SEPARATE ACCOUNT C OF PARAGON LIFE INSURANCE CO, 485BPOS, 1996-04-17

SEPARATE ACCOUNT C OF PARAGON LIFE INSURANCE CO
485BPOS, 1996-04-17

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<PAGE>

As filed with the Securities and Exchange Commission on 17 April 1996

Registration No. 33-75776
811-7982

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-6

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

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

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

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

Copy to:

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

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

immediately upon filing pursuant to paragraph (b)
x on April 29, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(i)
on (__) pursuant to paragraph (a)(i) of Rule 485
this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.

The Registrant has registered an indefinite number of its shares under the
Securities Act of l933 pursuant to Rule 24f-2 under the Investment Company Act
of l940. The Registrant filed the notice required by such rule for the
Registrant's most recent year on February 27, 1996.
<PAGE>

RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS

Item No. of
Form N-8B-2 Caption in Prospectus

1. Cover Page
2. Cover Page
3. Not Applicable
4. Distribution of the Policies
5. The Company and the Separate Account
6. The Separate Account
7. Not Required
8. Not Required
9. Legal Proceedings
10. Summary; Variable Insurance Products Funds;
Charges and Deductions; Policy Benefits;
Policy Rights and Privileges; Voting Rights;
General Matters Relating to the Policy
11. Summary; Variable Insurance Products Funds
12. Summary; Variable Insurance Products Funds
13. Summary; Charges and Deductions; Variable
Insurance Products Funds
14. Summary; Payment and Allocation of Premiums
15. Payment and Allocation of Premiums
16. Payment and Allocation of Premiums;
Variable Insurance Products Funds
17. Summary; Charges and Deductions; Policy
Rights and Privileges; Variable Insurance
Products Funds
18. Variable Insurance Products Funds; Payment and
Allocation of Premiums
19. General Matters Relating to the Policy; Voting
Rights
20. Not Applicable
21. Policy Rights; General Matters Relating to
the Policy
22. Not Applicable
23. Safekeeping of the Separate Account's Assets
24. General Matters Relating to the Policy
25. The Company and the Separate Account
26. Not Applicable
27. The Company and the Separate Account
28. Management of the Company
29. The Company and the Separate Account
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. The Company and the Separate Account

-i-
<PAGE>

Item No. of
Form N-8B-2 Caption in Prospectus

36. Not Required
37. Not Applicable
38. Summary; Distribution of the Policies
39. Summary; Distribution of the Policies
40. Not Applicable
41. The Company and the Separate Account;
Distribution of the Policies
42. Not Applicable
43. Not Applicable
44. Payment and Allocation of Premiums
45. Not Applicable
46. Policy Rights and Privileges
47. Variable Insurance Products Funds
49. Not Applicable
50. The Separate Account
51. Cover Page; Summary; Charges and Deductions;
Policy Rights and Privileges; Policy Benefits;
Payment and Allocation of Premiums
52. Variable Insurance Products Funds
53. Federal Tax Matters
54. Not Applicable
55. Not Applicable
56. Not Required
57. Not Required
58. Not Required
59. Not Required

-ii-

<PAGE>

LOGO

VARIABLE INSURANCE
PRODUCTS FUNDS
LOGO
^ GROUP AND INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICIES

Prospectus dated May 1, 1996

50413 Com

<PAGE>

GROUP AND INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES

ISSUED BY

PARAGON LIFE INSURANCE COMPANY
100 SOUTH BRENTWOOD
ST. LOUIS, MO 63105
(314) 862-2211

This Prospectus describes flexible premium variable life insurance policies
offered by Paragon Life Insurance Company (the "Company") which are designed
for use in employer-sponsored insurance programs. In circumstances where a
Group Contract is issued, Individual Policies or Certificates setting forth or
summarizing the rights of the Owners and/or Insureds, will be issued under the
Group Contract. Individual Policies also can be issued in connection with
employer-sponsored insurance programs in circumstances where a Group Contract
is not issued. The terms of the Certificate and the Individual Policy, whether
or not the Individual Policy is issued under a Group Contract, are
substantially the same and are collectively referred to in this Prospectus as
"Policy" or "Policies."

The Policies are designed to provide lifetime insurance protection to age 95
and at the same time provide flexibility to vary premium payments and change
the level of death benefits payable under the Policies. This flexibility allows
an Owner to provide for changing insurance needs under a single insurance
policy. An Owner also has the opportunity to allocate net premiums among
several investment portfolios with different investment objectives.

The Policy provides for: (1) a Cash Surrender Value that can be obtained by
surrendering the Policy; (2) Policy Loans; and (3) a death benefit payable at
the Insured's death. As long as a Policy remains in force, the death benefit
payable on the Insured's death will not be less than the current Face Amount of
the Policy. The insurance under a Policy will remain in force so long as its
Cash Surrender Value is sufficient to pay certain monthly charges imposed in
connection with the Policy.

The Owner may allocate net premiums to one or more of the Divisions of the
Separate Account C (the "Separate Account"). The duration of the Policy and the
amount of the Cash Value will vary to reflect the investment performance of the
Divisions of the Separate Account selected by the Owner, and, depending on the
death benefit option elected, the amount of the death benefit above the minimum
may also vary with that investment performance. Thus, the Owner bears the
entire investment risk under the Policies; there is no minimum guaranteed Cash
Value.

Each Division of the Separate Account will invest solely in a corresponding
investment portfolio of either Variable Insurance Products Fund or Variable
Insurance Products Fund II, investment companies currently consisting of ten
separate investment portfolios, or "Funds": Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio, Overseas Portfolio,
Investment Grade Bond Portfolio, Asset Manager Portfolio, Contrafund Portfolio,
Asset Manager: Growth Portfolio, and Index 500 Portfolio. The accompanying
prospectuses for Variable Insurance Products Fund and Variable Insurance
Products Fund II describe the investment objectives and policies, and the risks
of the Portfolios.

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 variable life insurance
policy.

This Prospectus Must Be Accompanied Or Preceded By A Current Prospectus For
Variable Insurance Products Fund and Variable Insurance Products Fund II.

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 May 1, 1996.

1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions................................................................ 3
Summary.................................................................... 4
The Company and the Separate Account....................................... 9
The Company.............................................................. 9
The Separate Account..................................................... 10
Variable Insurance Products Funds........................................ 10
Addition, Deletion, or Substitution of Investments....................... 12
Payment and Allocation of Premiums......................................... 12
Issuance of a Policy..................................................... 12
Premiums................................................................. 14
Allocation of Net Premiums and Cash Value................................ 15
Policy Lapse and Reinstatement........................................... 15
Policy Benefits............................................................ 16
Death Benefit............................................................ 16
Cash Value............................................................... 20
Policy Rights and Privileges............................................... 21
Exercising Rights and Privileges Under the Policies...................... 21
Loans.................................................................... 21
Surrender and Partial Withdrawals........................................ 22
Transfers................................................................ 24
Right to Examine Policy.................................................. 24
Conversion Right to a Fixed Benefit Policy............................... 24
Eligibility Change Conversion............................................ 25
Payment of Benefits at Maturity.......................................... 25
Payment of Policy Benefits............................................... 26
Charges and Deductions..................................................... 27
Sales Charges............................................................ 27
Premium Tax Charge....................................................... 27
Monthly Deduction........................................................ 27
Partial Withdrawal Transaction Charge.................................... 29
Separate Account Charges................................................. 30
General Matters Relating to the Policy..................................... 30
Distribution of the Policies............................................... 33
General Provisions of the Group Contract................................... 34
Federal Tax Matters........................................................ 36
Safekeeping of the Separate Account's Assets............................... 39
Voting Rights.............................................................. 39
State Regulation of the Company............................................ 40
Management of the Company.................................................. 41
Legal Matters.............................................................. 42
Legal Proceedings.......................................................... 42
Experts.................................................................... 42
Additional Information..................................................... 42
Financial Statements....................................................... 42
Appendix A................................................................. A-1
</TABLE>

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
<PAGE>

DEFINITIONS

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

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

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

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

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

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

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

Corporate Program--A category of Policies available usually as an Individual
Policy in which the sponsoring employer or its designated trust is generally
the Owner of the Policy.

Division--A subaccount of the Separate Account. Each Division invests
exclusively in the shares of a Portfolio of Variable Insurance Products Fund
and Variable Insurance Products Fund II.

Employee--A person who is employed and paid for services by an employer on a
regular basis. To qualify as an employee, a person ordinarily must work for an
employer at least 30 hours per week. The Company may waive or modify this
requirement at its discretion. An employee may also include an independent
contractor acting in many respects as an employee with a sponsoring employer.
An employee may include a partner in a partnership if the employer is a
partnership.

Executive Program--A category of Policies issued under Group Contracts or
employer-sponsored insurance programs that have a maximum Face Amount available
for each Policy generally in excess of $500,000.

Face Amount--The minimum death benefit under the Policy so long as the Policy
remains in force.

Fund--A separate investment portfolio of either Variable Insurance Products
Fund or Variable Insurance Products Fund II, mutual funds in which the Separate
Account's assets are invested.

Group Contract--A group flexible premium variable life insurance contract
issued to the Contractholder by the Company.

Home Office--The service office of the Company, the mailing address of which
is 100 South Brentwood, St. Louis, Missouri 63105.

Indebtedness--The sum of all unpaid Policy Loans and accrued interest charged
on loans.

Individual Insurance--Insurance provided under a Group Contract or under an
Individual Policy issued in connection with an employer-sponsored insurance
program on an employee or an employee's spouse.

Insured--The person whose life is insured under a Policy. The term may
include both an employee and an employee's spouse.

3
<PAGE>

Investment Start Date--The date the initial premium is applied to the
Divisions of the Separate Account. This date is the later of the Issue Date or
the date the initial premium is received at the Company's Home Office.

Issue Age--The Insured's Age at his or her last birthday as of the date the
Policy is issued.

Issue Date--The effective date of coverage under a Policy. The Issue Date is
the date from which Policy Anniversaries, Policy Years, and Policy Months are
measured.

Loan Account--The account of the Company to which amounts securing Policy
Loans are allocated. It is a part of the Company's general assets.

Loan Value--The maximum amount that may be borrowed under a Policy after the
first Policy Anniversary.

Maturity Date--The Policy Anniversary on which the Insured reaches Attained
Age 95.

Monthly Anniversary--The same date in each succeeding month as the Issue Date
except that whenever the Monthly Anniversary falls on a date other than a
Valuation Date, the Monthly Anniversary will be deemed the next Valuation Date.
If any Monthly Anniversary would be the 29th, 30th, or 31st day of a month that
does not have that number of days, then the Monthly Anniversary will be the
last day of that month.

Net Premium--The premium less any premium expense charge and any charge for
premium taxes.

Owner--The Owner of a Policy, as designated in the application or as
subsequently changed.

Policy--Either the Certificate or the Individual Policy offered by the
Company and described in this Prospectus. Under Group Contracts, the Policy may
be issued on the employee or on the employee's spouse.

Policy Anniversary--The same date each year as the Issue Date.

Policy Month--A month beginning on the Monthly Anniversary.

Policy Year--A period beginning on a Policy Anniversary and ending on the day
immediately preceding the next Policy Anniversary.

Separate Account--The Separate Account C, a separate investment account
established by the Company to receive and invest the net premiums paid under
the Policy.

Spouse--An employee's legal spouse. The term does not include a spouse who is
legally separated from the employee.

Valuation Date--Each day that the New York Stock Exchange is open for
trading, except on the day after Thanksgiving when the Company is closed.

Valuation Period--The period between two successive Valuation Dates,
commencing at the close of business of a Valuation Date and ending at the close
of business of the next succeeding Valuation Date.

VIP--Collectively defines Variable Insurance Products Fund and Variable
Insurance Products Fund II.

SUMMARY

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

4
<PAGE>

The Policy. The Policies (either an Individual Policy or a Certificate)
described in this Prospectus are designed for use in employer-sponsored
insurance programs and are typically issued in two situations. First, Policies
are issued pursuant to Group Contracts entered into between the Company and
Contractholders. (See "General Provisions of the Group Contract," page 34.)
Second, in certain circumstances where Group Contracts are not issued,
Individual Policies are issued in connection with the employer-sponsored
insurance programs. Subject to certain restrictions, the Insured under a Policy
may be either an employee of the Contractholder or sponsoring employer, or the
employee's spouse. Generally, only the employee is eligible to be an Insured
under an Executive Program Policy. Provided there is sufficient Cash Surrender
Value, Individual Insurance under a Group Contract or other employer-sponsored
insurance program will continue should the Group Contract or other program
cease or the employee's employment end. (See "Payment and Allocation of
Premiums--Issuance of a Policy," page 12.)

The Policies are life insurance contracts with death benefits, cash values,
surrender rights, policy loan privileges, and other features traditionally
associated with life insurance. The Contractholder will remit planned premium
payments under the Group Contract on behalf of Owners equal to an amount
authorized by employees to be deducted from their wages. In addition, Owners
may, but are not required to, pay additional premiums. However, in Corporate
Programs, the Owner will generally remit planned and additional premiums. A
similar procedure will apply when an Individual Policy is issued in connection
with an employer-sponsored program where the Group Contract is not issued.

The Policies are "variable" policies because, unlike the fixed benefits under
an ordinary life insurance contract, the Cash Value and, under certain
circumstances, the death benefit under a Policy may increase or decrease
depending upon the investment performance of the Divisions of the Separate
Account to which the Owner has allocated net premium payments. However, so long
as a Policy's Cash Surrender Value continues to be sufficient to pay the
monthly deduction, an Owner is guaranteed a minimum death benefit equal to the
Face Amount of his or her Policy or an accelerated death benefit in a reduced
amount determined in accordance with certain riders available under the Policy.
(See "General Matters Relating to the Policy--Additional Insurance Benefits,"
page 32).

The Separate Account. The Owner may allocate the net premiums to one or more
Divisions of the Separate Account. The Separate Account currently consists of
ten Divisions, each of which invests in shares of a corresponding Fund of VIP.
The ten Funds currently available are the Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio, Overseas Portfolio,
Investment Grade Bond Portfolio, Asset Manager Portfolio, Index 500 Portfolio,
Contrafund Portfolio, and Asset Manager: Growth Portfolio. Each Fund has a
different investment objective. (See "The Separate Account--Variable Insurance
Products Funds," page 10.) An Owner may change future allocations of net
premiums at any time by notifying the Company directly.

Subject to certain restrictions, an Owner may transfer Cash Values among the
Divisions of the Separate Account. Currently, no charge is assessed for
transfers. The Company reserves the right to modify the transfer privilege.
(See "Policy Rights and Privileges--Transfers," page 24.)

Premiums. An Owner has flexibility concerning the amount and frequency of
premium payments. An initial premium equal to one-twelfth (1/12) of the planned
annual premium set forth in the specifications page of a Policy is necessary to
place a Policy in force. The planned annual premium is an amount specified for
each Policy based on the requested initial Face Amount and certain other
factors. Under Group Contracts and employer-sponsored programs, the initial
premium and subsequent planned premiums generally are remitted by the
Contractholder or sponsoring employer on behalf of the Owner at intervals
agreed to by the Contractholder or employer. In Corporate Programs, the Owner
or its designee will remit premiums generally on a schedule agreed to by the
Company. However, as is discussed below, planned premiums need not be paid so
long as there is sufficient Cash Surrender Value to keep the Policy in force.
Subject to certain limitations, additional premium payments in any amount and
at any frequency may be made directly by the Owner. (See "Payment and
Allocation of Premiums--Issuance of a Policy--Premiums," pages 12 and 14.)

5
<PAGE>

A Policy will lapse (and terminate without value) when the Cash Surrender
Value is insufficient to pay the next monthly deduction and a grace period of
62 days expires without an adequate payment being made by the Owner (see
"Payment and Allocation of Premiums--Policy Lapse and Reinstatement," page 15).
The Policies, therefore, differ in two important respects from conventional
life insurance policies. First, the failure to make planned premium payments
following the initial premium payment will not itself cause a Policy to lapse.
Second, under the circumstances described above, a Policy can lapse even if
planned premiums have been paid. Thus, the payment of premiums in any amount
does not guarantee that the Policy will remain in force until the Maturity
Date. (See "Payment and Allocation of Premiums--Policy Lapse and
Reinstatement," page 15.)

Death Benefit. Death benefit proceeds are payable to the named Beneficiary
when the Insured under a Policy dies or, under certain riders available under
the Policy, to the Owner, prior to the Insured's death under circumstances
described in those riders. (See "General Matters Relating to the Policy--
Additional Insurance Benefits," page 32.) Two death benefit options are
available. Under the "Level Type" death benefit, the death benefit is the Face
Amount of the Policy or, if greater, the applicable percentage of Cash Value.
Under the "Increasing Type" death benefit, the death benefit is the Face Amount
of the Policy plus the Cash Value or, if greater, the applicable percentage of
Cash Value. So long as a Policy remains in force, the minimum death benefit
under either option will be at least equal to the current Face Amount. The
death benefit proceeds will be increased by the amount of the cost of insurance
for the portion of the month from the date of death to the end of the month,
and reduced by any outstanding Indebtedness. (See "Policy Benefits--Death
Benefit," page 16.)

The minimum initial Face Amount is generally $25,000 under the Company's
current rules. Executive Program Policies generally have a minimum Face Amount
of $100,000. The maximum Face Amount is generally $500,000. However, in
connection with a particular Group Contract, employer-sponsored insurance
program, Executive Program or Corporate Program the Company may establish a
substantially higher Face Amount for Policies issued under that Contract or
program. The Owner may generally change the Face Amount (subject to the minimum
and maximum amounts applicable to the Policy as issued) and the death benefit
option, but in certain cases evidence of insurability may be required. (See
"Policy Benefits--Death Benefit," page 16.)

Additional insurance benefits offered under the Policy by rider may include a
children's insurance rider, an acceleration of death benefits rider, an
accelerated death benefit settlement option rider, an accidental death benefit
rider, and a waiver of monthly deductions rider. Some Group Contracts and
employer-sponsored insurance programs may not provide each of the additional
benefits described above. Generally, Executive Program Policies only have the
acceleration of death benefits rider. Generally, Corporate Programs have none
of the additional benefits described above. (See "General Matters Relating to
the Policy--Additional Insurance Benefits," page 32.) The cost of these
additional insurance benefits will be deducted from Cash Value as part of the
monthly deduction. (See "Charges and Deductions--Monthly Deduction," page 27.)

Benefits under the Policy may be paid in a single sum or under one of the
settlement options set forth in the Policy or an applicable rider. (See "Policy
Benefits--Death Benefit" page 16, and "Policy Rights and Privileges--Payment of
Policy Benefits," page 26.)

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

Charges and Deductions. A front-end sales charge of 1% of premiums will be
deducted from each premium paid ("premium expense charge"). An additional
charge will be imposed on Policies that are deemed

6
<PAGE>

to be individual Policies under the Omnibus Budget Reconciliation Act of 1990
("OBRA"). The additional charge, which is for federal income taxes measured by
premiums, is equal to 1% of each premium payment, and compensates the Company
for a significantly higher corporate income tax liability resulting from
changes made to the Internal Revenue Code by OBRA. This additional charge is
treated as sales load for purposes of determining compliance with the
limitations on sales loads imposed by the Investment Company Act of 1940 and
applicable regulations thereunder.

A charge of 2 percent to cover state premium taxes will be deducted from
premiums paid. (See "Charges and Deductions--Premium Tax Charge," page 27.)

A monthly deduction will be made from a Policy's Cash Value in the Divisions
of the Separate Account. The monthly deduction includes an administrative
charge, a cost of insurance charge, and the cost of any additional insurance
benefits provided by rider. The amount of the administrative charge will be set
forth in the specification pages of the Policy and will be based on the number
of the Insureds covered under a Group Contract or other employer-sponsored
insurance program and the amount of administrative services provided by the
Company. The charge will not exceed $6.00 per month during the first Policy
Year and $3.50 per month during renewal years.

The cost of insurance charge is calculated on each Monthly Anniversary. (See
"Charges and Deductions--Monthly Deduction--Cost of Insurance" page 28.)
Monthly cost of insurance rates will be determined by the Company based upon
its expectations as to future mortality experience. The Company currently
underwrites Policies on either a simplified issue or guaranteed issue basis.
However, the Company does not vary cost of insurance rates based on a
particular Policy's classification as simplified issue or guaranteed issue.
Rather, the rates are based on the Attained Age and rate class of the Insured,
as well as on the gender mix of the group insured, which is the proportion of
men and women covered under a particular Group Contract or employer-sponsored
program. For a discussion of the factors affecting the rate class of the
Insured. See "Charges and Deductions--Monthly Deduction--Cost of Insurance"
page 28.

Cost of insurance rates are guaranteed not to exceed 125 percent of the
maximum rates that could be charged based on the 1980 Commissioners Standard
Ordinary Mortality Table C ("1980 CSO Table"). The 1980 CSO Table assumes a
blending of sixty percent male and forty percent female. Generally, the rates
currently charged do not exceed 100% of the 1980 CSO Table. However, instances
in which the Company's current rates may exceed 100% of the 1980 CSO Table are
generally limited to particular Policies issued to Insureds in small groups
(i.e. generally less than 750 eligible employees) and/or groups that are
predominantly male. The guaranteed rates are higher than the 1980 CSO Table
because, under both guaranteed and simplified underwriting, the Insured is not
required to submit to a medical or paramedical examination although a blood
test may be required. Because the Company gathers less health information about
these individuals, it is exposed to additional insurance risks. Although the
circumstances in which the Company could raise its current mortality charges
are limited, such an increase is permitted under the Policy. To the extent that
the current cost of insurance rates exceed or are raised so that they exceed
100% of the 1980 CSO Table, the monthly cost of insurance charge would, in
effect, be a substandard risk charge for healthy Insureds.

A daily charge not to exceed .0024547% (an annual rate of .90%) of the net
assets of each Division of the Separate Account will be imposed for the
Company's assumption of certain mortality and expense risks incurred in
connection with the Policies. (See "Charges and Deductions--Separate Account
Charges," page 30.)

No charges are currently made from the Separate Account for Federal or state
income taxes. However, if it is determined that such taxes may be incurred,
then the Company may make deductions from the Separate Account to pay these
taxes. (See "Federal Tax Matters," page 36.)

The value of the assets of the Divisions of the Separate Account will reflect
the investment advisory fee and other expenses incurred by VIP because the
Separate Account purchases the shares of VIP. (See "Charges

7
<PAGE>

and Deductions--Separate Account Charges," page 30.) The advisory fees range
from an annual rate of .28% to a maximum of .97% of the average daily assets of
each Fund. See the VIP prospectuses for actual fees and expenses.

A transaction charge equal to the lesser of $25 or two percent of the amount
withdrawn will be assessed on each partial withdrawal of amounts from the
Separate Account. Currently, there are no transaction charges imposed for
transfers of amounts between Divisions of the Separate Account. In addition,
transfers and withdrawals are subject to restrictions relative to amount and
frequency. (See "Payment and Allocation of Premiums--Allocation of Net Premiums
and Cash Value," page 15, and "Policy Rights and Privileges--Surrender and
Partial Withdrawals, Transfers," pages 22 and 24 respectively, and "Charges and
Deductions--Partial Withdrawal Transaction Charge," page 29.)

Policy Loans. After the first Policy Anniversary an Owner may borrow against
the Cash Value of a Policy. The Loan Value is (a) minus (b), where (a) is 85
percent of the Cash Value of the Policy on the date the Policy Loan is
requested, and (b) is the amount of outstanding Indebtedness. Loan interest is
due and payable in arrears on each Policy Anniversary or on a pro rata basis
for such shorter period as the Policy Loan may exist. All outstanding
Indebtedness will be deducted from proceeds payable at the Insured's death,
upon maturity, or upon surrender.

A Policy Loan will be allocated among the various Divisions of the Separate
Account. A portion of the Policy's Cash Value in each Division of the Separate
Account to which the loan is allocated will be transferred to the Loan Account
as security for the loan. Therefore, a Policy Loan may have a permanent impact
on the Policy's Cash Value even if it is repaid. A Policy Loan may be repaid in
whole or in part at any time while the Policy is in force. (See "Policy Rights
and Privileges--Loans," page 21.) Loans taken from, or secured by, a Policy may
in certain circumstances be treated as taxable distributions from the Policy.
Moreover, with certain exceptions, a ten percent additional income tax would be
imposed on the portion of any loan that is included in income. (See "Federal
Tax Matters," page 36.)

Surrender and Partial Withdrawals. At any time that a Policy is in effect, an
Owner may elect to surrender the Policy and receive its Cash Surrender Value.
An Owner may also request a partial withdrawal of the Cash Value of the Policy.
When the death benefit under either death benefit option is not based on an
applicable percentage of the Cash Value, a partial withdrawal reduces the death
benefit payable under the Policy by an amount equal to the reduction in the
Policy's Cash Value. (See "Policy Rights and Privileges--Surrender and Partial
Withdrawals," page 22.) Surrenders and partial withdrawals may have federal
income tax consequences. (See "Federal Tax Matters," page 36.)

Right to Examine Policy. The Owner has a limited right to return a Policy for
cancellation within 20 days after the delivery of the Policy to the Owner,
within 45 days after the Owner signs the application, or within 10 days after
the Company mails a notice of this cancellation right to the Owner whichever is
latest. If a Policy is cancelled within this time period, a refund will be paid
which will equal all premiums paid under the Policy or any different amount
required by law. The Owner also has a right to cancel a requested increase in
Face Amount. Upon cancellation of an increase, the Owner may request that the
Company refund the amount of the additional charges deducted in connection with
the increase, or have the amount of the additional charges added to the Cash
Value. (See "Policy Rights and Privileges--Right to Examine Policy," page 24.)

Eligibility Change Conversion. In the event that the Insured is no longer
eligible for coverage under the Group Contract, either because the Group
Contract has terminated or because the employee is no longer employed by the
Contractholder, the Individual Insurance provided by the Policy issued in
connection with the Group Contract will continue unless the Policy is cancelled
or surrendered by the Owner or there is insufficient Cash Surrender Value to
prevent the Policy from lapsing.

If a Certificate was issued in connection with the Group Contract, the
Certificate will be amended automatically to continue in force as an Individual
Policy. The new Individual Policy will provide benefits

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<PAGE>

which are identical to those provided under the Certificate. If an Individual
Policy was issued in connection with a Group Contract, the Individual Policy
will continue in force following the termination of the Group Contract. (See
"Policy Right and Privileges--Eligibility Change Conversion," page 25.)

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

Exercising Rights and Privileges Under the Policies. Owners of Policies
issued under a Group Contract or in connection with an employer-sponsored
insurance program may exercise their rights and privileges under the Policies
(i.e., make transfers, change premium allocations, borrow, etc.) by notifying
the Company in writing at its Home Office. Likewise, the Company will send all
reports and other notices described herein or in the Policy directly to the
Owner. (See "Policy Rights and Privileges--Exercising Rights and Privileges
Under the Policies," page 21.)

Illustrations of Death Benefits and Cash Surrender Values. Illustrations on
pages A-1 to A-13 in Appendix A show how death benefits and Cash Surrender
Values may vary based on certain hypothetical rate of return assumptions as
well as assumptions pertaining to the level of the administrative charge and
the level of the sales charges. These illustrations also show how these
benefits compare with amounts which would accumulate if premiums were invested
to earn interest (after taxes) at 5% compounded annually. If a Policy is
surrendered in the early Policy Years, the Cash Surrender Value payable will be
low as compared with premiums accumulated with interest, and consequently the
insurance protection provided prior to surrender will be costly.

Tax Consequences of the Policy. While guidance is limited, the Company
believes that the Policy should be treated as a life insurance contract for
Federal income tax purposes. Assuming that a Policy qualifies as a life
insurance contract for Federal income tax purposes, a Policy Owner should not
be deemed to be in constructive receipt of Cash Surrender Value under a Policy
until there is a distribution from the Policy. Moreover, death benefits payable
under a Policy should be completely excludable from the gross income of the
Beneficiary. As a result, the Beneficiary generally should not be taxed on
these proceeds.

Under certain circumstances, a Policy may be treated as a "modified endowment
contract." If the Policy is a modified endowment contract, then all pre-death
distributions, including Policy loans, will be treated first as a distribution
of taxable income and then as a return of basis or investment in the contract.
In addition, prior to age 59 1/2 any such distributions generally will be
subject to a 10% penalty tax.

If the Policy is not a modified endowment contract, distributions generally
will be treated first as a return of basis or investment in the contract and
then as disbursing taxable income. Loans will not be treated as distributions.
Neither distributions, nor loans from a Policy that is not a modified endowment
contract are subject to the 10% penalty tax. (See "Federal Tax Matters," page
36.)

THE COMPANY AND THE SEPARATE ACCOUNT

THE COMPANY

Paragon Life Insurance Company (the "Company") is a stock life insurance
company incorporated under the laws of Missouri. The Company was organized in
1981 as General American Insurance Company and on December 31, 1987, its name
was changed. No change in operations or ownership took place in connection with
the name change. The Company is principally engaged in writing individual and
group life insurance policies and annuity contracts. As of December 31, 1995,
it had statutory admitted assets in excess of $123 million. The Company is
admitted to do business in 49 states and the District of Columbia. The
principal offices of the Company are at 100 South Brentwood, St. Louis,
Missouri 63105 ("Home Office").

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<PAGE>

The Company is a wholly-owned subsidiary of General American Life Insurance
Company (the "Parent Company"), a mutual life insurance company. The Parent
Company has agreed that until March 23, 1999, it will maintain capital and
surplus within the Company sufficient to satisfy the capital requirements of
the states in which the Company is authorized to do business.

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

THE SEPARATE ACCOUNT

Separate Account C (the "Separate Account") was established by the Company as
a separate investment account on August 1, 1993 under Missouri law. The
Separate Account receives and invests the net premiums paid under the Policies.
In addition, the Separate Account may receive and invest net premiums for other
flexible premium variable life insurance policies that might be issued by the
Company.

The Separate Account currently is divided into ten Divisions. Each Division
invests exclusively in shares of a single portfolio of VIP. Income and both
realized and unrealized gains or losses from the assets of each Division of the
Separate Account are credited to or charged against that Division without
regard to income, gains, or losses from any other Division of the Separate
Account or arising out of any other business the Company may conduct.

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

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

VARIABLE INSURANCE PRODUCTS FUNDS

The Separate Account invests in shares of Variable Insurance Products Fund
and Variable Insurance Products Fund II (together referred to as "VIP"),
series-type mutual funds registered with the SEC as open-end, diversified
management investment companies. VIP currently has ten separate investment
portfolios or "Funds" which are available in the Policies: Money Market
Portfolio, High Income Portfolio, Equity-Income Portfolio, Growth Portfolio,
Overseas Portfolio, Investment Grade Bond Portfolio, Asset Manager Portfolio,
Index 500 Portfolio, Contrafund Portfolio and Asset Manager: Growth Portfolio.
The assets of each Fund are held separate from the assets of the other Funds,
and each Fund has investment objectives and policies which are different from
those of the other Funds. Thus, each Fund operates as a separate investment
vehicle, and the income or losses of one Fund generally have no effect on the
investment performance of any other Fund.

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<PAGE>

The investment objectives and policies of each Fund are summarized below:

Money Market Portfolio seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. The Portfolio
invests in high quality U.S. dollar denominated money market securities of
domestic and foreign issuers.

High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital. Lower-rated securities, commonly
referred to as "junk bonds", involve greater risk of default or price changes
than securities assigned a higher quality rating.

Equity-Income Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the Portfolio
will also consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index.

Growth Portfolio seeks to achieve capital appreciation. The Portfolio
normally purchases common stocks, although its investments are not restricted
to any one type of security. Capital appreciation may also be found in other
types of securities, including bonds and preferred stocks.

Overseas Portfolio seeks long term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.

Investment Grade Bond Portfolio seeks as high a level of current income as is
consistent with the preservation of capital. Under normal conditions, at least
65% of the Portfolio's total assets are invested in investment-grade fixed-
income securities. The Portfolio will maintain a dollar-weighted average
portfolio maturity of ten years or less.

Asset Manager Portfolio seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds and
short-term fixed-income instruments.

Index 500 Portfolio seeks to provide investment results that correspond to
the total return (i.e., the combination of capital changes and income) of
common stocks publicly traded in the United States as represented by the
Standard & Poor's 500 Composite Stock Price Index while keeping transaction
costs and other expenses low. The Portfolio is designed as a long-term
investment option.

Contrafund Portfolio seeks long-term capital appreciation by investing in
companies that are undergoing positive changes but are currently unpopular,
undervalued or overlooked by the market.

Asset Manager: Growth Portfolio seeks to maximize long-term total return with
less risk than a pure stock investment.

There is no assurance that any of the Funds will achieve its stated
objective. More detailed information, including a description of risks, is in
the prospectuses for VIP, which must accompany or precede this Prospectus and
which should be read carefully.

Fidelity Management & Research Company ("FMR") provides investment advisory
services to VIP in accordance with the terms of the current prospectuses for
VIP. The Funds pay investment management fees to FMR as part of their expenses.
See the VIP prospectuses for details regarding these fees.

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

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<PAGE>

ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS

The Company reserves the right, subject to compliance with applicable law, to
make additions to, deletions from, or substitutions for the shares that are
held by the Separate Account or that the Separate Account may purchase. The
Company reserves the right to eliminate the shares of any of the Funds of VIP
and to substitute shares of another Fund of VIP or of another registered open-
end investment company, if the shares of a Fund are no longer available for
investment, or if in the Company's judgment further investment in any Fund
becomes inappropriate in view of the purposes of the Separate Account. The
Company will not substitute any shares attributable to an Owner's interest in a
Division of the Separate Account without notice to the Owner and prior approval
of the SEC, to the extent required by the 1940 Act or other applicable law.
Nothing contained in this Prospectus shall prevent the Separate Account from
purchasing other securities for other series or classes of policies, or from
permitting a conversion between series or classes of policies on the basis of
requests made by Owners.

The Company also reserves the right to establish additional Divisions of the
Separate Account, each of which would invest in a new Fund of VIP, or in shares
of another investment company, with a specified investment objective. New
Divisions may be established when, in the sole discretion of the Company,
marketing needs or investment conditions warrant, and any new Division will be
made available to existing Owners on a basis to be determined by the Company.
To the extent approved by the SEC, the Company may also eliminate or combine
one or more Divisions, substitute one Division for another Division, or
transfer assets between Divisions if, in its sole discretion, marketing, tax,
or investment conditions warrant.

In the event of a substitution or change, the Company may, if it considers it
necessary, make such changes in the Policy by appropriate endorsement. The
Company will notify all Owners of any such changes.

If deemed by the Company to be in the best interests of persons having voting
rights under the Policy, and to the extent any necessary SEC approvals or Owner
votes are obtained, the Separate Account may be: (a) operated as a management
company under the 1940 Act; (b) deregistered under that Act in the event such
registration is no longer required; or (c) combined with other separate
accounts of the Company. To the extent permitted by applicable law, the Company
may also transfer the assets of the Separate Account associated with the Policy
to another separate account.

The Company cannot guarantee that the shares of VIP will always be available.
VIP sells shares to the Separate Account in accordance with the terms of a
participation agreement between VIP and the Company. Should this agreement
terminate or should shares become unavailable for any other reason, the
Separate Account will not be able to purchase VIP shares. Should this occur,
the Company will be unable to honor Owner requests to allocate their cash
values or premium payments to the Divisions of the Separate Account investing
in shares of VIP. In the event that VIP is no longer available, the Company
will, of course, take reasonable steps to obtain alternative investment
options.

PAYMENT AND ALLOCATION OF PREMIUMS

ISSUANCE OF A POLICY

The Company will generally issue a Group Contract to employers whose
employees and/or their spouses may become Owners and/or Insureds thereunder so
long as the employee is within the class of employees eligible to be included
in the Group Contract. The class(es) of employees covered by a particular Group
Contract are set forth in that Group Contract's specifications pages. The Group
Contract will be issued upon receipt of an application for a Group Contract
signed by a duly authorized officer of the employer and acceptance by a duly
authorized officer of the Company at its Home Office. (See "General Provisions
of the Group Contract--Issuance," page 34.) Individuals (i.e., eligible
employees or their spouses) wishing to purchase a Policy, whether under a Group
Contract or an employer-sponsored insurance program, must complete the
appropriate application for Individual Insurance and submit it to an authorized
representative of the Company or to the Company's Home Office. The Company will
issue to each Contractholder either a

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<PAGE>

Certificate or an Individual Policy to give to each Owner. Individual Policies,
rather than Certificates, will be issued (i) to independent contractors of the
employer; (ii) to persons who wish to continue coverage after a Group Contract
has terminated; (iii) to persons who wish to continue coverage after they no
longer are employed by the Group Contractholder; (iv) if state law restrictions
make issuance of a Group Contract impracticable; or (v) if the employer chooses
to use an employer-sponsored insurance program that does not involve a Group
Contract.

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

A Policy generally will be issued only to Insureds of Issue Ages 17 through
70 who supply evidence of insurability satisfactory to the Company. The Company
may, at its sole discretion, issue Policies to individuals falling outside
those Issue Ages or decline to issue Policies to individuals within those Issue
Ages.

In order for an individual employee to be eligible to be an Insured under a
Policy, the employee must be actively at work at the time the application for
Individual Insurance is signed. In addition, there may be specific classes to
which the employee must belong to be eligible to be an Insured under a Policy.
Actively at work means that the employee must work for the Contractholder or
sponsoring employer at the employee's usual place of work or such other places
as required by the Contractholder or sponsoring employer in the course of such
work for the full number of hours and the full rate of pay, as set by the
employment practices of the employer. Ordinarily the time worked per week must
not be less than 30 hours. However, the Company reserves the right to waive or
modify the actively at work requirement at its discretion. In addition, the
Contractholder or sponsoring employer may require that, to be eligible to
purchase a Policy, an employee must be employed by the employer as of a certain
date or for a certain period of time. This date or time period will be set
forth in the Group Contract specifications pages. Employees of any Associated
Companies of the Contractholder will be considered employees of the
Contractholder. The Company may also allow an individual who is an independent
contractor working primarily for the sponsoring employer to be considered an
eligible employee. As an independent contractor, he may receive an Individual
Policy rather than a Certificate depending upon state law applicable to the
contracts. An employee may include a partner in a partnership if the employer
is a partnership.

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

Where the Face Amount exceeds the guaranteed issue limits, where the Policy
has been offered previously to the employee, where the guaranteed issue
requirements set forth in the application for Individual Insurance are not met,
or in connection with certain programs that may be offered without guaranteed
issue the employee must submit to a simplified underwriting procedure which
requires the employee to respond satisfactorily to certain health questions in
the application. A blood test may be required. This requirement is generally
applicable only to Executive Programs or Corporate Programs. Similarly, such
questions must be answered if, in connection with the issuance of any
children's rider, if the employee is not eligible for guaranteed issue
underwriting, or, even when the employee is eligible, if the child does not
satisfy the guaranteed issue requirements set forth in the application for
Individual Insurance. However, regardless of which underwriting procedure is
used, acceptance of an application is subject to the Company's underwriting
rules, and the Company reserves the right to reject an application for any
reason.

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<PAGE>

If a Policy is to be issued to a spouse of an employee who is eligible to
purchase a Policy under a Group Contract or an employer-sponsored insurance
program, the appropriate application for Individual Insurance must be supplied.
The spouse will be subject to the simplified underwriting procedure described
above. Guaranteed issue is not available. Spouse coverage is generally not
available under Executive Program Policies or Corporate Program Policies.

The Issue Date is the effective date for all coverage provided in the
original application for Individual Insurance. The Issue Date is used to
determine Policy Anniversaries, Policy Years, and Policy Months. A Policy will
not take effect until the appropriate application for Individual Insurance is
signed, the initial premium has been paid prior to the Insured's death, the
Insured is eligible for it, and the information in the application is
determined to be acceptable to the Company. However, prior to the actual
issuance of a Policy which is being underwritten on a guaranteed issue basis,
interim insurance in the amount of insurance applied for up to the Guaranteed
Issue Amount may be available and, if so, will start as of the date of the
application. Interim insurance ends on the earliest of the following dates: (a)
the date insurance begins on the Policy applied for; (b) the date a Policy
other than the Policy applied for is offered to the applicant; (c) the date the
Company notifies the applicant that the application for any proposed Insured is
declined; (d) 60 days from the date of application; or (e) termination of
employment with the Contractholder or sponsoring employer.

PREMIUMS

The initial premium is due on the Issue Date, and usually will be remitted by
the Contractholder or employer on behalf of the Owner. In Corporate Programs,
the Owner or its designated payor will remit premiums. The Company requires
that the initial premium for a Policy be at least equal to one-twelfth ( 1/12)
of the planned annual premium for the Policy set forth in the specifications
pages. The planned annual premium is an amount specified for each Policy based
on the requested initial Face Amount, the Issue Age of the Insured and the
charges under the Policy. (See "Charges and Deductions," page 27.) However, the
Owner is not required to pay premiums equal to the planned annual premium.

Premiums remitted by a Contractor or sponsoring employer or designated payor
shall be applied to a Policy when received by the Company. Should supporting
documentation to enable the determination of the amount of premium per Policy
not be received prior to or coincident with the cash premium, the premiums
shall be promptly returned to the entity remitting such premiums.

Following the initial premium, subject to the limitations described below,
premiums may be paid in any amount and at any interval. Under Group Contracts
and Individual Policies issued in connection with other employer-sponsored
insurance programs, the planned annual premium usually will be remitted by the
Contractholder or sponsoring employer on behalf of the Owner pursuant to a
planned premium payment schedule which will provide for premium payments in a
level amount at fixed intervals agreed to by the Contractholder or employer and
the Company (usually monthly). The amount of the premiums remitted by the
sponsoring employer or Contractholder will be that amount authorized to be
deducted by the employee. For Corporate Programs, the Owner or its designated
payor shall remit any scheduled and unscheduled premium payments. The Owner may
skip planned premium payments. Failure to pay one or more planned premium
payments will not cause the Policy to lapse until such time as the Cash
Surrender Value is insufficient to cover the next Monthly Deduction. (See
"Payment and Allocation of Premiums--Policy Lapse and Reinstatement," page 15.)

In addition to any planned payments made, an Owner may make unscheduled
premium payments at any time in any amount, subject to the minimum and maximum
premium limitations described below. The payment of an unscheduled premium
payment may have Federal income tax consequences. (See "Federal Tax Matters,"
page 36.) Moreover, as mentioned above, an Owner may also skip planned premium
payments. Therefore, unlike conventional insurance policies, a Policy does not
obligate the Owner to pay premiums in accordance with a rigid and inflexible
premium schedule.

Failure of the Contractholder to remit the planned premium payments
authorized by its employees may cause the Group Contract to terminate. (See
"General Provisions of the Group Contract--Termination," page 34.) Nonetheless,
provided that there is sufficient Cash Surrender Value to prevent the Policy
from lapsing, the Individual Insurance provided will automatically continue in
the event of such termination. (See "Policy Rights and Privileges--Eligibility
Change Conversion," page 25.) Individual Insurance will also

14
<PAGE>

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

Premium Limitations. Every premium payment remitted by or on behalf of an
Owner must be at least $20. In no event may the total of all premiums paid
under a Policy in any Policy Year exceed the current maximum premium
limitations for that year established by Federal tax laws. The maximum premium
limitation for a Policy Year is the most premium that can be paid in that
Policy Year such that the sum of the premiums paid under the Policy will not at
any time exceed the guideline premium limitations referred to in section
7702(c) of the Internal Revenue Code of 1986, or any successor provision. If at
any time a premium is paid which would result in total premiums exceeding the
current maximum premium limitation, the Company will accept only that portion
of the premium which will make total premiums equal the maximum. Any part of
the premium in excess of that amount will be returned directly to the Owner
within 60 days of the end of the Policy Year in which payment is received or
applied as otherwise agreed and no further premiums will be accepted until
allowed by the current maximum premium limitations prescribed by Federal tax
law. See "Federal Tax Matters" on page 35 for a further explanation of premium
limitations. Section 7702A creates an additional premium limitation, which, if
exceeded, can change the tax status of a Policy to that of a "modified
endowment contract." A modified endowment contract is a life insurance
contract, withdrawals from which are, for tax purposes, treated first as a
distribution of any taxable income under the contract, and then as a
distribution of nontaxable investment in the contract. Additionally, such
withdrawals may be subject to a 10% federal income tax penalty. The Company has
adopted administrative steps designed to notify an Owner when it is believed
that a premium payment will cause a Policy to become a modified endowment
contract. The Company has administrative procedures to prevent a modified
endowment contract by monitoring premium limits. The Owner will be given a
limited amount of time to request that the premium be reversed in order to
avoid the Policy's being classified as a modified endowment contract. (See
"Federal Tax Matters," page 36.)

ALLOCATION OF NET PREMIUMS AND CASH VALUE

Net Premiums. The net premium equals the premium paid less the premium
expense charge less the premium tax charge. (See "Charges and Deductions--Sales
Charges," page 27.)

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. Beginning with the initial premium payment, all premiums will
be allocated in accordance with the Owner's instructions upon receipt of the
premiums at the Company's Home Office. However, the minimum percentage, other
than zero ("0"), that may be allocated to a Division is 10 percent of the net
premium, and fractional percentages may not be used.

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

The Policy's Cash Value also may be transferred between the Divisions of the
Separate Account. (See "Policy Rights and Privileges--Transfers," page 24.)

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

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<PAGE>

POLICY LAPSE AND REINSTATEMENT

Lapse. Unlike conventional life insurance policies, the failure to make a
premium payment following the initial premium will not itself cause a Policy to
lapse. Lapse will occur only when the Cash Surrender Value is insufficient to
cover the monthly deduction, and a grace period expires without a sufficient
payment being made. (See also "General Provisions of the Group Contract--Grace
Period--Termination," page 34.)

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 will specify the amount of premium required to keep the Policy in
force and the date the payment is due. Subject to minimum premium requirements,
the amount of the premium required to keep the Policy in force will be the
amount of the current monthly deduction. (See "Charges and Deductions," page
27.) If the Company does not receive the required amount within the grace
period, the Policy will lapse and terminate without Cash Value. If the Insured
dies during the grace period, any overdue monthly deductions will be deducted
from the death benefit otherwise payable.

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

1. Evidence of the insurability of the Insured satisfactory to the
Company (including evidence of insurability of any person covered by a
rider to reinstate the rider).
2. Payment of a premium that, after the deduction of any premium expense
charge and any premium tax charge, is large enough to cover: (a) the
monthly deductions due at the time of lapse, and (b) two times the monthly
deduction due at the time of reinstatement.
3. Payment or reinstatement of any Indebtedness. Any Indebtedness
reinstated will cause a Cash Value of an equal amount also to be
reinstated. Any loan paid at the time of reinstatement will cause an
increase in Cash Value equal to the amount of the repaid loan.
4. The Policy cannot be reinstated if it has been surrendered.

The amount of Cash Value on the date of reinstatement will be equal to the
amount of any Indebtedness reinstated, increased by the net premiums paid at
reinstatement and any loans paid at the time of reinstatement.

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

POLICY BENEFITS

DEATH BENEFIT

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

If a rider permitting the accelerated payment of death benefit proceeds has
been added to the Policy, the death benefit may be paid in a single sum prior
to the death of the Insured and may be less than otherwise would be paid upon
the death of the Insured. (See "General Matters Relating to the Policy--
Additional Insurance Benefits," page 32.)

The amount of the death benefit proceeds payable will be determined at the
end of the Valuation Period during which the Insured's death occurred. The
proceeds may be paid in a single sum or under one or more

16
<PAGE>

of the settlement options set forth in the Policy. (See "Policy Rights and
Privileges--Payment of Policy Benefits," page 26.) Death benefit proceeds will
be paid to the surviving Beneficiary or Beneficiaries specified in the
application or as subsequently changed.

The Policy provides two death benefit options: a "Level Type" death benefit
("Option A") and an "Increasing Type" death benefit ("Option B"). Option B
generally will be the only option presented. The death benefit under either
option will never be less than the current Face Amount of the Policy as long as
the Policy remains in force. (See "Payment and Allocation of Premiums--Policy
Lapse and Reinstatement," page 15.) The minimum Face Amount currently is
$25,000. The maximum Face Amount is generally $500,000. However, in connection
with a particular Group Contract, employer sponsored insurance program,
Executive Program or Corporate Program, the Company may establish a
substantially higher Face Amount for Policies issued under that Contract or
program.

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

APPLICABLE PERCENTAGE TABLE

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

</TABLE>

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

17
<PAGE>

Option B. Under Option B, the death benefit is equal to the current Face
Amount plus the Cash Value of the Policy or, if greater, the applicable
percentage of the Cash Value on the date of death. The applicable percentage is
the same as under Option A: 250 percent for an Insured with an Attained Age of
40 or below on the Policy Anniversary prior to the date of death, and for
Insureds with an Attained Age over 40 on that Policy Anniversary the percentage
declines as shown in the Applicable Percentage Table above. Accordingly, under
Option B the amount of the death benefit will always vary as the Cash Value
varies (but will never be less than the Face Amount). Owners who prefer to have
favorable investment performance reflected in higher death benefits for the
same Face Amount generally should select Option B. All other factors equal, for
the same premium dollar, Option B provides lower initial Face Amount resulting
in earlier cash accumulation.

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

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

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

A change in death benefit option will not in itself result in an immediate
change in the amount of a Policy's death benefit or Cash Value. No charges will
be imposed upon a change from death benefit Option B to Option A. Changing from
Option A to Option B, however, will result in a decrease in the Face Amount. In
addition, if, prior to or accompanying a change in the death benefit option,
there has been an increase in the Face Amount, the cost of insurance charge may
be different for the increased amount. (See "Charges and Deductions--Monthly
Deduction--Cost of Insurance," page 28.)

No change in death benefit option will be permitted that results in the death
benefit under a Policy being included in gross income due to not satisfying the
requirements of Federal tax law. (See "Federal Tax Matters," page 36.)

Change in Face Amount. Subject to certain limitations set forth below, an
Owner may increase or decrease the Face Amount of a Policy (without changing
the death benefit option) after the first Policy Anniversary. A written request
for a change in the Face Amount must be sent directly to the Company. A change
in Face Amount may affect the cost of insurance rate and the net amount at
risk, both of which affect an Owner's cost of insurance charge. (See "Charges
and Deductions--Monthly Deduction--Cost of Insurance," page 28.) In addition, a
change in Face Amount may have Federal income tax consequences. (See "Federal
Tax Matters," page 36.)

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

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

18
<PAGE>

(b) The next most recent increases successively; and

This order of reduction will be used to determine the amount of subsequent cost
of insurance charges (see "Charges and Deductions--Monthly Deduction--Cost of
Insurance," page 28).

For an increase in the Face Amount, the Company requires that satisfactory
evidence of insurability be submitted. If approved, the increase will become
effective on the Monthly Anniversary on or following receipt of the
satisfactory evidence of insurability. In addition, the Insured must have an
Attained Age of not greater than 80 on the effective date of the increase. The
amount of the increase may not be less than $5,000. The Face Amount may not be
increased more than the maximum Face Amount for that Policy, generally
$500,000. However, in connection with a particular Group Contract or employer-
sponsored insurance program, the Company may establish a substantially higher
Face Amount for Policies issued under that Contract or program. Although an
increase need not necessarily be accompanied by an additional premium (unless
it is required to meet the next monthly deduction), the Cash Surrender Value in
effect immediately after the increase must be sufficient to cover the next
monthly deduction. (See "Charges and Deductions-- Monthly Deduction," page 27.)
An increase in the Face Amount may result in certain additional charges. (See
"Charges and Deductions," page 27.)

An increase in Face Amount may be cancelled within the later of 20 days from
the date the Owner received the new Policy specifications page for the
increase, within 10 days of mailing the right to cancellation notice to the
Owner, or within 45 days after the application for an increase was signed. Upon
cancellation, any additional charges, which would not have been assessed
without the increase, will be refunded to the Owner if requested. If a request
for a refund is not made, the charges will be restored to the Policy's Cash
Value and allocated to Divisions of the Separate Account in the same manner as
they were deducted. Premiums paid following an increase in Face Amount and
prior to the time the right to cancel the increase expires will become part of
the Policy's Cash Value and will not be subject to refund. (See "Policy Rights
and Privileges--Right to Examine Policy," page 24.)

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

(a) A decrease in the Face Amount will, subject to the applicable
percentage limitations (see "Policy Benefits--Death Benefit," page 16),
decrease the pure insurance protection and the cost of insurance charges
under the Policy without reducing the Cash Value.

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

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

(d) A reduced level of premium payments generally will increase the
amount of pure insurance protection, depending on the applicable percentage
limitations. If the reduced level of premium payments is insufficient to
cover monthly deductions or to offset negative investment performance, Cash
Value may also decrease, which in turn will increase the possibility that
the Policy will lapse. (See "Payment and Allocation of Premiums--Policy
Lapse and Reinstatement," page 15.)

19
<PAGE>

(e) A partial withdrawal will reduce the death benefit. (See "Policy
Rights and Privileges--Surrender and Partial Withdrawals," page 22.)
However, it only affects the amount of pure insurance protection and cost
of insurance charges if the death benefit before or after the withdrawal is
based on the applicable percentage of Cash Value, because otherwise the
decrease in the death benefit is offset by the amount of Cash Value
withdrawn. The primary use of a partial withdrawal is to withdraw Cash
Value.

Payment of Death Benefit Proceeds. Death benefit proceeds under the Policy
ordinarily will be paid within seven days after the Company receives all
documentation required for such a payment at its Home Office. Payment may,
however, be postponed in certain circumstances. (See "General Matters Relating
to the Policy--Postponement of Payments," page 33.) The Owner may decide the
form in which the proceeds will be paid. During the Insured's lifetime, the
Owner may arrange for the death benefit proceeds to be paid in a single sum or
under one or more of the optional methods of settlement described below. The
death benefit will be increased by the amount of the monthly cost of insurance
for the portion of the month from the date of death to the end of the month,
and reduced by any outstanding Indebtedness. (See "General Matters Relating to
the Policy--Additional Insurance Benefits," page 32, and "Charges and
Deductions," page 27.)

When no election for an optional method of settlement is in force at the
death of the Insured, the Beneficiary may select one or more of the optional
methods of settlement at any time before death benefit proceeds are paid. (See
"Policy Rights and Privileges--Payment of Policy Benefits," page 26.)

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

CASH VALUE

The Cash Value of the Policy is equal to the total of the Policy's Cash Value
in the Separate Account and the Loan Account. The Policy's Cash Value in the
Separate Account will reflect the investment performance of the chosen
Divisions of the Separate Account, the frequency and amount of net premiums
paid, transfers, partial withdrawals, Policy Loans, and the charges assessed in
connection with the Policy. An Owner may at any time surrender the Policy and
receive the Policy's Cash Surrender Value. (See "Policy Rights and Privileges--
Surrender and Partial Withdrawals," page 23.) There is no guaranteed minimum
Cash Value.

Determination of Cash Value. Cash Value is determined on a daily basis. On
the Investment Start Date, the Cash Value in a Division will equal the portion
of any net premium allocated to the Division, reduced by the portion of the
monthly deductions due from the Issue Date through the Investment Start Date
allocated to that Division. Depending upon the length of time between the Issue
Date and the Investment Start Date, this amount may be more than the amount of
one monthly deduction. (See "Payment and Allocation of Premiums," page 12.)
Thereafter, on each Valuation Date, the Cash Value in a Division of the
Separate Account will equal:

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

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

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

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

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

20
<PAGE>

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

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

(8) Any contingent deferred sales charges incurred during the current
Valuation Period in connection with a partial withdrawal or decrease in
Face Amount allocated to the Division; 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," page 27.)

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

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

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

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

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

(4) Any amount charged against each Division for taxes or any amount set
aside during the Valuation Period as a reserve for taxes attributable
to the operation or maintenance of each Division; minus

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

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

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

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

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

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

POLICY RIGHTS AND PRIVILEGES

EXERCISING RIGHTS AND PRIVILEGES UNDER THE POLICIES

Owners of Policies issued under a Group Contract or in connection with an
employer-sponsored insurance program may exercise their rights and privileges
under the Policies (i.e., make transfers, change premium allocations, borrow,
etc.) by directly notifying the Company in writing at its Home Office. The
Company will send all reports and other notices described herein or in the
Policy directly to the Owner.

LOANS

Loan Privileges. After the first Policy Anniversary, the Owner may, by
written request directly to the Company, borrow an amount up to the Loan Value
of the Policy, with the Policy serving as sole security for such loan. The Loan
Value is equal to (a) minus (b), where (a) is 85 percent of the Cash Value of
the Policy on the date the Policy Loan is requested and (b) is the amount of
any outstanding Indebtedness. Loan interest is due and payable in arrears on
each Policy Anniversary or on a pro rata basis for such shorter period as the
loan may exist. The minimum amount that may be borrowed is $100. The loan may
be completely or partially

21
<PAGE>

repaid at any time while the Insured is living. Any amount due to an Owner
under a Policy Loan ordinarily will be paid within seven days after the Company
receives the loan request at its Home Office, although payments may be
postponed under certain circumstances. (See "General Matters Relating to the
Policy--Postponement of Payments," page 30.)

When a Policy Loan is made, Cash Value equal to the amount of the loan will
be transferred to the Loan Account as security for the loan. A Loan Subaccount
exists for each Division of the Separate Account. Amounts transferred to the
Loan Account to secure Indebtedness are allocated to the appropriate Loan
Subaccount to reflect its origin. Unless the Owner requests a different
allocation, amounts will be transferred from the Divisions of the Separate
Account in the same proportion that the Policy's Cash Value in each Division
bears to the Policy's total Cash Value, less the Cash Value in the Loan
Account, at the end of the Valuation Period during which the request for a
Policy Loan is received. This will reduce the Policy's Cash Value in the
Separate Account. These transactions will not be considered transfers for
purposes of the limitations on transfers between Divisions as discussed on page
24.

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

Interest Rate Charged for Policy Loans. The interest rate charged will be at
an annual rate of eight percent. Interest charged will be due and payable
annually in arrears on each Policy Anniversary or for such shorter period as
the Policy Loan may exist. If the Owner does not pay the interest charged when
it is due, an amount of Cash Value equal to that which is due will be
transferred to the Loan Account. (See "Effect of Policy Loans," below.) The
amount transferred will be deducted from the Divisions of the Separate Account
in the same proportion that the portion of the Cash Value in each Division
bears to the total Cash Value of the Policy minus the Cash Value in the Loan
Account.

Effect of Policy Loans. A loan taken from, or secured by, a Policy may have
Federal income tax consequences (See "Federal Tax Matters," page 36.)

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

In addition, if the Indebtedness exceeds the Cash Value on any Monthly
Anniversary, the Policy may lapse, subject to a grace period. (See "Charges and
Deductions," page 27.) A sufficient payment must be made within the later of
the grace period of 62 days from the Monthly Anniversary immediately before the
date Indebtedness exceeds the Cash Value, or 31 days after notice that the
Policy will terminate without a sufficient payment has been mailed, or the
Policy will lapse and terminate without value. A lapsed Policy, however, may
later be reinstated. (See "Payment and Allocation of Premiums--Policy Lapse and
Reinstatement," page 15.)

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

Repayment of Indebtedness. A Policy Loan may be repaid in whole or in part at
any time prior to the death of the Insured and as long as a Policy is in
effect. All repayments should be made directly to the

22
<PAGE>

Company at its Home Office. Amounts paid while a Policy Loan is outstanding
will be treated as premiums unless the Owner requests in writing that they be
treated as repayment of Indebtedness. When a loan repayment is made, an amount
securing the Indebtedness in the Loan Account equal to the loan repayment will
be transferred to the Divisions of the Separate Account in the same proportion
that Cash Value in the Loan Account bears to the Cash Value in each Loan
Subaccount.

SURRENDER AND PARTIAL WITHDRAWALS

At any time during the lifetime of the Insured and while a Policy is in
force, the Owner may surrender, or make a partial withdrawal under, the Policy
by sending a written request to the Company. The amount available upon
surrender is the Cash Surrender Value (described below) at the end of the
Valuation Period during which the surrender request is received at the
Company's Home Office. Amounts payable upon surrender or a partial withdrawal
ordinarily will be paid within seven days of receipt of the written request.
(See "General Matters Relating to the Policy--Postponement of Payments," page
30.) Surrenders and partial withdrawals may have Federal income tax
consequences. (See "Federal Tax Matters," page 36.)

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

Partial Withdrawals. After the first Policy Year, an Owner may make up to one
partial withdrawal each Policy Month from the Separate Account. The minimum
amount of a partial withdrawal, net of any transaction charges, is at least
$500. The minimum amount that can be withdrawn from a Division is $50, or the
Policy's Cash Value in a Division, if smaller. The maximum amount that may be
withdrawn, including the partial withdrawal transaction charge, is the Loan
Value. The partial withdrawal transaction charge is equal to the lesser of $25
or two percent of the amount withdrawn. The Owner may allocate the amount
withdrawn, subject to the above conditions, among the Divisions of the Separate
Account. If no allocation is specified, then the partial withdrawal will be
allocated among the Divisions of the Separate Account in the same proportion
that the Policy's Cash Value in each Division bears to the total Cash Value of
the Policy, less the Cash Value in the Loan Account, on the date the request
for the partial withdrawal is received.

A partial withdrawal will decrease the Face Amount in two situations. First,
if the death benefit Option A is in effect and the death benefit equals the
Face Amount then the partial withdrawal will decrease the Face Amount, and,
thus, the death benefit by an amount equal to the partial withdrawal plus the
partial withdrawal transaction charge. Second, if the death benefit equals a
percentage of Cash Value (whether Option A or Option B is in effect), then a
partial withdrawal will decrease the Face Amount by the amount that the partial
withdrawal plus the partial withdrawal transaction charge exceeds the
difference between the death benefit and the Face Amount. The death benefit
also will be reduced in this circumstance. If Option B is in effect and the
death benefit equals the Face Amount plus the Cash Value, the partial
withdrawal will not reduce the Face Amount, but it will reduce the Cash Value
and, thus, the death benefit by the amount of the partial withdrawal plus the
partial withdrawal transaction charge. The Face Amount will be decreased in the
following order: (1) the Face Amount at issue; and (2) any increases in the
same order in which they were issued.

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

23
<PAGE>

The Face Amount remaining in force after a partial withdrawal may not be less
than $25,000. Any request for a partial withdrawal that would reduce the Face
Amount below this amount will not be 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 "Policy Benefits--Death Benefit--Methods of Affecting Insurance
Protection," page 19.)

TRANSFERS

Under the Company's current rules, a Policy's Cash Value, except amounts
credited to the Loan Account, may be transferred among the Divisions of the
Separate Account. Requests for transfers from or among Divisions of the
Separate Account must be made in writing directly to the Company and may be
made once each Policy Month. Transfers must be in amounts of at least $250 or,
if smaller, the Policy's Cash Value in a Division. The Company will effectuate
transfers and determine all values in connection with transfers as of the end
of the Valuation Period during which the transfer request is received.

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

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

RIGHT TO EXAMINE POLICY

The Owner may cancel a Policy within 20 days after receiving it, within 45
days after the Owner signed the application, or within 10 days of mailing a
notice of the cancellation right to the Owner, whichever is latest. If a Policy
is cancelled within this time period, a refund will be paid. The refund will
equal all premiums paid under the Policy.

To cancel the Policy, the Owner should mail or deliver the Policy directly to
the Company. A refund of premiums paid by check may be delayed until the check
has cleared the Owner's bank. (See "General Matters Relating to the Policy--
Postponement of Payments," page 30.)

A request for an increase in Face Amount (see "Policy Benefits--Death
Benefit," page 16) also may be cancelled. The request for cancellation must be
made within the latest of 20 days from the date the Owner received the new
Policy specifications pages for the increase, 10 days of mailing the right to
cancellation notice to the Owner, or 45 days after the Owner signed the
application for the increase.

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

CONVERSION RIGHT TO A FIXED BENEFIT POLICY

Once during the first 24 Policy Months following the Issue Date of the
Policy, the Owner may, upon written request, convert a Policy still in force to
a life insurance policy that provides for benefits that do not

24
<PAGE>

vary with the investment return of the Divisions of the Separate Account. In
the event a Certificate has been amended to operate as an Individual Policy
following an Insured's change in eligibility under a Group Contract, the
conversion right will be measured from the Issue Date of the original
Certificate. (See "Policy Rights and Privileges--Eligibility Change
Conversion," below). No evidence of insurability will be required when this
right is exercised. However, the Company will require that the Policy be in
force and that the Owner repay any existing Indebtedness. At the time of the
conversion, the new Policy will have, at the Owner's option, either the same
death benefit or the same net amount at risk as the original Policy. The new
Policy will also have the same Issue Date and Issue Age as the original Policy.
The premiums for the new Policy will be based on the Company's rates in effect
for the same Issue Age and rate class as the original Policy.

In addition, once during the first 24 Policy Months following the effective
date of a requested increase in Face Amount (i.e., an increase that is not the
result of a change in death benefit options), the Owner may, upon written
request, convert the amount of the increase in Face Amount to a life insurance
policy which also provides for fixed benefits. Premiums under this new contract
will be based on the Company's rates in effect for the same Issue Age and rate
class of the Insured as were applied on the effective date of the increase in
the Face Amount. The conditions and principles, described above, which are
applicable to a conversion of the entire Policy, will be equally applicable to
the conversion of an increase in Face Amount to a fixed-benefit policy.

ELIGIBILITY CHANGE CONVERSION

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

If a Certificate was issued under the Group Contract, the Certificate will be
amended automatically so that it will continue in force as an Individual
Policy. The rights, benefits, and guaranteed charges will not be altered by
this amendment. The amendment will be mailed to the Owner within 31 days after
the Company receives written notice that (a) the employee's employment ended or
(b) after the termination of the Group Contract. If, at the time the conversion
occurs, the Policy is in a grace period (see "Payment and Allocation of
Premiums--Policy Lapse and Reinstatement," page 15), any premium necessary to
prevent the Policy from lapsing must be paid to the Company at its Home Office
before the new Individual Policy will be mailed. A new planned premium schedule
will be established which will have the same planned annual premium utilized
under the Group Contract, but, ordinarily, the planned payment intervals will
be no more frequent than quarterly. The Company may allow payment of planned
premium through periodic (usually monthly) authorized electronic funds
transfer. Of course, unscheduled premium payments can be made at any time. (See
"Payment and Allocation of Premiums--Premiums," page 14.)

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

When an employee's spouse is the Insured under a Policy, the spouse's
insurance coverage also will continue in the event the employee is no longer
eligible. If a Certificate was originally issued to the employee's spouse, the
Certificate will be amended automatically as described above. If an Individual
Policy was originally issued, the Individual Policy will continue as described
above. In addition, if an Associated Company ceases be to under common control
with the Contractholder, the Insureds of the Associated Company (i.e.,
employees of the Associated Company and their spouses) may continue their
insurance in the manner described above.

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<PAGE>

PAYMENT OF BENEFITS AT MATURITY

If the Insured is living and the Policy is in force, the Company will pay the
Cash Surrender Value of the Policy to the Owner on the Maturity Date. An Owner
may elect to have amounts payable on the Maturity Date paid in a single sum or
under a settlement option. (See "Policy Rights and Privileges--Payment of
Policy Benefits," page 26.) Amounts payable on the Maturity Date ordinarily
will be paid within seven days of that date, although payment may be postponed
under certain circumstances. (See "General Matters Relating to the Policy--
Postponement of Payments," page 30.) A Policy will mature if and when the
Insured reaches Attained Age 95.

PAYMENT OF POLICY BENEFITS

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

Settlement Options. The settlement options described below apply to the
payment of death benefit proceeds, as well as to benefits payable at maturity.
These are examples of options that may be available. Once a settlement option
is in effect, there will no longer be value in the Separate Account. The
Company may make other settlement options available in the future.

Option A--Life Income. The Company will pay equal monthly payments that will
be made for the payee's lifetime.

Option B--Life Income for Two Lives. The Company will pay monthly
installments jointly and to two named payees if both are living when the
installments become payable. One payee will be designated as primary payee.
Full installments will continue so long as the primary payee is living. If the
primary payee dies after installments begin, full installments or installments
of 1/2 or 2/3 (whichever the Owner elected when applying for this option) will
continue to the other payee during his or her lifetime.

Option C--Income for Specified Number of Years and Life Thereafter. The
Company will pay monthly installments beginning on the effective date of the
option and continuing for 5, 10, 15 or 20 years certain, as may be chosen, and
after that during the payee's lifetime.

Option D--Life Income With Cash Refund. The Company will pay equal monthly
installments as long as the payee lives. If the payee dies before the total
amounts paid equal the proceeds applied, the Company pays the difference in one
sum.

Option E--Installments of a Specified Amount. The Company will pay
installments at dates and in amounts chosen by the payee with the Company's
approval. The Company will continue to make payments until all of the proceeds,
with interest, are paid. The final payment will not exceed the unpaid balance.

Option F--Income for Specified Number of Years. The Company will pay monthly
installments beginning on the effective date of the option and continuing for a
specified number of years, not to exceed 30 years.

Option G--Interest. The Company will hold the proceeds on deposit during the
payee's lifetime or for any other period selected with the Company's approval.
Interest may be accumulated or received in monthly, quarterly, semiannual, or
annual payments, as elected. The proceeds may be withdrawn at any time upon
request. Interest begins to accrue as of the date of death, for death benefit
proceeds; the Maturity Date, for benefits payable upon maturity of a Policy;
and the date a request for surrender is received, for surrender of a Policy.

The Company may, from time to time, offer additional settlement options
and/or more favorable settlement option rates to all Insureds or Beneficiaries
under the Policies.

Accelerated Death Benefits. The Company offers certain riders which permit
the Owner to elect to receive an accelerated payment of the Policy's death
benefit in a reduced amount under certain circumstances. (See "General Matters
Relating to the Policy--Additional Insurance Benefits," page 32.)

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<PAGE>

CHARGES AND DEDUCTIONS

Charges will be deducted in connection with the Policies to compensate the
Company for providing the insurance benefits set forth in the Policies and any
additional benefits added by rider, administering the Policies, incurring
expenses in distributing the Policies, and assuming certain risks in connection
with the Policies.

SALES CHARGES

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

In addition, as a result of OBRA, insurance companies are generally required
to capitalize and amortize certain policy acquisition expenses over a ten year
period rather than currently deducting such expenses. A higher capitalization
expense applies to the deferred acquisition expenses of Policies that are
deemed to be individual contracts under OBRA and will result in a significantly
higher corporate income tax liability for the Company in early Policy Years.
Thus, under Policies that are deemed to be individual contracts under OBRA, the
Company makes an additional charge of 1% of each premium payment to compensate
the Company for the anticipated higher corporate income taxes that result from
the sale of such a Policy. Among other possible employer-sponsored programs,
Corporate Program Policies are deemed to be individual contracts. This
additional charge is treated as a sales load for purposes of determining
compliance with the limitations on sales loads imposed by the Investment
Company Act of 1940 and applicable regulations thereunder.

The premium payment less the premium expense charge less any charge to
compensate the Company for anticipated higher corporate income taxes resulting
from the sale of a Policy less the premium tax charge (described below) equals
the net premium.

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

The sales charges may not be sufficient to cover the distribution expenses
incurred by the Company. The Company expects to recover any deficiency from its
general assets, which may include profits from the mortality and expense risk
charge.

PREMIUM TAX CHARGE

Various states and subdivisions impose a tax on premiums received by
insurance companies. Premium taxes vary from jurisdiction to jurisdiction. To
cover these premium taxes, the Company deducts a charge of 2 percent from all
Policies.

MONTHLY DEDUCTION

Charges will be deducted monthly from the Cash Value of each Policy ("monthly
deduction") to compensate the Company for (a) certain administrative costs; (b)
insurance underwriting and acquisition expenses in connection with issuing a
Policy; (c) the cost of insurance; and (d) the cost of optional benefits added
by rider. The monthly deduction will be deducted on the Investment Start Date
and on each succeeding Monthly Anniversary. It will be allocated among each
Division of the Separate Account in the same proportion that a Policy's Cash
Value in each Division bears to the total Cash Value of the Policy, less the
Cash Value in the Loan Account, on the date the deduction is made. Because
portions of the monthly deduction, such as the cost of insurance, can vary from
month to month, the monthly deduction itself will vary in amount from month to
month.

Monthly Administrative Charge. The Company has responsibility for the
administration of the Policies and the Separate Account. Administrative
expenses include premium billing and collection, recordkeeping, processing
death benefit claims, cash surrenders, partial withdrawals, Policy changes,
reporting and overhead

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<PAGE>

costs, processing applications, and establishing Policy records. As
reimbursement for administrative expenses related to the maintenance of each
Policy and the Separate Account, the Company assesses a monthly administration
charge from each Policy. The amount of this charge is set forth in the
specifications pages of the Policy and depends on the number of employees
eligible to be covered at issue of a Group Contract or an employer-sponsored
insurance program. The following table sets forth the general range of monthly
administrative charges under the Policy:

<TABLE>
<CAPTION>
ELIGIBLE EMPLOYEES FIRST YEAR SUBSEQUENT YEARS
------------------ ---------- ----------------
<S> <C> <C>
250-499....................... $5.00......................... $2.50
500-999....................... $4.75......................... $2.25
1000+......................... $4.50......................... $2.00
</TABLE>

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

These charges, once established at the time a Policy is issued, are
guaranteed not to increase over the life of the Policy. Nor will the
administrative charge change in the event that the Insured is no longer
eligible for group coverage, but continues coverage on an individual basis. The
Company has designed the administrative charge so as not to make any profit on
the charge. In addition, where the Company believes that lower administrative
costs will be incurred in connection with a particular Group Contract or
employer-sponsored insurance program due to the number of eligible employees or
administrative support provided by the employer, the Company may modify the
above schedule for that Group Contract or other employer-sponsored insurance
program. The amount of the administrative charge applicable to a particular
Policy will be set forth in specifications pages for that Policy.

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

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

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

If gender mix is a factor, the Company will estimate the gender mix of the
pool of Insureds under a Group Contract or employer-sponsored insurance program
upon issuance of the Contract. Each year on the Group Contract or employer-
sponsored insurance program's anniversary, the Company may adjust the rate to
reflect the actual gender mix for the particular group. In the event that the
Insured's eligibility under a

28
<PAGE>

Group Contract (or other employer-sponsored insurance program) ceases, the cost
of insurance rate will continue to reflect the gender mix of the pool of
Insureds at the time the Insured's eligibility ceased. However, at some time in
the future, the Company reserves the right to base the gender mix and rate
class on the group consisting of those Insureds who are no longer under a Group
Contract or employer-sponsored program.

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

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

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

Because the calculation of the net amount at risk is different under Option A
and Option B when more than one rate class is in effect, a change in the death
benefit option may result in a different net amount at risk for each rate class
than would have occurred had the death benefit option not been changed. Since
the cost of insurance is calculated separately for each rate class, any change
in the net amount at risk resulting from a change in the death benefit option
may affect the total cost of insurance paid by the Owner.

Partial withdrawals and decreases in Face Amount will affect the manner in
which the net amount at risk for each rate class is calculated. (See "Policy
Benefits--Death Benefit," page 16, and "Policy Rights and Privileges--Surrender
and Partial Withdrawals," page 22.)

Additional Insurance Benefits. The monthly deduction will include charges for
any additional benefits provided by rider. (See "General Matters Relating to
the Policy--Additional Insurance Benefits," page 32.)

PARTIAL WITHDRAWAL TRANSACTION CHARGE

A transaction charge which is the lesser of $25 or two percent of the amount
withdrawn will be assessed on each partial withdrawal.

SEPARATE ACCOUNT CHARGES

Mortality and Expense Risk Charge. The Company will deduct a daily charge
from the Separate Account at a rate not to exceed .0024547% of the net assets
of each Division of the Separate Account, which equals an annual rate of .90%
of those net assets. The Company may realize a profit from this charge.

29
<PAGE>

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

Federal Taxes. Currently no charge is made to the Separate Account for
Federal income taxes that may be attributable to the Separate Account. The
Company may, however, make such a charge in the future. Charges for other
taxes, if any, attributable to the Account may also be made. (See "Federal Tax
Matters," page 36.)

Expenses of VIP. The value of the net assets of the Separate Account will
reflect the investment advisory fee and other expenses incurred by VIP. (See
"Variable Insurance Products Funds," page 10.)

GENERAL MATTERS RELATING TO THE POLICY

POSTPONEMENT OF PAYMENTS

Payment of any amount due from the Separate Account upon surrender, partial
withdrawals, election of an accelerated death benefit under a rider, death of
the Insured, or the Maturity Date, as well as payments of a Policy loan and
transfers, may be postponed whenever: (i) the New York Stock Exchange is closed
other than customary weekend and holiday closings, or trading on the New York
Stock Exchange is restricted as determined by the SEC; (ii) the SEC by order
permits postponement for the protection of Owners; or (iii) an emergency
exists, as determined by the SEC, as a result of which disposal of securities
is not reasonably practicable or it is not reasonably practicable to determine
the value of the Separate Account's net assets.

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

THE CONTRACT

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

CONTROL OF POLICY

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

BENEFICIARY

The Beneficiary(ies) is (are) the person(s) specified in the application or
by later designation. Unless otherwise stated in the Policy, the Beneficiary
has no rights in a Policy before the death of the Insured. If

30
<PAGE>

there is more than one Beneficiary at the death of the Insured, each will
receive equal payments unless otherwise provided by the Owner. If no
Beneficiary is living at the death of the Insured, the proceeds will be payable
to the Owner or, if the Owner is not living, to the Owner's estate.

CHANGE OF OWNER OR BENEFICIARY

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

POLICY CHANGES

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

CONFORMITY WITH STATUTES

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

CLAIMS OF CREDITORS

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

INCONTESTABILITY

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

ASSIGNMENT

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

SUICIDE

Suicide within two years of the Issue Date is not covered by the Policy. If
the Insured dies by suicide, while sane or insane, within two years from the
Issue Date (or within the maximum period permitted by the

31
<PAGE>

laws of the state in which the Policy was delivered, if less than two years),
the amount payable will be limited to premiums paid, less any partial
withdrawals and outstanding Indebtedness. If the Insured, while sane or insane,
dies by suicide within two years after the effective date of any increase in
Face Amount, the death benefit for that increase will be limited to the amount
of the monthly deductions for the increase.

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

MISSTATEMENT OF AGE AND CORRECTIONS

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

Any payment or Policy changes made by the Company in good faith, relying on
its records or evidence supplied with respect to such payment, will fully
discharge the Company's duty. The Company reserves the right to correct any
errors in the Policy.

ADDITIONAL INSURANCE BENEFITS

Subject to certain requirements, one or more of the following additional
insurance benefits may be added to a Policy by rider. However, some Group
Contracts, employer-sponsored insurance programs, Executive Programs, or
Corporate Programs may not offer each of the additional benefits described
below. Certain riders may not be available in all states. In addition, should
it be determined that the tax status of a Policy as life insurance is adversely
affected by the addition of any of these riders, the Company will cease
offering such riders. The descriptions below are intended to be general; the
terms of the Policy riders providing the additional benefits may vary from
state to state, and the Policy should be consulted. The cost of any additional
insurance benefits will be deducted as part of the monthly deduction. (See
"Charges and Deductions--Monthly Deduction," page 27.)

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

Accidental Death Benefit Rider. Provides additional insurance if the
Insured's death results from accidental bodily injury, as defined in the rider.
Under the terms of the rider, the additional benefits provided in the Policy
will be paid upon receipt of proof by the Company that death resulted directly
from accidental injury and independently of all other causes; occurred within
120 days from the date of injury; and occurred before the Policy Anniversary
nearest age 70 of the Insured.

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

HIV Acceleration of Death Benefits Rider. Provides for the Owner's election
for the Company to make an accelerated payment, prior to the death of the
Insured upon receipt of satisfactory evidence that the Insured has tested
seropositive for the human immunodeficiency virus ("HIV") after both the Policy
and rider are issued. The Company will pay the Policy's death benefit (less any
Indebtedness and any term insurance added by riders), calculated on the date
that the Company receives satisfactory evidence that the Insured has tested
seropositive for HIV, reduced by a $100 administrative processing fee. The
Company will pay the accelerated benefit to the Owner in a single payment in
full settlement of the Company's obligations

32
<PAGE>

under the Policy. The rider may be added to the Policy only after the Insured
satisfactorily meets certain underwriting requirements which will generally
include a negative HIV test result to a blood or other screening test
acceptable to the Company.

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

Accelerated Death Benefit Settlement Option Rider. Provides for the
accelerated payment of a portion of death benefit proceeds in a single sum to
the Owner if the Insured is terminally ill or permanently confined to a nursing
home. Under the rider, which is available at no additional cost, the Owner may
make a voluntary election to completely settle the Policy in return for the
Company's accelerated payment of a reduced death benefit. The Owner may make
such an election under the rider if the Insured (1) has a life expectancy of 12
months or less or (2) is permanently confined to a qualified nursing home and
is expected to remain there until death. Any irrevocable beneficiary and
assignees of record must provide written authorization in order for the Owner
to receive the accelerated benefit.

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

The Federal income tax consequences associated with (i) adding the
Accelerated Death Benefit Settlement Option Rider or (ii) receiving the
benefits provided under such rider are uncertain. Accordingly, we urge you to
consult a tax adviser about such consequences before adding the Accelerated
Death Benefit Settlement Option Rider to your Policy or requesting a benefit
under the rider.

RECORDS AND REPORTS

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

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

DISTRIBUTION OF THE POLICIES

Walnut Street Securities, Inc. ("Walnut Street") acts as principal
underwriter of the Policies pursuant to an Underwriting Agreement with the
Company. Walnut Street is a wholly-owned subsidiary of General American Holding
Company, which is an affiliate of the Company. Walnut Street is registered with
the SEC under the Securities Exchange Act of 1934 as a broker-dealer and is a
member of the National Association of Securities Dealers. The Policies will be
sold by broker-dealers who have entered into written sales agreements with
Walnut Street.

33
<PAGE>

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

Walnut Street received $8,024 in commissions for the year ended December 31,
1994, and $9,782 for the year ended December 31, 1995.

GENERAL PROVISIONS OF THE GROUP CONTRACT

ISSUANCE

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

PREMIUM PAYMENTS

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

GRACE PERIOD

If the Contractholder does not remit planned premium payments in a timely
fashion, the Group Contract will be in default. A grace period of 31 days
begins on the date that the planned premiums were scheduled to be remitted. If
the Contractholder does not remit premiums prior to the end of the grace
period, the Group Contract will terminate. However, the Individual Insurance
will continue following the Group Contract's termination, provided such
insurance is not surrendered or cancelled by the Owner. (See "Policy Rights and
Privileges--Eligibility Change Conversion," page 25.)

TERMINATION

Except as described in "Grace Period" above, the Group Contract will be
terminated immediately upon default. In addition, the Company may end a Group
Contract or any of its provisions on 31 days notice. If the Group Contract
terminates, any Policies in effect will remain in force on an individual basis,
unless such insurance is surrendered or cancelled by the Owner. New Policies
will be issued as described in "Policy Rights and Privileges--Eligibility
Change Conversion," page 25.

34
<PAGE>

RIGHT TO EXAMINE GROUP CONTRACT

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

ENTIRE CONTRACT

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

INCONTESTABILITY

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

OWNERSHIP OF GROUP CONTRACT

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

35
<PAGE>

FEDERAL TAX MATTERS

INTRODUCTION

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

TAXATION OF THE POLICY

Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code")
sets forth a definition of a life insurance contract for Federal tax purposes.
Although the Secretary of the Treasury (the "Treasury") is authorized to
prescribe regulations implementing Section 7702, while proposed regulations and
other interim guidance has been issued, final regulations have not been
adopted. In short, guidance as to how Section 7702 is to be applied is limited.
The Company nonetheless believes (largely in reliance on IRS Notice 88-128 and
the proposed regulations under Section 7702, issued on July 5, 1991) that the
Policy should meet the Section 7702 definition of a life insurance contract. If
a Policy were determined not to be a life insurance contract for purposes of
Section 7702, such Policy would not provide the tax advantages normally
provided by a life insurance policy. Therefore, if it is subsequently
determined that a Policy does not satisfy section 7702, the Company will take
whatever steps are appropriate and necessary to attempt to cause such Policy to
comply with section 7702, including possibly refunding any premiums paid that
exceed the limitations allowable under section 7702 (together with interest or
other earnings on any such premiums refunded as required by law). For these
reasons, the Company reserves the right to modify the Policy as necessary to
attempt to qualify it as a life insurance contract under section 7702.

Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of each Division of the Separate
Account to be "adequately diversified" in order for the Policy to be treated as
a life insurance contract for Federal tax purposes. Although the Company does
not control VIP or its investments, VIP has represented that it intends to
comply with the diversification requirements prescribed by the Treasury in Reg.
section 1.817-5. Thus, the Company believes that each Division of the Separate
Account, through VIP, will be in compliance with the requirements prescribed by
the Treasury.

The IRS has stated in published rulings that a variable contract owner will
be considered the owner of separate account assets, for federal income tax
purposes, if the contract owner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. If
that were to be determined to be the case, income and gains from the separate
account assets would be includible in the variable contract owner's gross
income. The Treasury Department has also announced, in connection with the
issuance of regulations concerning diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor (i.e., the
Owner), rather than the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
owners of the underlying assets." As of the date of this prospectus, no
significant guidance has been issued.

The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Owner has additional flexibility in allocating Premium payments
and Policy Values. These differences could result in an Owner being treated as
the owner of a pro rata portion of the assets of the Separate Account. In
addition, the Company does not know what standards will be set forth, if

36
<PAGE>

any, in the regulations or rulings which the Treasury Department has stated it
expects to issue. The Company therefore reserves the right to modify the Policy
as necessary to attempt to prevent an Owner from being considered the owner of
a pro rata share of the assets of the Separate Account.

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

TAX TREATMENT OF POLICY BENEFITS

1. IN GENERAL. As a life insurance contract, the proceeds and cash value
increases of a Policy should be treated in a manner consistent with a fixed-
benefit life insurance policy for Federal income tax purposes. Thus, the death
benefit under the Policy should be excludable from the gross income of the
Beneficiary under section 101(a)(1) of the Code.

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

The Federal income tax consequences associated with (i) adding either the HIV
Acceleration of Death Benefit Rider or the Accelerated Death Benefit Settlement
Option Rider (the "Riders") or (ii) receiving the benefits provided under these
Riders are uncertain. Accordingly, we urge you to consult a tax adviser before
adding either Rider to your Policy or requesting a benefit under such Riders.

The Policies may be used in various arrangements, such as nonqualified
deferred compensation or salary continuance plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of such Policies in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement.

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

2. POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. In general, a Policy
will be a modified endowment contract if the accumulated premiums paid at any
time during the first seven policy years exceeds the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. Further, a Policy that is not otherwise a modified endowment contract
may become a modified endowment contract if it is "materially changed." The
determination whether a Policy will be a modified endowment contract after a
material change generally depends upon the relationship of the death benefit
and the cash value at the time of such change and the additional premiums paid
in the seven years following the material change.

Due to the Policy's flexibility, classification as a modified endowment
contract will depend on the individual circumstances of each Policy. Moreover,
the rules relating to whether a Policy will be treated as a modified endowment
contract are extremely complex. Therefore, a current or prospective Policy
owner is

37
<PAGE>

strongly advised to retain and consult with a competent advisor before
purchasing a Policy, making an unscheduled premium payment on an existing
Policy or making any change in an existing Policy, to determine whether the
Policy will be treated as a modified endowment contract.

The Company has adopted administrative steps designed to protect a
Policyowner against inadvertently having the Policy become a modified endowment
contract. Although the Company cannot provide complete assurance at this time
that a Policy will not inadvertently become a modified endowment contract, it
is continuing its efforts to enhance its administrative systems to
automatically monitor potential modified endowment classifications.

3. DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
Policies classified as modified endowment contracts will be subject to the
following tax rules: First, all distributions, including distributions upon
surrender and benefits paid at maturity, from such a Policy are treated as
ordinary income subject to tax up to the amount equal to the excess (if any) of
the cash value immediately before the distribution over the investment in the
Policy (described below) at such time. Second, loans taken from, or secured by,
such a Policy (as well as due but unpaid interest that is added to the loan
amount) are treated as distributions from such a Policy and taxed accordingly.
Third, a 10 percent additional income tax is imposed on the portion of any
distribution from, or loan taken from or secured by, such a Policy that is
included in income except where the distributions or loan is made on or after
the Policy owner attains age 59 1/2, is attributable to the Policy owner's
becoming disabled, or is part of a series of substantially equal periodic
payments for the life (or life expectancy) of the Policy owner or the joint
lives (or joint life expectancies) of the Policy owner and the Policy owner's
Beneficiary.

If a Policy becomes a modified endowment contract after it is issued,
distributions made during the policy year in which it becomes a modified
endowment contract, distributions in any subsequent policy year and
distributions within two years before the Policy becomes a modified endowment
contract will be subject to the tax treatment described above. This means that
a distribution from a Policy that is not a modified endowment contract could
later become taxable as a distribution from a modified endowment contract.

4. DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT
CONTRACTS. Distributions from a Policy that is not a modified endowment
contract, and which is not materially changed, or, if materially changed, is
not classified as a modified endowment contract after such material change, are
generally treated as first recovering the investment in the Policy (described
below) and then, only after the return of all such investment in the Policy, as
distributing taxable income. An exception to this general rule occurs in the
case of a decrease in the Policy's death benefit (e.g., partial withdrawal or a
change from Option B to Option A) or any other change that reduces benefits
under the Policy in the first 15-years after the Policy is issued and that
results in a cash distribution to the Policy owner in order for the Policy to
continue complying with the section 7702 definitional limits. Such a cash
distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in section 7702.

Loans from, or secured by, a Policy that is not a modified endowment contract
are not treated as distributions. Instead, such loans are treated as
indebtedness of the Owner.

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

5. POLICY LOAN INTEREST. If there is any borrowing against a Policy, the
interest paid on the loan may not be tax deductible. A Policyowner should
consult a qualified tax adviser before deducting interest on a policy loan.

6. INVESTMENT IN THE POLICY. Investment in the Policy means (i) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (ii) the
aggregate amount received under the Policy which is excluded from gross income
of the Policy owner (except that the amount of any loan from, or secured by, a
Policy that is a modified endowment contract, to the extent such amount is
excluded from gross income, will be disregarded), plus (iii) the amount of any
loan from, or secured by, a Policy that is a modified endowment contract to the
extent that such amount is included in the gross income of the Owner.

38
<PAGE>

7. MULTIPLE POLICIES. All modified endowment contracts that are issued by the
Company (or its affiliates) to the same Policy owner during any calendar year
are treated as one modified endowment contract for purposes of determining the
amount includible in gross income.

POSSIBLE CHARGE FOR TAXES

At the present time, the Company makes no charge to the Separate Account for
any Federal, state or local taxes the Company incurs that may be attributable
to the Separate Account or to the Policies. The Company, however, reserves the
right in the future to make a charge for any such tax or other economic burden
resulting from the application of the tax laws that it determines to be
properly attributable to the Separate Account or to the Policies.

SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS

The Company 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 VIP
shares by each of the Divisions. Additional protection for the assets of the
Separate Account is afforded by a blanket fidelity bond issued by Reliance
Insurance Company in the amount of $5 million, covering all officers and
employees of the Company who have access to the assets of the Separate Account.

VOTING RIGHTS

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

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

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

Disregard of Voting Instructions. The Company may, when required by state
insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
subclassification or investment objective of or one or more of the Funds or to
approve or disapprove an investment advisory contract for a Fund. In addition,
the Company itself may disregard voting

39
<PAGE>

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

STATE REGULATION OF THE COMPANY

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

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.

40
<PAGE>

MANAGEMENT OF THE COMPANY

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME DURING PAST FIVE YEARS*
---- -----------------------
<C> <S>
EXECUTIVE OFFICERS**
Carl H. Anderson@ President and Chief Executive Officer since June, 1986, and
Vice President, New Ventures, since June 1986, General
American Life Insurance Co., St. Louis, Mo. (GenAm).
Steven D. Anderson Vice President and Chief Financial Officer since December,
1993. Formerly, Assistant Vice President and Chief Financial
Officer August, 1990-December, 1993.
E. Thomas Hughes, Jr.@ Treasurer since December, 1994. Corporate Actuary and
General American Life Treasurer, GenAm since October, 1994. Executive Vice
Insurance Company President-Group Pensions, GenAm January, 1990-October, 1994.
700 Market Street
St. Louis, MO 63101
Matthew P. McCauley@ Vice President and General Counsel since 1984. Secretary
General American Life since February, 1991. Associate General Counsel, GenAm,
Insurance Company since August, 1984.
700 Market Street
St. Louis, MO 63101
Craig K. Nordyke@ Vice President and Chief Actuary since August, 1990.
Formerly, Second Vice President and Chief Actuary, May,
1987-August, 1990.
George E. Phillips Vice President--Operations and System Development since
January, 1995. Formerly, Senior Vice President, Fortis, Inc.
July, 1991-August, 1994. Vice President, Mutual Benefit
prior to July, 1991.
DIRECTORS***
Richard A. Liddy President and Chief Executive Officer, GenAm, since May,
1992. President and Chief Operating Officer, GenAm, May,
1998-May, 1992.
Leonard M. Rubenstein Executive Vice President--Investments, GenAm, since
February, 1991. Vice President and Treasurer, Securities,
GenAm, November, 1984-February, 1991.
Warren J. Winer Executive Vice President--Group, Gen Am, since September,
1995. Formerly, Managing Director, Wm. M. Mercer, July,
1993-August, 1995; President, W F Corroon, September, 1990-
July, 1993.
Bernard H Wolzenski Executive Vice President--Individual, GenAm, since November,
1991. Vice President--Life Product Management, GenAm, May,
1989-November, 1991.
A. Greig Woodring President, Reinsurance Group of America, Inc., since May,
1993. Formerly, Executive Vice President--Reinsurance,
GenAm, since January, 1990.
</TABLE>
- --------
*All positions listed are with the Company unless otherwise indicated.
**The principal business address of each person listed is Paragon Life
Insurance Company, 100 South Brentwood, St. Louis, Missouri 63105 unless
otherwise noted.
***The principal business address of each person listed is General American
Life Insurance Company, 700 Market Street, St. Louis, MO 63101, except A.
Greig Woodring-Reinsurance Group of America, 660 Mason Ridge Center Drive,
St. Louis, MO 63141.
@Indicates Executive Officers who are also Directors.

41
<PAGE>

LEGAL MATTERS

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

LEGAL PROCEEDINGS

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

EXPERTS

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

The report of KPMG Peat Marwick LLP covering the financial statements of the
Company contains an explanatory paragraph which states that the financial
statements are presented in conformity with accounting practices prescribed or
permitted by the State of Missouri Department of Insurance. These practices
differ in some respects from generally accepted accounting principles. The
financial statements do not include any adjustments that might result from the
differences.

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

ADDITIONAL INFORMATION

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

FINANCIAL STATEMENTS

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

42
<PAGE>

LOGO

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Paragon Life Insurance Company:

We have audited the accompanying statutory statements of admitted assets,
liabilities, and capital and surplus of Paragon Life Insurance Company as of
December 31, 1995 and 1994, and related statutory statements of operations,
capital and surplus, and cash flow for each of the years in the three-year
period ended December 31, 1995. These statutory financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these statutory 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.

As described in note 2, the accompanying financial statements have been
prepared in conformity with accounting practices prescribed or permitted by the
State of Missouri Department of Insurance. These practices differ in some
respects from generally accepted accounting principles. Accordingly, the
financial statements referred to above are not intended to present, and in our
opinion do not present fairly, the financial position, results of operations,
and cash flow in conformity with generally accepted accounting principles.

Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the admitted assets, liabilities, and capital
and surplus of Paragon Life Insurance Company as of December 31, 1995 and 1994,
and the results of its operations and its cash flow for each of the years in
the three-year period ended December 31, 1995, on the basis of accounting
described in note 2.

KPMG Peat Marwick LLP

February 16, 1996

F-1
<PAGE>

PARAGON LIFE INSURANCE COMPANY

STATUTORY STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
CASH FLOW PROVIDED FROM OPERATING ACTIVITIES:
Cash received:
Premiums and considerations....................... $36,612 29,478 20,416
Allowances and reserve adjustments on reinsurance
ceded............................................ 99 125 127
Investment income received, net of related
expenses......................................... 4,252 3,697 2,825
Other income...................................... 347 75 --
------- ------ ------
Total cash received from operating activities... 41,310 33,375 23,368
------- ------ ------
Total benefits, operating charges paid and
transfers:
Life and other benefits paid...................... 9,315 7,627 3,583
Operating charges--commissions, other expenses and
taxes (excluding Federal income tax)............. 7,678 6,319 5,850
Federal income taxes received..................... (93) (121) (697)
Net transfers to separate account................. 14,296 10,247 5,972
------- ------ ------
Total benefits, operating charges paid and
transfers...................................... 31,196 24,072 14,708
------- ------ ------
Net increase in policy loans........................ 1,308 1,438 1,178
------- ------ ------
Net cash provided from operating activities........... 8,806 7,865 7,482
Proceeds from investments sold, matured or repaid--
bonds................................................ 3,082 4,566 8,702
Other cash provided................................... 729 707 363
------- ------ ------
Total cash provided............................. 12,617 13,138 16,547
------- ------ ------
Cost of investments acquired--bonds................... 8,462 11,613 25,447
Other cash applied.................................... 141 50 47
------- ------ ------
Total cash applied.............................. 8,603 11,663 25,494
------- ------ ------
Net increase (decrease) in cash and short term
investments.......................................... 4,014 1,475 (8,947)
Cash and short-term investments:
Beginning of year................................... 3,042 1,567 10,514
------- ------ ------
End of Year......................................... $ 7,056 3,042 1,567
======= ====== ======
</TABLE>

The accompanying notes are an integral part of the statutory financial
statements.

F-2
<PAGE>

PARAGON LIFE INSURANCE COMPANY

STATUTORY STATEMENTS OF ADMITTED ASSETS,
LIABILITIES, AND CAPITAL AND SURPLUS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
1995 1994
-------- ------
<S> <C> <C>
ADMITTED ASSETS
Bonds, at amortized cost (deposited with regulatory authori-
ties, $3,868 and $2,866 in 1995 and 1994)................... $ 56,458 51,077
Policy loans................................................. 7,206 5,418
Cash and short-term investments.............................. 7,056 3,042
Amounts recoverable from reinsurers.......................... 1,183 1,497
Investment income due and accrued............................ 1,041 885
Other assets................................................. 221 161
Separate account assets...................................... 50,194 27,311
-------- ------
Total admitted assets.................................. $123,359 89,391
======== ======
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Policy reserves--life contracts............................ 57,618 46,661
Policy reserves--without life contingencies................ 399 389
Policy claim liabilities................................... 1,096 709
Amounts due to reinsurers.................................. 833 648
Accrued expenses, commissions, taxes, licenses & fees...... 870 700
Asset valuation reserve.................................... 336 238
Interest maintenance reserve............................... 117 132
Due to parent.............................................. 945 628
Other liabilities.......................................... 858 726
Separate account liabilities............................... 49,509 26,739
-------- ------
Total liabilities...................................... 112,581 77,570
-------- ------
COMMITMENTS AND CONTINGENCIES
Capital and Surplus:
Capital stock--par value of $100 per share; 100,000 shares
authorized; 20,500 shares issued and outstanding.......... 2,050 2,050
Surplus:
Additional paid-in....................................... 17,950 17,950
Unassigned surplus....................................... (9,907) (8,751)
Assigned surplus--separate accounts...................... 685 572
-------- ------
Total capital and surplus.............................. 10,778 11,821
-------- ------
Total liabilities and capital and surplus.............. $123,359 89,391
======== ======
</TABLE>

The accompanying notes are an integral part of the statutory financial
statements.

F-3
<PAGE>

PARAGON LIFE INSURANCE COMPANY

STATUTORY STATEMENTS OF OPERATIONS, CAPITAL AND SURPLUS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Income:
Premiums and considerations......................... $36,612 29,478 20,416
Net investment income............................... 4,905 4,132 3,519
Expense allowances on reinsurance ceded............. 94 130 123
Other income........................................ 461 317 227
------- ------ ------
Total income...................................... 42,072 34,057 24,285
Policy obligations, expenses and net transfers:
Policyholder benefits............................... 10,011 6,243 3,818
Increase in policy reserves--life contracts......... 10,957 11,705 9,481
Increase in policy reserves--without life contingen-
cies............................................... 10 35 354
------- ------ ------
Total policy obligations.......................... 20,978 17,983 13,653
General insurance expenses.......................... 5,996 5,084 4,341
Commissions......................................... 523 491 715
Insurance taxes, licenses and fees.................. 1,329 1,093 697
------- ------ ------
Total expenses.................................... 7,848 6,668 5,753
------- ------ ------
Net transfers to separate account................... 14,283 10,464 5,972
------- ------ ------
Loss before Federal income tax benefit and real-
ized capital gains............................... (1,037) (1,058) (1,093)
Federal income tax benefit............................ (117) (108) (180)
------- ------ ------
Loss before realized capital gains................ (920) (950) (913)
Realized capital gains, net of tax and transfer to
IMR.................................................. -- -- 6
------- ------ ------
Net loss.......................................... (920) (950) (907)
Other changes in capital and surplus:
Increase in asset valuation reserve................. (98) (94) (74)
(Increase) Decrease in non-admitted assets.......... (25) 74 193
------- ------ ------
Total other changes in capital and surplus........ (123) (20) 119
------- ------ ------
Decrease in capital and surplus................... (1,043) (970) (788)
Capital and Surplus:
Beginning of year................................... 11,821 12,791 13,579
------- ------ ------
End of year......................................... $10,778 11,821 12,791
======= ====== ======
</TABLE>

The accompanying notes are an integral part of the statutory financial
statements.

F-4
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS

DECEMBER 31, 1995 AND 1994

(1) AFFILIATION AND GUARANTEE AGREEMENT

Paragon Life Insurance Company (Paragon) is a wholly-owned subsidiary of
General American Life Insurance Company (General American) established for the
purpose of marketing life insurance products through the sponsorship of major
companies and organizations. Paragon is licensed to do business in the District
of Columbia and in 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.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

The accompanying statutory financial statements have been prepared in
accordance with accounting practices prescribed or permitted by the Missouri
Department of Insurance, which vary in some respects from generally accepted
accounting principles (GAAP). The preparation of statutory financial statements
requires management to make estimates and assumptions which affect the reported
amounts within the statutory financial statements. Actual results could differ
from the estimated amounts. The significant statutory accounting practices and
the related differences from GAAP are as follows:

(a) Premiums on variable universal life and investment contracts under
statutory accounting practices are considered revenue when received;
whereas under GAAP, revenues for universal life and investment products
consist of policy fees that have been assessed against the account balances
for the cost of insurance, policy administration, and surrender charges.
Acquisition expenses, including commissions and other costs related to
acquiring new business, are charged to operations as incurred rather than
being deferred and amortized in relation to gross profits as required by
GAAP.

(b) Bonds are valued as prescribed by the National Association of
Insurance Commissioners (NAIC) and market values are stated at independent
dealer prices. Bonds are carried at amortized cost except for those bonds
required to be carried at values other than amortized cost in accordance
with NAIC guidelines. Accounting for bonds under GAAP would require the
bonds to be carried at amortized cost or market value depending on the
company's intent and ability to hold such investments. The Company
generally intends to hold bonds until maturity. Policy loans are stated at
their net unpaid balance.

(c) Policy reserves are based on statutory mortality and interest
assumptions without consideration for withdrawals. Policy reserves are
computed under the Commissioners Reserve Valuation Method using 5.5%
interest for policies issued from 1986 to 1993, 5.0% interest for policies
issued in 1994 and 4.5% interest for policies issued in 1995. Mortality
assumptions are based upon the 1980 Commissioners Standard Ordinary table.
These reserves differ from reserves based on account values that accrue to
policyholders on universal-life and investment product contracts under
GAAP.

(d) Federal income taxes are charged to operations based on income that
is currently taxable. Deferred income taxes are not provided for the tax
effect of temporary differences between the book and tax basis of assets
and liabilities.

F-5
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

(e) Certain assets designated as non-admitted assets (principally
furniture and equipment and computer software) have been excluded from
assets by a direct charge to surplus.

(f) An asset valuation reserve (AVR), which is a reserve for possible
losses on investments, is recorded as a liability by a direct charge to
surplus in accordance with statutory accounting practices; under GAAP, the
AVR is not maintained.

(g) Certain capital gains and losses on investment sales that resulted
from changes in the level of interest rates are deferred and recorded in an
interest maintenance reserve (IMR), net of related income taxes. The IMR
liability will be amortized into operating income over the approximate
remaining lives of the respective investments sold. Realized gains and
losses from the sale or decrease in valuation basis due to change in credit
quality of invested assets are presented separately from operating income,
net of applicable income taxes. Under GAAP, realized gains and losses from
the sale of investments are recognized currently as a component of pre-tax
income.

(h) Separate account assets and liabilities represent segregated funds
administered and invested by Paragon for the exclusive benefit of variable
life insurance contract holders. Paragon receives administrative fees for
services rendered on behalf of the separate account policyholders. The
amount of the asset balance in excess of liabilities of $685,415 and
$572,334 at December 31, 1995 and 1994, respectively, represents policy
surrender charges which are permitted to be recorded to surplus under
statutory accounting practices. Such amounts are designated as Assigned
Surplus--Separate Accounts in the accompanying balance sheet. Under GAAP,
the amount would be reported as a liability to the separate account
policyholder.

(i) Reinsurance recoverable on unpaid policy claims is netted against the
applicable policyholder liability. Under GAAP, the amount would be reported
as an asset and the policy claim liability would be shown before the
effects of reinsurance.

(3) FEDERAL INCOME TAX

Paragon files a consolidated federal income tax return with General American
which includes the operations of General American and its 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.
The current tax law requires life insurance companies to recompute certain
policy reserves for tax purposes and capitalize a percentage of premiums
attributed to acquisition expenses.

Federal income tax expense (benefit) differs from that computed based on the
federal statutory tax rate of 35 percent. The reasons for these differences are
as follows (000's):

<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax benefit on pretax
loss................................... $(363) (35)% $(370) (35)% $(382) (35)%
Capitalization of acquisition expenses.. 298 29 214 20 168 16
Recomputed policy tax reserves.......... (34) (3) 18 2 31 3
Other................................... (18) (2) 30 3 3 --
----- --- ----- --- ----- ---
</TABLE>

F-6
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

(4) TRANSACTIONS WITH PARENT COMPANY AND AFFILIATES

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 1995, 1994 and
1993 were $1,103,028, $651,472 and $597,120, respectively.

Paragon has a risk retention limit of $50,000 on any one life. Amounts over
the risk retention limit are ceded to an affiliate of General American on
either a coinsurance or yearly renewable term basis at rates commensurate with
those which could be obtained from unrelated companies. Premiums ceded in 1995,
1994 and 1993 totaled $9,126,245, $7,135,943 and $5,492,871, respectively, and
represented 99.9% of total premiums ceded in 1995 and 1994 and 95.9% of total
premiums ceded in 1993. Reserve credits taken by Paragon at December 31, 1995
and 1994 were $5,760,070 and $5,604,548, respectively. Amounts due from
reinsurance on paid and unpaid policyholder benefits at December 31, 1995 and
1994 were $3,155,457 and $2,066,748, respectively.

The Company had $3,342,742 and $2,748,885 on deposit with General American at
December 31, 1995 and 1994, respectively. The funds were readily convertible to
cash and earn interest at short-term money market rates.

(5) INVESTMENT SECURITIES

At December 31, 1995, Paragon had $56.5 million invested in bonds; $44.0
million were rated Highest Quality, $12.2 million were High Quality and $ .3
million were Low Quality using the NAIC designation definitions.

The amortized cost and market values of investments in bonds at December 31,
1995 and 1994 are as follows (000's):

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
1995
US treasury securities................. $ 4,608 281 (1) 4,888
US government agency obligations....... 4,920 173 -- 5,093
Corporate securities................... 42,842 2,842 (438) 45,246
Mortgage backed securities............. 4,088 203 -- 4,291
------- ----- ------ ------
$56,458 3,499 (439) 59,518
======= ===== ====== ======
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
1994
US treasury securities................. $ 3,606 24 (87) 3,543
US government agency obligations....... 5,123 24 (253) 4,894
Corporate securities................... 38,027 103 (3,029) 35,101
Mortgage backed securities............. 4,321 17 (325) 4,013
------- ----- ------ ------
$51,077 168 (3,694) 47,551
======= ===== ====== ======
</TABLE>

F-7
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

Contractual maturities may differ from expected maturities because borrowers
may have the right to call or prepay the obligation with or without call or
prepayment penalties. The amortized cost and market value of investments in
bonds, listed by contractual maturity, at December 31, 1995 are as follows
(000's):

<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
--------- ------
<S> <C> <C> <C>
Due in one year or less............................. $ 593 585
Due after one year through five years............... 7,388 7,748
Due after five years through ten years.............. 18,521 19,471
Due after five years through ten years.............. 20,948 22,330
------- ------
47,450 50,134
Mortgage-backed securities (including US government
agency obligations)................................ 9,008 9,384
------- ------ ---
$56,458 59,518
======= ======
</TABLE>

Major categories of net investment income for the years ended December 31,
1995, 1994 and 1993 consist of the following (000's):

<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Bonds............................................. $4,040 $3,685 $3,229
Policy loans...................................... 480 347 221
Short term investments............................ 407 113 103
------ ------ ------
Total investment income........................... 4,927 4,145 3,553
IMR amortization.................................. 17 15 6
Investment expenses............................... (39) (28) (40)
------ ------ ------
Net investment income............................. $4,905 $4,132 $3,519
====== ====== ======
</TABLE>

Proceeds from sales of investments in bonds during 1995, 1994 and 1993 were
$3,082,387, $4,565,799 and $8,701,679, respectively. Gross gains realized on
sales during 1995 were $1,338 of which $870 of total net gains were transferred
to the interest maintenance reserve, net of taxes of $468. Gross gains realized
on sales during 1994 were $44,095 of which $28,662 of total net gains were
transferred to the interest maintenance reserve, net of taxes of $15,433. Gross
gains realized on sales during 1993 and gross losses were $174,988 and $829 of
which $165,069 of net gains were transferred to the Interest Maintenance
Reserve, net of taxes of $57,774. At December 31, 1995, the Company had 16
investment securities totaling $16,924,493, rated either the highest quality or
high quality using the NAIC definitions, that individually exceeded 10% of
statutory capital and surplus.

(6) BENEFIT PLANS AND POSTRETIREMENT BENEFITS

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 1995, 1994 or 1993 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 expense to the Company for the incentive plan were
$149,747, $37,533 and $101,398 for 1995, 1994 and 1993, respectively.

F-8
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

Paragon provides for certain health care and life insurance benefits for
retired employees in accordance with Statement of Financial Accounting
Standards Number 106--Employer's Accounting for Postretirement Benefits Other
Than Pensions (SFAS No. 106). SFAS No. 106 requires the Company to accrue the
estimated cost of retiree benefit payments during the years the employee
provides services.

SFAS No. 106 allows recognition of the cumulative effect of the liability in
the year of the adoption or the amortization of the transition obligation over
a period of up to 20 years. The Company has elected to recognize the initial
post-retirement benefit obligation of approximately $72, 684 over a period of
20 years. The unrecognized initial post retirement benefit obligation was
approximately $61,782 and $65,416 at December 31, 1995 and 1994, respectively.
Net periodic post-retirement benefit cost for the years ended December 31,
1995, 1994 and 1993 were approximately $35,000, $26,000, and $40,000,
respectively. This includes expected costs of benefits for newly eligible or
vested employees, interest costs, gains and losses from differences between
actuarial and actual experience, and amortization of the initial post-
retirement benefit obligation. The accumulated post-retirement benefit
obligation was approximately $118,000, and $86,000 at December 31, 1995 and
1994. The discount rate used in determining the accumulated post-retirement
benefit obligation was 8.25 percent. The health care cost trend rates were ten
percent for the Indemnity Plan, nine percent for the HMO Plan, and ten percent
for the Dental Plan. These rates were graded to six percent over the next 14
years. A one percentage point increase in the assumed health care cost trend
rates would increase the December 31, 1995 accumulated post-retirement
obligation by 11 percent, and the estimated service cost and interest cost
components of the net periodic post-retirement benefit cost for 1995 by 13.8
percent.

(7) LEASE COMMITMENT

In 1991 Paragon entered into a five year operating lease for home office
space. During 1995, Paragon renewed the operating lease for its home office
space for an additional five year period.

Annual lease obligations for years subsequent to December 31, 1995 are as
follows:

Total rental expense during 1995, 1994 and 1993 was $256,631, $239,967 and
$194,234, respectively.

(8) 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 regulatory
intervention is required based on the ratio of a Company's actual total
adjusted capital (sum of capital and surplus and asset valuation reserve) to
control levels determined by the RBC formula. At December 31, 1995, the
Company's actual total adjusted capital was in excess of minimum requirements
which would cause company action under the RBC formula.

F-9
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO STATUTORY FINANCIAL STATEMENTS--(CONTINUED)

(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 1996 without prior
notice or approval is $804,291. Paragon did not pay dividends in 1995, 1994 or
1993.

F-10
<PAGE>

LOGO

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Paragon Life Insurance Company and
Policyholders of Separate Account C:

We have audited the accompanying statements of net assets, including the
schedule of investments, of the Money Market, High Income, Growth, Equity-
Income, Overseas, Investment Grade Bond, Asset Manager, Index 500, Contrafund,
and Asset Manager Growth Divisions of Paragon Separate Account C as of December
31, 1995, and related statements of operations and changes in net assets for
the periods presented. These financial statements are the responsibility of
Paragon Separate Account C's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at December 31, 1995 by
correspondence with the Fidelity Investments Variable Insurance Products Funds.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Money Market, High Income,
Growth, Equity-Income, Overseas, Investment Grade Bond, Asset Manager, Index
500, Contrafund, and Asset Manager Growth Divisions of Paragon Separate Account
C as of December 31, 1995, and the results of their operations and changes in
their net assets for the periods presented in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP

February 16, 1996

F-11
<PAGE>

PARAGON SEPARATE ACCOUNT C

STATEMENTS OF NET ASSETS
DECEMBER 31, 1995

<TABLE>
<CAPTION>
ASSET
MONEY HIGH EQUITY- INVESTMENT ASSET INDEX MANAGER
MARKET INCOME GROWTH INCOME OVERSEAS GRADE BOND MANAGER 500 CONTRAFUND GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
-------- -------- --------- --------- --------- ---------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSETS:
Investments in Fi-
delity Investments,
at Market Value
(See Schedule of
Investments)....... $382,690 683,673 3,137,137 1,707,535 1,333,074 260,863 2,079,816 440,470 88,086 3,878
-------- ------- --------- --------- --------- ------- --------- ------- ------ -----
Receivable from Par-
agon Life Insurance
Company............ 2,109 6,066 31,211 19,122 8,482 2,277 3,676 9,799 1,655 310
-------- ------- --------- --------- --------- ------- --------- ------- ------ -----
Total Net Assets... 384,799 689,739 3,168,348 1,726,657 1,341,556 263,140 2,083,492 450,269 89,741 4,188
======== ======= ========= ========= ========= ======= ========= ======= ====== =====
TOTAL NET ASSETS
REPRESENTED BY:
Group Variable Uni-
versal Life Cash
Value Invested in
Separate Account... 384,799 689,739 3,168,348 1,726,657 1,341,556 263,140 2,083,492 450,269 89,741 4,188
-------- ------- --------- --------- --------- ------- --------- ------- ------ -----
$384,799 689,739 3,168,348 1,726,657 1,341,556 263,140 2,083,492 450,269 89,741 4,188
======== ======= ========= ========= ========= ======= ========= ======= ====== =====
Total Units Held.... 353,488 49,278 103,301 78,240 79,132 20,178 125,157 5,844 6,450 341
Net Asset Value Per
Unit............... $ 1.09 14.00 30.67 22.07 16.95 13.04 16.65 77.05 13.91 12.28
Cost of Investments. 375,285 612,261 2,609,855 1,414,276 1,246,263 241,230 1,865,822 373,412 86,952 3,779
======== ======= ========= ========= ========= ======= ========= ======= ====== =====
</TABLE>

See Accompanying Notes to Financial Statements.

F-12
<PAGE>

PARAGON SEPARATE ACCOUNT C

STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1995 AND 1994, EXCEPT THE CONTRAFUND DIVISION WHICH IS
FOR THE PERIOD FROM
AUGUST 8, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND THE GROWTH MANAGER DIVISION
WHICH IS FOR THE PERIOD
FROM AUGUST 29, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND FOR THE PERIOD FROM
NOVEMBER 1, 1993 (INCEPTION) TO DECEMBER 31, 1993

<TABLE>
<CAPTION>
EQUITY-INCOME
MONEY MARKET DIVISION HIGH INCOME DIVISION GROWTH DIVISION DIVISION
----------------------- ---------------------- ---------------------- ---------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1994 1993
-------- --------- ---- ------- ------ ----- ------- ------- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Realized Gain
(Loss) from Sales
of Investments:
Proceeds from
Sales............ $936,978 1,042,123 541 144,263 94,828 2,033 500,609 471,648 18,853 289,491 189,000 3,855
Cost of
Investments Sold. 933,523 1,040,867 541 136,020 95,288 2,033 458,073 470,089 18,859 265,682 184,461 3,837
-------- --------- --- ------- ------ ----- ------- ------- ------ ------- ------- -----
Net Realized
Gain (Loss) from
Sales of
Investments..... 3,455 1,256 -- 8,243 (460) -- 42,536 1,559 (6) 23,809 4,539 18
Net Unrealized
Gain (Loss) on
Investments:
Unrealized Gain
(Loss) on
Investments
Beginning of
Year............. 619 1 -- (511) 57 -- 35,698 777 -- 7,002 198 --
Unrealized Gain
(Loss) on
Investments End
of Year.......... 7,405 619 1 71,412 (511) 57 527,282 35,698 777 293,259 7,002 198
-------- --------- --- ------- ------ ----- ------- ------- ------ ------- ------- -----
Net Unrealized
Gain (Loss) on
Investments...... 6,786 618 1 71,923 (568) 57 491,584 34,921 777 286,257 6,804 198
-------- --------- --- ------- ------ ----- ------- ------- ------ ------- ------- -----
Net Gain (Loss)
on Investments.. 10,241 1,874 1 80,166 (1,028) 57 534,120 36,480 771 310,066 11,343 216
Expenses:
Mortality and
Expense Charge 2,023 349 -- 4,106 780 2 18,527 3,637 20 9,431 1,736 15
-------- --------- --- ------- ------ ----- ------- ------- ------ ------- ------- -----
Increase
(Decrease) in
Assets Resulting
from Operations. $ 8,218 1,525 1 76,060 (1,808) 55 515,593 32,843 751 300,635 9,607 201
<CAPTION> ======== ========= === ======= ====== ===== ======= ======= ====== ======= ======= =====
OVERSEAS DIVISION
-----------------------
1995 1994 1993
-------- -------- -----
<S> <C> <C> <C>
Net Realized Gain
(Loss) from Sales
of Investments:
Proceeds from
Sales............ 364,752 209,301 3,130
Cost of
Investments Sold. 360,791 208,559 3,098
-------- -------- -----
Net Realized
Gain (Loss) from
Sales of
Investments..... 3,961 742 32
Net Unrealized
Gain (Loss) on
Investments:
Unrealized Gain
(Loss) on
Investments
Beginning of
Year............. (10,751) 428 --
Unrealized Gain
(Loss) on
Investments End
of Year.......... 86,811 (10,751) 428
-------- -------- -----
Net Unrealized
Gain (Loss) on
Investments...... 97,562 (11,179) 428
-------- -------- -----
Net Gain (Loss)
on Investments.. 101,523 (10,437) 460
Expenses:
Mortality and
Expense Charge 8,533 1,852 14
-------- -------- -----
Increase
(Decrease) in
Assets Resulting
from Operations. 92,990 (12,289) 446
======== ======== =====
</TABLE>

<TABLE>
<CAPTION>
INVESTMENT ASSET INDEX 500 CONTRAFUND ASSET MANAGER
GRADE BOND DIVISION MANAGER DIVISION DIVISION DIVISION GROWTH DIVISION
---------------------- ----------------------- -------------------- ---------- ---------------
1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1995
-------- ------ ---- ------- ------- ----- ------ ------ ----- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Realized Gain
(Loss) from Sales of
Investments:
Proceeds from Sales... $139,591 49,359 737 577,547 417,231 3,890 67,836 52,099 1,326 6,059 186
Cost of Investments
Sold.................. 133,166 49,487 737 562,867 416,235 3,889 62,500 51,718 1,326 6,110 187
-------- ------ --- ------- ------- ----- ------ ------ ----- ----- ---
Net Realized Gain
(Loss) from Sales of
Investments........... 6,425 (128) -- 14,680 996 1 5,336 381 -- (51) (1)
Net Unrealized Gain
(Loss) on Investments:
Unrealized Gain (Loss)
on Investments Begin-
ning of Year.......... (300) (3) -- (19,051) 156 -- 796 (16) -- -- --
Unrealized Gain (Loss)
on Investments End of
Year.................. 19,633 (300) (3) 213,994 (19,051) 156 67,058 796 (16) 1,134 99
-------- ------ --- ------- ------- ----- ------ ------ ----- ----- ---
Net Unrealized Gain
(Loss) on Investments. 19,933 (297) (3) 233,045 (19,207) 156 66,262 812 (16) 1,134 99
-------- ------ --- ------- ------- ----- ------ ------ ----- ----- ---
Net Gain (Loss) on
Investments.......... 26,358 (425) (3) 247,725 (18,211) 157 71,598 1,193 (16) 1,083 98
Expenses:
Mortality and Expense
Charge................ 1,505 301 -- 13,175 2,824 3 2,151 340 1 169 3
-------- ------ --- ------- ------- ----- ------ ------ ----- ----- ---
Increase (Decrease)
in Assets Resulting
from Operations...... $ 24,853 (726) (3) 234,550 (21,035) 154 69,447 853 (17) 914 95
======== ====== === ======= ======= ===== ====== ====== ===== ===== ===
</TABLE>
See Accompanying Notes to Financial Statements.

F-13
<PAGE>

PARAGON SEPARATE ACCOUNT C

STATEMENTS OF CHANGES IN NET ASSETS

YEAR ENDED DECEMBER 31, 1995 AND 1994, EXCEPT THE CONTRAFUND DIVISION WHICH IS
FOR THE PERIOD FROM
AUGUST 8, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND THE GROWTH MANAGER DIVISION
WHICH IS FOR THE PERIOD FROM
AUGUST 29, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND FOR THE PERIOD FROM
NOVEMBER 1, 1993 (INCEPTION) TO DECEMBER 31, 1993

<TABLE>
<CAPTION>
MONEY MARKET DIVISION HIGH INCOME DIVISION GROWTH DIVISION EQUITY-INCOME DIVISION
------------------------- ------------------------ ---------------------------- --------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1994 1993
--------- ------- ----- ------- ------- ------ --------- --------- ------ --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Realized Gain
(Loss) on Invest-
ments............ $ 3,455 1,256 -- 8,243 (460) -- 42,536 1,559 (6) 23,809 4,539 18
Net Unrealized
Gain (Loss) on
Investments...... 6,786 618 1 71,923 (568) 57 491,584 34,921 777 286,257 6,804 198
Mortality and Ex-
pense Charge..... (2,023) (349) -- (4,106) (780) (2) (18,527) (3,637) (20) (9,431) (1,736) (15)
--------- ------- ----- ------- ------- ------ --------- --------- ------ --------- ------- ------
Increase (De-
crease) in Net
Assets Resulting
from Operations.. 8,218 1,525 1 76,060 (1,808) 55 515,593 32,843 751 300,635 9,607 201
Net Deposits into
Separate Account. 270,768 102,622 1,665 390,103 211,465 13,864 1,628,448 929,658 61,055 965,867 423,472 26,875
--------- ------- ----- ------- ------- ------ --------- --------- ------ --------- ------- ------
Increase in Net
Assets.......... 278,986 104,147 1,666 466,163 209,657 13,919 2,144,041 962,501 61,806 1,266,502 433,079 27,076
Net Assets, Begin-
ning of Year...... 105,813 1,666 -- 223,576 13,919 -- 1,024,307 61,806 -- 460,155 27,076 --
--------- ------- ----- ------- ------- ------ --------- --------- ------ --------- ------- ------
Net Assets, End of
Year.............. $ 384,799 105,813 1,666 689,739 223,576 13,919 3,168,348 1,024,307 61,806 1,726,657 460,155 27,076
========= ======= ===== ======= ======= ====== ========= ========= ====== ========= ======= ======
<CAPTION>
OVERSEAS DIVISION
---------------------------
1995 1994 1993
---------- -------- -------
<S> <C> <C> <C>
Operations:
Net Realized Gain
(Loss) on Invest-
ments............ 3,961 742 32
Net Unrealized
Gain (Loss) on
Investments...... 97,562 (11,179) 428
Mortality and Ex-
pense Charge..... (8,533) (1,852) (14)
---------- -------- -------
Increase (De-
crease) in Net
Assets Resulting
from Operations.. 92,990 (12,289) 446
Net Deposits into
Separate Account. 709,290 530,333 20,786
---------- -------- -------
Increase in Net
Assets.......... 802,280 518,044 21,232
Net Assets, Begin-
ning of Year...... 539,276 21,232 --
---------- -------- -------
Net Assets, End of
Year.............. 1,341,556 539,276 21,232
========== ======== =======
</TABLE>

<TABLE>
<CAPTION>
ASSET
MANAGER
INVESTMENT GRADE BOND CONTRAFUND GROWTH
DIVISION ASSET MANAGER DIVISION INDEX 500 DIVISION DIVISION DIVISION
----------------------- -------------------------- ---------------------- ---------- --------
1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1995
-------- ------ ----- --------- ------- ------ ------- ------ ----- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Realized Gain
(Loss) on Investments.. $ 6,425 (128) -- 14,680 996 1 5,336 381 -- (51) (1)
Net Unrealized Gain
(Loss) on Investments.. 19,933 (297) (3) 233,045 (19,207) 156 66,262 812 (16) 1,134 99
Mortality and Expense
Charge................. (1,505) (301) -- (13,175) (2,824) (3) (2,151) (340) (1) (169) (3)
-------- ------ ----- --------- ------- ------ ------- ------ ----- ------ -----
Increase (Decrease) in
Net Assets Resulting
from Operations........ 24,853 (726) (3) 234,550 (21,035) 154 69,447 853 (17) 914 95
Net Deposits into Sepa-
rate Account........... 155,944 79,853 3,219 1,014,459 838,057 17,307 287,818 88,539 3,629 88,827 4,093
-------- ------ ----- --------- ------- ------ ------- ------ ----- ------ -----
Increase in Net As-
sets.................. 180,797 79,127 3,216 1,249,009 817,022 17,461 357,265 89,392 3,612 89,741 4,188
Net Assets, Beginning
of Year................ 82,343 3,216 0 834,483 17,461 -- 93,004 3,612 -- -- --
-------- ------ ----- --------- ------- ------ ------- ------ ----- ------ -----
Net Assets, End of
Year................... $263,140 82,343 3,216 2,083,492 834,483 17,461 450,269 93,004 3,612 89,741 4,188
======== ====== ===== ========= ======= ====== ======= ====== ===== ====== =====
</TABLE>

See Accompanying Notes to Financial Statements.

F-14
<PAGE>

PARAGON SEPARATE ACCOUNT C

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1995

(1) ORGANIZATION

Paragon Life Insurance Company (Paragon) established Paragon Separate Account
C on August 1, 1993. Paragon Separate Account C (the Separate Account)
commenced operations on November 1, 1993 and is registered under the Investment
Company Act of 1940 as a unit investment trust. The Separate Account receives
and invests net premiums for flexible premium group variable life insurance
policies that are issued by Paragon. The Separate Account is divided into
divisions, ten of which invests exclusively in shares of a single fund of
Fidelity Investments Variable Insurance Product Fund or Variable Insurance
Product Fund II (Fidelity), an open-end, diversified management investment
company. These funds are the Money Market Portfolio, High Income Portfolio,
Growth Portfolio, Equity-Income Portfolio, Overseas Portfolio, Investment Grade
Bond Portfolio, Asset Manager Portfolio, Index 500 Portfolio, Contrafund
Portfolio, and Asset Manager Growth Portfolio (the Funds). Policyholders have
the option of directing their premium payments into any or all of the Funds.

(2) SIGNIFICANT ACCOUNTING POLICIES

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

Investments

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

Federal Income Taxes

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

Use of Estimates

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

(3) POLICY CHARGES

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

F-15
<PAGE>

PARAGON SEPARATE ACCOUNT C

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Premium Expense Charge

Certain policies include a provision that premium payments may be reduced by
a premium expense charge. The premium expense charge is determined by the costs
associated with distributing the policy and, if applicable, is equal to 1% of
the premium paid. The premium expense charge compensates Paragon for providing
the insurance benefits set forth in the policies, incurring expenses of
distributing the policies, and assuming certain risks in connection with the
policies. In addition, some polices have a premium tax assessment equal to 2%
or 2.25% to reimburse Paragon for premium taxes incurred. The premium payment
less premium expense and premium tax charges equals the net premium that is
invested in the underlying separate account.

Monthly Expense Charge

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

Cost of Insurance

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

Optional Rider Benefits Charge

The monthly deduction charge for any additional benefits provided by rider.

Surrender or Contingent Deferred Sales Charge

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

Mortality and Expense Charge

In addition to the above contract charges against the operations of each
division, a daily charge is made for the mortality and expense risks
assumed by Paragon. Paragon deducts a daily charge from the Separate
Account at the rate of .0024547% of the net assets of each division of the
Separate Account which equals an annual rate of .90% of those net assets.
The mortality risk assumed by Paragon is that insureds may die sooner than
anticipated and that, therefore, Paragon will pay an aggregate amount of
death benefits greater than anticipated. The expense risk assumed is that
expenses incurred in issuing and administering the policy will exceed the
amounts realized from the administrative charges assessed against the
policy.

F-16
<PAGE>

PARAGON SEPARATE ACCOUNT C

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4--PURCHASES AND SALES OF FIDELITY INVESTMENT SHARES

During the year ended December 31, 1995 and 1994, except the Contrafund
Division which is for the Period from August 8, 1995 (Inception) to December
31, 1995 and the Growth Manager Division which is for the Period from August
29, 1995 (Inception) to December 31, 1995 and for the Period from November 1,
1993 (Inception) to December 31, 1993 purchases and sales of the Fidelity
Invetment Funds were as follows:

<TABLE>
<CAPTION>
MONEY HIGH EQUITY-
MARKET INCOME GROWTH INCOME
DIVISION DIVISION DIVISION DIVISION
-------------------------- -------------------------- -------------------------- ---------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1994 1993
---------- --------- ----- --------- --------- ------ --------- --------- ------ --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases....... $1,205,723 1,143,576 2,205 530,260 304,072 15,895 2,110,530 1,394,021 79,888 1,245,927 607,985 30,715
Sales........... 936,978 1,042,123 541 144,263 94,828 2,033 500,609 471,648 18,853 289,491 189,000 3,855
========== ========= ===== ========= ========= ====== ========= ========= ====== ========= ======= ======
<CAPTION>
INVESTMENT ASSET
GRADE BOND MANAGER INDEX 500 CONTRAFUND
DIVISION DIVISION DIVISION DIVISION
-------------------------- -------------------------- -------------------------- ----------
1995 1994 1993 1995 1994 1993 1995 1994 1993 1995
---------- --------- ----- --------- --------- ------ --------- --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases....... $294,030 128,572 3,956 1,578,832 1,239,460 21,194 353,504 140,143 4,954 94,716
Sales........... 139,591 49,359 737 577,547 417,231 3,890 67,836 52,099 1,326 6,059
========== ========= ===== ========= ========= ====== ========= ========= ====== =======
<CAPTION>
OVERSEAS
DIVISION
------------------------
1995 1994 1993
--------- ------- ------
<S> <C> <C> <C>
Purchases....... 1,065,508 734,445 23,901
Sales........... 364,752 209,301 3,130
========= ======= ======
<CAPTION>
ASSET
MANAGER
GROWTH
DIVISION
---------
1995
---------
<S> <C> <C> <C>
Purchases....... 4,277
Sales........... 187
=========
</TABLE>

F-17
<PAGE>

^PARAGON SEPARATE ACCOUNT C

^NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--ACCUMULATION OF UNIT ACTIVITY

The following is a reconciliation of the accumulation of unit activity for
the year ended December 31, 1995 and 1994, except the Contrafund Division which
is for the Period from August 8, 1995 (Inception) to December 31, 1995 and the
Growth Manager Division which is for the Period from August 29, 1995
(Inception) to December 31, 1995 and for the Period from November 1, 1993
(Inception) to December 31, 1993:

<TABLE>
<CAPTION>
HIGH INCOME EQUITY-INCOME
MONEY MARKET DIVISION DIVISION GROWTH DIVISION DIVISION OVERSEAS DIVISION
------------------------- ------------------- -------------------- ------------------- -------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1994 1993
--------- --------- ----- ------ ------ ----- ------- ------ ----- ------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in
Units
Deposits........ 1,150,687 1,203,840 2,203 41,236 25,641 1,332 77,887 62,649 3,502 65,569 37,553 1,954 67,011 45,935 1,557
Withdrawals..... 898,366 1,104,335 541 11,074 7,690 167 19,451 20,468 818 15,278 11,358 200 22,450 12,743 178
--------- --------- ----- ------ ------ ----- ------- ------ ----- ------ ------ ----- ------ ------ -----
Net Increase in
Units........... 252,321 99,505 1,662 30,162 17,951 1,165 58,436 42,181 2,684 50,291 26,195 1,754 44,561 33,192 1,379
Outstanding
Units, Beginning
of Year.......... 101,167 1,662 -- 19,116 1,165 -- 44,865 2,684 -- 27,949 1,754 -- 34,571 1,379 --
Outstanding
Units, End of
Year............. 353,488 101,167 1,662 49,278 19,116 1,165 103,301 44,865 2,684 78,240 27,949 1,754 79,132 34,571 1,379
========= ========= ===== ====== ====== ===== ======= ====== ===== ====== ====== ===== ====== ====== =====
</TABLE>

<TABLE>
<CAPTION>
ASSET
MANAGER
INVESTMENT GRADE ASSET MANAGER INDEX 500 CONTRAFUND GROWTH
BOND DIVISION DIVISION DIVISION DIVISION DIVISION
------------------ -------------------- ---------------- ---------- --------
1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1995
------ ------ ---- ------- ------ ----- ----- ----- ---- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in Units
Deposits............... 24,267 11,338 335 104,670 85,412 1,390 5,231 2,492 87 6,882 356
Withdrawals............ 11,436 4,266 60 37,587 28,475 253 1,030 914 22 432 15
------ ------ --- ------- ------ ----- ----- ----- --- ----- ---
Net Increase in Units.. 12,831 7,072 275 67,083 56,937 1,137 4,201 1,578 65 6,450 341
Outstanding Units, Be-
ginning of Year......... 7,347 275 -- 58,074 1,137 -- 1,643 65 -- -- --
Outstanding Units, End
of Year................. 20,178 7,347 275 125,157 58,074 1,137 5,844 1,643 65 6,450 341
====== ====== === ======= ====== ===== ===== ===== === ===== ===
</TABLE>

F-18
<PAGE>

PARAGON SEPARATE ACCOUNT C

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 6--RECONCILIATION OF GROSS AND NET DEPOSITS INTO THE SEPARATE ACCOUNT

Deposits into the Separate Account purchase shares of Fidelity. Net deposits
represent the amounts available for investment in such shares after deduction
of premium expense charges, monthly expense charges, cost of insurance and the
cost of optional benefits added by rider. The following is a summary of net
deposits made for the year ended December 31, 1995 and 1994, except the
Contrafund Division which is for the Period from August 8, 1995 (Inception) to
December 31, 1995 and the Growth Manager Division which is for the Period from
August 29, 1995 (Inception) to December 31, 1995 and for the Period from
November 1, 1993 (Inception) to December 31,1993:

<TABLE>
<CAPTION>
MONEY HIGH
MARKET INCOME GROWTH
DIVISION DIVISION DIVISION
---------------------------- ---------------------------- ----------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
---------- --------- ----- --------- --------- ------ --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross De-
posits........... $2,029,012 1,272,160 2,256 631,512 299,414 15,955 2,410,761 1,396,558 76,513
Surrenders and
Withdrawals..... (25,837) (1,644) -- (37,645) (2,590) -- (126,032) (12,302) --
Transfers Be-
tween Funds and
General Account. 23,452 (2,632) -- (19,824) (748) -- 128,164 (13,437) --
---------- --------- ----- --------- --------- ------ --------- --------- ------
Total Gross De-
posits net of
Surrenders,
Withdrawals, and
Transfers....... 2,026,627 1,267,884 2,256 574,043 296,076 15,955 2,412,893 1,370,819 76,513
Deductions:
Premium Expense
Charges......... 44,481 26,081 51 13,844 6,371 358 52,850 29,434 1,719
Monthly Expense
Charges......... 98,093 69,261 70 9,300 4,757 225 41,140 25,033 1,782
Cost of
Insurance and
Optional
Benefits........ 1,613,285 1,069,920 470 160,796 73,483 1,508 690,455 386,694 11,957
---------- --------- ----- --------- --------- ------ --------- --------- ------
Total Deduc-
tions........... 1,755,859 1,165,262 591 183,940 84,611 2,091 784,445 441,161 15,458
Net Deposits from
Policyholders.... $ 270,768 102,622 1,665 390,103 211,465 13,864 1,628,448 929,658 61,055
========== ========= ===== ========= ========= ====== ========= ========= ======
<CAPTION>
INVESTMENT ASSET
GRADE BOND MANAGER INDEX 500
DIVISION DIVISION DIVISION
---------------------------- ---------------------------- ----------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
---------- --------- ----- --------- --------- ------ --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross De-
posits........... $ 256,080 123,845 4,042 2,053,891 1,276,515 21,189 344,814 139,876 4,870
Surrenders and
Withdrawals..... (10,138) (1,743) -- (124,460) (8,045) -- (22,442) (1,796) --
Transfers
Between Funds
and General
Account......... (1,770) (468) -- (246,500) (10,732) -- 74,787 (1,194) --
---------- --------- ----- --------- --------- ------ --------- --------- ------
Total Gross De-
posits net of
Surrenders,
Withdrawals, and
Transfers....... 244,172 121,634 4,042 1,682,931 1,257,738 21,189 397,159 136,886 4,870
Deductions:
Premium Expense
Charges......... 5,614 2,528 91 45,026 26,530 473 7,559 2,940 109
Monthly Expense
Charges......... 4,679 2,387 95 35,308 23,903 442 5,764 2,761 147
Cost of
Insurance and
Optional
Benefits........ 77,935 36,866 637 588,138 369,248 2,967 96,018 42,646 985
---------- --------- ----- --------- --------- ------ --------- --------- ------
Total Deduc-
tions........... 88,228 41,781 823 668,472 419,681 3,882 109,341 48,347 1,241
Net Deposits from
Policyholders.... $ 155,944 79,853 3,219 1,014,459 838,057 17,307 287,818 88,539 3,629
========== ========= ===== ========= ========= ====== ========= ========= ======
<CAPTION>
EQUITY-
INCOME OVERSEAS
DIVISION DIVISION
---------------------------- --------------------------
1995 1994 1993 1995 1994 1993
---------- ---------- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Total Gross De-
posits........... 1,408,679 606,131 30,923 1,292,857 733,579 24,174
Surrenders and
Withdrawals..... (91,806) (8,670) -- (84,074) (6,451) --
Transfers Be-
tween Funds and
General Account. 54,349 5,498 -- (151,653) 5,228 --
---------- ---------- ------ ---------- -------- ------
Total Gross De-
posits net of
Surrenders,
Withdrawals, and
Transfers....... 1,371,222 602,959 30,923 1,057,130 732,356 24,174
Deductions:
Premium Expense
Charges......... 30,883 12,645 698 28,343 15,362 542
Monthly Expense
Charges......... 21,553 10,144 434 18,094 11,349 369
Cost of
Insurance and
Optional
Benefits........ 352,919 156,698 2,916 301,403 175,312 2,477
---------- ---------- ------ ---------- -------- ------
Total Deduc-
tions........... 405,355 179,487 4,048 347,840 202,023 3,388
Net Deposits from
Policyholders.... 965,867 423,472 26,875 709,290 530,333 20,786
========== ========== ====== ========== ======== ======
<CAPTION>
ASSET
MANAGER
CONTRAFUND GROWTH
DIVISION DIVISION
---------- ----------
1995 1995
---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Gross De-
posits........... 26,848 3,243
Surrenders and
Withdrawals..... (765) (1)
Transfers
Between Funds
and General
Account......... 68,222 1,704
---------- ----------
Total Gross De-
posits net of
Surrenders,
Withdrawals, and
Transfers....... 94,305 4,946
Deductions:
Premium Expense
Charges......... 589 71
Monthly Expense
Charges......... 306 46
Cost of
Insurance and
Optional
Benefits........ 4,583 736
---------- ----------
Total Deduc-
tions........... 5,478 853
Net Deposits from
Policyholders.... 88,827 4,093
========== ==========
</TABLE>

F-19
<PAGE>

PARAGON SEPARATE ACCOUNT C

SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995

<TABLE>
<CAPTION>
NUMBER
OF MARKET
SHARES VALUE COST
------- ---------- ----------
<S> <C> <C> <C>
Fidelity Investment Series:
Money Market Division.......................... 382,690 $ 382,690 $ 375,285
High Income Division........................... 56,736 683,673 612,261
Growth Division................................ 107,436 3,137,137 2,609,855
Equity--Income Division........................ 88,611 1,707,535 1,414,276
Overseas Division.............................. 78,186 1,333,074 1,246,263
Investment Grade Bond Division................. 20,902 260,863 241,230
Asset Manager Division......................... 131,717 2,079,816 1,865,822
Index 500 Division............................. 5,818 440,470 373,412
Contrafund Division............................ 6,392 88,086 86,952
Asset Manager Growth Division.................. 329 3,878 3,779
</TABLE>

See Accompanying Notes to Financial Statements.

F-20
<PAGE>

APPENDIX A

ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES

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

The tables illustrate a Policy issued to an Insured, age 45, in an Executive
Program issued as a Group Contract Policy as well as an Insured, age 50, in a
Corporate Program. This assumes the maximum monthly administrative charge. If a
particular Policy has different sales or administrative charges or if a
particular group is larger or smaller or has a different gender mix, the Cash
Values and Death Benefits would vary from those shown in the tables.

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

The amounts shown for the Cash Value and Death Benefit reflect the fact that
the investment rate of return is lower than the gross after-tax return on the
assets held in a Division of the Separate Account. The charges include a .90%
charge for mortality and expense risk, an investment advisory fee of .52%,
representing the average of the fees incurred in 1995 by the Funds in which the
Divisions invest (the actual investment advisory fee is shown in the VIP
prospectuses), and a .144% charge that is an estimate of the Funds' expenses
based on the average of the actual expenses incurred in fiscal year 1995. After
deduction for these amounts, the illustrated gross annual investment rates of
return of 0%, 6% and 12% correspond to approximate net annual rates of -1.564%,
4.436%, and 10.436%, respectively. No expense reimbursement arrangement exists
between the Company and VIP. FMR reimbursed expenses in 1995 for the Index 500
Portfolio and Asset Manager: Growth Portfolio.

The hypothetical values shown in the tables do not reflect any charges for
federal income taxes against the Separate Account, since the Company is not
currently making any such charges. However, such charges may be made in the
future and, in that event, the gross annual investment rate of return of the
divisions of the Separate Account would have to exceed 0%, 6%, and 12% by an
amount sufficient to cover the tax charges in order to produce the Death
Benefit and Cash Value illustrated. (see "Federal Tax Matters," page 36.)
Additionally, the hypothetical values shown in the tables assume that the
Policy for which values are illustrated is not deemed an individual policy
under OBRA, and therefore the values do not reflect the additional 1% premium
expense charge for the Company's increased federal tax liabilities.

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

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

A-1
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE: 45
DEATH BENEFIT OPTION: A ANNUAL PREMIUM: $6,000
PREMIUM EXPENSE CHARGE: 1% (Monthly Premium: $500)
PREMIUM TAX: 2%

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ .00% (NET RATE @ -
1.564%)
--------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- -------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,049 $500,000 $ 4,880 $500,000
2 12,631 5,896 500,000 9,599 500,000
3 19,423 8,499 500,000 14,195 500,000
4 26,556 10,850 500,000 18,603 500,000
5 34,045 12,925 500,000 22,832 500,000
6 41,909 14,704 500,000 26,888 500,000
7 50,165 16,159 500,000 30,774 500,000
8 58,835 17,248 500,000 34,433 500,000
9 67,938 17,933 500,000 37,933 500,000
10 77,496 18,185 500,000 41,215 500,000
11 87,532 17,994 500,000 44,227 500,000
12 98,070 17,327 500,000 47,032 500,000
13 109,135 16,179 500,000 49,583 500,000
14 120,753 14,520 500,000 51,825 500,000
15 132,952 12,294 500,000 53,764 500,000
16 145,761 9,437 500,000 55,405 500,000
17 159,210 5,836 500,000 56,695 500,000
18 173,332 1,352 500,000 57,582 500,000
19 188,160 0 0 58,073 500,000
20 203,729 0 0 58,116 500,000
25 294,060 0 0 48,674 500,000
30 409,349 0 0 10,063 500,000
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

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

Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the policy anniversary day and further
assume there is no policy indebtedness outstanding.

A-2
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE: 45
DEATH BENEFIT OPTION: A ANNUAL PREMIUM: $6,000
PREMIUM EXPENSE CHARGE: 1% (Monthly Premium: $500)
PREMIUM TAX: 2%

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6.00% (NET RATE @ 4.436%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,149 $500,000 $ 5,039 $500,000
2 12,631 6,279 500,000 10,215 500,000
3 19,423 9,344 500,000 15,572 500,000
4 26,556 12,331 500,000 21,047 500,000
5 34,045 15,209 500,000 26,657 500,000
6 41,909 17,952 500,000 32,409 500,000
7 50,165 20,521 500,000 38,314 500,000
8 58,835 22,862 500,000 44,320 500,000
9 67,938 24,926 500,000 50,497 500,000
10 77,496 26,667 500,000 56,798 500,000
11 87,532 28,059 500,000 63,173 500,000
12 98,070 29,048 500,000 69,692 500,000
13 109,135 29,608 500,000 76,314 500,000
14 120,753 29,687 500,000 82,995 500,000
15 132,952 29,203 500,000 89,746 500,000
16 145,761 28,063 500,000 96,581 500,000
17 159,210 26,117 500,000 103,457 500,000
18 173,332 23,184 500,000 110,336 500,000
19 188,160 19,066 500,000 117,235 500,000
20 203,729 13,550 500,000 124,116 500,000
25 294,060 0 0 156,242 500,000
30 409,349 0 0 175,585 500,000
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-3
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE: 45
DEATH BENEFIT OPTION: A ANNUAL PREMIUM: $6,000
PREMIUM EXPENSE CHARGE: 1% (Monthly Premium: $500)
PREMIUM TAX: 2%

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @
10.436%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,246 $500,000 $ 5,196 $500,000
2 12,631 6,670 500,000 10,845 500,000
3 19,423 10,243 500,000 17,035 500,000
4 26,556 13,973 500,000 23,751 500,000
5 34,045 17,850 500,000 31,059 500,000
6 41,909 21,872 500,000 39,028 500,000
7 50,165 26,023 500,000 47,732 500,000
8 58,835 30,275 500,000 57,193 500,000
9 67,938 34,607 500,000 67,561 500,000
10 77,496 38,998 500,000 78,881 500,000
11 87,532 43,454 500,000 91,209 500,000
12 98,070 47,955 500,000 104,722 500,000
13 109,135 52,512 500,000 119,515 500,000
14 120,753 57,111 500,000 135,691 500,000
15 132,952 61,719 500,000 153,427 500,000
16 145,761 66,292 500,000 172,920 500,000
17 159,210 70,740 500,000 194,352 500,000
18 173,332 74,948 500,000 217,934 500,000
19 188,160 78,787 500,000 243,962 500,000
20 203,729 82,126 500,000 272,733 500,000
25 294,060 86,744 500,000 472,113 547,651
30 409,349 41,080 500,000 802,002 858,143
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

Illustrated values shown above are as of the end of the years indicated and
assume premiums are received monthly on the policy anniversary day and further
assume there is policy indebtedness outstanding.

A-4
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE: 45
DEATH BENEFIT OPTION: B ANNUAL PREMIUM: $12,000
PREMIUM EXPENSE CHARGE: 1% (Monthly Premium:
$1,000)
PREMIUM TAX: 2%

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @.00% (NET RATE @ -1.564%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5% VALUE BENEFIT VALUE BENEFIT
--- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $12,323 $ 8,810 $508,810 $ 10,646 $510,646
2 25,261 17,310 517,310 21,031 521,031
3 38,847 25,458 525,458 31,195 531,195
4 53,112 33,248 533,248 41,069 541,069
5 68,090 40,656 540,656 50,665 550,665
6 83,817 47,664 547,664 59,986 559,986
7 100,331 54,243 554,243 69,038 569,038
8 117,670 60,352 560,352 77,758 577,758
9 135,876 65,957 565,957 86,218 586,218
10 154,992 71,030 571,030 94,356 594,356
11 175,064 75,569 575,569 102,112 602,112
12 196,140 79,545 579,545 109,558 609,558
13 218,270 82,961 582,961 116,639 616,639
14 241,506 85,798 585,798 123,295 623,295
15 265,904 88,010 588,010 129,534 629,534
16 291,521 89,548 589,548 135,362 635,362
17 318,420 90,316 590,316 140,720 640,720
18 346,663 90,202 590,202 145,551 645,551
19 376,319 89,095 589,095 149,868 649,868
20 407,458 86,898 586,898 153,615 653,615
25 588,121 57,859 557,859 160,870 660,870
30 818,698 0 0 137,590 637,590
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-5
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE: 45
DEATH BENEFIT OPTION: B ANNUAL PREMIUM: $12,000
PREMIUM EXPENSE CHARGE: 1% (Monthly Premium:
$1,000)
PREMIUM TAX: 2%

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6.00% (NET RATE @ 4.436%)
----------------------------------------------------------------------
GUARANTEED* CURRENT**
-------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5% VALUE BENEFIT VALUE BENEFIT
--- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 12,323 $ 9,097 $509,097 $ 10,994 $510,994
2 25,261 18,421 518,421 22,377 522,377
3 38,847 27,932 527,932 34,205 534,205
4 53,112 37,626 537,626 46,423 546,423
5 68,090 47,482 547,482 59,054 559,054
6 83,817 57,482 557,482 72,118 572,118
7 100,331 67,596 567,596 85,663 585,663
8 117,670 77,779 577,779 99,552 599,552
9 135,876 87,993 587,993 113,960 613,960
10 154,992 98,202 598,202 128,812 628,812
11 175,064 108,393 608,393 144,060 644,060
12 196,140 118,530 618,530 159,789 659,789
13 218,270 128,603 628,603 175,960 675,960
14 241,506 138,580 638,580 192,525 692,525
15 265,904 148,401 648,401 209,501 709,501
16 291,521 157,998 657,998 226,908 726,908
17 318,420 167,252 667,252 244,696 744,696
18 346,663 176,019 676,019 262,815 762,815
19 376,319 184,150 684,150 281,288 781,288
20 407,458 191,499 691,499 300,062 800,062
25 588,121 212,764 712,764 395,451 895,451
30 818,698 188,111 688,111 479,634 979,634
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-6
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE: 45
DEATH BENEFIT OPTION: B ANNUAL PREMIUM: $12,000
PREMIUM EXPENSE CHARGE: 1% (Monthly Premium:
PREMIUM TAX: 2% $1,000)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @ 10.436%)
----------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------ ------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5% VALUE BENEFIT VALUE BENEFIT
--- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 12,323 $ 9,380 $ 509,380 $ 11,335 $ 511,335
2 25,261 19,556 519,556 23,753 523,753
3 38,847 30,561 530,561 37,403 537,403
4 53,112 42,468 542,468 52,339 552,339
5 68,090 55,341 555,341 68,702 568,702
6 83,817 69,256 569,256 86,640 586,640
7 100,331 84,283 584,283 106,318 606,318
8 117,670 100,487 600,487 127,849 627,849
9 135,876 117,949 617,949 151,494 651,494
10 154,992 136,760 636,760 177,405 677,405
11 175,064 157,051 657,051 205,751 705,751
12 196,140 178,938 678,938 236,853 736,853
13 218,270 202,581 702,581 270,938 770,938
14 241,506 228,132 728,132 308,247 808,247
15 265,904 255,734 755,734 349,117 849,117
16 291,521 285,539 785,539 393,921 893,921
17 318,420 317,664 817,664 442,999 942,999
18 346,663 352,220 852,220 496,729 996,729
19 376,319 389,328 889,328 555,604 1,055,604
20 407,458 429,137 929,137 620,093 1,120,093
25 588,121 676,967 1,176,967 1,045,779 1,545,779
30 818,698 1,026,104 1,526,104 1,706,135 2,206,135
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-7
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE: 50
DEATH BENEFIT OPTION: A ANNUAL PREMIUM: $12,000
PREMIUM EXPENSE CHARGE: 2.00% (Monthly Premium:
PREMIUM TAX: 2.00% $1,000)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ .00% (NET RATE @ -
1.564%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 12,323 $ 7,528 $500,000 $ 9,980 $500,000
2 25,261 14,713 500,000 19,740 500,000
3 38,847 21,490 500,000 29,197 500,000
4 53,112 27,834 500,000 38,422 500,000
5 68,090 33,723 500,000 47,363 500,000
6 83,817 39,159 500,000 55,972 500,000
7 100,331 44,122 500,000 64,318 500,000
8 117,670 48,617 500,000 72,360 500,000
9 135,876 52,627 500,000 80,054 500,000
10 154,992 56,115 500,000 87,412 500,000
11 175,064 59,034 500,000 94,447 500,000
12 196,140 61,298 500,000 101,118 500,000
13 218,270 62,802 500,000 107,387 500,000
14 241,506 63,437 500,000 113,271 500,000
15 265,904 63,102 500,000 118,735 500,000
16 291,521 61,728 500,000 123,740 500,000
17 318,420 59,234 500,000 128,305 500,000
18 346,663 55,550 500,000 132,205 500,000
19 376,319 50,576 500,000 135,361 500,000
20 407,458 44,119 500,000 137,739 500,000
25 588,121 0 0 134,246 500,000
30 818,698 0 0 90,281 500,000
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-8
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE: 50
DEATH BENEFIT OPTION: A ANNUAL PREMIUM: $12,000
PREMIUM EXPENSE CHARGE: 2.00% (Monthly Premium:
PREMIUM TAX: 2.00% $1,000)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6.00% (NET RATE @ 4.436%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5% VALUE BENEFIT VALUE BENEFIT
--- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 12,323 $ 7,774 500,000 $ 10,306 $500,000
2 25,261 15,664 500,000 21,005 500,000
3 38,847 23,608 500,000 32,028 500,000
4 53,112 31,582 500,000 43,460 500,000
5 68,090 39,565 500,000 55,268 500,000
6 83,817 47,563 500,000 67,419 500,000
7 100,331 55,558 500,000 80,000 500,000
8 117,670 63,561 500,000 92,992 500,000
9 135,876 71,563 500,000 106,375 500,000
10 154,992 79,533 500,000 120,187 500,000
11 175,064 87,439 500,000 134,467 500,000
12 196,140 95,207 500,000 149,210 500,000
13 218,270 102,748 500,000 164,418 500,000
14 241,506 109,973 500,000 180,148 500,000
15 265,904 116,800 500,000 196,416 500,000
16 291,521 123,181 500,000 213,245 500,000
17 318,420 129,059 500,000 230,710 500,000
18 346,663 134,391 500,000 248,718 500,000
19 376,319 139,113 500,000 267,305 500,000
20 407,458 143,088 500,000 286,556 500,000
25 588,121 142,444 500,000 396,207 500,000
30 818,698 63,856 500,000 544,480 571,704
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-9
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE: 50
DEATH BENEFIT OPTION: A ANNUAL PREMIUM: $12,000
PREMIUM EXPENSE CHARGE: 2.00% (Monthly Premium:
PREMIUM TAX: 2.00% $1,000)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @ 10.436%)
---------------------------------------------------------------
GUARANTEED* CURRENT**
----------------------------- ------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5% VALUE BENEFIT VALUE BENEFIT
--- -------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 12,323 $ 8,016 $ 500,000 $ 10,626 $ 500,000
2 25,261 16,636 500,000 22,297 500,000
3 38,847 25,861 500,000 35,036 500,000
4 53,112 35,733 500,000 49,031 500,000
5 68,090 46,310 500,000 64,364 500,000
6 83,817 57,681 500,000 81,135 500,000
7 100,331 69,931 500,000 99,576 500,000
8 117,670 83,182 500,000 119,835 500,000
9 135,876 97,558 500,000 142,085 500,000
10 154,992 113,182 500,000 166,575 500,000
11 175,064 130,198 500,000 193,591 500,000
12 196,140 148,742 500,000 223,410 500,000
13 218,270 168,975 500,000 256,365 500,000
14 241,506 191,101 500,000 292,878 500,000
15 265,904 215,389 500,000 333,403 500,000
16 291,521 242,204 500,000 378,475 500,000
17 318,420 271,985 500,000 428,732 510,191
18 346,663 305,280 500,000 484,327 571,506
19 376,319 342,743 500,000 545,461 638,190
20 407,458 385,149 500,000 612,684 710,713
25 588,121 687,992 736,152 1,066,480 1,141,134
30 818,698 1,182,688 1,241,822 1,806,784 1,897,123
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-10
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE: 50
DEATH BENEFIT OPTION: B ANNUAL PREMIUM: $26,000
PREMIUM EXPENSE CHARGE: 2.00% (Monthly Premium:
PREMIUM TAX: 2.00% $2,166.67)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ .00% (NET RATE @ -
1.564%)
---------------------------------------------------------------
GUARANTEED* CURRENT**
----------------------------- -----------------------------
PREM CASH DEATH CASH DEATH
YR @ 5% VALUE BENEFIT VALUE BENEFIT
--- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 26,699 $ 20,820 $520,820 $ 23,290 $523,290
2 54,733 41,025 541,025 46,122 546,122
3 84,168 60,547 560,547 68,407 568,407
4 115,076 79,356 579,356 90,220 590,220
5 147,528 97,428 597,428 111,503 611,503
6 181,604 114,762 614,762 132,198 632,198
7 217,383 131,334 631,334 152,381 652,381
8 254,951 147,151 647,151 172,000 672,000
9 294,397 162,195 662,195 190,999 690,999
10 335,816 176,424 676,424 209,388 709,388
11 379,306 189,793 689,793 227,177 727,177
12 424,970 202,209 702,209 244,309 744,309
13 472,917 213,561 713,561 260,730 760,730
14 523,262 223,744 723,744 276,458 776,458
15 576,124 232,662 732,662 291,438 791,438
16 631,629 240,270 740,270 305,616 805,616
17 689,910 246,519 746,519 319,013 819,013
18 751,104 251,382 751,382 331,320 831,320
19 815,358 254,815 754,815 342,431 842,431
20 882,825 256,687 756,687 352,299 852,299
25 1,274,262 234,384 734,384 378,631 878,631
30 1,773,845 137,429 637,429 354,126 854,126
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-11
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE: 50
DEATH BENEFIT OPTION: B ANNUAL PREMIUM: $26,000
PREMIUM EXPENSE CHARGE: 2.00% (Monthly Premium:
PREMIUM TAX: 2.00% $2,166.67)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6.00% (NET RATE @ 4.436%)
--------------------------------------------------------------
GUARANTEED* CURRENT**
---------------------------- ------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5% VALUE BENEFIT VALUE BENEFIT
--- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 26,699 $ 21,499 $ 521,499 $ 24,051 $ 524,051
2 54,733 43,654 543,654 49,070 549,070
3 84,168 66,412 566,412 75,005 575,005
4 115,076 89,760 589,760 101,962 601,962
5 147,528 113,685 613,685 129,919 629,919
6 181,604 138,202 638,202 158,855 658,855
7 217,383 163,301 663,301 188,879 688,879
8 254,951 189,001 689,001 219,979 719,979
9 294,397 215,300 715,300 252,136 752,136
10 335,816 242,168 742,168 285,396 785,396
11 379,306 269,570 769,570 319,810 819,810
12 424,970 297,421 797,421 355,360 855,360
13 472,917 325,612 825,612 392,032 892,032
14 523,262 354,032 854,032 429,880 929,880
15 576,124 382,574 882,574 468,890 968,890
16 631,629 411,177 911,177 509,048 1,009,048
17 689,910 439,773 939,773 550,411 1,050,411
18 751,104 468,311 968,311 592,073 1,092,703
19 815,358 496,724 996,724 635,839 1,135,839
20 882,825 524,848 1,024,848 679,791 1,179,791
25 1,274,262 650,795 1,150,795 907,627 1,407,627
30 1,773,845 719,725 1,219,725 1,134,746 1,634,746
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-12
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE: 50
DEATH BENEFIT OPTION: B ANNUAL PREMIUM: $26,000
PREMIUM EXPENSE CHARGE: 2.00% (Monthly Premium:
PREMIUM TAX: 2.00% $2,166.67)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @ 10.436%)
----------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------ ------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5% VALUE BENEFIT VALUE BENEFIT
--- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 26,699 $ 22,167 $ 522,167 $ 24,798 $ 524,798
2 54,733 46,340 546,340 52,083 552,083
3 84,168 72,645 572,645 82,014 582,014
4 115,076 101,261 601,261 114,936 614,936
5 147,528 132,393 632,393 151,094 651,094
6 181,604 166,289 666,289 190,754 690,754
7 217,383 203,202 703,202 234,353 734,353
8 254,951 243,441 743,441 282,239 782,239
9 294,397 287,321 787,321 334,789 834,789
10 335,816 335,167 835,167 392,492 892,492
11 379,306 387,330 887,330 455,885 955,885
12 424,970 444,148 944,148 525,494 1,025,494
13 472,917 505,978 1,005,978 601,899 1,101,899
14 523,262 573,210 1,073,210 685,816 1,185,816
15 576,124 646,292 1,146,292 777,961 1,277,961
16 631,629 725,766 1,225,766 879,126 1,379,126
17 689,910 812,227 1,312,227 990,259 1,490,259
18 751,104 906,358 1,406,358 1,112,064 1,612,064
19 815,358 1,008,892 1,508,892 1,245,527 1,745,527
20 882,825 1,120,548 1,620,548 1,391,799 1,891,799
25 1,274,262 1,842,171 2,342,171 2,361,481 2,861,481
30 1,773,845 2,929,088 3,429,088 3,891,661 4,391,661
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

A-13
<PAGE>

PART II
UNDERTAKING TO FILE REPORTS

Subject to the terms and conditions of Section 15(d) of the Securities and
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore, or hereafter duly adopted pursuant to
authority conferred in that section.

RULE 484 UNDERTAKING

Article III, Section 13 of the Company's Bylaws provide: "The Corporation
may indemnify any person who is made a party to any civil or criminal suit, or
made a subject of any administrative or investigative proceeding by reason of
the fact that he is or was a director, officer, or agent of the Corporation.
This indemnity may extend to expenses, including attorney's fees, judgments,
fine, and amounts paid in settlement. The indemnity shall not be available to
persons being sued by or upon the information of the Corporation not to person
who are being investigated by the Corporation. The indemnity shall be
discretionary with the Board of Directors and shall not be granted until the
Board of Directors has made a determination that the person who would be
indemnified acted in good faith and in a manner he reasonably believed to be in
the best interest of the Corporation. The Corporation shall have such other and
further powers of indemnification as are not inconsistent with the laws of
Missouri."

Insofar as indemnification for liability arising under the Securities Act
of l933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Charter and Articles of Incorporation of the Company,
the By-Laws of the Company, agreement, statute, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-1
<PAGE>

REPRESENTATIONS PURSUANT TO RULE 6e-3(T)

This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment
Company Act of l940.
Registrant elects to be governed by Rule 6e-3(T) (b) (l3) (i) (A) under the
Investment Company Act of l940 with respect to the Policy described in the
Prospectus.

Registrant makes the following representations:

(1) Section 6e-3(T) (b) (l3) (iii) (F) has been relied
upon.

(2) The level of the mortality and expense risk charge
is within the range of industry practice for
comparable flexible premium variable life
insurance policies, and is reasonable in relation
to the risks assumed by the Company under the
Policies.

(3) Registrant has concluded that there is a
reasonable likelihood that the distribution
financing arrangement of the Separate Account will
benefit the Separate Account and Owners and will
keep and make available to the Commission on
request a memorandum setting forth the basis for
this representation.

(4) The Separate Account will invest only in
management investment companies which have
undertaken to have a board of directors, a
majority of whom are not interested persons of the
company, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.

The methodology used to support the representation made in paragraph (2)
above is based on an analysis of the mortality and expense risk charges
contained in other flexible premium variable life insurance policies.
Registrant undertakes to keep and make available to the Commission on request
the documents used to support the representation in paragraph (2) above.

II-2
<PAGE>

CONTENTS OF REGISTRATION STATEMENT

This Registration Statement comprises the following Papers and Documents:

The facing sheet.
The Prospectus consisting of 75 pages.
The undertaking to file reports required by Section 15 (d),
1934 Act.
The undertaking pursuant to Rule 484.
Representations pursuant to Rule 6e-3(T).
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) Proposed form of Underwriting Agreement. 1

(b) Proposed form of Selling Agreement. 1

(4) Not applicable.

(5) (a) Proposed form of Group Contract. 2

(b) Proposed form of Individual Policy and Policy
Riders. 4

(6) (a) Amended Charter and Articles of Incorporation of
the Company 1

(b) By-Laws of the Company 1

(7) Not applicable.

(8) Series Participation Agreement 1

(9) Not applicable.

(10) (a) Form of Application for Group Contract. 2

II-3
<PAGE>

(b) Form of Application for Individual Insurance
Guaranteed Issue (Group Contract) 2

(d) Form of Application for Spouse Insurance (Group
Contracts). 2

(e) Form of Application for Employee Insurance
Guaranteed Issue (Individual Policy). 2

(f) Form of Application for Employee Insurance
(Simplified Issue) (Individual Policy). 2

(g) Form of Application for Spouse Insurance
(Individual Policy). 2

(h) Form of Application for an Executive Program. 2

(i) Form of Application Supplement. 4

2. Memorandum describing the Company's issuance, transfer, and redemption
procedures for the Policies and the Company's procedure for conversion to a
fixed benefit policy. 2

3. The following exhibits are numbered to correspond to the numbers in the
instructions as to exhibits for Form S-6.

(1) See above.

(2) See Exhibit 1(5).

(3) Opinion of Matthew P. McCauley, Esquire, General
Counsel of Paragon Life Insurance Company. 1

(4) No financial statements are omitted from the Prospectus
pursuant to Instruction 1(b) or (c) of Part I.

(5) Not applicable.

4. Opinion and consent of Craig K. Nordyke, F.S.A., M.A.A.A.,
Vice President and Chief Actuary. 3

5. The consent of KPMG Peat Marwick LLP, Independent Certified
Public Accountants. 3

6. Written consent of Sutherland, Asbill & Brennan. 3

II-4
<PAGE>

7. Original powers of attorney authorizing Matthew P. McCauley,
Carl H. Anderson, and Craig K. Nordyke, and each of them
singly, to sign this Registration Statement and Amendments
thereto on behalf of the Board of Directors of Paragon Life
Insurance Company. 1

8. Power of Attorney for Warren J. Winer. 5

1 Incorporated by reference to the initial Registration
Statement in File No. 33-67970.

2 Incorporated by reference to initial Registration Statement
on Form S-6 (File No. 33-58796).

3 Filed herewith.

4 Incorporated by reference to mutual Registration Statement
in File No. 33-75776.

5 Incorporated by reference to Post-Effective Amendment No. 3
to the Registration Statement, File No. 33-67970.

II-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Paragon Life
Insurance Company and Separate Account C of Paragon Life Insurance Company
certify that they meet all the requirements for effectiveness of this amended
Registration Statement pursuant to Rule 485(b) under the Securities Act of l933
and have duly caused this amended Registration Statement to be signed on their
behalf by the undersigned thereunto duly authorized, and the seal of Paragon
Life Insurance Company to be hereunto affixed and attested, all in the City of
St. Louis, State of Missouri, on the 5th day of April, 1996.

(Seal) Paragon Life Insurance Company

Attest: /s/ MATTHEW P. McCAULEY By: /s/ CARL H. ANDERSON
------------------------ ------------------------
Matthew P. McCauley, Carl H. Anderson, President
Secretary and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

Signature Title Date
- --------- ----- ------
<S> <C> <C>

/s/ CARL H. ANDERSON 4/5/96
- -----------------------
Carl H. Anderson President and Director
(Chief Executive Officer)

/s/ STEVEN D. ANDERSON 4/5/96
- -----------------------
Steven D. Anderson Vice President and Chief
Financial Officer (Principal
Accounting Officer and
Principal Financial Officer)

- -----------------------
Warren J. Winer** Director

- -----------------------
Richard A. Liddy* Director
</TABLE>
<PAGE>

Signature Title Date
- --------- ----- ----
<S> <C> <C>

/s/ MATTHEW P. McCAULEY 4/5/96
- -------------------------
Matthew P. McCauley Vice President,
General Counsel,
Secretary and Director

/s/ CRAIG K. NORDYKE 4/5/96
- -------------------------
Craig K. Nordyke Director

- -------------------------
Leonard M. Rubenstein* Director

- -------------------------
E. Thomas Hughes, Jr.* Director and Treasurer

- -------------------------
Bernard H Wolzenski* Director

- -------------------------
A. Greig Woodring* Director

By: /s/ CRAIG K. NORDYKE 4/5/96
-------------------------
Craig K. Nordyke
</TABLE>

*Original powers of attorney authorizing Matthew P. McCauley, Carl H. Anderson,
and Craig K. Nordyke, and each of them singly, to sign this Registration
Statement and Amendments thereto on behalf of the Board of Directors of Paragon
Life Insurance Company have been filed with the Securities and Exchange
Commission.

**Original power of attorney authorizing Juanita M. Thomas, Carl H. Anderson,
and Craig K. Nordyke, and each of them singly, to sign this Registration
Statement and Amendments thereto on behalf of Warren J. Winer is being filed
with Post-Effective Amendment No. 3 (file no. 33-67970).
<PAGE>

EXHIBIT INDEX

4. Opinion and Consent of Craig K. Nordyke, F.S.A., M.A.A.A.

5. Written consent of KPMG Peat Marwick LLP, Independent
Certified Public Accountants.

6. Written consent of Sutherland, Asbill & Brennan.

<PAGE>

Exhibit 4

OPINION AND CONSENT OF CRAIG K. NORDYKE, F.S.A., M.A.A.A.
<PAGE>

RE: 33-75776

Gentlemen:

In my capacity as Vice President and Chief Actuary for Paragon Life Insurance
Company, I have provided actuarial advice concerning: (a) the preparation of a
registration statement for Separate Account C filed on Form S-6 with the
Securities and Exchange Commission under the Securities Act of 1933 (the
"Registration Statement") regarding the offer and sale of flexible premium
variable life insurance policies (the "Policies"); and (b) the preparation of
policy forms for the Policies described in the Registration Statement.

It is my professional opinion that:

1. The "sales load", as defined in paragraph (c) (4) of Rule 6e-3(T) under
the Investment Company Act of 1940, will not exceed 9 per centum of the
guideline annual premiums for the lesser of 20 years or the life
expectancy of the insured made under the Policies, in conformance with
paragraphs (b) (13) (i) (A) and (c) (7) of Rule 63-3(T).

2. The illustration of cash values, cash surrender values, death benefits,
and accumulated premiums in the Appendix to the prospectus contained in
the Registration Statement, are based on the assumptions stated in the
illustration, and are consistent with the provisions of the Policies. The
rate structure of the Policies has not been designed so as to make the
relationship between premiums and benefits, as shown in the illustrations,
appear to be more favorable to prospective purchasers of Policies aged 45
or 50 in the rate class illustrated than to prospective purchasers of
Policies at other ages.

3. The information contained in the examples set forth in the section of the
prospectus entitled "Death Benefits", is based on the assumption stated in
the examples, and is consistent with the provisions of the Policies.

I hereby consent to the filing of this opinion as an exhibit to the Post-
Effective Amendment No. 2 to the Registration Statement and to the use of my
name under the heading "Experts" in the prospectus.

/s/ Craig K. Nordyke
Craig K. Nordyke, FSA, MAAA
Vice President and Chief Actuary

<PAGE>

Exhibit 5

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
<PAGE>

INDEPENDENT AUDITORS' CONSENT
-----------------------------

The Board of Directors
Paragon Life Insurance Company

We consent to the use of our reports included herein and to the reference of
our firm under the heading "Experts" in the Registration Statement and
Prospectus for Paragon Separate Account C.

Our report dated February 16, 1996, covering the financial statements of Paragon
Life Insurance Company, contains an explanatory paragraph which states that the
financial statements are presented in conformity with accounting practices
prescribed or permitted by the State of Missouri Department of Insurance. These
practices differ in some respects from generally accepted accounting principles.
The financial statements do no include any adjustments that might result from
the differences.

KPMG Peat Marwick LLP

St. Louis, Missouri
April 17, 1996

<PAGE>

Exhibit 6

WRITTEN CONSENT OF SUTHERLAND, ASBILL & BRENNAN
<PAGE>

April 4, 1996

Board of Directors
Paragon Life Insurance Company
100 South Brentwood Boulevard
St. Louis, Missouri 63105

Ladies and Gentlemen:

We hereby consent to the reference to our name under the caption
"Legal Matters" in the Prospectus filed as part of Post-Effective Amendment No.
2 to the registration statement on Form S-6 for Separate Account C of Paragon
Life Insurance Company (File No. 33-75776). In giving this consent, we do not
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.

Very truly yours,

SUTHERLAND, ASBILL & BRENNAN

By: /s/ Stephen E. Roth
Stephen E. Roth