SEPARATE ACCOUNT C OF PARAGON LIFE INSURANCE CO, 485BPOS, 1998-04-28

SEPARATE ACCOUNT C OF PARAGON LIFE INSURANCE CO
485BPOS, 1998-04-28

Previous: SEPARATE ACCOUNT C OF PARAGON LIFE INSURANCE CO, 485BPOS, 1998-04-28

Next: MACERICH CO, 8-K, 1998-04-28

<PAGE>

As filed with the Securities and Exchange Commission on 28 April 1998

Registration No. 33-67970
811-7982

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

POST-EFFECTIVE AMENDMENT NO. 5
TO
FORM S-6

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

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

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

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

Copy to:

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

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

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

[X] 1 May, 1998 pursuant to paragraph (b) of Rule 485

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

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

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

[_] on (date) pursuant to paragraph (a)(2) of Rule 485

Title of Securities being registered: Group and Individual Flexible Premium
Life Insurance Policies
<PAGE>

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

-i-
<PAGE>

30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. The Company and the Separate Account
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
48. Not Applicable
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 OF FIDELITY INVESTMENTS]

VARIABLE INSURANCE
PRODUCTS FUNDS

[LOGO OF PARAGON LIFE INSURANCE COMPANY]

. GROUP AND INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICIES

Prospectus dated May 1, 1998

50408 Dir

<PAGE>

GROUP AND INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES

ISSUED BY

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

This Prospectus describes flexible premium variable life insurance policies
offered by Paragon Life Insurance Company (the "Company") Internal Revenue
Service Employer Identification Number 43-1235869 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, Variable
Insurance Products Fund II, or Variable Insurance Products Fund III investment
companies currently consisting of thirteen separate investment portfolios, or
"Funds":

VIP Money Market Portfolio VIP II Index 500 Portfolio
VIP High Income Portfolio VIP II Contrafund Portfolio
VIP Equity-Income Portfolio VIP II Asset Manager: Growth Portfolio
VIP Growth Portfolio VIP III Growth & Income Portfolio
VIP Overseas Portfolio VIP III Balanced Portfolio
VIP II Investment Grade Bond Portfolio VIP III Growth Opportunities Portfolio
VIP II Asset Manager Portfolio

The accompanying prospectuses for Variable Insurance Products Fund, Variable
Insurance Products Fund II, and Variable Insurance Products Fund III 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, Variable Insurance Products Fund II, and
Variable Insurance Products Fund III.

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, 1998.

1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions................................................................ 3
Summary.................................................................... 4
The Company and the Separate Account....................................... 10
The Company.............................................................. 10
The Separate Account..................................................... 10
Variable Insurance Products Funds........................................ 11
Addition, Deletion, or Substitution of Investments....................... 13
Payment and Allocation of Premiums......................................... 14
Issuance of a Policy..................................................... 14
Premiums................................................................. 15
Allocation of Net Premiums and Cash Value................................ 16
Policy Lapse and Reinstatement........................................... 17
Policy Benefits............................................................ 18
Death Benefit............................................................ 18
Cash Value............................................................... 22
Policy Rights and Privileges............................................... 23
Exercising Rights and Privileges Under the Policies...................... 23
Loans.................................................................... 23
Surrender and Partial Withdrawals........................................ 24
Transfers................................................................ 25
Right to Examine Policy.................................................. 26
Conversion Right to a Fixed Benefit Policy............................... 26
Eligibility Change Conversion............................................ 26
Payment of Benefits at Maturity.......................................... 27
Payment of Policy Benefits............................................... 27
Charges and Deductions..................................................... 27
Premium Expense Charge................................................... 27
Premium Tax Charge....................................................... 28
Monthly Deduction........................................................ 28
Partial Withdrawal Transaction Charge.................................... 30
Separate Account Charges................................................. 30
General Matters Relating to the Policy..................................... 31
Distribution of the Policies............................................... 35
General Provisions of the Group Contract................................... 35
Federal Tax Matters........................................................ 36
Safekeeping of the Separate Account's Assets............................... 39
Voting Rights.............................................................. 40
State Regulation of the Company............................................ 40
Management of the Company.................................................. 42
Legal Matters.............................................................. 43
Legal Proceedings.......................................................... 43
Experts.................................................................... 43
Additional Information..................................................... 43
Financial Statements....................................................... 43
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
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.

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.

3
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

Separate Account--The Separate Account 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, Variable
Insurance Products Fund II, and Variable Insurance Products Fund III.

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.

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.") 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

4
<PAGE>

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.")

The Policies are life insurance contracts with death benefits, cash values,
surrender rights, policy loan privileges, and other features traditionally
associated with life insurance. On behalf of Owners, the Contractholder will
remit planned premium payments under the Group Contract 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, the Owner in
Corporate Programs will 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.")

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

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

Premiums. An Owner has flexibility concerning the amount and frequency of
premium payments. An initial premium equal to one-twelfth (1/12) of the
planned annual premium set forth in the specifications page of a Policy is
necessary to 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.")

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.") 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.")

5
<PAGE>

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.") 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.")

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.")

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 Program Policies
have none of the additional benefits described above. (See "General Matters
Relating to the Policy--Additional Insurance Benefits.") 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.")

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.")

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, transfers, any Policy Loans, loan account interest rate
credited, any partial withdrawals, and the charges imposed in connection with
the Policy. (See "Policy Benefits--Cash Value.") There is no minimum
guaranteed Cash Value.

Charges and Deductions. Generally, there are no sales charges under a
Policy. However, a front-end charge will be imposed on Policies that are
deemed to be individual Policies under the Omnibus Budget Reconciliation Act
of 1990 ("OBRA"). The 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.

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

6
<PAGE>

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.") 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."

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.")

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 or to pay any economic burden resulting from the application of the tax
laws that the Company determines to be properly attributable to the Separate
Account or the Policies. (See "Federal Tax Matters.")

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 and
Deductions--Separate Account Charges.")

The total annual investment advisory fee and fund expenses for the funds
available during the last fiscal year as a percentage of net assets are as
follows: Fidelity Variable Insurance Products Funds--VIP Money Market
Portfolio .31%, VIP High Income Portfolio .71%, VIP Equity-Income Portfolio
.57%, VIP Growth Portfolio .67%, VIP Overseas Portfolio .90%; Fidelity
Variable Insurance Products Fund II--VIP II Investment Grade Bond Portfolio
.58%, VIP II Asset Manager Portfolio .64%, VIP II Index 500 Portfolio .28%,
VIP II Contrafund Portfolio .68%, VIP II Asset Manager: Growth Portfolio .76%;
Fidelity Variable Insurance Products Fund III--VIP III Growth & Income
Portfolio .70%, VIP III Balanced Portfolio .60%, VIP III Growth Opportunities
Portfolio .73%. Fidelity Management & Research Company ("FMR") agreed to
reimburse a portion of Index 500 Portfolio's expenses during the period.
Without this reimbursement, the fund's total expenses would have been .40%. A
portion of the brokerage commissions that certain funds pay was used

7
<PAGE>

to reduce funds' expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Without these
reductions, the total operating expenses presented would have been: Fidelity
Variable Insurance Products Fund--VIP Equity Income Portfolio .58%, VIP Growth
Portfolio .69%, VIP Overseas Portfolio .92%; Fidelity Variable Insurance
Products Fund II--VIP II Asset Manager Portfolio .65%, VIP II Contrafund
Portfolio .71%, VIP II Asset Manager: Growth Portfolio .77%; Fidelity Variable
Insurance Products Fund III--VIP III Balanced Portfolio .61%, VIP III Growth
Opportunities Portfolio .74%.

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," and "Policy Rights and Privileges--Surrender and
Partial Withdrawals, Transfers," and "Charges and Deductions--Partial
Withdrawal Transaction Charge.")

Policy Loans. After the first Policy Anniversary an Owner may borrow against
the Cash Value of a Policy. 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.") Loans taken from, or secured by, a Policy may
in certain circumstances be treated as taxable distributions from the Policy.
Moreover, with certain exceptions, a ten percent additional income tax would
be imposed on the portion of any loan that is included in income. (See
"Federal Tax Matters.")

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

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.")

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

8
<PAGE>

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

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.")

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.")

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.")

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

9
<PAGE>

THE COMPANY AND THE SEPARATE ACCOUNT

THE COMPANY

Paragon Life Insurance Company (the "Company") is a stock life insurance
company incorporated under the laws of Missouri. The Company was organized in
1981 as General American Insurance Company and on December 31, 1987, its name
was changed. No change in operations or ownership took place in connection
with the name change. The Company is principally engaged in writing individual
and group life insurance policies and annuity contracts. As of December 31,
1997, it had assets in excess of $240 million. The Company is admitted to do
business in 49 states and the District of Columbia. The principal offices of
the Company are at 100 South Brentwood, St. Louis, Missouri 63105 ("Home
Office").

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

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

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

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

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

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

10
<PAGE>

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 thirteen Divisions. Each
Division invests exclusively in shares of a single portfolio of VIP, VIP II or
VIP III. 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,
Variable Insurance Products Fund II, and Variable Insurance Products Fund III
(together referred to as "VIP, VIP II or VIP III"), series-type mutual funds
registered with the SEC as open-end, diversified management investment
companies. VIP, VIP II or VIP III currently has thirteen separate investment
portfolios or "Funds" which are available in the Policies: Fidelity Variable
Insurance Products Fund--VIP Money Market Portfolio, VIP High Income
Portfolio, VIP Equity-Income Portfolio, VIP Growth Portfolio, VIP Overseas
Portfolio; Fidelity Variable Insurance Products Fund II--VIP II Investment
Grade Bond Portfolio, VIP II Asset Manager Portfolio, VIP II Index 500
Portfolio, VIP II Contrafund Portfolio, VIP II Asset Manager: Growth
Portfolio; Fidelity Variable Insurance Products Fund III--Growth & Income
Portfolio, VIP III Balanced Portfolio, and VIP III Growth Opportunities
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.

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

FIDELITY VARIABLE INSURANCE PRODUCTS FUND

VIP 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.

VIP 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.

VIP 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.

11
<PAGE>

VIP 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.

VIP 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.

FIDELITY VARIABLE INSURANCE PRODUCTS FUND II

VIP II 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.

VIP II 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.

VIP II 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 money market option.

VIP II Contrafund Portfolio seeks long-term capital appreciation by
investing in securities of companies whose value FMR believes is not fully
recognized by the public.

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

FIDELITY VARIABLE INSURANCE PRODUCTS FUND III

VIP III Growth & Income Portfolio seeks high total return through a
combination of current income and capital appreciation by investing mainly in
equity securities. These equity securities may be domestic or foreign with a
focus on those that pay current dividends and show potential earnings growth.
The Portfolio may also invest in debt securities not paying dividends, but
which offer prospects for capital appreciation or future income.

VIP III Balanced Portfolio seeks both income and growth of capital by
investing in a diversified portfolio of equity and fixed-income securities
with income, growth of income, and capital appreciation potential. The
Portfolio is managed to maintain a balance between stocks and bonds, but may
vary from this balance if it is believed stocks or bonds offer more favorable
opportunities.

VIP III Growth Opportunities Portfolio seeks to provide capital growth by
investing primarily in common stocks and securities convertible into common
stocks. The Portfolio has the ability to purchase preferred stock and bonds
that may produce capital growth, and also can invest in foreign securities
without limitation.

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, VIP II and VIP III in accordance with the terms of the
current prospectuses for VIP, VIP II, and VIP III. The Funds pay investment
management fees to FMR as part of their expenses. See the VIP, VIP II, and VIP
III, prospectuses for details regarding these fees.

12
<PAGE>

The Company has entered into or may enter into arrangements with Funds
pursuant to which the Company receives a fee based upon an annual percentage
of the average net asset amount invested by the Company on behalf of the
Separate Account and other separate accounts of the Company. These
arrangements reflects administrative services provided by the Company.

Resolving Material Conflicts. All of the Funds of VIP, VIP II, and VIP III
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, VIP II , and VIP III prospectuses
for further details.

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,
VIP II, and VIP III and to substitute shares of another Fund of VIP, VIP II,
and VIP III 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, VIP II, or
VIP III 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, VIP II, or VIP III will
always be available. VIP, VIP II, and VIP III sells shares to the Separate
Account in accordance with the terms of a participation agreement between VIP,
VIP II, and VIP III 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, VIP II, or VIP III 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, VIP II, or VIP III. In the event that VIP, VIP II, or VIP III
are no longer available, the Company will, of course, take reasonable steps to
obtain alternative investment options.

13
<PAGE>

PAYMENT AND ALLOCATION OF PREMIUMS

ISSUANCE OF A POLICY

The Company will generally issue a Group Contract to employers whose
employees and/or their spouses may become Owners and/or Insureds thereunder so
long as the employee is within the class of employees eligible to be included
in the Group Contract. The class(es) of employees covered by a particular
Group Contract are set forth in that Group Contract's specifications pages.
The Group Contract will be issued upon receipt of an application for a Group
Contract signed by a duly authorized officer of the employer and acceptance by
a duly authorized officer of the Company at its Home Office. (See "General
Provisions of the Group Contract--Issuance.") Individuals (i.e., eligible
employees or their spouses) wishing to purchase a Policy, whether under a
Group Contract or an employer-sponsored insurance program, must complete the
appropriate application for Individual Insurance and submit it to an
authorized representative of the Company or to the Company's Home Office. The
Company will issue to each Contractholder either a Certificate or an
Individual Policy to give to each Owner. Individual Policies, rather than
Certificates, will be issued (i) to independent contractors of the employer;
(ii) to persons who wish to continue coverage after a Group Contract has
terminated; (iii) to persons who wish to continue coverage after they no
longer are employed by the Group Contractholder; (iv) if state law
restrictions make issuance of a Group Contract impracticable; or (v) if the
employer chooses to use an employer-sponsored insurance program that does not
involve a Group Contract.

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

14
<PAGE>

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

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

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

PREMIUMS

The initial premium is due on the Issue Date, and usually will be remitted
by the Contractholder or employer on behalf of the Owner. 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.")
However, the Owner is not required to pay premiums equal to the planned annual
premium.

Premiums remitted by a Contractholder or sponsoring employer or designated
payor shall be applied to a Policy 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

15
<PAGE>

skip planned premium payments. Failure to pay one or more planned premium
payments will not cause the Policy to lapse until such time as the Cash
Surrender Value is insufficient to cover the next Monthly Deduction. (See
"Payment and Allocation of Premiums--Policy Lapse and Reinstatement.")

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

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

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

ALLOCATION OF NET PREMIUMS AND CASH VALUE

Net Premiums. The net premium equals the premium paid less the premium
expense charge less any charge to compensate the Company for anticipated
higher corporate income taxes resulting from the sale of a policy less the
premium tax charge. (See "Charges and Deductions--Premium Expense.")

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

16
<PAGE>

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

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

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

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

POLICY LAPSE AND REINSTATEMENT

Lapse. Unlike conventional life insurance policies, the failure to make a
premium payment following the initial premium will not itself cause a Policy
to lapse. 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.")

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, premium expense charge,
and premium tax charge. (See "Charges and Deductions," page 26.) 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.

17
<PAGE>

POLICY BENEFITS

DEATH BENEFIT

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

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

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

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

18
<PAGE>

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.

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.

19
<PAGE>

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

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

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

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

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

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

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

(b) The next most recent increases successively; and

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

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

20
<PAGE>

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

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

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

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

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

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

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

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

When no election for an optional method of settlement is in force 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.")

21
<PAGE>

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

CASH VALUE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(4) Any amount charged against each Division for taxes or other economic
burden resulting from the application of tax laws, determined by the
Company to be properly attributable to the Divisions of the

22
<PAGE>

Separate Account or the Policy, or any amount set aside during the
Valuation Period as a reserve for taxes attributable to the operation or
maintenance of each Division; minus

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

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

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

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

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

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

POLICY RIGHTS AND PRIVILEGES

EXERCISING RIGHTS AND PRIVILEGES UNDER THE POLICIES

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

LOANS

Loan Privileges. After the first Policy Anniversary, the Owner may, by
written request directly to the Company, borrow an amount up to the Loan Value
of the Policy, with the Policy serving as sole security for such loan. The
Loan Value is equal to (a) minus (b), where (a) is 85 percent of the Cash
Value of the Policy on the date the Policy Loan is requested and (b) is the
amount of any outstanding Indebtedness. Loan interest is due and payable in
arrears on each Policy Anniversary or on a pro rata basis for such shorter
period as the loan may exist. The minimum amount that may be borrowed is $100.
The loan may be completely or partially repaid at any time while the Insured
is living. Any amount due to an Owner under a Policy Loan ordinarily will be
paid within seven days after the Company receives the loan request at its Home
Office, although payments may be postponed under certain circumstances. (See
"General Matters Relating to the Policy--Postponement of Payments.")

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

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.

23
<PAGE>

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.")

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

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

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

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

SURRENDER AND PARTIAL WITHDRAWALS

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

Surrender. To effect a surrender, the Policy itself must be returned to the
Company along with the request, or the request must be accompanied by a
completed affidavit of lost policy, which is available from the Company. Upon
surrender, the Company will pay the Cash Surrender Value to the Owner. The
Cash Surrender Value equals the Cash Value on the date of surrender, less any
Indebtedness. Surrender proceeds will be paid in a single sum.

24
<PAGE>

If the request is received on a Monthly Anniversary, the monthly deduction
otherwise deductible will be included in the amount paid. Coverage under a
Policy will terminate as of the date of surrender.

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

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

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

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

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

TRANSFERS

Under the Company's current rules, a Policy's Cash Value, except amounts
credited to the Loan Account, may be transferred among the Divisions of the
Separate Account. 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.

25
<PAGE>

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

RIGHT TO EXAMINE POLICY

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

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

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

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

CONVERSION RIGHT TO A FIXED BENEFIT POLICY

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

ELIGIBILITY CHANGE CONVERSION

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

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,

26
<PAGE>

at the time the conversion occurs, the Policy is in a grace period (see
"Payment and Allocation of Premiums--Policy Lapse and Reinstatement"), any
premium necessary to prevent the Policy from lapsing must be paid to the
Company at its Home Office before the new Individual Policy will be mailed. A
new planned premium schedule will be established which will have the same
planned annual premium utilized under the Group Contract, but, ordinarily, the
planned payment intervals will be no more frequent than quarterly. The Company
may allow payment of planned premium through periodic (usually monthly)
authorized electronic funds transfer. Of course, unscheduled premium payments
can be made at any time. (See "Payment and Allocation of Premiums--Premiums.")

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

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

PAYMENT OF BENEFITS AT MATURITY

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

PAYMENT OF POLICY BENEFITS

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

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

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

CHARGES AND DEDUCTIONS

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

PREMIUM EXPENSE CHARGE

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

27
<PAGE>

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

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 (see "Charges and
Deductions--Premium Tax Charge," below) equals the net premium.

PREMIUM TAX CHARGE

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

MONTHLY DEDUCTION

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

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

28
<PAGE>

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

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

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

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

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

The current cost of insurance rates will not be greater than the guaranteed
cost of insurance rates set forth in the Policy. These guaranteed rates are
125 percent of the maximum rates that could be charged based on the 1980
Commissioners Standard Ordinary Mortality Table C ("1980 CSO Table"). The
guaranteed rates are higher than 100 percent of the maximum rates in the 1980
CSO Table because the Company uses guaranteed or simplified underwriting
procedures whereby the insured is not required to submit to a medical
or paramedical examination. The current cost of insurance rates are generally
lower than 100 percent of the 1980 CSO Table. Any change in the actual cost of
insurance rates, except those changes made to adjust for changes in the gender
mix of the pool of Insureds under a particular Group Contract or employer-
sponsored insurance program, will 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.)

29
<PAGE>

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.")

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

PARTIAL WITHDRAWAL TRANSACTION CHARGE

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

SEPARATE ACCOUNT CHARGES

Mortality and Expense Risk Charge. The Company will deduct a daily charge
from the Separate Account at 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.

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.")

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

30
<PAGE>

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 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.

31
<PAGE>

POLICY CHANGES

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

CONFORMITY WITH STATUTES

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

CLAIMS OF CREDITORS

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

INCONTESTABILITY

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

ASSIGNMENT

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

SUICIDE

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

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

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.

32
<PAGE>

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.")

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

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

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

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

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

Accelerated Death Benefit Settlement Option Rider. Provides for the
accelerated payment of a portion of death benefit proceeds in a single sum to
the Owner if the Insured is terminally ill or permanently confined to a
nursing home. Under the rider, which is available at no additional cost, the
Owner may make a voluntary election to completely settle the Policy in return
for the Company's accelerated payment of a reduced death benefit. The Owner
may make such an election under the rider if evidence, including a
certification from a licensed physician, is provided to the Company that the
Insured (1) has a life expectancy of 12 months or less or (2) is permanently

33
<PAGE>

confined to a qualified nursing home and is expected to remain there until
death. Any irrevocable beneficiary and assignees of record must provide
written authorization in order for the Owner to receive the accelerated
benefit. The Accelerated Death Benefit Settlement Option Rider is not
available with Corporate Programs.

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

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

RECORDS AND REPORTS

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

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

34
<PAGE>

DISTRIBUTION OF THE POLICIES

Walnut Street Securities, Inc. ("Walnut Street") acts as principal
underwriter of the Policies pursuant to an Underwriting Agreement with the
Company. Walnut Street is a wholly-owned subsidiary of General American
Holding Company, which is an affiliate of the Company. Walnut Street is
registered with the SEC under the Securities Exchange Act of 1934 as a broker-
dealer and is a member of the National Association of Securities Dealers.
Walnut Street's Internal Revenue Service Employer Identification Number is 43-
1333368. It is a Missouri Corporation formed May 4, 1984. The Policies are
distributed by the Company on behalf of Walnut Street or through broker-
dealers who have entered into written sales agreements with Walnut Street. No
commissions are paid for distribution of the Policies.

GENERAL PROVISIONS OF THE GROUP CONTRACT

ISSUANCE

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

PREMIUM PAYMENTS

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

GRACE PERIOD

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

TERMINATION

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

RIGHT TO EXAMINE GROUP CONTRACT

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

35
<PAGE>

ENTIRE CONTRACT

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

INCONTESTABILITY

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

OWNERSHIP OF GROUP CONTRACT

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

FEDERAL TAX MATTERS

INTRODUCTION

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

TAXATION OF THE POLICY

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

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

36
<PAGE>

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."

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

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

TAX TREATMENT OF POLICY BENEFITS

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

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

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. In recent years, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a
new Policy or a change in an existing Policy should consult a tax advisor.

37
<PAGE>

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

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

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

If a Policy becomes a modified endowment contract after it is issued,
distributions made during the policy year in which it becomes a modified
endowment contract, distributions in any subsequent policy year and
distributions within two years before the Policy becomes a modified endowment
contract will be subject to the 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

38
<PAGE>

the Policy's death benefit (e.g., partial withdrawal or a change from Option B
to Option A) or any other change that reduces benefits under the Policy in the
first 15-years after the Policy is issued and that results in a cash
distribution to the Policy owner in order for the Policy to continue complying
with the section 7702 definitional limits. Such a cash distribution will be
taxed in whole or in part as ordinary income (to the extent of any gain in the
Policy) under rules prescribed in section 7702.

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

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

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

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

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

POSSIBLE CHARGE FOR TAXES

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

Although the likelihood of legislative changes is uncertain, there is always
the possibility that the tax treatment of the Policy could change by
legislation or otherwise. For instance, the President's 1999 Budget Proposal
recommended legislation that, if enacted, would adversely modify the federal
taxation of this Policy. It is possible that any legislative change could be
retroactive (that is, effective prior to the date of the change). A tax
adviser should be consulted with respect to legislative developments and their
effect on the Policy.

SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS

The Company holds assets of the Separate Account. The assets are kept
physically segregated and held separate and apart from the Company's general
assets. The Company maintains records of all purchases and redemptions of Fund
shares by each of the Divisions. Additional protection for the assets of the
Separate Account is afforded by a blended executive risk insurance program,
including blanket fidelity coverage issued by CNA and Chubb Insurance
Companies with a limit of $25 million, covering all officers and employees of
the Company who have access to the assets of the Separate Account.

39
<PAGE>

VOTING RIGHTS

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

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

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

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

PREPARING FOR YEAR 2000

Like all financial services providers, the Company utilizes systems that may
be affected by Year 2000 transition issues and it relies on service providers,
including the Funds, that also may be affect. The Company

40
<PAGE>

has developed, and is in the process of implementing, a Year 2000 transition
plan, and is confirming that its service providers are also so engaged. The
resources that are being devoted to this effort is substantial. It is
difficult to predict with precision whether the amount of resources ultimately
devoted, or the outcome of these efforts, will have any negative impact on the
Company. However, as of the date of this prospectus, it is not anticipated
that Policy owners will experience negative effects on their investment, or on
the services provided in connection therewith, as a result of Year 2000
transition implementation. The Company currently anticipates that its systems
will be Year 2000 compliant on or about December 1, 1998, but there can be no
assurance that the Company will be successful, or that interaction with other
service providers will not impair the Company's services at that time.

41
<PAGE>

LOGO

INDEPENDENT AUDITOR'S REPORT

The Board of Directors
Paragon Life Insurance Company:

We have audited the accompanying balance sheets of Paragon Life Insurance
Company as of December 31, 1997 and 1996, and the related statements of
operations, stockholder's equity, and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paragon Life Insurance
Company as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

February 6, 1998

F-1
<PAGE>

PARAGON LIFE INSURANCE COMPANY

BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale, at fair value............ $ 75,704 65,472
Policy loans................................................... 11,487 9,564
Cash and cash equivalents...................................... 5,733 9,106
-------- -------
Total cash and invested assets............................. 92,924 84,142
Reinsurance recoverables....................................... 1,733 841
Deposits relating to reinsured policyholder account balances... 6,416 6,074
Accrued investment income...................................... 1,377 1,298
Deferred policy acquisition costs.............................. 17,980 15,776
Fixed assets and leasehold improvements, net................... 2,609 1,365
Other assets................................................... 179 143
Separate account assets........................................ 118,051 76,995
-------- -------
Total assets............................................... $241,269 186,634
======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Policyholder account balances.................................. 85,152 78,120
Policy and contract claims..................................... 1,085 1,108
Federal income taxes payable................................... 163 811
Other liabilities and accrued expenses......................... 3,486 2,704
Payable to affiliates.......................................... 1,620 2,289
Due to separate account........................................ 61 95
Deferred tax liability......................................... 4,394 2,781
Separate account liabilities................................... 118,051 76,995
-------- -------
Total liabilities.......................................... $214,012 164,903
-------- -------
Stockholder's equity:
Common stock, par value $25; 100,000 shares authorized;
82,000 shares issued and outstanding........................ 2,050 2,050
Additional paid-in capital................................... 17,950 17,950
Net unrealized gain on investments, net...................... 1,958 322
Retained earnings............................................ 5,299 1,409
-------- -------
Total stockholder's equity................................. $ 27,257 21,731
-------- -------
Total liabilities and stockholder's equity................. $241,269 186,634
======== =======
</TABLE>

See accompanying notes to financial statements.

F-2
<PAGE>

PARAGON LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Revenues:
Policy contract charges................................ $16,417 13,719 9,931
Net investment income.................................. 6,288 5,663 4,888
Commissions and expense allowances on reinsurance
ceded................................................. 10 114 96
Net realized investment gains.......................... 69 72 1
------- ------ ------
Total revenues....................................... 22,784 19,568 14,916
======= ====== ======
Benefits and expenses:
Policy benefits........................................ 3,876 3,326 2,873
Interest credited to policyholder account balances..... 4,738 4,126 3,833
Commissions, net of capitalized costs.................. 227 79 57
General and administration expenses, net of capitalized
costs................................................. 7,744 6,798 5,528
Amortization of deferred policy acquisition costs...... 424 285 369
------- ------ ------
Total benefits and expenses.......................... 17,009 14,614 12,660
======= ====== ======
Income before federal income tax expense............. 5,775 4,954 2,256
Federal income tax expense............................... 1,885 1,738 781
------- ------ ------
Net income............................................... $ 3,890 3,216 1,475
======= ====== ======
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

PARAGON LIFE INSURANCE COMPANY

STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
ADDITIONAL NET UNREALIZED RETAINED TOTAL
COMMON PAID-IN GAIN (LOSS) ON EARNINGS STOCKHOLDER'S
STOCK CAPITAL INVESTMENTS (DEFICIT) EQUITY
------ ---------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... $2,050 17,950 (1,824) (3,282) 14,894
Net income............ -- -- -- 1,475 1,475
Change in net
unrealized gain
(loss) on
investments.......... -- -- 3,407 -- 3,407
------ ------ ------ ------ ------
Balance at December 31,
1995................... $2,050 17,950 1,583 (1,807) 19,776
Net income............ -- -- -- 3,216 3,216
Change in net
unrealized gain
(loss) on
investments.......... -- -- (1,261) -- (1,261)
------ ------ ------ ------ ------
Balance at December 31,
1996................... $2,050 17,950 322 1,409 21,731
Net income............ -- -- -- 3,890 3,890
Change in net
unrealized gain
(loss) on
investments.......... -- -- 1,636 -- 1,636
------ ------ ------ ------ ------
Balance at December 31,
1997................... $2,050 17,950 1,958 5,299 27,257
====== ====== ====== ====== ======
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

PARAGON LIFE INSURANCE COMPANY

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 3,890 3,216 1,475
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in:
Reinsurance recoverables...................... (892) 407 297
Deposits relating to reinsured policyholder
account balances............................. (342) (378) (139)
Accrued investment income..................... (79) (257) (156)
Federal income tax recoverable/payable........ (648) 811 --
Other assets.................................. (1,280) (1,019) (145)
Policy and contract claims.................... (23) 12 387
Other liabilities and accrued expenses........ 782 741 313
Payable to affiliates......................... (669) 397 526
Due to separate account....................... (34) (108) (14)
Deferred tax expense.............................. 732 615 897
Policy acquisition costs deferred................. (2,972) (2,447) (2,263)
Amortization of deferred policy acquisition costs. 424 285 369
Interest credited to policyholder accounts........ 4,738 4,126 3,833
Net gain on sales and calls of fixed maturities... (69) (72) (1)
-------- ------- ------
Net cash provided by operating activities........... 3,558 6,329 5,379
Cash flows from investing activities:
Purchase of fixed maturities...................... (12,557) (15,290) (8,423)
Sale or maturity of fixed maturities.............. 5,255 6,860 3,082
Increase in policy loans, net..................... (1,923) (2,358) (1,788)
-------- ------- ------
Net cash used in investing activities............... (9,225) (10,788) (7,129)
-------- ------- ------
Cash flows from financing activities:
Net policyholder account deposits................. 2,294 6,509 5,764
-------- ------- ------
Net increase (decrease) in cash and cash
equivalents........................................ (3,373) 2,050 4,014
Cash and cash equivalents at beginning of year...... 9,106 7,056 3,042
-------- ------- ------
Cash and cash equivalents at end of year............ $ 5,733 9,106 7,056
======== ======= ======
Income taxes received (paid)........................ $ (1,801) (198) 93
======== ======= ======
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1997 AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

The significant accounting policies of the Company are as follows:

(a) Recognition of Policy Revenue and Related Expenses

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

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

(b) Invested Assets

Investment securities are accounted for at fair value. At December 31, 1997
and 1996, fixed maturity securities are classified as available-for-sale and
are carried at fair value with the unrealized gain or loss, net of taxes,
being reflected as a separate component of stockholder's equity. Policy loans
are valued at aggregate unpaid balances.

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

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

F-6
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Policyholder account balances are equal to the policyholder account value
before deduction of any surrender charges. The policyholder account value
represents an accumulation of gross premium payments plus credited interest
less expense and mortality charges and withdrawals. These expense charges are
recognized in income as earned. Certain variable life policies allow
policyholders to exchange accumulated assets from the variable rate separate
accounts to a fixed-interest general account policy. The fixed-interest
general account guaranteed minimum crediting rates of 4% in 1997, 1996 and
1995. The actual crediting rate was 6.5% in 1997, ranged from 6.5% to 7.0% in
1996, and was 7.0% in 1995.

(d) Federal Income Taxes

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

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

(e) Reinsurance

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

(f) Deferred Policy Acquisition Costs

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

(g) Separate Account Business

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

F-7
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(h) Fair Value of Financial Instruments

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

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

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

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

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

(i) Cash and Cash Equivalents

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

(j) Reclassifications

The Company has reclassified the presentation of certain prior period
information to conform to the 1997 presentation.

(2) INVESTMENTS

The amortized cost and estimated fair value of fixed maturities at December
31, 1997 and 1996 are as follows (000's):

<TABLE>
<CAPTION>
1997
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities........ $ 4,472 131 -- 4,603
Corporate securities............ 56,973 3,098 (142) 59,929
Mortgage-backed securities...... 9,124 233 (48) 9,309
Asset-backed securities......... 1,762 101 -- 1,863
------- ----- ---- ------
$72,331 3,563 (190) 75,704
======= ===== ==== ======
<CAPTION>
1996
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities........ $ 4,410 129 (5) 4,534
Corporate securities............ 51,489 1,161 (844) 51,806
Mortgage-backed securities...... 7,547 137 (110) 7,574
Asset-backed securities......... 1,513 45 -- 1,558
------- ----- ---- ------
$64,959 1,472 (959) 65,472
======= ===== ==== ======
</TABLE>

F-8
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The amortized cost and estimated fair value of fixed maturities at December
31, 1997, by contractual maturity, are shown below (000's). Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.

<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED COST FAIR VALUE
-------------- ----------
<S> <C> <C>
Due in one year or less......................... $ 3,092 3,124
Due after one year through five years........... 10,443 10,846
Due after five years through ten years.......... 15,444 15,890
Due after ten years through twenty years........ 34,228 36,535
Mortgage-backed securities...................... 9,124 9,309
------- ------
$72,331 75,704
======= ======
</TABLE>

Proceeds from sales of fixed maturities during 1997, 1996 and 1995 were
$1,328,585, $4,129,254 and $264,750 respectively. Gross gains of $68,876,
$71,604 and $1,338 were realized on those sales in 1997, 1996 and 1995,
respectively.

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

<TABLE>
<CAPTION>
1997 1996 1995
------- ----- -----
<S> <C> <C> <C>
Fixed Maturities...................................... $ 4,941 4,626 4,109
Short-term investments................................ 608 449 338
Policy loans and other................................ 807 680 480
------- ----- -----
$ 6,356 5,755 4,927
Investment expenses................................... (68) (92) (39)
======= ===== =====
Net investment income............................. $ 6,288 5,663 4,888
======= ===== =====
</TABLE>

A summary of the components of the net unrealized appreciation
(depreciation) on invested assets carried at fair value is as follows (in
000's):
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Unrealized appreciation (depreciation):
Fixed maturities available-for-sale....................... $3,373 513
Deferred policy acquisition costs......................... (361) (17)
Deferred income taxes....................................... (1,054) (174)
------ ----
Net unrealized appreciation (depreciation).................. $1,958 322
====== ====
</TABLE>

The Company has fixed maturities on deposit with various state insurance
departments with an amortized cost of approximately $3,982,000 and $3,909,000
at December 31, 1997 and 1996, respectively.

(3) REINSURANCE

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

Premiums and related reinsurance amounts for the years ended December 31,
1997, 1996 and 1995 as they relate to transactions with affiliates are
summarized as follows (000's):

F-9
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Reinsurance transactions with affiliates:
Premiums for reinsurance ceded................ $13,001 10,264 8,607
Policy benefits ceded......................... 14,070 6,274 6,881
Commissions and expenses ceded................ 195 114 94
Reinsurance recoverables...................... 1,661 774 1,183

Ceded premiums and benefits to nonaffiliates for 1997, 1996 and 1995 were
insignificant.

(4) DEFERRED POLICY ACQUISITION COSTS

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

<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Balance at beginning of year.................... $15,776 13,006 12,496
Policy acquisition costs deferred............... 2,972 2,447 2,263
Policy acquisition costs amortized.............. (424) (285) (369)
Deferred policy acquisition costs relating to
change in unrealized (gain) loss on investments
available for sale............................. (344) 608 (1,384)
------- ------ ------
Balance at end of year.......................... $17,980 15,776 13,006
======= ====== ======

(5) FEDERAL INCOME TAXES

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

<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Current tax (benefit) expense................... $ 1,153 1,123 (116)
Deferred tax expense............................ 732 615 897
------- ------ ------
Federal income tax expense...................... $ 1,885 1,738 781
======= ====== ======

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

<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense................. $ 2,022 1,734 790
Other, net...................................... (137) 4 (9)
------- ------ ------
Federal income tax expense...................... $ 1,885 1,738 781
======= ====== ======
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1997 and 1996
are presented below (000's):

<TABLE>
<CAPTION>
1997 1996
------- -----
<S> <C> <C>
Deferred tax assets:
Unearned reinsurance allowances........................... $ 217 153
Policy and contract liabilities........................... 1,031 1,305
Tax capitalization of acquisition costs................... 1,755 1,386
Other, net................................................ 76 69
------- -----
Total deferred tax assets............................... $ 3,079 2,913
======= =====
Deferred tax liabilities:
Unrealized gain on investments............................ $ 1,054 174
Deferred policy acquisition costs......................... 6,419 5,520
------- -----
Total gross deferred tax liabilities.................... $ 7,473 5,694
======= =====
Net deferred tax liabilities............................ $ 4,394 2,781
======= =====
</TABLE>

F-10
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

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

(6) RELATED-PARTY TRANSACTIONS

Paragon purchases certain administrative services from General American.
Charges for services performed are based upon personnel and other costs
involved in providing such service. Charges for services during 1997, 1996 and
1995 were $1,348,198, $1,250,396 and $1,103,028, respectively. See Note 3 for
reinsurance transactions with affiliates.

(7) PENSION PLAN

Associates of Paragon participate in a non-contributory multi-employer
defined benefit pension plan jointly sponsored by Paragon and General
American. The benefits are based on years of service and compensation level.
No pension expense was recognized in 1997, 1996 or 1995 due to overfunding of
the plan.

In addition, Paragon has adopted an associate incentive plan applicable to
full-time salaried associates with at least one year of service. Contributions
to the plan are determined annually by General American and are based on
salaries of eligible associates. Full vesting occurs after five years of
continuous service. Total expenses to the company for the incentive plan were
$198,972, $80,434 and $149,747 for 1997, 1996 and 1995, respectively.

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

(8) STATUTORY FINANCIAL INFORMATION

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

The stockholder's equity (surplus) and net income (loss) of the Company at
December 31, 1997, 1996 and 1995, as determined using statutory accounting
practices, is summarized as follows (000's):

<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Statutory surplus as reported to regulatory
authorities..................................... $10,848 10,751 10,778
Net income (loss) as reported to regulatory
authorities..................................... $ 1,452 982 (920)
</TABLE>

F-11
<PAGE>

PARAGON LIFE INSURANCE COMPANY

NOTES TO 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 1998 without prior
notice or approval is $1,452,000. Paragon did not pay dividends in 1997, 1996
or 1995.

(10) RISK-BASED CAPITAL

The insurance departments of various states, including the Company's
domiciliary state of Missouri, impose risk-based capital (RBC) requirements on
insurance enterprises. The RBC calculation serves as a benchmark for the
regulation of life insurance companies by state insurance regulators. The
requirements apply various weighted factors to financial balances or activity
levels based on their perceived degree of risk.

The RBC guidelines define specific capital levels where action by the
Company or regulators is required based on the ratio of a company's actual
total adjusted capital to control levels determined by the RBC formula. At
December 31, 1997, the Company's actual total adjusted capital was in excess
of minimum levels which would require action by the Company or regulatory
authorities under the RBC formula.

(11) COMMITMENTS AND CONTINGENCIES

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

<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31:
1998............................ $ 503
1999............................ 490
2000............................ 486
2001............................ 189
------
$1,668
======
</TABLE>

Rent expense totaled $433,864, $388,976 and $256,631 in 1997, 1996 and 1995,
respectively.

F-12
<PAGE>

[LOGO OF KPMG PEAT MARWICK LLP]

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying statements of net assets, including the
schedule of investments, of the Money Market, High Income, Growth, Equity-
Income, Overseas, Investment Grade Bond, Asset Manager, Index 500, Contrafund,
Asset Manager Growth, Growth and Income, Growth Opportunities, and Balanced
Divisions of Paragon Separate Account C as of December 31, 1997, 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, 1997 by
correspondence with the Fidelity Investments Variable Insurance Products
Funds. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Money Market, High
Income, Growth, Equity-Income, Overseas, Investment Grade Bond, Asset Manager,
Index 500, Contrafund, Asset Manager Growth, Growth and Income, Growth
Opportunities, and Balanced Divisions of Paragon Separate Account C as of
December 31, 1997, 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

April 4, 1998

F-13
<PAGE>

PARAGON SEPARATE ACCOUNT C

STATEMENTS OF NET ASSETS
DECEMBER 31, 1997

<TABLE>
<CAPTION>
MONEY HIGH INVESTMENT ASSET
MARKET INCOME GROWTH EQUITY INCOME OVERSEAS GRADE BOND MANAGER INDEX 500
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
---------- --------- --------- ------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSETS:
Investments in Fidelity
Investments, at Market
Value (See Schedule of
Investments)........... $ 872,672 1,825,076 8,297,803 4,819,583 2,977,805 767,413 4,441,454 3,391,483
Receivable (payable)
from/to Paragon Life
Insurance Company...... 4,351 5,141 30,308 16,063 6,451 2,466 8,399 9,534
---------- --------- --------- --------- --------- ------- --------- ---------
Total Net Assets....... 877,023 1,830,217 8,328,111 4,835,646 2,984,256 769,879 4,449,853 3,401,017
========== ========= ========= ========= ========= ======= ========= =========
TOTAL NET ASSETS REPRE-
SENTED BY:
Group Variable Universal
Life Cash Value In-
vested in Separate Ac-
count.................. 877,023 1,830,217 8,328,111 4,835,646 2,984,256 769,879 4,449,853 3,401,017
---------- --------- --------- --------- --------- ------- --------- ---------
$ 877,023 1,830,217 8,328,111 4,835,646 2,984,256 769,879 4,449,853 3,401,017
========== ========= ========= ========= ========= ======= ========= =========
Total Units Held........ 736,736 99,309 195,211 152,652 141,772 53,424 196,758 27,652
Net Asset Value Per
Unit................... $ 1.19 18.43 42.66 31.68 21.05 14.41 22.62 122.99
Cost of Investments..... $ 872,672 1,627,610 6,517,650 3,925,310 2,726,161 734,628 3,855,655 2,677,566
========== ========= ========= ========= ========= ======= ========= =========
<CAPTION>
ASSET
MANAGER GROWTH $
CONTRAFUND GROWTH INCOME GROWTH BALANCED
DIVISION DIVISION DIVISION OPPORTUNITIES DIVISION
---------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSETS:
Investments in Fidelity
Investments, at Market
Value (See Schedule of
Investments)........... $2,022,919 1,102,074 28,025 56,239 369
Receivable (payable)
from/to Paragon Life
Insurance Company...... (4,505) 5,444 276 349 7
---------- --------- --------- --------- ---------
Total Net Assets....... 2,018,414 1,107,518 28,301 56,588 376
========== ========= ========= ========= =========
TOTAL NET ASSETS REPRE-
SENTED BY:
Group Variable Universal
Life Cash Value In-
vested in Separate Ac-
count.................. 2,018,414 1,107,518 28,301 56,588 376
---------- --------- --------- --------- ---------
$2,018,414 1,107,518 28,301 56,588 376
========== ========= ========= ========= =========
Total Units Held........ 98,076 62,010 2,206 2,942 26
Net Asset Value Per
Unit................... $ 20.58 17.86 12.83 19.23 14.46
Cost of Investments..... $1,718,041 953,702 28,090 54,248 364
========== ========= ========= ========= =========
</TABLE>

See Accompanying Notes to Financial Statements.

F-14
<PAGE>

PARAGON SEPARATE ACCOUNT C

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995,
EXCEPT THE CONTRAFUND DIVISION WHICH IS FOR THE YEARS
ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE PERIOD FROM
AUGUST 8, 1995 (INCEPTION) TO DECEMBER 31, 1995, THE
GROWTH MANAGER DIVISION WHICH IS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996 AND FOR THE PERIOD FROM AUGUST
29, 1995 (INCEPTION) TO DECEMBER 31, 1995, THE GROWTH
OPPORTUNITIES DIVISION, THE GROWTH & INCOME DIVISION AND
THE BALANCED DIVISION WHICH ARE FOR THE PERIOD FROM MAY 1,
1997 (INCEPTION) TO DECEMBER 31, 1997

<TABLE>
<CAPTION>
MONEY MARKET DIVISION HIGH INCOME DIVISION GROWTH DIVISION
------------------------- ------------------------- --------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- ------- ------- ------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Income........ $ 42,724 28,882 10,241 90,958 55,219 18,394 40,552 9,127 6,155
Expenses:
Mortality and Expense
Charge................. 30,043 6,124 2,023 53,923 10,879 4,106 11,352 40,034 18,527
-------- ------- ------- ------- ------- ------- --------- ------- -------
Net Investment Income
(Expense)............ 12,681 22,758 8,218 37,035 44,340 14,288 29,200 (30,907) (12,372)
Net Realized Gain (Loss)
on Investments:
Realized Gain from Dis-
tributions............. -- -- -- 11,242 10,804 -- 181,519 230,439 --
Proceeds from Sales.... 361,687 257,957 936,978 261,073 108,848 144,263 1,277,824 366,424 500,609
Cost of Investments
Sold................... 361,687 257,957 936,978 215,116 94,828 136,030 965,252 300,048 458,073
-------- ------- ------- ------- ------- ------- --------- ------- -------
Net Realized Gain
(Loss) on Invest-
ments................ -- -- -- 57,199 24,824 8,243 494,091 296,815 42,536
Net Unrealized Gain
(Loss) on Investments:
Unrealized Gain (Loss)
Beginning of Year...... -- -- -- 97,472 53,018 (511) 815,011 521,127 35,698
Unrealized Gain (Loss)
End of Year............ -- -- -- 197,466 97,472 53,018 1,780,153 815,011 521,127
-------- ------- ------- ------- ------- ------- --------- ------- -------
Net Unrealized Gain
(Loss) on Invest-
ments................ -- -- -- 99,994 44,454 53,529 965,142 293,884 485,429
-------- ------- ------- ------- ------- ------- --------- ------- -------
Net Gain (Loss) on
Investments.......... -- -- -- 157,193 69,278 61,772 1,459,233 590,699 527,965
-------- ------- ------- ------- ------- ------- --------- ------- -------
Increase (Decrease) in
Assets Resulting from
Operations.............. $ 12,681 22,758 8,218 194,228 113,618 76,060 1,488,433 559,792 515,593
======== ======= ======= ======= ======= ======= ========= ======= =======
<CAPTION>
INVESTMENT GRADE BOND
EQUITY-INCOME DIVISION OVERSEAS DIVISION DIVISION
------------------------- ------------------------- --------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- ------- ------- ------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Income........ $ 55,877 2,839 26,648 41,728 16,231 2,312 32,241 14,488 3,397
Expenses:
Mortality and Expense
Charge................. 5,941 21,431 9,431 20,849 16,647 8,533 4,735 3,500 1,505
-------- ------- ------- ------- ------- ------- --------- ------- -------
Net Investment Income
(Expense)............ 49,936 (18,592) 17,217 20,879 (416) (6,221) 27,506 10,988 1,892
Net Realized Gain (Loss)
on Investments:
Realized Gain from Dis-
tributions............. 280,940 81,401 26,394 165,650 17,854 2,312 -- -- --
Proceeds from Sales.... 687,118 462,970 289,491 427,375 198,737 364,752 101,264 53,802 139,591
Cost of Investments
Sold................... 508,210 393,090 265,682 344,492 180,095 360,791 92,815 51,333 133,166
-------- ------- ------- ------- ------- ------- --------- ------- -------
Net Realized Gain
(Loss) on Invest-
ments................ 459,848 151,281 50,203 248,533 36,496 6,273 8,449 2,469 6,425
Net Unrealized Gain
(Loss) on Investments:
Unrealized Gain (Loss)
Beginning of Year...... 425,944 240,217 7,002 259,928 82,187 (10,751) 15,818 16,236 (300)
Unrealized Gain (Loss)
End of Year............ 894,273 425,944 240,217 251,644 259,928 82,187 32,785 15,818 16,236
-------- ------- ------- ------- ------- ------- --------- ------- -------
Net Unrealized Gain
(Loss) on Invest-
ments................ 468,329 185,727 233,215 (8,284) 177,742 92,938 16,967 (419) 16,536
-------- ------- ------- ------- ------- ------- --------- ------- -------
Net Gain (Loss) on
Investments.......... 928,177 337,008 283,418 240,248 214,238 99,211 25,416 2,050 22,961
-------- ------- ------- ------- ------- ------- --------- ------- -------
Increase (Decrease) in
Assets Resulting from
Operations.............. $978,113 318,416 300,635 261,127 213,822 92,900 52,922 13,038 24,853
======== ======= ======= ======= ======= ======= ========= ======= =======
</TABLE>

See Accompanying Notes to Financial Statements. (continued)

F-15
<PAGE>

PARAGON SEPARATE ACCOUNT C
STATEMENTS OF OPERATIONS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT THE CONTRAFUND
DIVISION WHICH IS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD FROM AUGUST 8, 1995 (INCEPTION) TO DECEMBER 31, 1995, THE GROWTH
MANAGER DIVISION WHICH IS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE PERIOD FROM AUGUST 29, 1995 (INCEPTION) TO DECEMBER 31, 1995, THE
GROWTH OPPORTUNITIES DIVISION, THE GROWTH & INCOME DIVISION AND THE BALANCED
DIVISION WHICH ARE FOR THE PERIOD FROM MAY 1, 1997 (INCEPTION) TO DECEMBER 31,
1997

<TABLE>
<CAPTION>
ASSET MANAGER DIVISION INDEX 500 DIVISION CONTRAFUND DIVISION
------------------------ ----------------------- ----------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- ------- ------- ------- ------- ------ ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Income........ $119,551 78,070 19,432 18,952 5,939 1,698 $ 7,171 -- 379
Expenses:
Mortality and Expense
Charge................. 29,484 24,840 13,175 18,612 8,364 2,151 10,409 3,437 169
-------- ------- ------- ------- ------- ------ ------- ------ -----
Net Investment Income
(Expense)............. 90,067 53,230 6,257 340 (2,425) (453) (3,238) (3,437) 210
Net Realized Gain (Loss)
on Investments:
Realized Gain from Dis-
tributions............. 299,891 64,374 -- 38,457 15,271 233 18,955 1,093 757
Proceeds from Sales.... 590,969 278,569 577,547 495,360 102,483 67,836 264,897 53,886 6,059
Cost of Investments
Sold................... 453,620 243,077 562,867 381,643 88,612 62,500 227,114 50,525 6,110
-------- ------- ------- ------- ------- ------ ------- ------ -----
Net Realized Gain
(Loss) on Investments. 457,240 99,866 14,680 152,174 29,142 5,569 56,738 4,454 706
Net Unrealized Gain
(Loss) on Investments:
Unrealized Gain (Loss)
Beginning of Year...... 403,420 194,562 (19,051) 226,612 65,127 796 78,527 (2) --
Unrealized Gain (Loss)
End of Year............ 585,799 403,420 194,562 713,917 226,612 65,127 304,878 78,527 (2)
-------- ------- ------- ------- ------- ------ ------- ------ -----
Net Unrealized Gain
(Loss) on Investments. 182,379 208,858 213,613 487,305 161,484 64,331 226,351 78,529 (2)
-------- ------- ------- ------- ------- ------ ------- ------ -----
Net Gain (Loss) on In-
vestments............. 619,619 308,724 228,293 639,479 190,626 69,900 283,089 82,983 704
-------- ------- ------- ------- ------- ------ ------- ------ -----
Increase (Decrease) in
Assets Resulting from
Operations.............. $709,686 361,954 234,550 639,819 188,201 69,447 279,891 79,546 914
======== ======= ======= ======= ======= ====== ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
GROWTH & GROWTH
ASSET MANAGER GROWTH INCOME OPPORTUNITIES BALANCED
DIVISION DIVISION DIVISION DIVISION
---------------------- -------- ------------- --------
1997 1996 1995 1997 1997 1997
-------- ------ ---- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Income........ $ -- 4,231 34 171 -- --
Expenses:
Mortality and Expense
Charge................. 5,459 970 3 66 28 --
-------- ------ --- ----- ----- ---
Net Investment Income
(Expense)............. (5,459) 3,261 31 105 (28) --
Net Realized Gain (Loss)
on Investments:
Realized Gain from Dis-
tributions............. 633 7,114 130 556 -- --
Proceeds from Sales.... 96,531 10,892 186 1,778 17 --
Cost of Investments
Sold................... 85,443 10,363 187 1,801 17 --
-------- ------ --- ----- ----- ---
Net Realized Gain
(Loss) on Investments. 11,721 7,643 129 533 -- --
Net Unrealized Gain
(Loss) on Investments:
Unrealized Gain (Loss)
Beginning of Year...... 9,001 (65) -- -- -- --
Unrealized Gain (Loss)
End of Year............ 148,372 9,001 (65) (65) 1,991 5
-------- ------ --- ----- ----- ---
Net Unrealized Gain
(Loss) on Investments. 139,370 9,067 (65) (65) 1,991 5
-------- ------ --- ----- ----- ---
Net Gain (Loss) on In-
vestments............. 151,091 16,709 64 468 1,991 5
-------- ------ --- ----- ----- ---
Increase (Decrease) in
Assets Resulting from
Operations.............. $145,632 19,970 95 573 1,963 5
======== ====== === ===== ===== ===
</TABLE>
See Accompanying Notes to Financial Statements.

F-16
<PAGE>

PARAGON SEPARATE ACCOUNT C

STATEMENTS OF CHANGES IN NET ASSETS

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT THE CONTRAFUND
DIVISION WHICH IS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD FROM AUGUST 8, 1995 (INCEPTION) TO DECEMBER 31, 1995, THE GROWTH MANAGER
DIVISION WHICH IS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD FROM AUGUST 29, 1995 (INCEPTION) TO DECEMBER 31, 1995, THE GROWTH
OPPORTUNITIES DIVISION, THE GROWTH & INCOME DIVISION AND THE BALANCED DIVISION
WHICH ARE FOR THE PERIOD FROM MAY 1, 1997 (INCEPTION) TO DECEMBER 31, 1997

<TABLE>
<CAPTION>
MONEY MARKET DIVISION HIGH LNCOME DIVISION GROWTH DIVISION
------------------------ --------------------------- ------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- ------- ------- --------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income.. $ 12,681 22,758 8,218 37,035 44,340 14,288 29,200 (30,907) (12,372)
Net Realized Gain
(Loss) on Investments.. -- -- -- 57,199 24,824 8,243 494,091 296,815 42,536
Net Unrealized Gain
(Loss) on Investment... -- -- -- 99,994 44,454 53,529 965,142 293,884 485,429
-------- ------- ------- --------- --------- ------- --------- --------- ---------
Increase (Decrease) in
Net Assets Resulting
from Operations........ 12,681 22,758 8,218 194,228 113,618 76,060 1,488,433 559,792 515,593
Net Deposits into Sepa-
rate Account........... 235,662 221,123 270,768 385,491 447,141 390,103 842,260 2,269,278 1,628,448
-------- ------- ------- --------- --------- ------- --------- --------- ---------
Increase in Net As-
sets................. 248,343 243,881 278,986 579,719 560,759 466,163 2,330,693 2,829,070 2,144,041
Net Assets, Beginning of
Year.................... 628,680 384,799 105,813 1,250,498 689,739 223,576 5,997,418 3,168,348 1,024,307
-------- ------- ------- --------- --------- ------- --------- --------- ---------
Net Assets, End of Year. $877,023 628,680 384,799 1,830,217 1,250,498 689,739 8,328,111 5,997,418 3,168,348
======== ======= ======= ========= ========= ======= ========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
INVESTMENT GRADE BOND
EQUITY-INCOME DIVISION OVERSEAS DIVISION DIVISION
------------------------------- ------------------------------- ------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---------- --------- --------- --------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income.. $ 49,936 (18,592) 17,217 20,879 (416) (6,221) 27,506 10,988 1,892
Net Realized Gain
(Loss) on Investments.. 459,848 151,281 50,203 248,533 36,496 6,273 8,449 2,469 6,425
Net Unrealized Gain
(Loss) on Investment... 468,329 185,727 233,215 (8,284) 177,742 92,938 16,967 (419) 16,536
---------- --------- --------- --------- --------- --------- ------- ------- -------
Increase (Decrease) in
Net Assets Resulting
from Operations........ 978,113 318,416 300,635 261,128 213,822 92,990 52,922 13,038 24,853
Net Deposits into Sepa-
rate Account........... 658,415 1,154,045 965,867 395,966 771,784 709,290 199,830 240,949 155,944
---------- --------- --------- --------- --------- --------- ------- ------- -------
Increase in Net As-
sets................. 1,636,528 1,472,461 1,266,502 657,094 985,606 802,280 252,752 253,987 180,797
Net Assets, Beginning of
Year.................... 3,199,118 1,726,657 460,155 2,327,162 1,341,556 539,276 517,127 263,140 82,343
---------- --------- --------- --------- --------- --------- ------- ------- -------
Net Assets, End of Year. $4,835,646 3,199,118 1,726,657 2,984,256 2,327,162 1,341,556 769,879 517,127 263,140
========== ========= ========= ========= ========= ========= ======= ======= =======
</TABLE>

See Accompanying Notes to Financial Statements. (continued)

F-17
<PAGE>

PARAGON SEPARATE ACCOUNT C

STATEMENTS OF CHANGES IN NET ASSETS--(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995, EXCEPT THE CONTRAFUND
DIVISION WHICH IS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR THE
PERIOD FROM AUGUST 8, 1995 (INCEPTION) TO DECEMBER 31, 1995, THE GROWTH
MANAGER DIVISION WHICH IS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE PERIOD FROM AUGUST 29, 1995 (INCEPTION) TO DECEMBER 31, 1995, THE
GROWTH OPPORTUNITIES DIVISION, THE GROWTH & INCOME DIVISION AND THE BALANCED
DIVISION WHICH ARE FOR THE PERIOD FROM MAY 1, 1997 (INCEPTION) TO DECEMBER 31,
1997

<TABLE>
<CAPTION>
ASSET MANAGER DIVISION INDEX 500 DIVISION CONTRAFUND DIVISION
------------------------------- --------------------------------- --------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---------- --------- --------- --------- ------------- -------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income.. $ 90,067 53,230 6,257 340 (2,425) (453) (3,238) (3,437) 210
Net Realized Gain
(Loss) on Investments.. 437,240 99,866 14,680 152,174 29,142 5,569 56,738 4,454 706
Net Unrealized Gain
(Loss) on Investments.. 182,379 208,858 213,613 487,305 161,484 64,331 226,351 78,529 (2)
---------- --------- --------- --------- --------- ------- --------- ------- ------
Increase (Decrease) in
Net Assets Resulting
from Operations........ 709,686 361,954 234,550 639,819 188,201 69,447 279,851 79,546 914
Net Deposits into Sepa-
rate Account........... 359,058 935,663 1,014,459 1,246,576 876,152 287,818 981,087 588,189 88,827
---------- --------- --------- --------- --------- ------- --------- ------- ------
Increase in Net Assets. 1,068,744 1,297,617 1,249,009 1,886,395 1,064,353 357,265 1,260,938 667,735 89,741
Net Assets, Beginning
of Year................ 3,381,109 2,083,492 834,483 1,514,622 450,269 93,004 757,476 89,741 0
---------- --------- --------- --------- --------- ------- --------- ------- ------
Net Assets, End of
Year................... $4,449,853 3,381,109 2,083,492 3,401,017 1,514,622 450,269 2,018,414 757,476 89,741
========== ========= ========= ========= ========= ======= ========= ======= ======
<CAPTION>
GROWTH & GROWTH
INCOME OPPORTUNITIES BALANCED
ASSET MANAGER GROWTH DIVISION DIVISION DIVISION DIVISION
------------------------------- --------- ------------- --------
1997 1996 1995 1997 1997 1997
---------- --------- --------- --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income.. $ (5,459) 3,261 31 105 (28) --
Net Realized Gain
(Loss) on Investments.. 11,721 7,643 129 533 -- --
Net Unrealized Gain
(Loss) on Investments.. 139,370 9,067 (65) (65) 1,991 5
---------- --------- --------- --------- --------- -------
Increase (Decrease) in
Net Assets Resulting
from Operations........ 145,632 19,971 95 573 1,963 5
Net Deposits into Sepa-
rate Account........... 682,573 255,154 4,093 27,728 54,625 371
---------- --------- --------- --------- --------- -------
Increase in Net Assets. 828,205 275,125 4,188 28,301 56,588 376
Net Assets, Beginning
of Year................ 279,313 4,188 0 0 0 0
---------- --------- --------- --------- --------- -------
Net Assets, End of
Year................... $1,107,518 279,313 4,188 28,301 56,588 376
========== ========= ========= ========= ========= =======
</TABLE>

See Accompanying Notes to Financial Statements.

F-18
<PAGE>

PARAGON SEPARATE ACCOUNT C

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1997

(1) ORGANIZATION

Paragon Life Insurance Company (Paragon) established Paragon Separate
Account C on August 1, 1991. Paragon Separate Account C (the Separate Account)
commenced operations on November 1, 1993 and is registered under the
Investment Company Act of 1940 as a unit investment trust. The Separate
Account receives and invests net premiums for flexible premium group variable
life insurance policies that are issued by Paragon. The Separate Account is
divided into divisions, thirteen 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 Divisions represent 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, Asset Manager Growth Portfolio,
Growth Opportunities Portfolio, Growth and Income Portfolio, and Balanced
Portfolio (the Divisions). Policyholders have the option of directing their
premium payments into any or all of the Divisions.

(2) SIGNIFICANT ACCOUNTING POLICIES

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

Investments

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

Federal Income Taxes

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

Use of Estimates

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

Reclassifications

The Separate Account has reclassified the presentation of certain prior
period information to conform to the 1997 presentation.

(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-19
<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 policies have a premium tax assessment equal
to 2% or 2.25% to reimburse Paragon for premium taxes incurred. The premium
payment less premium expense and premium tax charges equals the net premium
that is invested in the underlying separate account.

Monthly Expense Charge

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

Cost of Insurance

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

Optional Rider Benefits Charge

The 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 a daily charge against the
operations of each division is made for the mortality and expense risks
assumed by Paragon. Paragon deducts a daily charge from the Separate Account
at the rate of .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-20
<PAGE>

PARAGON SEPARATE ACCOUNT C

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4--PURCHASES AND SALES OF FIDELITY INVESTMENTS VARIABLE INSURANCE
PRODUCTS FUNDS SHARES

For the Years ended December 31, 1997, 1996 and 1995, except the Contrafund
Division which is for the Years ended December 31, 1997 and 1996 and for the
Period from August 8, 1995 (Inception) to December 31, 1995, the Asset Manager
Growth Division which is for the Years ended December 31, 1997 and 1996 and
for the Period from August 29, 1995 (Inception) to December 31, 1995, the
Growth & Income Division, the Growth Opportunities Division and the Balanced
Division which are for the Period from May 1, 1997 (Inception) to December 31,
1997:

<CAPTION>
INVESTMENT GRADE BOND DIVISION ASSET MANAGER DIVISION INDEX 500 DIVISION
-------------------------------- --------------------------- -----------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- ------------- --------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases....... $293,908 293,514 294,030 914,848 1,190,363 1,578,832 1,715,662 978,195 353,504
Sales........... $101,264 53,802 139,591 590,969 278,569 577,547 495,360 102,483 67,836
======== ======= ========= ======= ========= ========= ========= ========= =========

<CAPTION>
ASSET MANAGER GROWTH
CONTRAFUND DIVISION DIVISION
----------------------------- -------------------------
1997 1996 1995 1997 1996 1995
--------- --------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Purchases....... 1,240,031 640,347 94,716 770,463 263,123 4,277
Sales........... 264,897 53,886 6,059 96,531 10,892 186
========= ========= ========= ======= ======= =========

F-21
<PAGE>

PARAGON SEPARATE ACCOUNT C

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5--ACCUMULATION OF UNIT ACTIVITY

The following is a reconciliation of the accumulation of unit activity for
the Years ended December 31, 1997, 1996 and 1995 except for the Contrafund
Division which is for Years ended December 31, 1997 and 1996 and for the
Period from August 8, 1995 (Inception) to December 31, 1995, the Asset Manager
Growth Division which is for the Years ended December 31, 1997 and 1996 and
for the Period from August 29, 1995 (Inception) to December 31, 1995, the
Growth & Income Division, the Growth Opportunities Division and the Balanced
Division which are for the Period from May 1, 1997 (Inception) to December 31,
1997:

<TABLE>
<CAPTION>
MONEY MARKET DIVISION HIGH INCOME DIVISION GROWTH DIVISION EQUITY-INCOME DIVISION
-------------------------------- ----------------------- ----------------------- ----------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- ------------- --------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in
Units
Deposits........ 492,306 426,367 1,150,687 35,371 36,741 41,236 54,962 79,717 77,887 47,547 69,624 65,569
Withdrawals..... 308,607 226,819 898,366 15,295 6,786 11,074 32,051 10,718 19,451 23,297 19,462 15,278
------- ------- --------- ------- ------- ------- ------- ------- ------- ------- ------- ------
Net Increase in
Unit............ 183,699 199,548 252,321 20,076 29,955 30,162 22,911 68,999 58,436 24,250 50,162 50,291
Outstanding
Units
Beginning of
Year............ 553,037 353,488 101,167 79,233 49,278 19,116 172,300 103,301 44,865 128,402 78,240 27,949
------- ------- --------- ------- ------- ------- ------- ------- ------- ------- ------- ------
Outstanding
Units
End of Year..... 736,736 553,037 353,488 99,309 79,233 49,278 195,211 172,300 103,301 152,652 128,402 78,240
======= ======= ========= ======= ======= ======= ======= ======= ======= ======= ======= ======
<CAPTION>
OVERSEAS DIVISION
----------------------
1997 1996 1995
------- ------- ------
<S> <C> <C> <C> <C>
Net Increase in
Units
Deposits........ 39,281 53,327 67,011
Withdrawals..... 19,916 10,052 22,450
------- ------- ------
Net Increase in
Unit............ 19,365 43,275 44,561
Outstanding
Units
Beginning of
Year............ 122,407 79,132 34,571
------- ------- ------
Outstanding
Units
End of Year..... 141,772 122,407 79,132
======= ======= ======

<CAPTION>
INVESTMENT GRADE BOND DIVISION ASSET MANAGER DIVISION INDEX 500 DIVISION CONTRAFUND DIVISION
-------------------------------- ----------------------- ----------------------- ----------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- ------------- --------- ------- ------- ------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Increase in
Units
Deposits........ 21,839 22,595 24,267 45,318 68,615 104,670 15,753 11,569 5,231 67,021 42,303 6,882
Withdrawals..... 7,259 3,929 11,436 27,581 14,751 37,587 4,321 1,192 1,030 14,297 3,401 432
------- ------- --------- ------- ------- ------- ------- ------- ------- ------- ------- ------
Net Increase in
Unit............ 14,580 18,666 12,831 17,737 53,864 67,083 11,432 10,377 4,201 52,724 38,902 6,450
Outstanding
Units...........
Beginning of
Year............ 38,844 20,178 7,347 179,021 125,157 58,074 16,221 5,844 1,643 45,352 6,450 --
------- ------- --------- ------- ------- ------- ------- ------- ------- ------- ------- ------
Outstanding
Units...........
End of Year..... 53,424 38,844 20,178 196,758 179,021 125,157 27,653 16,221 5,844 98,076 45,352 6,450
======= ======= ========= ======= ======= ======= ======= ======= ======= ======= ======= ======
<CAPTION>
ASSET MANAGER GROWTH
DIVISION
----------------------
1997 1996 1995
------- ------- ------
<S> <C> <C> <C> <C>
Net Increase in
Units
Deposits........ 48,480 19,801 356
Withdrawals..... 5,884 728 15
------- ------- ------
Net Increase in
Unit............ 42,596 19,073 341
Outstanding
Units...........
Beginning of
Year............ 19,414 341 --
------- ------- ------
Outstanding
Units...........
End of Year..... 62,010 19,414 341
======= ======= ======

<CAPTION>
GROWTH & GROWTH
INCOME OPPORTUNITIES BALANCED
DIVISION DIVISION DIVISION
-------- ------------- ---------
1997 1997 1997
-------- ------------- ---------
<S> <C> <C> <C>
Net Increase in
Units
Deposits........ 2,350 2,942 26
Withdrawals..... 144 0 0
------- ------- ---------
Net Increase in
Unit............ 2,206 2,942 26
Outstanding
Units
Beginning of
Year............ -- -- --
------- ------- ---------
Outstanding
Units
End of Year..... 2,206 2,942 26
======= ======= =========
</TABLE>

F-22

<PAGE>

PARAGON SEPARATE ACCOUNT C

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

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

Deposits into the Separate Account purchase shares of Fidelity. Net deposits
represent the amount available for investment in such shares after deduction
of premium expense charges, monthly expense charges, cost of insurance and the
cost of optional benefits added by the cost of insurance and the cost of
optional benefits added by rider. The following is a summary of net deposits
made for the years ended December 31, 1997, 1996, and 1995, except the
Contrafund Division which is for the years ended December 31, 1997 and 1996
and for the Period from August 8, 1995 (Inception) to December 31, 1995, the
Asset Manager Growth Division for the years ended December 31, 1997 and 1996
and for the period from August 29, 1995 (Inception) to December 31, 1995, the
Growth & Income Division, the Growth Opportunities Division and the Balanced
Division which are for the Period from May 1, 1997 (inception) to December 31,
1997:

<TABLE>
<CAPTION>
MONEY MARKET DIVISION HIGH INCOME DIVISION GROWTH DIVISION
-------------------------------- -------------------------- --------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---------- --------- --------- -------- ------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross
Deposits......... $3,432,146 2,902,150 2,029,012 962,793 842,735 631,512 3,912,833 3,760,980 2,410,761
Surrenders and
Withdrawals..... (132,139) (90,148) (25,837) (132,328) (90,413) (37,645) (1,097,957) (396,427) (126,032)
Transfers
Between Funds
and General
Account......... (12,097) (48,021) 23,452 (124,356) (19,447) (19,824) (490,759) 101,790 128,164
---------- --------- --------- -------- ------- ------- ---------- --------- ---------
Total Gross
Deposits net of
Surrenders,
Withdrawals, and
Transfers....... 3,287,910 2,763,981 2,026,627 708,109 732,875 574,043 2,324,117 3,466,343 2,412,893
Deductions:
Premium Expense
Charges......... 73,638 64,531 44,481 20,657 18,739 13,844 83,952 83,628 52,850
Monthly Expense
Charges......... 66,219 11,058 98,093 18,576 21,170 9,300 75,494 100,008 41,140
Cost of
Insurance and
Optional
Benefits........ 2,912,391 2,467,269 1,613,285 281,385 245,825 160,796 1,322,411 1,013,429 690,455
---------- --------- --------- -------- ------- ------- ---------- --------- ---------
Total
Deductions...... 3,052,248 2,542,858 1,755,859 320,618 285,734 183,940 1,481,857 1,197,065 784,445
---------- --------- --------- -------- ------- ------- ---------- --------- ---------
Net Deposits from
Policyholders.... $ 235,662 221,123 270,768 385,491 447,141 390,103 842,260 2,269,278 1,628,448
========== ========= ========= ======== ======= ======= ========== ========= =========
<CAPTION>
EQUITY-INCOME DIVISION OVERSEAS DIVISION
-------------------------------- --------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Gross
Deposits......... 1,997,498 1,996,862 1,408,679 1,351,561 1,656,440 1,292,857
Surrenders and
Withdrawals..... (593,847) (245,481) (91,806) (394,377) (195,817) (84,074)
Transfers
Between Funds
and General
Account......... (29,993) (11,121) 54,349 (89,922) (141,486) (151,653)
---------- ---------- ---------- ---------- ---------- ----------
Total Gross
Deposits net of
Surrenders,
Withdrawals, and
Transfers....... 1,373,658 1,740,260 1,371,222 867,262 1,319,137 1,057,130
Deductions:
Premium Expense
Charges......... 42,857 44,401 30,882 28,998 36,832 28,343
Monthly Expense
Charges......... 38,540 53,745 21,553 26,077 40,030 18,094
Cost of
Insurance and
Optional
Benefits........ 633,846 488,069 352,919 416,221 470,491 301,403
---------- ---------- ---------- ---------- ---------- ----------
Total
Deductions...... 715,243 586,215 405,354 471,296 547,353 347,840
---------- ---------- ---------- ---------- ---------- ----------
Net Deposits from
Policyholders.... 658,415 1,154,045 965,868 395,966 771,784 709,290
========== ========== ========== ========== ========== ==========
</TABLE>

F-23
<PAGE>

PARAGON SEPARATE ACCOUNT C

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

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

<TABLE>
<CAPTION>
INVESTMENT GRADE BOND
DIVISION ASSET MANAGER DIVISION INDEX 500 DIVISION
---------------------------- ------------------------------- ---------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---------- ------- ------- --------- --------- --------- --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross Deposits.... $ 437,708 386,909 256,080 1,865,644 2,601,765 2,053,891 1,945,857 778,663 344,814
Surrenders and With-
drawals................ (51,606) (24,505) (10,138) (423,726) (230,691) (124,460) (350,692) (68,775) (22,442)
Transfers Between Funds
and General Account.... (29,252) (18,887) (1,770) (231,672) (438,022) (246,500) 246,092 263,515 74,787
---------- ------- ------- --------- --------- --------- --------- ------- -------
Total Gross Deposits
net of Surrenders,
Withdrawals, and
Transfers.............. 356,850 343,517 244,172 1,210,246 1,933,052 1,682,931 1,841,257 973,403 397,159
Deductions:
Premium Expense
Charges................ 9,391 8,603 5,614 40,028 57,852 45,026 41,749 17,314 7,559
Monthly Expense
Charges................ 8,445 8,514 4,679 35,996 59,625 35,308 37,543 21,439 5,764
Cost of Insurance and
Optional Benefits...... 139,184 85,451 77,935 775,164 879,912 588,138 515,389 58,498 96,018
---------- ------- ------- --------- --------- --------- --------- ------- -------
Total Deductions....... 157,020 102,568 88,228 851,188 997,389 668,472 594,681 97,251 109,341
---------- ------- ------- --------- --------- --------- --------- ------- -------
Net Deposits from Poli-
cyholders............... $ 199,830 240,949 155,944 359,058 935,663 1,014,459 1,246,576 876,152 287,818
========== ======= ======= ========= ========= ========= ========= ======= =======
<CAPTION>
GROWTH & GROWTH
INCOME OPPORTUNITIES BALANCED
CONTRAFUND DIVISION ASSET MANAGER GROWTH DIVISION DIVISION DIVISION DIVISION
---------------------------- ------------------------------- --------- ------------- --------
1997 1996 1995 1997 1996 1995 1997 1997 1997
---------- ------- ------- --------- --------- --------- --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gross Deposits.... $1,436,206 701,766 26,848 753,819 276,809 3,243 7,579 5,624 392
Surrenders and With-
drawals................ (274,418) (46,022) (765) (68,324) (9,416) (1) 27,394 (26,316) 1
Transfers Between Funds
and General Account.... 195,274 97,860 68,222 198,103 52,463 1,704 20,308 49,376 33
---------- ------- ------- --------- --------- --------- --------- ------- -------
Total Gross Deposits
net of Surrenders,
Withdrawals, and
Transfers.............. 1,357,062 753,604 94,305 883,598 319,856 4,946 55,281 28,684 426
Deductions:
Premium Expense
Charges................ 30,815 15,604 589 16,174 6,155 71 163 121 8
Monthly Expense
Charges................ 27,710 9,244 306 14,544 3,093 46 146 109 8
Cost of Insurance and
Optional Benefits...... 317,450 140,567 4,583 170,307 55,454 736 347 726 39
---------- ------- ------- --------- --------- --------- --------- ------- -------
Total Deductions....... 375,975 165,415 5,478 201,025 64,702 853 656 956 55
---------- ------- ------- --------- --------- --------- --------- ------- -------
Net Deposits from Poli-
cyholders............... $ 981,087 588,189 88,827 682,573 255,154 4,093 54,625 27,728 371
========== ======= ======= ========= ========= ========= ========= ======= =======
</TABLE>

F-24
<PAGE>

PARAGON SEPARATE ACCOUNT C

SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997

<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE COST
--------- ---------- ----------
<S> <C> <C> <C>
Fidelity Investments Variable Insurance Prod-
ucts Funds:
Money Market Division....................... 872,672 $ 872,672 $ 872,672
High Income Division........................ 134,394 1,825,076 1,627,610
Growth Division............................. 223,660 8,297,803 6,517,650
Equity-Income Division...................... 198,500 4,819,583 3,925,310
Overseas Division........................... 155,094 2,977,805 2,726,161
Investment Grade Bond Division.............. 61,100 767,413 734,628
Asset Manager Division...................... 246,610 4,441,454 3,855,655
Index 500 Division.......................... 29,648 3,391,483 2,677,566
Contrafund Division......................... 101,450 2,022,919 1,718,041
Asset Manager Growth Division............... 67,364 1,102,074 953,702
Growth & Income Division.................... 2,237 28,025 28,090
Growth Opportunities Division............... 2,919 56,239 54,248
Balanced Division........................... 25 369 364
</TABLE>

See Accompanying Independent Auditors' Report

F-25
<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 .509%,
representing the average of the fees incurred in 1997 by the Funds in which
the Divisions invest (the actual investment advisory fee is shown in the VIP
Funds prospectuses), and a .116% charge that is an estimate of the Funds'
expenses based on the average of the actual expenses incurred in fiscal year
1997. 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--1.525%, 4.475 and 10.475%, respectively. No expense
reimbursement arrangement exists between the Company and VIP. FMR reimbursed
expenses in 1997 for the VIP II Index 500 Portfolio.

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

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

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

A-1
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

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

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 0.00% (NET RATE @ -
1.525%)
-------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------ -------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,094 500,000 $ 4,955 $500,000
2 12,630 5,987 500,000 9,750 500,000
3 19,423 8,637 500,000 14,422 500,000
4 26,555 11,035 500,000 18,918 500,000
5 34,045 13,158 500,000 23,236 500,000
6 41,908 14,986 500,000 27,380 500,000
7 50,165 16,490 500,000 31,361 500,000
8 58,834 17,628 500,000 35,121 500,000
9 67,937 18,363 500,000 38,721 500,000
10 77,496 18,665 500,000 42,110 500,000
11 87,532 18,524 500,000 45,238 500,000
12 98,070 17,908 500,000 48,166 500,000
13 109,134 16,811 500,000 50,844 500,000
14 120,752 15,203 500,000 53,224 500,000
15 132,951 13,027 500,000 55,307 500,000
16 145,760 10,221 500,000 57,102 500,000
17 159,209 6,671 500,000 58,558 500,000
18 173,331 2,238 500,000 59,626 500,000
19 188,159 0 0 60,310 500,000
20 203,728 0 0 60,557 500,000
25 294,060 0 0 52,497 500,000
30 409,348 0 0 16,479 500,000
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

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

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

A-2
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

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

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6.00% (NET RATE @ 4.475%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $ 3,195 $500,000 $ 5,117 $500,000
2 12,630 6,376 500,000 10,375 500,000
3 19,423 9,495 500,000 15,820 500,000
4 26,555 12,540 500,000 21,402 500,000
5 34,045 15,481 500,000 27,124 500,000
6 41,908 18,291 500,000 32,997 500,000
7 50,165 20,931 500,000 39,035 500,000
8 58,834 23,350 500,000 45,188 500,000
9 67,937 25,497 500,000 51,522 500,000
10 77,496 27,326 500,000 57,994 500,000
11 87,532 28,812 500,000 64,563 500,000
12 98,070 29,903 500,000 71,291 500,000
13 109,134 30,751 500,000 78,141 500,000
14 120,752 30,766 500,000 85,075 500,000
15 132,951 30,406 500,000 92,099 500,000
16 145,760 29,399 500,000 99,233 500,000
17 159,209 27,597 500,000 106,438 500,000
18 173,331 24,819 500,000 113,681 500,000
19 188,159 20,868 500,000 120,976 500,000
20 203,728 15,533 500,000 128,290 500,000
25 294,060 0 0 163,379 500,000
30 409,348 0 0 188,084 500,000
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

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

A-3
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

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

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @
10.475%)
-------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------ -------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
1 $ 6,161 $3,294 $500,000 $ 5,275 $500,000
2 12,630 6,773 500,000 11,015 500,000
3 19,423 10,408 500,000 17,306 500,000
4 26,555 14,209 500,000 24,149 500,000
5 34,045 18,166 500,000 31,600 500,000
6 41,908 22,279 500,000 39,728 500,000
7 50,165 26,533 500,000 48,618 500,000
8 58,834 30,903 500,000 58,293 500,000
9 67,937 35,367 500,000 68,902 500,000
10 77,496 39,909 500,000 80,497 500,000
11 87,532 44,535 500,000 93,144 500,000
12 98,070 49,230 500,000 107,021 500,000
13 109,134 54,006 500,000 122,225 500,000
14 120,752 58,855 500,000 138,874 500,000
15 132,951 63,747 500,000 157,144 500,000
16 145,760 68,644 500,000 177,246 500,000
17 159,209 73,462 500,000 199,369 500,000
18 173,331 78,093 500,000 223,739 500,000
19 188,159 82,418 500,000 250,660 500,000
20 203,728 86,317 500,000 280,442 500,000
25 294,060 95,398 500,000 487,053 564,982
30 409,348 59,999 500,000 828,274 886,253
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

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

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

A-4
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

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

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @0.00% (NET RATE @ -1.525%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 8,900 $508,900 $ 10,767 $510,767
2 25,261 17,494 517,494 21,275 521,275
3 38,846 25,737 525,737 31,565 531,565
4 53,111 33,624 533,624 41,579 541,579
5 68,090 41,130 541,130 51,315 551,315
6 83,817 48,237 548,237 60,779 560,779
7 100,330 54,917 554,917 69,981 569,981
8 117,669 61,127 561,127 78,858 578,858
9 135,875 66,835 566,835 87,476 587,476
10 154,992 72,011 572,011 95,779 595,779
11 175,064 76,653 576,653 103,713 603,713
12 196,140 80,732 580,732 111,342 611,342
13 218,269 84,252 584,252 118,613 618,613
14 241,505 87,191 587,191 125,471 625,471
15 265,903 89,506 589,506 131,916 631,916
16 291,521 91,146 591,146 137,962 637,962
17 318,419 92,014 592,014 143,548 643,548
18 346,663 91,999 591,999 148,623 648,623
19 376,319 90,989 590,989 153,195 653,195
20 407,457 88,888 588,888 157,206 657,206
25 588,120 60,277 560,277 166,075 666,075
30 818,697 0 0 145,199 645,199
</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:
PREMIUM EXPENSE CHARGE: 0.00% $12,000.00
PREMIUM TAX: 2.25% (Monthly Premium:
$1,000.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6.00% (NET RATE @
4.475%)
--------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- -------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 9,191 $509,191 $11,118 $511,118
2 25,261 18,616 518,616 22,637 522,637
3 38,846 28,237 528,237 34,610 534,610
4 53,111 38,050 538,050 46,996 546,996
5 68,090 48,034 548,034 59,809 559,809
6 83,817 58,170 558,170 73,066 573,066
7 100,330 68,431 568,431 86,795 586,795
8 117,669 78,772 578,772 100,948 600,948
9 135,875 89,154 589,154 115,607 615,607
10 154,992 99,542 599,542 130,733 630,733
11 175,064 109,925 609,925 146,285 646,285
12 196,140 120,266 620,266 162,343 662,343
13 218,269 130,557 630,557 178,870 678,870
14 241,505 140,764 640,764 195,826 695,826
15 265,903 150,830 650,830 213,223 713,223
16 291,521 160,687 660,687 231,087 731,087
17 318,419 170,216 670,216 249,373 749,373
18 346,663 179,274 679,274 268,038 768,038
19 376,319 187,711 687,711 287,099 787,099
20 407,457 195,384 695,384 306,507 806,507
25 588,120 218,533 718,533 406,010 906,010
30 818,697 196,233 696,233 496,566 996,566
</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:
PREMIUM EXPENSE CHARGE: 0.00% $12,000.00
(Monthly Premium:
PREMIUM TAX: 2.25% $1,000.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @ 10.475%)
----------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------ ------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 9,476 $ 509,476 $ 11,463 $ 511,463
2 25,261 19,763 519,763 24,028 524,028
3 38,846 30,894 530,894 37,845 537,845
4 53,111 42,945 542,945 52,983 552,983
5 68,090 55,981 555,981 69,575 569,575
6 83,817 70,081 570,081 87,773 587,773
7 100,330 85,318 585,318 107,751 607,751
8 117,669 101,760 601,760 129,627 629,627
9 135,875 119,491 619,491 153,662 653,662
10 154,992 138,607 638,607 180,020 680,020
11 175,064 159,241 659,241 208,881 708,881
12 196,140 181,514 681,514 240,571 740,571
13 218,269 205,593 705,593 275,322 775,322
14 241,505 231,634 731,634 313,394 813,394
15 265,903 259,789 759,789 355,128 855,128
16 291,521 290,214 790,214 400,913 900,913
17 318,419 323,036 823,036 451,106 951,106
18 346,663 358,374 858,374 506,106 1,006,106
19 376,319 396,360 896,360 566,418 1,066,418
20 407,457 437,153 937,153 632,528 1,132,528
25 588,120 691,979 1,191,979 1,070,159 1,570,159
30 818,697 1,053,313 1,553,313 1,752,585 2,252,585
</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:
PREMIUM EXPENSE CHARGE: 0.00% $12,000.00
PREMIUM TAX: 2.25% (Monthly Premium:
$1,000.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 0.00% (NET RATE @ -
1.525%)
---------------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 7,619 $500,000 $ 10,112 $500,000
2 25,261 14,897 500,000 20,012 500,000
3 38,846 21,770 500,000 29,616 500,000
4 53,111 28,212 500,000 38,989 500,000
5 68,090 34,201 500,000 48,084 500,000
6 83,817 39,740 500,000 56,859 500,000
7 100,330 44,808 500,000 65,377 500,000
8 117,669 49,410 500,000 73,596 500,000
9 135,875 53,531 500,000 81,478 500,000
10 154,992 57,130 500,000 89,031 500,000
11 175,064 60,165 500,000 96,270 500,000
12 196,140 62,547 500,000 103,156 500,000
13 218,269 64,172 500,000 109,655 500,000
14 241,505 64,933 500,000 115,781 500,000
15 265,903 64,728 500,000 121,495 500,000
16 291,521 63,489 500,000 126,768 500,000
17 318,419 61,135 500,000 131,616 500,000
18 346,663 57,597 500,000 135,826 500,000
19 376,319 52,776 500,000 139,322 500,000
20 407,457 46,481 500,000 142,074 500,000
25 588,120 0 0 141,179 500,000
30 818,697 0 0 102,212 500,000
</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:
PREMIUM EXPENSE CHARGE: 1.00% $12,000.00
PREMIUM TAX: 2.25% (Monthly Premium:
$1,000.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6.00% (NET RATE @ 4.475%
----------------------------------------------------------------------
GUARANTEED* CURRENT**
-------------------------------- --------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 7,868 $500,000 $ 10,442 $500,000
2 25,261 15,860 500,000 21,294 500,000
3 38,846 23,915 500,000 32,485 500,000
4 53,111 32,009 500,000 44,098 500,000
5 68,090 40,123 500,000 56,103 500,000
6 83,817 48,262 500,000 68,476 500,000
7 100,330 56,411 500,000 81,298 500,000
8 117,669 64,580 500,000 94,552 500,000
9 135,875 72,762 500,000 108,224 500,000
10 154,992 80,929 500,000 122,348 500,000
11 175,064 89,048 500,000 136,969 500,000
12 196,140 97,048 500,000 152,084 500,000
13 218,269 104,843 500,000 167,701 500,000
14 241,505 112,346 500,000 183,874 500,000
15 265,903 119,479 500,000 200,622 500,000
16 291,521 126,197 500,000 217,975 500,000
17 318,419 132,449 500,000 236,010 500,000
18 346,663 138,194 500,000 254,646 500,000
19 376,319 143,376 500,000 273,925 500,000
20 407,457 147,863 500,000 293,939 500,000
25 588,120 151,052 500,000 408,826 500,000
30 818,697 81,007 500,000 563,798 591,988
</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: $12,000.00
PREMIUM EXPENSE CHARGE: 1.00% (Monthly Premium:
PREMIUM TAX: 2.25% $1,000.00)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @ 10.475%)
----------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------ ------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 12,322 $ 8,112 $ 500,000 $ 10,766 $ 500,000
2 25,261 16,844 500,000 22,603 500,000
3 38,846 26,196 500,000 35,534 500,000
4 53,111 36,214 500,000 49,747 500,000
5 68,090 46,958 500,000 65,331 500,000
6 83,817 58,521 500,000 82,395 500,000
7 100,330 70,990 500,000 101,170 500,000
8 117,669 84,493 500,000 121,812 500,000
9 135,875 99,158 500,000 144,500 500,000
10 154,992 115,114 500,000 169,488 500,000
11 175,064 132,511 500,000 197,071 500,000
12 196,140 151,494 500,000 227,537 500,000
13 218,269 172,234 500,000 261,228 500,000
14 241,505 194,948 500,000 298,574 500,000
15 265,903 219,919 500,000 340,042 500,000
16 291,521 247,530 500,000 386,181 500,000
17 318,419 278,240 500,000 437,615 520,761
18 346,663 312,622 500,000 494,418 583,414
19 376,319 351,364 500,000 556,912 651,587
20 407,457 395,278 500,000 625,663 725,769
25 588,120 706,787 756,262 1,090,405 1,166,733
30 818,697 1,215,644 1,276,426 1,850,057 1,942,560
</TABLE>
- --------
*These values reflect investment results using guaranteed cost of insurance
rates.
**These values reflect investment results using current cost of insurance
rates.

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

A-10
<PAGE>

FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE

FACE AMOUNT OF COVERAGE: $500,000 AGE: 50
DEATH BENEFIT OPTION: B ANNUAL PREMIUM:
PREMIUM EXPENSE CHARGE: 1.00% $26,000.00
PREMIUM TAX: 2.25% (Monthly Premium:
$2,166.67)
PREMIUM TAX: 2.25%

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 0.00% (NET RATE @ -
1.525%)
---------------------------------------------------------------
GUARANTEED* CURRENT**
----------------------------- -----------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1 $ 26,698 $ 21,017 $521,017 $ 23,530 $523,530
2 54,732 41,425 541,425 46,613 546,613
3 84,168 61,155 561,155 69,160 569,160
4 115,075 80,176 580,176 91,240 591,240
5 147,528 98,464 598,464 112,799 612,799
6 181,603 116,017 616,017 133,788 633,788
7 217,382 132,813 632,813 154,273 654,273
8 254,950 148,855 648,855 174,204 674,204
9 294,397 164,128 664,128 193,529 693,529
10 335,816 178,588 678,588 212,253 712,253
11 379,305 192,190 692,190 230,389 730,389
12 424,970 204,840 704,840 247,883 747,883
13 472,917 216,428 716,428 264,685 764,685
14 523,262 226,846 726,846 280,806 780,806
15 576,124 236,001 736,001 296,190 796,190
16 631,629 243,845 743,845 310,791 810,791
17 689,909 250,329 750,329 324,626 824,626
18 751,104 255,426 755,426 337,400 837,400
19 815,358 259,091 759,091 349,004 849,004
20 882,825 261,192 761,192 359,399 859,399
25 1,274,261 239,976 739,976 388,912 888,912
30 1,773,845 143,920 643,920 368,872 868,872
</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: $26,000.00
PREMIUM EXPENSE CHARGE: 1.00% (Monthly Premium:
PREMIUM TAX: 2.25% $2,166.67)
PREMIUM TAX: 2.25%

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 6.00% (NET RATE @ 4.475%)
--------------------------------------------------------------
GUARANTEED* CURRENT**
---------------------------- ------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 26,698 $ 21,703 $ 521,703 $ 24,297 $ 524,297
2 54,732 44,079 544,079 49,591 549,591
3 84,168 67,078 567,078 75,828 575,828
4 115,075 90,684 590,684 103,111 603,111
5 147,528 114,890 614,890 131,425 631,425
6 181,603 139,709 639,709 160,756 660,756
7 217,382 165,133 665,133 191,211 691,211
8 254,950 191,183 691,183 222,779 722,779
9 294,397 217,856 717,856 255,449 755,449
10 335,816 245,126 745,126 289,264 789,264
11 379,305 272,958 772,958 324,282 824,282
12 424,970 301,269 801,269 360,490 860,490
13 472,917 329,952 829,952 397,880 897,880
14 523,262 358,895 858,895 436,506 936,506
15 576,124 387,996 887,996 476,355 976,355
16 631,629 417,194 917,194 517,423 1,017,423
17 689,909 446,421 946,421 559,770 1,059,770
18 751,104 475,631 975,631 603,138 1,103,138
19 815,358 504,757 1,004,757 647,444 1,147,444
20 882,825 533,636 1,033,636 692,671 1,192,671
25 1,274,261 664,066 1,164,066 928,764 1,428,764
30 1,773,845 738,805 1,238,805 1,168,385 1,668,385
</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: $26,000.00
PREMIUM EXPENSE CHARGE: 1.00% (Monthly Premium:
PREMIUM TAX: 2.25% $2,166.67)

<TABLE>
<CAPTION>
FOR SEPARATE ACCOUNT C--A HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN @ 12.00% (NET RATE @ 10.475%)
----------------------------------------------------------------
GUARANTEED* CURRENT**
------------------------------ ------------------------------
PREM CASH DEATH CASH DEATH
YR @ 5.00% VALUE BENEFIT VALUE BENEFIT
--- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 $ 26,698 $ 22,377 $ 522,377 $ 25,052 $ 525,052
2 54,732 46,790 546,790 52,634 552,634
3 84,168 73,371 573,371 82,911 582,911
4 115,075 102,302 602,302 116,227 616,227
5 147,528 133,792 633,792 152,838 652,838
6 181,603 168,096 668,096 193,027 693,027
7 217,382 205,473 705,473 237,231 737,231
8 254,950 246,239 746,239 285,808 785,808
9 294,397 290,717 790,717 339,154 839,154
10 335,816 339,240 839,240 397,761 897,761
11 379,305 392,170 892,170 462,190 962,190
12 424,970 449,856 949,856 532,979 1,032,979
13 472,917 512,666 1,012,666 610,734 1,110,734
14 523,262 581,005 1,081,005 696,185 1,196,185
15 576,124 655,337 1,155,337 790,070 1,290,070
16 631,629 736,220 1,236,220 893,211 1,393,211
17 689,909 824,269 1,324,269 1,006,586 1,506,586
18 751,104 920,187 1,420,187 1,130,942 1,630,942
19 815,358 1,024,733 1,524,733 1,267,302 1,767,302
20 882,825 1,138,652 1,638,652 1,416,864 1,916,864
25 1,274,261 1,876,530 2,376,530 2,410,822 2,910,822
30 1,773,845 2,992,269 3,492,269 3,985,703 4,485,703
</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 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Charter and Articles of Incorporation of the Company,
the By-Laws of the Company, agreement, statute, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-1
<PAGE>

REPRESENTATION CONCERNING FEES AND CHARGES

Paragon Life Insurance Company hereby represents that the fees and charges
deducted under the terms of the Contract are, in the aggregate, reasonable in
relationship to the services rendered, the expenses expected, and the risks
assumed by Paragon.

II-2
<PAGE>

CONTENTS OF REGISTRATION STATEMENT

This Registration Statement comprises the following Papers and Documents:

The facing sheet.

The Prospectus consisting of 81 pages.
The undertaking to file reports required by Section 15 (d), 1934 Act.
The undertaking pursuant to Rule 484.
Representation concerning fees and charges.
The signatures.
The following exhibits:

1. The following exhibits (which correspond in number to the numbers under
paragraph A of the instructions as to exhibits for Form N-8B-2):

(1) Resolution of the Board of Directors of the Company authorizing
establishment of the Separate Account. 1

(2) Not applicable.

(3) (a) Proposed form of Underwriting Agreement. 1

(b) Proposed form of Selling Agreement. 1

(4) Not applicable.

(5) (a) Proposed form of Group Contract. 1

(b) Proposed form of Individual Policy and Policy Riders. 1

(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. 1

(b) Form of Application for Individual Insurance Guaranteed Issue
(Group Contract). 1

II-3
<PAGE>

2. Memorandum describing the Company's issuance, transfer, and redemption
procedures for the Policies and the Company's procedure for conversion to a
fixed benefit policy. 1

3. 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., Executive 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 LLP. 3

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, 2

1 Incorporated by reference to the Initial and Post-Effective Registration
Statement in File No. 33-67970.

2 Incorporated by reference to the Post-Effective Amendment No. 8 to the
Registration Statement in File No. 33-18341.

3 Filed herewith.

II-4

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Paragon Life
Insurance Company and Separate Account C of Paragon Life Insurance Company
certify that they meet all the requirements for effectiveness of this amended
Registration Statement pursuant to Rule 485(b) under the Securities Act of l933
and have duly caused this amended Registration Statement to be signed on their
behalf by the undersigned thereunto duly authorized, and the seal of Paragon
Life Insurance Company to be hereunto affixed and attested, all in the City of
St. Louis, State of Missouri, on the 28 day of April, 1998.

(Seal) Paragon Life Insurance Company

Attest:/S/ By: /S/
--------------------- ----------------------------
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/ 4/28/98
----------------------
Carl H. Anderson President and Director
(Chief Executive Officer)

/S/ 4/28/98
- ------------------------
Matthew K. Duffy Vice President and Chief
Financial Officer (Principal
Accounting Officer and
Principal Financial Officer)

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

- ------------------------
Richard A. Liddy* Director

II-5

<PAGE>

Signature Title Date

/S/ 4/28/98
----------------------
Matthew P. McCauley Vice President,
General Counsel,
Secretary and Director

/S/ 4/28/98
----------------------
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/ 4/28/98
-------------------
Craig K. Nordyke

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

II-6

33-67970

<PAGE>

EXHIBIT INDEX

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

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

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

33-67970

<PAGE>

Exhibit 4

OPINION AND CONSENT OF CRAIG K. NORDYKE, F.S.A., M.A.A.A.,
EXECUTIVE VICE PRESIDENT AND CHIEF ACTUARY

<PAGE>

RE: 33-67970

Gentlemen:

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

It is my professional opinion that:

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

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

I hereby consent to the filing of this opinion as an exhibit to the Post-
Effective Amendment No. 5 to the Registration Statement and to the use of my
name under the heading "Experts" in the prospectus.

/S/

Craig K. Nordyke, FSA, MAAA
Executive 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 to our
firm under the heading "Experts" in the Registration Statement and Prospectus of
Separate Account C of Paragon Life Insurance Company.

KPMG Peat Marwick LLP

St. Louis, Missouri
April 28, 1998

<PAGE>

Exhibit 6

WRITTEN CONSENT OF SUTHERLAND, ASBILL & BRENNAN LLP

<PAGE>

April 27, 1998

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. 5 to
the registration statement on Form S-6 for Separate Account C of Paragon Life
Insurance Company (File No. 33-67970). In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.

Very truly yours,

SUTHERLAND, ASBILL & BRENNAN LLP

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