135,662 75,783 250,000 74,287 250,000
18 62 5,000 147,695 80,094 250,000 78,266 250,000
19 63 5,000 160,330 84,375 250,000 82,152 250,000
20 64 5,000 173,596 88,624 250,000 85,928 250,000
25 69 5,000 250,567 109,793 250,000 103,146 250,000
30 74 5,000 348,804 129,630 250,000 114,629 250,000
The amounts shown under "Current Charges" reflect investment results using
current mortality and expense risk charges, monthly policy charges, and cost of
insurance rates for the exact combination of premiums and benefits shown.
The amounts shown under "Guaranteed Charges" reflect investment results using
guaranteed mortality and expense risk charges, monthly policy charges, and cost
of insurance rates for the exact combination of premiums and benefits shown.
If no Cash Value or Death Benefit is shown, the Policy would lapse under the
assumptions used. Additional premium payments would be required to keep the
Policy in force.
The hypothetical investment rate of return shown 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
Holder and the investment results for the Underlying Portfolios. The Cash Value
and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown over a period of years, but also
fluctuated above or below that average for individual Policy Years. No
representation can be made by Paragon, Walnut Street Securities, the Funds,
their various investment managers, 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 Policy Years indicated
and assume any additional premiums shown are received on the Policy
Anniversaries.
A-8
PARAGON LIFE INSURANCE COMPANY
JOINT AND SURVIVOR VARIABLE UNIVERSAL LIFE INSURANCE
CONTRACT FACE AMOUNT: $250,000 MALE AND FEMALE INSUREDS AGE 45
DEATH BENEFIT OPTION: C--NET SINGLE PREMIUM SELECT STANDARD, NONSMOKERS
FOR SEPARATE ACCOUNT D
HYPOTHETICAL GROSS ANNUAL RATE OF
RETURN: 6%
---------------------------------
CURRENT CHARGES GUARANTEED CHARGES
(4.77% NET) (4.77% NET)
AGE @ PREMIUM --------------- ------------------
POLICY BEGINNING ANNUAL ACCUM @ CASH DEATH CASH DEATH
YEAR OF YEAR PREMIUM 5% VALUE BENEFIT VALUE BENEFIT
- ------ --------- ------- ------- ------- ------- ----- -------
1 45 5,000 5,250 4,893 250,000 4,893 250,000
2 46 5,000 10,763 10,047 250,000 10,047 250,000
3 47 5,000 16,551 15,476 250,000 15,476 250,000
4 48 5,000 22,628 21,195 250,000 21,193 250,000
5 49 5,000 29,010 27,227 250,000 27,213 250,000
6 50 5,000 35,710 33,586 250,000 33,551 250,000
7 51 5,000 42,746 40,292 250,000 40,223 250,000
8 52 5,000 50,133 47,362 250,000 47,245 250,000
9 53 5,000 57,889 54,817 250,000 54,635 250,000
10 54 5,000 66,034 62,676 250,000 62,410 250,000
11 55 5,000 74,586 71,145 250,000 70,773 250,000
12 56 5,000 83,565 80,081 250,000 79,578 250,000
13 57 5,000 92,993 89,510 251,415 88,850 250,000
14 58 5,000 102,893 99,455 269,055 98,602 266,749
15 59 5,000 113,287 109,942 286,543 108,846 283,685
16 60 5,000 124,202 120,999 303,889 119,598 300,371
17 61 5,000 135,662 132,657 321,135 130,875 316,822
18 62 5,000 147,695 144,946 338,334 142,689 333,065
19 63 5,000 160,330 157,901 355,514 155,049 349,093
20 64 5,000 173,596 171,555 372,738 167,960 364,928
25 69 5,000 250,567 252,663 463,106 242,074 443,698
30 74 5,000 348,804 357,456 562,135 330,475 519,705
The amounts shown under "Current Charges" reflect investment results using
current mortality and expense risk charges, monthly policy charges, and cost of
insurance rates for the exact combination of premiums and benefits shown.
The amounts shown under "Guaranteed Charges" reflect investment results using
guaranteed mortality and expense risk charges, monthly policy charges, and cost
of insurance rates for the exact combination of premiums and benefits shown.
If no Cash Value or Death Benefit is shown, the Policy would lapse under the
assumptions used. Additional premium payments would be required to keep the
Policy in force.
The hypothetical investment rate of return shown 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
Holder and the investment results for the Underlying Portfolios. The Cash Value
and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown over a period of years, but also
fluctuated above or below that average for individual Policy Years. No
representation can be made by Paragon, Walnut Street Securities, the Funds,
their various investment managers, 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 Policy Years indicated
and assume any additional premiums shown are received on the Policy
Anniversaries.
A-9
PARAGON LIFE INSURANCE COMPANY
JOINT AND SURVIVOR VARIABLE UNIVERSAL LIFE INSURANCE
CONTRACT FACE AMOUNT: $250,000 MALE AND FEMALE INSUREDS AGE 45
DEATH BENEFIT OPTION: C--NET SINGLE PREMIUM SELECT STANDARD, NONSMOKERS
FOR SEPARATE ACCOUNT D
HYPOTHETICAL GROSS ANNUAL RATE OF
RETURN: 12%
---------------------------------
CURRENT CHARGES GUARANTEED CHARGES
(10.77% NET) (10.77% NET)
AGE @ PREMIUM ------------------- ------------------
POLICY BEGINNING ANNUAL ACCUM @ CASH DEATH CASH DEATH
YEAR OF YEAR PREMIUM 5% VALUE BENEFIT VALUE BENEFIT
- ------ --------- ------- ------- --------- ------- ----- -------
1 45 5,000 5,250 5,176 250,000 5,176 250,000
2 46 5,000 10,763 10,940 250,000 10,940 250,000
3 47 5,000 16,551 17,357 250,000 17,357 250,000
4 48 5,000 22,628 24,504 250,000 24,501 250,000
5 49 5,000 29,010 32,469 250,000 32,454 250,000
6 50 5,000 35,710 41,346 250,000 41,309 250,000
7 51 5,000 42,746 51,239 250,000 51,166 250,000
8 52 5,000 50,133 62,264 250,000 62,141 250,000
9 53 5,000 57,889 74,551 250,000 74,359 250,000
10 54 5,000 66,034 88,243 277,763 87,957 276,862
11 55 5,000 74,586 103,709 314,218 103,287 312,938
12 56 5,000 83,565 120,953 352,809 120,339 351,016
13 57 5,000 92,993 140,179 393,734 139,299 391,263
14 58 5,000 102,893 161,609 437,202 160,374 433,858
15 59 5,000 113,287 185,497 483,462 183,786 479,002
16 60 5,000 124,202 212,118 532,734 209,782 526,868
17 61 5,000 135,662 241,786 585,316 238,628 577,671
18 62 5,000 147,695 274,848 641,549 270,610 631,658
19 63 5,000 160,330 311,687 701,763 306,033 689,034
20 64 5,000 173,596 352,732 766,380 345,224 750,069
25 69 5,000 250,567 642,205 1,177,098 613,994 1,125,389
30 74 5,000 348,804 1,137,261 1,788,457 1,046,273 1,645,370
The amounts shown under "Current Charges" reflect investment results using
current mortality and expense risk charges, monthly policy charges, and cost of
insurance rates for the exact combination of premiums and benefits shown.
The amounts shown under "Guaranteed Charges" reflect investment results using
guaranteed mortality and expense risk charges, monthly policy charges, and cost
of insurance rates for the exact combination of premiums and benefits shown.
If no Cash Value or Death Benefit is shown, the Policy would lapse under the
assumptions used. Additional premium payments would be required to keep the
Policy in force.
The hypothetical investment rate of return shown 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
Holder and the investment results for the Underlying Portfolios. The Cash Value
and Death Benefit for a Policy would be different from those shown if the
actual rates of return averaged the rate shown over a period of years, but also
fluctuated above or below that average for individual Policy Years. No
representation can be made by Paragon, Walnut Street Securities, the Funds,
their various investment managers, 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 Policy Years indicated
and assume any additional premiums shown are received on the Policy
Anniversaries.
A-10
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
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 Bylaws of Paragon Life Insurance Company
provides: "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
nor to persons who are being investigated by the Corporation. The indemnity
shall be discretionary with the Board of Directors and shall not be granted
until the Board of Directors has made a determination that the person who would
be indemnified acted in good faith and in a manner he reasonably believed to be
in the best interest of the Corporation. The Corporation shall have such other
and further powers of indemnification as are not inconsistent with the laws of
Missouri."
Insofar as indemnification for liability arising under the Securities Act
of l933,(the "Act") 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
REPRESENTATION CONCERNING FEES AND CHARGES
Paragon Life Insurance Company (the "Company") hereby represents that the
fees and charges deducted under the terms of the policies described in this
Registration Statement are, in the aggregate, reasonable in relationship to the
services rendered, the expenses expected to be incurred, and the risks assumed
by the Company.
II-2
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The facing sheet.
The Individual Flexible Premium Variable Life Prospectus consisting of 46
pages.
The undertaking to file reports required by Section 15(d)
of the Securities Exchange Act of 1934.
The undertaking pursuant to Rule 484.
Representations concerning fees and charges.
The signatures.
1. The following exhibits (which correspond in number to the numbers under
paragraph A of the instructions as to exhibits for Form N-8B-2):
(1) Resolution of the Board of Directors of the Company authorizing
establishment of the Separate Account 1
(2) Not applicable
(3) (a) Form of Underwriting Agreement 2
(b) Form of Selling Agreement 2
(c) Not applicable
(4) Not applicable
(5) Form of Individual Policy and Policy Riders 2
(6) (a) Amended Charter and Articles of Incorporation of the Company 2
(b) By-Laws of the Company 2
(7) Not applicable
(8) (a) Participation Agreement dated September 1, 1993 between Paragon
Life Insurance Company and the Variable Insurance Products Fund and
Fidelity Distributors Corporation 2
(b) Participation Agreement dated September 1, 1993 between Paragon
Life Insurance Company and the Variable Insurance Products Fund II
and Fidelity Distributors Corporation 2
(c) Participation Agreement dated October 12, 1995 by and among MFS
Variable Insurance Trust and Paragon Life Insurance Company and
Massachusetts Financial Services Company 2
(d) Participation Agreement dated October 30, 1995 among Putnam
Capital Manager Trust, Putnam Mutual Funds Corporation, and Paragon
Life Insurance Company 2
(e) Participation Agreement dated March 15, 1995 between Scudder
Variable Life Investment Fund, Scudder Investor Services, Inc., and
Paragon Life Insurance Company 2
II-3
(f) Participation Agreement Dated August 1, 1996 between Paragon Life
Insurance Company and T. Rowe Price Investment Services, Inc. 3
(9) Not applicable
(10) Proposed Form of Application 2
(11) Memorandum describing the Company's issuance, transfer, and
redemption procedures for the Policies 4
2. Opinion of Matthew P. McCauley, Esquire, General Counsel of Paragon Life
Insurance Company, as to the legality of the securities being offered 2
3. Consent of Matthew P. McCauley, Esquire, General Counsel of Paragon Life
Insurance Company 2
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, as to actuarial matters pertaining to the
securities being registered 4
8. (a) Consent of KPMG LLP, Independent Certified Public Accountants 2
(b) Written consent of Sutherland Asbill & Brennan 2
9. Original powers of attorney authorizing Carl H. Anderson, Matther P.
McCauley, 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. Incorporated by reference to the initial Registration Statement of Form S-6
found in File No. 333-36515, filed with the Securities and Exchange
Commission on September 26, 1997.
2. Filed herewith.
3. Incorporated by reference to the Pre-Effective Amendment #1 on Form S-6
found in file No. 333-36515, filed with the Securities and Exchange
Commission on February 26, 1998.
4. Incorporated by reference to initial Registration Statement on Form S-6
found in File No. 333-80393, filed with the Securities and Exchange
Commission on June 10, 1999.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Paragon Life
Insurance Company and Separate Account D of Paragon Life Insurance Company have
duly caused this 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 1st day of September, 1999.
Separate Account D
of Paragon Life Insurance Company
(Name of Registrant)
(Seal) Paragon Life Insurance Company
(Name of Depositor)
Attest: /s/ Matthew P. McCauley By: /s/ Carl H. Anderson
-------------------------- --------------------------
Matthew P. McCauley Carl H. Anderson
Secretary President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this 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
- -------------------------- President and Director 9/1/99
Carl H. Anderson Chief Executive Officer
/s/ Matthew K. Duffy
- -------------------------- Vice President and Chief Financial Officer 9/1/99
Matthew K. Duffy (Principal Accounting Officer and Principal
Financial Officer)
Director
- --------------------------
Warren J. Winer*
Director
- --------------------------
Richard A. Liddy*
/s/ Matthew P. McCauley Vice President, General Counsel, Secretary 9/1/99
- -------------------------- and Director
Matthew P. McCauley
/s/ Craig K. Nordyke Director 9/1/99
- --------------------------
Craig K. Nordyke
Director
- --------------------------
Leonard M. Rubenstein*
II-5
Director and Treasurer
- ---------------------------------------------
E. Thomas Hughes, Jr.*
Director
- ---------------------------------------------
Bernard H. Wolzenski*
Director
- ---------------------------------------------
A. Greig Woodring*
By: /s/ Craig K. Nordyke
----------------------------------------- Director 9/1/99
Craig K. Nordyke
*Original powers of attorney authorizing Matthew P. McCauley, Carl H. Anderson,
and Craig K. Nordyke, and each of them singly, to sign this Registration
Statement and Amendments thereto on behalf of the Board of Directors of Paragon
Life Insurance Company were filed with the Securities and Exchange Commission
with the initial S-6 Registration Statement.
II-6
EXHIBIT INDEX
1. N/A
2. N/A
3. a Form of Underwriting Agreement
b Form of Selling Agreement
4. N/A
5. Form of Policy and Policy Riders
6. a Amended Charter and Articles of Incorporation of the Company
b By-Laws of the Company
7. N/A
8. a Participation Agreement dated September 1, 1993 between Paragon Life
Insurance Company and the Variable Insurance Products Fund and Fidelity
Distributors Corporation
b Participation Agreement dated September 1, 1993 between Paragon Life
Insurance Company and the Variable Insurance Products Fund II and
Fidelity Distributors Corporation
c Participation Agreement dated October 12, 1995 by and among MFS Variable
Insurance Trust and Paragon Life Insurance Company and Massachusetts
Financial Services Company
d Participation Agreement dated October 30, 1995 among Putnam Capital
Manager Trust, Putnam Mutual Funds Corporation, and Paragon Life
Insurance Company
e Participation Agreement dated March 15, 1995 between Scudder Variable
Life Investment Fund, Scudder Investor Services, Inc., and Paragon Life
Insurance Company
9. N/A
10. Proposed Form of Application
11. Opinion and consent of Matthew P. McCauley, Esquire, General Counsel of
Paragon Life Insurance Company, as to the legality of the securities being
offered
12. Consent of KPMG LLP, Independent Certified Public Accountants
13. Written consent of Sutherland Asbill & Brennan LLP