SEPARATE ACCOUNT KGC OF ALLMERICA FIN LIFE INS & ANNUITY CO
485BPOS, 2000-04-21
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<PAGE>

                                                             File Nos. 333-10283
                                                                        811-7777




                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM N-4

             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                         Post-Effective Amendment No. 7

         REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
                                 Amendment No. 8

                             SEPARATE ACCOUNT KGC OF
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
                           (Exact Name of Registrant)

             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
                               (Name of Depositor)
                               440 Lincoln Street
                               Worcester, MA 01653
              (Address of Depositor's Principal Executive Offices)
                                 (508) 855-1000
               (Depositor's Telephone Number, including Area Code)

                            Mary Eldridge, Secretary
             Allmerica Financial Life Insurance and Annuity Company
                               440 Lincoln Street
                               Worcester, MA 01653
               (Name and Address of Agent for Service of Process)

             It is proposed that this filing will become effective:

             ___  immediately upon filing pursuant to paragraph (b) of Rule 485.
             _X_  on May 1, 2000 pursuant to paragraph (b) of Rule 485
             ___  60 days after filing pursuant to paragraph (a)(1) of Rule 485
             ___  on (date) pursuant to paragraph (a)(1) of Rule 485.
             ___  this post-effective amendment designates a new effective date
                  for a previously filed post-effective amendment.


                           VARIABLE ANNUITY CONTRACTS

Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940 ("the
1940 Act"), Registrant hereby declares that an indefinite amount of its
securities is being registered under the Securities Act of 1933 ("the 1933
Act"). The Rule 24f-2 Notice for the issuer's fiscal year ended December 31,
1999 was filed on or before March 30, 2000.


<PAGE>




             CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
                          ITEMS CALLED FOR BY FORM N-4

<TABLE>
<CAPTION>

FORM N-4 ITEM NO.   CAPTION IN PROSPECTUS
         -------    ---------------------
<S>                 <C>
1...................Cover Page

2...................Special Terms

3...................Summary of Fees and Expenses; Summary of Contract Features

4...................Condensed Financial Information; Performance Information

5...................Description of the Companies, the Variable Accounts and the
                    Underlying Investment Companies

6...................Charges and Deductions

7...................Description of the Contract

8...................Electing the Form of Annuity and the Annuity Date;
                    Description of  Variable  Annuity Payout Options;
                    Annuity Benefit Payments

9...................Death Benefit

10..................Payments; Computation of Values; Distribution and Annuity
                    Payments

11..................Surrender; Withdrawal; Charge for Surrender and Withdrawal;
                    Withdrawal Without Surrender Charge; Texas Optional
                    Retirement Program

12..................Federal Tax Considerations

13..................Legal Matters

14..................Statement of Additional Information - Table of Contents
<CAPTION>

FORM N-4 ITEM NO.   CAPTION IN STATEMENT OF ADDITIONAL  INFORMATION
- ----------------    -----------------------------------------------
<S>                 <C>
15..................Cover Page

16..................Table of Contents

17..................General Information and History

18..................Services

19..................Underwriters

20..................Underwriters

21..................Performance Information


<PAGE>



<S>                 <C>
22..................Annuity Benefit Payments

23..................Financial Statements
</TABLE>

<PAGE>

                              SEPARATE ACCOUNT KGC
                             (KEMPER GATEWAY CUSTOM)

             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
                FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

                   SUPPLEMENT TO PROSPECTUS DATED MAY 1, 2000


                                      * * *


An Application for an Order of Exemption has been filed with the Securities and
Exchange Commission on behalf of Allmerica Financial Life Insurance and Annuity
Company, First Allmerica Financial Life Insurance Company, Separate Account KGC,
and Allmerica Investments, Inc. (collectively referred to herein as the
"Applicants"), to permit the Applicants to deduct a charge for an optional
benefit rider in the manner set out in "WHAT CHARGES WILL I INCUR UNDER MY
CONTRACT?," under SUMMARY OF CONTRACT FEATURES, "Enhanced Death Benefit Rider,"
under DESCRIPTION OF THE CONTRACT, "G. Death Benefit, and "C. Optional Benefit
Riders" under the CHARGES AND DEDUCTIONS sections of the prospectus.

While the Application for an Order of Exemption is pending, the sixth paragraph
of "WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?" and the first two paragraphs
of "C. Optional Benefit Riders" under CHARGES AND DEDUCTIONS is hereby replaced
by the following:

Subject to state availability, the Company offers an optional Minimum Guaranteed
Annuity Payout Rider that may be elected by the Owner. A separate monthly charge
is made for the Rider. On the last day of each month a charge equal to 1/12th of
the applicable annual rate (see table below) is made against the Accumulated
Value of the Contract at that time. The charge is made through a pro-rata
reduction of the Accumulated Value of the Sub-Accounts, the Fixed Account and
the Guarantee Period Accounts (based on the relative value that the Accumulation
Units of the Sub-Accounts, the dollar amounts in the Fixed Account and the
dollar amounts in the Guarantee Period Accounts bear to the total Accumulated
Value).

The applicable charge is assessed on the Accumulated Value on the last day of
each month, multiplied by 1/12th of the following annual percentage rates:


                                      * * *
<PAGE>

The second sentence of the last paragraph of "Enhanced Death Benefit Rider"
under DESCIPTION OF THE CONTRACT, "G. Death Benefit," is hereby replaced by the
following:

On the last day of each month, a charge equal to 1/12th of an annual rate of
0.25% is made against the Accumulated Value of the Contract at that time.


                                      * * *


The first sentence of the last paragraph of "Living Benefits Rider" and
"Disability Rider" under "C. Optional Benefit Riders" is hereby replaced by the
following:

On the last day of each month, a charge equal to 1/12th of an annual rate of
0.05% is made against the Accumulated Value of the Contract at that time.


                                      * * *



SUPPLEMENT DATED MAY 1, 2000

<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
                FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
                            WORCESTER, MASSACHUSETTS


This Prospectus provides important information about the Kemper Gateway Custom
variable annuity contracts issued by Allmerica Financial Life Insurance and
Annuity Company (in all jurisdictions except Hawaii and New York) and First
Allmerica Financial Life Insurance Company in New York and Hawaii. The contract
is a flexible payment tax-deferred combination variable and fixed annuity
offered on both a group and individual basis. PLEASE READ THIS PROSPECTUS
CAREFULLY BEFORE INVESTING AND KEEP IT FOR FUTURE REFERENCE. ANNUITIES INVOLVE
RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL.



A Statement of Additional Information dated May 1, 2000 containing more
information about this annuity is on file with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. A copy may be
obtained free of charge by calling Allmerica Investments, Inc. at
1-800-782-8380. The Table of Contents of the Statement of Additional Information
is listed on page 4 of this Prospectus. This Prospectus and the Statement of
Additional Information can also be obtained from the Securities and Exchange
Commission's website (http://www.sec.gov).



The Variable Account, known as Separate Account KGC is subdivided into
Sub-Accounts. Each Sub-Account offered as an investment option under this
contract invests exclusively in shares of one of the following portfolios:



<TABLE>
<S>                                      <C>
KEMPER VARIABLE SERIES                   SCUDDER VARIABLE LIFE INVESTMENT FUND (CLASS A)
Kemper Aggressive Growth Portfolio       Scudder 21st Century Growth Portfolio
Kemper Technology Growth Portfolio       Scudder International Portfolio
KVS Dreman Financial Services Portfolio  Scudder Global Discovery Portfolio
Kemper Small Cap Growth Portfolio        Scudder Capital Growth Portfolio
KVS Dreman High Return Equity Portfolio  Scudder Growth and Income Portfolio
Kemper International Portfolio
Kemper New Europe Portfolio              THE ALGER AMERICAN FUND
Kemper Global Blue Chip Portfolio        Alger American Leveraged AllCap Portfolio
Kemper Growth Portfolio                  Alger American Balanced Portfolio
Kemper Contrarian Value Portfolio
Kemper Blue Chip Portfolio               DREYFUS INVESTMENT PORTFOLIOS
Kemper Value+Growth Portfolio            Dreyfus MidCap Stock Portfolio
KVS Index 500 Portfolio
Kemper Horizon 20+ Portfolio             THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
Kemper Total Return Portfolio            FUND, INC.
Kemper Horizon 10+ Portfolio             Dreyfus Socially Responsible Growth Fund
Kemper High Yield Portfolio
Kemper Horizon 5 Portfolio               WARBURG PINCUS TRUST
Kemper Strategic Income Portfolio        Warburg Pincus Emerging Markets Portfolio
Kemper Investment Grade Bond Portfolio   Warburg Pincus Global Post-Venture Capita
Kemper Government Securities Portfolio   Portfolio
Kemper Money Market Portfolio
KVS Focused Large Cap Growth Portfolio
KVS Growth Opportunities Portfolio
KVS Growth And Income Portfolio
</TABLE>



THIS ANNUITY IS NOT: A BANK DEPOSIT OR OBLIGATION; FEDERALLY INSURED; OR
ENDORSED BY ANY BANK OR GOVERNMENTAL AGENCY.



THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED THAT THE INFORMATION IN THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.



                               DATED MAY 1, 2000

<PAGE>

The Fixed Account, which is part of the Company's General Account, is an
investment option that pays an interest rate guaranteed for one year from the
time a payment is received. Another investment option, the Guarantee Period
Accounts, offers fixed rates of interest for specified periods ranging from 2 to
10 years. A Market Value Adjustment is applied to payments removed from a
Guarantee Period Account before the end of the specified period. The Market
Value Adjustment may be positive or negative. Payments allocated to a Guarantee
Period Account are held in the Company's Separate Account GPA (except in
California where they are allocated to the General Account.)

<PAGE>
                               TABLE OF CONTENTS


<TABLE>
<S>                                                           <C>
SPECIAL TERMS...............................................         5
SUMMARY OF FEES AND EXPENSES................................         7
SUMMARY OF CONTRACT FEATURES................................        15
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS AND THE
 UNDERLYING INVESTMENT COMPANIES............................        22
INVESTMENT OBJECTIVES AND POLICIES..........................        23
PERFORMANCE INFORMATION.....................................        27
DESCRIPTION OF THE CONTRACT.................................        29
  A.   Payments.............................................        29
  B.   Right to Cancel Individual Retirement Annuity........        30
  C.   Right to Cancel All Other Contracts..................        30
  D.   Transfer Privilege...................................        30
        Automatic Transfers and Automatic Account
        Rebalancing Options.................................        31
  E.   Surrender............................................        32
  F.   Withdrawals..........................................        32
        Systematic Withdrawals..............................        33
        Life Expectancy Distributions.......................        33
  G.   Death Benefit........................................        34
        Death of the Annuitant Prior to the Annuity Date....        34
        Death of an Owner Who is Not Also the Annuitant
        Prior to the Annuity Date...........................        35
        Payment of the Death Benefit Prior to the Annuity
        Date................................................        35
        Death of the Annuitant On or After the Annuity
        Date................................................        35
  H.   The Spouse of the Owner as Beneficiary...............        35
  I.   Assignment...........................................        35
  J.   Electing the Form of Annuity and Annuity Date........        36
  K.   Description of Variable Annuity Payout Options.......        37
  L.   Annuity Benefit Payments.............................        38
        Determination of the First Variable Annuity Benefit
        Payment.............................................        38
        The Annuity Unit....................................        38
        Determination of the Number of Annuity Units........        38
        Dollar Amount of Subsequent Variable Annuity Benefit
        Payments............................................        39
  M.  Optional Minimum Guaranteed Annuity Payout (M-GAP)
    Rider...................................................        39
  N.   NORRIS Decision......................................        41
  O.   Computation of Values................................        41
        The Accumulation Unit...............................        41
        Net Investment Factor...............................        42
CHARGES AND DEDUCTIONS......................................        43
  A.   Variable Account Deductions..........................        43
        Mortality and Expense Risk Charge...................        43
        Administrative Expense Charge.......................        43
        Other Charges.......................................        43
  B.   Contract Fee.........................................        44
  C.   Optional Benefit Riders..............................        44
        Living Benefits Rider...............................        44
        Disability Rider....................................        45
  D.   Premium Taxes........................................        45
  E.   Surrender Charge.....................................        46
        Charges for Surrender and Withdrawal................        46
        Reduction or Elimination of Surrender Charge and
        Additional Amounts Credited.........................        47
        Withdrawal Without Surrender Charge.................        47
        Surrenders..........................................        48
</TABLE>


                                       3
<PAGE>

<TABLE>
<S>                                                           <C>
        Charge at the Time Annuity Benefit Payments Begin...        48
  F.   Transfer Charge......................................        48
GUARANTEE PERIOD ACCOUNTS...................................        49
FEDERAL TAX CONSIDERATIONS..................................        51
  A.   General..............................................        51
        The Company.........................................        51
        Diversification Requirements........................        51
        Investor Control....................................        51
  B.  Qualified and Non-Qualified Contracts.................        52
  C.   Taxation of the Contracts in General.................        52
        Withdrawals Prior to Annuitization..................        52
        Annuity Payouts After Annuitization.................        52
        Penalty on Distribution.............................        52
        Assignments or Transfers............................        53
        Nonnatural Owners...................................        53
        Deferred Compensation Plans of State and Local
        Government and Tax-Exempt Organizations.............        53
  D.   Tax Withholding......................................        53
  E.   Provisions Applicable to Qualified Employer Plans....        54
        Corporate and Self-Employed Pension and Profit
        Sharing Plans.......................................        54
        Individual Retirement Annuities.....................        54
        Tax-Sheltered Annuities.............................        54
        Texas Optional Retirement Program...................        55
STATEMENTS AND REPORTS......................................        55
LOANS (QUALIFIED CONTRACTS ONLY)............................        55
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS...........        55
CHANGES TO COMPLY WITH LAW AND AMENDMENTS...................        56
VOTING RIGHTS...............................................        57
DISTRIBUTION................................................        57
LEGAL MATTERS...............................................        57
FURTHER INFORMATION.........................................        58
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED..............       A-1
APPENDIX B -- SURRENDER CHARGES AND THE MARKET VALUE
 ADJUSTMENT.................................................       B-1
APPENDIX C -- THE DEATH BENEFIT.............................       C-1
APPENDIX D -- CONDENSED FINANCIAL INFORMATION...............       D-1

                 STATEMENT OF ADDITIONAL INFORMATION
                          TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY.............................         2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE
 COMPANY....................................................         3
SERVICES....................................................         3
UNDERWRITERS................................................         4
ANNUITY BENEFIT PAYMENTS....................................         4
EXCHANGE OFFER..............................................         6
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING)
 PROGRAM....................................................         8
PERFORMANCE INFORMATION.....................................         9
TAX-DEFERRED ACCUMULATION...................................        15
FINANCIAL STATEMENTS........................................       F-1
</TABLE>


                                       4
<PAGE>
                                 SPECIAL TERMS

ACCUMULATED VALUE: the total value of all Accumulation Units in the Sub-Accounts
plus the value of all accumulations in the Fixed Account and Guarantee Period
Accounts credited to the Contract on any date before the Annuity Date.

ACCUMULATION UNIT: a unit of measure used to calculate the value of a
Sub-Account before annuity benefit payments begin.

ANNUITANT: the person designated in the Contract upon whose life annuity benefit
payments are to be made.

ANNUITY DATE: the date on which annuity benefit payments begin. This date may
not be later than the first day of the month before the Annuitant's 90th
birthday.

ANNUITY UNIT: a unit of measure used to calculate the value of the periodic
annuity benefit payments under the Contract.

COMPANY: unless otherwise specified, any reference to the "Company" shall refer
exclusively to Allmerica Financial Life Insurance and Annuity Company for
contracts issued in all jurisdictions except Hawaii and New York and exclusively
to First Allmerica Financial Life Insurance Company for contracts issued in
Hawaii and New York.

FIXED ACCOUNT: an investment option under the Contract that guarantees principal
and a fixed minimum interest rate and which is part of the Company's General
Account.

FIXED ANNUITY PAYOUT: an annuity payout option providing for annuity benefit
payments which remain fixed in amount throughout the annuity benefit payment
period selected.

GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.

GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.

GUARANTEE PERIOD ACCOUNT: an account which corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period.

GUARANTEED INTEREST RATE: the annual effective rate of interest, after daily
compounding, credited to a Guarantee Period Account.

MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.

OWNER (YOU): the person, persons or entity entitled to exercise the rights and
privileges under this Contract. Joint Owners are permitted if one of the two is
the Annuitant.


SUB-ACCOUNT: a subdivision of the Variable Account investing exclusively in the
shares of a corresponding portfolio of Kemper Variable Series ("KVS"), Scudder
Variable Life Investment Fund (Class A) ("Scudder VLIF"), The Alger American
Fund ("Alger"), Dreyfus Investment Portfolios, The Dreyfus Socially Responsible
Growth Fund, Inc. (the "Dreyfus Socially Responsible Growth Fund") or Warburg
Pincus Trust.



SURRENDER VALUE: the Accumulated Value of the Contract on full surrender after
application of any applicable Contract fee, surrender charge, rider charge and
Market Value Adjustment.


                                       5
<PAGE>

UNDERLYING PORTFOLIOS (PORTFOLIOS): currently, the twenty-six Portfolios of KVS,
the five Portfolios of Scudder VLIF, the two Portfolios of The Alger American
Fund, the one Portfolio of the Dreyfus Investment Portfolios, the one Portfolio
of The Dreyfus Socially Responsible Growth Fund, Inc. and the two Portfolios of
Warburg Pincus Trust in which the Sub-Accounts invest.


VALUATION DATE: a day on which the net asset value of the shares of any of the
Underlying Portfolios is determined and unit values of the Sub-Accounts are
determined. Valuation Dates currently occur on each day on which the New York
Stock Exchange is open for trading, as well as each day otherwise required.

VARIABLE ACCOUNT: Separate Account KGC, one of the Company's separate accounts,
consisting of assets segregated from other assets of the Company. The investment
performance of the assets of the Variable Account is determined separately from
the other assets of the Company, and are not chargeable with liabilities arising
out of any other business which the Company may conduct.

VARIABLE ANNUITY PAYOUT: an annuity payout option providing for payments varying
in amount in accordance with the investment experience of certain of the
Portfolios.

                                       6
<PAGE>
                          SUMMARY OF FEES AND EXPENSES


There are certain fees and expenses that you will bear under the Kemper Gateway
Custom Contract. The purpose of the following tables is to assist you in
understanding these fees and expenses. The tables show (1) charges under the
Contract, (2) annual expenses of the Sub-Accounts, and (3) annual expenses of
the Underlying Portfolios. In addition to the charges and expenses described
below, premium taxes are applicable in some states and are deducted as described
under "D. Premium Taxes" under CHARGES AND DEDUCTIONS.



<TABLE>
<CAPTION>
                                                                  YEARS FROM
                                                                DATE OF PAYMENT    CHARGE
(1) CONTRACT CHARGES:                                           ---------------    ------
<S>                                                             <C>                <C>
                                                                      0-1           7.0%
                                                                       2            6.0%
                                                                       3            5.0%
                                                                       4            4.0%
                                                                       5            3.0%
                                                                       6            2.0%
                                                                  More than 6        0%
SURRENDER CHARGE:*
  This charge may be assessed upon surrender, withdrawal or
  annuitization under any commutable period certain option
  or a noncommutable period certain option of less than ten
  years. The charge is a percentage of payments applied to
  the amount surrendered (in excess of any amount that is
  free of surrender charge) within the indicated time
  period.

TRANSFER CHARGE:                                                                    None
  The Company currently makes no charge for processing
  transfers and guarantees that the first 12 transfers in a
  Contract year will not be subject to a transfer charge.
  For each subsequent transfer, the Company reserves the
  right to assess a charge, guaranteed never to exceed $25,
  to reimburse the Company for the costs of processing the
  transfer.

ANNUAL CONTRACT FEE:                                                               $35**
  The fee is deducted annually and upon surrender prior to
  the Annuity Date when Accumulated Value is less than
  $50,000. The fee is waived for Contracts issued to and
  maintained by the trustee of a 401(k) plan.

OPTIONAL RIDER CHARGES:
  Under the following riders, 1/12th of the annual charge is
  deducted pro-rata on a monthly basis at the end of each
  month and, if applicable, at termination of the rider. The
  charge on an annual basis as a percentage of the
  Accumulated Value is:
    Optional Minimum Guaranteed Annuity Payout (M-GAP) Rider                       0.25%
      with a ten-year waiting period:
    Optional Minimum Guaranteed Annuity Payout (M-GAP) Rider                       0.15%
      with a fifteen-year waiting period:
    Optional Enhanced Death Benefit Rider:                                         0.25%
    Optional Disability Rider:                                                     0.05%
    Optional Living Benefits Rider:                                                0.05%

*From time to time the Company may allow a reduction of the surrender charge, the period
during which the charges apply, or both, and/or credit additional amounts on Contracts
when (1) Contracts are sold to individuals or groups of individuals in a manner which
reduces sales expenses, or (2) where the Owner or the Annuitant on the date of issue is
within certain classes of eligible persons. For more information, see "E. Surrender
Charge" " Reduction or Elimination of Surrender Charge and Additional Amounts Credited"
under CHARGES AND DEDUCTIONS.
</TABLE>


                                       7
<PAGE>

<TABLE>
<CAPTION>
(2) ANNUAL SUB-ACCOUNT EXPENSES:
(on an annual basis as percentage of average daily net assets)
<S>                                                               <C>                <C>
  Mortality and Expense Risk Charge:                                                 0.95%
  Administrative Expense Charge:                                                     0.15%
                                                                                     ------
  Total Annual Expenses:                                                             1.10%
</TABLE>

**This fee may vary by state. See your Contract for more information.


(3) ANNUAL UNDERLYING PORTFOLIO EXPENSES:  Total expenses of the Underlying
Portfolios are not fixed or specified under the terms of the Contract and will
vary from year to year. The levels of fees and expenses also vary among the
Underlying Portfolios. The following table shows the expenses of the Underlying
Portfolios as a percentage of average net assets for the year ended
December 31, 1999, as adjusted for any material changes.



<TABLE>
<CAPTION>
                                                                                       TOTAL PORTFOLIO
                                                MANAGEMENT FEE                         EXPENSES (AFTER
                                                  (AFTER ANY       OTHER EXPENSES          ANY FEE
                                               FEE REDUCTIONS/       (AFTER ANY      REDUCTIONS/WAIVERS/
UNDERLYING PORTFOLIO                          VOLUNTARY WAIVERS)   REIMBURSEMENTS)     REIMBURSEMENTS)
- --------------------                          ------------------   ---------------   -------------------
<S>                                           <C>                  <C>               <C>
Kemper Aggressive Growth Portfolio*.........        0.00%                0.95%        0.95%(2)
Kemper Technology Growth Portfolio *........        0.51%                0.44%        0.95%(2)
KVS Dreman Financial Services Portfolio.....        0.70%                0.29%        0.99%(2)
Kemper Small Cap Growth Portfolio...........        0.65%                0.06%        0.71%
Kemper Small Cap Value Portfolio............        0.75%                0.09%        0.84%(1)
KVS Dreman High Return Equity Portfolio.....        0.75%                0.11%        0.86%(2)
Kemper International Portfolio..............        0.75%                0.19%        0.94%
Kemper New Europe Portfolio.................        0.00%                1.12%        1.12%(2)
Kemper Global Blue Chip Portfolio...........        0.00%                1.56%        1.56%(2)
Kemper Growth Portfolio.....................        0.60%                0.06%        0.66%
Kemper Contrarian Value Portfolio...........        0.75%                0.05%        0.80%(1)
Kemper Blue Chip Portfolio..................        0.65%                0.06%        0.71%(1)
Kemper Value+Growth Portfolio...............        0.75%                0.08%        0.83%(1)
KVS Index 500 Portfolio **..................        0.16%                0.39%        0.55%(2)
Kemper Horizon 20+ Portfolio................        0.60%                0.18%        0.78%(1)
Kemper Total Return Portfolio...............        0.55%                0.06%        0.61%
Kemper Horizon 10+ Portfolio................        0.60%                0.12%        0.72%(1)
Kemper High Yield Portfolio.................        0.60%                0.07%        0.67%
Kemper Horizon 5 Portfolio..................        0.60%                0.16%        0.76%(1)
Kemper Strategic Income Portfolio...........        0.65%                0.28%        0.93%(3)
Kemper Investment Grade Bond Portfolio......        0.60%                0.05%        0.65%(1)
Kemper Government Securities Portfolio......        0.55%                0.08%        0.63%
Kemper Money Market Portfolio...............        0.50%                0.04%        0.54%
KVS Focused Large Cap Growth Portfolio***...        0.00%                1.15%        1.15%(2)
KVS Growth Opportunities Portfolio***.......        0.00%                1.15%        1.15%(2)
KVS Growth And Income Portfolio***..........        0.00%                1.15%        1.15%(2)
Scudder 21st Century Growth Portfolio.......        0.00%                1.50%        1.50%(4)
Scudder International Portfolio.............        0.85%                0.18%        1.03%
Scudder Global Discovery Portfolio..........        0.60%                0.65%        1.25%(4)
Scudder Capital Growth Portfolio............        0.46%                0.03%        0.49%
Scudder Growth and Income Portfolio.........        0.47%                0.08%        0.55%
Alger American Leveraged AllCap Portfolio...        0.85%                0.08%(5)     0.93%
Alger American Balanced Portfolio...........        0.75%                0.18%        0.93%
Dreyfus MidCap Stock Portfolio..............        0.75%                0.71%        1.46%(6)
Dreyfus Socially Responsible Growth Fund....        0.75%                0.04%        0.79%
Warburg Pincus Emerging Markets Portfolio...        0.00%                1.40%        1.40%(7)
Warburg Pincus Global Post-Venture Capital
 Portfolio..................................        1.07%                0.33%        1.40%(7)
</TABLE>


                                       8
<PAGE>

*These portfolios commenced operations on May 1, 1999, therefore "other
expenses" are annualized. Actual expenses may be greater or less than shown.



**This portfolio commenced operations on September 1, 1999, therefore "other
expenses" are annualized. Actual expenses may be greater or less than shown.



***These portfolios commenced operations on October 29, 1999, therefore "other
expenses" are annualized. Actual expenses may be greater or less than shown.



(1)Pursuant to their respective agreements with Kemper Variable Series ("KVS"),
the investment manager and the accounting agent have agreed, for the one year
period commencing on May 1, 2000, to limit their respective fees and to
reimburse other expenses to the extent necessary to limit total operating
expenses of the following described portfolios to the amounts set forth after
the portfolio names: KVS Dreman High Return Equity (formerly Kemper-Dreman High
Return Equity) (0.87%), Kemper Value+Growth (0.84%), Kemper Contrarian Value
(0.80%), Kemper Small Cap Value (0.84%), Kemper Horizon 5 (0.97%), Kemper
Horizon 10+ (0.83%), Kemper Horizon 20+ (0.93%), Kemper Investment Grade Bond
(0.80%), and Kemper Blue Chip (0.95%). The amounts set forth in the table above
reflect actual expenses for the past fiscal year, which were at or lower than
these expense limits, after the benefit of any custodial credits, as reflected
in the table.



(2)Pursuant to their respective agreements with KVS, the investment manager and
the accounting agent have agreed, for the one year period commencing on May 1,
2000, to limit their respective fees and to reimburse other expenses to the
extent necessary to limit total operating expenses of the KVS Focused Large Cap
Growth, KVS Growth And Income, KVS Growth Opportunities, KVS Index 500 (formerly
Kemper Index 500), Kemper Aggressive Growth, Kemper Technology Growth, KVS
Dreman Financial Services (formerly Kemper-Dreman Financial Services), Kemper
New Europe (formerly Kemper International Growth and Income), and Kemper Global
Blue Chip Portfolios of KVS to the amounts set forth in the Total Portfolio
Expenses column of the table above. Without taking into effect these expense
caps, for the Kemper Aggressive Growth, Kemper Technology Growth, KVS Dreman
Financial Services, Kemper New Europe, Kemper Global Blue Chip, KVS Index 500,
KVS Growth Opportunities, KVS Growth And Income, and KVS Focused Large Cap
Growth Portfolios of KVS, management fees are estimated to be 0.75%, 0.75%,
0.75%, 1.00%, 1.00%, 0.45%, 0.95%, 0.95%, and 0.95%, respectively. Other
expenses are estimated to be 1.91%, 0.44%, 0.29%, 3.30%, 2.47%, 0.39%, 1.65%,
1.63%, and 6.54%, respectively; and total operating expenses would have been
2.66%, 1.19%, 1.04%, 4.30%, 3.47%, 0.84%, 2.60%, 2.58%, and 7.49%, respectively.
In addition, for the Kemper New Europe and Kemper Global Blue Chip Portfolios,
the investment manager has agreed to limit its management fees to 0.70% and
0.85%, respectively, of such portfolios for one year, commencing May 1, 2000.



(3)Pursuant to their respective agreements with KVS, the investment manager and
the accounting agent have agreed, for the one year period commencing on May 1,
2000, to limit their respective fees and to reimburse other expenses to the
extent necessary to limit total operating expenses of Kemper Strategic Income
Portfolio (formerly Kemper Global Income) to 1.05%. The Management Fee,
reflected in the above table, has been restated to reflect a fee reduction
effective May 1, 2000 and the Other Expenses reflect actual expenses for the
past fiscal year.



(4)The investment manager for the Scudder 21st Century Growth Portfolio and
Scudder Global Discovery Portfolio has agreed, for the period from May 1, 2000
through April 30, 2001, to maintain the expenses at 1.50% and 1.25%,
respectively, of the Portfolio's average daily net assets. Without taking into
effect these expense caps, the management fees would be 0.875% and 0.975%,
respectively, other expenses are estimated to be 1.02% and 0.65%, respectively,
and total operating expenses are estimated to be 1.90% and 1.63%, respectively.



(5)Included in "Other Expenses" of the Alger American Leveraged AllCap Portfolio
is 0.01% of interest expense.


                                       9
<PAGE>

(6)The Dreyfus Corporation, the Dreyfus MidCap Stock Portfolio's investment
advisor, has voluntarily agreed to waive receipt of its fees and/or assume the
expenses of the portfolio so that total expenses (excluding taxes, brokerage
commissions, extraordinary expenses, interest expenses and commitment fees on
borrowings) do not exceed 1.00%. Total portfolio expenses prior to waivers
and/or reimbursements by the investment advisor, total 1.46%, annualized, at
December 31, 1999.



(7)The investment adviser of the Warburg Pincus Emerging Markets Portfolio and
Warburg Pincus Global Post-Venture Capital Portfolio has voluntarily agreed to
waive or reimburse a portion of the management fees and/or other expenses
resulting in a reduction of total expenses. Absent any waiver or reimbursement,
the Management Fee, Other Expenses and Total Portfolio Expenses would have been
1.25%, 1.88% and 3.13% for the Warburg Pincus Emerging Markets Portfolio and
1.25%, 0.33% and 1.58% for the Warburg Pincus Global Post-Venture Capital
Portfolio, respectively, for the year ended December 31, 1999.


The Underlying Portfolio information above was provided by the Underlying
Portfolios and was not independently verified by the Company.


EXPENSE EXAMPLES: The following examples demonstrate the cumulative expenses
which an Owner would pay at 1-year, 3-year, 5-year and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-Account
and a 5% annual return on assets and assumes that the Underlying Portfolio
expenses listed above remain the same in each of the 1, 3, 5, and 10-year
intervals. As required by rules of the Securities and Exchange Commission
("SEC"), the Contract fee is reflected in the examples by a method designed to
show the "average" impact on an investment in the Variable Account. The total
Contract fees collected are divided by the total average net assets attributable
to the Contracts. The resulting percentage is 0.04%, and the amount of the
Contract fee is assumed to be $0.40 in the examples. The Contract fee is
deducted only when the accumulated value is less than $50,000. Lower costs apply
to Contracts owned and maintained under a 401(k) plan. Because the expenses of
the Underlying Portfolios differ, separate examples are used to illustrate the
expenses incurred by an Owner on an investment in the various Sub-Accounts.


THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

                                       10
<PAGE>

(1)(a) If, at the end of the applicable time period, you surrender your Contract
or annuitize* under any commutable period certain option or a noncommutable
fixed period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets and no
Riders:**



<TABLE>
<CAPTION>
WITH SURRENDER CHARGE                                         1 YEAR    3 YEARS    5 YEARS    10 YEARS
- ---------------------                                        --------   --------   --------   --------
<S>                                                          <C>        <C>        <C>        <C>
Kemper Aggressive Growth...................................    $82        $112       $142       $242
Kemper Technology Growth...................................    $82        $112       $142       $242
KVS Dreman Financial Services..............................    $83        $113       $144       $246
Kemper Small Cap Growth....................................    $80        $105       $130       $217
Kemper Small Cap Value.....................................    $81        $109       $136       $231
KVS Dreman High Return.....................................    $82        $109       $137       $233
Kemper International.......................................    $82        $112       $141       $241
Kemper New Europe..........................................    $84        $117       $150       $260
Kemper Global Blue Chip....................................    $88        $129       $172       $303
Kemper Growth..............................................    $80        $103       $127       $212
Kemper Contrarian Value....................................    $81        $107       $134       $226
Kemper Blue Chip...........................................    $80        $105       $130       $217
Kemper Value+Growth........................................    $81        $108       $136       $230
KVS Index 500..............................................    $79        $100       $122       $200
Kemper Horizon 20+.........................................    $81        $107       $133       $224
Kemper Total Return........................................    $79        $102       $125       $206
Kemper Horizon 10+.........................................    $80        $105       $130       $218
Kemper High Yield..........................................    $80        $104       $128       $213
Kemper Horizon 5...........................................    $81        $106       $132       $222
Kemper Strategic Income....................................    $82        $111       $141       $240
Kemper Investment Grade Bond...............................    $80        $103       $127       $211
Kemper Government Securities...............................    $79        $102       $126       $208
Kemper Money Market........................................    $79        $100       $121       $199
KVS Focused Large Cap Growth...............................    $84        $118       $152       $263
KVS Growth Opportunities...................................    $84        $118       $152       $263
KVS Growth And Income......................................    $84        $118       $152       $263
Scudder 21st Century Growth................................    $88        $128       $169       $297
Scudder International......................................    $83        $114       $146       $250
Scudder Global Discovery...................................    $85        $120       $157       $273
Scudder Capital Growth.....................................    $78        $ 98       $119       $193
Scudder Growth and Income..................................    $79        $100       $122       $201
Alger American Leveraged AllCap............................    $82        $111       $141       $240
Alger American Balanced....................................    $82        $111       $141       $240
Dreyfus MidCap Stock.......................................    $87        $126       $167       $293
Dreyfus Socially Responsible Growth........................    $81        $107       $134       $225
Warburg Pincus Emerging Markets............................    $87        $125       $164       $288
Warburg Pincus Global Post-Venture Capital.................    $87        $125       $164       $288
</TABLE>


                                       11
<PAGE>

(1)(b) If, at the end of the applicable time period, you surrender your Contract
or annuitize* under any commutable period certain option or a noncommutable
fixed period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets and
election of the Minimum Guaranteed Annuity Payout (M-GAP) Rider** with a
ten-year waiting period, the Enhanced Death Benefit Rider, the Disability Rider
and the Living Benefits Rider:



<TABLE>
<CAPTION>
WITH SURRENDER CHARGE                                         1 YEAR    3 YEARS    5 YEARS    10 YEARS
- ---------------------                                        --------   --------   --------   --------
<S>                                                          <C>        <C>        <C>        <C>
Kemper Aggressive Growth...................................    $88        $129       $171       $302
Kemper Technology Growth...................................    $88        $129       $171       $302
KVS Dreman Financial Services..............................    $88        $130       $173       $306
Kemper Small Cap Growth....................................    $86        $122       $159       $279
Kemper Small Cap Value.....................................    $87        $126       $166       $291
KVS Dreman High Return.....................................    $87        $126       $167       $293
Kemper International.......................................    $88        $129       $171       $301
Kemper New Europe..........................................    $90        $134       $179       $319
Kemper Global Blue Chip....................................    $94        $146       $200       $359
Kemper Growth..............................................    $85        $121       $157       $274
Kemper Contrarian Value....................................    $87        $125       $164       $288
Kemper Blue Chip...........................................    $86        $122       $159       $279
Kemper Value+Growth........................................    $87        $126       $165       $290
KVS Index 500..............................................    $84        $118       $152       $263
Kemper Horizon 20+.........................................    $86        $124       $163       $286
Kemper Total Return........................................    $85        $119       $155       $269
Kemper Horizon 10+.........................................    $86        $122       $160       $280
Kemper High Yield..........................................    $85        $121       $158       $275
Kemper Horizon 5...........................................    $86        $124       $162       $284
Kemper Strategic Income....................................    $88        $128       $170       $300
Kemper Investment Grade Bond...............................    $85        $120       $157       $273
Kemper Government Securities...............................    $85        $120       $156       $271
Kemper Money Market........................................    $84        $117       $151       $262
KVS Focused Large Cap Growth...............................    $90        $135       $181       $321
KVS Growth Opportunities...................................    $90        $135       $181       $321
KVS Growth And Income......................................    $90        $135       $181       $321
Scudder 21st Century Growth................................    $93        $145       $197       $354
Scudder International......................................    $89        $131       $175       $310
Scudder Global Discovery...................................    $91        $138       $185       $331
Scudder Capital Growth.....................................    $84        $116       $149       $256
Scudder Growth and Income..................................    $84        $118       $152       $264
Alger American Leveraged AllCap............................    $88        $128       $170       $300
Alger American Balanced....................................    $88        $128       $170       $300
Dreyfus MidCap Stock.......................................    $93        $143       $195       $350
Dreyfus Socially Responsible Growth........................    $87        $124       $163       $287
Warburg Pincus Emerging Markets............................    $92        $142       $192       $345
Warburg Pincus Global Post-Venture Capital.................    $92        $142       $192       $345
</TABLE>


                                       12
<PAGE>

(2)(a) If, at the end of the applicable time period, you annuitize* under a life
option or a noncommutable fixed period certain option of ten years or longer, or
if you do not surrender or annuitize your Contract, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets and no
Riders:**



<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE                                      1 YEAR    3 YEARS    5 YEARS    10 YEARS
- ------------------------                                     --------   --------   --------   --------
<S>                                                          <C>        <C>        <C>        <C>
Kemper Aggressive Growth...................................    $21        $65        $112       $242
Kemper Technology Growth...................................    $21        $65        $112       $242
KVS Dreman Financial Services..............................    $22        $67        $114       $246
Kemper Small Cap Growth....................................    $19        $58        $100       $217
Kemper Small Cap Value.....................................    $20        $62        $107       $231
KVS Dreman High Return.....................................    $20        $63        $108       $233
Kemper International.......................................    $21        $65        $112       $241
Kemper New Europe..........................................    $23        $71        $121       $260
Kemper Global Blue Chip....................................    $27        $84        $143       $303
Kemper Growth..............................................    $18        $57        $ 97       $212
Kemper Contrarian Value....................................    $20        $61        $105       $226
Kemper Blue Chip...........................................    $19        $58        $100       $217
Kemper Value+Growth........................................    $20        $62        $106       $230
KVS Index 500..............................................    $17        $53        $ 92       $200
Kemper Horizon 20+.........................................    $19        $60        $104       $224
Kemper Total Return........................................    $18        $55        $ 95       $206
Kemper Horizon 10+.........................................    $19        $58        $101       $218
Kemper High Yield..........................................    $18        $57        $ 98       $213
Kemper Horizon 5...........................................    $19        $60        $103       $222
Kemper Strategic Income....................................    $21        $65        $111       $240
Kemper Investment Grade Bond...............................    $18        $56        $ 97       $211
Kemper Government Securities...............................    $18        $56        $ 96       $208
Kemper Money Market........................................    $17        $53        $ 91       $199
KVS Focused Large Cap Growth...............................    $23        $72        $123       $263
KVS Growth Opportunities...................................    $23        $72        $123       $263
KVS Growth And Income......................................    $23        $72        $123       $263
Scudder 21st Century Growth................................    $27        $82        $140       $297
Scudder International......................................    $22        $68        $116       $250
Scudder Global Discovery...................................    $24        $75        $128       $273
Scudder Capital Growth.....................................    $17        $51        $ 89       $193
Scudder Growth and Income..................................    $17        $54        $ 92       $201
Alger American Leveraged AllCap............................    $21        $65        $111       $240
Alger American Balanced....................................    $21        $65        $111       $240
Dreyfus MidCap Stock.......................................    $26        $81        $138       $293
Dreyfus Socially Responsible Growth........................    $20        $61        $104       $225
Warburg Pincus Emerging Markets............................    $26        $79        $135       $288
Warburg Pincus Global Post-Venture Capital.................    $26        $79        $135       $288
</TABLE>


                                       13
<PAGE>

(2)(b) If, at the end of the applicable time period, you annuitize* under a life
option or a noncommutable fixed period certain option of ten years or longer, or
if you do not surrender or annuitize your Contract, you would pay the following
expenses on a $1,000 investment, assuming an annual 5% return on assets and
election of the Minimum Guaranteed Annuity Payout (M-GAP) Rider** with a
ten-year waiting period, the Enhanced Death Benefit Rider, the Disability Rider
and the Living Benefits Rider:



<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE                                      1 YEAR    3 YEARS    5 YEARS    10 YEARS
- ------------------------                                     --------   --------   --------   --------
<S>                                                          <C>        <C>        <C>        <C>
Kemper Aggressive Growth...................................    $27        $ 84       $142       $302
Kemper Technology Growth...................................    $27        $ 84       $142       $302
KVS Dreman Financial Services..............................    $28        $ 85       $144       $306
Kemper Small Cap Growth....................................    $25        $ 76       $131       $279
Kemper Small Cap Value.....................................    $26        $ 80       $137       $291
KVS Dreman High Return.....................................    $26        $ 81       $138       $293
Kemper International.......................................    $27        $ 83       $142       $301
Kemper New Europe..........................................    $29        $ 89       $151       $319
Kemper Global Blue Chip....................................    $33        $102       $172       $359
Kemper Growth..............................................    $24        $ 75       $128       $274
Kemper Contrarian Value....................................    $26        $ 79       $135       $288
Kemper Blue Chip...........................................    $25        $ 76       $131       $279
Kemper Value+Growth........................................    $26        $ 80       $137       $290
KVS Index 500..............................................    $23        $ 72       $123       $263
Kemper Horizon 20+.........................................    $26        $ 78       $134       $286
Kemper Total Return........................................    $24        $ 73       $126       $269
Kemper Horizon 10+.........................................    $25        $ 77       $131       $280
Kemper High Yield..........................................    $24        $ 75       $129       $275
Kemper Horizon 5...........................................    $25        $ 78       $133       $284
Kemper Strategic Income....................................    $27        $ 83       $141       $300
Kemper Investment Grade Bond...............................    $24        $ 75       $128       $273
Kemper Government Securities...............................    $24        $ 74       $127       $271
Kemper Money Market........................................    $23        $ 71       $122       $262
KVS Focused Large Cap Growth...............................    $29        $ 89       $152       $321
KVS Growth Opportunities...................................    $29        $ 89       $152       $321
KVS Growth And Income......................................    $29        $ 89       $152       $321
Scudder 21st Century Growth................................    $33        $100       $169       $354
Scudder International......................................    $28        $ 86       $146       $310
Scudder Global Discovery...................................    $30        $ 92       $157       $331
Scudder Capital Growth.....................................    $23        $ 70       $119       $256
Scudder Growth and Income..................................    $23        $ 72       $123       $264
Alger American Leveraged AllCap............................    $27        $ 83       $141       $300
Alger American Balanced....................................    $27        $ 83       $141       $300
Dreyfus MidCap Stock.......................................    $32        $ 99       $167       $350
Dreyfus Socially Responsible Growth........................    $26        $ 79       $135       $287
Warburg Pincus Emerging Markets............................    $32        $ 97       $164       $345
Warburg Pincus Global Post-Venture Capital.................    $32        $ 97       $164       $345
</TABLE>



*The Contract fee is not deducted after annuitization. Any applicable surrender
charge is assessed at the time of annuitization if you elect a noncommutable
fixed period certain option of less than ten years or any commutable period
certain option. No charge is assessed if you elect any life contingency option
or a noncommutable fixed period certain option of ten years or longer.



**If the Minimum Guaranteed Annuity Payout (M-GAP) Rider is exercised, you may
only annuitize under a fixed annuity payout option involving a life contingency
at the Company's guaranteed fixed annuity option rates listed under the Annuity
Option Tables in your Contract.


                                       14
<PAGE>
                          SUMMARY OF CONTRACT FEATURES

WHAT IS THE KEMPER GATEWAY CUSTOM VARIABLE ANNUITY?

The Kemper Gateway Custom variable annuity contract ("Contract") is an insurance
contract designed to help you accumulate assets for your retirement or other
important financial goals on a tax-deferred basis. The Contract combines the
concept of professional money management with the attributes of an annuity
contract. Features available through the Contract include:

    - A customized investment portfolio;


    - 26 KVS Portfolios, 5 Scudder VLIF Portfolios, 2 Alger Portfolios, 1
      Dreyfus Investment Portfolios Portfolio, 1 Dreyfus Socially Responsible
      Growth Fund Portfolio and 2 Warburg Pincus Trust Portfolios;


    - 1 Fixed Account;

    - 9 Guarantee Period Accounts;

    - Experienced professional portfolio managers;

    - Tax deferral on earnings;

    - Guarantees that can protect your beneficiaries during the accumulation
      phase;

    - Income payments that you can receive for life.


The Contract has two phases, an accumulation phase and, if you choose to
annuitize, an annuity payout phase. During the accumulation phase, you may
allocate your initial payment and any additional payments you choose to make
among seventeen of the thirty-seven portfolios of securities ("Underlying
Portfolios") (in addition to the Kemper Money Market Portfolio) under your
Contract, to the Guarantee Period Accounts, and to the Fixed Account
(collectively "the investment options"). You select the investment options most
appropriate for your investment needs. As those needs change, you may also
change your allocation without incurring any tax consequences. Your Contract's
Accumulated Value is based on the investment performance of the Portfolios and
any accumulations in the Guarantee Period and Fixed Accounts. You do not pay
taxes on any earnings under the Contract until you withdraw money. In addition,
during the accumulation phase, your beneficiaries receive certain protections in
the event of the Annuitant's death. See discussion below, WHAT HAPPENS UPON
DEATH DURING THE ACCUMULATION PHASE?


WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?


During the annuity payout phase, the Annuitant can receive income based on
several annuity payout options. You choose the annuity payout option and the
date for annuity benefit payments to begin. You also decide whether you want
variable annuity benefit payments based on the investment performance of certain
Underlying Portfolios, fixed-amount annuity benefit payments with payment
amounts guaranteed by the Company, or a combination of fixed-amount and variable
annuity benefit payments. Among the payout options available during the annuity
payout phase are:



    - periodic payments for the Annuitant's lifetime;



    - periodic payments for the Annuitant's life and the life of another person
      selected by you;


                                       15
<PAGE>

    - periodic payments for the Annuitant's lifetime with any remaining
      guaranteed payments continuing to your beneficiary for ten years in the
      event that the Annuitant dies before the end of ten years;



    - periodic payments over a specified number of years (1 to 30); under the
      fixed version of this option you may reserve the right to convert
      remaining payments to a lump-sum payout by electing a "commutable" option.
      Variable period certain options are automatically commutable.



An optional Minimum Guaranteed Annuity Payout ("M-GAP") Rider is currently
available during the accumulation phase in most jurisdictions for a separate
monthly charge. If elected, the Rider provides the Annuitant a guaranteed
minimum amount of income after the specified waiting period under a life
contingent fixed annuity payout option, subject to certain conditions. On each
Contract anniversary a Minimum Guaranteed Annuity Payout Benefit Base is
determined. The Minimum Guaranteed Annuity Payout Benefit Base (less any
applicable premium taxes) is the value that will be annuitized should you
exercise the Rider. In order to exercise the Rider, a fixed annuitization option
involving a life contingency must be selected. Annuitization under this Rider
will occur at the Company's guaranteed fixed annuity option rates listed under
the Annuity Option Tables in your Contract, The Minimum Guaranteed Annuity
Payout Benefit Base is equal to the greatest of:



    (a) the Accumulated Value increased by any positive Market Value Adjustment,
       if applicable, on the Contract anniversary that the M-GAP Benefit Base is
       being determined; or



    (b) the Accumulated Value on the effective date of the Rider accumulated
       daily at an effective annual yield of 5% plus gross payments made
       thereafter accumulated daily at an effective annual yield 5%, starting on
       the date each payment is applied, proportionately reduced to reflect
       withdrawals; or



    (c) the highest Accumulated Value on any Contract anniversary since the
       Rider effective date, as determined after being increased for subsequent
       payments and any positive Market Value Adjustment, if applicable, and
       proportionately reduced for subsequent withdrawals.



For more details see "M. Optional Minimum Guaranteed Annuity Payout (M-GAP)
Rider" under DESCRIPTION OF THE CONTRACT.


WHO ARE THE KEY PERSONS UNDER THE CONTRACT?

The Contract is between you, (the "Owner") and us, Allmerica Financial Life
Insurance and Annuity Company (for contracts issued in all jurisdictions except
Hawaii and New York) or First Allmerica Financial Life Insurance Company (for
contracts issued in Hawaii and New York). Each Contract has an Owner (or an
Owner and a Joint Owner, in which case one of the two also must be the
Annuitant), an Annuitant and one or more beneficiaries. As Owner, you make
payments, choose investment allocations and select the Annuitant and
beneficiary. The Annuitant is the individual to receive annuity benefit payments
under the Contract. The beneficiary is the person who receives any payment on
the death of the Owner or Annuitant.

HOW MUCH CAN I INVEST AND HOW OFTEN?


The number and frequency of your payments are flexible, subject to the minimum
and maximum payments stated in "A. Payments" under DESCRIPTION OF THE CONTRACT.


WHAT ARE MY INVESTMENT CHOICES?


You may allocate payments among the Sub-Accounts investing in the Underlying
Portfolios, the Guarantee Period Accounts, and the Fixed Account. As of the date
of this Prospectus, payments may be allocated to a maximum of seventeen Variable
Accounts (in addition to the Kemper Money Market Portfolio) during the life of
the Contract and prior to the Annuity Date.


                                       16
<PAGE>

VARIABLE ACCOUNT.  Subject to the 17 fund maximum, you have a choice of
Sub-Accounts investing in the following Underlying Portfolios:



<TABLE>
<S>                                      <C>
KEMPER VARIABLE SERIES                   SCUDDER VARIABLE LIFE INVESTMENT FUND (CLASS A)
Kemper Aggressive Growth Portfolio       Scudder 21st Century Growth Portfolio
Kemper Technology Growth Portfolio       Scudder International Portfolio
KVS Dreman Financial Services Portfolio  Scudder Global Discovery Portfolio
Kemper Small Cap Growth Portfolio        Scudder Capital Growth Portfolio
KVS Dreman High Return Equity Portfolio  Scudder Growth and Income Portfolio
Kemper International Portfolio
Kemper New Europe Portfolio              THE ALGER AMERICAN FUND
Kemper Global Blue Chip Portfolio        Alger American Leveraged AllCap Portfolio
Kemper Growth Portfolio                  Alger American Balanced Portfolio
Kemper Contrarian Value Portfolio
Kemper Blue Chip Portfolio               DREYFUS INVESTMENT PORTFOLIOS
Kemper Value+Growth Portfolio            Dreyfus MidCap Stock Portfolio
KVS Index 500 Portfolio
Kemper Horizon 20+ Portfolio             THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
Kemper Total Return Portfolio            FUND, INC.
Kemper Horizon 10+ Portfolio             Dreyfus Socially Responsible Growth Fund
Kemper High Yield Portfolio
Kemper Horizon 5 Portfolio               WARBURG PINCUS TRUST
Kemper Strategic Income Portfolio        Warburg Pincus Emerging Markets Portfolio
Kemper Investment Grade Bond Portfolio   Warburg Pincus Global Post-Venture Capital
Kemper Government Securities Portfolio   Portfolio
Kemper Money Market Portfolio
KVS Focused Large Cap Growth Portfolio
KVS Growth Opportunities Portfolio
KVS Growth And Income Portfolio
</TABLE>



Each Underlying Portfolio operates pursuant to different investment objectives
and this range of investment options enables you to allocate your money among
the Underlying Portfolios to meet your particular investment needs. For a more
detailed description of the Underlying Portfolios, see INVESTMENT OBJECTIVES AND
POLICIES.


GUARANTEE PERIOD ACCOUNTS.  Assets supporting the guarantees under the Guarantee
Period Accounts are held in the Company's Separate Account GPA, a non-unitized
insulated separate account, except in California where assets are held in the
Company's General Account. Values and benefits calculated on the basis of
Guarantee Period Account allocations, however, are obligations of the Company's
General Account. Amounts allocated to a Guarantee Period Account earn a
Guaranteed Interest Rate declared by the Company. The level of the Guaranteed
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company currently makes available nine Guarantee Periods ranging from two to
ten years in duration. Once declared, the Guaranteed Interest Rate will not
change during the duration of the Guarantee Period. If amounts allocated to a
Guarantee Period Account are transferred, surrendered or applied to any annuity
option at any time other than the day following the last day of the applicable
Guarantee Period, a Market Value Adjustment will apply that may increase or
decrease the Account's value; however, this adjustment will never be applied
against your principal. In addition, earnings in the GPA after application of
the Market Value Adjustment will not be less than an effective annual rate of
3%. For more information about the Guarantee Period Accounts and the Market
Value Adjustment, see GUARANTEE PERIOD ACCOUNTS.

FIXED ACCOUNT.  The Fixed Account is part of the General Account, which consists
of all the Company's assets other than those allocated to the Variable Account
and any other separate account. Allocations to the Fixed Account are guaranteed
as to principal and a minimum rate of interest. Additional excess interest may

                                       17
<PAGE>
be declared periodically at the Company's discretion. Furthermore, the initial
rate in effect on the date an amount is allocated to the Fixed Account will be
guaranteed for one year from that date. For more information about the Fixed
Account see APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT.

THE GUARANTEE PERIOD ACCOUNTS AND/OR SOME OF THE SUB-ACCOUNTS MAY NOT BE
AVAILABLE IN ALL STATES.

WHO ARE THE PORTFOLIO MANAGERS?


Scudder Kemper Investments, Inc. ("Scudder Kemper") is the investment manager of
each Portfolio of KVS and each Portfolio of Scudder VLIF. Scudder Investments
(U.K.) Limited, an affiliate of Scudder Kemper, is the sub-adviser for the
Kemper International Portfolio and the Kemper Global Income Portfolio. Dreman
Value Management, L.L.C. is the sub-adviser for the KVS Dreman Financial
Services Portfolio and KVS Dreman High Return Equity Portfolio. Scudder Kemper
is the investment manager of the Guarantee Period Accounts pursuant to an
investment advisory agreement between the Company and Scudder Kemper. Bankers
Trust Company is the sub-adviser for the KVS Index 500 Portfolio. Eagle Asset
Management, Inc. ("EAM") is the sub-adviser for the KVS Focused Large Cap Growth
Portfolio and Janus Capital Corporation ("JCC") is the sub-adviser for the KVS
Growth Opportunities and KVS Growth And Income Portfolios pursuant to sub-
advisory agreements between Scudder Kemper and EAM and JCC. The investment
manager for the Alger American Leveraged AllCap and Alger American Balanced
Portfolios is Fred Alger Management, Inc. The Dreyfus Corporation serves as the
investment adviser to the Dreyfus MidCap Stock Portfolio and the Dreyfus
Socially Responsible Growth Fund. NCM Capital Management Group, Inc. provides
sub-investment advisory services for the Dreyfus Socially Responsible Growth
Fund. Credit Suisse Asset Management, LLC ("CSAM") is the investment adviser for
the Warburg Pincus Emerging Markets and Warburg Pincus Global Post-Venture
Capital Portfolios. Abbott Capital Management, LLC ("Abbott") provides
sub-investment advisory services for the Warburg Pincus Global Post-Venture
Capital Portfolio.



CAN I MAKE TRANSFERS AMONG THE INVESTMENT OPTIONS?



Yes. Prior to the Annuity Date, you may transfer among the Sub-Accounts
investing in the Underlying Portfolios, the Guarantee Period Accounts, and the
Fixed Account. As of the date of this Prospectus, transfers may be made to a
maximum of seventeen variable Sub-Accounts, in addition to the Kemper Money
Market Portfolio, during the life of the Contract. You will incur no current
taxes on transfers while your money remains in the Contract. The first 12
transfers in a Contract year are guaranteed to be free of a transfer charge. For
each subsequent transfer in a Contract year, the Company does not currently
charge, but reserves the right to assess a processing charge guaranteed never to
exceed $25. See "D. Transfer Privilege" under DESCRIPTION OF THE CONTRACT.



You also may elect at no additional charge Automatic Transfers (Dollar Cost
Averaging) to gradually move money to one or more of the Underlying Portfolios
or Automatic Account Rebalancing to ensure assets remain allocated according to
your designated percentage allocation mix.


WHAT IF I NEED MY MONEY BEFORE MY ANNUITY PAYOUT PHASE BEGINS?

You may surrender your Contract or make withdrawals any time before the annuity
payout phase begins. Each year you can take without a surrender charge, 15% of
the Contract's Accumulated Value or, if you are both an Owner and the Annuitant,
an amount based on your life expectancy. (Similarly, no surrender charge will
apply if an amount is withdrawn based on the Annuitant's life expectancy if the
Owner is a trust or other nonnatural person.) A 10% federal tax penalty may
apply to all amounts deemed to be income if you are under age 59 1/2. Additional
amounts may be withdrawn at any time but payments that have not been invested in
the Contract for more than six years may be subject to a surrender charge. (A
Market Value Adjustment, which may increase or decrease the value of the
account, may apply to any withdrawal made from a Guarantee Period Account prior
to the expiration of the Guarantee Period.)

                                       18
<PAGE>
WHAT HAPPENS UPON DEATH DURING THE ACCUMULATION PHASE?

If the Annuitant, Owner or Joint Owner should die before the Annuity Date, a
death benefit will be paid to the beneficiary. Upon the death of the Annuitant
(or an Owner who is also an Annuitant), a standard Annuitant death benefit will
be paid. The standard Annuitant death benefit is equal to the GREATER of:


    - The Accumulated Value on the Valuation Date that the Company receives
      proof of death, increased by any positive Market Value Adjustment; or


    - Gross payments, decreased proportionately to reflect withdrawals (for each
      withdrawal, the proportionate reduction is calculated as the death benefit
      under this option immediately prior to the withdrawal, multiplied by the
      withdrawal amount, and divided by the Accumulated Value immediately prior
      to the withdrawal).

If the Owner elects the Enhanced Death Benefit Rider, the Annuitant death
benefit will be the GREATEST of:


    - The Accumulated Value on the Valuation Date that the Company receives
      proof of death, increased by any positive Market Value Adjustment;



    - Gross payments accumulated daily at an effective annual yield of 5%
      (except in Hawaii and New York where (b) equals gross payments) starting
      on the date each payment was applied, decreased proportionately to reflect
      withdrawals; or


    - The death benefit that would have been payable on the most recent Contract
      anniversary, increased for subsequent payments and decreased
      proportionately for subsequent withdrawals.


This enhanced guaranteed death benefit works in the following way assuming no
withdrawals are made. On the first anniversary, the death benefit will be equal
to the greater of (a) the Accumulated Value (increased by any positive Market
Value Adjustment) or (b) gross payments accumulated daily at an effective annual
yield of 5% (except in Hawaii and New York where (b) equals gross payments). The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments accumulated daily at an effective annual yield of
5% (gross payments in Hawaii and New York) or (c) the locked-in value of the
death benefit at the first anniversary. The greatest of (a), (b) or (c) will be
locked in until the next Contract anniversary. This calculation will then be
repeated on each anniversary date while the Contract remains in force and prior
to the Annuity Date. As noted above, the values of (b) and (c) will be decreased
proportionately if withdrawals are taken.


A separate charge is made for the Enhanced Death Benefit Rider. See "G. Death
Benefit" under DESCRIPTION OF THE CONTRACT.


Regardless of whether the Enhanced Death Benefit Rider is in effect, if an Owner
who is not also the Annuitant dies during the accumulation phase, the death
benefit will equal the Accumulated Value on the Valuation Date that the Company
receives proof of death, increased by any positive Market Value Adjustment.


(If the Annuitant dies after the Annuity Date but before all guaranteed annuity
benefit payments have been made, the remaining payments will be paid to the
beneficiary at least as rapidly as under the annuity option in effect. See "G.
Death Benefit.")

WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?


At each Contract anniversary or upon surrender, if the Accumulated Value is less
than $50,000, the Company will deduct a $35 Contract fee (a lower fee of $30 may
apply in some states) from the Contract. There will be


                                       19
<PAGE>

no Contract fee if the Accumulated Value is $50,000 or more. The Contract fee is
currently waived for a Contract issued to and maintained by a trustee of a
401(k) plan.



Should you decide to surrender the Contract, make withdrawals, or receive
payments under certain annuity options, you may be subject to a surrender
charge. If applicable, this charge will be between 2% and 7% of payments
withdrawn, based on when the payments were originally made.



Depending upon the state in which you live, a deduction for state and local
premium taxes, if any, may be made as described in "D. Premium Taxes" under
CHARGES AND DEDUCTIONS.



The Company will deduct, on a daily basis, an annual mortality and expense risk
charge and administrative expense charge equal to 0.95% and 0.15%, respectively,
of the average daily net assets invested in each Underlying Portfolio. The
Underlying Portfolios will incur certain management fees and expenses described
more fully in "Other Charges" under "A. Variable Account Deductions" and in the
Underlying Portfolios prospectuses which accompany this Prospectus. These
charges vary among the Underlying Portfolios and may change from year to year.
In addition, management fee waivers and/or reimbursements may be in effect for
certain or all of the Underlying Portfolios. For specific information regarding
the existence and effect of any waivers/ reimbursements see "Annual Underlying
Portfolio Expenses" under SUMMARY OF FEES AND EXPENSES.



Subject to state availability, the Company currently offers the following
optional Riders that may be elected by the Owner. A separate monthly charge is
made for each Rider which is deducted from the Accumulated Value at the end of
each month within which the Rider has been in effect. The applicable charge is
assessed by multiplying the Accumulated Value on the last day of each month and,
if applicable, on the date the Rider is terminated by 1/12th of the following
annual percentage rates:



<TABLE>
<S>                                                                               <C>
Minimum Guaranteed Annuity Payout (M-GAP) Rider with a ten-year
  waiting period................................................................  0.25%
Minimum Guaranteed Annuity Payout (M-GAP) Rider with a fifteen-year
  waiting period................................................................  0.15%
Enhanced Death Benefit Rider....................................................  0.25%
Disability Rider................................................................  0.05%
Living Benefits Rider...........................................................  0.05%
</TABLE>



For a description of these riders, see "Enhanced Death Benefit Rider" under
"G. Death Benefit" and "M. Optional Minimum Guaranteed Annuity Payout (M-GAP)
Rider" under DESCRIPTION OF THE CONTRACT and "C. Optional Benefit Riders" under
CHARGES AND DEDUCTIONS.


CAN I EXAMINE THE CONTRACT?


Yes. Your Contract will be delivered to you after your purchase. If you return
the Contract to the Company within ten days of receipt, the Contract will be
canceled. (There may be a longer period in certain states; see the "Right to
Examine" provision on the cover of your Contract.) If you cancel the Contract,
you will receive a refund of any amounts allocated to the Fixed and Guarantee
Period Accounts and the Accumulated Value of any amounts allocated to the
Sub-Accounts (plus any fees or charges that may have been deducted). However, if
state law requires or if your Contract was issued as an Individual Retirement
Annuity (IRA), you will generally receive a refund of your entire payment. (In
certain states this refund may be the greater of (1) your entire payment or
(2) the amounts allocated to the Fixed and Guarantee Period Accounts plus the
Accumulated Value of amounts in the Sub-Accounts, plus any fees or charges
previously deducted.) See "B. Right to Cancel Individual Retirement Annuity" and
"C. Right to Cancel All Other Contracts" under DESCRIPTION OF THE CONTRACT.


                                       20
<PAGE>
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?

You can make several changes after receiving your Contract:

    - You may assign your ownership to someone else, except under certain
      qualified plans.

    - You may change the beneficiary, unless you have designated a beneficiary
      irrevocably.

    - You may change your allocation of payments.

    - You may make transfers of accumulated value among your current investments
      without any tax consequences.

    - You may cancel your Contract within ten days of delivery (or longer if
      required by state law).

                                       21
<PAGE>

              DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS
                    AND THE UNDERLYING INVESTMENT COMPANIES



THE COMPANIES.  Allmerica Financial Life Insurance and Annuity Company
("Allmerica Financial") is a life insurance company organized under the laws of
Delaware in July 1974. Its Principal Office is located at 440 Lincoln Street,
Worcester, MA 01653, telephone 508-855-1000. Allmerica Financial is subject to
the laws of the state of Delaware governing insurance companies and to
regulation by the Commissioner of Insurance of Delaware. In addition, Allmerica
Financial is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1999,
Allmerica Financial had over $17 billion in assets and over $26 billion of life
insurance in force.



Effective October 1, 1995, Allmerica Financial changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company.
Allmerica Financial is a wholly owned subsidiary of First Allmerica Financial
Life Insurance Company which, in turn, is a wholly owned subsidiary of Allmerica
Financial Corporation ("AFC").



First Allmerica Financial Life Insurance Company ("First Allmerica"), organized
under the laws of Massachusetts in 1844, is among the five oldest life insurance
companies in America. As of December 31, 1999, First Allmerica and its
subsidiaries had over $25 billion in combined assets and over $43 billion of
life insurance in force. Effective October 16, 1995, First Allmerica converted
from a mutual life insurance company known as State Mutual Life Assurance
Company of America to a stock life insurance company and adopted its present
name. First Allmerica is a wholly owned subsidiary of AFC. First Allmerica's
principal office ("Principal Office") is located at 440 Lincoln Street,
Worcester, MA 01653, telephone 508-855-1000.


First Allmerica is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
of Massachusetts. In addition, First Allmerica is subject to the insurance laws
and regulations of other states and jurisdictions in which it is licensed to
operate.

Both companies are charter members of the Insurance Marketplace Standards
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.


THE VARIABLE ACCOUNTS.  Each Company maintains a separate investment account
called Separate Account KGC (the "Variable Account"). The Variable Accounts of
Separate Account KGC were authorized by votes of the Board of Directors of the
Companies on June 13, 1996. Each Variable Account is registered with the SEC as
a unit investment trust under the 1940 Act. This registration does not involve
the supervision or management of investment practices or policies of the
Variable Accounts by the SEC.



The assets used to fund the variable portions of the Contract are set aside in
Sub-Accounts kept separate from the general assets of the Company. Each
Sub-Account invests in a corresponding investment series ("Portfolio") of Kemper
Variable Series, Scudder Variable Life Investment Fund, The Alger American Fund,
Dreyfus Investment Portfolios, The Dreyfus Socially Responsible Growth
Fund, Inc. or Warburg Pincus Trust. Each Sub-Account is administered and
accounted for as part of the general business of the Company. The income,
capital gains, or capital losses of each Sub-Account, however, are allocated to
each Sub-Account, without regard to any other income, capital gains or capital
losses of the Company. Obligations under the Contracts are obligations of the
Company. Under Delaware and Massachusetts law, the assets of the Variable
Account may not be charged with any liabilities arising out of any other
business of the Company.


The Company reserves the right, subject to compliance with applicable law, to
change the names of the Variable Account and the Sub-Accounts. The Company also
offers other variable annuity contracts investing

                                       22
<PAGE>
in the Variable Account which are not discussed in this Prospectus. In addition,
the Variable Account may invest in other underlying portfolios which are not
available to the Contracts described in this Prospectus.


THE UNDERLYING INVESTMENT COMPANIES


KEMPER VARIABLE SERIES.  Kemper Variable Series ("KVS"), is a series-type mutual
fund registered with the SEC as an open-end, management investment company.
Registration of KVS does not involve supervision of its management, investment
practices or policies by the SEC. KVS is designed to provide an investment
vehicle for certain variable annuity contracts and variable life insurance
policies. Shares of the Portfolios of KVS are sold only to insurance company
separate accounts. Scudder Kemper Investments, Inc. serves as the investment
adviser of KVS.

SCUDDER VARIABLE LIFE INVESTMENT FUND.  Scudder Variable Life Investment Fund
("Scudder VLIF") is an open-end, diversified management investment company
established as a Massachusetts business trust on March 15, 1985, and registered
with the SEC under the 1940 Act. Scudder Kemper Investments, Inc. serves as the
investment adviser of Scudder VLIF.


THE ALGER AMERICAN FUND.  The Alger American Fund ("Alger"), is an open-end,
diversified management investment company established as a Massachusetts
business trust on April 6, 1988 and registered with the SEC under the 1940 Act.
The investment adviser for the Alger American Leveraged AllCap Portfolio and
Alger American Balanced Portfolio is Fred Alger Management, Inc. Fred Alger
Management, Inc. is located at 1 World Trade Center, Suite 9333, New York, NY
10048.



DREYFUS INVESTMENT PORTFOLIOS.  The Dreyfus Investment Portfolios is a
Massachusetts business trust that commenced operations May 1, 1998. The Fund
consists of several portfolios, each a separate series of the Fund, an open-end
management investment company, known as a mutual fund. Each portfolio is
diversified. Dreyfus is located at 144 Glenn Curtiss Boulevard, Uniondale, NY
11556.



THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.  The Dreyfus Socially
Responsible Growth Fund, Inc. (the "Dreyfus Socially Responsible Growth Fund")
was incorporated under Maryland law on July 20, 1992, and commenced operations
on October 7, 1993. It is registered with the SEC as an open-end, diversified,
management investment company. The Dreyfus Corporation serves as the investment
adviser to the Dreyfus Socially Responsible Growth Fund. Dreyfus is located at
144 Glenn Curtiss Boulevard, Uniondale, NY 11556.



WARBURG PINCUS TRUST.  Warburg Pincus Trust is an open-end, management
investment company registered with the SEC. It was organized as a Massachusetts
business trust on March 15, 1995. Credit Suisse Asset Management, LLC ("CSAM")
is the investment adviser of the Warburg Pincus Trust. Abbott Capital
Management, LLC ("Abbott") serves as sub-investment adviser for the Global
Post-Venture Capital Portfolio with respect to the Portfolio's investments in
private-equity portfolios.


                       INVESTMENT OBJECTIVES AND POLICIES


A summary of investment objectives of each of the Underlying Portfolios is set
forth below. MORE DETAILED INFORMATION REGARDING THE INVESTMENT OBJECTIVES,
RESTRICTIONS AND RISKS, EXPENSES PAID BY THE UNDERLYING PORTFOLIOS AND OTHER
RELEVANT INFORMATION REGARDING THE UNDERLYING INVESTMENT COMPANIES MAY BE FOUND
IN THEIR RESPECTIVE PROSPECTUSES, WHICH ACCOMPANY THIS PROSPECTUS. PLEASE READ
THEM CAREFULLY BEFORE INVESTING. Also, the Statements of Additional Information
of the Underlying Portfolios are available upon request. There can be no
assurance that the investment objectives of the Underlying Portfolios can be
achieved or that the value of the Contract will equal or exceed the aggregate
amount of payments made under the Contract.


                                       23
<PAGE>

KEMPER VARIABLE SERIES:


KEMPER AGGRESSIVE GROWTH PORTFOLIO -- seeks capital appreciation through the use
of aggressive investment techniques.

KEMPER TECHNOLOGY GROWTH PORTFOLIO -- seeks growth of capital.


KVS DREMAN FINANCIAL SERVICES PORTFOLIO -- seeks long-term capital appreciation
by investing primarily in common stocks and other equity securities of companies
in the financial services industry believed by the Portfolio's investment
manager to be undervalued. This portfolio was formerly known as Kemper-Dreman
Financial Services Portfolio.


KEMPER SMALL CAP GROWTH PORTFOLIO -- seeks maximum appreciation of investors'
capital from a portfolio primarily of growth stocks of smaller companies.

KEMPER SMALL CAP VALUE PORTFOLIO -- seeks long-term capital appreciation from a
portfolio primarily of value stocks of smaller companies.


KVS DREMAN HIGH RETURN EQUITY PORTFOLIO -- seeks to achieve a high rate of total
return. This portfolio was formerly known as Kemper-Dreman High Return Equity
Portfolio.


KEMPER INTERNATIONAL PORTFOLIO -- seeks total return, a combination of capital
growth and income, principally through an internationally diversified portfolio
of equity securities.


KEMPER NEW EUROPE PORTFOLIO -- seeks long-term capital appreciation by investing
in a portfolio consisting primarily of equity securities of European companies.
This portfolio was formerly known as Kemper International Growth and Income
Portfolio.


KEMPER GLOBAL BLUE CHIP PORTFOLIO -- seeks long-term growth of capital through a
diversified worldwide portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt securities
convertible into common stocks.

KEMPER GROWTH PORTFOLIO -- seeks maximum appreciation of capital through
diversification of investment securities having potential for capital
appreciation.

KEMPER CONTRARIAN VALUE PORTFOLIO -- seeks to achieve a high rate of total
return from a portfolio primarily of value stocks of larger companies. This
Portfolio was formerly known as the Kemper Value Portfolio.

KEMPER BLUE CHIP PORTFOLIO -- seeks growth of capital and of income.

KEMPER VALUE+GROWTH PORTFOLIO -- seeks growth of capital through professional
management of a portfolio of growth and value stocks. A secondary objective is
the reduction of risk over a full market cycle compared to a portfolio of only
growth stocks or only value stocks.


KVS INDEX 500 PORTFOLIO* -- seeks to match, as closely as possible, before
expenses, the performance of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500 Index"), which emphasizes stocks of large U.S. companies.
This portfolio was formerly known as Kemper Index 500 Portfolio.


*"Standard & Poor's-Registered Trademark-," "S&P-Registered Trademark-" "S&P
 500-Registered Trademark-," "Standard & Poor's 500," and "500" are trademarks
 of the McGraw-Hill Companies, Inc., and have been licensed for use by Scudder
 Kemper Investments, Inc. The KVS Index 500 Portfolio is not sponsored,
 endorsed, sold or promoted by Standard & Poor's, and Standard & Poor's makes no
 representation regarding the advisability of investing in the fund. Additional
 information may be found in the fund's Statement of Additional Information.

                                       24
<PAGE>
KEMPER HORIZON 20+ PORTFOLIO -- designed for investors with approximately a 20+
year investment horizon, seeks growth of capital, with income as a secondary
objective.

KEMPER TOTAL RETURN PORTFOLIO -- seeks a high total return, a combination of
income and capital appreciation, by investing in a combination of debt
securities and common stocks.

KEMPER HORIZON 10+ PORTFOLIO -- designed for investors with approximately a 10+
year investment horizon, seeks a balance between growth of capital and income,
consistent with moderate risk.

KEMPER HIGH YIELD PORTFOLIO -- seeks to provide a high level of current income
by investing in fixed-income securities.

KEMPER HORIZON 5 PORTFOLIO -- designed for investors with approximately a five
year investment horizon, seeks income consistent with preservation of capital,
with growth of capital as a secondary objective.


KEMPER STRATEGIC INCOME PORTFOLIO -- seeks high current return by investing
primarily in bonds issued by U.S. and foreign corporations and governments. This
portfolio was formerly known as Kemper Global Income Portfolio.


KEMPER INVESTMENT GRADE BOND PORTFOLIO -- seeks high current income by investing
primarily in a diversified portfolio of investment grade debt securities

KEMPER GOVERNMENT SECURITIES PORTFOLIO -- seeks high current return consistent
with preservation of capital from a portfolio composed primarily of U.S.
Government securities.

KEMPER MONEY MARKET PORTFOLIO -- seeks maximum current income to the extent
consistent with stability of principal from a portfolio of high quality money
market instruments that mature in 12 months or less.

KVS FOCUSED LARGE CAP GROWTH PORTFOLIO -- seeks growth through long-term capital
appreciation.

KVS GROWTH OPPORTUNITIES PORTFOLIO -- seeks long-term growth of capital in a
manner consistent with the preservation of capital.

KVS GROWTH AND INCOME PORTFOLIO -- seeks long-term capital growth and current
income.

SCUDDER VARIABLE LIFE INVESTMENT FUND:


SCUDDER 21ST CENTURY GROWTH PORTFOLIO -- pursues long-term growth of capital by
investing primarily in equity securities issued by emerging growth companies.



SCUDDER INTERNATIONAL PORTFOLIO -- seeks long term growth of capital primarily
through diversified holdings of marketable foreign equity investments.


SCUDDER GLOBAL DISCOVERY PORTFOLIO -- seeks above average capital appreciation
over the long term by investing primarily in the equity securities of small
companies located throughout the world.


SCUDDER CAPITAL GROWTH PORTFOLIO -- seeks to maximize long-term capital growth
through a broad and flexible investment program.



SCUDDER GROWTH AND INCOME PORTFOLIO -- seeks long-term growth of capital,
current income and growth of income.


                                       25
<PAGE>
SCUDDER GROWTH AND INCOME PORTFOLIO -- seeks long-term growth of capital,
current income and growth of income from a portfolio consisting primarily of
common stocks and securities convertible into common stocks.

THE ALGER AMERICAN FUND:


ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO -- seeks long-term capital
appreciation. Under normal circumstances, the Portfolio invests in the equity
securities of companies of any size that demonstrate promising growth potential.



ALGER AMERICAN BALANCED PORTFOLIO -- seeks current income and long-term capital
appreciation. The Portfolio focuses on stocks of companies with growth potential
and fixed-income securities, with emphasis on income-producing securities which
appear to have some potential for capital appreciation.


DREYFUS INVESTMENT PORTFOLIOS:

DREYFUS MIDCAP STOCK PORTFOLIO -- seeks investment results that are greater than
the total return performance of publicly traded common stocks of medium- size
domestic companies in the aggregate, as represented by the Standard & Poor's
MidCap 400 Index.

THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.:


DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND -- seeks to provide capital growth,
with current income as a secondary goal. To pursue these goals, the fund invests
primarily in the common stock of companies that, in the opinion of the fund's
management, meet traditional investment standards and conduct their business in
a manner that contributes to the enhancement of the quality of life in America.



WARBURG PINCUS TRUST:



WARBURG PINCUS EMERGING MARKETS PORTFOLIO -- seeks long-term growth of capital.
To pursue this goal, it invests in equity securities of companies located in or
conducting a majority of their business in emerging markets.



WARBURG PINCUS GLOBAL POST-VENTURE CAPITAL PORTFOLIO -- seeks long-term growth
of capital. To pursue this goal, it invests primarily in equity securities of
U.S. and foreign companies considered to be in their post-venture capital stage
of development.


Certain Underlying Portfolios have investment objectives and/or policies similar
to those of other Underlying Portfolios. To choose the Sub-Accounts which best
meet individual needs and objectives, carefully read the Underlying Portfolio
prospectuses. In some states, insurance regulations may restrict the
availability of particular Sub-Accounts.


If there is a material change in the investment policy of a Sub-Account or the
Underlying Portfolio in which it invests, the Owner will be notified of the
change. If the Owner has values allocated to that Sub-Account, the Company will
transfer it without charge on written request by the Owner to another
Sub-Account or to the Fixed Account. The Company must receive such written
request within 60 days of the later of (1) the effective date of the change in
the investment policy, or (2) the receipt of the notice of the Owner's right to
transfer.


                                       26
<PAGE>
                            PERFORMANCE INFORMATION


The Contract was first offered to the public by Allmerica Financial Life
Insurance and Annuity Company in 1996 and by First Allmerica Financial Life
Insurance Company in 1997. The Company, however, may advertise "total return"
and "average annual total return" performance information based on (1) the
periods that the Sub-Accounts have been in existence and (2) the periods that
the Underlying Portfolios have been in existence. Performance results in Tables
1A and 2A are calculated with all charges assumed to be those applicable to the
Contract, the Sub-Accounts and the Underlying Portfolios and also assume that
the Contract is surrendered at the end of the applicable period. Performance
results in Tables 1B and 2B do not include the Contract fee and assume that the
Contract is not surrendered at the end of the applicable period. Both the total
return and yield figures are based on historical earnings and are not intended
to indicate future performance. All performance tables referenced in this
section may be found in the SAI.


The total return of a Sub-Account refers to the total of the income generated by
an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by certain charges, and expressed as a percentage of
the investment.

The average annual total return represents the average annual percentage change
in the value of an investment in a Sub-Account over a given period of time.
Average annual total return represents averaged figures as opposed to the actual
performance of a Sub-Account, which will vary from year to year.

The yield of the Sub-Account investing in the Kemper Money Market Portfolio
refers to the income generated by an investment in the Sub-Account over a
seven-day period (which period will be specified in the advertisement). This
income is then "annualized" by assuming that the income generated in the
specific week is generated over a 52-week period. This annualized yield is shown
as a percentage of the investment. The effective yield calculation is similar
but, when annualized, the income earned by an investment in the Sub-Account is
assumed to be reinvested. Thus the effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment.

The yield of a Sub-Account investing in a Portfolio other than the Kemper Money
Market Portfolio refers to the annualized income generated by an investment in
the Sub-Account over a specified 30-day or one-month period. The yield is
calculated by assuming that the income generated by the investment during that
30-day or one-month period is generated each period over a 12-month period and
is shown as a percentage of the investment.

Quotations of average annual total return as shown in Table 1A are calculated in
the manner prescribed by the SEC and show the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year period or for a period covering the time the Sub-Account has been in
existence, if less than the prescribed periods. The calculation is adjusted to
reflect the deduction of the annual Sub-Account asset charge of 1.10%, the
Underlying Portfolio charges, the $35 annual Contract fee and the surrender
charge which would be assessed if the investment were completely withdrawn at
the end of the specified period. The calculation is not adjusted to reflect the
deduction of any rider charges. Quotations of supplemental average total
returns, as shown in Table 1B, are calculated in exactly the same manner and for
the same periods of time except that they do not reflect the Contract fee and
assume that the Contract is not surrendered at the end of the periods shown.


The performance shown in Tables 2A and 2B in the SAI is calculated in exactly
the same manner as that in Tables 1A and 1B, respectively; however, the period
of time is based on the Underlying Portfolios' lifetime, which may predate the
Sub-Account's inception date. These performance calculations are based on the
assumption that the Sub-Account corresponding to the applicable Underlying
Portfolio was actually in existence throughout the stated period and that the
contractual charges and expenses during that period were equal to those
currently assessed under the Contract. For more detailed information about these
performance calculations, including actual formulas, see the SAI.


                                       27
<PAGE>
PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF A
HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE TIME PERIOD ON WHICH THE
CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF
THE INVESTMENT OBJECTIVES AND POLICIES AND RISK CHARACTERISTICS OF THE
UNDERLYING PORTFOLIO IN WHICH THE SUB-ACCOUNT INVESTS AND THE MARKET CONDITIONS
DURING THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED AS A REPRESENTATION
OF WHAT MAY BE ACHIEVED IN THE FUTURE.

Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (1) the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman
Aggregate Bond Index or other unmanaged indices so that investors may compare
the Sub-Account results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(2) other groups of variable annuity separate accounts or other investment
products tracked by Lipper, Inc., a widely used independent research firm which
ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, who rank such investment products on overall
performance or other criteria; or (3) the Consumer Price Index (a measure for
inflation) to assess the real rate of return from an investment in the
Sub-Account. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses. In addition, relevant broad-based indices and performance from
independent sources may be used to illustrate the performance of certain
contract features.

At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of the Company's relative financial
strength and operating performance in comparison to the norms of the life/health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues and
do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the Underlying
Portfolios.

                                       28
<PAGE>
                          DESCRIPTION OF THE CONTRACT

A.  PAYMENTS


The Company issues a Contract when its underwriting requirements, which include
receipt of the initial payment and allocation instructions by the Company at its
Principal Office, are met. These requirements also may include the proper
completion of an application; however, where permitted, the Company may issue a
Contract without completion of an application and/or signature for certain
classes of annuity contracts.



Payments are to be made payable to the Company. A net payment is equal to the
payment received less the amount of any applicable premium tax. The initial net
payment is credited to the Contract and allocated among the requested investment
options as of the date that all issue requirements are properly met. If all
issue requirements are not completed within five business days of the Company's
receipt of the initial payment, the payment will be returned immediately unless
the applicant authorizes the Company to retain it pending completion of all
issue requirements. Subsequent payments will be credited as of the Valuation
Date received at the Principal Office, on the basis of the accumulation unit
value next determined after receipt.



Payments may be made to the Contract at any time prior to the Annuity Date, or
prior to payment of the death benefit, subject to certain minimums:


    - Currently, the initial payment must be at least $2,000.

    - Under a salary deduction or monthly automatic payment plan, the minimum
      initial payment is $167.

    - Each subsequent payment must be at least $100.

    - Where the contribution on behalf of an employee under an
      employer-sponsored retirement plan is less than $600 but more than $300
      annually, the Company may issue a Contract on the employee if the plan's
      average annual contribution per eligible plan participant is at least
      $600.

    - The minimum allocation to a Guarantee Period Account is $1,000. If less
      than $1,000 is allocated to a Guarantee Period Account, the Company
      reserves the right to apply that amount to the Kemper Money Market
      Portfolio.


Generally, unless otherwise requested, all payments will be allocated among the
investment options in the same proportion that the initial net payment is
allocated or, if subsequently changed, according to the most recent allocation
instructions. As of the date of this Prospectus, payments may be allocated to a
maximum of seventeen variable Sub-Accounts during the life of the Contract in
addition to the Kemper Money Market Portfolio. There are no restrictions on the
number of times the Fixed Account and the Guarantee Period Accounts may be used
over the life of the Contract.



The Owner may change allocation instructions for new payments pursuant to a
written or telephone request. If the Owner elects telephone requests, a properly
completed authorization must be on file before telephone requests will be
honored. The policy of the Company and its agents and affiliates is that they
will not be responsible for losses resulting from acting upon telephone requests
reasonably believed to be genuine. The Company will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine; otherwise,
the Company may be liable for any losses due to unauthorized or fraudulent
instructions. Such procedures may include, among other things, requiring some
form of personal identification prior to acting upon instructions received by
telephone. All telephone instructions are tape recorded.


                                       29
<PAGE>
B.  RIGHT TO CANCEL INDIVIDUAL RETIREMENT ANNUITY


An individual purchasing a Contract intended to qualify as an IRA may cancel the
Contract at any time within ten days after receipt of the Contract and receive a
refund. In order to cancel the Contract, the Owner must mail or deliver the
Contract to the agent through whom the Contract was purchased or to the
Company's Principal Office at 440 Lincoln Street, Worcester, MA 01653, or to an
authorized representative. Mailing or delivery must occur within ten days after
receipt of the Contract for cancellation to be effective.


Within seven days the Company will provide a refund equal to the gross
payment(s) received. In some states, however, the refund may equal the greater
of (a) gross payments or (b) any amounts allocated to the Fixed Account and the
Guarantee Period Accounts plus the Accumulated Value of amounts allocated to the
Variable Account plus any amounts deducted under the Contract or by the
Underlying Portfolios for taxes, charges or fees. At the time the Contract is
issued, the "Right to Examine" provision on the cover of the Contract will
specifically indicate whether the refund will be equal to gross payments or
equal to the greater of (a) or (b) as set forth above.

The liability of the Variable Account under this provision is limited to the
Owner's Accumulated Value in the Sub-Accounts on the date of cancellation. Any
additional amounts refunded to the Owner will be paid by the Company.

C.  RIGHT TO CANCEL ALL OTHER CONTRACTS

An Owner may cancel the Contract at any time within ten days after receipt of
the Contract (or longer if required by state law) and receive a refund. In most
states, the Company will pay the Owner an amount equal to the sum of (1) the
difference between the payment received, including fees, and any amount
allocated to the Variable Account, and (2) the Accumulated Value of amounts
allocated to the Variable Account as of the date the request is received. If the
Contract was purchased as an IRA or issued in a state that requires a full
refund of the initial payment(s), the IRA cancellation right described above
will be used. At the time the Contract is issued, the "Right to Examine"
provision on the cover of the Contract will specifically indicate what the
refund will be and the time period allowed to exercise the right to cancel.

In order to comply with New York regulations concerning the purchase of a new
annuity contract to replace an existing life or annuity contract (a
"replacement"), an Owner who purchases the Contract in New York as a replacement
may cancel within 60 days after receipt. In order to cancel the Contract, the
Owner must mail or deliver it to the Company's Principal Office or to one of its
authorized representatives. The Company will refund an amount equal to the
Surrender Value plus all fees and charges and the Contract will be void from the
beginning.

D.  TRANSFER PRIVILEGE


At any time prior to the Annuity Date, an Owner may transfer amounts among
investment options subject to the seventeen variable Sub-Account restriction
discussed in "A. Payments." Transfer values will be based on the Accumulated
Value next computed after receipt of the transfer request. The Company will make
transfers pursuant to written or telephone requests. As discussed in "A.
Payments," a properly completed authorization form must be on file before
telephone requests will be honored. In Oregon and Massachusetts, payments and
transfers to the Fixed Account are subject to certain restrictions. See APPENDIX
A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT.


Transfers to a Guarantee Period Account must be at least $1,000. If the amount
to be transferred to a Guarantee Period Account is less than $1,000, the Company
may transfer that amount to the Sub-Account which invests in the Kemper Money
Market Portfolio. Transfers from a Guarantee Period Account prior to the
expiration of the Guarantee Period will be subject to a Market Value Adjustment.

                                       30
<PAGE>

The first twelve transfers in a Contract year are guaranteed to be free of any
transfer charge. The Company does not currently charge for additional transfers
but reserves the right to asses a charge, guaranteed never to exceed $25, to
reimburse it for the expense of processing these additional transfers. If you
authorize periodic transfers under an Automatic Transfer option (Dollar Cost
Averaging) or an Automatic Account Rebalancing option, the first automatic
transfer or rebalancing under a request counts as one transfer for purposes of
the 12 transfers guaranteed to be free of a transfer charge in each Contract
year. Each subsequent transfer or rebalancing under that request is without
charge and does not reduce the remaining number of transfers which may be made
free of charge in that Contract year.


The Owner may authorize an independent third party to transact allocations and
transfers in accordance with an asset allocation strategy or other investment
strategy. The Company may provide administrative or other support services to
these independent third parties, however, the Company does not engage any third
parties to offer allocation or other investment services under this Contract,
does not endorse or review any allocation or transfer recommendations and is not
responsible for the investment results of such allocations or transfers
transacted on the Owner's behalf. In addition, the Company reserves the right to
discontinue services or limit the number of Portfolios that it may provide such
services for. The Company does not charge the Owner for providing additional
support services.


AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING) AND AUTOMATIC ACCOUNT REBALANCING
OPTIONS.  The Owner may elect automatic transfers of a predetermined dollar
amount, not less than $100, on a periodic basis (monthly, bi-monthly, quarterly,
semi-annually or annually) from either the Fixed Account, the Sub-Account
investing in the Kemper Money Market Portfolio or the Sub-Account investing in
the Kemper Government Securities Portfolio, (the "source accounts") to one or
more of the available Sub-Accounts. Automatic transfers may not be made into the
Fixed Account, the Guarantee Period Accounts or, if applicable, the Portfolio
being used as the source account. If an automatic transfer would reduce the
balance in the source account to less than $100, the entire balance will be
transferred proportionately to the chosen Sub-Accounts. Automatic transfers will
continue until the amount in the source account on a transfer date is zero or
the Owner's request to terminate the option is received by the Company. If
additional amounts are allocated to the source account after its balance has
fallen to zero, this option will not restart automatically, and the Owner must
provide a new request to the Company.



To the extent permitted by law, the Company reserves the right, from time to
time, to credit an enhanced interest rate to certain initial and/or subsequent
payments which are deposited into the Fixed Account and which utilize the Fixed
Account as the source account for the payment from which to process automatic
transfers. For more information see "Enhanced Automatic Transfer (Dollar Cost
Averaging) Program" in the SAI.



The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, bi-monthly, quarterly, semi-annual or annual basis in accordance with
percentage allocations specified by the Owner. As frequently as specified by the
Owner, the Company will review the percentage allocations in the Portfolios and,
if necessary, transfer amounts to ensure conformity with the designated
percentage allocation mix. If the amount necessary to re-establish the mix on
any scheduled date is less than $100, no transfer will be made. Automatic
Account Rebalancing will continue until the Owner's request to terminate or
change the option is received by the Company. As such, subsequent payments
allocated in a manner different from the percentage allocation mix in effect on
the date the payment is received will be reallocated in accordance with the
existing mix on the next scheduled date unless the Owner's timely request to
change the mix or terminate the option is received by the Company.


The Company reserves the right to limit the number of Sub-Accounts that may be
used for automatic transfers and rebalancing, and to discontinue either option
upon advance written notice. Currently, Dollar Cost Averaging and Automatic
Account Rebalancing may not be in effect simultaneously. Either option may be
elected at no additional charge when the Contract is purchased or at a later
date.

                                       31
<PAGE>
E.  SURRENDER

At any time prior to the Annuity Date, an Owner may surrender the Contract and
receive its Surrender Value, less any tax withholding. The Owner must return the
Contract and a signed, written request for surrender, satisfactory to the
Company, to the Principal Office. The Surrender Value will be calculated based
on the Contract's Accumulated Value as of the Valuation Date on which the
request and the Contract are received at the Principal Office.

Before the Annuity Date, a surrender charge may be deducted when a Contract is
surrendered if payments have been credited to the Contract during the last six
full Contract years. See CHARGES AND DEDUCTIONS. The Contract fee will be
deducted upon surrender of the Contract.

After the Annuity Date, only Contracts annuitized under a commutable period
certain option may be surrendered. The amount payable is the commuted value of
any unpaid installments, computed on the basis of the assumed interest rate
incorporated in such annuity benefit payments. No surrender charge is imposed
after the Annuity Date.

Any amount surrendered normally is payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and withdrawals of amounts in each Sub-Account in any period
during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has, by order, permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of Portfolio
securities or valuation of assets of each separate account is not reasonably
practicable.

The surrender rights of Owners who are participants under Section 403(b) plans
or who are participants in the Texas Optional Retirement Program ("Texas ORP")
are restricted; see FEDERAL TAX CONSIDERATIONS, "Tax-Sheltered Annuities" and
"Texas Optional Retirement Program."

For important tax consequences which may result from surrender, see FEDERAL TAX
CONSIDERATIONS.

F.  WITHDRAWALS


At any time prior to the Annuity Date, an Owner may withdraw a portion of the
Contract's Accumulated Value, subject to the limits stated below. The Owner must
submit a signed, written request for withdrawals, satisfactory to the Company,
to the Principal Office. The written request must indicate the dollar amount the
Owner wishes to receive and the investment options from which such amount is to
be withdrawn. The Company will then withdraw an amount equal to the amount
requested by the Owner plus any applicable surrender charge, as described under
CHARGES AND DEDUCTIONS. In addition, amounts withdrawn from a Guarantee Period
Account prior to the end of the applicable Guarantee Period will be subject to a
Market Value Adjustment, as described under "GUARANTEE PERIOD ACCOUNTS.



Where allocations have been made to more than one investment option, a
percentage of the withdrawal may be allocated to each such option. A withdrawal
from a Sub-Account will result in cancellation of a number of units equivalent
in value to the amount withdrawn, computed as of the Valuation Date that the
request is received at the Principal Office.



The minimum withdrawal amount is $100. Except in New York where no specific
balance is required, no withdrawal will be permitted if the Accumulated Value
remaining under the Contract would be reduced to less than $1,000. Withdrawals
will be paid in accordance with the time limitations described under
"E. Surrender" under CHARGES AND DEDUCTIONS.


                                       32
<PAGE>
After the Annuity Date, withdrawals are allowed only if the Contract is
annuitized under a commutable period certain option. A withdrawal after the
Annuity Date will result in cancellation of a number of Annuity Units equivalent
in value to the amount withdrawn.

For important restrictions on withdrawals which are applicable to Owners who are
participants under Section 403(b) plans or under the Texas ORP, see FEDERAL TAX
CONSIDERATIONS, "Tax-Sheltered Annuities" and "Texas Optional Retirement
Program."

For important tax consequences which may result from withdrawals, see FEDERAL
TAX CONSIDERATIONS.


SYSTEMATIC WITHDRAWALS.  The Owner may elect an automatic schedule of
withdrawals (systematic withdrawals) from amounts in the Sub-Accounts and/or the
Fixed Account on a monthly, bi-monthly, quarterly, semi-annual or annual basis.
Systematic withdrawals from Guarantee Period Accounts are not available. The
minimum amount of each automatic withdrawal is $100, and will be subject to any
applicable withdrawal charges. The Owner may elect, by written request, a
specific dollar amount and the percentage of this amount to be taken from each
designated Sub-Account and/or the Fixed Account, or the Owner may elect to
withdraw a specific percentage of the Accumulated Value calculated as of the
withdrawal dates, and may designate the percentage of this amount which should
be taken from each account. The first withdrawal will take place on the date the
written request is received at the Principal Office or, if later, on a date
specified by the Owner.


If a withdrawal would cause the remaining Accumulated Value to be less than
$1,000, systematic withdrawals may be discontinued. Systematic withdrawals will
cease automatically on the Annuity Date. The Owner may change or terminate
systematic withdrawals only by written request to the Principal Office.

LIFE EXPECTANCY DISTRIBUTIONS.  Prior to the Annuity Date, an Owner who also is
the Annuitant may elect to make a series of systematic withdrawals from the
Contract according to the Company's life expectancy distribution ("LED") option
by returning a properly signed LED request form to the Principal Office.

The Owner may elect monthly, bi-monthly, quarterly, semi-annual, or annual LED
distributions, and may terminate the LED option at any time. Under contracts
issued in Hawaii and New York, the LED option will terminate automatically on
the maximum Annuity Date permitted under the Contract, at which time an Annuity
Option must be selected.

If an Owner elects the Company's LED option, in each calendar year a fraction of
the Accumulated Value is withdrawn without a surrender charge based on the
Owner's then life expectancy (or the joint life expectancy of the Owner and a
beneficiary.) The numerator of the fraction is 1 (one) and the denominator of
the fraction is the remaining life expectancy of the Owner, as determined
annually by the Company. The resulting fraction, expressed as a percentage, is
applied to the Accumulated Value at the beginning of the year to determine the
amount to be distributed during the year. Under the Company's LED option, the
amount withdrawn from the Contract changes each year, because life expectancy
changes each year that a person lives. For example, actuarial tables indicate
that a person age 70 has a life expectancy of 16 years, but a person who attains
age 86 has a life expectancy of another 6.5 years. Where the Owner is a trust or
other nonnatural person, the Owner may elect the LED option based on the
Annuitant's life expectancy.

(Note: this option may not produce annual distributions that meet the definition
of "substantially equal periodic payments" as defined under Code Section 72(t).
As such, the withdrawals may be treated by the Internal Revenue Service (IRS) as
premature distributions from the Contract and may be subject to a 10% federal
tax penalty. Owners seeking distributions over their life under this definition
should consult their tax advisor. For more information, see FEDERAL TAX
CONSIDERATIONS, "C. Taxation of the Contracts in General." In addition, if the
amount necessary to meet the substantially equal periodic payment definition is
greater than the Company's LED amount, a surrender charge may apply to the
amount in excess of the LED amount.)

                                       33
<PAGE>
The Company may discontinue or change the LED option at any time, but not with
respect to election of the option made prior to the date of any change in the
LED option.

G.  DEATH BENEFIT

If the Annuitant dies (or an Owner predeceases the Annuitant) before the Annuity
Date while the Contract is in force, the Company will pay the beneficiary a
death benefit, except when a spousal beneficiary chooses to continue the
Contract as provided below in "H. The Spouse of the Owner as Beneficiary."

DEATH OF THE ANNUITANT PRIOR TO THE ANNUITY DATE.

STANDARD DEATH BENEFIT.  Upon the death of the Annuitant (including an Owner who
is also the Annuitant), the standard death benefit is equal to the GREATER of:


    (a) the Accumulated Value on the Valuation Date that the Company receives
       proof of death, increased by any positive Market Value Adjustment, or


    (b) gross payments decreased proportionately to reflect withdrawals. For
       each withdrawal, the proportionate reduction is calculated as the death
       benefit under this option immediately prior to the withdrawal multiplied
       by the withdrawal amount and divided by the Accumulated Value immediately
       prior to the withdrawal.

ENHANCED DEATH BENEFIT RIDER.  At the time of application for the Contract, the
Owner may elect an optional Enhanced Death Benefit Rider. Under the Enhanced
Death Benefit Rider, if the Annuitant dies before the Annuity Date, the death
benefit will be the GREATEST of:


    (a) the Accumulated Value on the Valuation Date that the Company receives
       proof of death, increased by any positive Market Value Adjustment,



    (b) gross payments accumulated daily at an effective annual yield of 5%,
       starting on the date each payment is applied, decreased proportionately
       to reflect withdrawals (except in Hawaii and New York where (b) equals
       gross payments decreased proportionately to reflect withdrawals) (for
       each withdrawal, the proportionate reduction is calculated as the death
       benefit under this option immediately prior to the withdrawal multiplied
       by the withdrawal amount and divided by the Accumulated Value immediately
       prior to the withdrawal), or


    (c) the death benefit that would have been payable on the most recent
       Contract anniversary, increased for subsequent payments and decreased
       proportionately for subsequent withdrawals.


This enhanced guaranteed death benefit works in the following way assuming no
withdrawals are made. On the first anniversary, the death benefit will be equal
to the greater of (a) the Accumulated Value (increased by any positive Market
Value Adjustment) or (b) gross payments accumulated daily at an effective annual
yield of 5% (except in Hawaii and New York where (b) equals gross payments). The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments accumulated daily at an effective annual yield of
5% (gross payments in Hawaii and New York) or (c) the locked-in value of the
death benefit at the first anniversary. The greatest of (a), (b) or (c) will be
locked in until the next Contract anniversary. This calculation will then be
repeated on each anniversary date while the Contract remains in force and prior
to the Annuity Date. As noted above, the values of (b) and (c) will be decreased
proportionately if withdrawals are taken. See APPENDIX C -- THE DEATH BENEFIT
for specific examples of death benefit calculations.



A separate charge is deducted for the optional Enhanced Death Benefit Rider. On
the last day of each month and, if applicable, on the date the Rider is
terminated, a charge equal to 1/12th of an annual rate of 0.25% is made against
the Accumulated Value of the Contract at that time. The charge is made through a
pro-rata


                                       34
<PAGE>

reduction (based on relative values) of Accumulation Units in the Sub-Accounts,
of dollar amounts in the Fixed Account, and of dollar amounts in the Guarantee
Period Accounts.


DEATH OF AN OWNER WHO IS NOT ALSO THE ANNUITANT PRIOR TO THE ANNUITY
DATE.  Under either the standard or enhanced death benefit, if an Owner who is
not also the Annuitant dies before the Annuity Date, the death benefit will be
the Accumulated Value increased by any positive Market Value Adjustment. The
death benefit never will be reduced by a negative Market Value Adjustment.

PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE.  The death benefit
generally will be paid to the beneficiary in one sum within seven business days
of the receipt of due proof of death at the Principal Office unless the Owner
has specified a death benefit annuity option. Instead of payment in one sum, the
beneficiary may, by written request, elect to:

    (1) defer distribution of the death benefit for a period no more than five
       years from the date of death; or


    (2) receive distributions over the life of the beneficiary for a period
       certain not extending beyond the beneficiary's life expectancy, with
       annuity benefit payments beginning one year from the date of death.


If distribution of the death benefit is deferred under (1) or (2), any value in
the Guarantee Period Accounts will be transferred to the Sub-Account investing
in the Kemper Money Market Portfolio. The excess, if any, of the enhanced death
benefit over the Accumulated Value also will be added to the Kemper Money Market
Portfolio. The beneficiary may, by written request, effect transfers and
withdrawals during the deferral period and prior to annuitization under (2), but
may not make additional payments. The death benefit will reflect any earnings or
losses experienced during the deferral period. If there are multiple
beneficiaries, the consent of all is required.


With respect to the death benefit, the Accumulated Value will be based on the
unit values next computed after due proof of the death has been received.


DEATH OF THE ANNUITANT ON OR AFTER THE ANNUITY DATE.  If the Annuitant's death
occurs on or after the Annuity Date but before completion of all guaranteed
annuity benefit payments, any unpaid amounts or installments will be paid to the
beneficiary. The Company must pay out the remaining payments at least as rapidly
as under the payment option in effect on the date of the Annuitant's death.

H.  THE SPOUSE OF THE OWNER AS BENEFICIARY


The Owner's spouse, if named as the sole beneficiary, may by written request
continue the Contract rather than receiving payment of the death benefit. Upon
such election, the spouse will become the Owner and Annuitant subject to the
following: (1) any value in the Guarantee Period Accounts will be transferred to
the Sub-Account investing in the Kemper Money Market Portfolio; and (2) the
excess, if any, of the death benefit over the Contract's Accumulated Value also
will be added to the Sub-Account investing in the Kemper Money Market Portfolio.
The resulting value never will be subject to a surrender charge when withdrawn.
The new Owner may also make additional payments; however, a surrender charge
will apply to these amounts if they are withdrawn before they have been invested
in the Contract for at least six years. All other rights and benefits provided
in the Contract will continue, except that any subsequent spouse of such new
Owner will not be entitled to continue the Contract when the new Owner dies.


I.  ASSIGNMENT

The Contract, other than those sold in connection with certain qualified plans,
may be assigned by the Owner at any time prior to the Annuity Date and while the
Annuitant is alive (see FEDERAL TAX CONSIDERATIONS). The Company will not be
deemed to have knowledge of an assignment unless it is made in writing and filed
at the Principal Office. The Company will not assume responsibility for
determining the validity of

                                       35
<PAGE>
any assignment. If an assignment of the Contract is in effect on the Annuity
Date, the Company reserves the right to pay to the assignee, in one sum, that
portion of the Surrender Value of the Contract to which the assignee appears to
be entitled. The Company will pay the balance, if any, in one sum to the Owner
in full settlement of all liability under the Contract. The interest of the
Owner and of any beneficiary will be subject to any assignment.

For important tax liability which may result from assignments, see FEDERAL TAX
CONSIDERATIONS.

J.  ELECTING THE FORM OF ANNUITY AND ANNUITY DATE


The Owner selects the Annuity Date. To the extent permitted by law, the Annuity
Date may be the first day of any month: (1) before the Annuitant's 85th
birthday, if the Annuitant's age on the issue date of the Contract is 75 or
under, or (2) within ten years from the issue date of the Contract and before
the Annuitant's 90th birthday, if the Annuitant's age on the issue date is
between 76 and 90. The Owner may elect to change the Annuity Date by sending a
request to the Principal Office at least one month before the Annuity Date. To
the extent permitted by state law, the new Annuity Date must be the first day of
any month occurring before the Annuitant's 90th birthday, and must be within the
life expectancy of the Annuitant. The Company shall determine such life
expectancy at the time a change in Annuity Date is requested. In no event will
the latest possible annuitization age exceed 90. The Code and the terms of
qualified plans impose limitations on the age at which annuity benefit payments
may commence and the type of annuity option selected. See FEDERAL TAX
CONSIDERATIONS for further information.



Subject to certain restrictions described below, the Owner has the right (1) to
select the annuity payout option under which annuity benefit payments are to be
made, and (2) to determine whether payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. Certain annuity
options may be commutable or noncommutable. A commutable option provides the
Owner with the right to request a lump sum payment of any remaining balance
after annuity payments have commenced. Under a noncommutable option, the Owner
may not request a lump sum payment. Annuity benefit payments are determined
according to the annuity tables in the Contract, by the annuity option selected,
and by the investment performance of the Sub-Accounts selected. See "Annuity
Benefit Payments" in the SAI.


To the extent a fixed annuity payout is selected, Accumulated Value will be
transferred to the Fixed Account, and the annuity benefit payments will be fixed
in amount. See APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT.

Under a variable annuity payout option, a payment equal to the value of the
fixed number of Annuity Units in the Sub-Accounts is made monthly, quarterly,
semi-annually or annually. Since the value of an Annuity Unit in a Sub-Account
will reflect the investment performance of the Sub-Account, the amount of each
annuity benefit payment will vary.

The annuity payout option selected must produce an initial payment of at least
$50 (a lower amount may be required in some states). The Company reserves the
right to increase this minimum amount. If the annuity payout option selected
does not produce an initial payment which meets this minimum, a single payment
will be made. Once the Company begins making annuity benefit payments, the
Annuitant cannot make withdrawals or surrender the annuity benefit, except where
the Annuitant has elected a commutable period certain option. Beneficiaries
entitled to receive remaining payments under either a commutable or
noncommutable "period certain" may elect instead to receive a lump sum
settlement. See "K. Description of Variable Annuity Payout Options."

If the Owner does not elect an option, a variable life annuity with periodic
payments guaranteed for ten years will be purchased. Changes in either the
Annuity Date or annuity option can be made up to one month prior to the Annuity
Date.

                                       36
<PAGE>

If the Owner exercises the M-GAP Rider, annuity benefit payments must be made
under a fixed annuity payout option involving a life contingency and will occur
at the Company's guaranteed fixed annuity option rates listed under the Annuity
Option Tables in the Contract.


K.  DESCRIPTION OF VARIABLE ANNUITY PAYOUT OPTIONS

The Company provides the variable annuity payout options described below.
Currently, variable annuity payout options may be funded through the
Sub-Accounts investing in the Kemper Investment Grade Bond, Kemper Value+Growth,
Kemper Horizon 10+ and Kemper Horizon 5 Portfolios. The Company also provides
these same options funded through the Fixed Account (fixed annuity option).
Regardless of how payments were allocated during the accumulation period, any of
the variable annuity payout options or the fixed annuity payout options may be
selected, or any of the variable annuity payout options may be selected in
combination with any of the fixed annuity payout options. Other annuity options
may be offered by the Company. IRS regulations may not permit certain of the
available annuity options when used in connection with certain qualified
Contracts.


VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR TEN YEARS.  This variable
annuity is payable periodically during the lifetime of the Annuitant with the
guarantee that if the Annuitant should die before all payments have been made,
the remaining annuity benefit payments will continue to the beneficiary.



VARIABLE LIFE ANNUITY PAYABLE PERIODICALLY DURING THE LIFETIME OF THE ANNUITANT
ONLY.  This variable annuity is payable during the Annuitant's life. It would be
possible under this option for the Annuitant to receive only one annuity benefit
payment if he/she dies prior to the due date of the second annuity benefit
payment, two annuity benefit payments if he/she dies before the due date of the
third annuity benefit payment, and so on. Payments will continue, however,
during the Annuitant's lifetime, no matter how long he or she lives.



UNIT FUND VARIABLE LIFE ANNUITY.  This is an annuity payable periodically during
the lifetime of the Annuitant with the guarantee that if (1) exceeds (2) then
periodic variable annuity benefit payments will continue to the beneficiary
until the number of such payments equals the number determined in (1).


        Where:  (1)  is the dollar amount of the Accumulated Value at
                     annuitization divided by the dollar amount of the first
                     payment, and


                (2)  is the number of payments paid prior to the death of the
                     Annuitant.



JOINT AND SURVIVOR VARIABLE LIFE ANNUITY.  This variable annuity is payable
jointly to the Annuitant and another individual during their joint lifetime, and
then continues thereafter during the lifetime of the survivor. The amount of
each payment to the survivor is based on the same number of Annuity Units which
applied during the joint lifetime of the two payees. One of the payees must be
either the person designated as the Annuitant under the Contract or the
beneficiary. There is no minimum number of payments under this option.



JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY.  This variable annuity is
payable jointly to the Annuitant and another individual during their joint
lifetime, and then continues thereafter during the lifetime of the survivor. The
amount of each periodic payment to the survivor, however, is based upon
two-thirds of the number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be the person designated as
the Annuitant under the Contract or the beneficiary. There is no minimum number
of payments under this option.



PERIOD CERTAIN VARIABLE ANNUITY.  This variable annuity has periodic payments
for a stipulated number of years ranging from one to 30 (period certain for less
than ten years, not available in Oregon). If the Annuitant dies before the end
of the period, remaining payments will continue to be paid. A fixed period
certain annuity may be either commutable or noncommutable. A variable period
certain annuity is automatically commutable.


                                       37
<PAGE>

It should be noted that the period certain option does not involve a life
contingency. In computing payments under this option, the Company deducts a
charge for annuity rate guarantees, which includes a factor for mortality risks.
Although not contractually required to do so, the Company currently follows a
practice of permitting persons receiving payments under the period certain
option to elect to convert to a variable annuity involving a life contingency.
The Company may discontinue or change this practice at any time, but not with
respect to election of the option made prior to the date of any change in this
practice. See FEDERAL TAX CONSIDERATIONS for a discussion of the possible
adverse tax consequences of selecting a period certain option.


L.  ANNUITY BENEFIT PAYMENTS

DETERMINATION OF THE FIRST VARIABLE ANNUITY BENEFIT PAYMENT.  The amount of the
first monthly payment depends upon the selected variable annuity option, the sex
(however, see "N. NORRIS Decision" below) and age of the Annuitant, and the
value of the amount applied under the annuity option ("annuity value"). The
Contract provides annuity rates that determine the dollar amount of the first
periodic payment under each variable annuity option for each $1,000 of applied
value. From time to time, the Company may offer its Owners both fixed and
variable annuity rates more favorable than those contained in the Contract. Any
such rates will be applied uniformly to all Owners of the same class.

The dollar amount of the first periodic annuity benefit payment is calculated
based upon the type of annuity option chosen, as follows:


    - For life annuity options and noncommutable fixed period certain options of
      ten years or more (six or more years under New York Contracts), the dollar
      amount is determined by multiplying (1) the Accumulated Value applied
      under that option (after application of any Market Value Adjustment and
      less premium tax, if any) divided by $1,000, by (2) the applicable amount
      of the first monthly payment per $1,000 of value.



    - For commutable period certain options and any noncommutable fixed period
      certain option of less than ten years (less than six years under New York
      Contracts), the dollar amount is determined by multiplying (1) the
      Surrender Value less premium taxes, if any, applied under that option
      (after application of any Market Value Adjustment and less premium tax, if
      any) divided by $1,000, by (2) the applicable amount of the first monthly
      payment per $1,000 of value.


    - For a death benefit annuity, the annuity value will be the amount of the
      death benefit.

The first periodic annuity benefit payment is based upon the Accumulated Value
as of a date not more than four weeks preceding the date that the first annuity
benefit payment is due. The Company transmits variable annuity benefit payments
for receipt by the payee by the first of a month. Variable annuity benefit
payments are currently based on unit values as of the 15th day of the preceding
month.

THE ANNUITY UNIT.  On and after the Annuity Date, the Annuity Unit is a measure
of the value of the monthly annuity benefit payments under a variable annuity
option. The value of an Annuity Unit in each Sub-Account initially was set at
$1.00. The value of an Annuity Unit under a Sub-Account on any Valuation Date
thereafter is equal to the value of such unit on the immediately preceding
Valuation Date, multiplied by the net investment factor of the Sub-Account for
the current Valuation Period and divided by the assumed interest rate for the
current Valuation Period The assumed interest rate, discussed below, is
incorporated in the variable annuity options offered in the Contract.

DETERMINATION OF THE NUMBER OF ANNUITY UNITS.  The dollar amount of the first
variable annuity benefit payment is divided by the value of an Annuity Unit of
the selected Sub-Account(s) to determine the number of Annuity Units represented
by the first payment. This number of Annuity Units remains fixed under all
annuity options except the joint and two-thirds survivor annuity option.

                                       38
<PAGE>
DOLLAR AMOUNT OF SUBSEQUENT VARIABLE ANNUITY BENEFIT PAYMENTS.  The dollar
amount of each periodic variable annuity benefit payment after the first will
vary with the value of the Annuity Units of the selected Sub-Account(s). The
dollar amount of each subsequent variable annuity benefit payment is determined
by multiplying the fixed number of Annuity Units (derived from the dollar amount
of the first payment, as described above) with respect to a Sub-Account by the
value of an Annuity Unit of that Sub-Account on the applicable Valuation Date.

The variable annuity options offered by the Company are based on a 3.5% assumed
interest rate, which affects the amounts of the variable annuity benefit
payments. Variable annuity benefit payments with respect to a Sub-Account will
increase over periods when the actual net investment result of the Sub-Account
exceeds the equivalent of the assumed interest rate. Variable annuity benefit
payments will decrease over periods when the actual net investment results are
less than the equivalent of the assumed interest rate.

For an illustration of a calculation of a variable annuity benefit payment using
a hypothetical example, see "Annuity Benefit Payments" in the SAI.


If the Owner elects the M-GAP Rider, at annuitization the annuity benefit
payments provided under the Rider (calculated by applying the guaranteed annuity
factors to the Minimum Guaranteed Annuity Payout Benefit Base), are compared to
the payments that would otherwise be available with the Rider. If annuity
benefit payments under the Rider are higher, the Owner may exercise the Rider,
provided that the conditions of the Rider are met. If annuity benefit payments
under the Rider are lower, the Owner may choose not to exercise the Rider and
instead annuitize under current annuity factors. See "M. Optional Minimum
Guaranteed Annuity Payout (M-GAP) Rider," below.


M.  OPTIONAL MINIMUM GUARANTEED ANNUITY PAYOUT (M-GAP) RIDER


An optional Minimum Guaranteed Annuity Payout Rider is currently available in
most jurisdictions for a separate monthly charge. The M-GAP Rider provides a
guaranteed minimum amount of fixed annuity lifetime income during the annuity
payout phase, after a ten-year or fifteen-year waiting period, subject to the
conditions described below. On each Contract anniversary a Minimum Guaranteed
Annuity Payout Benefit Base is determined. The Minimum Guaranteed Annuity Payout
Benefit Base (less any applicable premium taxes) is the value that will be
annuitized if the Rider is exercised. In order to exercise the Rider, a fixed
annuitization option involving a life contingency must be selected.
Annuitization under this Rider will occur at the Company's guaranteed fixed
annuity option rates listed under the Annuity Option Tables in the Contract. The
Minimum Guaranteed Annuity Payout Benefit Base is equal to the greatest of:



    (a) the Accumulated Value increased by any positive Market Value Adjustment,
       if applicable, on the Contract anniversary that the M-GAP Benefit Base is
       being determined; or



    (b) the Accumulated Value on the effective date of the Rider accumulated
       daily at an effective annual yield of 5% plus gross payments made
       thereafter accumulated daily at an effective annual yield of 5%, starting
       on the date each payment is applied, proportionately reduced to reflect
       withdrawals; or



    (c) the highest Accumulated Value on any Contract anniversary since the
       Rider effective date, as determined after being increased for subsequent
       payments and any positive Market Value Adjustment, if applicable, and
       proportionately reduced for subsequent withdrawals.


For each withdrawal described in (b) and (c) above, the proportionate reduction
is calculated by multiplying the (b) or (c) value, whichever is applicable,
determined immediately prior to the withdrawal, by the following fraction:

                            amount of the withdrawal
           ----------------------------------------------------------
        Accumulated Value determined immediately prior to the withdrawal

                                       39
<PAGE>

CONDITIONS ON ELECTION OF THE M-GAP RIDER.



    - The Owner may elect the M-GAP Rider at Contract issue or at any time
      thereafter, however, if the Rider is not elected within thirty days after
      Contract issue or within thirty days after a Contract anniversary date,
      the effective date of the Rider will be the following Contract anniversary
      date.


    - The Owner may not elect a Rider with a ten-year waiting period if at the
      time of election the Annuitant has reached his or her 78th birthday. The
      Owner may not elect a Rider with a fifteen-year waiting period if at the
      time of election the Annuitant has reached his or her 73rd birthday.


EXERCISING THE M-GAP RIDER.



    - The Owner may only exercise the M-GAP Rider within thirty days after any
      Contract anniversary following the expiration of a ten or fifteen-year
      waiting period from the effective date of the Rider.


    - The Owner may only annuitize under a fixed annuity payout option involving
      a life contingency as provided under "K. Description of Variable Annuity
      Payout Options."


    - The Owner may only annuitize at the Company's guaranteed annuity option
      rates listed under the Annuity Option Tables in the Contract.



TERMINATING THE M-GAP RIDER.



    - The Owner may not terminate the M-GAP Rider prior to the seventh Contract
      anniversary after the effective date of the Rider, unless such termination
      occurs (1) on or within thirty days after any Contract anniversary and
      (2) in conjunction with the repurchase of an M-GAP Rider with a waiting
      period of equal or greater length at its then current price, if available.



    - The Owner may terminate the Rider at any time after the seventh Contract
      Anniversary following the effective date of the Rider.


    - The Owner may repurchase a Rider with a waiting period equal to or greater
      than the Rider then in force at the new Rider's then current price, if
      available, however, repurchase may only occur on or within thirty days of
      a Contract anniversary.

    - Other than in the event of a repurchase, once terminated the Rider may not
      be purchased again.

    - The Rider will terminate upon surrender of the Contract or the date that a
      death benefit is payable if the Contract is not continued under "H. The
      Spouse of the Owner as Beneficiary" (see DESCRIPTION OF THE CONTRACT.)


From time to time the Company may illustrate minimum guaranteed income amounts
under the M-GAP Rider based on a variety of assumptions, including varying rates
of return on the value of the Contract during the accumulation phase, annuity
payout periods, annuity payout options and M-GAP Rider waiting periods. Any
assumed rates of return are for purposes of illustration only and are not
intended as a representation of past or future investment rates of return.



For example, the illustration below assumes an initial payment of $100,000 for
an Annuitant age 60 (at issue) and exercise of an M-GAP Rider with a ten-year
waiting period. The illustration assumes that no subsequent payments or
withdrawals are made and that the annuity payout option is a Life Annuity With
Payments Guaranteed For 10 Years. The values below have been computed based on a
5% net rate of return and are the guaranteed minimums that would be received
under the M-GAP Rider. The minimum guaranteed benefit base


                                       40
<PAGE>

amounts are the values that will be annuitized. Minimum guaranteed annual income
values are based on a fixed annuity payout.


<TABLE>
<CAPTION>
                                MINIMUM
  POLICY         MINIMUM       GUARANTEED
ANNIVERSARY     GUARANTEED       ANNUAL
AT EXERCISE    BENEFIT BASE    INCOME(1)
- -----------    ------------    ----------
<S>            <C>             <C>
  10             $162,889        $12,153
  15             $207,892        $17,695
</TABLE>

(1)Other fixed annuity options involving a life contingency other than Life
Annuity With Payments Guaranteed for 10 Years are available. See "K. Description
of Variable Annuity Payout Options."


The M-GAP Rider does not create Accumulated Value or guarantee performance of
any investment option. Because this Rider is based on guaranteed actuarial
factors, the level of lifetime income that it guarantees may often be less than
the level that would be provided by applying the then current annuity factors.
Therefore, the Rider should be regarded as providing a guarantee of a minimum
amount of annuity income. As described above, withdrawals will reduce the
benefit base. As described above, withdrawals will reduce the benefit base. The
Company reserves the right to terminate the availability of the M-GAP Rider at
any time. Such a termination would not effect Riders issued prior to the
termination date, but, as noted above, Owners would not be able to purchase a
new Rider under the repurchase feature. (See "TERMINATING THE M-GAP RIDER.")



NOTE: Adding the M-GAP Rider after the issue date or repurchasing the benefit
will impact the Program to Protect Principal and Provide Growth Potential
offered under the GPA Accounts since the Rider charges are deducted on a
pro-rata basis from all accounts including the GPA Accounts. (See "Program to
Protect Principal and Provide Growth Potential" under GUARANTEE PERIOD
ACCOUNTS.)


N.  NORRIS DECISION

In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a Contract issued in connection with an employer-sponsored benefit plan
affected by the NORRIS decision will be based on the greater of (1) the
Company's unisex non-guaranteed current annuity option rates, or (2) the
guaranteed unisex rates described in such Contract, regardless of whether the
Annuitant is male or female.

O.  COMPUTATION OF VALUES


THE ACCUMULATION UNIT.  Each net payment is allocated to the investment options
selected by the Owner. Allocations to the Sub-Accounts are credited to the
Contract in the form of Accumulation Units. Accumulation Units are credited
separately for each Sub-Account. The number of Accumulation Units of each Sub-
Account credited to the Contract is equal to the portion of the net payment
allocated to the Sub-Account, divided by the dollar value of the applicable
Accumulation Unit as of the Valuation Date the payment is received in good order
at the Company's Principal Office. The number of Accumulation Units resulting
from each payment will remain fixed unless changed by a subsequent split of
Accumulation Unit value, a transfer, a withdrawal, or surrender. The dollar
value of an Accumulation Unit of each Sub-Account varies from Valuation Date to
Valuation Date based on the investment experience of that Sub-Account, and will
reflect the investment performance, expenses and charges of its Portfolios. The
value of an Accumulation Unit was set at $1.00 on the first Valuation Date for
each Sub-Account.


                                       41
<PAGE>
Allocations to Guarantee Period Accounts and the Fixed Account are not converted
into Accumulation Units, but are credited interest at a rate periodically set by
the Company. See GUARANTEE PERIOD ACCOUNTS and APPENDIX A -- MORE INFORMATION
ABOUT THE FIXED ACCOUNTS.

The Accumulated Value under the Contract is determined by (1) multiplying the
number of Accumulation Units in each Sub-Account by the value of an Accumulation
Unit of that Sub-Account on the Valuation Date, (2) adding the products, and
(3) adding the amount of the accumulations in the Fixed Account and Guarantee
Period Accounts, if any.

NET INVESTMENT FACTOR.  The Net Investment Factor is an index that measures the
investment performance of a Sub-Account from one Valuation Period to the next.
This factor is equal to 1.000000 plus the result from dividing (1) by (2) and
subtracting (3) and (4) where:

    (1) is the investment income of a Sub-Account for the Valuation Period,
       including realized or unrealized capital gains and losses during the
       Valuation Period, adjusted for provisions made for taxes, if any;

    (2) is the value of that Sub-Account's assets at the beginning of the
       Valuation Period;

    (3) is a charge for mortality and expense risks equal to 0.95% on an annual
       basis of the daily value of the Sub-Account's assets; and

    (4) is an administrative charge equal to 0.15% on an annual basis of the
       daily value of the Sub-Account's assets.

The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor. For an illustration of Accumulation Unit calculation using a
hypothetical example see the SAI.

                                       42
<PAGE>
                             CHARGES AND DEDUCTIONS

Deductions under the Contract and charges against the assets of the Sub-Accounts
are described below. Other deductions and expenses paid out of the assets of the
Portfolios are described in the prospectuses and SAIs of the Underlying
Portfolios.

A.  VARIABLE ACCOUNT DEDUCTIONS

MORTALITY AND EXPENSE RISK CHARGE.  The Company assesses a charge against the
assets of each Sub-Account to compensate for certain mortality and expense risks
it has assumed. The charge is imposed during both the accumulation phase and the
annuity payout phase. The mortality risk arises from the Company's guarantee
that it will make annuity benefit payments in accordance with annuity rate
provisions established at the time the Contract is issued for the life of the
Annuitant (or in accordance with the annuity payout option selected), no matter
how long the Annuitant (or other payee) lives and no matter how long all
Annuitants as a class live. Therefore, the mortality charge is deducted during
the annuity payout phase on all Contracts, including those that do not involve a
life contingency, even though the Company does not bear direct mortality risk
with respect to variable annuity settlement options that do not involve life
contingencies. The expense risk arises from the Company's guarantee that the
charges it makes will not exceed the limits described in the Contract and in
this Prospectus.

If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.


The mortality and expense risk charge is assessed daily at an annual rate of
0.95% of each Sub-Account's assets. This charge may not be increased. Since
mortality and expense risks involve future contingencies which are not subject
to precise determination in advance, it is not feasible to identify specifically
the portion of the charge which is applicable to each. The Company estimates
that a reasonable allocation might be 0.55% for mortality risk and 0.40% for
expense risk.


ADMINISTRATIVE EXPENSE CHARGE.  The Company assesses each Sub-Account with a
daily charge at an annual rate of 0.15% of the average daily net assets of the
Sub-Account. This charge may not be increased. The charge is imposed during both
the accumulation phase and the annuity payout phase. The daily administrative
expense charge is assessed to help defray administrative expenses actually
incurred in the administration of the Sub-Account, without profits. There is no
direct relationship, however, between the amount of administrative expenses
imposed on a given Contract and the amount of expenses actually attributable to
that Contract.

Deductions for the Contract fee (described below under "B. Contract Fee") and
for the administrative expense charge are designed to reimburse the Company for
the cost of administration and related expenses and are not expected to be a
source of profit. The administrative functions and expense assumed by the
Company in connection with the Variable Account and the Contract include, but
are not limited to, clerical, accounting, actuarial and legal services, rent,
postage, telephone, office equipment and supplies, expenses of preparing and
printing registration statements, expense of preparing and typesetting
prospectuses and the cost of printing prospectuses not allocable to sales
expense, filing and other fees.

OTHER CHARGES.  Because the Sub-Accounts hold shares of the Underlying
Portfolios, the value of the net assets of the Sub-Accounts will reflect the
investment advisory fee and other expenses incurred by the Underlying
Portfolios. The prospectuses and SAIs of the Underlying Portfolios contain
additional information concerning expenses of the Underlying Portfolios.

                                       43
<PAGE>
B.  CONTRACT FEE


A $35 Contract fee (a lower fee may apply in certain states) currently is
deducted on the Contract anniversary date and upon full surrender of the
Contract if the Accumulated Value on any of these dates is less than $50,000 on
the date assessed. The Contract fee is currently waived for Contracts issued to
and maintained by the trustee of a 401(k) plan. The Company reserves the right
to impose a Contract Fee up to $35 on Contracts issued to 401(k) plans but only
with respect to Contracts issued after the date the waiver is no longer
available. Where Contract value has been allocated to more than one account, a
percentage of the total Contract fee will be deducted from the value in each
account. The portion of the charge deducted from each account will be equal to
the percentage which the value in that account bears to the Accumulated Value
under the Contract. The deduction of the Contract fee from a Sub-Account will
result in cancellation of a number of Accumulation Units equal in value to the
percentage of the charge deducted from that account.



Where permitted by law, the Contract fee also may be waived for Contracts where,
on the issue date, either the Owner or the Annuitant is within the following
classes of individuals: employees and registered representatives of any
broker-dealer which has entered into a sales agreement with the Company to sell
the Contract; employees of the Company, its affiliates and subsidiaries;
officers, directors, trustees and employees of any of the Underlying Portfolios;
investment managers or sub-advisers of the Underlying Portfolios; and the
spouses of and immediate family members residing in the same household with such
eligible persons. "Immediate family members" means children, siblings, parents
and grandparents.


C.  OPTIONAL BENEFIT RIDERS


Subject to state availability, the Company currently offers optional benefit
riders that may be elected by the Owner. A separate monthly charge is made for
each rider selected. The charge is made through a pro-rata reduction of the
Accumulated Value of the Sub-Accounts, the Fixed Account and the Guarantee
Period Accounts (based on the relative value that the Accumulation Units of the
Sub-Accounts, the dollar amounts in the Fixed Account and the dollar amounts in
the Guarantee Period Accounts bear to the total Accumulated Value).



The applicable charge is assessed on the Accumulated Value on the last day of
each month within which the Rider has been in effect and, if applicable, on the
date the Rider is terminated, multiplied by 1/12th of the following annual
percentage rates:



<TABLE>
<S>                                                           <C>
Minimum Guaranteed Annuity Payout (M-GAP) Rider with
  ten-year waiting period...................................  0.25%
Minimum Guaranteed Annuity Payout (M-GAP) Rider with
  fifteen-year waiting period...............................  0.15%
Enhanced Death Benefit Rider................................  0.25%
Living Benefits Rider.......................................  0.05%
Disability Rider............................................  0.05%
</TABLE>



For a description of the Riders, see "G. Death Benefit" and "M. Optional Minimum
Guaranteed Annuity Payout (M-GAP) Rider" under DESCRIPTION OF THE CONTRACT and
"Living Benefits Rider" and "Disability Rider" below.


LIVING BENEFITS RIDER.  (Due to state law restrictions, this Rider is not
available in New York or New Jersey). For a separate monthly charge, an optional
Living Benefits Rider may be elected at the time of application for the
Contract. Under this rider, the surrender charge will be waived if the Owner (or
the Annuitant if the Owner is not a person):

    (1) is admitted to a "medical care facility" after the issue date of the
       Contract and remains confined there until the later of one year after the
       issue date, or 90 consecutive days;

                                       44
<PAGE>
    (2) is first diagnosed by a licensed "physician" as having a "fatal illness"
       after the issue date of the Contract; or

    (3) commencing one year after issue of the Contract, is confined to a
       hospice or receives home health care services, with certification from a
       licensed physician that the confinement to the hospice or receipt of home
       health care services is expected to continue until death.

For purposes of the above provision, "medical care facility" means any
state-licensed facility (or, in a state that does not require licensing, a
facility that is operating pursuant to state law) providing medically necessary
in-patient care which is prescribed in writing by a licensed "physician" and
based on physical limitations which prohibit daily living in a non-institutional
setting; "fatal illness" means a condition diagnosed by a licensed physician
which is expected to result in death within two years of the diagnosis; and
"physician" means a person other than the Owner, Annuitant or a member of one of
their families who is state licensed to give medical care or treatment, and is
acting within the scope of that license.

Where surrender charges have been waived under this rider, no additional
payments under the Contract will be accepted.


On the last day of each month and, if applicable, on the date the rider is
terminated, a charge equal to 1/12th of an annual rate of 0.05% is made against
the Accumulated Value of the Contract at that time. The charge is made through a
pro-rata reduction in Accumulation Units of the Sub-Accounts, of dollar amounts
in the Fixed Account, and of dollar amounts in the Guarantee Period Accounts,
based on relative values.


DISABILITY RIDER.  For a separate monthly charge, an optional Disability Rider
may be elected at the time of application for the Contract. Under this rider,
the surrender charge will be waived if the Owner (or the Annuitant if the Owner
is not a person) is physically disabled after the issue date of the Contract and
before attaining age 65. Under New York contracts, the disability also must
exist for a continuous period of at least four months. The Company may require
proof of continuing disability, including written confirmation of receipt and
approval of any claim for Social Security disability benefits, and reserves the
right to obtain, at its expense, an examination by a licensed physician of its
choice.

Where surrender charges have been waived under this rider, no additional
payments under the Contract will be accepted.


On the last day of each month and, if applicable, on the date the rider is
terminated, a charge equal to 1/12th of an annual rate of 0.05% is made against
the Accumulated Value of the Contract at that time. The charge is made through a
pro-rata reduction in Accumulation Units of the Sub-Accounts, of dollar amounts
in the Fixed Account, and of dollar amounts in the Guarantee Period Accounts,
based on relative values.


D.  PREMIUM TAXES

Some states and municipalities impose a premium tax on variable annuity
contracts. State premium taxes currently range up to 3.5%. The Company makes a
charge for state and municipal premium taxes, when applicable, and deducts the
amount paid as a premium tax charge. The current practice of the Company is to
deduct the premium tax charge in one of two ways:

    (1) if the premium tax was paid by the Company when payments were received,
       the premium tax charge is deducted on a pro-rata basis when withdrawals
       are made, upon surrender of the Contract, or when annuity benefit
       payments begin (the Company reserves the right instead to deduct the
       premium tax charge for these Contracts at the time the payments are
       received); or

    (2) the premium tax charge is deducted in total when annuity benefit
       payments begin.

                                       45
<PAGE>
In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law. If no amount for premium tax was deducted
at the time the payment was received, but subsequently tax is determined to be
due prior to the Annuity Date, the Company reserves the right to deduct the
premium tax from the Contract value at the time such determination is made.

E.  SURRENDER CHARGE


No charge for sales expense is deducted from payments at the time the payments
are made. However, a surrender charge is deducted from the Accumulated Value of
the Contract in the case of surrender and/or withdrawals or at the time annuity
benefit payments begin, within certain time limits described below.


For purposes of determining the surrender charge, the Accumulated Value is
divided into three categories: (1) New Payments - payments received by the
Company during the six years preceding the date of the surrender; (2) Old
Payments - accumulated payments invested in the Contract for more than six
years; and (3) Earnings - the amount of Contract Value in excess of all payments
that have not been surrendered previously. See "Withdrawal Without Surrender
Charge" below. For purposes of determining the amount of any surrender charge,
surrenders will be deemed to be taken first from amounts available as a
Withdrawal Without Surrender Charge, if any; then from Old Payments, and then
from New Payments. Amounts available as a Withdrawal Without Surrender Charge,
followed by Old Payments, may be withdrawn from the Contract at any time without
the imposition of a surrender charge. If a withdrawal is attributable all or in
part to New Payments, a surrender charge may apply.

An Owner may withdraw 15% of the Accumulated Value in any calendar year, without
assessment of a Withdrawal Charge. If the Owner withdraws an amount in excess of
the Withdrawal Without Surrender Charge amount in any calendar year, the excess
is subject to a Withdrawal Charge.

CHARGES FOR SURRENDER AND WITHDRAWAL.  If the Contract is surrendered or if New
Payments are withdrawn while the Contract is in force and before the Annuity
Date, a surrender charge may be imposed. This charge never will be applied to
earnings. The amount of the charge will depend upon the number of years that any
New Payments, to which the withdrawal is attributed have remained credited under
the Contract. Amounts withdrawn are deducted first from Old Payments. Then, for
the purpose of calculating surrender charges for New Payments, all amounts
withdrawn are assumed to be deducted first from the oldest New Payment and then
from the next oldest New Payment and so on, until all New Payments have been
exhausted pursuant to the first-in-first-out ("FIFO") method of accounting. (See
FEDERAL TAX CONSIDERATIONS for a discussion of how withdrawals are treated for
income tax purposes.)

The Surrender Charge is as follows:

<TABLE>
<CAPTION>
        YEARS FROM             CHARGE AS PERCENTAGE OF
          DATE OF                        NEW
          PAYMENT                PAYMENTS WITHDRAWN
          -------                ------------------
<S>                          <C>
            0-1                          7%
             2                           6%
             3                           5%
             4                           4%
             5                           3%
             6                           2%
        More than 6                      0%
</TABLE>

The amount withdrawn equals the amount requested by the Owner plus the surrender
charge, if any. The charge is applied as a percentage of the New Payments
withdrawn, but in no event will the total surrender

                                       46
<PAGE>
charge exceed a maximum limit of 7% of total gross New Payments. Such total
charge equals the aggregate of all applicable surrender charges for surrender,
withdrawals and annuitization.


REDUCTION OR ELIMINATION OF SURRENDER CHARGE AND ADDITIONAL AMOUNTS
CREDITED.  From time to time, where permitted by law, the Company may allow a
reduction in or elimination of the surrender charges, the period during which
the charges apply, or both, and/or credit additional amounts on Contracts, when
Contracts are sold to individuals or groups of individuals in a manner that
reduces sales expenses. The Company will consider factors such as the following:
(1) the size and type of group or class, and the persistency expected from that
group or class; (2) the total amount of payments to be received and the manner
in which payments are remitted; (3) the purpose for which the Contracts are
being purchased and whether that purpose makes it likely that costs and expenses
will be reduced; (4) other transactions where sales expenses are likely to be
reduced; or (5) the level of commissions paid to selling broker-dealers or
certain financial institutions with respect to Contracts within the same group
or class (for example, broker-dealers who offer this Contract in connection with
financial planning services offered on a fee-for-service basis). The Company
also may reduce or waive the surrender charge, and/or credit additional amounts
on the Contract where either the Owner or the Annuitant on the issue date is
within the following class of individuals ("eligible persons"): employees and
registered representatives of any broker-dealer which has entered into a Sales
Agreement with the Company to sell the Contract; employees of the Company, its
affiliates or subsidiaries; officers, directors, trustees and employees of any
of the Underlying Portfolios, investment managers or sub-advisers of the
Underlying Portfolios; and the spouses of and immediate family members residing
in the same household with such eligible persons. "Immediate family members"
means children, siblings, parents and grandparents. Finally, if permitted under
state law, surrender charges may be waived under Section 403(b) Contracts where
the amount withdrawn is being contributed to a life insurance policy issued by
the Company as part of the individual's Section 403(b) plan.


Any reduction or elimination in the amount or duration of the surrender charge
will not discriminate unfairly among purchasers of the Contract. The Company
will not make any changes to this charge where prohibited by law.

Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the surrender
charge is modified to effect certain exchanges of existing contracts issued by
the Company for this Contract. See "EXCHANGE OFFER" in the SAI.

WITHDRAWAL WITHOUT SURRENDER CHARGE.  In each calendar year, including the
calendar year in which the Contract is issued, the Company will waive the
surrender charge, if any, on an amount ("Withdrawal Without Surrender Charge")
equal to the greater of (1) or (2) where:

    (1)is:  15% of the Accumulated Value as of the Valuation Date the Company
            receives the withdrawal request, or the following day, reduced by
            the total amount of any prior withdrawals made in the same calendar
            year to which no surrender charge was applied; and

    (2)is:  the amount calculated under the Company's life expectancy
            distribution ("LED") option (see "Life Expectancy Distributions"
            above) whether or not the withdrawal was part of such distribution
            (applies only if Annuitant is also an Owner).

For example, an 81-year-old Owner/Annuitant with an Accumulated Value of
$15,000, would have a Withdrawal Without Surrender Charge amount of $2,250,
which is equal to the greater of:

    (1) 15% of Accumulated Value ($2,250); or

    (2) LED distribution of 10.2% of Accumulated Value ($1,530).


The Withdrawal Without Surrender Charge will be deducted first from Cumulative
Earnings. If the Withdrawal Without Surrender Charge exceeds Cumulative
Earnings, the excess amount will be deemed withdrawn from payments not
previously withdrawn on a last-in-first-out ("LIFO") basis. This means that the
last


                                       47
<PAGE>

payments credited to the Contract will be withdrawn first. If more than one
withdrawal is made during the year, on each subsequent withdrawal the Company
will waive the surrender charge, if any, until the entire Withdrawal Without
Surrender Charge has been withdrawn. Amounts withdrawn from a Guarantee Period
Account prior to the end of the applicable Guarantee Period may be subject to a
Market Value Adjustment.



SURRENDERS.  In the case of a complete surrender, the amount received by the
Owner is equal to the Surrender Value under the Contract, net of any applicable
tax withholding. Subject to the same rules applicable to withdrawals, the
Company will not assess a surrender charge on an amount equal to the highest
Withdrawal Without Surrender Charge Amount, described above.


Where an Owner who is a trustee under a pension plan surrenders, in whole or in
part, a Contract on a terminating employee, the trustee will be permitted to
reallocate all or a part of the total Accumulated Value under the Contract to
other contracts issued by the Company and owned by the trustee, with no
deduction for any otherwise applicable surrender charge. Any such reallocation
will be at the unit values for the Sub-Accounts as of the Valuation Date on
which a written, signed request is received at the Principal Office.

For further information on surrender and withdrawals, including minimum limits
on amount withdrawn and amount remaining under the Contract in the case of
withdrawals, and important tax considerations, see "E. Surrender" and "F.
Withdrawals" under DESCRIPTION OF THE CONTRACT, and see FEDERAL TAX
CONSIDERATIONS.

CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN.  If the Owner chooses any
commutable period certain option or a noncommutable fixed period certain option
for less than ten years (less than six years under New York contracts), a
surrender charge will be deducted from the Accumulated Value of the Contract if
the Annuity Date occurs at any time when a surrender charge would still apply
had the Contract been surrendered on the Annuity Date. (See discussion of period
certain variable annuity under "K. Description of Variable Annuity Payout
Options.")

No surrender charge is imposed at the time of annuitization in any Contract year
under an option involving a life contingency or for any noncommutable fixed
period certain option for ten or more years (six or more years under New York
contracts). A Market Value Adjustment, however, may apply. See GUARANTEE PERIOD
ACCOUNTS.

If an owner of a fixed annuity contract issued by the Company wishes to elect a
variable annuity payout option, the Company may permit such owner to exchange,
at the time of annuitization, the fixed contract for a Contract offered in this
Prospectus. The proceeds of the fixed contract, minus any surrender charge
applicable under the fixed contract if a period certain option is chosen, will
be applied towards the variable annuity option desired by the owner. The number
of Annuity Units under the option will be calculated using the Annuity Unit
values as of the 15th of the month preceding the Annuity Date.

F.  TRANSFER CHARGE

The Company currently makes no charge for processing transfers. The Company
guarantees that the first 12 transfers in a Contract year will be free of
transfer charge, but reserves the right to assess a charge, guaranteed never to
exceed $25, for each subsequent transfer in a Contract year to reimburse it for
the expense of processing transfers. For more information, see "D. Transfer
Privilege" under DESCRIPTION OF THE CONTRACT.

                                       48
<PAGE>
                           GUARANTEE PERIOD ACCOUNTS


Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Company's Fixed Account are
not registered as an investment company under the provisions of the Securities
Act of 1933 (the "1933 Act") or the 1940 Act. Accordingly, the staff of the SEC
has not reviewed the disclosures in this Prospectus relating to the Guarantee
Period Accounts or the Fixed Account. Nevertheless, disclosures regarding the
Guarantee Period Accounts and the Fixed Account of the Contract or any benefits
offered under these accounts may be subject to the provisions of the 1933 Act
relating to the accuracy and completeness of statements made in the Prospectus.


INVESTMENT OPTIONS.  In most jurisdictions, there currently are nine Guarantee
Periods available under the Contract with durations of two, three, four, five,
six, seven, eight, nine and ten years. Each Guarantee Period Account established
for the Owner is accounted for separately in a non-unitized segregated account,
except in California where it is accounted for in the Company's General Account.
Each Guarantee Period Account provides for the accumulation of interest at a
Guaranteed Interest Rate. The Guaranteed Interest Rate on amounts allocated or
transferred to a Guarantee Period Account is determined from time to time by the
Company in accordance with market conditions; however, once an interest rate is
in effect for a Guarantee Period Account, the Company may not change it during
the duration of the Guarantee Period. In no event will the Guaranteed Interest
Rate be less than 3%.

To the extent permitted by law, the Company reserves the right at any time to
offer Guarantee Periods with durations that differ from those which were
available when a Contract initially was issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period. Owners may
allocate net payments or make transfers from any of the Sub-Accounts, the Fixed
Account or an existing Guarantee Period Account to establish a new Guarantee
Period Account at any time prior to the Annuity Date. Transfers from a Guarantee
Period Account on any date other than on the day following the expiration of
that Guarantee Period will be subject to a Market Value Adjustment. The Company
establishes a separate investment account each time the Owner allocates or
transfers amounts to a Guarantee Period Account except that amounts allocated to
the same Guarantee Period on the same day will be treated as one Guarantee
Period Account. The minimum that may be allocated to establish a Guarantee
Period Account is $1,000. If less than $1,000 is allocated, the Company reserves
the right to apply that amount to the Sub-Account investing in the Kemper Money
Market Portfolio. The Owner may allocate amounts to any of the Guarantee Periods
available.


At least 45 days, but not more than 75 days, prior to the end of a Guarantee
Period, the Company will notify the Owner in writing of the expiration of that
Guarantee Period. At the end of a Guarantee Period the Owner may transfer
amounts to the Sub-Accounts, the Fixed Account or establish a new Guarantee
Period Account of any duration then offered by the Company without a Market
Value Adjustment. If reallocation instructions are not received at the Principal
Office before the end of a Guarantee Period, the account value automatically
will be applied to a new Guarantee Period Account with the same duration unless
(1) less than $1,000 would remain in the Guarantee Period Account on the
expiration date, or (2) the Guarantee Period would extend beyond the Annuity
Date or is no longer available. In such cases, the Guarantee Period Account
value will be transferred to the Sub-Account investing in the Kemper Money
Market Portfolio. Where amounts have been renewed automatically in a new
Guarantee Period, the Company currently gives the Owner an additional 30 days to
transfer out of the Guarantee Period Account without application of a Market
Value Adjustment. This practice may be discontinued or changed with notice at
the Company's discretion. However, under Contracts issued in New York, the
Company guarantees that it will transfer monies out of the Guarantee Period
Account without application of a Market Value Adjustment if the Owner's request
is received within ten days of the renewal date.



MARKET VALUE ADJUSTMENT.  No Market Value Adjustment will be applied to
transfers, withdrawals or a surrender from a Guarantee Period Account on the
expiration of its Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit, although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See "G. Death Benefit" under
DESCRIPTION OF THE CONTRACT. A Market Value Adjustment will apply to all other
transfers, withdrawals or a surrender. Amounts applied under an annuity option
are treated as withdrawals when calculating the Market Value Adjustment. The
Market Value Adjustment will be


                                       49
<PAGE>

determined by multiplying the amount taken from each Guarantee Period Account
before deduction of any surrender charge by the market value factor. The market
value factor for each Guarantee Period Account is equal to:


                     [(1+i)/(1+j)]to the power of n/365 - 1

        where:  i  is the Guaranteed Interest Rate expressed as a decimal (for
                   example: 3% = 0.03) being credited to the current Guarantee
                   Period;

               j  is the new Guaranteed Interest Rate, expressed as a decimal,
                  for a Guarantee Period with a duration equal to the number of
                  years remaining in the current Guarantee Period, rounded to
                  the next higher number of whole years. If that rate is not
                  available, the Company will use a suitable rate or index
                  allowed by the Department of Insurance; and

               n  is the number of days remaining from the effective Valuation
                  Date to the end of the current Guarantee Period.

Based on the application of this formula, the value of a Guarantee Period
Account will increase after the Market Value Adjustment is applied if the then
current market rates are lower than the rate being credited to the Guarantee
Period Account. Similarly, the value of a Guarantee Period Account will decrease
after the Market Value Adjustment is applied if the then current market rates
are higher than the rate being credited to the Guarantee Period Account. The
Market Value Adjustment is limited, however, so that even if the account value
is decreased after application of a Market Value Adjustment, it will equal or
exceed the Owner's principal plus 3% earnings per year less applicable Contract
fees. Conversely, if the then current market rates are lower and the account
value is increased after the Market Value Adjustment is applied, the increase in
value also is affected by the minimum guaranteed rate of 3% such that the amount
that will be added to the Guarantee Period Account is limited to the difference
between the amount earned and the 3% minimum guaranteed earnings. For examples
of how the Market Value Adjustment works, see APPENDIX B --  SURRENDER CHARGES
AND THE MARKET VALUE ADJUSTMENT.


PROGRAM TO PROTECT PRINCIPAL AND PROVIDE GROWTH POTENTIAL.  Under this feature,
the Owner elects a Guarantee Period and one or more Sub-Accounts. The Company
then will compute the proportion of the initial payment that must be allocated
to the Guarantee Period selected, assuming no transfers or withdrawals
(including withdrawals made as part of a pro rata deduction for charges on an
M-GAP Rider purchased or repurchased after issue), in order to ensure that on
the last day of the Guarantee Period it will equal the amount of the entire
initial payment. The required amount then will be allocated to the pre-selected
Guarantee Period Account and the remaining balance to the other investment
options selected by the Owner in accordance with the procedures described in "A.
Payments" under DESCRIPTION OF THE CONTRACT.



WITHDRAWALS.  Prior to the Annuity Date, the Owner may make withdrawals of
amounts held in the Guarantee Period Accounts. Withdrawals from these accounts
will be made in the same manner and be subject to the same rules as set forth
under "E. Surrender" and "F. Withdrawals" under DESCRIPTION OF THE CONTRACT. In
addition, the following provisions also apply to withdrawals from a Guarantee
Period Account: (1) a Market Value Adjustment will apply to all withdrawals,
including Withdrawals without Surrender Charge, unless made at the end of the
Guarantee Period; and (2) the Company reserves the right to defer payments of
amounts withdrawn from a Guarantee Period Account for up to six months from the
date it receives the withdrawal request. If deferred for 30 days or more, the
Company will pay interest on the amount deferred at a rate of at least 3%.



In the event that a Market Value Adjustment applies to a withdrawal of a portion
of the value of a Guarantee Period Account, it will be calculated on the amount
requested and deducted or added to the amount remaining in the Guarantee Period
Account. If the entire amount in a Guarantee Period Account is requested, the
adjustment will be made to the amount payable. If a surrender charge applies to
the withdrawal, it will be calculated as set forth in "E. Surrender Charge"
under CHARGES AND DECUTIONS after application of the Market Value Adjustment.


                                       50
<PAGE>
                           FEDERAL TAX CONSIDERATIONS

The effect of federal income taxes on the value of the Contract, on withdrawals
or surrenders, on annuity benefit payments, and on the economic benefit to the
Owner, Annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the IRS.

IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER ALWAYS SHOULD BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.


A.  GENERAL



THE COMPANY.  The Company intends to make a charge for any effect which the
income, assets, or existence of the Contract, the Variable Account or the
Sub-Accounts may have upon its tax. The Variable Account presently is not
subject to tax, but the Company reserves the right to assess a charge for taxes
should the Variable Account at any time become subject to tax. Any charge for
taxes will be assessed on a fair and equitable basis in order to preserve equity
among classes of Owners and with respect to each separate account as though that
separate account were a separate taxable entity.


The Variable Account is considered a part of and taxed with the operations of
the Company. The Company is taxed as a life insurance company under Subchapter L
of the Code. The Company files a consolidated tax return with its affiliates.


DIVERSIFICATION REQUIREMENTS.  The IRS has issued regulations under Section
817(h) of the Code relating to the diversification requirements for variable
annuity and variable life insurance contracts. The regulations prescribed by the
Treasury Department provide that the investments of a segregated asset account
underlying a variable annuity contract are adequately diversified if no more
than 55% of the value of its assets is represented by any one investment, no
more than 70% by any two investments, no more than 80% by any three investments,
and no more than 90% by any four investments. Under this section of the Code, if
the investments are not adequately diversified, the Contract will not be treated
as an annuity contract and therefore, the income on the Contract, for any
taxable year of the Owner, would be treated as ordinary income received or
accrued by the Owner. It is anticipated that the Underlying Funds will comply
with the current diversification requirements. In the event that future IRS
regulations and/or rulings would require Contract modifications in order to
remain in compliance with the diversification standards, the Company will make
reasonable efforts to comply, and it reserves the right to make such changes as
it deems appropriate for that purpose.



INVESTOR CONTROL.  In order for a variable annuity contract to qualify for tax
deferral, the Company, and not the variable contract owner, must be considered
to be the owner for tax purposes of the assets in the segregated asset account
underlying the variable annuity contract. In certain circumstances, however,
variable annuity contract owners may now be considered the owners of these
assets for federal income tax purposes. Specifically, the IRS has stated in
published rulings that a variable annuity contract owner may be considered the
owner of segregated account assets if the contract owner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection with
the issuance of regulations concerning investment diversification, that those
regulations do not provide guidance governing the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor (i.e., the contract owner), rather than the insurance company, to be
treated as the owner of the assets in the account. This announcement also states
that guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular sub-accounts
without being treated as owners of the underlying assets." As of the date of
this Prospectus, no such guidance has been issued. The Company, therefore,
additionally reserves the


                                       51
<PAGE>

right to modify the Contract as necessary in order to attempt to prevent a
contract owner from being considered the owner of a pro rata share of the assets
of the segregated asset account underlying the variable annuity contracts.


B.  QUALIFIED AND NON-QUALIFIED CONTRACTS

From a federal tax viewpoint there are two types of variable annuity contracts:
"qualified" contracts and "non-qualified" contracts. A qualified contract is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, or 408 of the Code, while a non-qualified
contract is one that is not purchased in connection with one of the indicated
retirement plans. The tax treatment for certain withdrawals or surrenders will
vary according to whether they are made from a qualified contract or a non-
qualified contract. For more information on the tax provisions applicable to
qualified Contracts, see "E. Provisions Applicable to Qualified Employer Plans."

C.  TAXATION OF THE CONTRACTS IN GENERAL

The Company believes that the Contract described in this Prospectus will, with
certain exceptions (see "Nonnatural Owners" below), be considered an annuity
contract under Section 72 of the Code. Please note, however if the Owner chooses
an Annuity Date beyond the Annuitant's 85th birthday, it is possible that the
Contract may not be considered an annuity for tax purposes, and therefore the
Owner may be taxed on the annual increase in Accumulated Value. The Owner should
consult tax and financial advisors for more information. This section governs
the taxation of annuities. The following discussion concerns annuities subject
to Section 72.


WITHDRAWALS PRIOR TO ANNUITIZATION.  With certain exceptions, any increase in
the Contract's Accumulated Value is not taxable to the Owner until it is
withdrawn from the Contract. Under the current provisions of the Code, amounts
received under an annuity contract prior to annuitization (including payments
made upon the death of the annuitant or owner), generally are first attributable
to any investment gains credited to the contract over the taxpayer's "investment
in the contract." Such amounts will be treated as gross income subject to
federal income taxation. "Investment in the contract" is the total of all
payments to the Contract which were not excluded from the Owner's gross income
less any amounts previously withdrawn which were not included in income. Section
72(e)(11)(A)(ii) requires that all non-qualified deferred annuity contracts
issued by the same insurance company to the same owner during a single calendar
year be treated as one contract in determining taxable distributions.


ANNUITY PAYOUTS AFTER ANNUITIZATION.  When annuity benefit payments are
commenced under the Contract, generally a portion of each payment may be
excluded from gross income. The excludable portion generally is determined by a
formula that establishes the ratio that the investment in the Contract bears to
the expected return under the Contract. The portion of the payment in excess of
this excludable amount is taxable as ordinary income. Once all the investment in
the Contract is recovered, the entire payment is taxable. If the Annuitant dies
before the total investment in the Contract is recovered, a deduction for the
difference is allowed on the Annuitant's final tax return.

PENALTY ON DISTRIBUTION.  A 10% penalty tax may be imposed on the withdrawal of
investment gains if the withdrawal is made prior to age 59 1/2. The penalty tax
will not be imposed on withdrawals taken on or after age 59 1/2, or if the
withdrawal follows the death of the owner (or, if the owner is not an
individual, the death of the primary annuitant, as defined in the Code) or, in
the case of the owner's "total disability" (as defined in the Code).
Furthermore, under Section 72 of the Code, this penalty tax will not be imposed,
irrespective of age, if the amount received is one of a series of "substantially
equal" periodic payments made at least annually for the life or life expectancy
of the payee. This requirement is met when the owner elects to have
distributions made over the owner's life expectancy, or over the joint life
expectancy of the owner and beneficiary. The requirement that the amount be paid
out as one of a series of "substantially equal" periodic payments is met when
the number of units withdrawn to make each distribution is substantially the
same. Any modification,

                                       52
<PAGE>
other than by reason of death or disability, of distributions which are part of
a series of substantially equal periodic payments that occurs before the owner's
age 59 1/2 or five years, will subject the owner to the 10% penalty tax on the
prior distributions. In addition to the exceptions above, the penalty tax will
not apply to withdrawals from a qualified contract made to an employee who has
terminated employment after reaching age 55.

In a Private Letter Ruling, the IRS took the position that where distributions
from a variable annuity contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy (such as
under the Contract's LED option), and the option could be changed or terminated
at any time, the distributions failed to qualify as part of a "series of
substantially equal payments" within the meaning of Section 72 of the Code. The
distributions, therefore, were subject to the 10% federal penalty tax. This
Private Letter Ruling may be applicable to an Owner who receives distributions
under any LED-type option prior to age 59 1/2. Subsequent Private Letter
Rulings, however, have treated LED-type withdrawal programs as effectively
avoiding the 10% penalty tax. The position of the IRS on this issue is unclear.

ASSIGNMENTS OR TRANSFERS.  If the Owner transfers (assigns) the Contract to
another individual as a gift prior to the Annuity Date, the Code provides that
the Owner will incur taxable income at the time of the transfer. An exception is
provided for certain transfers between spouses. The amount of taxable income
upon such taxable transfer is equal to any investment gain in value over the
Owner's cost basis at the time of the transfer. The transfer also is subject to
federal gift tax provisions. Where the Owner and Annuitant are different
persons, the change of ownership of the Contract to the Annuitant on the Annuity
Date, as required under the Contract, is a gift and will be taxable to the Owner
as such; however, the Owner will not incur taxable income. Instead, the
Annuitant will incur taxable income upon receipt of annuity benefit payments as
discussed above.

NONNATURAL OWNERS.  As a general rule, deferred annuity contracts owned by
"nonnatural persons" (e.g., a corporation) are not treated as annuity contracts
for federal tax purposes, and the investment income attributable to
contributions made after February 28, 1986 is taxed as ordinary income that is
received or accrued by the owner during the taxable year. This rule does not
apply to annuity contracts purchased with a single payment when the annuity date
is no later than a year from the issue date or to deferred annuities owned by
qualified employer plans, estates, employers with respect to a terminated
pension plan, and entities other than employers, such as a trust, holding an
annuity as an agent for a natural person. This exception, however, will not
apply in cases of any employer who is the owner of an annuity contract under a
non-qualified deferred compensation plan.

DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. Under Section 457 of the Code, deferred compensation plans
established by governmental and certain other tax-exempt employers for their
employees may invest in annuity contracts. Contributions and investment earnings
are not taxable to employees until distributed; however, with respect to
payments made after February 28, 1986, a contract owned by a state or local
government or a tax-exempt organization will not be treated as an annuity under
Section 72 as well. In addition, plan assets are treated as property of the
employer and are subject to the claims of the employer's general creditors.

D.  TAX WITHHOLDING

The Code requires withholding with respect to payments or distributions from
non-qualified contracts and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified contracts. In addition, the Code requires reporting to the IRS
of the amount of income received with respect to payment or distributions from
annuities.

The tax treatment of certain withdrawals or surrenders of the non-qualified
Contracts offered by this Prospectus will vary according to whether the amount
withdrawn or surrendered is allocable to an investment in the Contract made
before or after certain dates.

                                       53
<PAGE>
E.  PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS


Federal income taxation of assets held inside a qualified retirement plan and of
earnings on those assets is deferred until distribution of plan benefits begins.
As such, it is not necessary to purchase a variable annuity contract solely to
obtain its tax deferral feature. However, other features offered under this
Contract and described in this Prospectus -- such as the minimum guaranteed
death benefit, the guaranteed fixed annuity rates and the wide variety of
investment options -- may make this Contract a suitable investment for your
qualified retirement plan.


The tax rules applicable to qualified employer plans, as defined by the Code,
are complex and vary according to the type of plan. Benefits under a qualified
plan may be subject to that plan's terms and conditions irrespective of the
terms and conditions of any annuity contract used to fund such benefits. As
such, the following is simply a general description of various types of
qualified plans that may use the Contract. Before purchasing any annuity
contract for use in funding a qualified plan, more specific information should
be obtained.

A qualified Contract may include special provisions (endorsements) changing or
restricting rights and benefits otherwise available to the Owner of a
non-qualified Contract. Individuals purchasing a qualified Contract should
carefully review any such changes or limitations which may include restrictions
to ownership, transferability, assignability, contributions and distributions.

CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT SHARING
PLANS.  Sections 401(a), 401(k) and 403(a) of the Code permit business employers
and certain associations to establish various types of tax-favored retirement
plans for employees. The Self-Employed Individuals' Tax Retirement Act of 1962,
as amended, permits self-employed individuals to establish similar plans for
themselves and their employees. Employers intending to use qualified Contracts
in connection with such plans should seek competent advice as to the suitability
of the Contract to their specific needs and as to applicable Code limitations
and tax consequences.

The Company can provide prototype plans for certain pension or profit sharing
plans for review by the plan's legal counsel. For information, ask your
financial representative.

INDIVIDUAL RETIREMENT ANNUITIES.  Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity ("IRA"). Note: this term covers all IRAs permitted
under Section 408(b) of the Code, including Roth IRAs. IRAs are subject to
limits on the amounts that may be contributed, the persons who may be eligible,
and on the time when distributions may commence. In addition, certain
distributions from other types of retirement plans may be "rolled over," on a
tax-deferred basis, to an IRA. Purchasers of an IRA Contract will be provided
with supplementary information as may be required by the IRS or other
appropriate agency, and will have the right to cancel the Contract as described
in this Prospectus. See "B. Right to Cancel Individual Retirement Annuity."
Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) or SIMPLE IRA plans for their employees using
IRAs. Employer contributions that may be made to such plans are larger than the
amounts that may be contributed to regular IRAs, and may be deductible to the
employer.

TAX-SHELTERED ANNUITIES ("TSAS").  Under the provisions of Section 403(b) of the
Code, payments made to annuity contracts purchased for employees under annuity
plans adopted by public school systems and certain organizations which are tax
exempt under Section 501(c)(3) of the Code are excludable from the gross income
of such employees to the extent that total annual payments do not exceed the
maximum contribution permitted under the Code. Purchasers of TSA Contracts
should seek competent advice as to eligibility, limitations on permissible
payments and other tax consequences associated with the Contracts.

Withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) made to a TSA Contract after
December 31, 1988, may not begin before the employee attains age 59 1/2,

                                       54
<PAGE>
separates from service, dies or becomes disabled. In the case of hardship, an
Owner may withdraw amounts contributed by salary reduction, but not the earnings
on such amounts. Even though a distribution may be permitted under these
rules (e.g., for hardship or after separation from service), it may be subject
to a 10% penalty tax as a premature distribution, in addition to income tax.

TEXAS OPTIONAL RETIREMENT PROGRAM.  Distributions under a TSA Contract issued to
participants in the Texas Optional Retirement Program may not be received except
in the case of the participant's death, retirement or termination of employment
in the Texas public institutions of higher education. These additional
restrictions are imposed under the Texas Government Code and a prior opinion of
the Texas Attorney General.

                             STATEMENTS AND REPORTS

An Owner is sent a report semi-annually which provides certain financial
information about the Portfolios. At least annually, but possibly as frequent as
quarterly, the Company will furnish a statement to the Owner containing
information about his or her Contract, including Accumulation Unit Values and
other information as required by applicable law, rules and regulations. The
Company will also send a confirmation statement to Owners each time a
transaction is made affecting the Contract Value. (Certain transactions made
under recurring payment plans such as Dollar Cost Averaging may in the future be
confirmed quarterly rather than by immediate confirmations.) The Owner should
review the information in all statements carefully. All errors or corrections
must be reported to the Company immediately to assure proper crediting to the
Contract. The Company will assume that all transactions are accurately reported
on confirmation statements and quarterly/ annual statements unless the Owner
notifies the Principal Office in writing within 30 days after receipt of the
statement.

                        LOANS (QUALIFIED CONTRACTS ONLY)

Loans are available to owners of TSA Contracts (i.e., contracts issued under
Section 403(b) of the Code) and to Contracts issued to plans qualified under
Sections 401(a) and 401(k) of the Code. Loans are subject to provisions of the
Code and to applicable qualified retirement plan rules. Tax advisors and plan
fiduciaries should be consulted prior to exercising loan privileges.

Loaned amounts will be withdrawn first from Sub-Account and Fixed Account values
on a pro-rata basis until exhausted. Thereafter, any additional amounts will be
withdrawn from the Guarantee Period Accounts (pro-rata by duration and LIFO
within each duration), subject to any applicable Market Value Adjustments. The
maximum loan amount will be determined under the Company's maximum loan formula.
The minimum loan amount is $1,000. Loans will be secured by a security interest
in the Contract and the amount borrowed will be transferred to a loan asset
account within the Company's General Account, where it will accrue interest at a
specified rate below the then current loan rate. Generally, loans must be repaid
within five years or less, and repayments must be made quarterly and in
substantially equal amounts. Repayments will be allocated pro rata in accordance
with the most recent payment allocation, except that any allocations to a
Guarantee Period Account will be allocated to the Kemper Money Market Portfolio
instead.

               ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS

The Company reserves the right, subject to applicable law to make additions to,
deletions from, or substitutions for the shares that are held in the
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Portfolio no longer are available for investment or if in the Company's judgment
further investment in any Portfolio should become inappropriate in view of the
purposes of the Variable Account or the affected Sub-Account, the Company may
redeem the shares of that Portfolio and substitute shares of another registered
open-end management company. The Company will not substitute any shares
attributable to a Contract interest in a Sub-Account without notice to the Owner
and prior approval of the SEC and state insurance authorities, to the extent
required by the 1940 Act or other applicable law. The Variable Account may, to
the

                                       55
<PAGE>
extent permitted by law, purchase other securities for other contracts or permit
a conversion between contracts upon request by an Owner.

The Company also reserves the right to establish additional sub-accounts of the
Variable Account, each of which would invest in shares corresponding to a new
portfolio or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required SEC approval,
the Company may, in its sole discretion, establish new sub-accounts or eliminate
one or more Sub-Accounts if marketing needs, tax considerations or investment
conditions warrant. Any new sub-accounts may be made available to existing
Owners on a basis to be determined by the Company.

Shares of the Portfolios also are issued to separate accounts of other insurance
companies which issue variable life contracts ("mixed funding"). Shares of the
Portfolios also are issued to other unaffiliated insurance companies ("shared
funding"). It is conceivable that in the future such mixed funding or shared
funding may be disadvantageous for variable life owners or variable annuity
owners. Although the Company and the Underlying Portfolios do not currently
foresee any such disadvantages to either variable life insurance owners or
variable annuity owners, the Company and the trustees of the Underlying
Portfolios intend to monitor events in order to identify any material conflicts
between such Owners and to determine what action, if any, should be taken in
response thereto. If the trustees were to conclude that separate portfolios
should be established for variable life and variable annuity separate accounts,
the Company will bear the attendant expenses.

The Company reserves the right, subject to compliance with applicable law, to:

    (1) transfer assets from the Variable Account or any of its Sub-Accounts to
       another of the Company's separate accounts or sub-accounts having assets
       of the same class,

    (2) to operate the Variable Account or any Sub-Account as a management
       investment company under the 1940 Act or in any other form permitted by
       law,

    (3) to deregister the Variable Account under the 1940 Act in accordance with
       the requirements of the 1940 Act,

    (4) to substitute the shares of any other registered investment company for
       the Underlying Portfolio shares held by a Sub-Account, in the event that
       Underlying Portfolio shares are unavailable for investment, or if the
       Company determines that further investment in such Underlying Portfolio
       shares is inappropriate in view of the purpose of the Sub-Account,

    (5) to change the methodology for determining the net investment factor,

    (6) to change the names of the Variable Account or of the Sub-Accounts, and

    (7) to combine with other Sub-Accounts or other Separate Accounts of the
       Company.


If any of these substitutions or changes are made, the Company may endorse the
Contract to reflect the substitution or change, and will notify Owners of all
such changes. In no event will the changes described above be made without
notice to Owners in accordance with the 1940 Act.


                   CHANGES TO COMPLY WITH LAW AND AMENDMENTS

The Company reserves the right, without the consent of Owners, to suspend sales
of the Contract as presently offered, and to make any change to provisions of
the Contract to comply with, or give Owners the benefit of, any federal or state
statute, rule or regulation, including but not limited to requirements for
annuity contracts and retirement plans under the Code and pertinent regulations
or any state statute or regulation. Any such changes will apply uniformly to all
Contracts that are affected. You will be given written notice of such changes.

                                       56
<PAGE>
                                 VOTING RIGHTS

The Company will vote Underlying Portfolio shares held by each Sub-Account in
accordance with instructions received from Owners and, after the Annuity Date,
from the Annuitants. Each person having a voting interest in a Sub-Account will
be provided with proxy materials of the Underlying Portfolio, together with a
form with which to give voting instructions to the Company. Shares for which no
timely instructions are received will be voted in proportion to the instructions
which are received. The Company also will vote shares in a Sub-Account that it
owns and which are not attributable to the Contract in the same proportion. If
the 1940 Act or any rules thereunder should be amended, or if the present
interpretation of the 1940 Act or such rules should change, and as a result the
Company determines that it is permitted to vote shares in its own right, whether
or not such shares are attributable to the Contract, the Company reserves the
right to do so.

The number of votes which an Owner or Annuitant may cast will be determined by
the Company as of the record date established by the Underlying Portfolio.
During the accumulation phase, the number of Underlying Portfolio shares
attributable to each Owner will be determined by dividing the dollar value of
the Accumulation Units of the Sub-Account credited to the Contract by the net
asset value of one Underlying Portfolio share. During the annuity payout phase,
the number of Underlying Portfolio shares attributable to each Annuitant will be
determined by dividing the reserve held in each Sub-Account for the Annuitant's
variable annuity by the net asset value of one Underlying Portfolio share.
Ordinarily, the Annuitant's voting interest in the Underlying Portfolio will
decrease as the reserve for the variable annuity is depleted.

                                  DISTRIBUTION

The Contract offered by this Prospectus may be purchased from certain
independent broker-dealers, including representatives of Allmerica
Investments, Inc. (the Principal Underwriter) which are registered under the
Securities Exchange Act of 1934 and are members of the National Association of
Securities Dealers, Inc. ("NASD").

The Company pays commissions, not to exceed 7.0% of purchase payments, to
broker-dealers that sell the Contract. Alternative commission schedules are
available with lower initial commission amounts based on payments, plus ongoing
annual compensation of up to 1% of Contract value. To the extent permitted by
NASD rules, promotional incentives or payments also may be provided to such
broker-dealers based on sales volumes, the assumption of wholesaling functions,
or other sales-related criteria. Additional payments may be made for other
services not directly related to the sale of the Contract, including the
recruitment and training of personnel, production of promotional literature, and
similar services.

The Company intends to recoup commissions and other sales expenses through a
combination of anticipated surrender charges and profits from the Company's
General Account, which may include amounts derived from mortality and expense
risk charges. Commissions paid on the Contract, including additional incentives
or payments, do not result in any additional charge to Owners or to the Variable
Account. Any surrender charges assessed on a Contract will be retained by the
Company.

Owners may direct any inquiries to their financial representative or to
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653, telephone
1-800-782-8380.

                                 LEGAL MATTERS

There are no legal proceedings pending to which the Variable Account is a party,
or to which the assets of the Variable Account are subject. The Company and the
Principal Underwriter are not involved in any litigation that is of material
importance in relation to their total assets or that relates to the Variable
Account.

                                       57
<PAGE>
                              FURTHER INFORMATION

A Registration Statement under the 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted in this Prospectus pursuant to the rules and
regulations of the SEC. The omitted information may be obtained from the SEC's
principal office in Washington, DC, upon payment of the SEC's prescribed fees.

                                       58
<PAGE>
                                   APPENDIX A
                    MORE INFORMATION ABOUT THE FIXED ACCOUNT

Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account generally are not subject to regulation under the
provisions of the 1933 Act or the 1940 Act. Disclosures regarding the fixed
portion of the Contract and the Fixed Account may be subject to the provisions
of the 1933 Act concerning the accuracy and completeness of statements made in
this Prospectus. The disclosures in this APPENDIX A have not been reviewed by
the SEC.

The Fixed Account is part of the Company's General Account which is made up of
all of the general assets of the Company other than those allocated to separate
accounts. Allocations to the Fixed Account become part of the assets of the
Company, and are used to support insurance and annuity obligations. A portion or
all of net payments may be allocated to accumulate at a fixed rate of interest
in the Fixed Account. Such net amounts are guaranteed by the Company as to
principal and a minimum rate of interest. Under the Contract, the minimum
interest which may be credited on amounts allocated to the Fixed Account is 3%
compounded annually. Additional "Excess Interest" may or may not be credited at
the sole discretion of the Company.

If the Contract is surrendered, or if an Excess Amount is withdrawn while the
Contract is in force and before the Annuity Date, a surrender charge is imposed
if such event occurs before the payments attributable to the surrender or
withdrawal have been credited to the Contract for at least six full Contract
years.

In Massachusetts, payments and transfers to the Fixed Account are subject to the
following restrictions:

       If the Contract is issued prior to the Annuitant's 60th birthday,
       allocations to the Fixed Account will be permitted until the
       Annuitant's 61st birthday. On and after the Annuitant's 61st
       birthday, no additional Fixed Account allocations will be
       accepted. If the Contract is issued on or after the Annuitant's
       60th birthday, up through and including the Annuitant's 81st
       birthday, Fixed Account allocations will be permitted during the
       first Contract year. On and after the first Contract anniversary,
       no additional allocations to the Fixed Account will be permitted.
       If a Contract is issued after the Annuitant's 81st birthday, no
       payments to the Fixed Account will be permitted at any time.

In Oregon no additional allocations will be accepted into the Fixed Account on
or after the third Contract anniversary. Further, no payments to the Fixed
Account will be permitted if the Contract is issued after the Annuitant's 81st
birthday.

If an allocation designated as a Fixed Account allocation is received at the
Principal Office during a period when the Fixed Account is not available due to
the limitations outlined above, the monies will be allocated to the Kemper Money
Market Portfolio.

                                      A-1
<PAGE>
                                   APPENDIX B
               SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT

PART 1: SURRENDER CHARGES

FULL SURRENDER -- Assume a Payment of $50,000 is made on the issue date and no
additional payments are made. Assume there are no withdrawals and that the
Withdrawal Without Surrender Charge amount is equal to 15% of the current
Accumulated Value. The table below presents examples of the surrender charge
resulting from a full surrender of the Owner's Contract, based on hypothetical
Accumulated Values.

<TABLE>
<CAPTION>
         HYPOTHETICAL        FREE        SURRENDER
ACCOUNT  ACCUMULATED      WITHDRAWAL       CHARGE    SURRENDER
 YEAR       VALUE           AMOUNT       PERCENTAGE   CHARGE
- -------  ------------  ----------------  ----------  ---------
<S>      <C>           <C>               <C>         <C>
   1      $54,000.00      $ 8,100.00         7%      $3,213.00
   2       58,320.00        8,748.00         6%       2,974.32
   3       62,985.60        9,447.84         5%       2,500.00
   4       68,024.45       10,203.67         4%       2,000.00
   5       73,466.40       11,019.96         3%       1,500.00
   6       79,343.72       11,901.56         2%       1,000.00
   7       85,691.21       12,853.68         0%           0.00
</TABLE>

WITHDRAWAL -- Assume a Payment of $50,000 is made on the issue date and no
additional payments are made. Assume that the Withdrawal Without Surrender
Charge amount is equal to 15% of the current Accumulated Value and there are
withdrawals as detailed below. The table below presents examples of the
surrender charge resulting from withdrawals from the Owner's Contract, based on
hypothetical Accumulated Values.

<TABLE>
<CAPTION>
         HYPOTHETICAL                          FREE        SURRENDER
ACCOUNT  ACCUMULATED                        WITHDRAWAL       CHARGE    SURRENDER
 YEAR       VALUE         WITHDRAWAL          AMOUNT       PERCENTAGE   CHARGE
- -------  ------------  ----------------  ----------------  ----------  ---------
<S>      <C>           <C>               <C>               <C>         <C>
   1      $54,000.00           $0.00        $ 8,100.00         7%          $0.00
   2       58,320.00            0.00          8,748.00         6%           0.00
   3       62,985.60            0.00          9,447.84         5%           0.00
   4       68,024.45       30,000.00         10,203.67         4%         791.85
   5       41,066.40       10,000.00          6,159.96         3%         115.20
   6       33,551.72        5,000.00          5,032.76         2%           0.00
   7       30,835.85       10,000.00          4,625.38         0%           0.00
</TABLE>

PART 2: MARKET VALUE ADJUSTMENT

The market value factor is: [(1+i)/(1+j)] to the power of n/365 - 1

The following examples assume:

    1.  The payment was allocated to a ten-year Guarantee Period Account with a
       Guaranteed Interest Rate of 8%.

    2.  The date of surrender is seven years (2,555 days) from the expiration
       date.

    3.  The value of the Guarantee Period Account is equal to $62,985.60 at the
       end of three years.

    4.  No transfers or withdrawals affecting this Guarantee Period Account have
       been made.

    5.  Surrender charges, if any, are calculated in the same manner as shown in
       the examples in Part 1.

                                      B-1
<PAGE>

NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)*


Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10

<TABLE>
<C>                          <C>  <S>
    The market value factor    =  [(1+i)/(1+j)] to the power of n/365 - 1

                               =  [(1+.08)/(1+.10)] to the power of 2555/365 - 1

                               =  (.98182) to the power of 7 - 1

                               =  -.12054

The market value adjustment    =  the market value factor multiplied by the withdrawal

                               =  -.12054 - $62,985.60

                               =  -$7,592.11
</TABLE>


POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)*


Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07

<TABLE>
<C>                          <C>  <S>
    The market value factor    =  [(1+i)/(1+j)] to the power of n/365 - 1

                               =  [(1+.08)/(1+.07)] to the power of 2555/365 - 1

                               =  (1.0093) to the power of 7 - 1

                               =  .06694

The market value adjustment    =  the market value factor multiplied by the withdrawal

                               =  .06694 X $62,985.60

                               =  $4,216.26
</TABLE>


*Uncapped is a straight application of the Market Value Adjustment formula when
the value produced is less than the cap.



NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)*


Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11

<TABLE>
<C>                          <C>  <S>
    The market value factor    =  [(1+i)/(1-j)] to the power of n/365 - 1

                               =  [(1+.08)/(1+.11)] to the power of 2555/365 - 1

                               =  (.97297) to the power of 7 - 1

                               =  -.17454

The market value adjustment    =  Minimum of the market value factor multiplied by the
                                  withdrawal or the negative of the excess interest earned
                                  over 3%

                               =  Minimum of (-.17454 - $62,985.60 or -$8,349.25)

                               =  Minimum of (-$10,993.51 or -$8,349.25)

                               =  -$8,349.25
</TABLE>

                                      B-2
<PAGE>

POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)*


Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06

<TABLE>
<C>                          <C>  <S>
    The market value factor    =  [(1+i)/(1+j)] to the power of n/365 - 1

                               =  [(1+.08)/(1+.06)] to the power of 2555/365 - 1

                               =  (1.01887) to the power of 7 - 1

                               =  .13981

The market value adjustment    =  Minimum of the market value factor multiplied by the
                                  withdrawal or the excess interest earned over 3%

    The market value factor    =  Minimum of (.13981 - $62,985.60 or $8,349.25)

                               =  Minimum of ($8,806.02 or $8,349.25)

                               =  $8,349.25
</TABLE>


*Capped takes into account the excess interest part of the Market Value
Adjustment formula when the value produced is greater than the cap.


                                      B-3
<PAGE>
                                   APPENDIX C
                               THE DEATH BENEFIT

PART 1: DEATH OF THE ANNUITANT -- WITHOUT ENHANCED DEATH BENEFIT RIDER
  DEATH BENEFIT ASSUMING NO WITHDRAWALS

Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no withdrawals. The table below presents examples of
the death benefit based on the hypothetical Accumulated Values.

<TABLE>
<CAPTION>
          HYPOTHETICAL    HYPOTHETICAL
          ACCUMULATED     MARKET VALUE       DEATH        DEATH     HYPOTHETICAL
  YEAR       VALUE         ADJUSTMENT     BENEFIT (A)  BENEFIT (B)  DEATH BENEFIT
- --------  ------------  ----------------  -----------  -----------  -------------
<S>       <C>           <C>               <C>          <C>          <C>
    1      $53,000.00         $0.00       $53,000.00   $50,000.00    $53,000.00
    2       53,530.00        500.00        54,030.00    50,000.00     54,030.00
    3       58,883.00          0.00        58,883.00    50,000.00     58,883.00
    4       52,994.70        500.00        53,494.70    50,000.00     53,494.70
    5       58,294.17          0.00        58,294.17    50,000.00     58,294.17
    6       64,123.59        500.00        64,623.59    50,000.00     64,623.59
    7       70,535.95          0.00        70,535.95    50,000.00     70,535.95
    8       77,589.54        500.00        78,089.54    50,000.00     78,089.54
    9       85,348.49          0.00        85,348.49    50,000.00     85,348.49
   10       93,883.34          0.00        93,883.34    50,000.00     93,883.34
</TABLE>

Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment.

Death Benefit (b) is the gross payments reduced proportionately to reflect
withdrawals.

The Hypothetical Death Benefit is equal to the greatest of Death Benefits
(a) or (b).

DEATH BENEFIT ASSUMING WITHDRAWALS

Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are withdrawals as detailed in the table below. The table
below presents examples of the death benefit based on the hypothetical
Accumulated Values.

<TABLE>
<CAPTION>
          HYPOTHETICAL                HYPOTHETICAL
          ACCUMULATED                 MARKET VALUE       DEATH        DEATH     HYPOTHETICAL
  YEAR       VALUE      WITHDRAWAL     ADJUSTMENT     BENEFIT (A)  BENEFIT (B)  DEATH BENEFIT
- --------  ------------  ----------  ----------------  -----------  -----------  -------------
<S>       <C>           <C>         <C>               <C>          <C>          <C>
    1      $53,000.00        $0.00             $0.00  $53,000.00   $50,000.00    $53,000.00
    2       53,530.00         0.00            500.00   54,030.00    50,000.00     55,125.00
    3        3,883.00    50,000.00              0.00    3,883.00     3,603.18      3,883.00
    4        3,494.70         0.00            500.00    3,994.70     3,603.18      3,994.70
    5        3,844.17         0.00              0.00    3,844.17     3,603.18      3,844.17
    6        4,228.59         0.00            500.00    4,728.59     3,603.18      4,728.59
    7        4,651.45         0.00              0.00    4,651.45     3,603.18      4,651.45
    8        5,116.59         0.00            500.00    5,616.59     3,603.18      5,616.59
    9        5,628.25         0.00              0.00    5,628.25     3,603.18      5,628.25
   10          691.07     5,000.00              0.00      691.07       437.54        691.07
</TABLE>

Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment.

Death Benefit (b) is the gross payments reduced proportionately to reflect
withdrawals.

The Hypothetical Death Benefit is equal to the greatest of Death Benefits
(a) or (b).

                                      C-1
<PAGE>
PART 2: DEATH OF THE ANNUITANT -- WITH ENHANCED DEATH BENEFIT RIDER DEATH
  BENEFIT ASSUMING NO WITHDRAWALS

Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no withdrawals. The table below presents examples of
the death benefit based on the hypothetical Accumulated Values.

<TABLE>
<CAPTION>
          HYPOTHETICAL  HYPOTHETICAL
          ACCUMULATED   MARKET VALUE       DEATH           DEATH        DEATH     HYPOTHETICAL
  YEAR       VALUE       ADJUSTMENT     BENEFIT (A)     BENEFIT (B)  BENEFIT (C)  DEATH BENEFIT
- --------  ------------  ------------  ----------------  -----------  -----------  -------------
<S>       <C>           <C>           <C>               <C>          <C>          <C>
    1      $53,000.00          $0.00     $53,000.00     $52,500.00   $50,000.00    $53,000.00
    2       53,530.00         500.00      54,030.00      55,125.00    53,000.00     55,125.00
    3       58,883.00           0.00      58,883.00      57,881.25    55,125.00     58,883.00
    4       52,994.70         500.00      53,494.70      60,775.31    58,883.00     60,775.31
    5       58,294.17           0.00      58,294.17      63,814.08    60,775.31     63,814.08
    6       64,123.59         500.00      64,623.59      67,004.78    63,814.08     67,004.78
    7       70,535.95           0.00      70,535.95      70,355.02    67,004.78     70,535.95
    8       77,589.54         500.00      78,089.54      73,872.77    70,535.95     78,089.54
    9       85,348.49           0.00      85,348.49      77,566.41    78,089.54     85,348.49
   10       93,883.34           0.00      93,883.34      81,444.73    85,348.49     93,883.34
</TABLE>

Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment.


Death Benefit (b) is the gross payments accumulated daily at an effective annual
yield of 5%, reduced proportionately to reflect withdrawals.


Death Benefit (c) is the Death Benefit that would have been payable on the most
recent Contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.

The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c).

DEATH BENEFIT ASSUMING WITHDRAWALS

Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are withdrawals as detailed in the table below. The table
below presents examples of the death benefit based on the hypothetical
Accumulated Values.

<TABLE>
<CAPTION>
          HYPOTHETICAL                    HYPOTHETICAL
          ACCUMULATED                     MARKET VALUE     DEATH
  YEAR       VALUE         WITHDRAWAL      ADJUSTMENT   BENEFIT (A)
- --------  ------------  ----------------  ------------  -----------
<S>       <C>           <C>               <C>           <C>
    1      $53,000.00              $0.00        $0.00   $53,000.00
    2       53,530.00               0.00       500.00    54,030.00
    3        3,883.00          50,000.00         0.00     3,883.00
    4        3,494.70               0.00       500.00     3,994.70
    5        3,844.17               0.00         0.00     3,844.17
    6        4,228.59               0.00       500.00     4,728.59
    7        4,651.45               0.00         0.00     4,651.45
    8        5,116.59               0.00       500.00     5,616.59
    9        5,628.25               0.00         0.00     5,628.25
   10          691.07           5,000.00         0.00       691.07
</TABLE>

                                      C-2
<PAGE>

<TABLE>
<CAPTION>
               DEATH           DEATH      HYPOTHETICAL
  YEAR      BENEFIT (B)     BENEFIT (C)  DEATH BENEFIT
- --------  ----------------  -----------  --------------
<S>       <C>               <C>          <C>
    1        $52,500.00     $50,000.00     $53,000.00
    2         55,125.00      53,000.00      55,125.00
    3          4,171.13       3,972.50       4,171.13
    4          4,379.68       4,171.13       4,379.68
    5          4,598.67       4,379.68       4,598.67
    6          4,828.60       4,598.67       4,828.60
    7          5,070.03       4,828.60       5,070.03
    8           5,323.5      35,070.03       5,616.59
    9          5,589.71       5,616.59       5,628.25
   10            712.70         683.44         712.70
</TABLE>

Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment.


Death Benefit (b) is the gross payments accumulated daily at an effective annual
yield of 5%, reduced proportionately to reflect withdrawals.


Death Benefit (c) is the Death Benefit that would have been payable on the most
recent Contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.

The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c).

PART 3: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT (WITH OR WITHOUT ENHANCED
  DEATH BENEFIT)

Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no withdrawals. The table below presents examples of
the death benefit based on the hypothetical Accumulated Values.

<TABLE>
<CAPTION>
          HYPOTHETICAL    HYPOTHETICAL
          ACCUMULATED     MARKET VALUE      DEATH
  YEAR       VALUE         ADJUSTMENT      BENEFIT
- --------  ------------  ----------------  ----------
<S>       <C>           <C>               <C>
    1      $53,000.00              $0.00  $53,000.00
    2       53,530.00             500.00   54,030.00
    3       58,883.00               0.00   58,883.00
    4       52,994.70             500.00   53,494.70
    5       58,294.17               0.00   58,294.17
    6       64,123.59             500.00   64,623.59
    7       70,535.95               0.00   70,535.95
    8       77,589.54             500.00   78,089.54
    9       85,348.49               0.00   85,348.49
   10       93,883.34               0.00   93,883.34
</TABLE>

The hypothetical Death Benefit is the Accumulated Value increased by any
positive Market Value Adjustment.

                                      C-3
<PAGE>
                                   APPENDIX D
                        CONDENSED FINANCIAL INFORMATION
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
                              SEPARATE ACCOUNT KGC


<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
SUB-ACCOUNT                                                     1999       1998       1997
- -----------                                                   --------   --------   --------
<S>                                                           <C>        <C>        <C>
KEMPER AGGRESSIVE GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.000        N/A       N/A
  End of Period.............................................    1.389        N/A       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................      429        N/A       N/A
KEMPER TECHNOLOGY GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.000        N/A       N/A
  End of Period.............................................    1.764        N/A       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................    3,400        N/A       N/A
KVS DREMAN FINANCIAL SERVICES PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    0.971      1.000       N/A
  End of Period.............................................    0.912      0.971       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................    2,445      1,698       N/A
KEMPER SMALL CAP GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.568      1.339     1.000
  End of Period.............................................    2.086      1.568     1.339
Number of Units Outstanding at End of Period (in
 thousands).................................................    5,486      5,345     2,090
KEMPER SMALL CAP VALUE PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.065      1.214     1.000
  End of Period.............................................    1.083      1.065     1.214
Number of Units Outstanding at End of Period (in
 thousands).................................................    8,173      9,791     5,115
KVS DREMAN HIGH RETURN EQUITY PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.029      1.000       N/A
  End of Period.............................................    0.904      1.029       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................    9,715      5,903       N/A
KEMPER INTERNATIONAL PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.193      1.096     1.000
  End of Period.............................................    1.719      1.193     1.096
Number of Units Outstanding at End of Period (in
 thousands).................................................   11,193      9,222     4,609
KEMPER NEW EUROPE PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    0.909      1.000       N/A
  End of Period.............................................    1.026      0.909       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................      392        332       N/A
KEMPER GLOBAL BLUE CHIP PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.006      1.000       N/A
  End of Period.............................................    1.260      1.006       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................    1,538        396       N/A
</TABLE>


                                      D-1
<PAGE>


<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
SUB-ACCOUNT                                                     1999       1998       1997
- -----------                                                   --------   --------   --------
<S>                                                           <C>        <C>        <C>
KEMPER GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.348      1.184     1.000
  End of Period.............................................    1.829      1.348     1.184
Number of Units Outstanding at End of Period (in
 thousands).................................................    9,416      7,034     3,144
KEMPER CONTRARIAN VALUE PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.491      1.264     1.000
  End of Period.............................................    1.324      1.491     1.264
Number of Units Outstanding at End of Period (in
 thousands).................................................   13,896     16,119     9,815
KEMPER BLUECHIP PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.247      1.107     1.000
  End of Period.............................................    1.544      1.247     1.107
Number of Units Outstanding at End of Period (in
 thousands).................................................    8,955      5,635     1,560
KEMPER VALUE+GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.447      1.217     1.000
  End of Period.............................................    1.667      1.447     1.217
Number of Units Outstanding at End of Period (in
 thousands).................................................    6,592      7,166     2,845
KVS INDEX 500 PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.000        N/A       N/A
  End of Period.............................................    1.092        N/A       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................      726        N/A       N/A
KEMPER HORIZON 20+ PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.312      1.173     1.000
  End of Period.............................................    1.417      1.312     1.173
Number of Units Outstanding at End of Period (in
 thousands).................................................    2,059      2,444       846
KEMPER TOTAL RETURN PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.334      1.171     1.000
  End of Period.............................................    1.514      1.334     1.171
Number of Units Outstanding at End of Period (in
 thousands).................................................   11,248      7,446     3,260
KEMPER HORIZON 10+ PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.228      1.115     1.000
  End of Period.............................................    1.316      1.228     1.115
Number of Units Outstanding at End of Period (in
 thousands).................................................    4,289      3,942     1,431
KEMPER HIGH YIELD PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.108      1.104     1.000
  End of Period.............................................    1.119      1.108     1.104
Number of Units Outstanding at End of Period (in
 thousands).................................................   22,755     23,809     9,516
KEMPER HORIZON 5 PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.206      1.111     1.000
  End of Period.............................................    1.251      1.206     1.111
Number of Units Outstanding at End of Period (in
 thousands).................................................    1,296      1,507       439
</TABLE>


                                      D-2
<PAGE>


<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
SUB-ACCOUNT                                                     1999       1998       1997
- -----------                                                   --------   --------   --------
<S>                                                           <C>        <C>        <C>
KEMPER STRATEGIC INCOME PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.121      1.021     1.000
  End of Period.............................................    1.044      1.121     1.021
Number of Units Outstanding at End of Period (in
 thousands).................................................      406        435       457
KEMPER INVESTMENT GRADE BOND PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.140      1.068     1.000
  End of Period.............................................    1.105      1.140     1.068
Number of Units Outstanding at End of Period (in
 thousands).................................................    5,245      6,067     1,032
KEMPER GOVERNMENT SECURITIES PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.137      1.074     1.000
  End of Period.............................................    1.132      1.137     1.074
Number of Units Outstanding at End of Period (in
 thousands).................................................    3,434      4,590       659
KEMPER MONEY MARKET PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.084      1.042     1.000
  End of Period.............................................    1.124      1.084     1.042
Number of Units Outstanding at End of Period (in
 thousands).................................................   10,036      4,440     2,329
KVS FOCUSED LARGE CAP GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.000        N/A       N/A
  End of Period.............................................    1.282        N/A       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................       90        N/A       N/A
KVS GROWTH OPPORTUNITIES PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.000        N/A       N/A
  End of Period.............................................    1.162        N/A       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................      728        N/A       N/A
KVS GROWTH AND INCOME PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.000        N/A       N/A
  End of Period.............................................    1.147        N/A       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................      274        N/A       N/A
SCUDDER INTERNATIONAL PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    0.989      1.000       N/A
  End of Period.............................................    1.511      0.989       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................    2,696        794       N/A
SCUDDER GLOBAL DISCOVERY PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    0.998      1.000       N/A
  End of Period.............................................    1.638      0.998       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................    1,985        732       N/A
SCUDDER CAPITAL GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.054      1.000       N/A
  End of Period.............................................    1.410      1.054       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................    2,964        758       N/A
</TABLE>


                                      D-3
<PAGE>


<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
SUB-ACCOUNT                                                     1999       1998       1997
- -----------                                                   --------   --------   --------
<S>                                                           <C>        <C>        <C>
SCUDDER GROWTH AND INCOME PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    0.952      1.000       N/A
  End of Period.............................................    0.998      0.952       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................    3,245      1,084       N/A
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.000        N/A       N/A
  End of Period.............................................    1.197        N/A       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................      173        N/A       N/A
ALGER AMERICAN BALANCED PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.000        N/A       N/A
  End of Period.............................................    1.058        N/A       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................       62        N/A       N/A
DREYFUS MIDCAP STOCK PORTFOLIO
Unit Value $:
  Beginning of Period.......................................    1.000        N/A       N/A
  End of Period.............................................    1.049        N/A       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................      134        N/A       N/A
DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND
Unit Value $:
  Beginning of Period.......................................    1.000        N/A       N/A
  End of Period.............................................    1.086        N/A       N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................       16        N/A       N/A
</TABLE>



No information is shown above for Sub-Accounts that commenced operations after
December 31, 1999.


                                      D-4
<PAGE>
                        CONDENSED FINANCIAL INFORMATION
                FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
                              SEPARATE ACCOUNT KGC


<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
SUB-ACCOUNT                                                     1999       1998       1997
- -----------                                                   --------   --------   --------
<S>                                                           <C>        <C>        <C>
KEMPER AGGRESSIVE GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.000        N/A        N/A
  End of Period.............................................   1.389        N/A        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................      33        N/A        N/A
KEMPER TECHNOLOGY GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.000        N/A        N/A
  End of Period.............................................   1.764        N/A        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................      94        N/A        N/A
KVS DREMAN FINANCIAL SERVICES PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   0.991      1.000        N/A
  End of Period.............................................   0.931      0.991        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................     112          4        N/A
KEMPER SMALL CAP GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.158      0.989      1.000
  End of Period.............................................   1.542      1.158      0.989
Number of Units Outstanding at End of Period (in
 thousands).................................................     224        197         21
KEMPER SMAL CAP VALUE PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   0.894      1.019      1.000
  End of Period.............................................   0.909      0.894      1.019
Number of Units Outstanding at End of Period (in
 thousands).................................................     238        161         87
KVS DREMAN HIGH RETURN EQUITY PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.081      1.116      1.000
  End of Period.............................................   0.950      1.081      1.116
Number of Units Outstanding at End of Period (in
 thousands).................................................     374         20          0
KEMPER INTERNATIONAL PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.054      0.969      1.000
  End of Period.............................................   1.519      1.054      0.969
Number of Units Outstanding at End of Period (in
 thousands).................................................     391        364        138
KEMPER NEW EUROPE PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.000      1.000        N/A
  End of Period.............................................   1.104      1.000        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................       5          0        N/A
KEMPER GLOBAL BLUE CHIP PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.000      1.000        N/A
  End of Period.............................................   1.155      1.000        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................       0          0        N/A
</TABLE>


                                      D-5
<PAGE>


<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
SUB-ACCOUNT                                                     1999       1998       1997
- -----------                                                   --------   --------   --------
<S>                                                           <C>        <C>        <C>
KEMPER GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.167      1.025      1.000
  End of Period.............................................   1.583      1.167      1.025
Number of Units Outstanding at End of Period (in
 thousands).................................................     199         67          5
KEMPER CONTRARIAN VALUE PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.269      1.076      1.000
  End of Period.............................................   1.127      1.269      1.076
Number of Units Outstanding at End of Period (in
 thousands).................................................     344        358        190
KEMPER BLUE CHIP PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.230      1.116      1.000
  End of Period.............................................   1.523      1.230      1.116
Number of Units Outstanding at End of Period (in
 thousands).................................................     346        112          0
KEMPER VALUE+GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.136      0.956      1.000
  End of Period.............................................   1.309      1.136      0.956
Number of Units Outstanding at End of Period (in
 thousands).................................................     404        251          2
KVS INDEX 500 PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.000        N/A        N/A
  End of Period.............................................   1.092        N/A        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................      12        N/A        N/A
KEMPER HORIZON 20+ PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.138      1.018      1.000
  End of Period.............................................   1.230      1.138      1.018
Number of Units Outstanding at End of Period (in
 thousands).................................................      56         39          2
KEMPER TOTAL RETURN PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.148      1.008      1.000
  End of Period.............................................   1.303      1.148      1.008
Number of Units Outstanding at End of Period (in
 thousands).................................................     523        375        201
KEMPER HORIZON 10+ PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.124      1.000      1.000
  End of Period.............................................   1.205      1.124      1.000
Number of Units Outstanding at End of Period (in
 thousands).................................................      72         57          0
KEMPER HIGH YIELD PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.036      1.032      1.000
  End of Period.............................................   1.046      1.036      1.032
Number of Units Outstanding at End of Period (in
 thousands).................................................     259        105         52
KEMPER HORIZON 5 PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.018      1.000      1.000
  End of Period.............................................   1.056      1.018      1.000
Number of Units Outstanding at End of Period (in
 thousands).................................................     103         98          0
</TABLE>


                                      D-6
<PAGE>


<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
SUB-ACCOUNT                                                     1999       1998       1997
- -----------                                                   --------   --------   --------
<S>                                                           <C>        <C>        <C>
KEMPER STRATEGIC INCOME PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.008      1.019      1.000
  End of Period.............................................   0.988      1.008      1.019
Number of Units Outstanding at End of Period (in
 thousands).................................................       1          0          0
KEMPER INVESTMENT GRADE BOND PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.111      1.040      1.000
  End of Period.............................................   1.076      1.111      1.040
Number of Units Outstanding at End of Period (in
 thousands).................................................      59         26         13
KEMPER GOVERNMENT SECURITIES PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   0.995      1.000      1.000
  End of Period.............................................   0.991      0.995      1.000
Number of Units Outstanding at End of Period (in
 thousands).................................................      49         28          0
KEMPER MONEY MARKET PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.013      1.004      1.000
  End of Period.............................................   1.051      1.013      1.004
Number of Units Outstanding at End of Period (in
 thousands).................................................     251         73          0
KVS FOCUSED LARGE CAP GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.000        N/A        N/A
  End of Period.............................................   1.282        N/A        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................       2        N/A        N/A
KVS GROWTH OPPORTUNITIES PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.000        N/A        N/A
  End of Period.............................................   1.162        N/A        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................       2        N/A        N/A
KVS GROWTH AND INCOME PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.000        N/A        N/A
  End of Period.............................................   1.147        N/A        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................       2        N/A        N/A
SCUDDER INTERNATIONAL PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.000      1.000        N/A
  End of Period.............................................   1.485      1.000        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................     106          0        N/A
SCUDDER GLOBAL DISCOVERY PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.033      1.000        N/A
  End of Period.............................................   1.694      1.033        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................     240        127        N/A
SCUDDER CAPITAL GROWTH PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.066      1.000        N/A
  End of Period.............................................   1.426      1.066        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................     123         47        N/A
</TABLE>


                                      D-7
<PAGE>


<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
SUB-ACCOUNT                                                     1999       1998       1997
- -----------                                                   --------   --------   --------
<S>                                                           <C>        <C>        <C>
SCUDDER GROWTH AND INCOME PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   0.991      1.000        N/A
  End of Period.............................................   1.040      0.991        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................     425        222        N/A
ALGER AMERICAN LEVERAGED PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.000        N/A        N/A
  End of Period.............................................   1.197        N/A        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................       2        N/A        N/A
ALGER AMERICAN BALANCED PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.000        N/A        N/A
  End of Period.............................................   1.058        N/A        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................       2        N/A        N/A
DREYFUS MIDCAP STOCK PORTFOLIO
Unit Value $:
  Beginning of Period.......................................   1.000        N/A        N/A
  End of Period.............................................   1.049        N/A        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................       2        N/A        N/A
DREYFUS SOCIALLY RESPONSIBLE FUND
Unit Value $:
  Beginning of Period.......................................   1.000        N/A        N/A
  End of Period.............................................   1.086        N/A        N/A
Number of Units Outstanding at End of Period (in
 thousands).................................................       2        N/A        N/A
</TABLE>


No information is shown above for Sub-Accounts that commenced operations after
December 31, 1998.

                                      D-8
<PAGE>


             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

                       STATEMENT OF ADDITIONAL INFORMATION

                                       OF

  FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY CONTRACTS FUNDED THROUGH

                                 SUB-ACCOUNTS OF

                              SEPARATE ACCOUNT KGC

                INVESTING IN SHARES OF THE UNDERLYING PORTFOLIOS




THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE KEMPER GATEWAY CUSTOM PROSPECTUS OF SEPARATE ACCOUNT KGC
DATED MAY 1, 2000 ("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM
ANNUITY CLIENT SERVICES, ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY,
440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653, TELEPHONE 1-800-782-8380.



                                DATED MAY 1, 2000




AFLIAC Kemper Gateway Custom


<PAGE>



                                TABLE OF CONTENTS

<TABLE>

<S>                                                                       <C>
GENERAL INFORMATION AND HISTORY.............................................2

TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE
     COMPANY................................................................3

SERVICES....................................................................3

UNDERWRITERS................................................................4

ANNUITY BENEFIT PAYMENTS....................................................4

EXCHANGE OFFER..............................................................6

ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAM.................8

PERFORMANCE INFORMATION.....................................................9

TAX-DEFERRED ACCUMULATION..................................................15

FINANCIAL STATEMENTS......................................................F-1
</TABLE>


                         GENERAL INFORMATION AND HISTORY

Separate Account KGC (the "Variable Account") is a separate investment account
of Allmerica Financial Life Insurance and Annuity Company (the "Company")
authorized by vote of its Board of Directors on June 13, 1996. The Company is a
life insurance company organized under the laws of Delaware in July 1974. Its
Principal Office is located at 440 Lincoln Street, Worcester, Massachusetts
01653, telephone 508-855-1000. The Company is subject to the laws of the State
of Delaware governing insurance companies and to regulation by the Commissioner
of Insurance of Delaware. In addition, the Company is subject to the insurance
laws and regulations of other states and jurisdictions in which it is licensed
to operate. As of December 31, 1999, the Company had over $17 billion in assets
and over $26 billion of life insurance in force.


Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is a wholly owned subsidiary of First Allmerica Financial Life Insurance Company
("First Allmerica") which, in turn, is a wholly owned subsidiary of Allmerica
Financial Corporation ("AFC"). First Allmerica, originally organized under the
laws of Massachusetts in 1844 as a mutual life insurance company and known as
State Mutual Life Assurance Company of America, converted to a stock life
insurance company and adopted its present name on October 16, 1995. First
Allmerica is among the five oldest life insurance companies in America. As of
December 31, 1999, First Allmerica and its subsidiaries (including the Company)
had over $25 billion in combined assets and over $43 billion in life insurance
in force.


Currently, 37 Sub-Accounts of the Variable Account are available under the
Kemper Gateway Custom contract (the "Contract"). Each Sub-Account invests in a
corresponding investment portfolio of Kemper Variable Series ("KVS"), Scudder
Variable Life Investment Fund ("Scudder VLIF"), Dreyfus Investment Portfolios,
The Dreyfus Socially Responsible Growth Fund, Inc., The Alger American Fund
("Alger') or Warburg Pincus Trust, open-end, registered management investment
companies.


Twenty-six different portfolios of KVS are available under the Contract: the
Kemper Aggressive Growth Portfolio, Kemper Technology Growth Portfolio, KVS
Dreman Financial Services Portfolio


                                       2

<PAGE>


(formerly Kemper-Dreman Financial Services Portfolio), Kemper Small Cap Growth
Portfolio, Kemper Small Cap Value Portfolio, KVS Dreman High Return Equity
Portfolio (formerly Kemper-Dreman High Return Equity Portfolio), Kemper
International Portfolio, Kemper International Growth and Income Portfolio,
Kemper Global Blue Chip Portfolio, Kemper Growth Portfolio, Kemper Contrarian
Value Portfolio, Kemper Blue Chip Portfolio, Kemper Value+Growth Portfolio, KVS
Index 500 Portfolio (formerly Kemper Index 500 Portfolio), Kemper Horizon 20+
Portfolio, Kemper Total Return Portfolio, Kemper Horizon 10+ Portfolio, Kemper
High Yield Portfolio, Kemper Horizon 5 Portfolio, Kemper Global Income
Portfolio, Kemper Investment Grade Bond Portfolio, Kemper Government Securities
Portfolio, Kemper Money Market Portfolio KVS Growth Opportunities Portfolio, KVS
Growth And Income Portfolio and KVS Focused Large Cap Growth Portfolio. Five
portfolios of Scudder VLIF are available under the Contract: the Scudder 21st
Century Growth Portfolio, Scudder International Portfolio, Scudder Global
Discovery Portfolio, Scudder Capital Growth Portfolio, and Scudder Growth and
Income Portfolio. One portfolio of Dreyfus Investment Portfolios is available
under the Contract: the Dreyfus MidCap Stock Portfolio. One portfolio of The
Dreyfus Socially Responsible Growth Fund, Inc. is available under the Contract:
the Dreyfus Socially Responsible Growth Fund. Two portfolios of Alger are
available under the Contract: the Alger American Leveraged AllCap Portfolio and
the Alger American Balanced Portfolio. Two portfolios of Warburg Pincus Trust
are available under the Contract: the Warburg Pincus Emerging Markets Portfolio
and the Warburg Pincus Global Post-Venture Capital Portfolio (together, the
"Underlying Portfolios"). Each Underlying Portfolio available under the Contract
has its own investment objectives and certain attendant risks.


                     TAXATION OF THE CONTRACT, THE VARIABLE
                             ACCOUNT AND THE COMPANY

The Company currently imposes no charge for taxes payable in connection with the
Contract, other than for state and local premium taxes and similar assessments
when applicable. The Company reserves the right to impose a charge for any other
taxes that may become payable in the future in connection with the Contract or
the Variable Account.

The Variable Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Internal Revenue Code (the "Code"), and files a consolidated
tax return with its parent and affiliated companies.

The Company reserves the right to make a charge for any effect which the income,
assets or existence of the Contract or the Variable Account may have upon its
tax. Such charge for taxes, if any, will be assessed on a fair and equitable
basis in order to preserve equity among classes of Contract Owners ("Owners").
The Variable Account presently is not subject to tax.

                                    SERVICES

CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Variable Account. Underlying Portfolio shares owned by the Sub-Accounts are held
on an open account basis. A Sub-Account's ownership of Underlying Portfolio
shares is reflected on the records of the Underlying Portfolio, and is not
represented by any transferable stock certificates.

EXPERTS. The financial statements of the Company as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999, and
the financial statements of Separate Account KGC of the Company as of December
31, 1999 and for the periods indicated, included in this Statement of Additional
Information constituting part of this Registration Statement, have been so
included in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.


                                       3

<PAGE>

The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Contract.



                                  UNDERWRITERS

Allmerica Investments, Inc. ("Allmerica Investments"), a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. ("NASD"), serves as principal
underwriter and general distributor for the Contract pursuant to a contract with
Allmerica Investments, the Company and the Variable Account. Allmerica
Investments distributes the Contract on a best-efforts basis. Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653, was
organized in 1969 as a wholly owned subsidiary of First Allmerica, and is an
indirectly wholly owned subsidiary of First Allmerica.

The Contract offered by this Prospectus is offered continuously, and may be
purchased from certain independent broker-dealers which are NASD members and
whose representatives are authorized by applicable law to sell variable annuity
contracts.

All persons selling the Contract are required to be licensed by their respective
state insurance authorities for the sale of variable annuity contracts. The
Company pays commissions, not to exceed 7.0% of purchase payments, to
broker-dealers that sell the Contract. To the extent permitted by NASD rules,
promotional incentives or payments also may be provided to such entities based
on sales volumes, the assumption of wholesaling functions or other sales-related
criteria. Additional payments may be made for other services not directly
related to the sale of the Contract, including the recruitment and training of
personnel, production of promotional literature and similar services. A
Promotional Allowance of 1.0% of total payments is paid to Kemper Distributors,
Inc. for administrative and support services with respect to the distribution of
the contracts; however, Kemper Distributors, Inc. may direct the Company to pay
a portion of said allowance to broker-dealers who provide support services
directly.

Commissions paid by the Company do not result in any charge to Owners or to the
Variable Account in addition to the charges described under "CHARGES AND
DEDUCTIONS" in the Prospectus. The Company intends to recoup the commission and
other sales expense through a combination of anticipated surrender, withdrawal
and/or annuitization charges, profits from the Company's general account,
including the investment earnings on amounts allocated to accumulate on a fixed
basis in excess of the interest credited on fixed accumulations by the Company,
and the profit, if any, from the mortality and expense risk charge.

The aggregate amounts of commissions paid to Allmerica Investments for sales of
all contracts funded by Separate Account KG (including contracts not described
in the Prospectus) for the years 1997, 1998 and 1999 were $27,393,518,
$52,668,438 and $37,629,063.


No commissions were retained by Allmerica Investments for sales of all contracts
funded by Separate Account KG (including contracts not described in the
Prospectus) for the years 1997, 1998 and 1999.


                            ANNUITY BENEFIT PAYMENTS

The method by which the Accumulated Value under the Contract is determined is
described in detail under "Computation of Values" in the Prospectus.


                                       4


<PAGE>


ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the assets of a Sub-Account at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit Value at the end of the current Valuation Period would be
calculated as follows:
<TABLE>

<S>                                                                <C>
(1) Accumulation Unit Value -- Previous Valuation Period............$ 1.135000

(2) Value of Assets -- Beginning of Valuation Period................$5,000,000

(3) Excess of Investment Income and Net Gains Over Capital Losses.......1,675

(4) Adjusted Gross Investment Rate for the
     Valuation Period (3) divided by (2)............................0.000335

(5) Annual Charge (one-day equivalent of 1.10% per annum)............0.000030

(6) Net Investment Rate (4) - (5)....................................0.000305

(7) Net Investment Factor 1.000000 + (6).............................1.000305

(8) Accumulation Unit Value -- Current Period (1) x (7)............$ 1.135346
</TABLE>

Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
Accumulation Unit Value at the end of the Valuation Period would have been
$1.134586.

The method for determining the amount of annuity benefit payments is described
in detail under "Annuity Benefit Payments" in the Prospectus.

ILLUSTRATION OF VARIABLE ANNUITY BENEFIT PAYMENT CALCULATION USING HYPOTHETICAL
EXAMPLE. The determination of the Annuity Unit value and the variable annuity
benefit payment may be illustrated by the following hypothetical example: Assume
an Annuitant has 40,000 Accumulation Units in a Separate Account, and that the
value of an Accumulation Unit on the Valuation Date used to determine the amount
of the first variable annuity benefit payment is $1.120000. Therefore, the
Accumulated Value of the Contract is $44,800 (40,000 x $1.120000). Assume also
that the Owner elects an option for which the first monthly payment is $6.57 per
$1,000 of Accumulated Value applied. Assuming no premium tax or surrender
charge, the first monthly payment would be $44.80 ($44,800 divided by $1,000)
multiplied by $6.57, or $294.34.


Next, assume that the Annuity Unit value for the assumed interest rate of 3.5%
per annum, for the Valuation Date as of which the first payment was calculated,
was $1.100000. Annuity Unit values will not be the same as Accumulation Unit
Values because the former reflect the 3.5% assumed interest rate used in the
annuity rate calculations. When the Annuity Unit value of $1.100000 is divided
into the first monthly payment, the number of Annuity Units represented by that
payment is determined to be 267.5818. The value of this same number of Annuity
Units will be paid in each subsequent month under most options. Assume further
that the net investment factor for the Valuation Period applicable to the next
annuity benefit payment is 1.000190. Multiplying this factor by .999906 (the
one-day adjustment factor for the assumed interest rate of 3.5% per annum)
produces a factor of 1.000096. This then is multiplied by the Annuity Unit value
on the immediately preceding Valuation



                                       5
<PAGE>


Date (assumed here to be $1.105000). The result is an Annuity Unit value of
$1.105106 for the current monthly payment. The current monthly payment then is
determined by multiplying the number of Annuity Units by the current Annuity
Unit value, or 267.5818 times $1.105106, which produces a current monthly
payment of $295.71.

METHOD FOR DETERMINING COMMUTED VALUE ON VARIABLE ANNUITY PERIOD CERTAIN
OPTIONS AND ILLUSTRATION USING HYPOTHETICAL EXAMPLE. The Contract offers both
commutable and non-commutable fixed period certain annuity options and
commutable variable period certain options. A commutable option gives the
Annuitant the right to exchange any remaining payments for a lump sum payment
based on the commuted value. The commuted value is the present value of
remaining payments calculated at 3.5% interest. The determination of the
commuted value may be illustrated by the following hypothetical example.

Assume a commutable period certain option is elected. The number of Annuity
Units upon which each payment is based would be calculated using the Surrender
Value less any premium tax rather than the Accumulated Value. Assume this
results in 250.0000 Annuity Units. Assume the commuted value is requested with
60 monthly payments remaining and a current Annuity Unit Value of $1.200000.
Based on these assumptions, the dollar amount of remaining payments would be
$300 a month for 60 months. The present value at 3.5% of all remaining payments
would be $16.560.72.

                                 EXCHANGE OFFER

A.  VARIABLE ANNUITY CONTRACT EXCHANGE OFFER

The Company will permit Owners of certain variable annuity contracts, described
below, to exchange their contracts at net asset value for the variable annuity
Contract described in the Prospectus, which is issued on Form No. A3025-96 or a
state variation thereof ("new Contract"). The Company reserves the right to
suspend this exchange offer at any time.

This offer applies to the exchange of the Company's Elective Payment Variable
Annuity contracts issued on Forms A3012-79 and A3013-79 ("Elective Payment
Exchanged Contract," all such contracts having numbers with a "JQ" or "JN"
prefix), and Single Payment Variable Annuity contracts issued on Forms A3014-79
and A3015-79 ("Single Payment Exchanged Contract," all such contracts having
numbers with a "KQ" or "KN" prefix). These contracts are referred to
collectively as the "Exchanged Contract." To effect an exchange, the Company
should receive (1) a completed application for the new Contract, (2) the
contract being exchanged, and (3) a signed Letter of Awareness.

SURRENDER CHARGE COMPUTATION. No surrender charge otherwise applicable to the
Exchanged Contract will be assessed as a result of the exchange. Instead, the
surrender charge under the new Contract will be computed as if the payments that
had been made to the Exchanged Contract were made to the new Contract as of the
date of issue of the Exchanged Contract. Any additional payments to the new
Contract after the exchange will be subject to the surrender charge computation
outlined in the new Contract and the Prospectus; i.e., the charge will be
computed based on the number of years that the additional payment (or portion of
that payment) that is being withdrawn has been credited to the new Contract.

SUMMARY OF DIFFERENCES BETWEEN THE EXCHANGED CONTRACT AND THE NEW CONTRACT. The
new Contract and the Exchanged Contract differ substantially as summarized
below. There may be additional differences important to a person considering an
exchange, and the Prospectuses for the new Contract and the Exchanged Contract
should be reviewed carefully before the exchange request is submitted to the
Company.

SURRENDER CHARGE. The surrender charge under the new Contract, as described in
the Prospectus, imposes higher charge percentages against the excess amount
redeemed than the Single Payment


                                       6


<PAGE>

Exchanged Contract. In addition, if an Elective Payment Exchanged Contract was
issued more than nine years before the date of an exchange under this offer,
additional payments to the Exchanged Contract would not be subject to a
surrender charge. New payments to the new Contract may be subject to a charge if
withdrawn prior to the surrender charge period described in the Prospectus.

CONTRACT FEE. Under the new Contract, the Company deducts a $35 fee on each
Contract anniversary and at surrender if the Accumulated Value is less than
$50,000. This fee is waived if the new Contract is part of a 401(k) plan. No
Contract fees are charged on the Single Payment Exchanged Contract. A $9
semi-annual fee is charged on the Elective Payment Exchanged Contract if the
Accumulated Value is $10,000 or less.

VARIABLE ACCOUNT ADMINISTRATIVE EXPENSE CHARGE. Under the new Contract, the
Company assesses each Sub-Account a daily administrative expense charge at an
annual rate of 0.15% of the average daily net assets of the Sub-Account. No
administrative expense charge based on a percentage of Sub-Account assets is
imposed under the Exchanged Contract.

TRANSFER CHARGE. No charge for transfers is imposed under the Exchanged
Contract. Currently, no transfer charge is imposed under the new Contract;
however, the Company reserves the right to assess a charge, not to exceed $25,
for each transfer after the twelfth in any Contract year.

DEATH BENEFIT. The Exchanged Contract offers a death benefit that is guaranteed
to be the greater of a Contract's Accumulated Value or gross payments made (less
withdrawals). At the time an exchange is processed, the Accumulated Value of the
Exchanged Contract becomes the "payment" for the new Contract. Therefore, prior
purchase payments made under the Exchanged Contract (if higher than the
Exchanged Contract's Accumulated Value) no longer are a basis for determining
the death benefit under the new Contract. Consequently, whether the initial
minimum death benefit under the new Contract is greater than, equal to, or less
than, the death benefit of the Exchanged Contract depends on whether the
Accumulated Value transferred to the new Contract is greater than, equal to, or
less than, the gross payments under the Exchanged Contract. In addition, under
the Exchanged Contract, the amount of any prior withdrawals is subtracted from
the value of the death benefit. Under the new Contract, where there is a
reduction in the death benefit amount due to a prior withdrawal, the value of
the death benefit is reduced in the same proportion that the new Contract's
Accumulated Value was reduced on the date of the withdrawal.

ANNUITY TABLES. The Exchanged Contract contains higher guaranteed annuity rates.

INVESTMENTS. Accumulated Values and payments under the new Contract may be
allocated to significantly more investment options than are available under the
Exchanged Contract.

B.  FIXED ANNUITY EXCHANGE OFFER.

This exchange offer also applies to all fixed annuity contracts issued by the
Company. A fixed annuity contract to which this exchange offer applies may be
exchanged at net asset value for the Contract described in this Prospectus,
subject to the same provisions for effecting the exchange and for applying the
new Contract's surrender charge as described above for variable annuity
contracts. This Prospectus should be read carefully before making such exchange.
Unlike a fixed annuity, the new Contract's value is not guaranteed, and will
vary depending on the investment performance of the Underlying Portfolios to
which it is allocated. The new Contract has a different charge structure than a
fixed annuity contract, which includes not only a surrender charge that may vary
from that of the class of contracts to which the exchanged fixed contract
belongs, but also Contract fees, mortality and expense risk charges (for the
Company's assumption of certain mortality and expense risks), administrative
expense charges, transfer charges (for transfers permitted among Sub-Accounts
and the Fixed Account), and expenses incurred by the Underlying Portfolios.
Additionally, the interest rates


                                       7

<PAGE>


offered under the Fixed Account of the new Contract and the Annuity Tables for
determining minimum annuity benefit payments may be different from those offered
under the exchanged fixed contract.

C.  EXERCISE OF "FREE-LOOK PROVISION" AFTER ANY EXCHANGE

Persons who, under the terms of this exchange offer, exchange their contract for
the new Contract and subsequently cancel the new Contract within the time
permitted, as described in the sections of this Prospectus captioned "Right to
Cancel Individual Retirement Annuity" and "Right to Cancel All Other Contracts,"
will have their exchanged contract automatically reinstated as of the date of
cancellation. The refunded amount will be applied as the new current Accumulated
Value under the reinstated contract, which may be more or less than it would
have been had no exchange and reinstatement occurred. The refunded amount will
be allocated initially among the Fixed Account and Sub-Accounts of the
reinstated contract in the same proportion that the value in the Fixed Account
and the value in each Sub-Account bore to the transferred Accumulated Value on
the date of the exchange of the contract for the new Contract. For purposes of
calculating any surrender charge under the reinstated contract, the reinstated
contract will be deemed to have been issued and to have received past purchase
payments as if there had been no exchange.

           ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAM


To the extent permitted by law, the Company reserves the right to offer an
Enhanced Automatic Transfer (Dollar Cost Averaging) Program from time to time.
If an Owner elects automatic transfers while the enhanced program is in effect,
the Company will credit an enhanced interest rate to eligible payments made to
the Enhanced Automatic Transfer Program. Eligible payments:


     -    must be new payments to the Contract, including the initial payment,


     -    must be allocated to the Fixed Account, which will be the source
          account,


     -    must be automatically transferred out of the Fixed Account to one or
          more Sub-Accounts over a specified time period and


     -    will receive the enhanced rate while they remain in the Fixed Account.


Any new eligible payments made to an existing Enhanced Automatic Transfer
program will start a new Enhanced Automatic Transfer program. In this case, the
following rules apply:


     -    The money remaining in the Fixed Account from the original program
          will be combined with the new eligible payment to determine the new
          monthly transfer amount.


     -    The new monthly transfer amount will be transferred out of the Fixed
          Account in accordance with the allocation instructions specified for
          the new payment. If no allocation instructions are specified with the
          new eligible payment, the allocation instructions for the original
          eligible payment will be used. The new monthly transfer amount will be
          transferred out of the Fixed Account on a LIFO (last-in, first-out
          basis) to the selected Sub-Accounts on the date designated for the new
          eligible payment.


     -    A new enhanced interest rate may be applied to the new eligible
          payment, while the money remaining in the Fixed Account from the
          original program will continue to receive the enhanced rate in effect
          at the time the older payment was received.

                             PERFORMANCE INFORMATION


                                       8

<PAGE>


Performance information for a Sub-Account may be compared, in reports and
promotional literature, to certain indices described in the Prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other material information on various
topics of interest to Owners and prospective Owners. These topics may include
the relationship between sectors of the economy and the economy as a whole and
its effect on various securities markets, investment strategies and techniques
(such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer and account rebalancing), the advantages and
disadvantages of investing in tax-deferred and taxable investments, customer
profiles and hypothetical purchase and investment scenarios, financial
management tax and retirement planning, investment alternatives to certificates
of deposit and other financial instruments, including comparisons between the
Contract, and the characteristics of and market for such financial instruments.
Total return data and supplemental total return information may be advertised
based on a period of time that an Underlying Portfolio and/or an underlying
Sub-Account have been in existence, even if longer than the period of time that
the Contract has been offered. The results for any period prior to a Contract
being offered will be calculated as if the Contract had been offered during that
period, with all charges assumed to be those applicable to the Contract.

TOTAL RETURN

"Total Return" refers to the total of the income generated by an investment in a
Sub-Account and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specified period, reduced
by the Sub-Account's asset charge and any applicable surrender charge which
would be assessed upon complete withdrawal of the investment.

Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission (the "SEC"). The quotations are
computed by finding the average annual compounded rates of return over the
specified periods that would equate the initial amount invested to the ending
redeemable values, according to the following formula:

                        (n)
                 P(1 + T)  =    ERV

            Where:     P   =    a hypothetical initial payment to the Variable
                                Account of $1,000

                       T   =    average annual total return

                       n   =    number of years

                    ERV    =    the ending redeemable value of the $1,000
                                payment at the end of the specified period

The calculation of Total Return includes the annual charges against the assets
of the Sub-Account. This charge is 1.10% on an annual basis. The calculation of
ending redeemable value assumes (1) the Contract was issued at the beginning of
the period, and (2) a complete surrender of the Contract at the end of the
period. The deduction of the surrender charge, if any, applicable at the end of
the period is included in the calculation, according to the following schedule:

<TABLE>
<CAPTION>

              YEARS FROM DATE OF        CHARGE AS PERCENTAGE OF NEW
              PAYMENT TO DATE OF                 PURCHASE
                  WITHDRAWAL                PAYMENTS WITHDRAWN*
                  ----------                -------------------
                  <S>                               <C>
                      0-1                           7%
                       2                            6%
                       3                            5%


                                       9

<PAGE>

                  <S>                               <C>
                       4                            4%
                       5                            3%
                       6                            2%
                  Thereafter                        0%
</TABLE>

* Subject to the maximum limit described in the Prospectus.

No surrender charge is deducted upon expiration of the periods specified above.
In each calendar year, a certain amount (withdrawal without surrender charge
amount, as described in the Prospectus) is not subject to the surrender charge.

The calculations of Total Return reflect the deduction of the $35 annual
Contract fee.

SUPPLEMENTAL TOTAL RETURN INFORMATION

The Supplemental Total Return Information in this section refers to the total of
the income generated by an investment in a Sub-Account and of the changes of
value of the principal invested (due to realized and unrealized capital gains or
losses) for a specified period reduced by the Sub-Account's asset charges. It is
assumed, however, that the investment is NOT withdrawn at the end of each
period.

The quotations of Supplemental Total Return are computed by finding the average
annual compounded rates of return over the specified periods that would equate
the initial amount invested to the ending values, according to the following
formula:
                       (n)
                P(1 + T) =   EV

         Where:     P    =   a hypothetical initial payment to the Variable
                             Account of $1,000

                    T    =   average annual total return

                    n    =   number of years

                   EV    =   the ending value of the $1,000 payment at the end
                             of the specified period

The calculation of Supplemental Total Return reflects the 1.10% annual charge
against the assets of the Sub-Accounts. The ending value assumes that the
contract is NOT withdrawn at the end of the specified period, and therefore
there is no adjustment for the surrender charge that would be applicable if the
Contract was surrendered at the end of the period. The calculation of
supplemental total return does not include the deduction of the $35 annual
Contract fee.


                                       10


<PAGE>



                               PERFORMANCE TABLES
                       ALLMERICA FINANCIAL LIFE INSURANCE
                               AND ANNUITY COMPANY

                                    TABLE 1A
                   AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
                      FOR PERIODS ENDING DECEMBER 31, 1999
                         SINCE INCEPTION OF SUB-ACCOUNT
                (ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)

<TABLE>
<CAPTION>

                                                                                      FOR              SINCE
SUB-ACCOUNT INVESTING IN                                        SUB-ACCOUNT       YEAR ENDED        INCEPTION OF
UNDERLYING PORTFOLIO                                          INCEPTION DATE       12/31/99         SUB-ACCOUNT
- --------------------                                          --------------       --------         -----------
<S>                                                               <C>               <C>                 <C>
Kemper Aggressive Growth....................................      5/3/99              N/A              31.87%
Kemper Technology Growth....................................      5/3/99              N/A              69.41%
KVS Dreman Financial Services...............................      5/4/98            -11.72%            -8.40%
Kemper Small Cap Growth.....................................      1/8/97             24.92%            24.94%
Kemper Small Cap Value......................................      1/8/97             -4.78%             0.25%
KVS Dreman High Return Equity...............................      5/5/98            -17.45%            -8.95%
Kemper International........................................      1/14/97            35.20%            17.99%
Kemper New Europe...........................................      5/19/98             6.12%            -1.67%
Kemper Global Blue Chip.....................................      6/4/98             17.85%            12.02%
Kemper Growth...............................................      1/29/97            27.32%            20.93%
Kemper Contrarian Value.....................................      1/29/97           -16.94%             8.04%
Kemper Blue Chip............................................      5/1/97             16.31%            15.61%
Kemper Value+Growth.........................................      1/28/97             8.13%            17.12%
KVS Index 500...............................................      9/1/99              N/A               2.66%
Kemper Horizon 20+..........................................      2/6/97              1.55%            11.04%
Kemper Total Return.........................................      1/28/97             6.57%            13.35%
Kemper Horizon 10+..........................................      2/18/97             0.74%             8.34%
Kemper High Yield...........................................      1/14/97            -5.36%             1.98%
Kemper Horizon 5............................................      3/19/97            -2.50%             6.65%
Kemper Strategic Income.....................................      5/1/97            -12.45%            -0.05%
Kemper Investment Grade Bond................................      2/12/97            -8.98%             1.88%
Kemper Government Securities................................      3/14/97            -6.41%             2.85%
Kemper Money Market.........................................      1/3/97             -2.55%             2.39%
KVS Focused Large Cap Growth................................     10/29/99             N/A              21.16%
KVS Growth Opportunities....................................     10/29/99             N/A               9.30%
KVS Growth And Income.......................................     10/29/99             N/A               7.89%
Scudder 21st Century Growth.................................        N/A               N/A               N/A
Scudder International.......................................      5/12/98            43.15%            24.36%
Scudder Global Discovery....................................      5/26/98            54.29%            31.72%
Scudder Capital Growth......................................      5/12/98            25.78%            19.42%
Scudder Growth and Income...................................      5/18/98            -1.34%            -3.28%
Alger American Leveraged AllCap.............................     11/15/99             N/A              12.73%
Alger American Balanced.....................................     11/15/99             N/A              -0.46%
Dreyfus MidCap Stock........................................     11/15/99             N/A              -1.37%
Dreyfus Socially Responsible Growth.........................     11/15/99             N/A               2.15%
Warburg Pincus Emerging Markets............................         N/A               N/A               N/A
Warburg Pincus Global Post-Venture Capital.................         N/A               N/A               N/A
</TABLE>

                                       11


<PAGE>

                                    TABLE 1B
                           SUPPLEMENTAL AVERAGE ANNUAL
                          TOTAL RETURNS OF SUB-ACCOUNT
                      FOR PERIODS ENDING DECEMBER 31, 1999
                         SINCE INCEPTION OF SUB-ACCOUNT
         (ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)

<TABLE>
<CAPTION>
                                                                                       FOR              SINCE
SUB-ACCOUNT INVESTING IN                                       SUB-ACCOUNT         YEAR ENDED        INCEPTION OF
UNDERLYING PORTFOLIO                                          INCEPTION DATE        12/31/99         SUB-ACCOUNT
- --------------------                                          --------------        --------         -----------
<S>                                                           <C>                  <C>               <C>
Kemper Aggressive Growth..................................          5/3/99             N/A              38.87%
Kemper Technology Growth..................................          5/3/99             N/A              76.41%
KVS Dreman Financial Services.............................          5/4/98            -6.10%            -5.42%
Kemper Small Cap Growth...................................          1/8/97            33.09%            26.99%
Kemper Small Cap Value....................................          1/8/97             1.67%             2.13%
KVS Dreman High Return Equity.............................          5/5/98           -12.13%            -5.92%
Kemper International......................................         1/14/97            44.11%            20.08%
Kemper New Europe.........................................         5/19/98            12.84%             1.57%
Kemper Global Blue Chip...................................          6/4/98            25.31%            15.81%
Kemper Growth.............................................         1/29/97            35.62%            22.96%
Kemper Contrarian Value...................................         1/29/97           -11.20%            10.07%
Kemper Blue Chip..........................................          5/1/97            23.86%            17.68%
Kemper Value+Growth.......................................         1/28/97            15.24%            19.10%
KVS Index 500.............................................          9/1/99             N/A               9.15%
Kemper Horizon 20+........................................          2/6/97             8.05%            12.79%
Kemper Total Return.......................................         1/28/97            13.55%            15.26%
Kemper Horizon 10+........................................         2/18/97             7.19%            10.06%
Kemper High Yield.........................................         1/14/97             1.03%             3.87%
Kemper Horizon 5..........................................         3/19/97             3.71%             8.36%
Kemper Strategic Income...................................          5/1/97            -6.89%             1.62%
Kemper Investment Grade Bond..............................         2/12/97            -3.14%             3.51%
Kemper Government Securities..............................         3/14/97            -0.42%             4.52%
Kemper Money Market.......................................          1/3/97             3.68%             3.96%
KVS Focused Large Cap Growth..............................        10/29/99             N/A              28.16%
KVS Growth Opportunities..................................        10/29/99             N/A              16.21%
KVS Growth And Income.....................................        10/29/99             N/A              14.72%
Scudder 21st Century Growth...............................           N/A               N/A               N/A
Scudder International.....................................         5/12/98            52.82%            28.66%
Scudder Global Discovery..................................         5/26/98            64.07%            36.13%
Scudder Capital Growth....................................         5/12/98            33.75%            23.32%
Scudder Growth and Income.................................         5/18/98             4.91%            -0.09%
Alger American Leveraged AllCap...........................        11/15/99             N/A              19.73%
Alger American Balanced...................................        11/15/99             N/A               5.84%
Dreyfus MidCap Stock......................................        11/15/99             N/A               4.87%
Dreyfus Socially Responsible Growth.......................        11/15/99             N/A               8.61%
Warburg Pincus Emerging Markets..........................            N/A               N/A               N/A
Warburg Pincus Global Post-Venture Capital...............            N/A               N/A               N/A
</TABLE>


                                       12

<PAGE>

                                    TABLE 2A
                   AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
                      FOR PERIODS ENDING DECEMBER 31, 1999
                     SINCE INCEPTION OF UNDERLYING PORTFOLIO
                  (ASSUMING COMPLETE WITHDRAWAL OF INVESTMENT)


<TABLE>
<CAPTION>
                                                    UNDERLYING
                                                    PORTFOLIO
                                                    INCEPTION          FOR                            10 YEARS
SUB-ACCOUNT INVESTING IN                            ---------        YEAR ENDED                       (OR SINCE
UNDERLYING PORTFOLIO                                  DATE            12/31/99       5 YEARS     INCEPTION IF LESS)
- ------------------------------------------------    ---------         --------       -------     ------------------
<S>                                                 <C>              <C>             <C>         <C>
Kemper Aggressive Growth........................      5/3/99             N/A           N/A              31.87%
Kemper Technology Growth........................      5/3/99             N/A           N/A              69.41%
KVS Dreman Financial Services...................      5/4/98           -11.72%         N/A              -8.40%
Kemper Small Cap Growth.........................      5/2/94            24.92%        26.68%            24.04%
Kemper Small Cap Value..........................      5/1/96            -4.78%         N/A               0.89%
KVS Dreman High Return Equity...................      5/4/98           -17.45%         N/A              -9.34%
Kemper International............................      1/6/92            35.20%        15.95%            12.83%
Kemper New Europe...............................      5/5/98             6.12%         N/A              -1.88%
Kemper Global Blue Chip.........................      5/5/98            17.85%         N/A               9.12%
Kemper Growth...................................     12/9/83            27.32%        23.18%            17.47%
Kemper Contrarian Value.........................      5/1/96           -16.94%         N/A              11.70%
Kemper Blue Chip................................      5/1/97            16.31%         N/A              15.61%
Kemper Value+Growth.............................      5/1/96             8.13%         N/A              18.35%
KVS Index 500...................................      9/1/99             N/A           N/A               2.66%
Kemper Horizon 20+..............................      5/1/96             1.55%         N/A              13.47%
Kemper Total Return.............................      4/6/82             6.57%        16.39%            11.91%
Kemper Horizon 10+..............................      5/1/96             0.74%         N/A              10.72%
Kemper High Yield...............................      4/6/82            -5.36%         7.04%             9.12%
Kemper Horizon 5................................      5/1/96            -2.50%         N/A               7.80%
Kemper Strategic Income.........................      5/1/97           -12.45%         N/A              -0.05%
Kemper Investment Grade Bond....................      5/1/96            -8.98%         N/A               2.75%
Kemper Government Securities....................      9/3/87            -6.41%         5.70%             5.91%
Kemper Money Market.............................      4/6/82            -2.55%         3.41%             3.76%
KVS Focused Large Cap Growth....................     10/29/99            N/A           N/A              21.16%
KVS Growth Opportunities........................     10/29/99            N/A           N/A               9.30%
KVS Growth And Income...........................     10/29/99            N/A           N/A               7.89%
Scudder 21st Century Growth.....................      5/3/99             N/A           N/A              66.89%
Scudder International...........................      5/1/87            43.15%        18.53%            12.00%
Scudder Global Discovery........................      5/1/96            54.29%         N/A              22.79%
Scudder Capital Growth..........................     7/16/85            25.78%        26.38%            16.74%
Scudder Growth and Income.......................      5/2/94            -1.34%        17.03%            15.89%
Alger American Leveraged AllCap.................     1/25/95            69.12%         N/A              44.74%
Alger American Balanced.........................      9/5/89            20.81%        21.99%            12.37%
Dreyfus MidCap Stock............................      5/1/98             3.09%         N/A               0.24%
Dreyfus Socially Responsible Growth.............     10/7/93            21.66%        27.03%            22.75%
Warburg Pincus Emerging Markets.................     12/31/97           72.36%         N/A              18.62%
Warburg Pincus Global Post-Venture Capital......     9/30/96            54.14%         N/A              19.65%
</TABLE>

                                       13


<PAGE>

                                    TABLE 2B
                           SUPPLEMENTAL AVERAGE ANNUAL
                          TOTAL RETURNS OF SUB-ACCOUNT
                      FOR PERIODS ENDING DECEMBER 31, 1999
                     SINCE INCEPTION OF UNDERLYING PORTFOLIO
           (ASSUMING NO WITHDRAWAL OF INVESTMENT AND NO CONTRACT FEES)

<TABLE>
<CAPTION>
                                                     UNDERLYING
                                                     PORTFOLIO
                                                     INCEPTION          FOR                           10 YEARS
SUB-ACCOUNT INVESTING IN                            -----------      YEAR ENDED                       (OR SINCE
UNDERLYING PORTFOLIO                                   DATE           12/31/99       5 YEARS     INCEPTION IF LESS)
- --------------------                                -----------       --------       -------     ------------------
<S>                                                 <C>              <C>             <C>         <C>
Kemper Aggressive Growth.........................     5/3/99             N/A           N/A              38.87%
Kemper Technology Growth.........................     5/3/99             N/A           N/A              76.41%
KVS Dreman Financial Services....................     5/4/98            -6.10%         N/A              -5.42%
Kemper Small Cap Growth..........................     5/2/94            33.09%        27.51%            24.61%
Kemper Small Cap Value...........................     5/1/96             1.67%         N/A               2.29%
KVS Dreman High Return Equity....................     5/4/98           -12.13%         N/A              -6.33%
Kemper International.............................     1/6/92            44.11%        16.90%            13.17%
Kemper New Europe................................     5/5/98            12.84%         N/A               1.28%
Kemper Global Blue Chip..........................     5/5/98            25.31%         N/A              12.63%
Kemper Growth....................................     12/9/83           35.62%        24.00%            17.64%
Kemper Contrarian Value..........................     5/1/96           -11.20%         N/A              13.16%
Kemper Blue Chip.................................     5/1/97            23.86%         N/A              17.68%
Kemper Value+Growth..............................     5/1/96            15.24%         N/A              19.69%
KVS Index 500....................................     9/1/99             N/A           N/A               9.15%
Kemper Horizon 20+...............................     5/1/96             8.05%         N/A              14.60%
Kemper Total Return..............................     4/6/82            13.55%        17.16%            12.07%
Kemper Horizon 10+...............................     5/1/96             7.19%         N/A              11.83%
Kemper High Yield................................     4/6/82             1.03%         7.95%             9.42%
Kemper Horizon 5.................................     5/1/96             3.71%         N/A               8.86%
Kemper Strategic Income..........................     5/1/97            -6.89%         N/A               1.62%
Kemper Investment Grade Bond.....................     5/1/96            -3.14%         N/A               3.80%
Kemper Government Securities.....................     9/3/87            -0.42%         6.28%             5.94%
Kemper Money Market..............................     4/6/82             3.68%         4.05%             3.86%
KVS Focused Large Cap Growth.....................    10/29/99            N/A           N/A              28.16%
KVS Growth Opportunities.........................    10/29/99            N/A           N/A              16.21%
KVS Growth And Income............................    10/29/99            N/A           N/A              14.72%
Scudder 21st Century Growth......................     5/3/99             N/A           N/A              73.90%
Scudder International............................     5/1/87            52.82%        19.21%            12.00%
Scudder Global Discovery.........................     5/1/96            64.07%         N/A              23.96%
Scudder Capital Growth...........................     7/16/85           33.75%        27.04%            16.74%
Scudder Growth and Income........................     5/2/94             4.91%        17.64%            16.24%
Alger American Leveraged AllCap..................     1/25/95           76.12%         N/A              44.88%
Alger American Balanced..........................     9/5/89            27.81%        22.26%            12.37%
Dreyfus MidCap Stock.............................     5/1/98             9.61%         N/A               3.44%
Dreyfus Socially Responsible Growth..............     10/7/93           28.66%        27.26%            22.75%
Warburg Pincus Emerging Markets.................     12/31/97           79.37%         N/A              21.13%
Warburg Pincus Global Post-Venture Capital......      9/30/96           61.15%         N/A              20.68%
</TABLE>


YIELD AND EFFECTIVE YIELD -- THE MONEY MARKET SUB-ACCOUNT

Set forth below is yield and effective yield information for the Money Market
Sub-Account for the seven-day period ended December 31, 1999:

                                       14


<PAGE>

<TABLE>
         <S>                                          <C>
         Yield                                        5.02%
         Effective Yield                              5.15%
</TABLE>

The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the SEC. Under those methods, the yield quotation is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit of the Sub-Account at the beginning of the period, dividing
the difference by the value of the account at the beginning of the same period
to obtain the base period return, and then multiplying the return for a
seven-day base period by (365/7), with the resulting yield carried to the
nearest hundredth of one percent.

The Money Market Sub-Account computes effective yield by compounding the
unannualized base period return by using the formula:
                                                   (365/7)
         Effective Yield = [(base period return + 1)      ] - 1

The calculations of yield and effective yield reflect the $35 Contract fee.

                            TAX-DEFERRED ACCUMULATION

                           NON-QUALIFIED                         CONVENTIONAL
                          ANNUITY CONTRACT                       SAVINGS PLAN

                           AFTER-TAX CONTRIBUTIONS AND
                              TAX-DEFERRED EARNINGS
                              ---------------------
<TABLE>
<CAPTION>

                                                       TAXABLE LUMP SUM        AFTER-TAX CONTRIBUTIONS
                              NO WITHDRAWALS           SUM WITHDRAWAL            AND TAXABLE EARNINGS
                              -------------            --------------            --------------------
<S>                              <C>                       <C>                         <C>
            Years 10             $107,946                  $86,448                     $81,693
            Years 20              233,048                  165,137                     133,476
            Years 30              503,133                  335,021                     218,082
</TABLE>

This chart compares the accumulation of a $50,000 initial investment into a
non-qualified annuity contract with a conventional savings plan. Contributions
to the non-qualified annuity contract and the conventional savings plan are made
after tax. Only the gain in the non-qualified annuity contract will be subject
to income tax in a taxable lump sum withdrawal. The chart assumes a 37.1%
federal marginal tax rate and an 8% annual return. The 37.1% federal marginal
tax is based on a marginal tax rate of 36%, representative of the target market,
adjusted to reflect a decrease of $3 of itemized deductions for each $100 of
income over $117,950. Tax rates are subject to change as is the tax-deferred
treatment of the Contract. Income on non-qualified annuity contracts is taxed as
ordinary income upon withdrawal. A 10% tax penalty may apply to early
withdrawals. See "FEDERAL TAX CONSIDERATIONS" in the Prospectus.

The chart does not reflect the following charges and expenses under the
Contract: 0.95% for mortality and expense risk; 0.15% administration charges; 7%
maximum surrender charge; and $35 annual Contract fee. The tax-deferred
accumulation would be reduced if these charges were reflected. No implication is
intended by the use of these assumptions that the return shown is guaranteed in
any way or that the return shown represents an average or expected rate of
return over the period of the Contract. (IMPORTANT -- THIS IS NOT AN
ILLUSTRATION OF YIELD OR RETURN.)


                                       15

<PAGE>


Unlike savings plans, contributions to non-qualified annuity contracts provide
tax-deferred treatment on earnings. In addition, contributions to tax-deferred
retirement annuities are not subject to current tax in the year of contribution.
When monies are received from a non-qualified annuity contract (and you have
many different options on how you receive your funds), they are subject to
income tax. At the time of receipt, if the person receiving the monies is
retired, not working or has additional tax exemptions, these monies may be taxed
at a lesser rate.

                              FINANCIAL STATEMENTS

Financial Statements are included for Allmerica Financial Life Insurance and
Annuity Company and for its Separate Account KGC.


                                       16

<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY

CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholder of
Allmerica Financial Life Insurance and Annuity Company

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, shareholder's equity
and cash flows present fairly, in all material respects, the financial position
of Allmerica Financial Life Insurance and Annuity Company (the "Company") at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
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 of these statements in accordance with
auditing standards generally accepted in the United States which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts
February 1, 2000
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
 FOR THE YEARS ENDED DECEMBER 31,
 (IN MILLIONS)                                     1999    1998    1997
 -------------                                     ----    ----    ----
 <S>                                              <C>     <C>     <C>
 REVENUES
     Premiums...................................  $  0.5  $  0.5  $ 22.8
     Universal life and investment product
       policy fees..............................   328.1   267.4   212.2
     Net investment income......................   150.2   151.3   164.2
     Net realized investment (losses) gains.....    (8.7)   20.0     2.9
     Other income...............................    36.9     0.6     1.4
                                                  ------  ------  ------
         Total revenues.........................   507.0   439.8   403.5
                                                  ------  ------  ------
 BENEFITS, LOSSES AND EXPENSES
     Policy benefits, claims and losses.........   173.6   153.9   187.8
     Policy acquisition expenses................    49.8    64.6     2.8
     Sales practice litigation..................    --      21.0    --
     Loss from cession of disability income
       business.................................    --      --      53.9
     Other operating expenses...................   151.3   104.1   101.3
                                                  ------  ------  ------
         Total benefits, losses and expenses....   374.7   343.6   345.8
                                                  ------  ------  ------
 Income before federal income taxes.............   132.3    96.2    57.7
                                                  ------  ------  ------
 FEDERAL INCOME TAX EXPENSE
     Current....................................    15.5    22.1    13.9
     Deferred...................................    30.5    11.8     7.1
                                                  ------  ------  ------
         Total federal income tax expense.......    46.0    33.9    21.0
                                                  ------  ------  ------
 Net income.....................................  $ 86.3  $ 62.3  $ 36.7
                                                  ======  ======  ======
</TABLE>

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                      F-1
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
 DECEMBER 31,
 (IN MILLIONS, EXCEPT PER SHARE DATA)                        1999       1998
 ------------------------------------                      ---------  ---------
 <S>                                                       <C>        <C>
 ASSETS
   Investments:
     Fixed maturities at fair value (amortized cost of
       $1,354.2 and $1,284.6)............................  $ 1,324.6  $ 1,330.4
     Equity securities at fair value (cost of $25.2 and
       $27.4)............................................       32.6       31.8
     Mortgage loans......................................      223.7      230.0
     Policy loans........................................      166.8      151.5
     Real estate and other long-term investments.........       25.1       23.6
                                                           ---------  ---------
         Total investments...............................    1,772.8    1,767.3
                                                           ---------  ---------
   Cash and cash equivalents.............................      132.9      217.9
   Accrued investment income.............................       36.0       33.5
   Deferred policy acquisition costs.....................    1,156.4      950.5
   Reinsurance receivable on paid and unpaid losses,
     benefits and unearned premiums......................      287.2      308.0
   Other assets..........................................       64.8       46.9
   Separate account assets...............................   14,527.9   11,020.4
                                                           ---------  ---------
         Total assets....................................  $17,978.0  $14,344.5
                                                           =========  =========
 LIABILITIES
   Policy liabilities and accruals:
     Future policy benefits..............................  $ 2,274.7  $ 2,284.8
     Outstanding claims and losses.......................       13.7       17.9
     Unearned premiums...................................        2.6        2.7
     Contractholder deposit funds and other policy
       liabilities.......................................       44.3       38.1
                                                           ---------  ---------
         Total policy liabilities and accruals...........    2,335.3    2,343.5
                                                           ---------  ---------
   Expenses and taxes payable............................      216.8      146.2
   Reinsurance premiums payable..........................       17.9       45.7
   Deferred federal income taxes.........................       94.8       78.8
   Separate account liabilities..........................   14,527.9   11,020.4
                                                           ---------  ---------
         Total liabilities...............................   17,192.7   13,634.6
                                                           ---------  ---------
   Contingencies (Note 12)
 SHAREHOLDER'S EQUITY
   Common stock, $1,000 par value, 10,000 shares
     authorized, 2,526 and 2,524 shares, issued and
     outstanding.........................................        2.5        2.5
   Additional paid-in capital............................      423.7      407.9
   Accumulated other comprehensive (loss) income.........       (2.6)      24.1
   Retained earnings.....................................      361.7      275.4
                                                           ---------  ---------
         Total shareholder's equity......................      785.3      709.9
                                                           ---------  ---------
         Total liabilities and shareholder's equity......  $17,978.0  $14,344.5
                                                           =========  =========
</TABLE>

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                      F-2
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

                CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY

<TABLE>
<CAPTION>
 FOR THE YEARS ENDED DECEMBER 31,
 (IN MILLIONS)                                     1999     1998     1997
 -------------                                    -------  -------  -------
 <S>                                              <C>      <C>      <C>
 COMMON STOCK...................................  $  2.5   $  2.5   $  2.5
                                                  ------   ------   ------

 ADDITIONAL PAID-IN CAPITAL
     Balance at beginning of period.............   407.9    386.9    346.3
     Issuance of common stock...................    15.8     21.0     40.6
                                                  ------   ------   ------
     Balance at end of period...................   423.7    407.9    386.9
                                                  ------   ------   ------
 ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
     Net unrealized (depreciation) appreciation
       on investments:
     Balance at beginning of period.............    24.1     38.5     20.5
     (Depreciation) appreciation during the
       period:
         Net (depreciation) appreciation on
           available-for-sale securities........   (41.1)   (23.4)    27.0
         Benefit (provision) for deferred
           federal income taxes.................    14.4      9.0     (9.0)
                                                  ------   ------   ------
                                                   (26.7)   (14.4)    18.0
                                                  ------   ------   ------
     Balance at end of period...................    (2.6)    24.1     38.5
                                                  ------   ------   ------
 RETAINED EARNINGS
     Balance at beginning of period.............   275.4    213.1    176.4
     Net income.................................    86.3     62.3     36.7
                                                  ------   ------   ------
     Balance at end of period...................   361.7    275.4    213.1
                                                  ------   ------   ------
         Total shareholder's equity.............  $785.3   $709.9   $641.0
                                                  ======   ======   ======
</TABLE>

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                      F-3
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
 FOR THE YEARS ENDED DECEMBER 31,
 (IN MILLIONS)                                  1999    1998    1997
 -------------                                 ------  ------  ------
 <S>                                           <C>     <C>     <C>
 Net income..................................  $ 86.3  $ 62.3  $36.7
 Other comprehensive (loss) income:
     Net (depreciation) appreciation on
       available-for-sale securities.........   (41.1)  (23.4)  27.0
     Benefit (provision) for deferred federal
       income taxes..........................    14.4     9.0   (9.0)
                                               ------  ------  -----
         Other comprehensive (loss) income...   (26.7)  (14.4)  18.0
                                               ------  ------  -----
     Comprehensive income....................  $ 59.6  $ 47.9  $54.7
                                               ======  ======  =====
</TABLE>

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                      F-4
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
 FOR THE YEARS ENDED DECEMBER 31,
 (IN MILLIONS)                                  1999     1998     1997
 -------------                                 -------  -------  -------
 <S>                                           <C>      <C>      <C>
 CASH FLOWS FROM OPERATING ACTIVITIES
     Net income..............................  $  86.3  $  62.3  $  36.7
     Adjustments to reconcile net income to
       net cash used in operating activities:
         Net realized losses/(gains).........      8.7    (20.0)    (2.9)
         Net amortization and depreciation...     (2.3)    (7.1)   --
         Sales practice litigation expense...    --        21.0    --
         Loss from cession of disability
           income business...................    --       --        53.9
         Deferred federal income taxes.......     30.5     11.8      7.1
         Payment related to cession of
           disability income business........    --       --      (207.0)
         Change in deferred acquisition
           costs.............................   (169.7)  (177.8)  (181.3)
         Change in reinsurance premiums
           payable...........................    (31.5)    40.8      3.9
         Change in accrued investment
           income............................     (2.5)     0.7      3.5
         Change in policy liabilities and
           accruals, net.....................     (8.4)   193.1    (72.4)
         Change in reinsurance receivable....     20.7    (56.9)    22.1
         Change in expenses and taxes
           payable...........................     64.1     55.4      0.2
         Other, net..........................    (14.8)   (28.5)    (7.1)
                                               -------  -------  -------
             Net cash (used in) provided by
               operating activities..........    (18.9)    94.8   (343.3)
                                               -------  -------  -------
 CASH FLOWS FROM INVESTING ACTIVITIES
     Proceeds from disposals and maturities
       of available-for-sale fixed
       maturities............................    330.9    187.0    909.7
     Proceeds from disposals of equity
       securities............................     30.9     53.3      2.4
     Proceeds from disposals of other
       investments...........................      0.8     22.7     23.7
     Proceeds from mortgages matured or
       collected.............................     30.5     60.1     62.9
     Purchase of available-for-sale fixed
       maturities............................   (415.5)  (136.0)  (579.7)
     Purchase of equity securities...........    (20.2)   (30.6)    (3.2)
     Purchase of other investments...........    (44.1)   (22.7)    (9.0)
     Purchase of mortgages...................    --       (58.9)   (70.4)
     Other investing activities, net.........      2.0     (3.9)   --
                                               -------  -------  -------
         Net cash (used in) provided by
           investing activities..............    (84.7)    71.0    336.4
                                               -------  -------  -------
 CASH FLOWS FROM FINANCING ACTIVITIES
     Contribution from subsidiaries..........     14.6    --       --
     Proceeds from issuance of stock and
       capital paid in.......................      4.0     21.0     19.2
                                               -------  -------  -------
         Net cash provided by financing
           activities........................     18.6     21.0     19.2
                                               -------  -------  -------
 Net change in cash and cash equivalents.....    (85.0)   186.8     12.3
 Cash and cash equivalents, beginning of
  period.....................................    217.9     31.1     18.8
                                               -------  -------  -------
 Cash and cash equivalents, end of period....  $ 132.9  $ 217.9  $  31.1
                                               =======  =======  =======
 SUPPLEMENTAL CASH FLOW INFORMATION
     Interest paid...........................  $ --     $ --     $ --
     Income taxes paid.......................  $   4.4  $  36.2  $   5.4
</TABLE>

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                      F-5
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A.  BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

Allmerica Financial Life Insurance and Annuity Company ("AFLIAC" or the
"Company") is organized as a stock life insurance company, and is a wholly-owned
subsidiary of First Allmerica Financial Life Insurance Company ("FAFLIC") which
is a wholly-owned subsidiary of Allmerica Financial Corporation ("AFC"). As
noted below, the consolidated accounts of AFLIAC include the accounts of certain
wholly-owned non-insurance subsidiaries (principally brokerage and investment
advisory subsidiaries).

Prior to July 1, 1999, AFLIAC was a wholly-owned subsidiary of SMA Financial
Corporation ("SMAFCO"), which was a wholly-owned subsidiary of FAFLIC. Effective
July 1, 1999 and in connection with AFC's restructuring activities, SMAFCO was
renamed Allmerica Asset Management , Inc. ("AAM") and contributed it's ownership
of AFLIAC to FAFLIC. AAM also contributed Allmerica Investments, Inc., Allmerica
Investment Management Company, Inc., Allmerica Financial Investment Management
Services, Inc., and Allmerica Financial Services Insurance Agency, Inc., to
AFLIAC in exchange for one share of AFLIAC common stock. The equity of these
four companies on July 1, 1999 was $11.8 million. For the six months ended
December 31, 1999, the subsidiaries of AFLIAC had total revenue of $35.5 million
and total benefits, losses and expenses of $24.4 million. All significant
intercompany accounts and transactions have been eliminated.

In addition, effective November 1, 1999, the Company's consolidated financial
statements include five wholly-owned insurance agencies. These agencies are
Allmerica Investments Insurance Agency Inc. of Alabama, Allmerica Investments
Insurance Agency of Florida Inc., Allmerica Investment Insurance Agency Inc. of
Georgia, Allmerica Investment Insurance Agency Inc. of Kentucky, and Allmerica
Investments Insurance Agency Inc. of Mississippi.

The consolidated financial statements of AFLIAC include the accounts of Somerset
Square, Inc., a wholly-owned non-insurance company, which was transferred from
SMAFCO effective November 30, 1997 and dissolved as a subsidiary effective
November 30, 1998. Its results of operations are included for eleven months of
1998 and for the month of December, 1997.

The statutory stockholder's equity of the Company is being maintained at a
minimum level of 5% of general account assets by FAFLIC in accordance with a
policy established by vote of FAFLIC's Board of Directors.

The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

B.  VALUATION OF INVESTMENTS

In accordance with the provisions of Statement of Financial Accounting Standards
No. 115 ("Statement No. 115"), "Accounting for Certain Investments in Debt and
Equity Securities," the Company is required to classify its investments into one
of three categories: held-to-maturity, available-for-sale or trading. The
Company determines the appropriate classification of debt securities at the time
of purchase and re-evaluates such designation as of each balance sheet date.

                                      F-6
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Debt securities and marketable equity securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of shareholder's equity. The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income.

Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by the Company to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which the Company believes may not be collectible in
full. In establishing reserves, the Company considers, among other things, the
estimated fair value of the underlying collateral.

Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.

Policy loans are carried principally at unpaid principal balances.

During 1997, the Company adopted a plan to dispose of all real estate assets. As
of December 31, 1999, there was one property remaining in the Company's real
estate portfolio, which is being actively marketed. This asset is carried at the
estimated fair value less costs of disposal. Depreciation is not recorded on
this asset while it is held for disposal.

Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other than temporary impairment of the value of a specific
investment or a group of investments is determined, a realized investment loss
is recorded. Changes in the valuation allowance for mortgage loans are included
in realized investment gains or losses.

C.  FINANCIAL INSTRUMENTS

In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including debt, investments such as
fixed maturities, mortgage loans and equity securities and investment and loan
commitments. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuation. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.

D.  CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.

E.  DEFERRED POLICY ACQUISITION COSTS

Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Acquisition costs related to universal life products, variable annuities and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits from investment yields, mortality, surrender charges and
expense margins over the expected life of the contracts. This amortization is
reviewed annually and adjusted retrospectively when the Company revises its
estimate of current or future gross profits to be realized from this group of
products, including realized and unrealized gains and losses from investments.
Acquisition costs related to fixed annuities and other life insurance products
are deferred and amortized, generally in proportion to the ratio of annual
revenue to the

                                      F-7
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

estimated total revenues over the contract periods based upon the same
assumptions used in estimating the liability for future policy benefits.

Deferred acquisition costs for each product are reviewed to determine if they
are recoverable from future income, including investment income. If such costs
are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, the Company believes it is more likely than not that all of these costs
will be realized. The amount of deferred policy acquisition costs considered
realizable, however, could be reduced in the near term if the estimates of gross
profits or total revenues discussed above are reduced. The amount of
amortization of deferred policy acquisition costs could be revised in the near
term if any of the estimates discussed above are revised.

F.  SEPARATE ACCOUNTS

Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of variable annuity and variable
life insurance contractholders. Assets consist principally of bonds, common
stocks, mutual funds, and short-term obligations at market value. The investment
income, gains and losses of these accounts generally accrue to the
contractholders and, therefore, are not included in the Company's net income.
Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholder's equity or net investment income.

G.  POLICY LIABILITIES AND ACCRUALS

Future policy benefits are liabilities for life, disability income and annuity
products. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. The liabilities associated
with traditional life insurance products are computed using the net level
premium method for individual life and annuity policies, and are based upon
estimates as to future investment yield, mortality and withdrawals that include
provisions for adverse deviation. Future policy benefits for individual life
insurance and annuity policies are computed using interest rates ranging from
3.0% to 6.0% for life insurance and 3 1/2% to 9 1/2% for annuities. Mortality,
morbidity and withdrawal assumptions for all policies are based on the Company's
own experience and industry standards. Liabilities for universal life, variable
universal life and variable annuities include deposits received from customers
and investment earnings on their fund balances, less administrative charges.
Universal life fund balances are also assessed mortality and surrender charges.
Liabilities for variable annuities include a reserve for benefit claims in
excess of a guaranteed minimum fund value.

Individual disability income benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future morbidity and
interest which provide a margin for adverse deviation. Benefit liabilities for
disabled lives are estimated using the present value of benefits method and
experience assumptions as to claim terminations, expenses and interest.

Liabilities for outstanding claims and losses are estimates of payments to be
made for reported claims and estimates of claims incurred but not reported for
individual life and disability income policies. These estimates are continually
reviewed and adjusted as necessary; such adjustments are reflected in current
operations.

Contractholder deposit funds and other policy liabilities include
investment-related products and consist of deposits received from customers and
investment earnings on their fund balances.

                                      F-8
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, the Company
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.

H.  PREMIUM AND FEE REVENUE AND RELATED EXPENSES

Premiums for individual life insurance and individual and group annuity
products, excluding universal life and investment-related products, are
considered revenue when due. Individual disability income insurance premiums are
recognized as revenue over the related contract periods. The unexpired portion
of these premiums is recorded as unearned premiums. Benefits, losses and related
expenses are matched with premiums, resulting in their recognition over the
lives of the contracts. This matching is accomplished through the provision for
future benefits, estimated and unpaid losses and amortization of deferred policy
acquisition costs. Revenues for investment-related products consist of net
investment income and contract charges assessed against the fund values. Related
benefit expenses include annuity benefit claims in excess of a guaranteed
minimum fund value, and net investment income credited to the fund values after
deduction for investment and risk charges. Revenues for universal life and group
variable universal life products consist of net investment income, with
mortality, administration and surrender charges assessed against the fund
values. Related benefit expenses include universal life benefit claims in excess
of fund values and net investment income credited to universal life fund values.
Certain policy charges that represent compensation for services to be provided
in future periods are deferred and amortized over the period benefited using the
same assumptions used to amortize capitalized acquisition costs.

I.  FEDERAL INCOME TAXES

AFC and its domestic subsidiaries (including certain non-insurance operations)
file a consolidated United States federal income tax return. Entities included
within the consolidated group are segregated into either a life insurance or
non-life insurance company subgroup. The consolidation of these subgroups is
subject to certain statutory restrictions on the percentage of eligible non-life
tax losses that can be applied to offset life insurance company taxable income.

The Board of Directors has delegated to AFC management, the development and
maintenance of appropriate federal income tax allocation policies and
procedures, which are subject to written agreement between the companies. The
Federal income tax for all subsidiaries in the consolidated return of AFC is
calculated on a separate return basis. Any current tax liability is paid to AFC.
Tax benefits resulting from taxable operating losses or credits of AFC's
subsidiaries are not reimbursed to the subsidiary until such losses or credits
can be utilized by the subsidiary on a separate return basis.

Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes, and for
other temporary taxable and deductible differences as defined by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement No. 109"). These differences result primarily from policy reserves,
policy acquisition expenses, and unrealized appreciation or depreciation on
investments.

J.  OTHER INCOME AND OTHER OPERATING EXPENSES

Other income and other operating expenses for the year ended December 31, 1999
include investment management and brokerage income and sub-advisory expenses
arising from the activities of the non-insurance subsidiaries that were
transferred to AFLIAC during 1999, as more fully described in Note 1A.

                                      F-9
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

K.  NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), which establishes
accounting and reporting standards for derivative instruments. Statement No. 133
requires that an entity recognize all derivatives as either assets or
liabilities at fair value in the statement of financial position, and
establishes special accounting for the following three types of hedges; fair
value hedges, cash flow hedges, and hedges of foreign currency exposures of net
investments in foreign operations. This statement is effective for fiscal
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY (an indirect wholly-owned
subsidiary of Allmerica Financial Corporation) years beginning after June 15,
2000. The Company is currently assessing the impact of adoption of Statement No.
133.

In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SoP 98-1"). SoP 98-1 requires that
certain costs incurred in developing internal-use computer software be
capitalized and provides guidance for determining whether computer software is
to be considered for internal use. This statement is effective for fiscal years
beginning after December 15, 1998. In the second quarter of 1998, the Company
adopted SoP 98-1 effective January 1, 1998, resulting in an increase in pre-tax
income of $9.8 million through December 31, 1998. The adoption of SOP 98-1 did
not have a material effect on the results of operations or financial position
for the three months ended March 31, 1998.

In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments" ("SoP 97-3"). SoP 97-3 provides
guidance when a liability should be recognized for guaranty fund and other
assessments and how to measure the liability. This statement allows for the
discounting of the liability if the amount and timing of the cash payments are
fixed and determinable. In addition, it provides criteria for when an asset may
be recognized for a portion or all of the assessment liability or paid
assessment that can be recovered through premium tax offsets or policy
surcharges. This statement is effective for fiscal years beginning after
December 15, 1998. The adoption of this statement had no effect on the results
of operations or financial position of the Company.

In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("Statement No. 131"). This statement
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that
selected information about those operating segments be reported in interim
financial statements. This statement supersedes Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement No. 131 requires
that all public enterprises report financial and descriptive information about
their reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This statement
is effective for fiscal years beginning after December 15, 1997. AFLIAC consists
of one segment, Allmerica Financial Services, which underwrites and distributes
variable annuities and variable universal life insurance via retail channels.

In June 1997, the FASB also issued Statement No. 130, "Reporting Comprehensive
Income" ("Statement No. 130"). Statement No. 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. All items that are required to be
recognized under accounting standards as components of comprehensive income are
to be reported in a financial statement that is displayed with the same
prominence as other financial statements. This statement stipulates that
comprehensive income reflect the change in equity of an enterprise during a
period from transactions and

                                      F-10
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

other events and circumstances from non-owner sources. This statement is
effective for fiscal years beginning after December 15, 1997. The Company
adopted Statement No. 130 for the first quarter of 1998, which resulted
primarily in reporting unrealized gains and losses on investments in debt and
equity securities in comprehensive income.

L.  RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current year
presentation.

2.  SIGNIFICANT TRANSACTIONS

During 1999, AFLIAC's parent contributed $11.8 million of additional paid-in
capital to the Company in the form of four subsidiaries as disclosed in Note 1A
above. These subsidiaries consisted of assets of $22.0 million, of which $14.6
million was cash and cash equivalents, and liabilities of $10.2 million. During
1999, 1998 and 1997, SMAFCO contributed $4.0 million, $21.0 million, and $40.6
million respectively, of additional paid-in capital to the Company. The nature
of the 1997 contribution was $19.2 million in cash and $21.4 million in other
assets including Somerset Square, Inc.

Effective January 1, 1998, the Company entered into an agreement with a highly
rated reinsurer to reinsure the mortality risk on the universal life and
variable universal life blocks of business. The agreement did not have a
material effect on the results of operations or financial position of the
Company.

On April 14, 1997, the Company entered into an agreement in principle to cede
substantially all of the Company's individual disability income line of business
under a 100% coinsurance agreement with a highly rated reinsurer. The
coinsurance agreement became effective October 1, 1997. The transaction has
resulted in the recognition of a $53.9 million pre-tax loss in the first quarter
of 1997.

3.  INVESTMENTS

A.  SUMMARY OF INVESTMENTS

The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with the provisions of Statement No. 115.

The amortized cost and fair value of available-for-sale fixed maturities and
equity securities were as follows:

<TABLE>
<CAPTION>
                                                             1999
                                          -------------------------------------------
                                                       GROSS       GROSS
DECEMBER 31,                              AMORTIZED  UNREALIZED  UNREALIZED    FAIR
(IN MILLIONS)                             COST (1)     GAINS       LOSSES     VALUE
- -------------                             ---------  ----------  ----------  --------
<S>                                       <C>        <C>         <C>         <C>
U.S. Treasury securities and U.S.
 government and agency securities.......  $    5.2     $ 0.2       $--       $    5.4
States and political subdivisions.......      12.4       0.1       --            12.5
Foreign governments.....................      38.6       0.9         0.6         38.9
Corporate fixed maturities..............   1,180.0      10.3        38.9      1,151.4
Mortgage-backed securities..............     118.0       1.1         2.7        116.4
                                          --------     -----       -----     --------
Total fixed maturities..................  $1,354.2     $12.6       $42.2     $1,324.6
                                          ========     =====       =====     ========
Equity securities.......................  $   25.2     $ 7.4       $--       $   32.6
                                          ========     =====       =====     ========
</TABLE>

(1) Amortized cost for fixed maturities and cost for equity securities.

                                      F-11
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                             1998
                                          -------------------------------------------
                                                       GROSS       GROSS
DECEMBER 31,                              AMORTIZED  UNREALIZED  UNREALIZED    FAIR
(IN MILLIONS)                             COST (1)     GAINS       LOSSES     VALUE
- -------------                             ---------  ----------  ----------  --------
<S>                                       <C>        <C>         <C>         <C>
U.S. Treasury securities and U.S.
 government and agency securities.......  $    5.8     $ 0.8       $--       $    6.6
States and political subdivisions.......       2.7       0.2       --             2.9
Foreign governments.....................      48.8       1.6         1.5         48.9
Corporate fixed maturities..............   1,096.0      58.0        17.7      1,136.3
Mortgage-backed securities..............     131.3       5.8         1.4        135.7
                                          --------     -----       -----     --------
Total fixed maturities..................  $1,284.6     $66.4       $20.6     $1,330.4
                                          ========     =====       =====     ========
Equity securities.......................  $   27.4     $ 8.9       $ 4.5     $   31.8
                                          ========     =====       =====     ========
</TABLE>

(1) Amortized cost for fixed maturities and cost for equity securities.

In connection with AFLIAC's voluntary withdrawal of its license in New York,
AFLIAC agreed with the New York Department of Insurance to maintain, through a
custodial account in New York, a security deposit, the market value of which
will at all times equal 102% of all outstanding liabilities of AFLIAC for New
York policyholders, claimants and creditors. At December 31, 1999, the amortized
cost and market value of these assets on deposit in New York were
$196.4 million and $193.0 million, respectively. At December 31, 1998, the
amortized cost and market value of assets on deposit were $268.5 million and
$284.1 million, respectively. In addition, fixed maturities, excluding those
securities on deposit in New York, with an amortized cost of $4.1 million and
$4.2 million were on deposit with various state and governmental authorities at
December 31, 1999 and 1998, respectively.

There were no contractual fixed maturity investment commitments at December 31,
1999.

The amortized cost and fair value by maturity periods for fixed maturities are
shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties, or the Company may have the right to put or sell the
obligations back to the issuers. Mortgage backed securities are included in the
category representing their ultimate maturity.

<TABLE>
<CAPTION>
                                                                     1999
                                                              -------------------
DECEMBER 31,                                                  AMORTIZED    FAIR
(IN MILLIONS)                                                   COST      VALUE
- -------------                                                 ---------  --------
<S>                                                           <C>        <C>
Due in one year or less.....................................  $   54.5   $   54.8
Due after one year through five years.......................     349.1      347.2
Due after five years through ten years......................     652.9      637.1
Due after ten years.........................................     297.7      285.5
                                                              --------   --------
Total.......................................................  $1,354.2   $1,324.6
                                                              ========   ========
</TABLE>

                                      F-12
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:

<TABLE>
<CAPTION>
                                                                             EQUITY
FOR THE YEARS ENDED DECEMBER 31,                                FIXED      SECURITIES
(IN MILLIONS)                                                 MATURITIES  AND OTHER (1)  TOTAL
- -------------                                                 ----------  -------------  ------
<S>                                                           <C>         <C>            <C>
1999
Net appreciation, beginning of year.........................    $ 16.2       $  7.9      $ 24.1
                                                                ------       ------      ------
Net depreciation on available-for-sale securities...........     (75.3)        (0.2)      (75.5)
Net appreciation from the effect on deferred policy
 acquisition costs and on policy liabilities................      34.4       --            34.4
Benefit from deferred federal income taxes..................      14.3          0.1        14.4
                                                                ------       ------      ------
                                                                 (26.6)        (0.1)      (26.7)
                                                                ------       ------      ------
Net (depreciation) appreciation, end of year................    $(10.4)      $  7.8      $ (2.6)
                                                                ======       ======      ======

1998
Net appreciation, beginning of year.........................    $ 22.1       $ 16.4      $ 38.5
                                                                ------       ------      ------
Net depreciation on available-for-sale securities...........     (16.2)       (14.3)      (30.5)
Net appreciation from the effect on deferred policy
 acquisition costs and on policy liabilities................       7.1       --             7.1
Benefit from deferred federal income taxes..................       3.2          5.8         9.0
                                                                ------       ------      ------
                                                                  (5.9)        (8.5)      (14.4)
                                                                ------       ------      ------
Net appreciation, end of year...............................    $ 16.2       $  7.9      $ 24.1
                                                                ======       ======      ======

1997
Net appreciation, beginning of year.........................    $ 12.7       $  7.8      $ 20.5
                                                                ------       ------      ------
Net appreciation on available-for-sale securities...........      24.3         12.5        36.8
Net depreciation from the effect on deferred policy
 acquisition costs and on policy liabilities................      (9.8)      --            (9.8)
Provision for deferred federal income taxes.................      (5.1)        (3.9)       (9.0)
                                                                ------       ------      ------
                                                                   9.4          8.6        18.0
                                                                ------       ------      ------
Net appreciation, end of year...............................    $ 22.1       $ 16.4      $ 38.5
                                                                ======       ======      ======
</TABLE>

(1) Includes net (depreciation) appreciation on other investments of $(3.1)
    million, $0.9 million, and $1.3 million in 1999, 1998, and 1997,
    respectively.

B.  MORTGAGE LOANS AND REAL ESTATE

AFLIAC's mortgage loans are diversified by property type and location. The real
estate investment was obtained by an affiliate through foreclosure. Mortgage
loans are collateralized by the related properties and generally are no more
than 75% of the property's value at the time the original loan is made.

The carrying values of mortgage loans and the real estate investment net of
applicable reserves were $234.6 million and $244.5 million at December 31, 1999
and 1998, respectively. Reserves for mortgage loans were $2.4 million and
$3.3 million at December 31, 1999 and 1998, respectively.

                                      F-13
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

During 1997, the Company committed to a plan to dispose of all real estate
assets. At December 31, 1999, there was one property remaining in the Company's
real estate portfolio which is being actively marketed. Depreciation is not
recorded on this asset while it is held for disposal.

There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1999, 1998 and 1997.

There were no material contractual commitments to extend credit under commercial
mortgage loan agreements at December 31, 1999.

Mortgage loans and real estate investments comprised the following property
types and geographic regions:

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)                                                  1999    1998
- -------------                                                 ------  ------
<S>                                                           <C>     <C>
Property type:
  Office building...........................................  $136.1  $129.2
  Residential...............................................    18.5    18.9
  Retail....................................................    28.3    37.4
  Industrial/warehouse......................................    51.1    59.2
  Other.....................................................     3.0     3.1
  Valuation allowances......................................    (2.4)   (3.3)
                                                              ------  ------
Total.......................................................  $234.6  $244.5
                                                              ======  ======
Geographic region:
  South Atlantic............................................  $ 60.7  $ 55.5
  Pacific...................................................    76.2    80.0
  East North Central........................................    35.9    41.4
  Middle Atlantic...........................................    20.1    22.5
  New England...............................................    29.9    26.9
  West South Central........................................     1.9     6.7
  Other.....................................................    12.3    14.8
  Valuation allowances......................................    (2.4)   (3.3)
                                                              ------  ------
Total.......................................................  $234.6  $244.5
                                                              ======  ======
</TABLE>

At December 31, 1999, scheduled mortgage loan maturities were as follows:
2000 -- $40.8 million; 2001 -- $6.3 million; 2002 -- $11.2 million; 2003 --
$0.5 million; 2004 -- $23.7 million; and $141.2 million thereafter. Actual
maturities could differ from contractual maturities because borrowers may have
the right to prepay obligations with or without prepayment penalties and loans
may be refinanced. During 1999, the Company did not refinance any mortgage loans
based on terms which differed from those granted to new borrowers.

                                      F-14
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

C.  INVESTMENT VALUATION ALLOWANCES

Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets and
changes thereto are shown below.

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,                              BALANCE AT                           BALANCE AT
(IN MILLIONS)                                                 JANUARY 1   PROVISIONS  WRITE-OFFS  DECEMBER 31
- -------------                                                 ----------  ----------  ----------  ------------
<S>                                                           <C>         <C>         <C>         <C>
1999
Mortgage loans..............................................    $ 3.3       $(0.8)       $0.1         $2.4
                                                                =====       =====        ====         ====
1998
Mortgage loans..............................................    $ 9.4       $(4.5)       $1.6         $3.3
                                                                =====       =====        ====         ====
1997
Mortgage loans..............................................    $ 9.5       $ 1.1        $1.2         $9.4
Real estate.................................................      1.7         3.7         5.4        --
                                                                -----       -----        ----         ----
    Total...................................................    $11.2       $ 4.8        $6.6         $9.4
                                                                =====       =====        ====         ====
</TABLE>

Provisions on mortgages during 1999 and 1998 reflect the release of redundant
specific reserves. Write-offs of $5.4 million to the investment valuation
allowance related to real estate in 1997 primarily reflect write downs to the
estimated fair value less costs to sell pursuant to the aforementioned 1997 plan
of disposal.

The carrying value of impaired loans was $11.4 million and $15.3 million, with
related reserves of $0.7 million and $1.5 million as of December 31, 1999 and
1998, respectively. All impaired loans were reserved for as of December 31, 1999
and 1998.

The average carrying value of impaired loans was $14.3 million, $17.0 million
and $19.8 million, with related interest income while such loans were impaired
of $1.5 million, $2.0 million and $2.2 million as of December 31, 1999, 1998 and
1997, respectively.

D.  OTHER

At December 31, 1999 and 1998, AFLIAC had no concentration of investments in a
single investee exceeding 10% of shareholder's equity.

4.  INVESTMENT INCOME AND GAINS AND LOSSES

A.  NET INVESTMENT INCOME

The components of net investment income were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)                                                  1999    1998    1997
- -------------                                                 ------  ------  ------
<S>                                                           <C>     <C>     <C>
Fixed maturities............................................  $107.2  $107.7  $130.0
Mortgage loans..............................................    19.0    25.5    20.4
Equity securities...........................................     0.4     0.3     1.3
Policy loans................................................    12.4    11.7    10.8
Real estate and other long-term investments.................     4.0     4.8     4.9
Short-term investments......................................     9.5     4.2     1.4
                                                              ------  ------  ------
    Gross investment income.................................   152.5   154.2   168.8
Less investment expenses....................................    (2.3)   (2.9)   (4.6)
                                                              ------  ------  ------
    Net investment income...................................  $150.2  $151.3  $164.2
                                                              ======  ======  ======
</TABLE>

                                      F-15
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

At December 31, 1999, the Company had fixed maturities with a carrying value of
$0.8 million on non-accrual status. There were no mortgage loans on non-accrual
status at December 31, 1999. There were no mortgage loans or fixed maturities on
non-accrual status at December 31, 1998. The effect of non-accruals, compared
with amounts that would have been recognized in accordance with the original
terms of the investments, was a reduction in net income of $1.2 million in 1999,
and had no impact in 1998 and 1997.

The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $12.2 million, $12.6 million and $21.1 million at December 31,
1999, 1998 and 1997, respectively. Interest income on restructured mortgage
loans that would have been recorded in accordance with the original terms of
such loans amounted to $0.9 million, $1.4 million and $1.9 million in 1999,
1998, and 1997, respectively. Actual interest income on these loans included in
net investment income aggregated $1.1 million, $1.8 million and $2.1 million in
1999, 1998 and 1997, respectively.

There were no fixed maturities or mortgage loans which were non-income producing
for the year ended December 31, 1999.

Included in other long-term investments is income from limited partnerships of
$0.9 million and $0.7 million in 1999 and 1998, respectively. There was no
income from limited partnerships included in other long-term investments in
1997.

B.  NET REALIZED INVESTMENT GAINS AND LOSSES

Realized (losses) gains on investments were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)                                                  1999   1998   1997
- -------------                                                 ------  -----  -----
<S>                                                           <C>     <C>    <C>
Fixed maturities............................................  $(18.8) $(6.1) $ 3.0
Mortgage loans..............................................     0.8    8.0   (1.1)
Equity securities...........................................     8.5   15.7    0.5
Real estate and other.......................................     0.8    2.4    0.5
                                                              ------  -----  -----
Net realized investment (losses) gains......................  $ (8.7) $20.0  $ 2.9
                                                              ======  =====  =====
</TABLE>

The proceeds from voluntary sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:

<TABLE>
<CAPTION>
                                                              PROCEEDS FROM
FOR THE YEARS ENDED DECEMBER 31,                                VOLUNTARY    GROSS  GROSS
(IN MILLIONS)                                                     SALES      GAINS  LOSSES
- -------------                                                 -------------  -----  ------
<S>                                                           <C>            <C>    <C>
1999
Fixed maturities............................................     $162.3      $ 2.7   $4.3
Equity securities...........................................     $ 30.4      $10.1   $1.6
1998
Fixed maturities............................................     $ 60.0      $ 2.0   $2.0
Equity securities...........................................     $ 52.6      $17.5   $0.9
1997
Fixed maturities............................................     $702.9      $11.4   $5.0
Equity securities...........................................     $  1.3      $ 0.5   $--
</TABLE>

                                      F-16
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

C.  OTHER COMPREHENSIVE INCOME RECONCILIATION

The following table provides a reconciliation of gross unrealized (losses) gains
to the net balance shown in the consolidated statements of comprehensive income:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)                                                  1999    1998   1997
- -------------                                                 ------  ------  -----
<S>                                                           <C>     <C>     <C>
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during period (net
 of taxes of $(18.0) million, $(5.6) million and
 $10.2 million in 1999, 1998 and 1997, respectively)........  $(33.4) $ (8.2) $20.3
Less: reclassification adjustment for (losses) gains
 included in net income (net of taxes of $(3.6) million,
 $3.4 million and $1.2 million in 1999, 1998 and 1997,
 respectively)..............................................    (6.7)    6.2    2.3
                                                              ------  ------  -----
Other comprehensive (loss) income...........................  $(26.7) $(14.4) $18.0
                                                              ======  ======  =====
</TABLE>

5.  FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS

Statement No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about certain financial
instruments (insurance contracts, real estate, goodwill and taxes are excluded)
for which it is practicable to estimate such values, whether or not these
instruments are included in the balance sheet. The fair values presented for
certain financial instruments are estimates which, in many cases, may differ
significantly from the amounts which could be realized upon immediate
liquidation. In cases where market prices are not available, estimates of fair
value are based on discounted cash flow analyses which utilize current interest
rates for similar financial instruments which have comparable terms and credit
quality.

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:

CASH AND CASH EQUIVALENTS

For these short-term investments, the carrying amount approximates fair value.

FIXED MATURITIES

Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.

EQUITY SECURITIES

Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.

                                      F-17
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MORTGAGE LOANS

Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans are
limited to the lesser of the present value of the cash flows or book value.

POLICY LOANS

The carrying amount reported in the balance sheet approximates fair value since
policy loans have no defined maturity dates and are inseparable from the
insurance contracts.

FIXED ANNUITY AND OTHER CONTRACTS (WITHOUT MORTALITY FEATURES)

Fair values for the Company's liabilities under individual fixed annuity
contracts are estimated based on current surrender values, supplemental
contracts without life contingencies reflect current fund balances, and other
individual contract funds represent the present value of future policy benefits.

The estimated fair values of the financial instruments were as follows:

<TABLE>
<CAPTION>
                                                                     1999                1998
                                                              ------------------  ------------------
DECEMBER 31,                                                  CARRYING    FAIR    CARRYING    FAIR
(IN MILLIONS)                                                  VALUE     VALUE     VALUE     VALUE
- -------------                                                 --------  --------  --------  --------
<S>                                                           <C>       <C>       <C>       <C>
FINANCIAL ASSETS
  Cash and cash equivalents.................................  $  132.9  $  132.9  $  217.9  $  217.9
  Fixed maturities..........................................   1,324.6   1,324.6   1,330.4   1,330.4
  Equity securities.........................................      32.6      32.6      31.8      31.8
  Mortgage loans............................................     223.7     222.8     230.0     241.9
  Policy loans..............................................     166.8     166.8     151.5     151.5
                                                              --------  --------  --------  --------
                                                              $1,880.6  $1,879.7  $1,961.6  $1,973.5
                                                              ========  ========  ========  ========
FINANCIAL LIABILITIES
  Individual fixed annuity contracts........................  $1,048.0  $1,014.9  $1,069.4  $1,034.6
  Supplemental contracts without life contingencies.........      25.0      25.0      21.0      21.0
  Other individual contract deposit funds...................      19.3      19.3      17.0      17.0
                                                              --------  --------  --------  --------
                                                              $1,092.3  $1,059.2  $1,107.4  $1,072.6
                                                              ========  ========  ========  ========
</TABLE>

                                      F-18
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.  FEDERAL INCOME TAXES

Provisions for federal income taxes have been calculated in accordance with the
provisions of Statement No. 109. A summary of the federal income tax expense in
the consolidated statement of income is shown below:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)                                                 1999   1998   1997
- -------------                                                 -----  -----  -----
<S>                                                           <C>    <C>    <C>
Federal income tax expense
  Current...................................................  $15.5  $22.1  $13.9
  Deferred..................................................   30.5   11.8    7.1
                                                              -----  -----  -----
Total.......................................................  $46.0  $33.9  $21.0
                                                              =====  =====  =====
</TABLE>

The provision for federal income taxes does not materially differ from the
amount of federal income tax determined by applying the appropriate U.S.
statutory income tax rate to income before federal income taxes.

The deferred income tax (asset) liability represents the tax effects of
temporary differences:

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS)                                                  1999     1998
- -------------                                                 -------  -------
<S>                                                           <C>      <C>
Deferred tax (assets) liabilities
  Policy reserves...........................................  $(233.7) $(205.1)
  Deferred acquisition costs................................    339.7    278.8
  Investments, net..........................................     (4.0)    12.5
  Litigation reserves.......................................     (4.3)    (7.4)
  Bad debt reserve..........................................    --        (0.4)
  Other, net................................................     (2.9)     0.4
                                                              -------  -------
Deferred tax liability, net.................................  $  94.8  $  78.8
                                                              =======  =======
</TABLE>

Gross deferred income tax liabilities totaled $360.4 million and $291.7 million
at December 31, 1999 and 1998, respectively. Gross deferred income tax assets
totaled $265.6 million and $212.9 million at December 31, 1999 and 1998,
respectively.

The Company believes, based on its recent earnings history and its future
expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, the Company considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary.

The Company's federal income tax returns are routinely audited by the Internal
Revenue Service ("IRS"), and provisions are routinely made in the financial
statements in anticipation of the results of these audits. The IRS has examined
the FAFLIC/AFLIAC consolidated group's federal income tax returns through 1994.
The Company has appealed certain adjustments proposed by the IRS with respect
federal income tax returns for 1992, 1993, and 1994 for the FAFLIC/AFLIAC
consolidated group. Also, certain adjustments proposed by the IRS with respect
to FAFLIC/AFLIAC's federal income tax returns for 1982 and 1983 remain
unresolved. If upheld, these adjustments would result in additional payments;
however, the Company will vigorously defend its position with respect to these
adjustments. In the Company's opinion, adequate tax liabilities have

                                      F-19
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

been established for all years. However, the amount of these tax liabilities
could be revised in the near term if estimates of the Company's ultimate
liability are revised.

7.  RELATED PARTY TRANSACTIONS

The Company has no employees of its own, but has agreements under which FAFLIC
provides management, space and other services, including accounting, electronic
data processing, human resources, legal and other staff functions. Charges for
these services are based on full cost including all direct and indirect overhead
costs, and amounted to $173.9 million, $145.4 million and $124.1 million in
1999, 1998 and 1997 respectively. The net amounts payable to FAFLIC and
affiliates for accrued expenses and various other liabilities and receivables
were $48.6 million and $16.4 million at December 31, 1999 and 1998,
respectively.

8.  DIVIDEND RESTRICTIONS

Delaware has enacted laws governing the payment of dividends to stockholders by
insurers. These laws affect the dividend paying ability of the Company.

Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding December 31
or (ii) the individual company's statutory net gain from operations for the
preceding calendar year (if such insurer is a life company) or its net income
(not including realized capital gains) for the preceding calendar year (if such
insurer is not a life company). Any dividends to be paid by an insurer, whether
or not in excess of the aforementioned threshold, from a source other than
statutory earned surplus would also require the prior approval of the Delaware
Commissioner of Insurance.

No dividends were declared by the Company during 1999, 1998 or 1997. During
2000, AFLIAC could pay dividends of $34.3 million to FAFLIC without prior
approval.

9.  REINSURANCE

In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Reinsurance transactions are accounted for in
accordance with the provisions of Statement No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts" ("Statement
No. 113").

The Company reinsures 100% of its traditional individual life and certain blocks
of its universal life business, substantially all of its disability income
business, and effective January 1, 1998, the mortality risk on the variable
universal life and remaining universal life blocks of business in-force at
December 31, 1997.

Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policy. Reinsurance contracts
do not relieve the Company from its obligations to policyholders. Failure of
reinsurers to honor their obligations could result in losses to the Company;
consequently, allowances are established for amounts deemed uncollectible. The
Company determines the appropriate amount of reinsurance based on evaluation of
the risks accepted and analyses prepared by consultants and reinsurers and on
market conditions (including the availability and pricing of reinsurance). The
Company also believes that the terms of its reinsurance contracts are consistent
with industry practice in that they contain

                                      F-20
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

standard terms with respect to lines of business covered, limit and retention,
arbitration and occurrence. Based on its review of its reinsurers' financial
statements and reputations in the reinsurance marketplace, the Company believes
that its reinsurers are financially sound.

Amounts recoverable from reinsurers at December 31, 1999 and 1998 for the
disability income business were $241.5 million and $230.8 million, respectively,
traditional life were $9.7 million and $11.4 million, respectively, and
universal and variable universal life were $36.0 million and $65.8 million,
respectively.

The effects of reinsurance were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)                                                  1999    1998    1997
- -------------                                                 ------  ------  ------
<S>                                                           <C>     <C>     <C>
Insurance premiums:
  Direct....................................................  $ 41.3  $ 45.5  $ 48.8
  Assumed...................................................    --      --       2.6
  Ceded.....................................................   (40.8)  (45.0)  (28.6)
                                                              ------  ------  ------
Net premiums................................................  $  0.5  $  0.5  $ 22.8
                                                              ======  ======  ======
Insurance and other individual policy benefits, claims and
 losses:
  Direct....................................................  $210.6  $204.0  $226.0
  Assumed...................................................    --      --       4.2
  Ceded.....................................................   (37.0)  (50.1)  (42.4)
                                                              ------  ------  ------
Net policy benefits, claims and losses......................  $173.6  $153.9  $187.8
                                                              ======  ======  ======
</TABLE>

10.  DEFERRED POLICY ACQUISITION COSTS

The following reflects the changes to the deferred policy acquisition cost
asset:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)                                                   1999     1998    1997
- -------------                                                 --------  ------  ------
<S>                                                           <C>       <C>     <C>
Balance at beginning of year................................  $  950.5  $765.3  $632.7
  Acquisition expenses deferred.............................     219.5   242.4   184.2
  Amortized to expense during the year......................     (49.8)  (64.6)  (53.1)
  Adjustment to equity during the year......................      36.2     7.4   (10.2)
  Adjustment for cession of disability income insurance.....     --       --     (38.6)
  Adjustment for revision of universal life and variable
    universal life insurance mortality assumptions..........     --       --      50.3
                                                              --------  ------  ------
Balance at end of year......................................  $1,156.4  $950.5  $765.3
                                                              ========  ======  ======
</TABLE>

On October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.3 million recapitalization of deferred policy acquisition costs.

11.  LIABILITIES FOR INDIVIDUAL DISABILITY INCOME BENEFITS

The Company regularly updates its estimates of liabilities for future policy
benefits and outstanding claims and losses as new information becomes available
and further events occur which may impact the resolution of

                                      F-21
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

unsettled claims. Changes in prior estimates are recorded in results of
operations in the year such changes are determined to be needed.

The liability for future policy benefits and outstanding claims and losses
related to the Company's disability income business was $240.7 million and
$233.3 million at December 31, 1999 and 1998. Due to the reinsurance agreement
whereby the Company has ceded substantially all of its disability income
business to a highly rated reinsurer, the Company believes that no material
adverse development of losses will occur. However, the amount of the liabilities
could be revised in the near term if the estimates used in determining the
liability are revised.

12.  CONTINGENCIES

REGULATORY AND INDUSTRY DEVELOPMENTS

Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company is not able to reasonably estimate the potential
effect on it of any such future assessments or voluntary payments.

LITIGATION

In July 1997, a lawsuit on behalf of a putative class was instituted in
Louisiana against AFC and certain of its subsidiaries including AFLIAC, by
individual plaintiffs alleging fraud, unfair or deceptive acts, breach of
contract, misrepresentation, and related claims in the sale of life insurance
policies. In October 1997, plaintiffs voluntarily dismissed the Louisiana suit
and filed a substantially similar action in Federal District Court in Worcester,
Massachusetts. In early November 1998, AFC and the plaintiffs entered into a
settlement agreement. The court granted preliminary approval of the settlement
on December 4, 1998. On May 19, 1999, the Court issued an order certifying the
class for settlement purposes and granting final approval of the settlement
agreement. AFLIAC recognized a $21.0 million pre-tax expense during the third
quarter of 1998 related to this litigation. Although the Company believes that
this expense reflects appropriate recognition of its obligation under the
settlement, this estimate assumes the availability of insurance coverage for
certain claims, and the estimate may be revised based on the amount of
reimbursement actually tendered by AFC's insurance carriers, and based on
changes in the Company's estimate of the ultimate cost of the benefits to be
provided to members of the class.

The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the Company's opinion, based on the advice of
legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's consolidated financial statements. However,
liabilities related to these proceedings could be established in the near term
if estimates of the ultimate resolution of these proceedings are revised.

YEAR 2000

The Year 2000 issue resulted from computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.

                                      F-22
<PAGE>
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

    (AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Although the Company does not believe that there is a material contingency
associated with the Year 2000 issue, there can be no assurance that exposure for
material contingencies will not arise.

13.  STATUTORY FINANCIAL INFORMATION

The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles
primarily because policy acquisition costs are expensed when incurred,
investment reserves are based on different assumptions, life insurance reserves
are based on different assumptions and income tax expense reflects only taxes
paid or currently payable. In 1999, 49 out of 50 states have adopted the
National Association of Insurance Commissioners proposed Codification, which
provides for uniform statutory accounting principles. These principles are
effective January 1, 2001. The Company is currently assessing the impact that
the adoption of Codification will have on its statutory results of operations
and financial position. Statutory net income and surplus are as follows:

<TABLE>
<CAPTION>
(IN MILLIONS)                                                  1999    1998    1997
- -------------                                                 ------  ------  ------
<S>                                                           <C>     <C>     <C>
Statutory net income........................................  $  5.0  $ (8.2) $ 31.5
Statutory shareholder's surplus.............................  $342.7  $312.2  $309.7
</TABLE>

                                      F-23
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Allmerica Financial Life Insurance and Annuity
Company and the Contractowners of Separate Account KGC of Allmerica Financial
Life Insurance and Annuity Company

In our opinion, the accompanying statements of assets and liabilities, and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts
constituting the Separate Account KGC of Allmerica Financial Life Insurance and
Annuity Company at December 31, 1999, the results of each of their operations
and the changes in each of their net assets for each of the periods indicated,
in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of Allmerica Financial
Life Insurance and Annuity Company; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these financial statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the Funds, provide a reasonable basis for the opinion
expressed above.


/s/ PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts
April 3, 2000
<PAGE>

                              SEPARATE ACCOUNT KGC

                      STATEMENTS OF ASSETS AND LIABILITIES

                               DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                                SMALL       SMALL     CONTRARIAN
                                                                              CAP VALUE   CAP GROWTH     VALUE     INTERNATIONAL
                                                                             ----------  -----------  -----------  -------------
<S>                                                                          <C>         <C>          <C>          <C>
ASSETS:
Investments in shares of Kemper Variable Series (KVS) . . . . . . . . . .    $8,852,950  $11,445,056  $18,392,718    $19,244,870
Investments in shares of Scudder Variable Life Investment Fund (VLIF) . .             -            -            -              -
Investments in shares of The Alger American Fund  . . . . . . . . . . . .             -            -            -              -
Investments in shares of Dreyfus Investment Portfolios  . . . . . . . . .             -            -            -              -
Investment in shares of The Dreyfus Socially Responsible
  Growth Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .             -            -            -              -
Dividend receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .             -            -            -              -
Receivable from Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .             -            -            -              -
                                                                             ----------  -----------  -----------  -------------
    Total  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .     8,852,950   11,445,056   18,392,718     19,244,870

LIABILITIES:
Payable to Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .             -            -            -              -
                                                                             ----------  -----------  -----------  -------------
    Net assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $8,852,950  $11,445,056  $18,392,718    $19,244,870
                                                                             ----------  -----------  -----------  -------------
                                                                             ----------  -----------  -----------  -------------

Net asset distribution by category:
  Variable annuity contracts  . . . . . . . . . . . . . . . . . . . . . .    $8,852,950  $11,445,056  $18,392,718    $19,244,870
  Value of investment by Allmerica Financial Life Insurance and Annuity
     Company (Sponsor)  . . . . . . . . . . . . . . . . . . . . . . . . .             -            -            -              -
                                                                             ----------  -----------  -----------  -------------
                                                                             $8,852,950  $11,445,056  $18,392,718    $19,244,870
                                                                             ----------  -----------  -----------  -------------
                                                                             ----------  -----------  -----------  -------------

Units outstanding, December 31, 1999  . . . . . . . . . . . . . . . . . .     8,172,785    5,485,634   13,896,116     11,193,200
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . .    $ 1.083223  $  2.086369  $  1.323587    $  1.719336

<CAPTION>
                                                                                                                       TOTAL
                                                                               GROWTH     VALUE+GROWTH  HORIZON 20+    RETURN
                                                                             -----------  ------------  -----------  -----------
<S>                                                                          <C>          <C>           <C>          <C>
ASSETS:
Investments in shares of Kemper Variable Series (KVS) . . . . . . . . . .    $17,218,719   $11,001,036   $2,918,774  $17,034,586
Investments in shares of Scudder Variable Life Investment Fund (VLIF) . .              -             -            -            -
Investments in shares of The Alger American Fund  . . . . . . . . . . . .              -             -            -            -
Investments in shares of Dreyfus Investment Portfolios  . . . . . . . . .              -             -            -            -
Investment in shares of The Dreyfus Socially Responsible
  Growth Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .              -             -            -            -
Dividend receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .              -             -            -            -
Receivable from Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .              -             -            -            -
                                                                             -----------  ------------  -----------  -----------
    Total  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .     17,218,719    11,001,036    2,918,774   17,034,586

LIABILITIES:
Payable to Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .              -        11,927            -            -
                                                                             -----------  ------------  -----------  -----------
    Net assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $17,218,719   $10,989,109   $2,918,774  $17,034,586
                                                                             -----------  ------------  -----------  -----------
                                                                             -----------  ------------  -----------  -----------

Net asset distribution by category:
  Variable annuity contracts  . . . . . . . . . . . . . . . . . . . . . .    $17,218,719   $10,989,109   $2,918,774  $17,034,586
  Value of investment by Allmerica Financial Life Insurance and Annuity
     Company (Sponsor)  . . . . . . . . . . . . . . . . . . . . . . . . .              -             -            -            -
                                                                             -----------  ------------  -----------  -----------
                                                                             $17,218,719   $10,989,109   $2,918,774  $17,034,586
                                                                             -----------  ------------  -----------  -----------
                                                                             -----------  ------------  -----------  -----------

Units outstanding, December 31, 1999  . . . . . . . . . . . . . . . . . .      9,416,489     6,592,215    2,059,370   11,247,731
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . .    $  1.828571   $  1.666983   $ 1.417314  $  1.514491

<CAPTION>
                                                                             HORIZON 10+
                                                                             -----------
<S>                                                                          <C>
ASSETS:
Investments in shares of Kemper Variable Series (KVS) . . . . . . . . . .     $5,645,006
Investments in shares of Scudder Variable Life Investment Fund (VLIF) . .              -
Investments in shares of The Alger American Fund  . . . . . . . . . . . .              -
Investments in shares of Dreyfus Investment Portfolios  . . . . . . . . .              -
Investment in shares of The Dreyfus Socially Responsible
  Growth Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .              -
Dividend receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .              -
Receivable from Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .            443
                                                                             -----------
    Total  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .      5,645,449

LIABILITIES:
Payable to Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .              -
                                                                             -----------
    Net assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $5,645,449
                                                                             -----------
                                                                             -----------

Net asset distribution by category:
  Variable annuity contracts  . . . . . . . . . . . . . . . . . . . . . .     $5,645,449
  Value of investment by Allmerica Financial Life Insurance and Annuity
     Company (Sponsor)  . . . . . . . . . . . . . . . . . . . . . . . . .              -
                                                                             -----------
                                                                              $5,645,449
                                                                             -----------
                                                                             -----------

Units outstanding, December 31, 1999  . . . . . . . . . . . . . . . . . .      4,289,187
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . .     $ 1.316205
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      SA-1
<PAGE>

                              SEPARATE ACCOUNT KGC

                STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)

                               DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                                                      INVESTMENT  GOVERNMENT
                                                                              HORIZON 5   HIGH YIELD  GRADE BOND  SECURITIES
                                                                             ----------  -----------  ----------  ----------
<S>                                                                          <C>         <C>          <C>         <C>
ASSETS:
Investments in shares of Kemper Variable Series (KVS) . . . . . . . . . .    $1,620,952  $25,461,987  $5,792,522  $3,886,705
Investments in shares of Scudder Variable Life Investment Fund (VLIF) . .             -            -           -           -
Investments in shares of The Alger American Fund  . . . . . . . . . . . .             -            -           -           -
Investments in shares of Dreyfus Investment Portfolios  . . . . . . . . .             -            -           -           -
Investment in shares of The Dreyfus Socially Responsible
  Growth Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .             -            -           -           -
Dividend receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .             -            -           -           -
Receivable from Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .            99            -         318           -
                                                                             ----------  -----------  ----------  ----------
    Total  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,621,051   25,461,987   5,792,840   3,886,705

LIABILITIES:
Payable to Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .             -            -           -           -
                                                                             ----------  -----------  ----------  ----------
    Net assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $1,621,051  $25,461,987  $5,792,840  $3,886,705
                                                                             ----------  -----------  ----------  ----------
                                                                             ----------  -----------  ----------  ----------

Net asset distribution by category:
  Variable annuity contracts  . . . . . . . . . . . . . . . . . . . . . .    $1,621,051  $25,461,987  $5,792,840  $3,886,705
  Value of investment by Allmerica Financial Life Insurance and Annuity
     Company (Sponsor)  . . . . . . . . . . . . . . . . . . . . . . . . .             -            -           -           -
                                                                             ----------  -----------  ----------  ----------
                                                                             $1,621,051  $25,461,987  $5,792,840  $3,886,705
                                                                             ----------  -----------  ----------  ----------
                                                                             ----------  -----------  ----------  ----------

Units outstanding, December 31, 1999  . . . . . . . . . . . . . . . . . .     1,295,954   22,755,270   5,244,629   3,434,165
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . .    $ 1.250855  $  1.118949  $ 1.104528  $ 1.131776

<CAPTION>
                                                                                                                    DREMAN
                                                                               MONEY       GLOBAL       BLUE       FINANCIAL
                                                                               MARKET      INCOME       CHIP       SERVICES
                                                                             -----------  ---------  -----------  ----------
<S>                                                                          <C>          <C>        <C>          <C>
ASSETS:
Investments in shares of Kemper Variable Series (KVS) . . . . . . . . . .    $11,242,351  $ 423,724  $13,828,214  $2,228,690
Investments in shares of Scudder Variable Life Investment Fund (VLIF) . .              -          -            -           -
Investments in shares of The Alger American Fund  . . . . . . . . . . . .              -          -            -           -
Investments in shares of Dreyfus Investment Portfolios  . . . . . . . . .              -          -            -           -
Investment in shares of The Dreyfus Socially Responsible
  Growth Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .              -          -            -           -
Dividend receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .         33,755          -            -           -
Receivable from Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .              -          -            -           -
                                                                             -----------  ---------  -----------  ----------
    Total  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .     11,276,106    423,724   13,828,214   2,228,690

LIABILITIES:
Payable to Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .              -          -            -           -
                                                                             -----------  ---------  -----------  ----------
    Net assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $11,276,106  $ 423,724  $13,828,214  $2,228,690
                                                                             -----------  ---------  -----------  ----------
                                                                             -----------  ---------  -----------  ----------

Net asset distribution by category:
  Variable annuity contracts  . . . . . . . . . . . . . . . . . . . . . .    $11,276,106  $ 423,724  $13,828,214  $2,228,690
  Value of investment by Allmerica Financial Life Insurance and Annuity
     Company (Sponsor)  . . . . . . . . . . . . . . . . . . . . . . . . .              -          -            -           -
                                                                             -----------  ---------  -----------  ----------
                                                                             $11,276,106  $ 423,724  $13,828,214  $2,228,690
                                                                             -----------  ---------  -----------  ----------
                                                                             -----------  ---------  -----------  ----------

Units outstanding, December 31, 1999  . . . . . . . . . . . . . . . . . .     10,036,453    405,948    8,954,699   2,444,801
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . .    $  1.123515  $1.043790  $  1.544241  $ 0.911604

<CAPTION>

                                                                                DREMAN
                                                                                 HIGH
                                                                             RETURN EQUITY
                                                                             -------------
<S>                                                                          <C>
ASSETS:
Investments in shares of Kemper Variable Series (KVS) . . . . . . . . . .      $ 8,781,136
Investments in shares of Scudder Variable Life Investment Fund (VLIF) . .                -
Investments in shares of The Alger American Fund  . . . . . . . . . . . .                -
Investments in shares of Dreyfus Investment Portfolios  . . . . . . . . .                -
Investment in shares of The Dreyfus Socially Responsible
  Growth Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .                -
Dividend receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .                -
Receivable from Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .                -
                                                                             -------------
    Total  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .        8,781,136

LIABILITIES:
Payable to Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .                -
                                                                             -------------
    Net assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $ 8,781,136
                                                                             -------------
                                                                             -------------

Net asset distribution by category:
  Variable annuity contracts  . . . . . . . . . . . . . . . . . . . . . .      $ 8,781,136
  Value of investment by Allmerica Financial Life Insurance and Annuity
     Company (Sponsor)  . . . . . . . . . . . . . . . . . . . . . . . . .                -
                                                                             -------------
                                                                               $ 8,781,136
                                                                             -------------
                                                                             -------------

Units outstanding, December 31, 1999  . . . . . . . . . . . . . . . . . .        9,715,312
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . .      $  0.903845
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      SA-2
<PAGE>

                              SEPARATE ACCOUNT KGC

                STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)

                               DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                             INTERNATIONAL
                                                                                GROWTH        GLOBAL    AGGRESSIVE  TECHNOLOGY
                                                                              AND INCOME     BLUE CHIP    GROWTH      GROWTH
                                                                             -------------  ----------  ----------  ----------
<S>                                                                          <C>            <C>         <C>         <C>
ASSETS:
Investments in shares of Kemper Variable Series (KVS) . . . . . . . . . .        $ 402,345  $1,938,411   $ 596,174  $5,997,396
Investments in shares of Scudder Variable Life Investment Fund (VLIF) . .                -           -           -           -
Investments in shares of The Alger American Fund  . . . . . . . . . . . .                -           -           -           -
Investments in shares of Dreyfus Investment Portfolios  . . . . . . . . .                -           -           -           -
Investment in shares of The Dreyfus Socially Responsible
  Growth Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .                -           -           -           -
Dividend receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .                -           -           -           -
Receivable from Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .                -           -           -           -
                                                                             -------------  ----------  ----------  ----------
    Total  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .          402,345   1,938,411     596,174   5,997,396

LIABILITIES:
Payable to Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .                -           -           -           -
                                                                             -------------  ----------  ----------  ----------
    Net assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        $ 402,345  $1,938,411   $ 596,174  $5,997,396
                                                                             -------------  ----------  ----------  ----------
                                                                             -------------  ----------  ----------  ----------

Net asset distribution by category:
  Variable annuity contracts  . . . . . . . . . . . . . . . . . . . . . .        $ 402,345  $1,938,411   $ 596,174  $5,997,396
  Value of investment by Allmerica Financial Life Insurance and Annuity
     Company (Sponsor)  . . . . . . . . . . . . . . . . . . . . . . . . .                -           -           -           -
                                                                             -------------  ----------  ----------  ----------
                                                                                 $ 402,345  $1,938,411   $ 596,174  $5,997,396
                                                                             -------------  ----------  ----------  ----------
                                                                             -------------  ----------  ----------  ----------

Units outstanding, December 31, 1999  . . . . . . . . . . . . . . . . . .          392,307   1,538,193     429,302   3,399,761
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . .        $1.025587  $ 1.260187   $1.388705  $ 1.764064

<CAPTION>
                                                                                        KVS FOCUSED       KVS           KVS
                                                                               INDEX     LARGE CAP      GROWTH        GROWTH
                                                                                500       GROWTH     OPPORTUNITIES  AND INCOME
                                                                             ---------  -----------  -------------  -----------
<S>                                                                          <C>        <C>          <C>            <C>
ASSETS:
Investments in shares of Kemper Variable Series (KVS) . . . . . . . . . .    $ 791,936  $  115,113      $  846,210    $ 313,767
Investments in shares of Scudder Variable Life Investment Fund (VLIF) . .            -           -               -            -
Investments in shares of The Alger American Fund  . . . . . . . . . . . .            -           -               -            -
Investments in shares of Dreyfus Investment Portfolios  . . . . . . . . .            -           -               -            -
Investment in shares of The Dreyfus Socially Responsible
  Growth Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .            -           -               -            -
Dividend receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .            -           -               -            -
Receivable from Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .            -           -               -            -
                                                                             ---------  -----------  -------------  -----------
    Total  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .      791,936     115,113         846,210      313,767

LIABILITIES:
Payable to Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .            -           -               -            -
                                                                             ---------  -----------  -------------  -----------
    Net assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $ 791,936  $  115,113      $  846,210    $ 313,767
                                                                             ---------  -----------  -------------  -----------
                                                                             ---------  -----------  -------------  -----------

Net asset distribution by category:
  Variable annuity contracts  . . . . . . . . . . . . . . . . . . . . . .    $ 791,936  $  112,550      $  846,210    $ 313,767
  Value of investment by Allmerica Financial Life Insurance and Annuity
     Company (Sponsor)  . . . . . . . . . . . . . . . . . . . . . . . . .            -       2,563               -            -
                                                                             ---------  -----------  -------------  -----------
                                                                             $ 791,936  $  115,113      $  846,210    $ 313,767
                                                                             ---------  -----------  -------------  -----------
                                                                             ---------  -----------  -------------  -----------

Units outstanding, December 31, 1999  . . . . . . . . . . . . . . . . . .      725,527      89,820         728,161      273,504
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . .    $1.091532  $ 1.281594      $ 1.162119    $1.147212

<CAPTION>
                                                                               SCUDDER
                                                                                 VLIF
                                                                             INTERNATIONAL
                                                                             -------------
<S>                                                                          <C>
ASSETS:
Investments in shares of Kemper Variable Series (KVS) . . . . . . . . . .       $        -
Investments in shares of Scudder Variable Life Investment Fund (VLIF) . .        4,074,873
Investments in shares of The Alger American Fund  . . . . . . . . . . . .                -
Investments in shares of Dreyfus Investment Portfolios  . . . . . . . . .                -
Investment in shares of The Dreyfus Socially Responsible
  Growth Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .                -
Dividend receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .                -
Receivable from Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .                -
                                                                             -------------
    Total  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .        4,074,873

LIABILITIES:
Payable to Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .                -
                                                                             -------------
    Net assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $4,074,873
                                                                             -------------
                                                                             -------------

Net asset distribution by category:
  Variable annuity contracts  . . . . . . . . . . . . . . . . . . . . . .       $4,074,873
  Value of investment by Allmerica Financial Life Insurance and Annuity
     Company (Sponsor)  . . . . . . . . . . . . . . . . . . . . . . . . .               -
                                                                             -------------
                                                                                $4,074,873
                                                                             -------------
                                                                             -------------

Units outstanding, December 31, 1999  . . . . . . . . . . . . . . . . . .        2,696,434
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . .       $ 1.511208
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      SA-3
<PAGE>

                              SEPARATE ACCOUNT KGC

                STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)

                               DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                              SCUDDER      SCUDDER      SCUDDER     ALGER
                                                                                VLIF        VLIF        VLIF       AMERICAN
                                                                               GLOBAL      CAPITAL      GROWTH    LEVERAGED
                                                                              DISCOVERY    GROWTH     AND INCOME    ALLCAP
                                                                             ----------  -----------  ----------  ---------
<S>                                                                          <C>         <C>          <C>         <C>
ASSETS:
Investments in shares of Kemper Variable Series (KVS) . . . . . . . . . .    $        -   $        -  $        -  $       -
Investments in shares of Scudder Variable Life Investment Fund (VLIF) . .     3,252,154    4,177,641   3,239,987          -
Investments in shares of The Alger American Fund  . . . . . . . . . . . .             -            -           -    207,582
Investments in shares of Dreyfus Investment Portfolios  . . . . . . . . .             -            -           -          -
Investment in shares of The Dreyfus Socially Responsible
  Growth Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .             -            -           -          -
Dividend receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .             -            -           -          -
Receivable from Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .             -            -           -          -
                                                                             ----------  -----------  ----------  ---------
    Total  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3,252,154    4,177,641   3,239,987    207,582

LIABILITIES:
Payable to Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .             -            -           -          -
                                                                             ----------  -----------  ----------  ---------
    Net assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $3,252,154   $4,177,641  $3,239,987  $ 207,582
                                                                             ----------  -----------  ----------  ---------
                                                                             ----------  -----------  ----------  ---------

Net asset distribution by category:
  Variable annuity contracts  . . . . . . . . . . . . . . . . . . . . . .    $3,252,154   $4,177,641  $3,239,987  $ 207,582
  Value of investment by Allmerica Financial Life Insurance and Annuity
     Company (Sponsor)  . . . . . . . . . . . . . . . . . . . . . . . . .             -            -           -          -
                                                                             ----------  -----------  ----------  ---------
                                                                             $3,252,154   $4,177,641  $3,239,987  $ 207,582
                                                                             ----------  -----------  ----------  ---------
                                                                             ----------  -----------  ----------  ---------

Units outstanding, December 31, 1999  . . . . . . . . . . . . . . . . . .     1,985,459    2,963,545   3,244,903    173,375
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . .    $ 1.637986   $ 1.409677  $ 0.998485  $1.197303

<CAPTION>
                                                                                                     DREYFUS
                                                                               ALGER     DREYFUS    SOCIALLY
                                                                              AMERICAN    MIDCAP   RESPONSIBLE
                                                                              BALANCED    STOCK      GROWTH
                                                                             ---------  ---------  -----------
<S>                                                                          <C>        <C>        <C>
ASSETS:
Investments in shares of Kemper Variable Series (KVS) . . . . . . . . . .    $       -  $       -    $       -
Investments in shares of Scudder Variable Life Investment Fund (VLIF) . .            -          -            -
Investments in shares of The Alger American Fund  . . . . . . . . . . . .       65,967          -            -
Investments in shares of Dreyfus Investment Portfolios  . . . . . . . . .                 140,376            -
Investment in shares of The Dreyfus Socially Responsible
  Growth Fund, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .            -          -       16,927
Dividend receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .            -          -            -
Receivable from Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .            -          -            -
                                                                             ---------  ---------  -----------
    Total  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .       65,967    140,376       16,927

LIABILITIES:
Payable to Allmerica Financial Life Insurance and Annuity
  Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . . . . . .            -          -            -
                                                                             ---------  ---------  -----------
    Net assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $  65,967  $ 140,376    $  16,927
                                                                             ---------  ---------  -----------
                                                                             ---------  ---------  -----------

Net asset distribution by category:
  Variable annuity contracts  . . . . . . . . . . . . . . . . . . . . . .    $  63,850  $ 138,279    $  14,755
  Value of investment by Allmerica Financial Life Insurance and Annuity
     Company (Sponsor)  . . . . . . . . . . . . . . . . . . . . . . . . .        2,117      2,097        2,172
                                                                             ---------  ---------  -----------
                                                                             $  65,967  $ 140,376    $  16,927
                                                                             ---------  ---------  -----------
                                                                             ---------  ---------  -----------

Units outstanding, December 31, 1999  . . . . . . . . . . . . . . . . . .       62,326    133,854       15,585
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . .    $1.058425  $1.048727    $1.086101
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      SA-4
<PAGE>

                              SEPARATE ACCOUNT KGC

                             STATEMENT OF OPERATONS

                      FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                                 SMALL        SMALL     CONTRARIAN
                                                                               CAP VALUE   CAP GROWTH      VALUE    INTERNATIONAL
                                                                               ----------  ----------  -----------  -------------
<S>                                                                            <C>         <C>         <C>          <C>
INVESTMENT INCOME:
  Dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $   92,513  $        -  $   401,500     $  178,127
                                                                               ----------  ----------  -----------  -------------

EXPENSES:
  Mortality and expense risk fees  . . . . . . . . . . . . . . . . . . . . .       91,539      83,479      229,281        110,029
  Administrative expense fees  . . . . . . . . . . . . . . . . . . . . . . .       14,453      13,181       36,203         17,373
                                                                               ----------  ----------  -----------  -------------
    Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      105,992      96,660      265,484        127,402
                                                                               ----------  ----------  -----------  -------------
    Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . .      (13,479)    (96,660)     136,016         50,725
                                                                               ----------  ----------  -----------  -------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
  Realized gain distributions from portfolio sponsor . . . . . . . . . . . .            -           -    1,338,332      1,914,865
  Net realized gain (loss) from sales of investments . . . . . . . . . . . .     (431,268)    288,315      478,923      1,880,066
                                                                               ----------  ----------  -----------  -------------
    Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .     (431,268)    288,315    1,817,255      3,794,931
  Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .      503,164   2,599,099   (4,596,861)     1,921,160
                                                                               ----------  ----------  -----------  -------------
    Net realized and unrealized gain (loss)  . . . . . . . . . . . . . . . .       71,896   2,887,414   (2,779,606)     5,716,091
                                                                               ----------  ----------  -----------  -------------
    Net increase (decrease) in net assets from operations  . . . . . . . . .   $   58,417  $2,790,754  $(2,643,590)    $5,766,816
                                                                               ----------  ----------  -----------  -------------
                                                                               ----------  ----------  -----------  -------------

<CAPTION>
                                                                                                                        TOTAL
                                                                                 GROWTH    VALUE+GROWTH  HORIZON 20+    RETURN
                                                                               ----------  ------------  -----------  -----------
<S>                                                                            <C>         <C>              <C>       <C>
INVESTMENT INCOME:
  Dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $        -    $   65,347    $  42,047   $  406,940
                                                                               ----------  ------------  -----------  -----------

EXPENSES:
  Mortality and expense risk fees  . . . . . . . . . . . . . . . . . . . . .      121,759       100,893       30,315      131,346
  Administrative expense fees  . . . . . . . . . . . . . . . . . . . . . . .       19,226        15,930        4,786       20,739
                                                                               ----------  ------------  -----------  -----------
    Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      140,985       116,823       35,101      152,085
                                                                               ----------  ------------  -----------  -----------
    Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . .     (140,985)      (51,476)       6,946      254,855
                                                                               ----------  ------------  -----------  -----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
  Realized gain distributions from portfolio sponsor . . . . . . . . . . . .            -       228,713       21,023      678,234
  Net realized gain (loss) from sales of investments . . . . . . . . . . . .      308,601       331,609       78,390       12,327
                                                                               ----------  ------------  -----------  -----------
    Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .      308,601       560,322       99,413      690,561
  Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .    3,971,930       993,925      132,839      892,354
                                                                               ----------  ------------  -----------  -----------
    Net realized and unrealized gain (loss)  . . . . . . . . . . . . . . . .    4,280,531     1,554,247      232,252    1,582,915
                                                                               ----------  ------------  -----------  -----------
    Net increase (decrease) in net assets from operations  . . . . . . . . .   $4,139,546    $1,502,771    $ 239,198   $1,837,770
                                                                               ----------  ------------  -----------  -----------
                                                                               ----------  ------------  -----------  -----------

<CAPTION>

                                                                               HORIZON 10+
                                                                               -----------
<S>                                                                            <C>
INVESTMENT INCOME:
  Dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $ 115,847
                                                                               -----------

EXPENSES:
  Mortality and expense risk fees  . . . . . . . . . . . . . . . . . . . . .      52,202
  Administrative expense fees  . . . . . . . . . . . . . . . . . . . . . . .       8,242
                                                                               -----------
    Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      60,444
                                                                               -----------
    Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . .      55,403
                                                                               -----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
  Realized gain distributions from portfolio sponsor . . . . . . . . . . . .           -
  Net realized gain (loss) from sales of investments . . . . . . . . . . . .      78,448
                                                                               -----------
    Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .      78,448
  Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .     246,204
                                                                               -----------
    Net realized and unrealized gain (loss)  . . . . . . . . . . . . . . . .     324,652
                                                                               -----------
    Net increase (decrease) in net assets from operations  . . . . . . . . .   $ 380,055
                                                                               -----------
                                                                               -----------
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      SA-5
<PAGE>

                              SEPARATE ACCOUNT KGC

                       STATEMENT OF OPERATONS (CONTINUED)

                      FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>

                                                                                                        INVESTMENT   GOVERNMENT
                                                                                HORIZON 5   HIGH YIELD  GRADE BOND   SECURITIES
                                                                               ----------  -----------  -----------  ----------
<S>                                                                             <C>        <C>          <C>          <C>
INVESTMENT INCOME:
  Dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $ 43,694   $ 2,661,358    $ 165,247   $ 286,525
                                                                               ----------  -----------  -----------  ----------

EXPENSES:
  Mortality and expense risk fees  . . . . . . . . . . . . . . . . . . . . .      16,359       258,570       57,972      50,546
  Administrative expense fees  . . . . . . . . . . . . . . . . . . . . . . .       2,584        40,826        9,154       7,981
                                                                               ----------  -----------  -----------  ----------
    Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      18,943       299,396       67,126      58,527
                                                                               ----------  -----------  -----------  ----------
    Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . .      24,751     2,361,962       98,121     227,998
                                                                               ----------  -----------  -----------  ----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
  Realized gain distributions from portfolio sponsor . . . . . . . . . . . .           -             -       55,082           -
  Net realized gain (loss) from sales of investments . . . . . . . . . . . .      36,997      (598,203)     (57,382)    (64,553)
                                                                               ----------  -----------  -----------  ----------
    Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .      36,997      (598,203)      (2,300)    (64,553)
  Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .       9,441    (1,390,724)    (325,574)   (171,747)
                                                                               ----------  -----------  -----------  ----------
    Net realized and unrealized gain (loss)  . . . . . . . . . . . . . . . .      46,438    (1,988,927)    (327,874)   (236,300)
                                                                               ----------  -----------  -----------  ----------
    Net increase (decrease) in net assets from operations  . . . . . . . . .    $ 71,189     $ 373,035    $(229,753)  $  (8,302)
                                                                               ----------  -----------  -----------  ----------
                                                                               ----------  -----------  -----------  ----------

<CAPTION>
                                                                                                                    DREMAN
                                                                                MONEY      GLOBAL       BLUE       FINANCIAL
                                                                                MARKET     INCOME       CHIP       SERVICES
                                                                               --------  ----------  ----------  -----------
<S>                                                                            <C>       <C>         <C>         <C>
INVESTMENT INCOME:
  Dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $541,334  $   21,259  $   51,072  $    10,899
                                                                               --------  ----------  ----------  -----------

EXPENSES:
  Mortality and expense risk fees  . . . . . . . . . . . . . . . . . . . . .    108,293       4,835      96,558       21,712
  Administrative expense fees  . . . . . . . . . . . . . . . . . . . . . . .     17,099         763      15,245        3,428
                                                                               --------  ----------  ----------  -----------
    Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    125,392       5,598     111,803       25,140
                                                                               --------  ----------  ----------  -----------
    Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . .    415,942      15,661     (60,731)     (14,241)
                                                                               --------  ----------  ----------  -----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
  Realized gain distributions from portfolio sponsor . . . . . . . . . . . .          -      10,630           -            -
  Net realized gain (loss) from sales of investments . . . . . . . . . . . .          -      (9,717)    276,177       (5,400)
                                                                               --------  ----------  ----------  -----------
    Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .          -         913     276,177      (5,400)
  Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .          -     (55,908)  2,029,701     (210,132)
                                                                               --------  ----------  ----------  -----------
    Net realized and unrealized gain (loss)  . . . . . . . . . . . . . . . .          -     (54,995)  2,305,878     (215,532)
                                                                               --------  ----------  ----------  -----------
    Net increase (decrease) in net assets from operations  . . . . . . . . .   $415,942  $  (39,334) $2,245,147  $  (229,773)
                                                                               --------  ----------  ----------  -----------
                                                                               --------  ----------  ----------  -----------

<CAPTION>
                                                                                  DREMAN
                                                                                   HIGH
                                                                               RETURN EQUITY
                                                                               -------------
<S>                                                                            <C>
INVESTMENT INCOME:
  Dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $    87,110
                                                                               -------------

EXPENSES:
  Mortality and expense risk fees  . . . . . . . . . . . . . . . . . . . . .          86,049
  Administrative expense fees  . . . . . . . . . . . . . . . . . . . . . . .          13,587
                                                                               -------------
    Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          99,636
                                                                               -------------
    Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . .         (12,526)
                                                                               -------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
  Realized gain distributions from portfolio sponsor . . . . . . . . . . . .          87,110
  Net realized gain (loss) from sales of investments . . . . . . . . . . . .         (50,348)
                                                                               -------------
    Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .          36,762
  Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .      (1,242,602)
                                                                               -------------
    Net realized and unrealized gain (loss)  . . . . . . . . . . . . . . . .      (1,205,840)
                                                                               -------------
    Net increase (decrease) in net assets from operations  . . . . . . . . .     $(1,218,366)
                                                                               -------------
                                                                               -------------
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      SA-6
<PAGE>

                              SEPARATE ACCOUNT KGC

                       STATEMENT OF OPERATONS (CONTINUED)

                      FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                               INTERNATIONAL
                                                                                  GROWTH       GLOBAL    AGGRESSIVE  TECHNOLOGY
                                                                                 AND INCOME   BLUE CHIP   GROWTH(a)   GROWTH(a)
                                                                               -------------  ---------  ----------  ----------
<S>                                                                            <C>            <C>        <C>         <C>
INVESTMENT INCOME:
  Dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        $  2,509   $  1,380     $     -  $        -
                                                                               -------------  ---------  ----------  ----------

EXPENSES:
  Mortality and expense risk fees  . . . . . . . . . . . . . . . . . . . . .           3,956     10,747       1,167      13,066
  Administrative expense fees  . . . . . . . . . . . . . . . . . . . . . . .             625      1,697         185       2,063
                                                                               -------------  ---------  ----------  ----------
    Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           4,581     12,444       1,352      15,129
                                                                               -------------  ---------  ----------  ----------
    Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . .          (2,072)   (11,064)     (1,352)    (15,129)
                                                                               -------------  ---------  ----------  ----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
  Realized gain distributions from portfolio sponsor . . . . . . . . . . . .               -          -           -           -
  Net realized gain (loss) from sales of investments . . . . . . . . . . . .           8,879     10,963      11,947     212,520
                                                                               -------------  ---------  ----------  ----------
    Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .           8,879     10,963      11,947     212,520
  Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .          38,024    302,586      76,723   1,607,565
                                                                               -------------  ---------  ----------  ----------
    Net realized and unrealized gain (loss)  . . . . . . . . . . . . . . . .          46,903    313,549      88,670   1,820,085
                                                                               -------------  ---------  ----------  ----------
    Net increase (decrease) in net assets from operations  . . . . . . . . .        $ 44,831   $302,485     $87,318  $1,804,956
                                                                               -------------  ---------  ----------  ----------
                                                                               -------------  ---------  ----------  ----------

<CAPTION>
                                                                                        KVS FOCUSED        KVS              KVS
                                                                                INDEX    LARGE CAP       GROWTH            GROWTH
                                                                                500(b)   GROWTH(c)   OPPORTUNITIES(c)  AND INCOME(c)
                                                                               -------  -----------  ----------------  -------------
<S>                                                                            <C>      <C>          <C>               <C>
INVESTMENT INCOME:
  Dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $     -       $    -           $     -       $     -
                                                                               -------  -----------  ----------------  -------------

EXPENSES:
  Mortality and expense risk fees  . . . . . . . . . . . . . . . . . . . . .     1,060           32               513           258
  Administrative expense fees  . . . . . . . . . . . . . . . . . . . . . . .       168            5                81            40
                                                                               -------  -----------  ----------------  -------------
    Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,228           37               594           298
                                                                               -------  -----------  ----------------  -------------
    Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . .    (1,228)         (37)             (594)         (298)
                                                                               -------  -----------  ----------------  -------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
  Realized gain distributions from portfolio sponsor . . . . . . . . . . . .         -            -                 -             -
  Net realized gain (loss) from sales of investments . . . . . . . . . . . .       878            1             2,101         2,456
                                                                               -------  -----------  ----------------  -------------
    Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .       878            1             2,101         2,456
  Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .    50,984        6,111            48,687        15,320
                                                                               -------  -----------  ----------------  -------------
    Net realized and unrealized gain (loss)  . . . . . . . . . . . . . . . .    51,862        6,112            50,788        17,776
                                                                               -------  -----------  ----------------  -------------
    Net increase (decrease) in net assets from operations  . . . . . . . . .   $50,634       $6,075           $50,194       $17,478
                                                                               -------  -----------  ----------------  -------------
                                                                               -------  -----------  ----------------  -------------

<CAPTION>
                                                                                  SCUDDER
                                                                                   VLIF
                                                                               INTERNATIONAL
                                                                               --------------
<S>                                                                            <C>
INVESTMENT INCOME:
  Dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $    2,328
                                                                               --------------
EXPENSES:
  Mortality and expense risk fees  . . . . . . . . . . . . . . . . . . . . .           19,764
  Administrative expense fees  . . . . . . . . . . . . . . . . . . . . . . .            3,120
                                                                               --------------
    Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           22,884
                                                                               --------------
    Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . .          (20,556)
                                                                               --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
  Realized gain distributions from portfolio sponsor . . . . . . . . . . . .          173,406
  Net realized gain (loss) from sales of investments . . . . . . . . . . . .          125,093
                                                                               --------------
    Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .          298,499
  Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .          949,118
                                                                               --------------
    Net realized and unrealized gain (loss)  . . . . . . . . . . . . . . . .        1,247,617
                                                                               --------------
    Net increase (decrease) in net assets from operations  . . . . . . . . .       $1,227,061
                                                                               --------------
                                                                               --------------
</TABLE>

(a) For the Period 5/3/99 to 12/31/99.
(b) For the Period 9/1/99 to 12/31/99.
(c) For the Period 10/29/99 to 12/31/99.

   The accompanying notes are an integral part of these financial statements.


                                      SA-7
<PAGE>

                              SEPARATE ACCOUNT KGC

                       STATEMENT OF OPERATONS (CONTINUED)

                      FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                                SCUDDER     SCUDDER   SCUDDER     ALGER
                                                                                 VLIF        VLIF       VLIF     AMERICAN
                                                                                 GLOBAL     CAPITAL    GROWTH    LEVERAGED
                                                                                DISCOVERY   GROWTH   AND INCOME  ALLCAP(d)
                                                                                ---------  --------  ----------  ---------
<S>                                                                             <C>        <C>       <C>         <C>
INVESTMENT INCOME:
  Dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $        -  $  4,197   $  20,301    $     -
                                                                               ----------  --------  ----------  ---------

EXPENSES:
  Mortality and expense risk fees  . . . . . . . . . . . . . . . . . . . . .       17,136    21,824      24,249        181
  Administrative expense fees  . . . . . . . . . . . . . . . . . . . . . . .        2,705     3,446       3,829         28
                                                                               ----------  --------  ----------  ---------
    Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       19,841    25,270      28,078        209
                                                                               ----------  --------  ----------  ---------
    Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . .      (19,841)  (21,073)     (7,777)      (209)
                                                                               ----------  --------  ----------  ---------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
  Realized gain distributions from portfolio sponsor . . . . . . . . . . . .       18,988   187,235     165,072          -
  Net realized gain (loss) from sales of investments . . . . . . . . . . . .      179,742     5,055     (27,061)       342
                                                                               ----------  --------  ----------  ---------
    Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .      198,730   192,290     138,011        342
  Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .      967,481   673,768    (117,015)    28,372
                                                                               ----------  --------  ----------  ---------
    Net realized and unrealized gain (loss)  . . . . . . . . . . . . . . . .    1,166,211   866,058      20,996     28,714
                                                                               ----------  --------  ----------  ---------
    Net increase (decrease) in net assets from operations  . . . . . . . . .   $1,146,370  $844,985   $  13,219    $28,505
                                                                               ----------  --------  ----------  ---------
                                                                               ----------  --------  ----------  ---------

<CAPTION>
                                                                                                        DREYFUS
                                                                                 ALGER      DREYFUS     SOCIALLY
                                                                                AMERICAN     MIDCAP   RESPONSIBLE
                                                                               BALANCED(d)  STOCK(d)   GROWTH(d)
                                                                               -----------  --------  -----------
<S>                                                                            <C>          <C>       <C>
INVESTMENT INCOME:
  Dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        $    -    $  319         $  2
                                                                               -----------  --------  -----------

EXPENSES:
  Mortality and expense risk fees  . . . . . . . . . . . . . . . . . . . . .            47        72           10
  Administrative expense fees  . . . . . . . . . . . . . . . . . . . . . . .             8        11            2
                                                                               -----------  --------  -----------
    Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            55        83           12
                                                                               -----------  --------  -----------
    Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . .           (55)      236          (10)
                                                                               -----------  --------  -----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
  Realized gain distributions from portfolio sponsor . . . . . . . . . . . .             -         -          564
  Net realized gain (loss) from sales of investments . . . . . . . . . . . .             1         2            -
                                                                               -----------  --------  -----------
    Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .             1         2          564
  Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . .         2,658     8,462          340
                                                                               -----------  --------  -----------
    Net realized and unrealized gain (loss)  . . . . . . . . . . . . . . . .         2,659     8,464          904
                                                                               -----------  --------  -----------
    Net increase (decrease) in net assets from operations  . . . . . . . . .        $2,604    $8,700         $894
                                                                               -----------  --------  -----------
                                                                               -----------  --------  -----------
</TABLE>

(d) For the Period 11/15/99 to 12/31/99.

   The accompanying notes are an integral part of these financial statements.


                                      SA-8
<PAGE>

                              SEPARATE ACCOUNT KGC

                       STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
                                                                                 SMALL CAP VALUE             SMALL CAP GROWTH
                                                                                    YEAR ENDED                   YEAR ENDED
                                                                                   DECEMBER 31,                 DECEMBER 31,
                                                                            -------------------------    -------------------------
                                                                               1999          1998           1999          1998
                                                                            -----------   -----------    -----------   -----------
<S>                                                                         <C>           <C>            <C>           <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . . . . .   $   (13,479)  $   (93,761)   $   (96,660)   $  (54,639)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . . . . .      (431,268)       19,908        288,315       663,823
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . . . . .       503,164    (1,185,352)     2,599,099       557,244
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from operations . . . . . . . . .        58,417    (1,259,205)     2,790,754     1,166,428
                                                                            -----------   -----------    -----------   -----------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . . . . .       845,312     4,815,657        920,385     3,164,070
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (583,691)     (202,915)      (500,641)     (130,607)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .       (89,211)      (81,749)       (52,821)      (33,135)
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . . . . .        (9,194)       (6,799)        (7,751)       (3,367)
  Transfers between sub-accounts (including fixed account), net . . . . .    (2,457,898)      125,579     (1,408,779)      952,186
  Other transfers from (to) the General Account . . . . . . . . . . . . .       657,556       832,653      1,324,596       465,470
  Net increase (decrease) in investment by Sponsor .. . . . . . . . . . .             -            -               -             -
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from contract transactions  . . .    (1,637,126)    5,482,426        274,989     4,414,617
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets . . . . . . . . . . . . . . . . .    (1,578,709)    4,223,221      3,065,743     5,581,045

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .    10,431,659     6,208,438      8,379,313     2,798,268
                                                                            -----------   -----------    -----------   -----------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $ 8,852,950   $10,431,659    $11,445,056    $8,379,313
                                                                            -----------   -----------    -----------   -----------
                                                                            -----------   -----------    -----------   -----------

<CAPTION>
                                                                                 CONTRARIAN VALUE              INTERNATIONAL
                                                                                    YEAR ENDED                   YEAR ENDED
                                                                                   DECEMBER 31,                 DECEMBER 31,
                                                                            -------------------------    -------------------------
                                                                               1999          1998           1999          1998
                                                                            -----------   -----------    -----------   -----------
<S>                                                                         <C>           <C>            <C>           <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . . . . .   $   136,016   $  (100,704)   $    50,725   $    (8,645)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . . . . .     1,817,255       623,746      3,794,931       299,136
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . . . . .    (4,596,861)    2,398,753      1,921,160       229,563
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from operations . . . . . . . . .    (2,643,590)    2,921,795      5,766,816       520,054
                                                                            -----------   -----------    -----------   -----------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . . . . .     1,002,039     9,202,476        504,297     4,501,022
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (2,749,875)     (889,594)      (483,947)     (244,010)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .      (169,455)     (212,900)       (32,036)     (111,839)
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . . . . .       (23,800)      (15,587)        (9,956)       (7,576)
  Transfers between sub-accounts (including fixed account), net . . . . .    (2,672,296)     (416,225)     2,385,871       245,577
  Other transfers from (to) the General Account . . . . . . . . . . . . .     1,623,788     1,034,065        111,672     1,045,980
  Net increase (decrease) in investment by Sponsor .. . . . . . . . . . .             -             -              -             -
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from contract transactions  . . .    (2,989,599)    8,702,235      2,475,901     5,429,154
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets . . . . . . . . . . . . . . . . .    (5,633,189)   11,624,030      8,242,717     5,949,208

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .    24,025,907    12,401,877     11,002,153     5,052,945
                                                                            -----------   -----------    -----------   -----------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $18,392,718   $24,025,907    $19,244,870   $11,002,153
                                                                            -----------   -----------    -----------   -----------
                                                                            -----------   -----------    -----------   -----------

<CAPTION>
                                                                                     GROWTH
                                                                                    YEAR ENDED
                                                                                   DECEMBER 31,
                                                                            -------------------------
                                                                               1999          1998
                                                                            -----------   -----------
<S>                                                                         <C>           <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . . . . .   $  (140,985)   $  (53,941)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . . . . .       308,601       635,919
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . . . . .     3,971,930       188,064
                                                                            -----------   -----------
  Net increase (decrease) in net assets from operations . . . . . . . . .     4,139,546       770,042
                                                                            -----------   -----------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . . . . .     1,173,902     3,639,357
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (715,919)     (162,171)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .       (30,344)      (83,094)
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . . . . .       (14,674)       (5,051)
  Transfers between sub-accounts (including fixed account), net . . . . .     1,125,642       513,601
  Other transfers from (to) the General Account . . . . . . . . . . . . .     2,056,451     1,088,099
  Net increase (decrease) in investment by Sponsor .. . . . . . . . . . .             -             -
                                                                            -----------   -----------
  Net increase (decrease) in net assets from contract transactions  . . .     3,595,058     4,990,741
                                                                            -----------   -----------
  Net increase (decrease) in net assets . . . . . . . . . . . . . . . . .     7,734,604     5,760,783

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .     9,484,115     3,723,332
                                                                            -----------   -----------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $17,218,719    $9,484,115
                                                                            -----------   -----------
                                                                            -----------   -----------
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      SA-9
<PAGE>

                              SEPARATE ACCOUNT KGC

                 STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>

                                                                                   VALUE+GROWTH                  HORIZON 20+
                                                                                    YEAR ENDED                   YEAR ENDED
                                                                                   DECEMBER 31,                 DECEMBER 31,
                                                                            -------------------------    -------------------------
                                                                               1999          1998           1999          1998
                                                                            -----------   -----------    -----------   -----------
<S>                                                                         <C>           <C>            <C>           <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . . . . .   $   (51,476)  $   (76,199)    $    6,946    $  (11,064)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . . . . .       560,322       165,508         99,413        40,386
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . . . . .       993,925       952,049        132,839       145,761
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from operations . . . . . . . . .     1,502,771     1,041,358        239,198       175,083
                                                                            -----------   -----------    -----------   -----------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . . . . .       869,937     4,675,071        247,263     1,621,990
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (831,632)     (342,008)      (130,982)     (143,172)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .       (76,351)      (31,265)        (2,274)            -
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . . . . .       (12,047)       (7,016)        (3,579)       (1,734)
  Transfers between sub-accounts (including fixed account), net . . . . .    (1,643,750)      131,946       (943,225)      394,309
  Other transfers from (to) the General Account . . . . . . . . . . . . .       813,256     1,436,904        307,264       166,632
  Net increase (decrease) in investment by Sponsor. . . . . . . . . . . .             -             -              -             -
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from contract transactions  . . .      (880,587)    5,863,632       (525,533)    2,038,025
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets . . . . . . . . . . . . . . . . .       622,184     6,904,990       (286,335)    2,213,108

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .    10,366,925     3,461,935      3,205,109       992,001
                                                                            -----------   -----------    -----------   -----------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $10,989,109   $10,366,925     $2,918,774    $3,205,109
                                                                            -----------   -----------    -----------   -----------
                                                                            -----------   -----------    -----------   -----------

<CAPTION>
                                                                                  TOTAL RETURN                   HORIZON 10+
                                                                                    YEAR ENDED                   YEAR ENDED
                                                                                   DECEMBER 31,                 DECEMBER 31,
                                                                            -------------------------    -------------------------
                                                                                1999          1998          1999          1998
                                                                            -----------   -----------    -----------   -----------
<S>                                                                         <C>           <C>            <C>           <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . . . . .   $   254,855    $   87,468     $   55,403    $  (16,000)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . . . . .       690,561       672,397         78,448        63,259
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . . . . .       892,354       121,480        246,204       236,828
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from operations . . . . . . . . .     1,837,770       881,345        380,055       284,087
                                                                            -----------   -----------    -----------   -----------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . . . . .     2,214,623     4,696,268        568,030     2,528,693
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (793,908)     (303,542)      (401,238)      (99,809)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .       (46,019)      (29,018)       (33,946)       (2,535)
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . . . . .       (13,160)       (6,143)        (7,061)       (3,214)
  Transfers between sub-accounts (including fixed account), net . . . . .       886,694       (22,856)      (652,033)     (221,124)
  Other transfers from (to) the General Account . . . . . . . . . . . . .     3,016,959       897,532         951,331      758,394
  Net increase (decrease) in investment by Sponsor .. . . . . . . . . . .             -             -              -             -
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from contract transactions  . . .     5,265,189     5,232,241        425,083     2,960,405
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets . . . . . . . . . . . . . . . . .     7,102,959     6,113,586        805,138     3,244,492

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .     9,931,627     3,818,041      4,840,311     1,595,819
                                                                            -----------   -----------    -----------   -----------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $17,034,586    $9,931,627     $5,645,449    $4,840,311
                                                                            -----------   -----------    -----------   -----------
                                                                            -----------   -----------    -----------   -----------

<CAPTION>
                                                                                  HORIZON 5                    HIGH YIELD
                                                                                  YEAR ENDED                   YEAR ENDED
                                                                                 DECEMBER 31,                  DECEMBER 31,
                                                                            -------------------------    -------------------------
                                                                               1999          1998           1999          1998
                                                                            -----------   -----------    -----------   -----------
<S>                                                                         <C>           <C>            <C>           <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . . . . .    $   24,751    $   (5,533)   $ 2,361,962   $   840,579
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . . . . .        36,997        19,179       (598,203)     (346,154)
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . . . . .         9,441        71,558     (1,390,724)     (218,163)
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from operations . . . . . . . . .        71,189        85,204        373,035       276,262
                                                                            -----------   -----------    -----------   -----------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . . . . .       111,045     1,290,376      1,898,204    15,388,553
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (182,335)      (40,947)    (1,437,312)     (694,199)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .        (8,224)       (1,867)      (114,632)     (206,487)
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . . . . .        (1,805)       (1,083)       (20,173)      (14,599)
  Transfers between sub-accounts (including fixed account), net . . . . .      (569,438)     (106,836)    (3,525,701)   (7,535,895)
  Other transfers from (to) the General Account . . . . . . . . . . . . .       383,332       104,737      1,919,057     8,651,844
  Net increase (decrease) in investment by Sponsor .. . . . . . . . . . .             -             -              -             -
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from contract transactions  . . .      (267,425)    1,244,380     (1,280,557)   15,589,217
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets . . . . . . . . . . . . . . . . .      (196,236)    1,329,584       (907,522)   15,865,479

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,817,287       487,703     26,369,509    10,504,030
                                                                            -----------   -----------    -----------   -----------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $1,621,051    $1,817,287    $25,461,987   $26,369,509
                                                                            -----------   -----------    -----------   -----------
                                                                            -----------   -----------    -----------   -----------
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                     SA-10
<PAGE>

                              SEPARATE ACCOUNT KGC

                 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
                                                                             INVESTMENT GRADE BOND         GOVERNMENT SECURITIES
                                                                                  YEAR ENDED                     YEAR ENDED
                                                                                 DECEMBER 31,                   DECEMBER 31,
                                                                            -------------------------    -------------------------
                                                                               1999          1998           1999          1998
                                                                            -----------   -----------    -----------   -----------
<S>                                                                         <C>           <C>            <C>           <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . . . . .    $   98,121    $   10,852     $  227,998    $   29,122
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . . . . .        (2,300)       70,783        (64,553)       60,126
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . . . . .      (325,574)      183,750       (171,747)       86,189
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from operations . . . . . . . . .      (229,753)      265,385         (8,302)      175,437
                                                                            -----------   -----------    -----------   -----------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . . . . .       499,046     2,345,309      1,064,606     1,655,197
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (339,595)     (156,435)      (364,732)     (196,719)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .       (59,454)       (4,807)       (77,185)       (2,481)
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . . . . .        (6,046)       (3,939)        (5,328)       (4,319)
  Transfers between sub-accounts (including fixed account), net . . . . .       454,261     2,875,368     (2,808,942)    2,574,060
  Other transfers from (to) the General Account . . . . . . . . . . . . .    (1,443,843)      495,551        869,408       308,793
  Net increase (decrease) in investment by Sponsor .. . . . . . . . . . .             -             -              -             -
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from contract transactions  . . .      (895,631)    5,551,047     (1,322,173)    4,334,531
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets . . . . . . . . . . . . . . . . .    (1,125,384)    5,816,432     (1,330,475)    4,509,968

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .     6,918,224     1,101,792      5,217,180       707,212
                                                                            -----------   -----------    -----------   -----------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $5,792,840    $6,918,224     $3,886,705    $5,217,180
                                                                            -----------   -----------    -----------   -----------
                                                                            -----------   -----------    -----------   -----------

<CAPTION>
                                                                                   MONEY MARKET                GLOBAL INCOME
                                                                                    YEAR ENDED                   YEAR ENDED
                                                                                   DECEMBER 31,                 DECEMBER 31,
                                                                            -------------------------    -------------------------
                                                                               1999          1998           1999          1998
                                                                            -----------   -----------    -----------   -----------
<S>                                                                         <C>           <C>            <C>           <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . . . . .   $   415,942    $  186,350      $  15,661     $   4,120
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . . . . .             -             -            913        16,672
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . . . . .             -             -        (55,908)       23,686
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from operations . . . . . . . . .       415,942       186,350        (39,334)       44,478
                                                                            -----------   -----------    -----------   -----------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . . . . .     7,747,472     8,079,251         97,016       514,073
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (1,002,175)     (243,215)       (72,736)      (11,952)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .      (420,133)     (287,652)             -             -
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . . . . .        (3,887)       (3,040)          (780)         (428)
  Transfers between sub-accounts (including fixed account), net . . . . .      (720,119)   (2,685,150)      (124,568)     (550,025)
  Other transfers from (to) the General Account . . . . . . . . . . . . .       447,708    (2,661,817)        76,918        24,783
  Net increase (decrease) in investment by Sponsor .. . . . . . . . . . .             -             -              -             -
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets from contract transactions  . . .     6,048,866     2,198,377        (24,150)      (23,549)
                                                                            -----------   -----------    -----------   -----------
  Net increase (decrease) in net assets . . . . . . . . . . . . . . . . .     6,464,808     2,384,727        (63,484)       20,929

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .     4,811,298     2,426,571        487,208       466,279
                                                                            -----------   -----------    -----------   -----------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $11,276,106    $4,811,298      $ 423,724     $ 487,208
                                                                            -----------   -----------    -----------   -----------
                                                                            -----------   -----------    -----------   -----------

<CAPTION>
                                                                                  BLUE CHIP
                                                                                  YEAR ENDED
                                                                                 DECEMBER 31,
                                                                            -------------------------
                                                                               1999          1998
                                                                            -----------   -----------
<S>                                                                         <C>           <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . . . . .   $   (60,731)   $  (19,346)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . . . . .       276,177         5,025
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . . . . .     2,029,701       540,897
                                                                            -----------   -----------
  Net increase (decrease) in net assets from operations . . . . . . . . .     2,245,147       526,576
                                                                            -----------   -----------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . . . . .     1,604,339     4,151,503
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (629,381)     (134,135)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .       (81,974)      (38,677)
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . . . . .       (10,012)       (3,328)
  Transfers between sub-accounts (including fixed account), net . . . . .     1,966,253       181,650
  Other transfers from (to) the General Account . . . . . . . . . . . . .     1,708,756       613,615
  Net increase (decrease) in investment by Sponsor .. . . . . . . . . . .             -             -
                                                                            -----------   -----------
  Net increase (decrease) in net assets from contract transactions  . . .     4,557,981     4,770,628
                                                                            -----------   -----------
  Net increase (decrease) in net assets . . . . . . . . . . . . . . . . .     6,803,128     5,297,204

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .     7,025,086     1,727,882
                                                                            -----------   -----------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $13,828,214    $7,025,086
                                                                            -----------   -----------
                                                                            -----------   -----------
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                     SA-11
<PAGE>

                              SEPARATE ACCOUNT KGC

                 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
                                                                       DREMAN FINANCIAL SERVICES       DREMAN HIGH RETURN EQUITY
                                                                       YEAR ENDED        PERIOD        YEAR ENDED        PERIOD
                                                                      DECEMBER 31,    FROM 5/4/98*    DECEMBER 31,    FROM 5/5/98*
                                                                          1999         TO 12/31/98        1999        TO 12/31/98
                                                                     --------------  --------------  --------------  --------------
<S>                                                                  <C>             <C>             <C>             <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . .     $  (14,241)     $   (6,432)     $  (12,526)     $  (20,100)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . .         (5,400)         (7,309)         36,762          (5,240)
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . .       (210,132)         42,500      (1,242,602)        326,991
                                                                     --------------  --------------  --------------  --------------
  Net increase (decrease) in net assets from operations . . . . . .       (229,773)         28,759      (1,218,366)        301,651
                                                                     --------------  --------------  --------------  --------------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . .        484,316         891,013       2,580,424       2,888,136
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . .       (160,713)        (12,515)       (342,490)        (53,563)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . .           (539)              -         (17,715)              -
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . .         (1,620)           (146)         (9,052)         (1,140)
  Transfers between sub-accounts (including fixed account), net . .        129,519         512,803      (1,006,499)      1,978,856
  Other transfers from (to) the General Account . . . . . . . . . .        359,029         228,557       2,722,592         958,302
  Net increase (decrease) in investment by Sponsor .. . . . . . . .              -               -               -               -
                                                                     --------------  --------------  --------------  --------------
  Net increase (decrease) in net assets from contract transactions         809,992       1,619,712       3,927,260       5,770,591
                                                                     --------------  --------------  --------------  --------------
  Net increase (decrease) in net assets . . . . . . . . . . . . . .        580,219       1,648,471       2,708,894       6,072,242

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . .      1,648,471               -       6,072,242               -
                                                                     --------------  --------------  --------------  --------------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . .     $2,228,690      $1,648,471      $8,781,136      $6,072,242
                                                                     --------------  --------------  --------------  --------------
                                                                     --------------  --------------  --------------  --------------

<CAPTION>
                                                                     INTERNATIONAL GROWTH AND INCOME       GLOBAL BLUE CHIP
                                                                       YEAR ENDED        PERIOD       YEAR ENDED        PERIOD
                                                                      DECEMBER 31,    FROM 5/19/98*   DECEMBER 31,    FROM 6/4/98*
                                                                          1999         TO 12/31/98       1999         TO 12/31/98
                                                                     --------------  --------------  --------------  --------------
<S>                                                                  <C>             <C>             <C>             <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . .     $   (2,072)      $    (620)     $  (11,064)       $ (1,249)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . .          8,879            (364)         10,963             (43)
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . .         38,024           4,403         302,586          12,328
                                                                     --------------  --------------  --------------  --------------
  Net increase (decrease) in net assets from operations . . . . . .         44,831           3,419         302,485          11,036
                                                                     --------------  --------------  --------------  --------------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . .         59,403          65,477         166,040         241,993
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . .        (21,619)         (2,030)        (53,838)           (334)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . .           (672)              -               -               -
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . .           (524)            (63)         (1,834)            (21)
  Transfers between sub-accounts (including fixed account), net . .       (131,704)        163,124         889,685          66,390
  Other transfers from (to) the General Account . . . . . . . . . .        150,871          71,832         237,803          79,006
  Net increase (decrease) in investment by Sponsor .. . . . . . . .              -               -               -               -
                                                                     --------------  --------------  --------------  --------------
  Net increase (decrease) in net assets from contract transactions          55,755         298,340       1,237,856         387,034
                                                                     --------------  --------------  --------------  --------------
  Net increase (decrease) in net assets . . . . . . . . . . . . . .        100,586         301,759       1,540,341         398,070

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . .        301,759               -         398,070               -
                                                                     --------------  --------------  --------------  --------------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . .     $  402,345       $ 301,759      $1,938,411        $398,070
                                                                     --------------  --------------  --------------  --------------
                                                                     --------------  --------------  --------------  --------------


<CAPTION>

                                                                       AGGRESSIVE
                                                                        GROWTH
                                                                        PERIOD
                                                                      FROM 5/3/99*
                                                                      TO 12/31/99
                                                                     --------------
<S>                                                                  <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . .      $  (1,352)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . .         11,947
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . .         76,723
                                                                     --------------
  Net increase (decrease) in net assets from operations . . . . . .         87,318
                                                                     --------------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . .         17,232
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . .              -
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . .              -
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . .            (81)
  Transfers between sub-accounts (including fixed account), net . .        489,052
  Other transfers from (to) the General Account . . . . . . . . . .          3,220
  Net increase (decrease) in investment by Sponsor .. . . . . . . .           (567)
                                                                     --------------
  Net increase (decrease) in net assets from contract transactions         508,856
                                                                     --------------
  Net increase (decrease) in net assets . . . . . . . . . . . . . .        596,174

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . .              -
                                                                     --------------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . .      $ 596,174
                                                                     --------------
                                                                     --------------
</TABLE>

* Date of initial investment.

   The accompanying notes are an integral part of these financial statements.


                                     SA-12
<PAGE>

                              SEPARATE ACCOUNT KGC

                 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                       KVS FOCUSED
                                                                       TECHNOLOGY                       LARGE CAP
                                                                         GROWTH         INDEX 500        GROWTH
                                                                         PERIOD          PERIOD          PERIOD
                                                                       FROM 5/3/99*    FROM 9/1/99*  FROM 10/29/99*
                                                                       TO 12/31/99     TO 12/31/99    TO 12/31/99
                                                                     --------------  --------------  --------------
<S>                                                                  <C>             <C>             <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . .     $  (15,129)       $ (1,228)       $    (37)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . .        212,520             878               1
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . .      1,607,565          50,984           6,111
                                                                     --------------  --------------  --------------
  Net increase (decrease) in net assets from operations . . . . . .      1,804,956          50,634           6,075
                                                                     --------------  --------------  --------------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . .        406,945          43,800           3,106
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . .       (555,364)        (27,473)         (1,647)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . .              -               -               -
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . .           (659)            (52)              -
  Transfers between sub-accounts (including fixed account), net . .      4,269,094         722,872         105,517
  Other transfers from (to) the General Account . . . . . . . . . .         72,623           2,251              62
  Net increase (decrease) in investment by Sponsor .. . . . . . . .           (199)            (96)          2,000
                                                                     --------------  --------------  --------------
  Net increase (decrease) in net assets from contract transactions       4,192,440         741,302         109,038
                                                                     --------------  --------------  --------------
  Net increase (decrease) in net assets . . . . . . . . . . . . . .      5,997,396         791,936         115,113

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . .             -               -               -
                                                                     --------------  --------------  --------------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . .     $5,997,396        $791,936        $115,113
                                                                     --------------  --------------  --------------
                                                                     --------------  --------------  --------------

<CAPTION>
                                                                          KVS             KVS
                                                                         GROWTH         GROWTH                 SCUDDER
                                                                     OPPORTUNITIES     AND INCOME          VLIF INTERNATIONAL
                                                                         PERIOD          PERIOD        YEAR ENDED        PERIOD
                                                                     FROM 10/29/99*  FROM 10/29/99*   DECEMBER 31,    FROM 5/12/98*
                                                                       TO 12/31/99     TO 12/31/99        1999        TO 12/31/98
                                                                     --------------  --------------  --------------  --------------
<S>                                                                  <C>             <C>             <C>             <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . .     $     (594)       $  (298)      $  (20,556)       $ (2,450)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . .          2,101           2,456         298,499          (1,943)
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . .         48,687          15,320         949,118          20,714
                                                                     --------------  --------------  --------------  --------------
  Net increase (decrease) in net assets from operations . . . . . .         50,194          17,478       1,227,061          16,321
                                                                     --------------  --------------  --------------  --------------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . .         61,111          46,545         441,690         395,977
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . .         (3,395)         (1,630)       (334,789)         (4,114)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . .              -               -               -               -
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . .             (8)             (7)         (1,865)           (180)
  Transfers between sub-accounts (including fixed account), net . .        737,233         251,563       1,503,473         311,003
  Other transfers from (to) the General Account . . . . . . . . . .          1,258             (14)        453,972          66,324
  Net increase (decrease) in investment by Sponsor .. . . . . . . .           (183)           (168)              -               -
                                                                     --------------  --------------  --------------  --------------
  Net increase (decrease) in net assets from contract transactions         796,016         296,289       2,062,481         769,010
                                                                     --------------  --------------  --------------  --------------
  Net increase (decrease) in net assets . . . . . . . . . . . . . .        846,210         313,767       3,289,542         785,331

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . .              -               -         785,331               -
                                                                     --------------  --------------  --------------  --------------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . .     $  846,210        $313,767      $4,074,873        $785,331
                                                                     --------------  --------------  --------------  --------------
                                                                     --------------  --------------  --------------  --------------
</TABLE>

* Date of initial investment.

   The accompanying notes are an integral part of these financial statements.


                                     SA-13
<PAGE>

                              SEPARATE ACCOUNT KGC

                 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                SCUDDER                         SCUDDER
                                                                          VLIF GLOBAL DISCOVERY          VLIF CAPITAL GROWTH
                                                                        YEAR ENDED        PERIOD        YEAR ENDED       PERIOD
                                                                       DECEMBER 31,  FROM 5/26/98*     DECEMBER 31,   FROM 5/12/98*
                                                                          1999         TO 12/31/98        1999         TO 12/31/98
                                                                     --------------  --------------  --------------  --------------
<S>                                                                  <C>             <C>             <C>             <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . .     $  (19,841)       $ (2,973)     $  (21,073)       $   (795)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . .        198,730          (7,910)        192,290          (1,815)
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . .        967,481          40,747         673,768          85,889
                                                                     --------------  --------------  --------------  --------------
  Net increase (decrease) in net assets from operations . . . . . .      1,146,370          29,864         844,985          83,279
                                                                     --------------  --------------  --------------  --------------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . .        489,356         549,568         807,814         378,623
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . .       (791,232)              -        (184,918)        (15,242)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . .              -               -         (34,738)              -
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . .         (1,233)            (51)         (1,433)            (98)
  Transfers between sub-accounts (including fixed account), net . .      1,381,064         102,476         740,379         303,151
  Other transfers from (to) the General Account . . . . . . . . . .        297,354          48,618       1,207,109          48,730
  Net increase (decrease) in investment by Sponsor .. . . . . . . .              -               -               -               -
                                                                     --------------  --------------  --------------  --------------
  Net increase (decrease) in net assets from contract transactions       1,375,309         700,611       2,534,213         715,164
                                                                     --------------  --------------  --------------  --------------
  Net increase (decrease) in net assets . . . . . . . . . . . . . .      2,521,679         730,475       3,379,198         798,443

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . .        730,475               -         798,443               -
                                                                     --------------  --------------  --------------  --------------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . .     $3,252,154        $730,475      $4,177,641        $798,443
                                                                     --------------  --------------  --------------  --------------
                                                                     --------------  --------------  --------------  --------------


<CAPTION>
                                                                                                         ALGER
                                                                                                        AMERICAN
                                                                                SCUDDER                 LEVERAGED
                                                                         VLIF GROWTH AND INCOME          ALLCAP
                                                                       YEAR ENDED       PERIOD           PERIOD
                                                                      DECEMBER 31,   FROM 5/18/98*   FROM 11/15/99*
                                                                          1999        TO 12/31/98     TO 12/31/99
                                                                     --------------  --------------  --------------
<S>                                                                  <C>             <C>             <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . .     $   (7,777)     $    1,971        $   (209)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . .        138,011          (2,189)            342
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . .       (117,015)         32,208          28,372
                                                                     --------------  --------------  --------------
  Net increase (decrease) in net assets from operations . . . . . .         13,219          31,990          28,505
                                                                     --------------  --------------  --------------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . .        491,500         645,076          13,106
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . .        (89,433)         (4,722)         (1,634)
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . .        (32,461)              -               -
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . .         (1,531)            (77)             (1)
  Transfers between sub-accounts (including fixed account), net . .        873,304         227,355         167,816
  Other transfers from (to) the General Account . . . . . . . . . .        953,588         132,179              (1)
  Net increase (decrease) in investment by Sponsor .. . . . . . . .              -               -            (209)
                                                                     --------------  --------------  --------------
  Net increase (decrease) in net assets from contract transactions       2,194,967         999,811         179,077
                                                                     --------------  --------------  --------------
  Net increase (decrease) in net assets . . . . . . . . . . . . . .      2,208,186       1,031,801         207,582

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . .      1,031,801               -               -
                                                                     --------------  --------------  --------------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . .     $3,239,987      $1,031,801        $207,582
                                                                     --------------  --------------  --------------
                                                                     --------------  --------------  --------------
</TABLE>

* Date of initial investment.

   The accompanying notes are an integral part of these financial statements.


                                     SA-14
<PAGE>

                              SEPARATE ACCOUNT KGC

                 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                         DREYFUS
                                                                          ALGER         DREYFUS         SOCIALLY
                                                                        AMERICAN         MIDCAP        RESPONSIBLE
                                                                        BALANCED         STOCK           GROWTH
                                                                         PERIOD          PERIOD          PERIOD
                                                                     FROM 11/15/99*  FROM 11/15/99*  FROM 11/15/99*
                                                                      TO 12/31/99     TO 12/31/99     TO 12/31/99
                                                                     --------------  --------------  --------------
<S>                                                                  <C>             <C>             <C>
INCREASE (DECREASE) IN NET ASSETS:
  FROM OPERATIONS:
  Net investment income (loss)  . . . . . . . . . . . . . . . . . .       $    (55)       $    236         $   (10)
  Net realized gain (loss)  . . . . . . . . . . . . . . . . . . . .              1               2             564
  Net unrealized gain (loss)  . . . . . . . . . . . . . . . . . . .          2,658           8,462             340
                                                                     --------------  --------------  --------------
  Net increase (decrease) in net assets from operations . . . . . .          2,604           8,700             894
                                                                     --------------  --------------  --------------

  FROM CONTRACT TRANSACTIONS:
  Net purchase payments . . . . . . . . . . . . . . . . . . . . . .          6,206               -          14,031
  Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . .              -               -               -
  Contract benefits . . . . . . . . . . . . . . . . . . . . . . . .              -               -               -
  Contract charges  . . . . . . . . . . . . . . . . . . . . . . . .            (10)             (5)             (3)
  Transfers between sub-accounts (including fixed account), net . .         55,167         129,681               -
  Other transfers from (to) the General Account . . . . . . . . . .              -               -               5
  Net increase (decrease) in investment by Sponsor .. . . . . . . .          2,000           2,000           2,000
                                                                     --------------  --------------  --------------
  Net increase (decrease) in net assets from contract transactions          63,363         131,676          16,033
                                                                     --------------  --------------  --------------
  Net increase (decrease) in net assets . . . . . . . . . . . . . .         65,967         140,376          16,927

NET ASSETS:
  Beginning of year . . . . . . . . . . . . . . . . . . . . . . . .              -               -               -
                                                                     --------------  --------------  --------------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . .       $ 65,967        $140,376         $16,927
                                                                     --------------  --------------  --------------
                                                                     --------------  --------------  --------------
</TABLE>

* Date of initial investment.

   The accompanying notes are an integral part of these financial statements.


                                     SA-15
<PAGE>

                              SEPARATE ACCOUNT KGC

                          NOTES TO FINANCIAL STATEMENTS



NOTE 1 - ORGANIZATION

     Separate Account KGC is a separate investment account of Allmerica
Financial Life Insurance and Annuity Company (the Company), established on
December 20, 1996 for the purpose of separating from the general assets of the
Company those assets used to fund certain variable annuity contracts issued by
the Company. The Company is a wholly-owned subsidiary of First Allmerica
Financial Life Insurance Company (First Allmerica). First Allmerica is a
wholly-owned subsidiary of Allmerica Financial Corporation (AFC). Under
applicable insurance law, the assets and liabilities of Separate Account KGC are
clearly identified and distinguished from the other assets and liabilities of
the Company. Separate Account KGC cannot be charged with liabilities arising out
of any other business of the Company.

     Separate Account KGC is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). Separate Account KGC
currently offers thirty-four Sub-Accounts under the variable annuity contracts.
Each Sub-Account invests exclusively in a corresponding investment portfolio of
Kemper Variable Series (KVS) or Scudder Variable Life Investment Fund (Scudder
VLIF) managed by Scudder Kemper Investments, Inc. (Scudder Kemper); or of The
Alger American Fund (Alger) managed by Fred Alger Management, Inc.; or of
Dreyfus Investment Portfolios or Dreyfus Socially Responsible Growth Fund, Inc.
(Dreyfus) managed by The Dreyfus Corporation. KVS, Scudder VLIF, Alger, and
Dreyfus (the Funds) are open-end, management investment companies registered
under the 1940 Act.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

     INVESTMENTS - Security transactions are recorded on the trade date.
Investments held by the Sub-Accounts are stated at the net asset value per share
of the respective investment portfolio of the Funds. Realized gains and losses
on securities sold are determined using the average cost method. Dividends and
capital gain distributions are recorded on the ex-dividend date and are
reinvested in additional shares of the respective investment portfolio of the
Funds at net asset value.

     FEDERAL INCOME TAXES - The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code (the Code) and files a
consolidated federal income tax return with First Allmerica. The Company
anticipates no tax liability resulting from the operations of Separate Account
KGC. Therefore, no provision for income taxes has been charged against Separate
Account KGC.


                                     SA-16
<PAGE>

                              SEPARATE ACCOUNT KGC

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 - INVESTMENTS

     The number of shares owned, aggregate cost, and net asset value per share
of each Sub-Account's investment in the Funds at December 31, 1999 were as
follows:

<TABLE>
<CAPTION>
                                                                      PORTFOLIO INFORMATION
                                                   ----------------------------------------------------------
                                                                                               NET ASSET
                                                        NUMBER OF           AGGREGATE            VALUE
INVESTMENT PORTFOLIO                                     SHARES               COST             PER SHARE
- --------------------                               ------------------  ------------------  ------------------
<S>                                                    <C>               <C>                   <C>
Small Cap Value . . . . . . . . . . . . . . . . . .     8,159,852        $   9,274,221         $  1.085
Small Cap Growth  . . . . . . . . . . . . . . . . .     4,312,461            8,054,532            2.654
Contrarian Value  . . . . . . . . . . . . . . . . .    12,514,182           19,539,195            1.470
International . . . . . . . . . . . . . . . . . . .     8,970,378           17,120,825            2.145
Growth  . . . . . . . . . . . . . . . . . . . . . .     4,247,016           12,998,953            4.054
Value+Growth  . . . . . . . . . . . . . . . . . . .     5,803,949            8,905,548            1.895
Horizon 20+ . . . . . . . . . . . . . . . . . . . .     1,807,996            2,577,873            1.614
Total Return  . . . . . . . . . . . . . . . . . . .     5,909,759           15,915,097            2.882
Horizon 10+ . . . . . . . . . . . . . . . . . . . .     3,816,875            5,127,733            1.479
Horizon 5 . . . . . . . . . . . . . . . . . . . . .     1,215,143            1,525,445            1.334
High Yield  . . . . . . . . . . . . . . . . . . . .    22,211,936           26,781,150            1.146
Investment Grade Bond . . . . . . . . . . . . . . .     5,260,048            5,888,955            1.101
Government Securities . . . . . . . . . . . . . . .     3,360,544            3,950,752            1.157
Money Market  . . . . . . . . . . . . . . . . . . .    11,242,351           11,242,351            1.000
Global Income . . . . . . . . . . . . . . . . . . .       429,675              445,123            0.986
Blue Chip . . . . . . . . . . . . . . . . . . . . .     8,813,337           11,217,493            1.569
Dreman Financial Services . . . . . . . . . . . . .     2,411,375            2,396,322            0.924
Dreman High Return Equity . . . . . . . . . . . . .     9,795,455            9,696,747            0.896
International Growth and Income . . . . . . . . . .       388,946              359,918            1.034
Global Blue Chip  . . . . . . . . . . . . . . . . .     1,566,570            1,623,497            1.237
Aggressive Growth . . . . . . . . . . . . . . . . .       426,171              519,451            1.399
Technology Growth . . . . . . . . . . . . . . . . .     3,375,031            4,389,831            1.777
Index 500 . . . . . . . . . . . . . . . . . . . . .       722,873              740,952            1.096
KVS Focused Large Cap Growth  . . . . . . . . . . .        89,655              109,002            1.284
KVS Growth Opportunities  . . . . . . . . . . . . .       726,822              797,523            1.164
KVS Growth And Income . . . . . . . . . . . . . . .       273,000              298,447            1.149
Scudder VLIF International  . . . . . . . . . . . .       200,338            3,105,041           20.340
Scudder VLIF Global Discovery . . . . . . . . . . .       246,749            2,243,926           13.180
Scudder VLIF Capital Growth . . . . . . . . . . . .       143,414            3,417,984           29.130
Scudder VLIF Growth and Income  . . . . . . . . . .       295,619            3,324,794           10.960
Alger American Leveraged AllCap . . . . . . . . . .         3,581              179,210           57.970
Alger American Balanced . . . . . . . . . . . . . .         4,237               63,309           15.570
Dreyfus MidCap Stock  . . . . . . . . . . . . . . .        10,445              131,914           13.440
Dreyfus Socially Responsible Growth . . . . . . . .           433               16,587           39.070
</TABLE>


                                     SA-17
<PAGE>

                              SEPARATE ACCOUNT KGC

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 - RELATED PARTY TRANSACTIONS

     The Company makes a charge of 0.95% per annum based on the average daily
net assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account 0.15% per annum based on the
average daily net assets of each Sub-Account for administrative expenses. These
charges are deducted from the daily value of each Sub-Account and are paid to
the Company on a daily basis.

     A contract fee is currently deducted on the contract anniversary and upon
full surrender of the contract when the accumulated value is less than $50,000
on contracts issued on Form A3026-96. The fee is currently waived for contracts
issued to and maintained by the trustee of a 401(k) plan.

     Allmerica Investments, Inc. (Allmerica Investments), a wholly-owned
subsidiary of the Company, is principal underwriter and general distributor of
Separate Account KGC, and does not receive any compensation for sales of the
contracts. Commissions are paid by the Company to registered representatives of
Allmerica Investments and to certain independent broker-dealers. The current
series of contracts have a contingent deferred sales charge and no deduction is
made for sales charges at the time of the sale.

NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS

     Transactions from contractowners and sponsor were as follows:

<TABLE>
<CAPTION>
                                                                        PERIOD ENDED DECEMBER 31,
                                                                1999                                 1998
                                                -----------------------------------   -----------------------------------
                                                      UNITS             AMOUNT             UNITS              AMOUNT
                                                ----------------   ----------------   ----------------   ----------------
<S>                                             <C>                <C>                <C>                <C>
Small Cap Value
  Issuance of Units  . . . . . . . . . . . .          3,795,450      $   4,186,289          7,776,705      $   8,903,629
  Redemption of Units  . . . . . . . . . . .         (5,413,219)        (5,823,415)        (3,100,914)        (3,421,203)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .         (1,617,769)     $  (1,637,126)         4,675,791      $   5,482,426
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Small Cap Growth
  Issuance of Units  . . . . . . . . . . . .          3,306,493      $   6,056,437          5,351,872      $   7,208,994
  Redemption of Units  . . . . . . . . . . .         (3,165,869)        (5,781,448)        (2,096,605)        (2,794,377)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .            140,624      $     274,989          3,255,267      $   4,414,617
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Contrarian Value
  Issuance of Units  . . . . . . . . . . . .          4,793,879      $   6,906,204          9,957,627      $  13,654,429
  Redemption of Units  . . . . . . . . . . .         (7,016,918)        (9,895,803)        (3,653,050)        (4,952,194)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .         (2,223,039)     $  (2,989,599)         6,304,577      $   8,702,235
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

International
  Issuance of Units  . . . . . . . . . . . .        104,088,743      $ 151,186,959          7,708,241      $   8,996,578
  Redemption of Units  . . . . . . . . . . .       (102,117,259)      (148,711,058)        (3,095,148)        (3,567,424)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .          1,971,484      $   2,475,901          4,613,093      $   5,429,154
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Growth
  Issuance of Units  . . . . . . . . . . . .          6,743,006      $  10,533,271          6,555,804      $   8,181,445
  Redemption of Units  . . . . . . . . . . .         (4,360,431)        (6,938,213)        (2,665,545)        (3,190,704)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .          2,382,575      $   3,595,058          3,890,259      $   4,990,741
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Value+Growth
  Issuance of Units  . . . . . . . . . . . .          2,218,359      $   3,444,716          8,800,319      $  11,524,938
  Redemption of Units  . . . . . . . . . . .         (2,792,595)        (4,325,303)        (4,478,388)        (5,661,306)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .           (574,236)     $    (880,587)         4,321,931      $   5,863,632
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------
</TABLE>


                                     SA-18
<PAGE>

                              SEPARATE ACCOUNT KGC

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)

<TABLE>
<CAPTION>
                                                                        PERIOD ENDED DECEMBER 31,
                                                                1999                                 1998
                                                -----------------------------------   -----------------------------------
                                                      UNITS             AMOUNT             UNITS              AMOUNT
                                                ----------------   ----------------   ----------------   ----------------
<S>                                             <C>                <C>                <C>                <C>
Horizon 20+
  Issuance of Units  . . . . . . . . . . . .            483,294      $     661,034          1,950,047      $   2,460,879
  Redemption of Units  . . . . . . . . . . .           (867,454)        (1,186,567)          (352,054)          (422,854)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .           (384,160)     $    (525,533)          1,597,993     $   2,038,025
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Total Return
  Issuance of Units  . . . . . . . . . . . .          5,314,720      $   7,424,934          5,473,294      $   6,869,877
  Redemption of Units  . . . . . . . . . . .         (1,513,187)        (2,159,745)        (1,287,033)        (1,637,636)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .          3,801,533      $   5,265,189          4,186,261      $   5,232,241
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Horizon 10+
  Issuance of Units  . . . . . . . . . . . .          1,758,114      $   2,211,479          3,295,342      $   3,827,053
  Redemption of Units  . . . . . . . . . . .         (1,410,879)        (1,786,396)          (784,458)          (866,648)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .            347,235      $     425,083          2,510,884      $   2,960,405
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Horizon 5
  Issuance of Units  . . . . . . . . . . . .            506,702      $     602,634          1,313,661      $   1,509,442
  Redemption of Units  . . . . . . . . . . .           (717,450)          (870,059)          (245,895)          (265,062)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .           (210,748)     $    (267,425)         1,067,766      $   1,244,380
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

High Yield
  Issuance of Units  . . . . . . . . . . . .         11,670,546      $  12,894,483         29,448,980      $  32,149,350
  Redemption of Units  . . . . . . . . . . .        (12,723,948)       (14,175,040)       (15,156,655)       (16,560,133)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .         (1,053,402)     $  (1,280,557)        14,292,325      $  15,589,217
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Investment Grade Bond
  Issuance of Units  . . . . . . . . . . . .          4,373,668      $   4,941,781         10,234,949      $  11,092,575
  Redemption of Units  . . . . . . . . . . .         (5,196,124)        (5,837,412)        (5,199,358)        (5,541,528)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .           (822,456)     $    (895,631)         5,035,591      $   5,551,047
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Government Securities
  Issuance of Units  . . . . . . . . . . . .          4,500,049      $   5,104,167          8,420,482      $   9,134,573
  Redemption of Units  . . . . . . . . . . .         (5,656,084)        (6,426,340)        (4,488,958)        (4,800,042)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .         (1,156,035)     $  (1,322,173)         3,931,524      $   4,334,531
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Money Market
  Issuance of Units  . . . . . . . . . . . .        165,019,475      $ 181,988,347         26,302,580      $  27,915,935
  Redemption of Units  . . . . . . . . . . .       (159,422,927)      (175,939,481)       (24,191,342)       (25,717,558)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .          5,596,548      $   6,048,866         2,111,238       $   2,198,377
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Global Income
  Issuance of Units  . . . . . . . . . . . .            227,565      $     252,955            977,382      $   1,018,134
  Redemption of Units  . . . . . . . . . . .           (256,248)          (277,105)          (999,349)        (1,041,683)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .            (28,683)     $     (24,150)           (21,967)     $     (23,549)
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Blue Chip
  Issuance of Units  . . . . . . . . . . . .          6,502,872      $   9,009,185          5,429,153      $   6,280,415
  Redemption of Units  . . . . . . . . . . .         (3,182,833)        (4,451,204)        (1,354,979)        (1,509,787)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .          3,320,039      $   4,557,981          4,074,174      $   4,770,628
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------
</TABLE>


                                     SA-19
<PAGE>

                              SEPARATE ACCOUNT KGC

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)

<TABLE>
<CAPTION>
                                                                        PERIOD ENDED DECEMBER 31,
                                                                1999                                 1998
                                                -----------------------------------   -----------------------------------
                                                      UNITS             AMOUNT             UNITS              AMOUNT
                                                ----------------   ----------------   ----------------   ----------------
<S>                                             <C>                <C>                <C>                <C>
Dreman Financial Services
  Issuance of Units  . . . . . . . . . . . .          2,252,764      $   2,229,064          1,826,222      $   1,736,001
  Redemption of Units  . . . . . . . . . . .         (1,506,008)        (1,419,072)          (128,177)          (116,289)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .            746,756      $     809,992          1,698,045      $   1,619,712
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Dreman High Return Equity
  Issuance of Units  . . . . . . . . . . . .          7,768,711      $   7,756,452          6,240,369      $   6,091,264
  Redemption of Units  . . . . . . . . . . .         (3,956,396)        (3,829,192)          (337,372)          (320,673)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .          3,812,315      $   3,927,260          5,902,997      $   5,770,591
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

International Growth and  Income
  Issuance of Units  . . . . . . . . . . . .            549,175      $     529,083            337,807      $     302,886
  Redemption of Units  . . . . . . . . . . .           (488,875)          (473,328)           (5,800)             (4,546)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .             60,300      $      55,755            332,007      $     298,340
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Global Blue Chip
  Issuance of Units  . . . . . . . . . . . .          1,374,398      $   1,501,247            399,905      $     390,576
  Redemption of Units  . . . . . . . . . . .           (232,043)          (263,391)           (4,068)             (3,542)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .          1,142,355      $   1,237,856            395,837      $     387,034
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Aggressive Growth
  Issuance of Units  . . . . . . . . . . . .            623,829      $     741,859                  -      $           -
  Redemption of Units  . . . . . . . . . . .           (194,527)          (233,003)                 -                  -
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .            429,302      $     508,856                  -      $           -
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Technology Growth
  Issuance of Units  . . . . . . . . . . . .          4,464,588      $   5,658,314                  -      $           -
  Redemption of Units  . . . . . . . . . . .         (1,064,827)        (1,465,874)                 -                  -
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .          3,399,761      $   4,192,440                  -      $           -
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Index 500
  Issuance of Units  . . . . . . . . . . . .            769,511      $     787,446                  -      $           -
  Redemption of Units  . . . . . . . . . . .            (43,984)           (46,144)                 -                  -
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .            725,527      $     741,302                  -      $           -
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

KVS Focused Large Cap Growth
  Issuance of Units  . . . . . . . . . . . .             91,264      $     110,684                  -      $           -
  Redemption of Units  . . . . . . . . . . .             (1,444)            (1,646)                 -                  -
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .             89,820      $     109,038                  -      $           -
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

KVS Growth Opportunities
  Issuance of Units  . . . . . . . . . . . .            774,306      $     846,075                  -      $           -
  Redemption of Units  . . . . . . . . . . .            (46,145)           (50,059)                 -                  -
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .            728,161      $     796,016                  -      $           -
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

KVS Growth and Income
  Issuance of Units  . . . . . . . . . . . .            464,453      $     501,481                  -      $           -
  Redemption of Units  . . . . . . . . . . .           (190,949)          (205,192)                 -                  -
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .            273,504      $     296,289                  -      $           -
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Scudder VLIF International
  Issuance of Units  . . . . . . . . . . . .          6,855,938      $   8,256,237            832,186      $     804,324
  Redemption of Units  . . . . . . . . . . .         (4,953,642)        (6,193,756)           (38,049)           (35,314)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .          1,902,296      $   2,062,481            794,137      $     769,010
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------
</TABLE>


                                     SA-20
<PAGE>

                              SEPARATE ACCOUNT KGC

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)

<TABLE>
<CAPTION>
                                                                        PERIOD ENDED DECEMBER 31,
                                                                1999                                 1998
                                                -----------------------------------   -----------------------------------
                                                      UNITS             AMOUNT             UNITS              AMOUNT
                                                ----------------   ----------------   ----------------   ----------------
<S>                                             <C>                <C>                <C>                <C>
Scudder VLIF Global Discovery
  Issuance of Units  . . . . . . . . . . . .          2,211,489      $   2,638,774            818,550      $     776,583
  Redemption of Units  . . . . . . . . . . .           (957,695)        (1,263,465)           (86,885)           (75,972)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .          1,253,794      $   1,375,309            731,665      $     700,611
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Scudder VLIF Capital Growth
  Issuance of Units  . . . . . . . . . . . .          3,890,400      $   4,603,824            873,028      $     821,698
  Redemption of Units  . . . . . . . . . . .         (1,684,413)        (2,069,611)          (115,471)          (106,534)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .          2,205,987      $   2,534,213            757,557      $     715,164
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Scudder VLIF Growth and Income
  Issuance of Units  . . . . . . . . . . . .          3,096,516      $   3,107,658          1,125,991      $   1,036,881
  Redemption of Units  . . . . . . . . . . .           (935,765)          (912,691)           (41,839)           (37,070)
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .          2,160,751      $   2,194,967          1,084,152      $     999,811
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Alger American Leveraged AllCap
  Issuance of Units  . . . . . . . . . . . .            174,862      $     180,921                  -      $           -
  Redemption of Units  . . . . . . . . . . .             (1,487)            (1,844)                 -                  -
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .            173,375      $     179,077                  -      $           -
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Alger American Balanced
  Issuance of Units  . . . . . . . . . . . .             62,326      $      63,363                  -      $           -
  Redemption of Units  . . . . . . . . . . .                  -                  -                  -                  -
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .             62,326      $      63,363                  -      $           -
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Dreyfus MidCap Stock
  Issuance of Units  . . . . . . . . . . . .            133,854      $     131,676                  -      $           -
  Redemption of Units  . . . . . . . . . . .                  -                  -                  -                  -
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .            133,854      $     131,676                  -      $           -
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------

Dreyfus Socially Responsible Growth
  Issuance of Units  . . . . . . . . . . . .             15,585      $      16,033                  -      $           -
  Redemption of Units  . . . . . . . . . . .                  -                  -                  -                  -
                                                ----------------   ----------------   ----------------   ----------------
    Net increase (decrease)  . . . . . . . .             15,585      $      16,033                  -      $           -
                                                ----------------   ----------------   ----------------   ----------------
                                                ----------------   ----------------   ----------------   ----------------
</TABLE>

NOTE 6 - DIVERSIFICATION REQUIREMENTS

     Under the provisions of Section 817(h) of the Code, a variable annuity
contract, other than a contract issued in connection with certain types of
employee benefit plans, will not be treated as an annuity contract for federal
income tax purposes for any period for which the investments of the segregated
asset account on which the contract is based are not adequately diversified. The
Code provides that the "adequately diversified" requirement may be met if the
underlying investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by the Secretary of
The Treasury.

     The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that Separate Account KGC satisfies the current
requirements of the regulations, and it intends that Separate Account KGC will
continue to meet such requirements.


                                     SA-21
<PAGE>

                              SEPARATE ACCOUNT KGC

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 - PURCHASES AND SALES OF SECURITIES

     Cost of purchases and proceeds from sales of shares of the Funds by
Separate Account KGC during the year ended December 31, 1999 were as follows:

<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO                                   PURCHASES                 SALES
- --------------------                              -----------------       -----------------
<S>                                               <C>                     <C>
Small Cap Value . . . . . . . . . . . . . . .       $    2,647,129          $    4,297,734
Small Cap Growth  . . . . . . . . . . . . . .            4,687,831               4,509,502
Contrarian Value  . . . . . . . . . . . . . .            5,802,945               7,318,196
International . . . . . . . . . . . . . . . .          151,830,124             147,388,633
Growth  . . . . . . . . . . . . . . . . . . .            8,560,930               5,106,857
Value+Growth  . . . . . . . . . . . . . . . .            2,647,939               3,340,043
Horizon 20+ . . . . . . . . . . . . . . . . .              625,479               1,123,043
Total Return  . . . . . . . . . . . . . . . .            7,070,151                 871,873
Horizon 10+ . . . . . . . . . . . . . . . . .            2,073,406               1,592,584
Horizon 5 . . . . . . . . . . . . . . . . . .              587,094                 829,265
High Yield  . . . . . . . . . . . . . . . . .           12,297,718              11,216,313
Investment Grade Bond . . . . . . . . . . . .            4,738,122               5,480,763
Government Securities . . . . . . . . . . . .            4,529,951               5,624,126
Money Market  . . . . . . . . . . . . . . . .          174,912,204             168,471,998
Global Income . . . . . . . . . . . . . . . .              325,609                 323,468
Blue Chip . . . . . . . . . . . . . . . . . .            7,377,242               2,879,992
Dreman Financial Services . . . . . . . . . .            1,979,140               1,183,389
Dreman High Return Equity . . . . . . . . . .            6,277,621               2,275,777
International Growth and Income . . . . . . .              512,385                 458,702
Global Blue Chip  . . . . . . . . . . . . . .            1,442,009                 215,217
Aggressive Growth . . . . . . . . . . . . . .              735,213                 227,709
Technology Growth . . . . . . . . . . . . . .            5,389,477               1,212,166
Index 500 . . . . . . . . . . . . . . . . . .              760,847                  20,773
KVS Focused Large Cap Growth  . . . . . . . .              109,025                      24
KVS Growth Opportunities  . . . . . . . . . .              842,099                  46,677
KVS Growth And Income . . . . . . . . . . . .              501,727                 205,736
Scudder VLIF International  . . . . . . . . .            8,204,165               5,988,834
Scudder VLIF Global Discovery . . . . . . . .            2,601,235               1,226,779
Scudder VLIF Capital Growth . . . . . . . . .            4,462,351               1,761,976
Scudder VLIF Growth and Income  . . . . . . .            3,164,392                 812,130
Alger American Leveraged AllCap . . . . . . .              182,893                   4,025
Alger American Balanced . . . . . . . . . . .               63,362                      54
Dreyfus MidCap Stock  . . . . . . . . . . . .              131,988                      76
Dreyfus Socially Responsible Growth . . . . .               16,601                      14
                                                  -----------------       -----------------
                                                    $  428,090,404          $  386,014,448
                                                  -----------------       -----------------
                                                  -----------------       -----------------
</TABLE>


                                     SA-22

<PAGE>




                            PART C. OTHER INFORMATION


ITEM 24.  FINANCIAL STATEMENTS AND EXHIBITS

         (a)  FINANCIAL STATEMENTS

         Financial Statements Included in Part A
         None

         Financial Statements Included in Part B
         Financial Statements for Allmerica Financial Life Insurance and
         Annuity Company
         Financial Statements for Separate Account KGC of Allmerica Financial
         Life Insurance and Annuity Company

         Financial Statements Included in Part C
         None

         (b)  EXHIBITS

         EXHIBIT 1  Vote of Board of Directors Authorizing Establishment of
                    Registrant dated June 13, 1996 was previously filed on
                    August 16, 1996 in Registrant's Initial Registration
                    Statement, and is incorporated by reference herein.

         EXHIBIT 2  Not Applicable. Pursuant to Rule 26a-2, the Insurance
                    Company may hold the assets of the Registrant NOT pursuant
                    to a trust indenture or other such instrument.

         EXHIBIT 3  (a)  Underwriting and Administrative Services Agreement was
                         previously filed on April 30, 1998 in Post-Effective
                         Amendment No. 2, and is incorporated by reference
                         herein.

                    (b)  Wholesaling Agreement was previously filed on December
                         10, 1996 in Pre-Effective Amendment No. 1, and is
                         incorporated by reference herein.

                    (c)  Sales Agreements with Commission Schedule were
                         previously filed on April 30, 1998 in Post-Effective
                         Amendment No. 2, and are incorporated by reference
                         herein.

                    (d)  Sales Agreement with Chase was previously filed on
                         April 30, 1998 in Post-Effective Amendment No. 2, and
                         is incorporated by reference herein.

                    (e)  General Agent's Agreement was previously filed on April
                         30, 1998 in Post-Effective Amendment No. 2, and is
                         incorporated by reference herein.

                    (f)  Career Agent Agreement was previously filed on April
                         30, 1998 in Post-Effective Amendment No. 2, and is
                         incorporated by reference herein.



<PAGE>




                    (g)  Registered Representative's Agreement was previously
                         filed on April 30, 1998 in Post-Effective Amendment No.
                         2, and is incorporated by reference herein.

                    (h)  Form of Indemnification Agreement with Scudder Kemper
                         was previously filed on April 30, 1998 in
                         Post-Effective Amendment No. 2, and is incorporated by
                         reference herein.

         EXHIBIT 4  Minimum Guaranteed Annuity Payout Rider was previously filed
                    on December 29, 1998 in Post-Effective Amendment No. 3, and
                    is incorporated by reference herein. Policy Form was
                    previously filed on August 16, 1996 in Registrant's Initial
                    Registration Statement, and is incorporated by reference
                    herein.

         EXHIBIT 5  Application Form was previously filed on August 16, 1996 in
                    Registrant's Initial Registration Statement, and is
                    incorporated by reference herein.

         EXHIBIT 6  The Depositor's Articles of Incorporation and Bylaws,
                    effective October 1, 1995 as amended to reflect its name
                    change, were previously filed on August 16, 1996 in
                    Registrant's Initial Registration Statement, and are
                    incorporated by reference herein.

         EXHIBIT 7  Not Applicable.

         EXHIBIT 8  (a)  BFDS Agreements for lockbox and mailroom services were
                         previously filed on April 30, 1998 in Post-Effective
                         Amendment No. 2, and are incorporated by reference
                         herein.

                    (b)  Form of Scudder Services Agreement was previously filed
                         on April 30, 1998 in Post-Effective Amendment No. 2,
                         and is incorporated by reference herein.

                    (c)  Directors' Power of Attorney is filed herewith.

         EXHIBIT 9  Opinion of Counsel is filed herewith.

         EXHIBIT 10 Consent of Independent Accountants is filed herewith.

         EXHIBIT 11 None.

         EXHIBIT 12 None.

         EXHIBIT 13 Schedule for Computation of Performance Quotations is filed
                    herewith.

         EXHIBIT 14 Not Applicable.

         EXHIBIT 15 (a)  Amendment to Kemper Participation Agreement was
                         previously filed in April 2000 in Post-Effective
                         Amendment No. 7 in Registration Statement No.
                         333-00965/811-7767, and is incorporated by reference
                         herein. Participation Agreement with Kemper was
                         previously filed on December 10, 1996 in Pre-Effective
                         Amendment No. 1, and is incorporated by reference
                         herein.


<PAGE>



                    (b)  Form of Participation Agreement with Scudder Kemper was
                         previously filed on April 30, 1998 in Post-Effective
                         Amendment No. 2, and is incorporated by reference
                         herein.

                    (e)  Participation Agreement with Alger was previously filed
                         in April 2000 in Post-Effective Amendment No. 7 of
                         Registration Statement No. 333-09965/811-7767, and is
                         incorporated by reference herein.

                    (d)  Participation Agreement with Dreyfus was previously
                         filed on June 23, 1999 in Post-Effective Amendment No.
                         3 (Registration Statement Nos. 333-63091/811-7767) and
                         is incorporated by reference herein.

                    (f)  Participation Agreement with Warburg Pincus was
                         previously filed in April 2000 in Post-Effective
                         Amendment No. 7 of Registration Statement No.
                         333-09965/811-7767, and is incorporated by reference
                         herein.


ITEM 25.  DIRECTORS AND OFFICERS OF THE DEPOSITOR

         The principal business address of all the following Directors and
         Officers is:
         440 Lincoln Street
         Worcester, Massachusetts 01653

                 DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>

NAME AND POSITION WITH COMPANY                             PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- -----------------------------                              ----------------------------------------------
<S>                                         <C>
Bruce C. Anderson                           Director (since 1996), Vice President (since 1984) and Assistant Secretary
  Director                                  (since 1992) of First Allmerica

Warren E. Barnes                            Vice President (since 1996) and Corporate Controller (since 1998) of First
  Vice President and                        Allmerica
  Corporate Controller

Mark R. Colborn                             Director (since 2000) and Vice President (since 1992) of First Allmerica
  Director and Vice President

Mary Eldridge                               Secretary (since 1999) of First Allmerica; Secretary (since 1999) of
  Secretary                                 Allmerica Investments, Inc.; and Secretary (since 1999) of Allmerica
                                            Financial Investment Management Services, Inc.

J. Kendall Huber                            Director, Vice President and General Counsel of First Allmerica (since
  Director, Vice President and              2000); Vice President (1999) of Promos Hotel Corporation; Vice President &
  General Counsel                           Deputy General Counsel (1998-1999) of Legg Mason, Inc.; Vice President and
                                            Deputy General Counsel (1995-1998) of USF&G Corporation

John P. Kavanaugh                           Director and Chief Investment Officer (since 1996) and Vice President
  Director, Vice President and              (since 1991) of First Allmerica; Vice President (since 1998) of Allmerica
  Chief Investment Officer                  Financial Investment Management Services, Inc.; and President (since 1995)
                                            and Director (since 1996) of Allmerica Asset Management, Inc.


<PAGE>

<S>                                         <C>
J. Barry May                                Director (since 1996) of First Allmerica; Director and President (since
  Director                                  1996) of The Hanover Insurance Company; and Vice President (1993 to 1996)
                                            of The Hanover Insurance Company

James R. McAuliffe                          Director (since 1996) of First Allmerica; Director (since 1992), President
Director                                    (since 1994) and Chief Executive Officer (since 1996) of Citizens Insurance
                                            Company of America

Mark C. McGivney                            Vice President (since 1997) and Treasurer (since 2000) of First Allmerica;
  Vice President and Treasurer              Associate, Investment Banking (1996 -1997) of Merrill Lynch & Co.;
                                            Associate, Investment Banking (1995) of Salomon Brothers, Inc.; Treasurer
                                            (since 2000) of Allmerica Investments, Inc., Allmerica Asset Management,
                                            Inc. and Allmerica Financial Investment Management Services, Inc.

John F. O'Brien                             Director, President and Chief Executive Officer (since 1989) of First
  Director and Chairman                     Allmerica
  of the Board

Edward J. Parry, III                        Director and Chief Financial Officer (since 1996), Vice President (since
  Director, Vice President                  1993), and Treasurer (1993-2000) of First Allmerica
  Chief Financial Officer

Richard M. Reilly                           Director (since 1996) and Vice President (since 1990) of First Allmerica;
  Director, President and                   President (since 1995) of Allmerica Financial Life Insurance and Annuity
  Chief Executive Officer                   Company; Director (since 1990) of Allmerica Investments, Inc.; and Director
                                            and President (since 1998) of Allmerica Financial Investment Management
                                            Services, Inc.

Robert P. Restrepo, Jr.                     Director and Vice President (since 1998) of First Allmerica; Director
  Director                                  (since 1998) of The Hanover Insurance Company; Chief Executive Officer
                                            (1996 to 1998) of Travelers Property
                                            & Casualty; Senior Vice President (1993 to 1996) of Aetna Life & Casualty Company

Eric A. Simonsen                            Director (since 1996) and Vice President (since 1990) of First Allmerica;
  Director and Vice President               Director (since 1991) of Allmerica Investments, Inc.; and Director (since
                                            1991) of Allmerica Financial Investment Management Services, Inc.
</TABLE>

<PAGE>


ITEM 26.  PERSONS UNDER COMMON CONTROL WITH REGISTRANT

<TABLE>
<S><C>
                                                   Allmerica Financial Corporation

                                                              Delaware

       |               |               |               |               |               |               |               |
________________________________________________________________________________________________________________________________
      100%           100%             100%            100%            100%            100%            100%            100%
   Allmerica       Financial       Allmerica,       Allmerica   First Allmerica   AFC Capital     Allmerica      First Sterling
     Asset        Profiles, Inc.      Inc.          Funding     Financial Life      Trust I       Services          Limited
Management, Inc.                                     Corp.         Insurance                     Corporation
                                                                   Company

 Massachusetts    California     Massachusetts   Massachusetts   Massachusetts      Delaware     Massachusetts      Bermuda
      |                                                               |                                               |
      |                                  ___________________________________________________________          ________________
      |                                          |                    |                  |                            |
      |                                         100%                99.2%               100%                         100%
      |                                      Advantage            Allmerica           Allmerica                First Sterling
      |                                      Insurance              Trust           Financial Life               Reinsurance
      |                                     Network, Inc.       Company, N.A.       Insurance and                  Company
      |                                                                            Annuity Company                 Limited
      |
      |                                       Delaware       Federally Chartered      Delaware                     Bermuda
      |                                                                                   |
      |_________________________________________________________________________________________________________________________
      |      |            |             |              |             |            |            |            |            |
      |     100%         100%          100%           100%          100%         100%         100%         100%         100%
      |   Allmerica    Allmerica     Allmerica      Allmerica     Allmerica    Allmerica    Allmerica    Allmerica    Allmerica
      | Investments,   Investment    Financial      Financial    Investments  Investments  Investments  Investments  Investments
      |     Inc.       Management    Investment     Services      Insurance    Insurance   Insurance    Insurance     Insurance
      |               Company, Inc.  Management     Insurance    Agency Inc.  Agency of    Agency Inc.  Agency Inc.   Agency Inc.
      |                             Services, Inc. Agency, Inc.  of Alabama   Florida Inc. of Georgia  of Kentucky  of Mississippi
      |
      |Massachusetts  Massachusetts Massachusetts  Massachusetts   Alabama      Florida      Georgia    Kentucky      Mississippi
      |
________________________________________________________________
      |              |                |               |
     100%           100%             100%            100%
  Allmerica    Sterling Risk       Allmerica       Allmerica
   Property      Management      Benefits, Inc.      Asset
 & Casualty    Services, Inc.                      Management,
Companies, Inc.                                     Limited

    Delaware       Delaware          Florida         Bermuda
       |
________________________________________________
       |              |                |
      100%           100%             100%
  The Hanover      Allmerica        Citizens
   Insurance       Financial       Insurance
    Company        Insurance        Company
                 Brokers, Inc.    of Illinois

 New Hampshire  Massachusetts       Illinois
       |
________________________________________________________________________________________________________________________________
       |               |               |               |               |               |               |               |
      100%           100%             100%            100%            100%            100%            100%            100%
    Allmerica      Allmerica      The Hanover    Hanover Texas      Citizens     Massachusetts      Allmerica        AMGRO
    Financial        Plus           American        Insurance     Corporation    Bay Insurance      Financial         Inc.
     Benefit       Insurance       Insurance       Management                       Company         Alliance
    Insurance     Agency, Inc.      Company       Company, Inc.                                    Insurance
    Company                                                                                         Company

  Pennsylvania  Massachusetts    New Hampshire       Texas          Delaware     New Hampshire   New Hampshire   Massachusetts
                                                                       |                                               |
                                                ________________________________________________                ________________
                                                       |               |               |                               |
                                                      100%            100%            100%                            100%
                                                    Citizens        Citizens        Citizens                      Lloyds Credit
                                                    Insurance       Insurance       Insurance                      Corporation
                                                     Company         Company         Company
                                                    of Ohio        of America        of the
                                                                                     Midwest

                                                      Ohio          Michigan        Indiana                      Massachusetts
                                                                       |
                                                               _________________
                                                                       |
                                                                      100%
                                                                    Citizens
                                                                   Management
                                                                      Inc.

                                                                    Michigan



- -----------------  -----------------  -----------------
   Allmerica          Greendale             AAM
    Equity             Special          Equity Fund
  Index Pool          Placements
                        Fund

 Massachusetts      Massachusetts      Massachusetts


- --------  Grantor Trusts established for the benefit of First Allmerica,
          Allmerica Financial Life, Hanover and Citizens


          ---------------   ----------------
             Allmerica         Allmerica
          Investment Trust     Securities
                                 Trust

           Massachusetts     Massachusetts


- --------  Affiliated Management Investment Companies


                  ...............
                  Hanover Lloyd's
                    Insurance
                     Company

                      Texas


- --------  Affiliated Lloyd's plan company, controlled by Underwriters
          for the benefit of The Hanover Insurance Company


         -----------------  -----------------
            AAM Growth       AAM High Yield
             & Income         Fund, L.L.C.
            Fund L.P.

            Delaware         Massachusetts

________  L.P. or L.L.C. established for the benefit of First Allmerica,
          Allmerica Financial Life, Hanover and Citizens
</TABLE>

<PAGE>

             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
<TABLE>
<CAPTION>

            NAME                                   ADDRESS                         TYPE OF BUSINESS
            ----                                   -------                         ----------------
<S>                                               <C>                             <C>
AAM Equity Fund                                   440 Lincoln Street              Massachusetts Grantor Trust
                                                  Worcester MA 01653

AAM Growth &  Income Fund, L.P                    440 Lincoln Street              Limited Partnership
                                                  Worcester MA 01653


<PAGE>


Advantage Insurance Network Inc.                  440 Lincoln Street              Insurance Agency
                                                  Worcester MA 01653

AFC Capital Trust I                               440 Lincoln Street              Statutory Business Trust
                                                  Worcester MA 01653

Allmerica Asset Management Limited                440 Lincoln Street              Investment advisory services
                                                  Worcester MA 01653

Allmerica Asset Management, Inc.                  440 Lincoln Street              Investment advisory services
                                                  Worcester MA 01653

Allmerica Benefits, Inc.                          440 Lincoln Street              Non-insurance medical services
                                                  Worcester MA 01653

Allmerica Equity Index Pool                       440 Lincoln Street              Massachusetts Grantor Trust
                                                  Worcester MA 01653

Allmerica Financial Alliance Insurance            100 North Parkway               Multi-line property and casualty
Company                                           Worcester MA 01605              insurance

Allmerica Financial Benefit Insurance             100 North Parkway               Multi-line property and casualty
Company                                           Worcester MA 01605              insurance

Allmerica Financial Corporation                   440 Lincoln Street              Holding Company
                                                  Worcester MA 01653

Allmerica Financial Insurance                     440 Lincoln Street              Insurance Broker
Brokers, Inc.                                     Worcester MA 01653

Allmerica Financial Life Insurance                440 Lincoln Street             Life insurance, accident and health
and Annuity Company (formerly known               Worcester MA 01653             insurance, annuities, variable
as SMA Life Assurance Company                                                    annuities and variable life insurance

Allmerica Financial Services Insurance            440 Lincoln Street              Insurance Agency
Agency, Inc.                                      Worcester MA 01653

Allmerica Funding Corp.                           440 Lincoln Street              Special purpose funding vehicle for
                                                  Worcester MA 01653              commercial paper

Allmerica, Inc.                                   440 Lincoln Street              Common employer for Allmerica
                                                  Worcester MA 01653              Financial Corporation entities

Allmerica Financial Investment                    440 Lincoln Street              Investment advisory services
Management Services, Inc. (formerly               Worcester MA 01653
known as Allmerica Institutional Services, Inc.
and 440 Financial Group of
Worcester, Inc.)

Allmerica Investment Management                   440 Lincoln Street              Investment advisory services
Company, Inc.                                     Worcester MA 01653

<PAGE>

Allmerica Investments, Inc.                       440 Lincoln Street              Securities, retail broker-dealer
                                                  Worcester MA 01653

Allmerica Investments Insurance Agency Inc. of    200 Southbridge Parkway Suite   Insurance Agency
Alabama                                           400
                                                  Birmingham, AL 35209

<PAGE>

Allmerica Investments Insurance Agency of         14211 Commerce Way              Insurance Agency
Florida, Inc.                                     Miami Lakes, FL 33016

Allmerica Investment Insurance Agency Inc. of     1455 Lincoln Parkway            Insurance Agency
Georgia                                           Suite 300
                                                  Atlanta, GA 30346

Allmerica Investment Insurance Agency Inc. of     Barkley Bldg-Suite 105          Insurance Agency
Kentucky                                          12700 Shelbyville Road
                                                  Louisiana, KY 40423

Allmerica Investments Insurance Agency Inc. of    631 Lakeland East Drive         Insurance Agency
Mississippi                                       Flowood, MS 39208

Allmerica Investment Trust                        440 Lincoln Street              Investment Company
                                                  Worcester MA 01653

Allmerica Plus Insurance                          440 Lincoln Street              Insurance Agency
Agency, Inc.                                      Worcester MA 01653

Allmerica Property & Casualty                     440 Lincoln Street              Holding Company
Companies, Inc.                                   Worcester MA 01653

Allmerica Securities Trust                        440 Lincoln Street              Investment Company
                                                  Worcester MA 01653

Allmerica Services Corporation                    440 Lincoln Street              Internal administrative services
                                                  Worcester MA 01653              provider to Allmerica Financial
                                                                                  Corporation entities

Allmerica Trust Company, N.A.                     440 Lincoln Street              Limited purpose national trust
                                                  Worcester MA 01653              company

AMGRO, Inc.                                       100 North Parkway               Premium financing
                                                  Worcester MA 01605

Citizens Corporation                              440 Lincoln Street              Holding Company
                                                  Worcester MA 01653

Citizens Insurance Company of America             645 West Grand River            Multi-line property and casualty
                                                  Howell MI 48843                 insurance

Citizens Insurance Company of Illinois            333 Pierce Road                 Multi-line property and casualty
                                                  Itasca IL 60143                 insurance

Citizens Insurance Company of the                 3950 Priority Way               Multi-line property and casualty
Midwest                                           South Drive, Suite 200          insurance
                                                  Indianapolis IN 46280

<PAGE>

Citizens Insurance Company of Ohio                8101 N. High Street             Multi-line property and casualty
                                                  P.O. Box 342250                 insurance
                                                  Columbus OH 43234

Citizens Management, Inc.                         645 West Grand River            Services management company
                                                  Howell MI 48843

Financial Profiles                                5421 Avenida Encinas            Computer software company
                                                  Carlsbad, CA 92008

First Allmerica Financial Life Insurance          440 Lincoln Street              Life, pension, annuity, accident
Company (formerly State Mutual Life               Worcester MA 01653              and health insurance company
Assurance Company of America)

First Sterling Limited                            440 Lincoln Street              Holding Company
                                                  Worcester MA 01653

First Sterling Reinsurance Company                440 Lincoln Street              Reinsurance Company
Limited                                           Worcester MA 01653

Greendale Special Placements Fund                 440 Lincoln Street              Massachusetts Grantor Trust
                                                  Worcester MA 01653

The Hanover American Insurance                    100 North Parkway               Multi-line property and casualty
Company                                           Worcester MA 01605              insurance

The Hanover Insurance Company                     100 North Parkway               Multi-line property and casualty
                                                  Worcester MA 01605              insurance

Hanover Texas Insurance Management                801 East Campbell Road          Attorney-in-fact for Hanover Lloyd's
Company, Inc.                                     Richardson TX 75081             Insurance Company

Hanover Lloyd's Insurance Company                 Hanover Lloyd's Insurance       Multi-line property and casualty
                                                  Company                         insurance

Lloyds Credit Corporation                         440 Lincoln Street              Premium financing service
                                                  Worcester MA 01653              franchises

Massachusetts Bay Insurance Company               100 North Parkway               Multi-line property and casualty
                                                  Worcester MA 01605              insurance

Sterling Risk Management Services, Inc.           440 Lincoln Street              Risk management services
                                                  Worcester MA 01653
</TABLE>


ITEM 27. NUMBER OF CONTRACT OWNERS

As of February 29, 2000, there were 1,009 Contract holders of qualified
Contracts and 2,259 Contract holders of non-qualified Contracts.



<PAGE>



ITEM 28.      INDEMNIFICATION

Article VIII of the Bylaws of the Depositor state: Each Director and each
Officer of the Corporation, whether or not in office, (and his executors or
administrators), shall be indemnified or reimbursed by the Corporation against
all expenses actually and necessarily incurred by him in the defense or
reasonable settlement of any action, suit, or proceeding in which he is made a
party by reason of his being or having been a Director or Officer of the
Corporation, including any sums paid in settlement or to discharge judgment,
except in relation to matters as to which he shall be finally adjudged in such
action, suit or proceeding to be liable for negligence or misconduct in the
performance of his duties as such Director or Officer; and the foregoing right
of indemnification or reimbursement shall not affect any other rights to which
he may be entitled under the Articles of Incorporation, any statute, bylaw,
agreement, vote of stockholders, or otherwise.

ITEM 29.      PRINCIPAL UNDERWRITERS

     (a)  Allmerica Investments, Inc. also acts as principal underwriter for the
          following:

          -    VEL Account, VEL II Account, VEL Account III, Separate Account
               SPL-D, Separate Account IMO, Select Account III, Inheiritage
               Account, Separate Accounts VA-A, VA-B, VA-C, VA-G, VA-H, VA-K,
               VA-P, Allmerica Select Separate Account II, Group VEL Account,
               Separate Account KG, Separate Account KGC, Fulcrum Separate
               Account, Fulcrum Variable Life Separate Account, and Allmerica
               Select Separate Account of Allmerica Financial Life Insurance and
               Annuity Company

          -    Inheiritage Account, VEL II Account, Separate Account I, Separate
               Account VA-K, Separate Account VA-P, Allmerica Select Separate
               Account II, Group VEL Account, Separate Account KG, Separate
               Account KGC, Fulcrum Separate Account, and Allmerica Select
               Separate Account of First Allmerica Financial Life Insurance
               Company.

          -    Allmerica Investment Trust

     (b)  The Principal Business Address of each of the following Directors and
          Officers of Allmerica Investments, Inc. is: 440 Lincoln Street
          Worcester, Massachusetts 01653

         NAME                      POSITION OR OFFICE WITH UNDERWRITER
         ----                      -----------------------------------
Margaret L. Abbott             Vice President

Emil J. Aberizk, Jr            Vice President

Edward T. Berger               Vice President and Chief Compliance Officer

Michael J. Brodeur             Vice President Operations

Mark R. Colborn                Vice President

Claudia J. Eckels              Vice President

Mary M. Eldridge               Secretary/Clerk


<PAGE>


Philip L. Heffernan            Vice President

J. Kendall Huber               Director

Mark C. McGivney               Treasurer

William F. Monroe, Jr.         President, Director and Chief Executive Officer

David J. Mueller               Vice President, Chief Financial Officer,
                               Financial Operations Principal and Controller

Stephen Parker                 Vice President and Director

Richard M. Reilly              Director and Chairman of the Board

Eric A. Simonsen               Director

Mark G. Steinberg              Senior Vice President

     (c)  As indicated in Part B (Statement of Additional Information) in
          response to Item 20(c), there were no commissions retained by
          Allmerica Investments, Inc., the principal underwriter of the
          Contracts, for sales of variable contracts funded by the Registrant in
          1999. No other commissions or other compensation was received by the
          principal underwriter, directly or indirectly, from the Registrant
          during the Registrant's last fiscal year.

ITEM 30.  LOCATION OF ACCOUNTS AND RECORDS

Each account, book or other document required to be maintained by Section 31(a)
of the 1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained by the
Company at 440 Lincoln Street, Worcester, Massachusetts 01653.

ITEM 31.  MANAGEMENT SERVICES

The Company provides daily unit value calculations and related services for the
Company's separate accounts.

ITEM 32.  UNDERTAKINGS

     (a)  The Registrant hereby undertakes to file a post-effective amendment to
          this registration statement as frequently as is necessary to ensure
          that the audited financial statements in the registration statement
          are never more than 16 months old for so long as payments under the
          variable annuity contracts may be accepted.

     (b)  The Registrant hereby undertakes to include in the prospectus a
          postcard that the applicant can remove to send for a Statement of
          Additional Information.

     (c)  The Registrant hereby undertakes to deliver a Statement of Additional
          Information and any financial statements promptly upon written or oral
          request, according to the requirements of Form N-4.


<PAGE>


     (d)  Insofar as indemnification for liability arising under the 1933 Act
          may be permitted to Directors, Officers and Controlling Persons of
          Registrant under any registration statement, underwriting agreement or
          otherwise, Registrant has been advised that, in the opinion of the
          SEC, such indemnification is against public policy as expressed in the
          1933 Act and is, therefore, unenforceable. In the event that a claim
          for indemnification against such liabilities (other than the payment
          by Registrant of expenses incurred or paid by a Director, Officer or
          Controlling Person of 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,
          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 1933 Act and will be
          governed by the final adjudication of such issue.

     (e)  The Company hereby undertakes that the aggregate fees and charges
          under the contract are reasonable in relation to the services
          rendered, the expenses expected to be incurred, and the risks assumed
          by the Insurance Company.

ITEM 33.  REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(B)
          PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM

Registrant, a separate account of Allmerica Financial Life Insurance and Annuity
Company ("Company"), states that it is (a) relying on Rule 6c-7 under the 1940
Act with respect to withdrawal restrictions under the Texas Optional Retirement
Program ("Program") and (b) relying on the "no-action" letter (Ref. No. IP-6-88)
issued on November 28, 1988 to the American Council of Life Insurance, in
applying the withdrawal restrictions of Internal Revenue Code Section
403(b)(11). Registrant has taken the following steps in reliance on the letter:

     1.   Appropriate disclosures regarding the redemption restrictions imposed
          by the Program and by Section 403(b)(11) have been included in the
          prospectus of each registration statement used in connection with the
          offer of the Company's variable contracts.

     2.   Appropriate disclosures regarding the redemption restrictions imposed
          by the Program and by Section 403(b)(11) have been included in sales
          literature used in connection with the offer of the Company's variable
          contracts.

     3.   Sales Representatives who solicit participants to purchase the
          variable contracts have been instructed to specifically bring the
          redemption restrictions imposed by the Program and by Section
          403(b)(11) to the attention of potential participants.

     4.   A signed statement acknowledging the participant's understanding of
          (i) the restrictions on redemption imposed by the Program and by
          Section 403(b)(11) and (ii) the investment alternatives available
          under the employer's arrangement will be obtained from each
          participant who purchases a variable annuity contract prior to or at
          the time of purchase.

Registrant hereby represents that it will not act to deny or limit a transfer
request except to the extent that a Service-Ruling or written opinion of
counsel, specifically addressing the fact pattern involved and taking into
account the terms of the applicable employer plan, determines that denial or
limitation is necessary for the variable annuity contracts to meet the
requirements of the Program or of Section 403(b). Any transfer request not so
denied or limited will be effected as expeditiously as possible.


<PAGE>



                                   SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Worcester, and Commonwealth of Massachusetts, on the 3rd day of April,
2000.

                             SEPARATE ACCOUNT KGC OF
             ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

                              By: /s/ Mary Eldridge
                                  -----------------------------
                                   Mary Eldridge, Secretary

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

Signatures                      Title                                                    Date
- ----------                      -----                                                    ----

<S>                             <C>                                                      <C>
/s/ Warren E. Barnes            Vice President and Corporate Controller                  April 3, 2000
- --------------------------
Warren E. Barnes

Edward J. Parry III*            Director, Vice President, and Chief Financial Officer
- --------------------------
Richard M. Reilly*              Director, President and Chief Executive Officer
- --------------------------
John F. O'Brien*                Director and Chairman of the Board
- --------------------------
Bruce C. Anderson*              Director
- --------------------------
Mark R. Colborn*                Director and Vice President
- --------------------------
John P. Kavanaugh*              Director, Vice President and Chief Investment Officer
- --------------------------
J. Kendall Huber*               Director, Vice President and General Counsel
- --------------------------
J. Barry May*                   Director
- --------------------------
James R. McAuliffe*             Director
- --------------------------
Robert P. Restrepo, Jr.*        Director
- --------------------------
Eric A. Simonsen*               Director and Vice President
- --------------------------
</TABLE>

*Sheila B. St. Hilaire, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named Directors and Officers of the
Registrant pursuant to the Power of Attorney dated April 2, 2000 duly executed
by such persons.


/s/ Sheila B. St. Hilaire
- -----------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact
(333-10283)

<PAGE>


                                  EXHIBIT TABLE

Exhibit 8(c)         Directors' Power of Attorney

Exhibit 9            Opinion of Counsel

Exhibit 10           Consent of Independent Accountants

Exhibit 13           Schedule for Computation of Performance Quotations




<PAGE>

                                POWER OF ATTORNEY

We, the undersigned, hereby severally constitute and appoint Richard M. Reilly,
J. Kendall Huber, Joseph W. MacDougall, Jr., and Sheila B. St. Hilaire, and each
of them singly, our true and lawful attorneys, with full power to them and each
of them, to sign for us, and in our names and in any and all capacities, any and
all Registration Statements and all amendments thereto, including post-effective
amendments, with respect to the Separate Accounts supporting variable life and
variable annuity contracts issued by Allmerica Financial Life Insurance and
Annuity Company, and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and with any other regulatory agency or state authority that may so require,
granting unto said attorneys and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys or any of them may lawfully do or cause to be done by virtue hereof.
Witness our hands on the date set forth below.

<TABLE>
<CAPTION>

SIGNATURE                                  TITLE                                                            DATE
- ---------                                  -----                                                            ----
<S>                                        <C>                                                            <C>
/s/ John F. O'Brien                        Director and Chairman of the Board                             4/2/2000
- ---------------------------                                                                               --------
John F. O'Brien

/s/ Bruce C. Anderson                      Director                                                       4/2/2000
- ---------------------------                                                                               --------
Bruce C. Anderson

/s/ Mark R. Colborn                        Director and Vice President                                    4/2/2000
- ---------------------------                                                                               --------
Mark R.Colborn

/s/ John P. Kavanaugh                      Director, Vice President and                                   4/2/2000
- ---------------------------                Chief Investment Officer                                       --------
John P. Kavanaugh

/s/ J. Kendall Huber                       Director, Vice President and                                   4/2/2000
- ---------------------------                General Counsel                                                --------
J. Kendall Huber

/s/ J. Barry May                           Director                                                       4/2/2000
- ---------------------------                                                                               --------
J. Barry May

/s/ James R. McAuliffe                     Director                                                       4/2/2000
- ---------------------------                                                                               --------
James R. McAuliffe

/s/ Edward J. Parry, III                   Director, Vice President, and Chief Financial                  4/2/2000
- ---------------------------                Officer                                                        --------
Edward J. Parry, III

/s/ Richard M. Reilly                      Director, President and                                        4/2/2000
- ---------------------------                Chief Executive Officer                                        --------
Richard M. Reilly

/s/ Robert P. Restrepo, Jr.                Director                                                       4/2/2000
- ---------------------------                                                                               --------
Robert P. Restrepo, Jr.

/s/ Eric A. Simonsen                       Director and Vice President                                    4/2/2000
- ---------------------------                                                                               --------
Eric A. Simonsen
</TABLE>


<PAGE>



                                                             April 14, 2000

Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653


RE:  SEPARATE ACCOUNT KGC OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
     COMPANY FILE NO.'S: 333-10283 AND 811-7777

Gentlemen:

In my capacity as Assistant Vice President and Counsel of Allmerica Financial
Life Insurance and Annuity Company (the "Company"), I have participated in the
preparation of this Post-Effective Amendment to the Registration Statement for
Separate Account KGC on Form N-4 under the Securities Act of 1933 and amendment
under the Investment Company Act of 1940, with respect to the Company's
qualified and non-qualified variable annuity contracts.

I am of the following opinion:

1.   Separate Account KGC is a separate account of the Company validly
     existing pursuant to the Delaware Insurance Code and the regulations
     issued thereunder.

2.   The assets held in Separate Account KGC are not chargeable with
     liabilities arising out of any other business the Company may conduct.

3.   The variable annuity contracts, when issued in accordance with the
     Prospectus contained in the Post-Effective Amendment to the
     Registration Statement and upon compliance with applicable local law,
     will be legal and binding obligations of the Company in accordance with
     their terms and when sold will be legally issued, fully paid and
     non-assessable.

In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.

I hereby consent to the filing of this opinion as an exhibit to this
Post-Effective Amendment to the Registration Statement for Separate Account KGC
on Form N-4 filed under the Securities Act of 1933 and amendment under the
Investment Company Act of 1940.

                                           Very truly yours,


                                           /s/ John C. Donlon, Jr.
                                           John C. Donlon, Jr.
                                           Assistant Vice President and Counsel



<PAGE>




                       CONSENT OF INDEPENDENT ACCOUNTANTS


We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 7 to the Registration
Statement of Separate Account KGC of Allmerica Financial Life Insurance and
Annuity Company on Form N-4 of our report dated February 1, 2000, relating to
the financial statements of Allmerica Financial Life Insurance and Annuity
Company, and our report dated April 3, 2000, relating to the financial
statements of Separate Account KGC of Allmerica Financial Life Insurance and
Annuity Company, both of which appear in such Statement of Additional
Information. We also consent to the reference to us under the heading "Experts"
in such Statement of Additional Information.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Boston, Massachusetts
April 18, 2000


<PAGE>

                               Table 1B-Cust AFL

<TABLE>
<CAPTION>
KEMPER CUSTOM - AFLIAC                           Since Inception of Underlying Sub-Account
                                                 1 Year Without Surrender

<S>                                              <C>                                            <C>
Kemper Aggressive Growth                                                                         N/A
Kemper Technology Growth                                                                         N/A
Kemper Dreman Financial Services                 (0.911604-0.970805)/0.970805              =     -6.10%
Kemper Small Cap Growth                          (2.086369-1.567689)/1.567689              =     33.09%
Kemper Small Cap Value                           (1.083223-1.065482)/1.065482              =      1.67%
Kemper Dreman High Return Equity                 (0.903845-1.028671)/1.028671              =    -12.13%
Kemper International                             (1.719336-1.193070)/1.193070              =     44.11%
Kemper International Growth and Income           (1.025587-0.908893)/0.908893              =     12.84%
Kemper Global Blue Chip                          (1.260187-1.005638)/1.005638              =     25.31%
Kemper Growth                                    (1.828571-1.348341)/1.348341              =     35.62%
Kemper Contrarian Value                          (1.323587-1.490519)/1.490519              =    -11.20%
Kemper Blue Chip                                 (1.544241-1.246763)/1.246763              =     23.86%
Kemper Value+Growth                              (1.666983-1.446591)/1.446591              =     15.24%
Kemper Index 500                                                                                 N/A
Kemper Horizon 20+                               (1.417314-1.311672)/1.311672              =      8.05%
Kemper Total Return                              (1.514491-1.333785)/1.333785              =     13.55%
Kemper Horizon 10+                               (1.316205-1.227897)/1.227897              =      7.19%
Kemper High Yield                                (1.118949-1.107559)/1.107559              =      1.03%
Kemper Horizon 5                                 (1.250855-1.206136)/1.206136              =      3.71%
Kemper Global Income                             (1.043790-1.120970)/1.120970              =     -6.89%
Kemper Investment Grade Bond                     (1.104528-1.140288)/1.140288              =     -3.14%
Kemper Government Securities                     (1.131776-1.136591)/1.136591              =     -0.42%
Kemper Money Market                              (1.123515-1.083649)/1.083649              =      3.68%
KVS Growth Opportunities                                                                         N/A
KVS Growth And Income                                                                            N/A
KVS Focused Large Cap Growth                                                                     N/A
Scudder VLIF International                       (1.511208-0.988910)/0.988910              =     52.82%
Scudder VLIF Global Discovery                    (1.637986-0.998373)/0.998373              =     64.07%
Scudder VLIF Capital Growth                      (1.409677-1.053970)/1.053970              =     33.75%
Scudder VLIF Growth and Income                   (0.998485-0.951713)/0.951713              =      4.91%
Alger American Leveraged AllCap                                                                  N/A
Alger American Balanced                                                                          N/A
Dreyfus Mid Cap Stock                                                                            N/A
Dreyfus Socially Responsible Growth                                                              N/A
</TABLE>

<PAGE>

                               Table 1B-Cust AFL

<TABLE>
<CAPTION>
                                                 Since Inception of Underlying Sub-Account
                                                 5 Years Without Surrender
<S>                                              <C>                                             <C>
Kemper Aggressive Growth                                                                         N/A
Kemper Technology Growth                                                                         N/A
Kemper Dreman Financial Services                                                                 N/A
Kemper Small Cap Growth                                                                          N/A
Kemper Small Cap Value                                                                           N/A
Kemper Dreman High Return Equity                                                                 N/A
Kemper International                                                                             N/A
Kemper International Growth and Income                                                           N/A
Kemper Global Blue Chip                                                                          N/A
Kemper Growth                                                                                    N/A
Kemper Contrarian Value                                                                          N/A
Kemper Blue Chip                                                                                 N/A
Kemper Value+Growth                                                                              N/A
Kemper Index 500                                                                                 N/A
Kemper Horizon 20+                                                                               N/A
Kemper Total Return                                                                              N/A
Kemper Horizon 10+                                                                               N/A
Kemper High Yield                                                                                N/A
Kemper Horizon 5                                                                                 N/A
Kemper Global Income                                                                             N/A
Kemper Investment Grade Bond                                                                     N/A
Kemper Government Securities                                                                     N/A
Kemper Money Market                                                                              N/A
KVS Growth Opportunities                                                                         N/A
KVS Growth And Income                                                                            N/A
KVS Focused Large Cap Growth                                                                     N/A
Scudder VLIF International                                                                       N/A
Scudder VLIF Global Discovery                                                                    N/A
Scudder VLIF Capital Growth                                                                      N/A
Scudder VLIF Growth and Income                                                                   N/A
Alger American Leveraged AllCap                                                                  N/A
Alger American Balanced                                                                          N/A
Dreyfus Mid Cap Stock                                                                            N/A
Dreyfus Socially Responsible Growth                                                              N/A
</TABLE>

<PAGE>

                               Table 1B-Cust AFL

<TABLE>
<CAPTION>
                                                 Since Inception of Underlying Sub-Account
                                                 10 Years or Since Inception Without Surrender
<S>                                              <C>                                             <C>
Kemper Aggressive Growth                         (1.388705/1.000000)-1                     =     38.87%
Kemper Technology Growth                         (1.764064/1.000000)-1                     =     76.41%
Kemper Dreman Financial Services                 ((0.911604/1.000000)^(365/606))-1         =     -5.42%
Kemper Small Cap Growth                          ((2.086369/1.000000)^(365/1087))-1        =     28.01%
Kemper Small Cap Value                           ((1.083223/1.000000)^(365/1339))-1        =      2.20%
Kemper Dreman High Return Equity                 ((0.903845/1.000000)^(365/605))-1         =     -5.92%
Kemper International                             ((1.719336/1.000000)^(365/1081))-1        =     20.08%
Kemper International Growth and Income           ((1.025587/1.000000)^(365/591))-1         =      1.57%
Kemper Global Blue Chip                          ((1.260187/1.000000)^(365/575))-1         =     15.81%
Kemper Growth                                    ((1.828571/1.000000)^(365/1066))-1        =     22.96%
Kemper Contrarian Value                          ((1.323587/1.000000)^(365/1066))-1        =     10.07%
Kemper Blue Chip                                 ((1.544241/1.000000)^(365/974))-1         =     17.68%
Kemper Value+Growth                              ((1.666983/1.000000)^(365/1067))-1        =     19.10%
Kemper Index 500                                 (1.091532/1.000000)-1                     =      9.15%
Kemper Horizon 20+                               ((1.417314/1.000000)^(365/1058))-1        =     12.79%
Kemper Total Return                              ((1.514491/1.000000)^(365/1067))-1        =     15.26%
Kemper Horizon 10+                               ((1.316205/1.000000)^(365/1046))-1        =     10.06%
Kemper High Yield                                ((1.118949/1.000000)^(365/1081))-1        =      3.87%
Kemper Horizon 5                                 ((1.250855/1.000000)^(365/1017))-1        =      8.36%
Kemper Global Income                             ((1.043790/1.000000)^(365/974))-1         =      1.62%
Kemper Investment Grade Bond                     ((1.104528/1.000000)^(365/1052))-1        =      3.51%
Kemper Government Securities                     ((1.131776/1.000000)^(365/1022))-1        =      4.52%
Kemper Money Market                              ((1.123515/1.000000)^(365/1092))-1        =      3.97%
KVS Growth Opportunities                         (1.162119/1.000000)-1                     =     16.21%
KVS Growth And Income                            (1.147212/1.000000)-1                     =     14.72%
KVS Focused Large Cap Growth                     (1.281594/1.000000)-1                     =     28.16%
Scudder VLIF International                       ((1.511208/1.000000)^(365/598))-1         =     28.66%
Scudder VLIF Global Discovery                    ((1.637986/1.000000)^(365/584))-1         =     36.13%
Scudder VLIF Capital Growth                      ((1.409677/1.000000)^(365/598))-1         =     23.32%
Scudder VLIF Growth and Income                   ((0.998485/1.000000)^(365/592))-1         =     -0.09%
Alger American Leveraged AllCap                  (1.197303/1.000000)-1                     =     19.73%
Alger American Balanced                          (1.058425/1.000000)-1                     =      5.84%
Dreyfus Mid Cap Stock                            (1.048727/1.000000)-1                     =      4.87%
Dreyfus Socially Responsible Growth              (1.086101/1.000000)-1                     =      8.61%
</TABLE>

<PAGE>

                               Table 1A-Cust AFL

<TABLE>
<CAPTION>
KEMPER CUSTOM - AFLIAC                           Since Inception of Underlying Sub-Account
                                                 1 Year With Surrender
<S>                                              <C>                                                               <C>
Kemper Aggressive Growth                                                                                            N/A
Kemper Technology Growth                                                                                            N/A
Kemper Dreman Financial Services                 (0.911604-(0.07*0.774863))/0.970805-0.0003-1                 =    -11.72%
Kemper Small Cap Growth                          (2.086369-(0.07*1.567689))/1.567689-0.0117-1                 =     24.92%
Kemper Small Cap Value                           (1.083223-(0.07*0.92074))/1.065482-0.004-1                   =     -4.78%
Kemper Dreman High Return Equity                 (0.903845-(0.07*0.768268))/1.028671-0.0009-1                 =    -17.45%
Kemper International                             (1.719336-(0.07*1.19307))/1.19307-0.0191-1                   =     35.20%
Kemper International Growth and Income           (1.025587-(0.07*0.871749))/0.908893-0.0001-1                 =      6.12%
Kemper Global Blue Chip                          (1.260187-(0.07*1.005638))/1.005638-0.0046-1                 =     17.85%
Kemper Growth                                    (1.828571-(0.07*1.348341))/1.348341-0.013-1                  =     27.32%
Kemper Contrarian Value                          (1.323587-(0.07*1.125049))/1.490519-0.0046-1                 =    -16.94%
Kemper Blue Chip                                 (1.544241-(0.07*1.246763))/1.246763-0.0055-1                 =     16.31%
Kemper Value+Growth                              (1.666983-(0.07*1.416936))/1.446591-0.0025-1                 =      8.13%
Kemper Index 500                                                                                                    N/A
Kemper Horizon 20+                               (1.417314-(0.07*1.204717))/1.311672-0.0007-1                 =      1.55%
Kemper Total Return                              (1.514491-(0.07*1.287317))/1.333785-0.0022-1                 =      6.57%
Kemper Horizon 10+                               (1.316205-(0.07*1.118774))/1.227897-0.0007-1                 =      0.74%
Kemper High Yield                                (1.118949-(0.07*0.951107))/1.107559-0.0038-1                 =     -5.36%
Kemper Horizon 5                                 (1.250855-(0.07*1.063227))/1.206136-0.0004-1                 =     -2.50%
Kemper Global Income                             (1.04379-(0.07*0.887222))/1.12097-0.0002-1                   =    -12.45%
Kemper Investment Grade Bond                     (1.104528-(0.07*0.938849))/1.140288-0.0008-1                 =     -8.98%
Kemper Government Securities                     (1.131776-(0.07*0.96201))/1.136591-0.0006-1                  =     -6.41%
Kemper Money Market                              (1.123515-(0.07*0.954988))/1.083649-0.0006-1                 =     -2.55%
KVS Growth Opportunities                                                                                            N/A
KVS Growth And Income                                                                                               N/A
KVS Focused Large Cap Growth                                                                                        N/A
Scudder VLIF International                       (1.511208-(0.07*0.98891))/0.98891-0.0267-1                   =     43.15%
Scudder VLIF Global Discovery                    (1.637986-(0.07*0.998373))/0.998373-0.0278-1                 =     54.29%
Scudder VLIF Capital Growth                      (1.409677-(0.07*1.05397))/1.05397-0.0097-1                   =     25.78%
Scudder VLIF Growth and Income                   (0.998485-(0.07*0.848712))/0.951713-0.0001-1                 =     -1.34%
Alger American Leveraged AllCap                                                                                     N/A
Alger American Balanced                                                                                             N/A
Dreyfus Mid Cap Stock                                                                                               N/A
Dreyfus Socially Responsible Growth                                                                                 N/A
</TABLE>

<PAGE>

                               Table 1A-Cust AFL

<TABLE>
<CAPTION>
                                                 Since Inception of Underlying Sub-Account
                                                 5 Years With Surrender
<S>                                              <C>                                                                <C>
Kemper Aggressive Growth                                                                                            N/A
Kemper Technology Growth                                                                                            N/A
Kemper Dreman Financial Services                                                                                    N/A
Kemper Small Cap Growth                                                                                             N/A
Kemper Small Cap Value                                                                                              N/A
Kemper Dreman High Return Equity                                                                                    N/A
Kemper International                                                                                                N/A
Kemper International Growth and Income                                                                              N/A
Kemper Global Blue Chip                                                                                             N/A
Kemper Growth                                                                                                       N/A
Kemper Contrarian Value                                                                                             N/A
Kemper Blue Chip                                                                                                    N/A
Kemper Value+Growth                                                                                                 N/A
Kemper Index 500                                                                                                    N/A
Kemper Horizon 20+                                                                                                  N/A
Kemper Total Return                                                                                                 N/A
Kemper Horizon 10+                                                                                                  N/A
Kemper High Yield                                                                                                   N/A
Kemper Horizon 5                                                                                                    N/A
Kemper Global Income                                                                                                N/A
Kemper Investment Grade Bond                                                                                        N/A
Kemper Government Securities                                                                                        N/A
Kemper Money Market                                                                                                 N/A
KVS Growth Opportunities                                                                                            N/A
KVS Growth And Income                                                                                               N/A
KVS Focused Large Cap Growth                                                                                        N/A
Scudder VLIF International                                                                                          N/A
Scudder VLIF Global Discovery                                                                                       N/A
Scudder VLIF Capital Growth                                                                                         N/A
Scudder VLIF Growth and Income                                                                                      N/A
Alger American Leveraged AllCap                                                                                     N/A
Alger American Balanced                                                                                             N/A
Dreyfus Mid Cap Stock                                                                                               N/A
Dreyfus Socially Responsible Growth                                                                                 N/A
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                 Since Inception of Underlying Sub-Account
                                                 10 Years or Since Inception With Surrender
<S>                                              <C>                                                                <C>
Kemper Aggressive Growth                         (1.388705-(0.07*1))/1-0.00001-1                              =     31.87%
Kemper Technology Growth                         (1.764064-(0.07*1))/1-0.00001-1                              =     69.41%
Kemper Dreman Financial Services                 ((0.911604-(0.06*0.774863))/1)^(365/606)-0.0004-1            =     -8.40%
Kemper Small Cap Growth                          ((2.086369-(0.06*1))/1)^(365/1087)-0.0182-1                  =     24.94%
Kemper Small Cap Value                           ((1.083223-(0.06*0.92074))/1)^(365/1087)-0.0068-1            =      0.25%
Kemper Dreman High Return Equity                 ((0.903845-(0.06*0.768268))/1)^(365/605)-0.0011-1            =     -8.95%
Kemper International                             ((1.719336-(0.06*1))/1)^(365/1081)-0.0066-1                  =     17.99%
Kemper International Growth and Income           ((1.025587-(0.06*0.871749))/1)^(365/591)-0.0001-1            =     -1.67%
Kemper Global Blue Chip                          ((1.260187-(0.06*1))/1)^(365/575)-0.0026-1                   =     12.02%
Kemper Growth                                    ((1.828571-(0.06*1))/1)^(365/1066)-0.0063-1                  =     20.93%
Kemper Contrarian Value                          ((1.323587-(0.06*1))/1)^(365/1066)-0.003-1                   =      8.04%
Kemper Blue Chip                                 ((1.544241-(0.05*1))/1)^(365/974)-0.0063-1                   =     15.61%
Kemper Value+Growth                              ((1.666983-(0.06*1))/1)^(365/1067)-0.005-1                   =     17.12%
Kemper Index 500                                 (1.091532-(0.07*0.927802))/1-0.00001-1                       =      2.66%
Kemper Horizon 20+                               ((1.417314-(0.06*1))/1)^(365/1058)-0.0008-1                  =     11.04%
Kemper Total Return                              ((1.514491-(0.06*1))/1)^(365/1067)-0.0032-1                  =     13.35%
Kemper Horizon 10+                               ((1.316205-(0.05*1))/1)^(365/1046)-0.0024-1                  =      8.34%
Kemper High Yield                                ((1.118949-(0.06*0.951107))/1)^(365/1081)-0.0007-1           =      1.98%
Kemper Horizon 5                                 ((1.250855-(0.05*1))/1)^(365/1017)-0.0014-1                  =      6.65%
Kemper Global Income                             ((1.04379-(0.05*0.887222))/1)^(365/974)-0.0003-1             =     -0.05%
Kemper Investment Grade Bond                     ((1.104528-(0.05*0.938849))/1)^(365/1052)-0.0008-1           =      1.88%
Kemper Government Securities                     ((1.131776-(0.05*0.96201))/1)^(365/1022)-0.0006-1            =      2.85%
Kemper Money Market                              ((1.123515-(0.05*0.954988))/1)^(365/1092)-0.0008-1           =      2.39%
KVS Growth Opportunities                         (1.162119-(0.07*0.987801))/1-0.00001-1                       =      9.30%
KVS Growth And Income                            (1.147212-(0.07*0.97513))/1-0.00001-1                        =      7.89%
KVS Focused Large Cap Growth                     (1.281594-(0.07*1))/1-0.00001-1                              =     21.16%
Scudder VLIF International                       ((1.511208-(0.06*1))/1)^(365/598)-0.0116-1                   =     24.36%
Scudder VLIF Global Discovery                    ((1.637986-(0.06*1))/1)^(365/584)-0.0127-1                   =     31.72%
Scudder VLIF Capital Growth                      ((1.409677-(0.06*1))/1)^(365/598)-0.0066-1                   =     19.42%
Scudder VLIF Growth and Income                   ((0.998485-(0.06*0.848712))/1)^(365/592)-0.0001-1            =     -3.28%
Alger American Leveraged AllCap                  (1.197303-(0.07*1))/1-0.00001-1                              =     12.73%
Alger American Balanced                          (1.058425-(0.07*0.899661))/1-0.00001-1                       =     -0.46%
Dreyfus Mid Cap Stock                            (1.048727-(0.07*0.891418))/1-0.00001-1                       =     -1.37%
Dreyfus Socially Responsible Growth              (1.086101-(0.07*0.923186))/1-0.00001-1                       =      2.15%
</TABLE>



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