FULCRUM SEPARATE ACCOUNT ALLMERICA FIN LIFE INS & ANNUITY CO, 485BPOS, 2000-04-28

FULCRUM SEPARATE ACCOUNT ALLMERICA FIN LIFE INS & ANNUITY CO
485BPOS, 2000-04-28

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File Nos. 333-11377
811-7799

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

FULCRUM SEPARATE ACCOUNT
OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(Exact Name of Trust)

ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
440 Lincoln Street
Worcester, MA 01653
(508) 855-1000
(Registrant's telephone number including area code)

ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Mary Eldridge, Secretary
440 Lincoln Street
Worcester, MA 01653
(Name and complete address of agent for service)

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 has registered an indefinite amount of its securities
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 Contract Features; Summary of Fees and Expenses

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

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

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

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

14.........................Statement of Additional Information - Table of Contents

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>

22.........................Annuity Benefit Payments

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

FULCRUM SEPARATE ACCOUNT
(FULCRUM FUND)

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, Fulcrum Separate
Account, 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 the SUMMARY OF CONTRACT FEATURES, and "C. Optional Minimum
Guaranteed Annuity Payout Rider Charge" under the CHARGES AND DEDUCTIONS
sections of the prospectus. The language contained in the prospectus describing
the charge for the optional benefit rider will apply once the Application for an
Order of Exemption has been granted.

While the Application for an Order of Exemption is pending, the fifth paragraph
of "WHAT CHARGES WILL I INCUR UNDER MY CONTRACT" and the first two paragraphs of
"C. Optional Minimum Guaranteed Annuity Payout Rider Charge" are 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:

* * *

SUPPLEMENT DATED MAY 1, 2000
<PAGE>

ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
WORCESTER, MASSACHUSETTS
FULCRUM FUND VARIABLE ANNUITY CONTRACTS

This Prospectus provides important information about The Fulcrum Fund variable
annuity contract 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 completing the attached request card or by calling
Allmerica Investments, Inc., at 1-800-917-1909. The Table of Contents of the
Statement of Additional Information is listed on page 3 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 the Fulcrum Separate Account 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 investment
portfolios:

<TABLE>
<S> <C>
THE FULCRUM TRUST LAZARD RETIREMENT SERIES, INC.
Global Interactive/Telecomm Portfolio Lazard Retirement International Equity Portfolio
International Growth Portfolio
Growth Portfolio MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST(SM)
Value Portfolio MFS-Registered Trademark- Emerging Growth Series
Strategic Income Portfolio* MFS-Registered Trademark- Growth With Income Series
ALLMERICA INVESTMENT TRUST OPPENHEIMER VARIABLE ACCOUNT FUNDS
Money Market Fund Oppenheimer Aggressive Growth Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Value Fund PBHG INSURANCE SERIES FUND, INC.
PBHG Select 20 Portfolio
DELAWARE GROUP PREMIUM FUND
DGPF Small Cap Value Series
DGPF Balanced Series
</TABLE>

*(On or about July 1, 2000, subject to regulatory approval, shares of the Select
Investment Grade Income Fund will be substituted for shares of the Strategic
Income Portfolio. As of the substitution date, shares of the Select Investment
Grade Income Fund will be available and shares of the Strategic Income Portfolio
will no longer be offered.)

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 3 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 may be allocated to the General Account).

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>
TABLE OF CONTENTS

<TABLE>
<S> <C>
SPECIAL TERMS............................................... 4
SUMMARY OF FEES AND EXPENSES................................ 6
SUMMARY OF CONTRACT FEATURES................................ 15
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS, AND THE
UNDERLYING INVESTMENT COMPANIES............................ 21
INVESTMENT OBJECTIVES AND POLICIES.......................... 24
PERFORMANCE INFORMATION..................................... 25
DESCRIPTION OF THE CONTRACT................................. 27
A. Payments............................................. 27
B. Right to Cancel Individual Retirement Annuity........ 27
C. Right to Cancel All Other Contracts.................. 28
D. Transfer Privilege................................... 28
Automatic Transfers and Automatic Account
Rebalancing Options................................. 29
E. Surrender............................................ 29
F. Withdrawals.......................................... 30
Systematic Withdrawals.............................. 31
Life Expectancy Distributions....................... 31
G. Death Benefit........................................ 32
Death of the Annuitant Prior to the Annuity Date.... 32
Death of an Owner Who is Not Also the Annuitant
Prior to the Annuity Date........................... 32
Payment of the Death Benefit Prior to the Annuity
Date................................................ 32
Death of the Annuitant On or After the Annuity
Date................................................ 33
H. The Spouse of the Owner as Beneficiary............... 33
I. Assignment........................................... 33
J. Electing the Form of Annuity and the Annuity Date.... 33
K. Description of Variable Annuity Payout Options....... 34
L. Annuity Benefit Payments............................. 35
Determination of the First Variable Annuity Benefit
Payment............................................. 35
The Annuity Unit.................................... 36
Determination of the Number of Annuity Units........ 36
Dollar Amount of Subsequent Variable Annuity Benefit
Payments............................................ 36
M. Optional Minimum Guaranteed Annuity Payout (M-GAP)
Rider................................................... 36
N. NORRIS Decision...................................... 38
O. Computation of Values................................ 39
The Accumulation Unit............................... 39
Net Investment Factor............................... 39
CHARGES AND DEDUCTIONS...................................... 40
A. Variable Account Deductions.......................... 40
Mortality and Expense Risk Charge................... 40
Administrative Expense Charge....................... 40
Other Charges....................................... 40
B. Contract Fee......................................... 41
C. Optional Minimum Guaranteed Annuity Payout (M-GAP)
Rider Charge............................................ 41
D. Premium Taxes........................................ 41
E. Surrender Charge..................................... 42
Charge for Surrender and Withdrawals................ 42
Reduction or Elimination of Surrender Charge and
Additional Amounts Credited......................... 42
Withdrawal Without Surrender Charge................. 43
Surrenders.......................................... 44
Charge at the Time Annuity Benefit Payments Begin... 44
F. Transfer Charge...................................... 45
</TABLE>

2
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<TABLE>
<S> <C>
GUARANTEE PERIOD ACCOUNTS................................... 45
FEDERAL TAX CONSIDERATIONS.................................. 48
A. General.............................................. 48
The Company......................................... 48
Diversification Requirements........................ 48
Investor Control.................................... 49
B. Qualified and Non-Qualified Contracts................ 49
C. Taxation of the Contracts in General................. 49
Withdrawals Prior to Annuitization.................. 49
Annuity Payouts After Annuitization................. 49
Penalty on Distribution............................. 50
Assignments or Transfers............................ 50
Nonnatural Owners................................... 50
Deferred Compensation Plans of State and Local
Governments and Tax-Exempt Organizations............ 50
D. Tax Withholding...................................... 51
E. Provisions Applicable to Qualified Employer Plans.... 51
Corporate and Self Employed Pension and Profit
Sharing Plans....................................... 51
Individual Retirement Annuities..................... 51
Tax-Sheltered Annuities............................. 52
Texas Optional Retirement Program................... 52
STATEMENTS AND REPORTS...................................... 52
LOANS (QUALIFIED CONTRACTS ONLY)............................ 52
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS........... 53
CHANGES TO COMPLY WITH LAW AND AMENDMENTS................... 54
VOTING RIGHTS............................................... 54
DISTRIBUTION................................................ 54
LEGAL MATTERS............................................... 55
FURTHER INFORMATION......................................... 55
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT...... 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..................................... 8
TAX-DEFERRED ACCUMULATION................................... 13
FINANCIAL STATEMENTS........................................ F-1
</TABLE>

3
<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 greater 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 (OR YOU): the person, persons or entity entitled to exercise the rights
and privileges under the 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 The Fulcrum Trust ("Fulcrum"), a
corresponding fund of Allmerica Investment Trust (the "Trust"), a corresponding
fund of AIM Variable Insurance Funds, ("AVIF"), a corresponding series of
Delaware Group Premium Fund ("DGPF"), a corresponding portfolio of Lazard
Retirement Series, Inc. ("Lazard"), a corresponding series of MFS Variable
Insurance Trust (the "MFS Trust"), a corresponding fund of Oppenheimer Variable
Account Funds ("Oppenheimer"), or a corresponding portfolio of PBHG Insurance
Series Fund, Inc. ("PBHG").

4
<PAGE>

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.

UNDERLYING FUNDS (OR FUNDS): an investment portfolio of the Trust, Fulcrum,
AVIF, DGPF, Lazard, MFS Trust, Oppenheimer or PBHG in which a Sub-Account
invests.

VALUATION DATE: a day on which the net asset value of the shares of any of the
Funds 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, and on such other days (other than a day during which no
payment, withdrawal, or surrender of a Contract was received) when there is a
sufficient degree of trading in an Underlying Fund's portfolio securities such
that the current unit value of the Sub-Accounts may be materially affected.

VARIABLE ACCOUNT: the Fulcrum Separate Account, 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
Underlying Funds.

5
<PAGE>
SUMMARY OF FEES AND EXPENSES

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

<TABLE>
<CAPTION>
YEARS FROM
DATE OF PAYMENT CHARGE
(1) CONTRACT CHARGES --------------- ------
<S> <C> <C>
0-1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
More than 7 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 transfers, and
guarantees that the first 12 transfers in a Contact 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: $30
The $30 Contract fee is deducted annually and upon
surrender when Accumulated Value is less than $100,000.
The Contract fee is currently 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:

(2) ANNUAL SUB-ACCOUNT EXPENSES:
(on an annual basis as a percentage of average daily net
assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.20%
------
Total Annual Expenses: 1.45%
</TABLE>

(*)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

6
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"Reduction or Elimination of Surrender Charge and Additional Amounts Credited,"
under "E. Surrender Charge" in the CHARGES AND DEDUCTIONS section.

(3) ANNUAL UNDERLYING FUND EXPENSES: Total expenses of the Underlying Funds 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 Funds.
The following table shows the expenses of the Funds as a percentage of average
net assets for the year ended December 31, 1999, as adjusted for any material
changes. A performance-based management fee is provided for under the Management
Agreements for the Portfolios of The Fulcrum Trust. The base fee is 2.00%, but
the actual fee may vary from between 0.00% to 4.00%, depending on the
Portfolio's performance. Because of the possibility of wide variations in the
management fees from year-to-year, hypothetical expense information assuming
fees of 0.00%, 2.00% and 4.00%, is shown below under "More Information About
Performance Fees of The Fulcrum Trust."

<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT FEE (AFTER ANY TOTAL FUND
(AFTER ANY APPLICABLE EXPENSES (AFTER ANY
FUND VOLUNTARY WAIVERS) REIMBURSEMENTS) WAIVERS/REIMBURSEMENTS)
- ---- ------------------ --------------- -----------------------
<S> <C> <C> <C>
Global Interactive/Telecomm Portfolio... 2.47%(1) 1.50%(2) 3.97%
Oppenheimer Aggressive Growth Fund/VA... 0.66% 0.01% 0.67%
MFS Emerging Growth Series.............. 0.75% 0.09%(8) 0.84%(8)
DGPF Small Cap Value Series............. 0.75% 0.10% 0.85%(4)
Lazard Retirement International Equity
Portfolio.............................. 0.75% 0.50%(6) 1.25%(5)
International Growth Portfolio.......... 1.21%(1) 1.50%(2) 2.71%
PBHG Select 20 Portfolio................ 0.85% 0.20% 1.05%(7)
Growth Portfolio........................ 0.36%(1) 1.20%(2) 1.56%
Value Portfolio......................... 0.00%(1) 1.20%(2) 1.20%
AIM V.I. Value Fund..................... 0.61% 0.15% 0.76%
MFS Growth With Income Series........... 0.75% 0.13%(8) 0.88%(8)
Oppenheimer Main Street Growth & Income
Fund/VA................................ 0.73% 0.05% 0.78%
DGPF Balanced Series.................... 0.65% 0.11% 0.76%(4)
Strategic Income Portfolio.............. 0.35%(1) 1.50%(2) 1.85%
Money Market Fund....................... 0.24% 0.05% 0.29%(3)
</TABLE>

(1)A performance based advisory fee is in effect, which fee may vary anywhere
from 0.00% to 4.00%.

(2)Through June 30, 2000, Allmerica Financial Investment Management Services,
Inc. ("AFIMS") has voluntarily agreed to limit operating expenses and reimburse
those expenses to the extent that the Portfolios' "Other Expenses" (i.e.,
expenses other than management fees) exceed the following expense limitations
(expressed as an annualized percentage of average daily net assets): 1.50% for
the Global Interactive/ Telecomm Portfolio, 1.50% for the International Growth
Portfolio, 1.20% for the Growth Portfolio, 1.20% for the Value Portfolio, and
1.50% for the Strategic Income Portfolio. Without the effect of the expense
limitations, the "Other Expenses" ratios would have been the following: 1.75%
for the Global Interactive/ Telecomm Portfolio, 4.06% for the International
Growth Portfolio, 2.55% for the Growth Portfolio, 1.76% for the Value Portfolio,
and 3.48% for the Strategic Income Portfolio.

(3)Under the Management Agreement with Allmerica Investment Trust, AFIMS has
declared a voluntary expense limitation of 0.60% for the Money Market Fund, but
the expenses of the Money Market Fund did not exceed the cap in 1999. The
limitation may be terminated at any time.

(4)The investment adviser for the DGPF Small Cap Value Series and DGPF Balanced
Series (formerly known as "Delaware Balanced Series") is Delaware Management
Company, a series of Delaware Management Business Trust ("Delaware Management").
Effective May 1, 2000 through October 31, 2000, the investment

7
<PAGE>

advisers for the Series of DGPF have agreed voluntarily to waive their
management fees and reimburse each Series for expenses to the extent that total
expenses will not exceed 0.85% for DGPF Small Cap Value Series and 0.80% for
DGPF Balanced Series. The fee ratios shown above have been restated, if
necessary, to reflect the new voluntary limitations which took effect on May 1,
2000. The declaration of a voluntary expense limitation does not bind the
investment advisers to declare future expense limitations with respect to these
Funds.

(5)Effective May 1, 2000, Lazard Asset Management, the Portfolio's investment
advisor, has voluntarily agreed to waive its fees and reimburse the Lazard
Retirement International Equity Portfolio if total operating expenses exceed
1.25% of average net assets. Total portfolio operating expenses prior to waivers
and/or reimbursements by the investment advisor, total 12.94%, annualized, at
December 31, 1999.

(6)Other Expenses for the Lazard Retirement International Equity Portfolio
include a 12b-1 fee which is deducted from Portfolio assets at a maximum annual
rate of 0.25% of the average daily value of the Portfolio's net assets. A
portion or all of the 12b-1 fee may be used to reimburse the Company for certain
administrative and distribution support services provided to the Lazard
Retirement International Equity Portfolio.

(7)Other Expenses are based on amounts for the fiscal year ended December 31,
1999. The adviser to PBHG Select 20 Portfolio has agreed to waive or limit the
management fees and to assume other expenses of the portfolio to the extent
necessary to limit the Total Fund Expenses to not more than 1.20% of the average
daily net assets of the portfolio. In any fiscal year in which the PBHG Select
20 Portfolio's assets are greater than $75 million and its total annual
operating expenses are less than 1.20%, the Portfolio's Board of Directors may
elect to reimburse the adviser for any fees it waived or expenses it reimbursed
on the Portfolio's behalf during the previous two fiscal years. In 1999, the
Board elected to reimburse $27,776 in waived fees, which are included in the
calculation of "Other Expenses" above. At the time of the election, the
Portfolio had total assets in excess of $394 million.

(8)Each series has an expense offset arrangement which reduces the series'
custodian fee based on the amount of cash maintained by the series with its
custodian and dividend disbursing agent. Each series may enter into other such
arrangements and directed brokerage arrangements, which would also have the
effect of reducing the series' expenses. "Other Expenses" do not take into
account these expense reductions, and are therefore higher than the actual
expenses of the series. Had these fee reductions been taken into account, "Net
Expenses" would be lower for certain series and would equal 0.83% for Emerging
Growth Series and 0.87% for Growth With Income Series.

The Underlying Fund information above was provided by the Underlying Funds and
was not independently verified by the Company.

EXPENSE EXAMPLES: The following examples demonstrate the cumulative expenses
which an Owner would pay at 1, 3, 5, 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 Fund 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 $100,000. Lower costs apply to Contracts issued to a 401(k)
plan.

8
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(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, or any fixed period certain
option, you would pay the following expenses on a $1,000 investment, assuming a
5% annual return on assets, and no Rider:**

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Global Interactive/Telecomm Portfolio...................... $114 $206 $296 $536
Oppenheimer Aggressive Growth Fund/VA...................... $ 83 $115 $147 $253
MFS Emerging Growth Series................................. $ 85 $120 $155 $270
DGPF Small Cap Value Series................................ $ 85 $120 $156 $271
Lazard Retirement International Equity Portfolio........... $ 89 $131 $175 $310
International Growth Portfolio............................. $102 $172 $242 $440
PBHG Select 20 Portfolio................................... $ 87 $126 $166 $291
Growth Portfolio........................................... $ 92 $140 $190 $340
Value Portfolio............................................ $ 88 $130 $173 $306
AIM V.I. Value Fund........................................ $ 84 $117 $151 $262
MFS Growth With Income Series.............................. $ 85 $121 $157 $274
Oppenheimer Main Street Growth & Income Fund/VA............ $ 84 $118 $152 $264
DGPF Balanced Series....................................... $ 84 $117 $151 $262
Strategic Income Portfolio................................. $ 93 $145 $198 $355
Money Market Fund.......................................... $ 80 $104 $128 $213
</TABLE>

(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, or any fixed period certain
option, you would pay the following expenses on a $1,000 investment, assuming a
5% annual return on assets, and election of a Minimum Guaranteed Annuity Payout
(M-GAP) Rider** with a ten-year waiting period:

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Global Interactive/Telecomm Portfolio...................... $116 $212 $307 $554
Oppenheimer Aggressive Growth Fund/VA...................... $ 86 $122 $159 $278
MFS Emerging Growth Series................................. $ 87 $127 $167 $295
DGPF Small Cap Value Series................................ $ 87 $127 $168 $296
Lazard Retirement International Equity Portfolio........... $ 91 $139 $187 $334
International Growth Portfolio............................. $105 $179 $253 $460
PBHG Select 20 Portfolio................................... $ 89 $133 $178 $315
Growth Portfolio........................................... $ 94 $147 $202 $363
Value Portfolio............................................ $ 91 $137 $185 $329
AIM V.I. Value Fund........................................ $ 87 $125 $164 $287
MFS Growth With Income Series.............................. $ 88 $128 $169 $299
Oppenheimer Main Street Growth & Income Fund/VA............ $ 87 $125 $165 $289
DGPF Balanced Series....................................... $ 87 $125 $164 $287
Strategic Income Portfolio................................. $ 96 $152 $209 $378
Money Market Fund.......................................... $ 82 $111 $141 $239
</TABLE>

9
<PAGE>
(2)(a) If, at the end of the applicable time period, you annuitize* under a life
option or a noncommutable period certain option of ten years or longer, or if
you do not surrender or annuitize the Contract, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets and no
Rider:**

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Global Interactive/Telecomm Portfolio...................... $55 $164 $271 $536
Oppenheimer Aggressive Growth Fund/VA...................... $22 $ 69 $118 $253
MFS Emerging Growth Series................................. $24 $ 74 $126 $270
DGPF Small Cap Value Series................................ $24 $ 74 $127 $271
Lazard Retirement International Equity Portfolio........... $28 $ 86 $147 $310
International Growth Portfolio............................. $43 $129 $216 $440
PBHG Select 20 Portfolio................................... $26 $ 80 $137 $291
Growth Portfolio........................................... $31 $ 95 $162 $340
Value Portfolio............................................ $28 $ 85 $144 $306
AIM V.I. Value Fund........................................ $23 $ 71 $122 $262
MFS Growth With Income Series.............................. $24 $ 75 $128 $274
Oppenheimer Main Street Growth & Income Fund/VA............ $23 $ 72 $123 $264
DGPF Balanced Series....................................... $23 $ 71 $122 $262
Strategic Income Portfolio................................. $33 $100 $170 $355
Money Market Fund.......................................... $18 $ 57 $ 98 $213
</TABLE>

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

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Global Interactive/Telecomm Portfolio...................... $57 $170 $282 $554
Oppenheimer Aggressive Growth Fund/VA...................... $25 $ 76 $130 $278
MFS Emerging Growth Series................................. $26 $ 81 $139 $295
DGPF Small Cap Value Series................................ $27 $ 82 $139 $296
Lazard Retirement International Equity Portfolio........... $31 $ 93 $159 $334
International Growth Portfolio............................. $45 $136 $227 $460
PBHG Select 20 Portfolio................................... $29 $ 88 $149 $315
Growth Portfolio........................................... $34 $103 $174 $363
Value Portfolio............................................ $30 $ 92 $156 $329
AIM V.I. Value Fund........................................ $26 $ 79 $135 $287
MFS Growth With Income Series.............................. $27 $ 82 $141 $299
Oppenheimer Main Street Growth & Income Fund/VA............ $26 $ 79 $136 $289
DGPF Balanced Series....................................... $26 $ 79 $135 $287
Strategic Income Portfolio................................. $35 $108 $182 $378
Money Market Fund.......................................... $21 $ 65 $111 $239
</TABLE>

* The Contract fee is not deducted after annuitization. A surrender charge may
be 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 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.

10
<PAGE>
MORE INFORMATION ABOUT PERFORMANCE FEES OF THE FULCRUM TRUST

The tables below show the expenses of the Portfolios of The Fulcrum Trust as if
the Portfolios paid performance based management fees of 0.00%, 2.00%, and
4.00%, respectively.

A performance-based management fee is currently in effect for the Portfolios of
The Fulcrum Trust. The base fee is 2.00%, but the actual fee may vary from
between 0.00% to 4.00%, depending on the Portfolio's performance. The base fee
of 2.00% will be paid if the Portfolio's performance (net of all fees and
expenses, including the management fee) is between 1.5 and 3.0 percentage points
higher than the applicable benchmark index. A fee of 4.00% will be paid only if
the Portfolio's performance (net of all fees and expenses, including the
management fee) is at least 7.5 percentage points higher than the applicable
benchmark index. No fee will apply if the Portfolio's performance is more than
3.0 percentage points lower than the applicable benchmark index; see the
prospectus of The Fulcrum Trust for more details. Because of this variation,
expense information assuming fees of 0.00%, 2.00% and 4.00% is shown below. The
fee, however, could be any figure between 0.00% and 4.00%. In 1999, the actual
management fees were 2.47% for the Global Interactive/ Telecomm Portfolio, 1.21%
for the International Growth Portfolio, 0.36% for the Growth Portfolio, 0.00%
for the Value Portfolio and 0.23% for the Strategic Income Portfolio.

EXAMPLE 1 - ASSUMING ADVISORY FEE OF 0.00% FOR THE PORTFOLIOS OF THE FULCRUM
TRUST.

(For the fee to be 0.00% a Portfolio's performance, net of all fees and
expenses, would have to be more than 3.0 percentage points below the benchmark
index.)

<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL
MANAGEMENT (AFTER ANY APPLICABLE OPERATING
FUND FEES REIMBURSEMENT) EXPENSES
- ---- ---------- --------------------- ---------
<S> <C> <C> <C>
Global Interactive/Telecomm Portfolio............... 0.00%(1) 1.50%(2) 1.50%
International Growth Portfolio...................... 0.00%(1) 1.50%(2) 1.50%
Growth Portfolio.................................... 0.00%(1) 1.20%(2) 1.20%
Value Portfolio..................................... 0.00%(1) 1.20%(2) 1.20%
Strategic Income Portfolio.......................... 0.00%(1) 1.50%(2) 1.50%
Money Market Fund................................... 0.24% 0.05% 0.29%(3)
</TABLE>

EXAMPLE 2 - ASSUMING ADVISORY FEE OF 2.00% FOR THE PORTFOLIOS OF THE FULCRUM
TRUST.

(For the fee to be 2.00%, a Portfolio's performance, net of all fees and
expenses, would have to be between 1.5 and 3.0 percentage points higher than the
benchmark index.)

<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL
MANAGEMENT (AFTER ANY APPLICABLE OPERATING
FUND FEES REIMBURSEMENT) EXPENSES
- ---- ---------- --------------------- ---------
<S> <C> <C> <C>
Global Interactive/Telecomm Portfolio............... 2.00%(1) 1.50%(2) 3.50%
International Growth Portfolio...................... 2.00%(1) 1.50%(2) 3.50%
Growth Portfolio.................................... 2.00%(1) 1.20%(2) 3.20%
Value Portfolio..................................... 2.00%(1) 1.20%(2) 3.20%
Strategic Income Portfolio.......................... 2.00%(1) 1.50%(2) 3.50%
Money Market Fund................................... 0.24% 0.05% 0.29%(3)
</TABLE>

11
<PAGE>
EXAMPLE 3 - ASSUMING ADVISORY FEE OF 4.00% FOR THE PORTFOLIOS OF THE FULCRUM
TRUST.

(For the fee to be 4.00%, a Portfolio's performance, net of all fees and
expenses, would have to be at least 7.5 percentage points higher than the
benchmark index.)

<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL
MANAGEMENT (AFTER ANY APPLICABLE OPERATING
FUND FEES REIMBURSEMENT) EXPENSES
- ---- ---------- --------------------- ---------
<S> <C> <C> <C>
Global Interactive/Telecomm Portfolio............... 4.00%(1) 1.50%(2) 5.50%
International Growth Portfolio...................... 4.00%(1) 1.50%(2) 5.50%
Growth Portfolio.................................... 4.00%(1) 1.20%(2) 5.20%
Value Portfolio..................................... 4.00%(1) 1.20%(2) 5.20%
Strategic Income Portfolio.......................... 4.00%(1) 1.50%(2) 5.50%
Money Market Fund................................... 0.24% 0.05% 0.29%(3)
</TABLE>

(1) A performance based advisory fee is in effect, which fee may vary anywhere
from 0.00% to 4.00%.

(2) Through June 30, 2000, Allmerica Financial Investment Management Services,
Inc. ("AFIMS") has voluntarily agreed to limit operating expenses and reimburse
those expenses to the extent that the Portfolios' "Other Expenses" (i.e.,
expenses other than management fees) exceed the following expense limitations
(expressed as an annualized percentage of average daily net assets): 1.50% for
the Global Interactive/ Telecomm Portfolio, 1.50% for the International Growth
Portfolio, 1.20% for the Growth Portfolio, 1.20% for the Value Portfolio, and
1.50% for the Strategic Income Portfolio. Without the effect of the expense
limitations, the "Other Expenses" ratios would have been the following: 1.75%
for the Global Interactive/ Telecomm Portfolio, 4.06% for the International
Growth Portfolio, 2.55% for the Growth Portfolio, 1.76% for the Value Portfolio,
and 3.48% for the Strategic Income Portfolio.

(3) Under the Management Agreement with Allmerica Investment Trust, AFIMS has
declared a voluntary expense limitation of 0.60% for the Money Market Fund, but
the expenses of the Money Market Fund did not exceed the cap in 1999. The
limitation may be terminated at any time.

EXAMPLES BASED ON HYPOTHETICAL PERFORMANCE FEES OF THE PORTFOLIOS OF THE FULCRUM
TRUST.

The information given under the following hypothetical examples should not be
considered a representation of past or future expenses. Actual expenses may be
greater or lesser than those shown. In particular, because the advisory fee of
the five Portfolios of The Fulcrum Trust may vary from 0.00% to 4.00% depending
on performance, three separate examples are provided: Example (1) assumes that
no advisory fee is paid for each of the five Portfolios; Example (2) assumes
that the advisory fee for the five Portfolios is paid at the annual rate of
2.00%; and Example (3) assumes that the advisory fee is paid at the annual rate
of 4.00%.

(1) If, at the end of the applicable time period, you surrender the Contract or
annuitize* under a commutable period certain option or a noncommutable period
certain option of less than ten years, or any fixed period certain option, you
would pay the following expenses on a $1,000 investment, assuming a 5% annual
return on assets:

EXAMPLE 1 - ASSUMING ADVISORY FEE OF 0.00% FOR THE PORTFOLIOS OF THE FULCRUM
TRUST.

12
<PAGE>
EXAMPLE 2 - ASSUMING ADVISORY FEE OF 2.00% FOR THE PORTFOLIOS OF THE FULCRUM
TRUST.

EXAMPLE 3 - ASSUMING ADVISORY FEE OF 4.00% FOR THE PORTFOLIOS OF THE FULCRUM
TRUST.

(2) If, at the end of the applicable time period, you annuitize* under a life
option or a noncommutable period certain option of ten years or longer, or if
you do not surrender or annuitize the Contract, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets:

EXAMPLE 1 - ASSUMING ADVISORY FEE OF 0.00% FOR THE PORTFOLIOS OF THE FULCRUM
TRUST

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Global Interactive/Telecomm Portfolio...................... $31 $93 $159 $334
International Growth Portfolio............................. $31 $93 $159 $334
Growth Portfolio........................................... $28 $85 $144 $306
Value Portfolio............................................ $28 $85 $144 $306
Strategic Income Portfolio................................. $31 $93 $159 $334
</TABLE>

EXAMPLE 2 - ASSUMING ADVISORY FEE OF 2.00% FOR THE PORTFOLIOS OF THE FULCRUM
TRUST

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Global Interactive/Telecomm Portfolio...................... $50 $151 $251 $502
International Growth Portfolio............................. $50 $151 $251 $502
Growth Portfolio........................................... $47 $142 $238 $479
Value Portfolio............................................ $47 $142 $238 $479
Strategic Income Portfolio................................. $50 $151 $251 $502
</TABLE>

EXAMPLE 3 - ASSUMING ADVISORY FEE OF 4.00% FOR THE PORTFOLIOS OF THE FULCRUM
TRUST(1)

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Global Interactive/Telecomm Portfolio...................... $70 $204 $334 $635
International Growth Portfolio............................. $70 $204 $334 $635
Growth Portfolio........................................... $67 $197 $322 $617
Value Portfolio............................................ $67 $197 $322 $617
Strategic Income Portfolio................................. $70 $204 $334 $635
</TABLE>

(1) In order to have a 5% annual return and a management fee of 4%, the
performance of the Portfolios of The Fulcrum Trust would have to be 9% before
the deduction of the 4% fee resulting in performance of 5% and the benchmark
index would have to decrease at least 2.5 percentage points (meaning the
Portfolio's performance after fees and expenses was at least 7.5 percentage
points better than the benchmark index.)

13
<PAGE>
As required in rules promulgated under the Investment Company Act of 1940 (the
"1940 Act"), the Contract fee is reflected in the examples by a method 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 $100,000. Lower costs
apply to Contracts issued to a 401(k) plan.

* The Contract fee is not deducted after annuitization. No surrender charge is
assessed at the time of annuitization under an option including a life
contingency or under a noncommutable period certain option of ten years or
longer.

14
<PAGE>
SUMMARY OF CONTRACT FEATURES

WHAT IS THE FULCRUM FUND VARIABLE ANNUITY?

The Fulcrum Fund Variable Annuity contract ("Contract") is an insurance contract
designed to help you, the Owner, 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;

- experienced professional investment advisers who are paid on an incentive
fee basis;

- tax deferral on earnings;

- guarantees that can protect your family during the accumulation phase;

- income payments that you can receive for life;

- issue age up to your 90th birthday (as long as the Annuitant is under age
90.)

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 the Sub-Accounts investing in the portfolios of securities (the
"Underlying Funds"), 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 Funds and any
accumulations in the Guarantee Period and Fixed Accounts. No income taxes are
paid on any earnings under the Contract unless you withdraw money. In addition,
during the accumulation phase, your beneficiaries receive certain protections
and guarantees 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
Funds, 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 (assuming you are the
Annuitant);

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

- periodic payments for the Annuitant's lifetime with any remaining
guaranteed payments continuing to your beneficiary for ten years in the
event that you die 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.

15
<PAGE>

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 fixed 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;

(b) the Accumulated Value on the effective date of the Rider compounded daily at
an effective annual yield of 5% plus gross payments made thereafter
compounded 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 negative
adjustments have been made 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 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 who receives 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 payments are flexible, subject to the minimum and
maximum payments stated in "A. Payments."

WHAT ARE MY INVESTMENT CHOICES?

You may allocate payments among the Sub-Accounts investing in the following
Funds, the Guarantee Period Accounts, and the Fixed Account. You have a choice
of fifteen Funds:

- Global Interactive/Telecomm Portfolio of The Fulcrum Trust
Managed by GAMCO Investors, Inc.

- Oppenheimer Aggressive Growth Fund/VA
Managed by OppenheimerFunds, Inc.

- MFS Emerging Growth Series
Managed by Massachusetts Financial Services Company

16
<PAGE>

- DGPF Small Cap Value Series
Managed by Delaware Management Company

- Lazard Retirement International Equity Portfolio
Managed by Lazard Asset Management

- International Growth Portfolio of The Fulcrum Trust
Managed by Bee & Associates Incorporated

- PBHG Select 20 Portfolio
Managed by Pilgrim Baxter & Associates, Ltd.

- Growth Portfolio of The Fulcrum Trust
Managed by Analytic Investors, Inc.

- Value Portfolio of The Fulcrum Trust
Managed by GAMCO Investors, Inc.

- AIM V.I. Value Fund
Managed by A I M Advisors, Inc.

- MFS Growth With Income Series
Managed by Massachusetts Financial Services Company

- Oppenheimer Main Street Growth & Income Fund/VA
Managed by OppenheimerFunds, Inc.

- DGPF Balanced Series
Managed by Delaware Management Company

- Strategic Income Portfolio of The Fulcrum Trust*
Managed by Allmerica Asset Management, Inc.

- Money Market Fund of Allmerica Investment Trust
Managed by Allmerica Asset Management, Inc.

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

* On or about July 1, 2000, subject to regulatory approval, shares of the Select
Investment Grade Income Fund will be substituted for shares of the Strategic
Income Portfolio. As of the substitution date, shares of the Select Investment
Grade Income Fund will be available and shares of the Strategic Income Portfolio
will no longer be offered.

CERTAIN FUNDS MAY NOT BE AVAILABLE IN SOME STATES.

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

17
<PAGE>

Company may offer up to nine Guarantee Periods ranging from three 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. For more information about the Guarantee Period Accounts and
the Market Value Adjustment, see GUARANTEE PERIOD ACCOUNTS.

The Guarantee Period Accounts may not be available in all states.

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
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 is
guaranteed for one year from that date. For more information about the Fixed
Account, see APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT.

WHO ARE THE INVESTMENT ADVISERS?

The following are the investment advisers of the Funds:

<TABLE>
<CAPTION>
FUND INVESTMENT ADVISER
- ---- ------------------
<S> <C>
Global Interactive/Telecomm Portfolio GAMCO Investors, Inc.
Oppenheimer Aggressive Growth Fund/VA OppenheimerFunds, Inc.
MFS Emerging Growth Series Massachusetts Financial Services Company
DGPF Small Cap Value Series Delaware Management Company
Lazard Retirement International Equity Portfolio Lazard Asset Management
International Growth Portfolio Bee & Associates Incorporated
PBHG Select 20 Portfolio Pilgrim Baxter & Associates, Ltd.
Growth Portfolio Analytic Investors, Inc.
Value Portfolio GAMCO Investors, Inc.
AIM V.I. Value Fund A I M Advisors, Inc.
MFS Growth With Income Series Massachusetts Financial Services Company
Oppenheimer Main Street Growth & Income Fund/VA OppenheimerFunds, Inc.
DGPF Balanced Series Delaware Management Company
Strategic Income Portfolio Allmerica Asset Management, Inc.
Money Market Fund Allmerica Asset Management, Inc.
</TABLE>

For more information, see DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS
AND THE UNDERLYING INVESTMENT COMPANIES.

CAN I MAKE TRANSFERS AMONG THE INVESTMENT OPTIONS?

Yes. Prior to the Annuity Date, you may transfer among the Sub-Accounts, the
Guarantee Period Accounts, and the Fixed Account. You will incur no current
taxes on transfers while your money remains in the Contract. See "D. Transfer
Privilege." 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 for processing these transfers.

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

You may surrender your Contract or make withdrawals any time before your annuity
payout phase begins. Each year you can take without a surrender charge the
greatest of 100% of cumulative earnings, 15% of the Contract's Accumulated Value
or, if you are both an Owner and the Annuitant, an amount based on your life

18
<PAGE>
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% tax penalty may apply to 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 seven years
may be subject to a surrender charge. (A Market Value Adjustment, which may
increase or decrease the value of your account, may apply to any withdrawal made
from a Guarantee Period Account prior to the expiration of the Guarantee
Period.)

In addition, you may withdraw all or a portion of your money without a surrender
charge if, after the Contract is issued and before age 65, you become disabled.
Also, except in New York and New Jersey where not permitted by state law, you
may withdraw money without a surrender charge if, after the Contract is issued,
you are admitted to a medical care facility or diagnosed with a fatal illness.
For details and restrictions, see "Reduction or Elimination of Surrender Charge
and Additional Amounts Credited."

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), the death benefit is equal to 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, compounded daily at the effective annual yield of 5% (5%
compounding not available in Hawaii and New York), 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 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 compounded daily at the 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 compounded daily at the 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 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.

If an Owner who is not also the Annuitant dies during the accumulation phase,
the death benefit will equal the Accumulated Value of the Contract 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?

If the Accumulated Value is less than $100,000 on each Contract anniversary and
upon surrender, the Company will deduct a $30 Contract fee from the Contract.
The Contract fee is currently waived for Contracts issued to and maintained by a
trustee of a 401(k) plan.

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<PAGE>
Should you decide to surrender the Contract, make withdrawals, or receive
payments under certain annuity payout options, you may be subject to a surrender
charge. If applicable, this charge will be between 1% and 7% of payments
withdrawn, based on when the payments were originally made.

A deduction for state and local premium taxes, if any, may be made as described
under "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 1.25% and 0.20%, respectively,
of the average daily net assets invested in each Underlying Fund. The Funds will
incur certain management fees and expenses which are more fully described in
"Other Charges" and in the prospectuses of the Underlying Funds, which accompany
this Prospectus.

Subject to state availability, the Company currently offers the following
optional Rider that may be elected by the Owner. A separate monthly charge is
made for the 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%
</TABLE>

For a description of this Rider, see "C. Optional Minimum Guaranteed Annuity
Payout (M-GAP) Rider Charge" under CHARGES AND DEDUCTIONS, and "M. Optional
Minimum Guaranteed Annuity Payout (M-GAP) Rider" under DESCRIPTION OF THE
CONTRACT.

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 the 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."

CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?

You can make several changes after receiving the 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 the Contract within ten days of delivery (or longer if
required by state law).

20
<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 account called the
Fulcrum Separate Account (the "Variable Account"). The Variable Accounts 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 Variable Account is a separate investment account of the Company with
fifteen Sub-Accounts. The assets used to fund the variable portions of the
Contracts are set aside in Sub-Accounts kept separate from the general assets of
the Company. 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. 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.

21
<PAGE>

THE FULCRUM TRUST. The Fulcrum Trust (previously known as the Palladian(sm)
Trust) was established as a Massachusetts business trust on September 8, 1993,
and is registered with the SEC as a management investment company.

Allmerica Financial Investment Management Services, Inc. ("AFIMS") serves as
overall manager of The Fulcrum Trust and is responsible for general investment
supervisory services to the Portfolios. The Fulcrum Trust and AFIMS have
retained several Portfolio Managers to manage the assets of each Portfolio.
AFIMS is located at 440 Lincoln Street, Worcester, MA 01653.

The five Portfolios of The Fulcrum Trust and their respective Portfolio Managers
are as follows:

<TABLE>
<CAPTION>
PORTFOLIO PORTFOLIO MANAGER
- --------- -----------------
<S> <C>
Global Interactive/Telecomm Portfolio GAMCO Investors, Inc.
International Growth Portfolio Bee & Associates Incorporated
Growth Portfolio Analytic Investors, Inc.
Value Portfolio GAMCO Investors, Inc.
Strategic Income Portfolio Allmerica Asset Management, Inc.
</TABLE>

Allmerica Asset Management, Inc. ("AAM") is an affiliate of the Company and of
AFIMS. The other Portfolio Managers are not affiliated with the Company or with
AFIMS.

The Fulcrum Trust currently pays AFIMS and the Portfolio Managers a monthly fee
(the "Management Fee") based on the average daily net assets of each Portfolio.
For the first year that a new Portfolio Manager is hired (or, in the case of a
Portfolio that has had only one Portfolio Manager, for the first year of
operations) the advisory fee is set at an annual rate of 0.80% of the
Portfolio's average daily net assets. After the twelfth full calendar month has
elapsed, the performance-based fee will be in effect.

Each Portfolio Manager is currently paid on an incentive fee basis, which could
result in either higher than average management fees or, possibly, no management
fee at all, depending on how well each Portfolio Manager performs. There are two
components to the management fee: the basic fee and the incentive fee. The
management fee is structured to vary based upon the Portfolio's performance
(after expenses) compared to that of an appropriate market benchmark selected
for that Portfolio. The management fee schedule provides for an incentive
performance fee for superior performance, and provides for lower fee for sub-par
performance. The base fee is 2.00%, but may vary from 0.00% to 4.00% depending
on the Portfolio's performance.

ALLMERICA INVESTMENT TRUST. Allmerica Investment Trust (the "Trust") is an
open-end, diversified, management investment company registered with the SEC
under the 1940 Act. The Trust was established as a Massachusetts business trust
on October 11, 1984, for the purpose of providing a vehicle for the investment
of assets of various separate accounts established by the Company or other
insurance companies. The Money Market Fund of Allmerica Investment Trust is
available under the Contract, certain funds of Allmerica Investment Trust are
not currently offered under the Contract. Shares of the Trust are not offered to
the general public but solely to such variable accounts.

The trustees have overall responsibility for the supervision of the affairs of
the Trust. The Trustees have entered into a management agreement ("Management
Agreement") with Allmerica Financial Investment Management Services, Inc.,
("AFIMS") a wholly owned subsidiary of Allmerica Financial, to handle the day-
to-day affairs of the Trust. AFIMS, subject to Trustee review, is responsible
for the general management of the Funds. AFIMS also performs certain
administrative and management services for the Trust, furnishes to the Trust all
necessary office space, facilities and equipment and pays the compensation, if
any, of officers and Trustees who are affiliated with AFIMS.

AFIMS has entered into agreements with other investment advisers
("Sub-Advisers") under which each Sub-Adviser manages the investments of one or
more of the Funds of the Trust. Under each Sub-Adviser

22
<PAGE>

agreement, the Sub-Adviser is authorized to engage in portfolio transactions on
behalf of the Fund, subject to AFIMS and the Trustees instructions. AFIMS is
solely responsible for the payment of all fees for investment management
services to the Sub-Advisers. The Sub-Advisers, other than Allmerica Asset
Management, Inc., are not affiliated with the Company or the Trust.

AIM VARIABLE INSURANCE FUNDS. AIM Variable Insurance Funds ("AVIF"), an
open-end, series, management investment company, was organized as a Maryland
corporation on January 22, 1993, changed to a Delaware business trust on May 1,
2000, and is registered with the SEC under the 1940 Act. The investment adviser
for the AIM V.I. Value Fund is A I M Advisors, Inc. ("AIM"), 11 Greenway Plaza,
Suite 100, Houston, TX 77046-1173. AIM was organized in 1976, and, together with
its subsidiaries, manages or advises over 120 investment company portfolios
encompassing a broad range of investment objectives.

DELAWARE GROUP PREMIUM FUND. Delaware Management Company, a series of Delaware
Management Business Trust ("Delaware Management") is the investment adviser for
the DGPF Small Cap Value Series and the DGPF Balanced Series. Delaware Group
Premium Fund ("DGPF"), previously a Maryland corporation organized on
February 19, 1987 and reorganized as a Delaware business trust on December 15,
1999, is an open-end management investment company registered with the SEC under
the 1940 Act. Delaware Management and its predecessors have been managing the
funds in the Delaware Investments family since 1938.

LAZARD RETIREMENT SERIES, INC. Lazard Asset Management ("LAM"), a division of
Lazard Freres & Co. LLC, is the investment adviser of Lazard Retirement
International Equity Portfolio, a portfolio of Lazard Retirement Series, Inc.
("Lazard"). Lazard, a Maryland corporation organized on February 13, 1997, is an
open-end management investment company registered with the SEC under the 1940
Act. Lazard and LAM are located at 30 Rockefeller Plaza, New York, New York
10112. LAM and its affiliates provide investment management services to Lazard's
other portfolios and client discretionary accounts with assets totaling
approximately $75 billion as of December 31, 1999.

MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST(SM). MFS Variable Insurance
Trust (the "MFS Trust"), a Massachusetts business trust organized on
February 1, 1994, is an open-end management investment company registered with
the SEC under the 1940 Act. The investment adviser of MFS Emerging Growth Series
and MFS Growth With Income Series is Massachusetts Financial Services Company
("MFS"), America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924. Net assets
under management of the MFS organization were approximately $136.72 billion on
behalf of approximately 4.2 million investor accounts as of December 31, 1999.

OPPENHEIMER VARIABLE ACCOUNT FUNDS. Oppenheimer Variable Account Funds
("Oppenheimer") was organized as a Massachusetts business trust in 1984 and is
an open-end, diversified management investment company registered with the SEC
under the 1940 Act. The investment adviser for the Oppenheimer Aggressive Growth
Fund/VA and the Oppenheimer Main Street Growth & Income Fund/VA is
OppenheimerFunds, Inc. ("OppenheimerFunds"). OppenheimerFunds has operated as an
investment adviser since 1959.

PBHG INSURANCE SERIES FUND, INC. PBHG Insurance Series Fund, Inc. ("PBHG") is
an open-end, management investment company registered with the SEC under the
1940 Act, which was incorporated in Maryland in 1997. Pilgrim Baxter &
Associates, Ltd. ("Pilgrim Baxter") is the investment adviser for the PBHG
Select 20 Portfolio. Pilgrim Baxter is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been in
business since 1982. Pilgrim Baxter currently has discretionary management
authority with respect to over $23 billion in assets and provides advisory
services to pension and profit-sharing plans, charitable institutions,
corporations, trusts, and other investment companies. The principal business
address of Pilgrim Baxter is 825 Duportail Road, Wayne, Pennsylvania 19087.

23
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

A summary of investment objectives of each of the Funds is set forth below. More
detailed information regarding the investment objectives, restrictions and
risks, expenses paid by the Funds, and other relevant information regarding the
underlying investment companies may be found in the prospectuses of the
Underlying Funds which accompany this Prospectus and should be read carefully
before investing. The Statements of Additional Information ("SAI") of the
Underlying Funds are available upon request. There can be no assurance that the
investment objectives of the Funds can be achieved or that the value of a
Contract will equal or exceed the aggregate amount of the payments made under
the Contract.

GLOBAL INTERACTIVE/TELECOMM PORTFOLIO -- seeks to make money for investors
primarily by investing globally in equity securities of companies engaged in the
development, manufacture or sale of interactive and/ or telecommunications
services and products.

OPPENHEIMER AGGRESSIVE GROWTH FUND/VA -- seeks to achieve capital appreciation
by investing in "growth-type" companies.

MFS-REGISTERED TRADEMARK- EMERGING GROWTH SERIES -- seeks to provide long-term
growth of capital by investing primarily in common stocks of foreign and
domestic issuers.

DGPF SMALL CAP VALUE SERIES -- seeks capital appreciation by investing primarily
in small cap common stocks whose market value appears low relative to their
underlying value or future earnings and growth potential. Emphasis will also be
placed on securities of companies that may be temporarily out of favor or whose
value is not yet recognized by the market.

LAZARD RETIREMENT INTERNATIONAL EQUITY PORTFOLIO -- seeks capital appreciation.
This Portfolio invests primarily in the equity securities of non-United States
companies that the Investment Adviser considers undervalued based on their
earnings, cash flow or asset values.

INTERNATIONAL GROWTH PORTFOLIO -- seeks to make money for investors by investing
internationally for long-term capital appreciation, primarily in equity
securities.

PBHG SELECT 20 PORTFOLIO -- seeks long-term growth of capital. The portfolio
invests primarily in common stocks of a limited number of larger capitalization
companies (no more than 20 issuers) that, in Pilgrim Baxter's opinion, have a
strong business momentum earnings growth and capital appreciation potential.

GROWTH PORTFOLIO -- seeks to make money for investors by investing primarily in
securities selected for their long-term growth prospects.

VALUE PORTFOLIO -- seeks to make money for investors by investing primarily in
companies that the Portfolio Manager believes are undervalued and that by virtue
of anticipated developments may, in the Portfolio Manager's judgment, achieve
significant capital appreciation.

AIM V.I. VALUE FUND -- seeks to achieve long-term growth of capital. Income is a
secondary objective.

MFS-REGISTERED TRADEMARK- GROWTH WITH INCOME SERIES -- seeks to provide
reasonable current income and long-term growth of capital and income.

OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA -- seeks a high total return
(which includes growth in the value of its shares as well as current income)
from equity and debt securities. From time to time this Fund may focus on small
to medium capitalization common stocks, bonds and convertible securities.

24
<PAGE>

DGPF BALANCED SERIES -- seeks a balance of capital appreciation, income and
preservation of capital. It uses a dividend-oriented valuation strategy to
select securities issued by established companies that are believed to
demonstrate potential for income and capital growth.

*STRATEGIC INCOME PORTFOLIO -- seeks to make money for investors by investing
for high current income and capital appreciation in a variety of fixed-income
securities.

MONEY MARKET FUND -- seeks to obtain maximum current income consistent with the
preservation of capital and liquidity.

If there is a material change in the investment policy of a Fund, the Owner will
be notified of the change. If the Owner has Accumulated Value allocated to that
Fund, he or she may have the Accumulated Value reallocated without charge to
another Fund or to the Fixed Account or a Guarantee Period Account, where
available, on written request received by the Company within 60 days of the
later of (1) the effective date of such change in the investment policy, or
(2) the receipt of the notice of the Owner's right to transfer.

*On or about July 1, 2000, subject to regulatory approval, shares of the Select
Investment Grade Income Fund will be substituted for shares of the Strategic
Income Portfolio. The Select Investment Grade Income Fund seeks as high a level
of total return, which includes capital appreciation as well as income, as is
consistent with prudent investment management.

PERFORMANCE INFORMATION

This Contract first was offered to the public 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 Funds have been in existence.
Both the total return and yield figures are based on historical earnings and are
not intended to indicate future performance.

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 Variable Account charges, and expressed as a
percentage.

The average annual total return represents the average annual percentage change
in the value of an investment in the Sub-Account over a given period of time. It
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 Money Market Fund 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 Fund other than the Money Market Fund
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 for the periods that the Sub-Accounts
have been in existence 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

25
<PAGE>

the deduction of the annual Sub-Account asset charge of 1.45%, the Underlying
Fund charges, the $30 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
the optional Minimum Guaranteed Annuity Payout (M-GAP) Rider charge. Quotations
of supplemental average total returns for the periods that the Sub-Accounts have
been in existence 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.

Additional performance may also be shown calculated in exactly the same manner
as described above, however, the period of time may be based on the Underlying
Fund's 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 Fund 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 and performance numbers, see the SAI.

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 FUND 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 Funds.

26
<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
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 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 $25,000. Under a salary deduction or
monthly automatic payment plan, the minimum initial payment is $50. In all
cases, each subsequent payment must be at least $50. 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 Money Market
Fund.

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.

The Owner may change allocation instructions for new payments pursuant to a
written or telephone request. If telephone requests are elected by the Owner, 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.

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 representative through whom the Contract was purchased, to the
Principal Office at 440 Lincoln Street, Worcester, MA 01653, or to any local
office of the Company. Mailing or delivery must occur on or before ten days
after receipt of the Contract for cancellation to be effective.

Within seven days the Company will provide a refund equal to the greater of
(1) gross payments, or (2) the Accumulated Value plus any amounts deducted under
the Contract or by the Funds for taxes, charges or fees.

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.

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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, the Owner may transfer amounts among
investment options upon written or telephone request to the Company. As of the
date of this Prospectus, transfers may be made to and among all of the available
Sub-Accounts. However, should additional Funds be added to the Contract, the
Company reserves the right to limit the number of Sub-Accounts which may be used
during the life of the Contract. As discussed in "A. Payments" above, a properly
completed authorization form must be on file before telephone requests will be
honored. Transfer values will be effected at the Accumulation Value next
computed after receipt of the transfer order. 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 Money Market
Fund. Transfers from a Guarantee Period Account prior to the expiration of the
Guarantee Period will be subject to a Market Value Adjustment.

The first 12 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 assess 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.

Under the proposed substitution, during the period February 9, 2000 until the
date the Strategic Income Portfolio is replaced by the Select Investment Grade
Income Fund, an Owner with value in the Sub-Account investing in the Select
Income Fund may make one transfer of all amounts in that Sub-Account to and
among any of the other Sub-Accounts, the Fixed Account and/or the Guarantee
Period Account (subject to the $1,000 minimum for the GPA Account.) This
transfer will be free of any transfer charge and will not count as one of the
twelve transfers guaranteed to be free of the transfer charge in each Contract
year. In addition, on the date the proposed substitution is completed, an Owner
that has amounts invested in the Select Investment Grade Income Fund as a result
of the substitution will have a period of 60 days following the substitution to
make one transfer of all amounts allocated to the Sub-Account investing in the
Select Investment Grade Income Fund to

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any one or more of the investment options available under the Contract (subject
to the minimum investment requirement of the Guarantee Period Accounts.) This
transfer of all value out of the Select Investment Grade Income Fund will be
free of any transfer charge and will not count as one of the twelve transfers
guaranteed to be free of the transfer charge in that Contract year. All Owners
with value in the affected Sub-Account on the date the substitution is made will
receive written notice.

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 the Strategic Income Portfolio, Money Market
Fund or the Fixed Account (the "source account") to one or more of the
sub-accounts. Automatic transfers may not be made into the Fixed Account, the
Guarantee Period Accounts or, if applicable, the Fund 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-account. 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 state 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 transfer. 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 Funds 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. 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. As such,
subsequent payment 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 Funds that may be utilized
for automatic transfers and rebalancing, and to discontinue either option upon
advance written notice. The first automatic transfer or rebalancing and all
subsequent transfers or rebalancing effected in a Contract year under a request
count as one transfer for purposes of the 12 transfers guaranteed to be free of
a transfer charge in each Contract year. 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.

E. SURRENDER

At any time prior to the Annuity Date, the Owner may surrender the Contract and
receive its Surrender Value, less any tax withholdings. 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.

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<PAGE>

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 seven
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 is normally 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 Company reserves the right to defer surrenders and withdrawals of amounts
allocated to the Company's Fixed Account and Guarantee Period Accounts for a
period not to exceed six months.

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 "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
Accumulated Value of his or her Contract, subject to the limits stated below.
The Owner must submit a signed, written request for withdrawal, 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 amount withdrawn equals 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.

Each withdrawal must be in a minimum amount of $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 above
under "E. Surrender."

After the Annuity Date, only Contracts under which future variable annuity
benefit payments are limited to a specified period may be withdrawn. 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
"Tax-Sheltered Annuities" and "Texas Optional Retirement Program."

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<PAGE>

For important tax consequences which may result from surrender and 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 withdrawal is $100, and will be subject to any applicable
withdrawal charges. If elected at the time of purchase, the Owner must designate
in writing the specific dollar amount of each withdrawal and the percentage of
this amount which should be taken from each designated Sub-Account and/ or the
Fixed Account. Systematic withdrawals then will begin on the date indicated on
the application. If elected after the issue date, 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.
Alternatively, 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.)

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.

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G. DEATH BENEFIT

In the event that the Annuitant, Owner or Joint Owner, if applicable, dies while
the Contract is in force, the Company will pay the Beneficiary a death benefit,
except where the Contract is continued in force as provided below in "H. The
Spouse of the Owner as Beneficiary." The amount of the death benefit and the
time requirements for receipt of payment may vary depending upon whether the
Annuitant or an Owner dies first and whether death occurs prior to or after the
Annuity Date.

DEATH OF THE ANNUITANT PRIOR TO THE ANNUITY DATE. At the death of the Annuitant
(including an Owner who is also the Annuitant), the benefit is equal to the
greatest of (1) the Accumulated Value on the Valuation Date that the Company
receives proof of death, increased by any positive Market Value Adjustment;
(2) gross payments, compounded daily at the 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); or (3) the death
benefit that would have been payable on the most recent Contract anniversary,
increased for subsequent payments and decreased proportionately for subsequent
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;.

DEATH OF AN OWNER WHO IS NOT ALSO THE ANNUITANT PRIOR TO THE ANNUITY DATE. 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 will never 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 or 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 Money Market Fund. The excess, if any, of the death benefit over the
Accumulated Value will also be added to the Money Market Fund. 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.

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With respect to the death benefit, the Accumulated Value under the Contract 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 primary 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 Money Market Fund; (2) the excess, if any, of the death
benefit over the Contract's Accumulated Value will also be added to the Money
Market Fund. The resulting value will never 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 seven 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 one 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. 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 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 THE ANNUITY DATE

The Owner selects the Annuity Date. To the extent permitted by state 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. 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 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

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to the annuity tables in the Contract, by the annuity option selected, and by
the investment performance of the account(s) selected. See "Annuity Benefit
Payments" in the SAI.

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,
semiannually 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 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(s) selected do(es)
not produce an initial payment which meet this minimum, a single payment may be
made. Once the Company begins making annuity benefit payments, the Annuitant
cannot make withdrawals or surrender the annuity benefit, except in the case
where a commutable period certain option has been elected. Only beneficiaries
entitled to receive remaining payments for a period certain may elect to instead
receive a lump sum settlement.

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.

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 annuity options 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 Value Portfolio, the Growth Portfolio, the
International Growth Portfolio and the Strategic Income Portfolio.

The Company also provides these same annuity payout options funded through the
Fixed Account (fixed annuity payout option). Regardless of how payments were
allocated during the accumulation period, any of the variable annuity options or
the fixed-amount options may be selected, or any of the variable annuity options
may be selected in combination with any of the fixed-amount annuity 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 the Annuitant dies prior to the due date of the second annuity
benefit payment, two annuity benefit payments if the Annuitant dies before the
due date of the third annuity benefit payment, and so on. Payments, however,
will continue during the lifetime of the Annuitant, no matter how long he or she
lives.

UNIT REFUND 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

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(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. 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.

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 payout 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), and all
variable period certain options 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 all commutable fixed period certain options, 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.

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- 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.

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 (M-GAP) Rider is currently
available in most jurisdictions for a separate monthly charge. The M-GAP Rider
provides a guaranteed minimum amount of fixed 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

36
<PAGE>

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 compounded
daily at an effective annual yield of 5% plus gross payments made
thereafter compounded 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 prior 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

CONDITIONS ON ELECTING 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/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/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 fixed 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
(1) occurs 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.

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<PAGE>
- 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 for individuals 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 Owner 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% rate of return and are the guaranteed minimums that would be received under
the M-GAP Rider. The minimum guaranteed benefit base amounts are the values that
will be annuitized. Minimum guaranteed annual income values are based on a fixed
annuity payout.

<TABLE>
<CAPTION>
MINIMUM
CONTRACT 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. The Company reserves the right to terminate the availability of
the M-GAP Rider at any time. Such a termination would not effect M-GAP Riders
issued prior to the termination date, but as noted above, Owners would not be
able to repurchase a new Rider under the repurchase feature (see above,
"TERMINATING THE M-GAP RIDER.")

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

38
<PAGE>
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 at the
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 Funds. The value of an
Accumulation Unit was set at $1.00 on the first Valuation Date for each
Sub-Account.

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 APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT and
GUARANTEE PERIOD 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 1.25% on an annual
basis of the daily value of the Sub-Account's assets; and

(4) is an administrative charge of 0.20% 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.

39
<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
Funds are described in the prospectuses and SAIs of the Underlying Funds.

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
its 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
1.25% 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 0.80% for mortality risk and 0.45% for
expense risk.

ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account with a
daily charge at an annual rate of 0.20% 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 purchase shares of the Underlying
Funds, the value of the net assets of the Sub-Accounts will reflect the
investment advisory fee and other expenses incurred by the Funds. The
prospectuses and SAIs of the Underlying Funds contain additional information
concerning expenses of the Funds.

40
<PAGE>
B. CONTRACT FEE

A $30 Contract fee is deducted on the Contract anniversary date and upon full
surrender of the Contract when the Accumulated Value is less than $100,000. The
Contract fee is 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 $30
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
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
and subsidiaries; officers, directors, trustees and employees of any of the
Funds; investment managers or Sub-Advisers; 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 MINIMUM GUARANTEED ANNUITY PAYOUT (M-GAP) RIDER CHARGE

Subject to state availability, the Company currently offers an optional Minimum
Guaranteed Annuity Payout (M-GAP) Rider that may be elected by the Owner. A
separate monthly charge is made for the Rider. 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 was 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%
</TABLE>

For a description of the Rider, see "M. Optional Minimum Guaranteed Annuity
Payout (M-GAP) Rider" under DESCRIPTION OF THE CONTRACT, above.

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.

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<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. A surrender charge is deducted, however, from the Accumulated Value of
the Contract in the case of surrender of and/or withdrawals from the Contract 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 seven years preceding the date of the surrender; (2) Old
Payments - accumulated payments invested in the Contract for more than seven
years; and (3) the amount available under the Withdrawal Without Surrender
Charge provision. 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 any 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.

CHARGE FOR SURRENDER AND WITHDRAWALS. If a 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. 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 DATE CHARGE AS PERCENTAGE OF
OF PAYMENT NEW PAYMENTS WITHDRAWN
- --------------- -----------------------
<S> <C>
0-1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
More than 7 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 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. Where permitted by state law, the Company will waive the surrender
charge in the event that an Owner (or the Annuitant, if the

42
<PAGE>

Owner is not an individual) becomes 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 such disability and continuing disability,
including written confirmation of receipt and approval of any claim for Social
Security Disability Benefits and reserves the right to obtain an examination by
a licensed physician of its choice and at its expense. In addition, except in
New York and New Jersey where not permitted by state law, the Company will waive
the in the event that an Owner (or the Annuitant, if the Owner is not an
individual) is: (1) admitted to a medical care facility after the issue date and
remains confined there until the later of one year after the issue date or 90
consecutive days or (2) first diagnosed by a licensed physician as having a
fatal illness after the issue date of the Contract.

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
inpatient 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 any of the situations discussed
above, no additional payments under the Contract will be accepted, unless
required by state law.

In addition, where permitted by state law, the Company may reduce or waive
surrender charges and/or credit additional amounts on Contracts issued 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
subsidiaries and affiliates; officers, directors, trustees and employees of any
of the Funds, investment managers or sub-advisers; and the spouses, children and
other legal dependants (under age 21) of such eligible persons.

In addition, from time to time the Company may reduce the amount of the
surrender charge, the period during which it applies, or both, and/or credit
additional amounts on the Contract when the Contract is sold to individuals or
groups of individuals in a manner that reduces sales expenses. The Company will
consider (1) the size and type of group; (2) the total amount of payments to be
received and the manner in which payments are remitted; (3) the purpose for
which the Contract is 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
the Contract in connection with financial planning services offered on a
fee-for-service basis). 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 Owners.
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, the Company will
waive the surrender charge, if any, on an amount ("Withdrawal Without Surrender
Charge") equal to the greatest of (1), (2) or (3):

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<PAGE>
Where: (1) is: The Accumulated Value as of the Valuation Date coincident
with or next following the date of receipt of the request for
withdrawal, reduced by total gross payments not previously
withdrawn ("Cumulative Earnings")

Where: (2) is: 15% of the Accumulated Value as of the Valuation Date
coincident with or next following the date of receipt of the
request for withdrawal, reduced by the total amount of any
prior withdrawals made in the same calendar year to which no
surrender charge was applied.

Where: (3) is: The amount calculated under the Company's life expectancy
distribution (see "Life Expectancy Distributions" above)
whether or not the withdrawal was part of such distribution
(applies only if the Annuitant is also an Owner).

For example, an 81-year-old Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Withdrawal Without
Surrender Charge of $2,250, which is equal to the greatest of:

(1) Cumulative Earnings ($1,000);

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

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

The Withdrawal Without Surrender Charge will first be deducted 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 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 amount has been withdrawn. Amounts withdrawn from a Guarantee
Period Account prior to the end of the applicable Guarantee Period will 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 entire Accumulated Value under the Contract, net of the
applicable surrender charge on New Payments, the Contract fee and any applicable
tax withholding, and adjusted for any applicable Market Value Adjustment.
Subject to the same rules applicable to withdrawals, the Company will not assess
a surrender charge on an amount equal to the greater of the Withdrawal Without
Surrender Charge amount, described above, or the life expectancy distribution,
if applicable.

Where an Owner who is a trustee under a pension plan surrenders, in whole or in
part, the 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 withdrawal, including minimum limits on
amount withdrawn and amounts remaining under the Contract in the case of
withdrawal, and important tax considerations, see "E. Surrender" and "F.
Withdrawals" under DESCRIPTION OF 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

44
<PAGE>

Annuity Date occurs at any time when a surrender charge would still apply had
the Contract been surrendered on the Annuity Date.

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 years or more (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 option, the Company may permit such owner to exchange, at the
time of annuitization, the fixed contract for the 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.

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 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 this 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 this Prospectus.

INVESTMENT OPTIONS. In most jurisdictions, Guarantee Periods ranging from three
through ten years may be available under the Contract. 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. Once an interest rate is in effect for a Guarantee Period Account,
however, 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 the 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. (In Oregon and
Massachusetts, payments and transfers to the Fixed Account are subject to
certain restrictions. See APPENDIX A.) 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

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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 Money
Market Fund. 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 will be
automatically 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 Money Market Fund. Where amounts have been
automatically renewed in a new Guarantee Period, 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." All
other transfers, withdrawals, or a surrender prior to the end of a Guarantee
Period will be subject to a Market Value Adjustment, which may increase or
decrease the account value. Amounts applied under an annuity option are treated
as withdrawals when calculating the Market Value Adjustment. The Market Value
Adjustment will be 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

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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
will then 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 under a
Minimum Guaranteed Annuity Payout (M-GAP) Rider purchased or repurchased after
issue), in order to ensure that on the last day of the Guarantee Period, the
value in the Guarantee Period Account will equal the amount of the entire
initial payment. The required amount then will be allocated to the preselected
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."

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." 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 under "E. Surrender Charge"
under CHARGES AND DEDUCTIONS after application of the Market Value Adjustment.

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FEDERAL TAX CONSIDERATIONS

The effect of federal income taxes on the value of a 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. In
addition, this discussion does not address state or local tax consequences that
may be associated with this Contract.

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.

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 Internal Revenue Code (the "Code"). The Company files a consolidated tax
return with its affiliates.

DIVERSIFICATION REQUIREMENTS. The IRS has issued regulations relating to the
diversification requirements for variable annuity and variable life insurance
contracts under Section 817(h) of the Code. 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 Portfolios of the Fund in this
Contract 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.

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INVESTOR CONTROL. In addition, traditionally 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 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, depending on 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 "D. Provisions Applicable to Qualified Employer Plans"
below.

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 Owner's 85th birthday, it is possible that
the Contract may not be considered an annuity for tax purposes, and therefore,
the Owner will 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. If the Contract is surrendered or amounts are
withdrawn prior to the Annuity Date, any withdrawal of investment gain in value
over the cost basis of the Contract will be taxed as ordinary income. 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

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generally is determined by a formula that establishes the ratio that the cost
basis of 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 cost basis in the Contract is recovered, the entire
payment is taxable. If the annuitant dies before the cost basis 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, 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 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. With respect to payments made
after February 28, 1986, however, a contract owned by a state or local
government or a tax-exempt organization will not be

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treated as an annuity under Section 72. 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 or not the
amount withdrawn or surrendered is allocable to an investment in the Contract
made before or after certain dates.

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 retirement 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 an Owner of a
non-qualified Contract. Individuals purchasing a qualified Contract should
review carefully 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

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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 Annuities."

Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) or SIMPLE IRA plans for their employees using
the employees 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,
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

The Owner is sent a report semi-annually which provides certain financial
information about the Funds. 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)

Loaned amounts will first be withdrawn 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
(last-in, first-out) 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

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will be allocated pro rata in accordance with the most recent payment
allocation, except that any allocations to a Guarantee Period Account will
instead be allocated to the Money Market Fund.

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 Fund
are no longer available for investment or if in the Company's judgment further
investment in any Fund 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 Fund 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 extent
permitted by law, purchase other securities for other contracts or permit a
conversion between contracts upon request by the 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
fund 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 Funds also are issued to variable accounts of the Company and its
affiliates which issue variable life contracts ("mixed funding"). Shares of the
Funds are also issued to other unaffiliated insurance companies ("shared
funding"). Shares of the Funds may be offered to certain qualified retirement
plans. It is conceivable that in the future such mixed funding, shared funding
or sales to qualified plans may be disadvantageous for variable life owners,
variable annuity owners or plan participants. Although the Company and the
Trustees of the Underlying Funds do not currently foresee any such disadvantages
to variable life insurance owners, variable annuity owners or plan participants,
the Company and the respective Trustees intend to monitor events in order to
identify any material conflicts and to determine what action, if any, should be
taken in response thereto. If the Trustees were to conclude that separate funds
should be established for variable life and variable annuity separate accounts,
the Company may be required to bear the attendant expenses.

If any of these substitutions or changes are made, the Company may, by
appropriate endorsement, change the Contract to reflect the substitution or
change and will notify Owners of all such changes. If the Company deems it to be
in the best interest of Owners, and subject to any approvals that may be
required under applicable law, the Variable Account or any Sub-Accounts may be
operated as a management company under the 1940 Act, may be deregistered under
the 1940 Act if registration is no longer required, or may be combined with
other Sub-Accounts or other separate accounts of the Company.

The Company reserves the right, subject to compliance with applicable law, to
(1) transfer assets from the Variable Account or 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 Fund shares held by a Sub-Account, in the
event that Fund shares are unavailable for investment, or if the Company
determines that further investment in such Fund shares is inappropriate in view
of the purpose of the Sub-Account, (5) to change the methodology for determining
the net investment factor, and (6) to change the names of the Variable Account
or of the Sub-Accounts. In no event will the changes described above be made
without notice to Owners in accordance with the 1940 Act.

53
<PAGE>
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 the Owners the benefit of, any federal or
state statute, rule or regulations, 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.

VOTING RIGHTS

The Company will vote Fund 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 Fund 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 contracts 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 Fund. During the
accumulation phase, the number of Fund 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 Fund share.
During the annuity payout phase, the number of Fund 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 Fund share.
Ordinarily, the Annuitant's voting interest in the Fund 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 which are registered under the Securities Exchange
Act of 1934 and members of the National Association of Securities Dealers, Inc.
("NASD"). The Contract also is offered through Allmerica Investments, Inc.,
which is the principal underwriter and distributor of the Contract. Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, MA 01653, is a registered
broker-dealer, member of the NASD, and an indirect wholly owned subsidiary of
First Allmerica.

The Company pays commissions, not to exceed 7.0% of payments, to broker-dealers
which 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 may also 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 the Contract will be retained by the
Company.

54
<PAGE>
Owners may direct any inquiries to their financial representative or to
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653, telephone
1-800-917-1909.

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.

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.

55
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT

Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account are not generally subject to regulation under the
provisions of the Securities Act of 1933 or the Investment Company Act of 1940.
Disclosures regarding the fixed portion of the annuity contract and the Fixed
Account may be subject to the provisions of the Securities Act of 1933
concerning the accuracy and completeness of statements made in the 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 and is made up of all
of the general assets of the Company other than those allocated to the separate
account. 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 amount in excess of the Withdrawal
Without Surrender Charge 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 at least seven full contract years.

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

If a 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 a 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 payment to the Fixed Account will be permitted if a 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 Money Market
Fund.

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 is equal to the greater of 15% of the
current Accumulated Value or the accumulated earnings in the Contract. The table
below presents examples of the surrender charge resulting from a full surrender,
based on hypothetical Accumulated Values.

<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
ACCOUNT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE CHARGE 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 12,985.60 5% 2,500.00
4 68,024.45 18,024.45 4% 2,000.00
5 73,466.40 23,466.40 3% 1,500.00
6 79,343.72 29,343.72 2% 1,000.00
7 85,691.21 35,691.21 1% 500.00
8 92,546.51 42,546.51 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 is equal to the greater of 15% of the current Accumulated Value or the
accumulated earnings in the contract and there are withdrawals as detailed
below. The table below presents examples of the surrender charge resulting from
withdrawals, based on hypothetical Accumulated Values.

<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
ACCOUNT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE WITHDRAWAL CHARGE 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 12,985.60 5% 0.00
4 68,024.45 30,000.00 18,024.45 4% 479.02
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 1% 53.75
8 22,502.72 15,000.00 3,375.41 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 X $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 (-.17454 X $62,985.60 or -$8,349.25)

= Minimum (-$10,994.51 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%

= Minimum of (.13981 X $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

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 and that the Death Benefit Effective
Annual Yield is equal to 5%. The table below presents examples of the Death
Benefit based on the Hypothetical Accumulated Values.

<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
CONTRACT 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 compounded at an
effective annual yield of 5% decreased 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 and that
the Death Benefit Effective Annual Yield is equal to 5%. The table below
presents examples of the Death Benefit based on the Hypothetical Accumulated
Value.

<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE DEATH DEATH DEATH HYPOTHETICAL
YEAR VALUE WITHDRAWALS ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) DEATH BENEFIT
- --------------------- ------------ ----------- ------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $53,000.00 $0.00 $ 0.00 $53,000.00 $52,500.00 $50,000.00 $53,000.00
2 53,530.00 0.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 3,883.00 50,000.00 0.00 3,883.00 4,171.13 3,972.50 4,171.13
4 3,494.70 0.00 500.00 3,994.70 4,379.68 4,171.13 4,379.68
5 3,844.17 0.00 0.00 3,844.17 4,598.67 4,379.68 4,598.67
6 4,228.59 0.00 500.00 4,728.59 4,828.60 4,598.67 4,828.60
7 4,651.45 0.00 0.00 4,651.45 5,070.03 4,828.60 5,070.03
8 5,116.59 0.00 500.00 5,616.59 5,323.53 5,070.03 5,616.59
9 5,628.25 0.00 0.00 5,628.25 5,589.71 5,616.59 5,628.25 1
0 691.07 5,000.00 0.00 691.07 712.70 683.44 712.70
</TABLE>

C-1
<PAGE>

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 2: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT

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

<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE HYPOTHETICAL
YEAR VALUE ADJUSTMENT DEATH 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-2
<PAGE>
APPENDIX D
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FULCRUM SEPARATE ACCOUNT

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
SUB-ACCOUNT 1999 1998 1997
- ----------- -------- -------- --------
<S> <C> <C> <C>
GLOBAL INTERACTIVE/TELECOMM PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.665 1.295 1.000
End of Period............................................. 2.575 1.665 1.295
Number of Units Outstanding at End of Period (in
thousands)................................................. 2,578 2,359 1,592

OPPENHEIMER AGGRESSIVE GROWTH FUND/VA
Unit Value:
Beginning of Period....................................... 1.296 1.000 N/A
End of Period............................................. 2.346 1.296 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 244 3 N/A

MFS EMERGING GROWTH SERIES
Unit Value:
Beginning of Period....................................... 1.327 1.000 0
End of Period............................................. 2.312 1.327 0
Number of Units Outstanding at End of Period (in
thousands)................................................. 1,038 23 0

DGPF SMALL CAP VALUE SERIES
Unit Value:
Beginning of Period....................................... 1.203 1.000 N/A
End of Period............................................. 1.128 1.203 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 219 92 N/A

LAZARD RETIREMENT INTERNATIONAL EQUITY PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.118 1.000 N/A
End of Period............................................. 1.338 1.118 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 599 207 N/A

INTERNATIONAL GROWTH PORTFOLIO
Unit Value:
Beginning of Period....................................... 0.823 0.907 N/A
End of Period............................................. 1.114 0.823 0.907
Number of Units Outstanding at End of Period (in
thousands)................................................. 2,318 3,084 3,438

PBHG SELECT 20 PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.260 1.000 N/A
End of Period............................................. 2.491 1.260 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 1,722 201 N/A

GROWTH PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.045 1.055 1.000
End of Period............................................. 1.237 1.045 1.055
Number of Units Outstanding at End of Period (in
thousands)................................................. 3,145 4,044 3,964
</TABLE>

D-1
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
SUB-ACCOUNT 1999 1998 1997
- ----------- -------- -------- --------
<S> <C> <C> <C>
VALUE PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.317 1.243 1.000
End of Period............................................. 1.403 1.317 1.243
Number of Units Outstanding at End of Period (in
thousands)................................................. 4,422 5,759 4,264

AIM V.I. VALUE FUND
Unit Value:
Beginning of Period....................................... 1.297 1.000 N/A
End of Period............................................. 1.661 1.297 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 2,442 232 N/A

MFS GROWTH WITH INCOME SERIES
Unit Value:
Beginning of Period....................................... 1.204 N/A N/A
End of Period............................................. 1.266 1.204 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 1,427 165 N/A

OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Unit Value:
Beginning of Period....................................... 1.214 1.000 N/A
End of Period............................................. 1.456 1.214 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 930 277 N/A

DGPF BALANCED SERIES
Unit Value:
Beginning of Period....................................... 1.173 1.000 N/A
End of Period............................................. 1.065 1.173 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 666 303 N/A

STRATEGIC INCOME PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.080 1.028 1.000
End of Period............................................. 1.031 1.080 1.028
Number of Units Outstanding at End of Period (in
thousands)................................................. 1,067 1,652 1,604

MONEY MARKET FUND
Unit Value:
Beginning of Period....................................... 1.073 1.032 1.000
End of Period............................................. 1.112 1.073 1.032
Number of Units Outstanding at End of Period (in
thousands)................................................. 1,542 3,109 440
</TABLE>

D-2
<PAGE>
CONDENSED FINANCIAL INFORMATION
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
FULCRUM SEPARATE ACCOUNT

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
SUB-ACCOUNT 1999 1998 1997
- ----------- -------- -------- --------
<S> <C> <C> <C>
GLOBAL INTERACTIVE/TELECOMM PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.420 1.105 1.000
End of Period............................................. 2.197 1.420 1.105
Number of Units Outstanding at End of Period (in
thousands)................................................. 815 678 211

OPPENHEIMER AGGRESSIVE GROWTH FUND/VA
Unit Value:
Beginning of Period....................................... 1.296 1.000 N/A
End of Period............................................. 2.337 1.296 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 2 0 N/A

MFS EMERGING GROWTH SERIES
Unit Value:
Beginning of Period....................................... 1.327 1.000 N/A
End of Period............................................. 2.313 1.327 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 12 0 N/A

DGPF SMALL CAP VALUE SERIES
Unit Value:
Beginning of Period....................................... 1.204 1.000 N/A
End of Period............................................. 1.129 1.204 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 0 0 N/A

INTERNATIONAL GROWTH PORTFOLIO
Unit Value:
Beginning of Period....................................... 0.800 0.881 1.000
End of Period............................................. 1.082 0.800 0.881
Number of Units Outstanding at End of Period (in
thousands)................................................. 316 144 85

PBHG SELECT 20 PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.260 1.000 N/A
End of Period............................................. 2.489 1.260 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 2 0 N/A

GROWTH PORTFOLIO
Unit Value:
Beginning of Period....................................... 0.858 0.867 1.000
End of Period............................................. 1.016 0.858 0.867
Number of Units Outstanding at End of Period (in
thousands)................................................. 786 504 313
</TABLE>

D-3
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
SUB-ACCOUNT 1999 1998 1997
- ----------- -------- -------- --------
<S> <C> <C> <C>
VALUE PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.111 1.049 1.000
End of Period............................................. 1.184 1.111 1.049
Number of Units Outstanding at End of Period (in
thousands)................................................. 1,264 1,032 483

AIM V.I. VALUE FUND
Unit Value:
Beginning of Period....................................... 1.298 1.000 N/A
End of Period............................................. 1.664 1.298 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 17 0 N/A

MFS GROWTH WITH INCOME SERIES
Unit Value:
Beginning of Period....................................... 1.204 1.000 N/A
End of Period............................................. 1.269 1.204 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 20 0 N/A

OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Unit Value:
Beginning of Period....................................... 1.214 1.000 N/A
End of Period............................................. 1.458 1.214 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 0 0 N/A

DGPF BALANCED SERIES
Unit Value:
Beginning of Period....................................... 1.174 1.000 N/A
End of Period............................................. 1.064 1.174 N/A
Number of Units Outstanding at End of Period (in
thousands)................................................. 22 0 N/A

STRATEGIC INCOME PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.048 0.998 0.000
End of Period............................................. 1.001 1.048 0.998
Number of Units Outstanding at End of Period (in
thousands)................................................. 439 320 41

MONEY MARKET FUND
Unit Value:
Beginning of Period....................................... 1.050 1.010 0.000
End of Period............................................. 1.089 1.050 1.010
Number of Units Outstanding at End of Period (in
thousands)................................................. 186 16 8
</TABLE>

D-4
<PAGE>

ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

STATEMENT OF ADDITIONAL INFORMATION

FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY CONTRACTS FUNDED THROUGH

SUB-ACCOUNTS OF

FULCRUM SEPARATE ACCOUNT

INVESTING IN SHARES OF THE FULCRUM TRUST, ALLMERICA INVESTMENT TRUST, AIM
VARIABLE INSURANCE FUNDS, DELAWARE GROUP PREMIUM FUND, LAZARD RETIREMENT SERIES,
INC., MFS VARIABLE INSURANCE TRUST, OPPENHEIMER VARIABLE ACCOUNT FUNDS AND PBHG
INSURANCE SERIES FUND, INC.

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS OF THE FULCRUM SEPARATE ACCOUNT 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 1-800-917-1909.

DATED MAY 1, 2000

AFLIAC Fulcrum

<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.....................................................8

TAX-DEFERRED ACCUMULATION...................................................14

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

GENERAL INFORMATION AND HISTORY

The Fulcrum Separate Account (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 (the "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, 15 Sub-Accounts of the Variable Account are available under the
Contract. Each Sub-Account invests in a corresponding investment portfolio, fund
or series of The Fulcrum Trust ("Fulcrum"), Allmerica Investment Trust (the
"Trust"), AIM Variable Insurance Funds ("AVIF"), Delaware Group Premium Fund
("DGPF"), Lazard Retirement Series, Inc. ("Lazard"), MFS Variable Insurance
Trust (the "MFS Trust"), Oppenheimer Variable Account Funds ("Oppenheimer") and
PBHG Insurance Series Fund, Inc. ("PBHG"). Fulcrum and the Trust are managed by
Allmerica Financial Investment Management Services, Inc.

<PAGE>

("AFIMS"). AIM is managed by A I M Advisors, Inc. DGPF is managed by Delaware
Management Company. Lazard is managed by Lazard Asset Management. The MFS Trust
is managed by Massachusetts Financial Services Company. Oppenheimer is managed
by OppenheimerFunds, Inc. and PBHG is managed by Pilgrim Baxter & Associates,
Ltd. Fulcrum, the Trust, AVIF, DGPF, Lazard, the MFS Trust, Oppenheimer and PBHG
are open-end, management investment companies. Five different portfolios of
Fulcrum are available under the Contract: Global Interactive/Telecomm,
International Growth, Growth, Value, and Strategic Income Portfolio. One fund of
the Trust is available under the Contract: the Money Market Fund. One fund of
AVIF is available under the Contract: the AIM V.I. Value Fund. Two series of
DGPF are available under the Contract: the DGPF Balanced Series and DGPF Small
Cap Value Series. One portfolio of Lazard is available under the Contract: the
Lazard Retirement International Equity Portfolio. Two funds of the MFS Trust are
available under the Contract: MFS Emerging Growth Series and MFS Growth With
Income Series. Two funds of Oppenheimer are available under the Contract:
Oppenheimer Aggressive Growth Fund/VA and Oppenheimer Main Street Growth &
Income Fund/VA. One portfolio of PBHG is available under the Contract: PBHG
Select 20 Portfolio. Each portfolio, fund and series available under the
Contract (together, the "Underlying Funds") has its own investment objectives
and certain attendant risks. For more information, see the Prospectuses and
Statements of Additional Information for the Underlying Funds.

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. Shares of the Underlying Funds owned by the Sub-Accounts are
held on an open account basis. A Sub-Account's ownership of Underlying Fund
shares is reflected on the records of the Underlying Funds, and are 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 the Fulcrum Separate Account 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.

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.

<PAGE>

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 presently
is indirectly wholly owned by 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 entities
which 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.

Commissions paid on the Contract, including additional incentives or payments,
and allowances paid, if any, are paid by the Company and 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 Fulcrum Separate Account (including contracts not
described in the Prospectus) for the years 1997, 1998 and 1999 were $1,125,013,
$622,188 and $918,373.

No commissions were retained by Allmerica Investments for sales of all contracts
funded by Fulcrum Separate Account (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.

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

<PAGE>

(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 1.45% per annum)........................................0.000040

(6) Net Investment Rate (4) - (5)................................................................0.000295

(7) Net Investment Factor 1.000000 + (6)..........................................................1.000295

(8) Accumulation Unit Value -- Current Period (1) x (7).........................................$1.135335
</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
$1.134574.

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

ILLUSTRATION OF VARIABLE ANNUITY 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 Variable Account, and that the
value of an Accumulation Unit on the Valuation Date used to determine the amount
of the first variable annuity 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 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 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

<PAGE>

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. A3026-96 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 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 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 $30 fee on each
Contract anniversary and at surrender if the Accumulated Value is less than
$100,000. 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 0.20% 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.

<PAGE>

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.

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 Funds 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 Funds. Additionally, the
interest rates 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.

<PAGE>

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

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 and tax and retirement planning, and 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 the 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 of time, with all charges assumed to be those applicable to
the Contract.

<PAGE>

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

Quotations of average annual total return for the periods that the Sub-Accounts
and for periods that the Underlying Funds have been in existence 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 1.45%, the $30
annual Contract fee and the surrender charge which would be assessed if the
investment were completely withdrawn at the end of the specified period,
according to the following schedule. See Tables 1A and 2A.

<PAGE>

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

* Subject to the maximum limit described in the Prospectus.

No surrender charge is deducted upon expiration of the periods specified above.
In all calendar years, an amount equal to the greater of: (a) 15% of the
Accumulated Value, (b) cumulative earnings (Accumulated Value less total gross
payments not previously withdrawn), or (c) the life expectancy distribution, is
not subject to the surrender charge.

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

Quotations of supplemental average total return for the periods that the
Sub-Accounts and for periods that the Underlying Funds have been in existence
are calculated in exactly the same manner as total return information and for
the same periods of time except that they do not reflect the surrender charge
and assume that the Contract is not surrendered at the end of the periods shown.
The calculation of supplemental total return does not include the deduction of
the $30 annual Contract fee. See Tables 1B and 2B below.

<PAGE>

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 YEAR SINCE
SUB-ACCOUNT ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 SUB-ACCOUNT
- ---------------------------------------- -------------- -------- -----------
<S> <C> <C> <C>
Global Interactive/Telecomm Portfolio 3/13/97 47.11% 38.72%
Oppenheimer Aggressive Growth Fund/VA 9/1/98 74.01% 86.07%
MFS Emerging Growth Series 9/1/98 67.19% 83.98%
DGPF Small Cap Value Series 9/1/98 -11.82% 5.27%
Lazard Retirement International Equity Portfolio 9/1/98 12.66% 20.19%
International Growth Portfolio 3/13/97 27.76% 1.69%
PBHG Select 20 Portfolio 11/2/98 90.78% 114.85%
Growth Portfolio 3/13/97 10.62% 5.55%
Value Portfolio 3/13/97 -0.59% 10.64%
AIM V.I. Value Fund 9/1/98 21.03% 42.38%
MFS Growth With Income Series 9/1/98 -1.12% 15.08%
Oppenheimer Main Street Growth & Income Fund/VA 9/1/98 12.94% 28.47%
DGPF Balanced Series 9/1/98 -14.60% 0.81%
Strategic Income Portfolio 3/13/97 -10.44% -0.72%
Money Market Fund 3/13/97 -2.58% 2.21%
</TABLE>

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 YEAR SINCE
SUB-ACCOUNT ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 SUB-ACCOUNT
- ---------------------------------------- -------------- -------- -----------
<S> <C> <C> <C>
Global Interactive/Telecomm Portfolio 3/13/97 54.66% 40.13%
Oppenheimer Aggressive Growth Fund/VA 9/1/98 81.01% 89.73%
MFS Emerging Growth Series 9/1/98 74.20% 87.65%
DGPF Small Cap Value Series 9/1/98 -6.24% 9.49%
Lazard Retirement International Equity Portfolio 9/1/98 19.66% 24.41%
International Growth Portfolio 3/13/97 35.30% 3.93%
PBHG Select 20 Portfolio 11/2/98 97.78% 119.41%
Growth Portfolio 3/13/97 18.33% 7.87%
Value Portfolio 3/13/97 6.52% 12.85%
AIM V.I. Value Fund 9/1/98 28.03% 46.38%
MFS Growth With Income Series 9/1/98 5.15% 19.37%
Oppenheimer Main Street Growth & Income Fund/VA 9/1/98 19.96% 32.62%
DGPF Balanced Series 9/1/98 -9.19% 4.86%
Strategic Income Portfolio 3/13/97 -4.52% 1.10%
Money Market Fund 3/13/97 3.66% 3.87%
</TABLE>

<PAGE>

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

<TABLE>
<CAPTION>
FOR YEAR
SUB-ACCOUNT ENDED 10 YEARS (OR SINCE
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS INCEPTION IF LESS)
- ---------------------------------------- -------------- -------- ------- ------------------
<S> <C> <C> <C> <C>
Global Interactive/Telecomm Portfolio 2/1/96 47.11% N/A 28.27%
Oppenheimer Aggressive Growth Fund/VA 8/15/86 74.01% 27.61% 18.70%
MFS Emerging Growth Series 7/24/95 67.19% N/A 32.94%
DGPF Small Cap Value Series 12/27/93 -11.82% 11.27% 9.37%
Lazard Retirement International Equity Portfolio 9/1/98 12.66% N/A 20.19%
International Growth Portfolio 3/26/96 27.76% N/A 3.20%
PBHG Select 20 Portfolio 9/25/97 90.78% N/A 65.13%
Growth Portfolio 2/1/96 10.62% N/A 6.71%
Value Portfolio 2/1/96 -0.59% N/A 12.69%
AIM V.I. Value Fund 5/5/93 21.03% 25.16% 21.26%
MFS Growth With Income Series 10/9/95 -1.12% N/A 17.73%
Oppenheimer Main Street Growth & Income Fund/VA 7/5/95 12.94% N/A 23.67%
DGPF Balanced Series 7/28/88 -14.60% 13.16% 10.54%
Strategic Income Portfolio 2/1/96 -10.44% N/A -1.54%
Money Market Fund 4/29/85 -2.58% 3.38% 3.68%
</TABLE>

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

<TABLE>
<CAPTION>
FOR YEAR
SUB-ACCOUNT ENDED 10 YEARS (OR SINCE
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS INCEPTION IF LESS)
- ---------------------------------------- -------------- -------- ------- ------------------
<S> <C> <C> <C> <C>
Global Interactive/Telecomm Portfolio 2/1/96 54.66% N/A 29.18%
Oppenheimer Aggressive Growth Fund/VA 8/15/86 81.01% 27.84% 18.70%
MFS Emerging Growth Series 7/24/95 74.20% N/A 34.51%
DGPF Small Cap Value Series 12/27/93 -6.24% 11.66% 9.48%
Lazard Retirement International Equity Portfolio 9/1/98 19.66% N/A 24.41%
International Growth Portfolio 3/26/96 35.30% N/A 4.77%
PBHG Select 20 Portfolio 9/25/97 97.78% N/A 66.30%
Growth Portfolio 2/1/96 18.33% N/A 8.23%
Value Portfolio 2/1/96 6.52% N/A 14.05%
AIM V.I. Value Fund 5/5/93 28.03% 25.41% 21.31%
MFS Growth With Income Series 10/9/95 5.15% N/A 19.39%
Oppenheimer Main Street Growth & Income Fund/VA 7/5/95 19.96% N/A 23.99%
DGPF Balanced Series 7/28/88 -9.19% 13.52% 10.54%
Strategic Income Portfolio 2/1/96 -4.52% N/A -0.37%
Money Market Fund 4/29/85 3.66% 3.95% 3.73%
</TABLE>

<PAGE>

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:

<TABLE>
<S> <C>
Yield 4.64%
Effective Yield 4.75%
</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 $30 annual 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 and 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: 1.25% for mortality and expense risk; 0.20% administration charges; 7%
maximum surrender charge; and $30 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

<PAGE>

average or expected rate of return over the period of the Contract. (IMPORTANT
- -- THIS IS NOT AN ILLUSTRATION OF YIELD OR RETURN.)

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 Fulcrum Separate Account.
<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

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 the Fulcrum Separate Account 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 Fulcrum Separate Account of Allmerica Financial Life Insurance
and Annuity Company at December 31, 1999, the results of each of their
operations for the year then ended and 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>

FULCRUM SEPARATE ACCOUNT

STATEMENTS OF ASSETS AND LIABILITIES

DECEMBER 31, 1999

INTERNATIONAL STRATEGIC
VALUE GROWTH GROWTH INCOME
------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust. . . . . . . $ - $ - $ - $ -
Investments in shares of The Fulcrum Trust . . . . . . .. . . . 6,208,038 3,891,039 2,582,614 1,099,995
Investment in shares of AIM Variable Insurance Funds, Inc. . . - - - -
Investments in shares of Delaware Group Premium Fund . . . . . - - - -
Investment in shares of Lazard Retirement Series, Inc. . . . . - - - -
Investments in shares of MFS Variable Insurance Trust . . . . . - - - -
Investments in shares of Oppenheimer Variable Account Funds . . - - - -
Investment in shares of PBHG Insurance Series Fund, Inc. . . . - - - -
------------ ------------ --------------- ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . 6,208,038 3,891,039 2,582,614 1,099,995

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) . . . . . . . . . . . . . . . . . . 2,212 1,961 - -
------------ ------------ --------------- ------------
Net assets. . . . . . . . . . . . . . . . . . . . . . . . . $6,205,826 $3,889,078 $ 2,582,614 $1,099,995
============ ============ =============== ============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . $6,205,826 $3,889,078 $ 2,582,614 $1,099,995
============ ============ =============== ============

Units outstanding, December 31, 1999. . . . . . . . . . . . . . 4,422,142 3,145,232 2,318,444 1,066,853
Net asset value per unit, December 31, 1999 . . . . . . . . . . $ 1.403353 $ 1.236500 $ 1.113943 $ 1.031066

<CAPTION>
GLOBAL AIT OPPENHEIMER OPPENHEIMER
INTERACTIVE/ MONEY AGGRESSIVE MAIN STREET
TELECOMM MARKET GROWTH GROWTH & INCOME
------------- ------------ ------------- -------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust. . . . . . . $ - $1,715,619 $ - $ -
Investments in shares of The Fulcrum Trust . . . . . . .. . . . 6,637,546 - - -
Investment in shares of AIM Variable Insurance Funds, Inc. . . - - - -
Investments in shares of Delaware Group Premium Fund . . . . . - - - -
Investment in shares of Lazard Retirement Series, Inc. . . . . - - - -
Investments in shares of MFS Variable Insurance Trust . . . . . - - - -
Investments in shares of Oppenheimer Variable Account Funds . . - - 572,839 1,353,832
Investment in shares of PBHG Insurance Series Fund, Inc. . . . - - - -
------------- ------------ ------------- -------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . 6,637,546 1,715,619 572,839 1,353,832

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) . . . . . . . . . . . . . . . . . . - - - -
------------- ------------ ------------- -------------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . $ 6,637,546 $1,715,619 $ 572,839 $ 1,353,832
============= ============ ============= ===================
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . $ 6,637,546 $1,715,619 $ 572,839 $ 1,353,832
============= ============ ============= ===================

Units outstanding, December 31, 1999. . . . . . . . . . . . . . 2,577,970 1,542,246 244,171 929,613
Net asset value per unit, December 31, 1999 . . . . . . . . . . $ 2.574718 $ 1.112416 $ 2.346056 $ 1.456340
</TABLE>

The accompanying notes are an integral part of these financial statements.

SA-1
<PAGE>

FULCRUM SEPARATE ACCOUNT

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)

DECEMBER 31, 1999

DGPF DGPF MFS MFS
SMALL CAP DELAWARE EMERGING GROWTH WITH
VALUE BALANCED* GROWTH INCOME
----------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust. . . . . . . $ - $ - $ - $ -
Investments in shares of The Fulcrum Trust . . . . . . .. . . . - - - -
Investment in shares of AIM Variable Insurance Funds, Inc. . . - - - -
Investments in shares of Delaware Group Premium Fund . . . . . 246,604 709,116 - -
Investment in shares of Lazard Retirement Series, Inc. . . . . - - - -
Investments in shares of MFS Variable Insurance Trust . . . . . - - 2,398,928 1,806,753
Investments in shares of Oppenheimer Variable Account Funds . . - - - -
Investment in shares of PBHG Insurance Series Fund, Inc. . . . - - - -
----------- ------------- ------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . 246,604 709,116 2,398,928 1,806,753

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) . . . . . . . . . . . . . . . . . . - - - -
----------- ------------- ------------- --------------
Net assets. . . . . . . . . . . . . . . . . . . . . . . . . $ 246,604 $ 709,116 $2,398,928 $ 1,806,753
=========== ============= ============= ==============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . $ 246,604 $ 709,116 $2,398,928 $ 1,806,753
=========== ============= ============= ==============

Units outstanding, December 31, 1999. . . . . . . . . . . . . . 218,550 665,668 1,037,621 1,427,290
Net asset value per unit, December 31, 1999 . . . . . . . . . . $1.128366 $1.065269 $ 2.311951 $ 1.265863

LAZARD
RETIREMENT
INTERNATIONAL AIM PBHG
EQUITY V.I. VALUE SELECT 20
----------------- ------------ -------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust. . . . . . . $ - $ - $ -
Investments in shares of The Fulcrum Trust . . . . . . .. . . . - - -
Investment in shares of AIM Variable Insurance Funds, Inc. . . - 4,056,353 -
Investments in shares of Delaware Group Premium Fund . . . . . - - -
Investment in shares of Lazard Retirement Series, Inc. . . . . 800,616 - -
Investments in shares of MFS Variable Insurance Trust . . . . . - - -
Investments in shares of Oppenheimer Variable Account Funds . . - - -
Investment in shares of PBHG Insurance Series Fund, Inc . . . . - - 4,290,737
----------------- ------------ -------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . 800,616 4,056,353 4,290,737

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) . . . . . . . . . . . . . . . . . . - - -
----------------- ------------ -------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . $ 800,616 $4,056,353 $4,290,737
================= ============ =============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . $ 800,616 $4,056,353 $4,290,737
================= ============ =============

Units outstanding, December 31, 1999. . . . . . . . . . . . . . 598,550 2,442,333 1,722,324
Net asset value per unit, December 31, 1999 . . . . . . . . . . $ 1.337592 $ 1.660852 $ 2.491248

* Name changed. See Note 1.
</TABLE>

The accompanying notes are an integral part of these financial statements.

SA-2
<PAGE>

FULCRUM SEPARATE ACCOUNT

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1999

GLOBAL
INTERNATIONAL STRATEGIC INTERACTIVE/
VALUE GROWTH GROWTH INCOME TELECOMM
------------ ---------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . $ 4,616 $ - $ 11,629 $ 70,408 $ 1,236
------------ ---------- ---------------- ----------- -------------

EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . 87,617 53,915 33,048 22,676 67,241
Administrative expense fees . . . . . . . . . . . . . . . 14,019 8,627 5,288 3,628 10,758
------------ ---------- ---------------- ----------- -------------
Total expenses . . . . . . . . . . . . . . . . . . . . . 101,636 62,542 38,336 26,304 77,999
------------ ---------- ---------------- ----------- -------------
Net investment income (loss) . . . . . . . . . . . . . . (97,020) (62,542) (26,707) 44,104 (76,763)
------------ ---------- ---------------- ----------- -------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors . . . 728,007 - - 918 821,407
Net realized gain (loss) from sales of investments . . . . 72,921 132,792 2,415 (20,717) 682,871
------------ ---------- ---------------- ----------- -------------
Net realized gain (loss) . . . . . . . . . . . . . . . . 800,928 132,792 2,415 (19,799) 1,504,278
Net unrealized gain (loss) . . . . . . . . . . . . . . . . (315,141) 628,731 794,931 (99,667) 951,965
------------ ---------- ---------------- ----------- -------------
Net realized and unrealized gain (loss) . . . . . . . . 485,787 761,523 797,346 (119,466) 2,456,243
------------ ---------- ---------------- ----------- -------------
Net increase (decrease) in net assets from operations. . $ 388,767 $698,981 $ 770,639 $(75,362) $2,379,480
============ ========== ================ =========== =============

AIT OPPENHEIMER OPPENHEIMER
MONEY AGGRESSIVE MAIN STREET
MARKET GROWTH GROWTH & INCOME
---------- --------------- ------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . $148,748 $ - $ 2,571
---------- --------------- ------------------

EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . 37,577 2,697 12,154
Administrative expense fees . . . . . . . . . . . . . . . 6,013 431 1,945
---------- --------------- ------------------
Total expenses . . . . . . . . . . . . . . . . . . . . . 43,590 3,128 14,099
---------- --------------- ------------------
Net investment income (loss) . . . . . . . . . . . . . . 105,158 (3,128) (11,528)
---------- --------------- ------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors . . . - - 4,332
Net realized gain (loss) from sales of investments . . . . - 13,305 32,971
---------- --------------- ------------------
Net realized gain (loss) . . . . . . . . . . . . . . . . - 13,305 37,303
Net unrealized gain (loss) . . . . . . . . . . . . . . . . - 183,644 136,752
---------- --------------- ------------------
Net realized and unrealized gain (loss) . . . . . . . . - 196,949 174,055
---------- --------------- ------------------
Net increase (decrease) in net assets from operations. . $105,158 $ 193,821 $ 162,527
========== =============== ==================
</TABLE>

The accompanying notes are an integral part of these financial statements.

SA-3
<PAGE>

FULCRUM SEPARATE ACCOUNT

STATEMENTS OF OPERATIONS (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 1999

DGPF DGPF MFS MFS
SMALL CAP DELAWARE EMERGING GROWTH WITH
VALUE BALANCED* GROWTH INCOME
------------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . $ 2,331 $ 12,196 $ - $ 4,411
------------ ----------- ----------- --------------

EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . 2,621 8,346 11,747 17,700
Administrative expense fees . . . . . . . . . . . . . . . 419 1,335 1,879 2,832
------------ ----------- ----------- --------------
Total expenses . . . . . . . . . . . . . . . . . . . . . 3,040 9,681 13,626 20,532
------------ ----------- ----------- --------------
Net investment income (loss) . . . . . . . . . . . . . . (709) 2,515 (13,626) (16,121)
------------ ----------- ----------- --------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors . . . 956 22,563 - 5,294
Net realized gain (loss) from sales of investments . . . . (24) (9,987) 8,250 4,290
------------ ----------- ----------- --------------
Net realized gain (loss) . . . . . . . . . . . . . . . . 932 12,576 8,250 9,584
Net unrealized gain (loss) . . . . . . . . . . . . . . . . (11,711) (68,201) 873,083 86,871
------------ ----------- ----------- --------------
Net realized and unrealized gain (loss) . . . . . . . . (10,779) (55,625) 881,333 96,455
------------ ----------- ----------- --------------
Net increase (decrease) in net assets from operations. . $ (11,488) $ (53,110) $ 867,707 $ 80,334
============ =========== =========== ==============

<CAPTION>
LAZARD
RETIREMENT
INTERNATIONAL AIM PBHG
EQUITY V.I. VALUE SELECT 20
--------------- ----------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . $ 3,410 $ 10,551 $ -
--------------- ----------- -------------

EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . 6,358 33,482 23,519
Administrative expense fees . . . . . . . . . . . . . . . 1,017 5,357 3,763
--------------- ----------- -------------
Total expenses . . . . . . . . . . . . . . . . . . . . . 7,375 38,839 27,282
--------------- ----------- -------------
Net investment income (loss) . . . . . . . . . . . . . . (3,965) (28,288) (27,282)
--------------- ----------- -------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors . . . 3,337 55,179 -
Net realized gain (loss) from sales of investments . . . . 4,911 51,189 45,638
--------------- ----------- -------------
Net realized gain (loss) . . . . . . . . . . . . . . . . 8,248 106,368 45,638
Net unrealized gain (loss) . . . . . . . . . . . . . . . . 95,248 583,884 1,843,207
--------------- ----------- -------------
Net realized and unrealized gain (loss) . . . . . . . . 103,496 690,252 1,888,845
--------------- ----------- -------------
Net increase (decrease) in net assets from operations. . $ 99,531 $ 661,964 $1,861,563
=============== =========== =============

* Name changed. See Note 1.
</TABLE>

The accompanying notes are an integral part of these financial statements.

SA-4
<PAGE>

FULCRUM SEPARATE ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
VALUE 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) . . . . . . . . . . . . . . . . . . . . $ (97,020) $ (95,759) $ (62,542) $ (63,112)
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . 800,928 629,664 132,792 (90,130)
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . (315,141) (187,642) 628,731 67,605
------------- ------------ ------------ ------------
Net increase (decrease) in net assets from operations . . . . . . . 388,767 346,263 698,981 (85,637)
------------- ------------ ------------ ------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . . . . . . . . . . . . 217,565 1,779,431 181,298 763,977
Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,479,379) (304,952) (1,028,786) (228,479)
Contract benefits. . . . . . . . . . . . . . . . . . . . . . . . . . (88,294) (7,412) (66,857) (6,497)
Contract charges . . . . . . . . . . . . . . . . . . . . . . . . . . (1,953) (2,029) (1,338) (1,493)
Transfers between sub-accounts (including fixed account), net. . . . (481,173) 603,917 (201,055) (152,293)
Other transfers from (to) the General Account. . . . . . . . . . . . 62,961 (128,904) 81,181 (245,050)
Net increase (decrease) in investment by Sponsor . . . . . . . . . . - - - -
------------- ------------ ------------ ------------
Net increase (decrease) in net assets from contract transactions . . (1,770,273) 1,940,051 (1,035,557) 130,165
------------- ------------ ------------ ------------
Net increase (decrease) in net assets . . . . . . . . . . . . . . . (1,381,506) 2,286,314 (336,576) 44,528

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . 7,587,332 5,301,018 4,225,654 4,181,126
------------- ------------ ------------ ------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,205,826 $7,587,332 $3,889,078 $4,225,654
============= ============ ============ ============

INTERNATIONAL GROWTH STRATEGIC 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) . . . . . . . . . . . . . . . . . . . . $ (26,707) $ (39,018) $ 44,104 $ (18,075)
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . 2,415 (136,224) (19,799) 65,767
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . 794,931 (96,943) (99,667) 22,897
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations . . . . . . . 770,639 (272,185) (75,362) 70,589
------------ ------------ ------------ ------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . . . . . . . . . . . . 46,318 357,631 669,052 119,577
Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (542,313) (127,534) (420,445) (92,860)
Contract benefits. . . . . . . . . . . . . . . . . . . . . . . . . . (49,120) (5,481) (15,595) (12,458)
Contract charges . . . . . . . . . . . . . . . . . . . . . . . . . . (659) (852) (315) (344)
Transfers between sub-accounts (including fixed account), net. . . . (221,087) (422,808) (779,179) 265,217
Other transfers from (to) the General Account. . . . . . . . . . . . 39,754 (108,243) (61,740) (215,321)
Net increase (decrease) in investment by Sponsor . . . . . . . . . . - - - -
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from contract transactions . . (727,107) (307,287) (608,222) 63,811
------------ ------------ ------------ ------------
Net increase (decrease) in net assets . . . . . . . . . . . . . . . 43,532 (579,472) (683,584) 134,400

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . 2,539,082 3,118,554 1,783,579 1,649,179
------------ ------------ ------------ ------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,582,614 $2,539,082 $1,099,995 $1,783,579
============ ============ ============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

SA-5
<PAGE>

FULCRUM SEPARATE ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
GLOBAL
INTERACTIVE/ TELECOMM AIT MONEY MARKET
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) . . . . . . . . . . . . . . . . . . . . $ (76,763) $ (41,175) $ 105,158 $ 43,588
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . 1,504,278 486,913 - -
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . 951,965 277,980 - -
------------- ------------ ------------ ------------
Net increase (decrease) in net assets from operations . . . . . . . 2,379,480 723,718 105,158 43,588
------------- ------------ ------------ ------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . . . . . . . . . . . . 349,328 537,771 7,222,309 5,146,109
Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,467,377) (56,702) (297,658) (77,224)
Contract benefits. . . . . . . . . . . . . . . . . . . . . . . . . . (120,941) - (675,907) -
Contract charges . . . . . . . . . . . . . . . . . . . . . . . . . . (1,424) (909) (218) (112)
Transfers between sub-accounts (including fixed account), net. . . . 1,598,029 778,582 (7,705,005) (2,229,359)
Other transfers from (to) the General Account. . . . . . . . . . . . (26,563) (117,517) (268,876) (1,002)
Net increase (decrease) in investment by Sponsor . . . . . . . . . . - - - -
------------- ------------ ------------ ------------
Net increase (decrease) in net assets from contract transactions . . 331,052 1,141,225 (1,725,355) 2,838,412
------------- ------------ ------------ ------------
Net increase (decrease) in net assets . . . . . . . . . . . . . . . 2,710,532 1,864,943 (1,620,197) 2,882,000

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . 3,927,014 2,062,071 3,335,816 453,816
------------- ------------ ------------ ------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,637,546 $3,927,014 $ 1,715,619 $ 3,335,816
============= ============ ============ ============

OPPENHEIMER OPPENHEIMER
AGGRESSIVE GROWTH MAIN STREET GROWTH & INCOME
YEAR ENDED PERIOD YEAR ENDED PERIOD
DECEMBER 31, FROM 9/1/98* DECEMBER 31, FROM 9/1/98*
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) . . . . . . . . . . . . . . . . . . . . $ (3,128) $ (4) $ (11,528) $ (697)
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . 13,305 - 37,303 11,892
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . 183,644 413 136,752 21,151
------------- ------------- -------------- -------------
Net increase (decrease) in net assets from operations . . . . . . . 193,821 409 162,527 32,346
------------- ------------- -------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . . . . . . . . . . . . 6,751 - 241,447 215,664
Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (55,607) - (230,199) (363)
Contract benefits. . . . . . . . . . . . . . . . . . . . . . . . . . - - (26,060) -
Contract charges . . . . . . . . . . . . . . . . . . . . . . . . . . (25) - (109) -
Transfers between sub-accounts (including fixed account), net. . . . 408,860 4,000 818,086 88,508
Other transfers from (to) the General Account. . . . . . . . . . . . 14,641 - 51,537 456
Net increase (decrease) in investment by Sponsor . . . . . . . . . . (31) 20 (28) 20
------------- ------------- -------------- -------------
Net increase (decrease) in net assets from contract transactions . . 374,589 4,020 854,674 304,285
------------- ------------- -------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . . . . . 568,410 4,429 1,017,201 336,631

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . 4,429 - 336,631 -
------------- ------------- -------------- -------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 572,839 $ 4,429 $ 1,353,832 $ 336,631
============= ============= ============== =============
* Date of initial investment.
</TABLE>

The accompanying notes are an integral part of these financial statements.

SA-6
<PAGE>

FULCRUM SEPARATE ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
DGPF DGPF
SMALL CAP VALUE DELAWARE BALANCED**
YEAR ENDED PERIOD YEAR ENDED PERIOD
DECEMBER 31, FROM 9/1/98* DECEMBER 31, FROM 9/1/98*
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) . . . . . . . . . . . . . . . . . . . . $ (709) $ (53) $ 2,515 $ (320)
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . 932 - 12,576 -
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . (11,711) 5,875 (68,201) 9,678
------------- ------------- ------------ -------------
Net increase (decrease) in net assets from operations . . . . . . . (11,488) 5,822 (53,110) 9,358
------------- ------------- ------------ -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . . . . . . . . . . . . 14,259 - 228,011 35,352
Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,719) - (42,675) (113)
Contract benefits. . . . . . . . . . . . . . . . . . . . . . . . . . - - - -
Contract charges . . . . . . . . . . . . . . . . . . . . . . . . . . (34) - (90) -
Transfers between sub-accounts (including fixed account), net. . . . 118,047 105,312 201,673 311,030
Other transfers from (to) the General Account. . . . . . . . . . . . 17,410 - 19,683 -
Net increase (decrease) in investment by Sponsor . . . . . . . . . . (25) 20 (23) 20
------------- ------------- ------------ -------------
Net increase (decrease) in net assets from contract transactions . . 146,938 105,332 406,579 346,289
------------- ------------- ------------ -------------
Net increase (decrease) in net assets . . . . . . . . . . . . . . . 135,450 111,154 353,469 355,647

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . 111,154 - 355,647 -
------------- ------------- ------------ -------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 246,604 $ 111,154 $ 709,116 $ 355,647
============= ============= ============ =============
<CAPTION>
MFS MFS
EMERGING GROWTH GROWTH WITH INCOME
YEAR ENDED PERIOD YEAR ENDED PERIOD
DECEMBER 31, FROM 9/1/98* DECEMBER 31, FROM 9/1/98*
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) . . . . . . . . . . . . . . . . . . . . $ (13,626) $ - $ (16,121) $ (133)
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . 8,250 - 9,584 201
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . 873,083 7 86,871 5,980
-------------- ------------- -------------- -------------
Net increase (decrease) in net assets from operations . . . . . . . 867,707 7 80,334 6,048
-------------- ------------- -------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . . . . . . . . . . . . 178,963 - 483,579 21,291
Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53,504) - (109,669) (113)
Contract benefits. . . . . . . . . . . . . . . . . . . . . . . . . . - - (24,731) -
Contract charges . . . . . . . . . . . . . . . . . . . . . . . . . . (94) - (117) -
Transfers between sub-accounts (including fixed account), net. . . . 1,264,145 31,003 1,135,876 170,372
Other transfers from (to) the General Account. . . . . . . . . . . . 110,712 (1) 42,300 1,588
Net increase (decrease) in investment by Sponsor . . . . . . . . . . (30) 20 (25) 20
-------------- ------------- -------------- -------------
Net increase (decrease) in net assets from contract transactions . . 1,500,192 31,022 1,527,213 193,158
-------------- ------------- -------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . . . . . 2,367,899 31,029 1,607,547 199,206

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . 31,029 - 199,206 -
-------------- ------------- -------------- -------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,398,928 $ 31,029 $ 1,806,753 $ 199,206
============== ============= ============== =============
* Date of initial investment.
** Name changed. See Note 1.
</TABLE>

The accompanying notes are an integral part of these financial statements.

SA-7
<PAGE>

FULCRUM SEPARATE ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

LAZARD RETIREMENT
INTERNATIONAL EQUITY AIM V.I. VALUE
YEAR ENDED PERIOD YEAR ENDED PERIOD
DECEMBER 31, FROM 9/1/98* DECEMBER 31, FROM 9/1/98*
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) . . . . . . . . . . . . . . . . . . . . $ (3,965) $ (346) $ (28,288) $ 624
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . 8,248 22 106,368 7,838
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . 95,248 12,280 583,884 12,581
------------- ------------- -------------- -------------
Net increase (decrease) in net assets from operations . . . . . . . 99,531 11,956 661,964 21,043
------------- ------------- -------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . . . . . . . . . . . . 86,748 111,895 1,412,423 183,295
Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,828) (179) (174,267) (363)
Contract benefits. . . . . . . . . . . . . . . . . . . . . . . . . . (7,663) - (7,575) -
Contract charges . . . . . . . . . . . . . . . . . . . . . . . . . . (25) - (280) -
Transfers between sub-accounts (including fixed account), net. . . . 396,135 108,813 1,851,074 97,189
Other transfers from (to) the General Account. . . . . . . . . . . . (1) (763) 11,862 (3)
Net increase (decrease) in investment by Sponsor . . . . . . . . . . (23) 20 (29) 20
------------- ------------- -------------- -------------
Net increase (decrease) in net assets from contract transactions . . 469,343 219,786 3,093,208 280,138
------------- ------------- -------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . . . . . 568,874 231,742 3,755,172 301,181

NET ASSETS: 231,742 - 301,181 -
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . ------------- ------------- -------------- -------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 800,616 $ 231,742 $ 4,056,353 $ 301,181
============= ============= ============== =============

PBHG SELECT 20
YEAR ENDED PERIOD
DECEMBER 31, FROM 9/1/98*
1999 TO 12/31/98
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . $ (27,282) $ (225)
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . 45,638 20
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . 1,843,207 26,128
-------------- --------------
Net increase (decrease) in net assets from operations . . . . . . . 1,861,563 25,923
-------------- --------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . . . . . . . . . . . . 696,122 62,875
Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (124,109) (205)
Contract benefits. . . . . . . . . . . . . . . . . . . . . . . . . . (21,225) -
Contract charges . . . . . . . . . . . . . . . . . . . . . . . . . . (208) -
Transfers between sub-accounts (including fixed account), net. . . . 1,595,574 165,406
Other transfers from (to) the General Account. . . . . . . . . . . . 29,655 (627)
Net increase (decrease) in investment by Sponsor . . . . . . . . . . (27) 20
-------------- --------------
Net increase (decrease) in net assets from contract transactions . . 2,175,782 227,469
-------------- --------------
Net increase (decrease) in net assets . . . . . . . . . . . . . . . 4,037,345 253,392

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . 253,392 -
-------------- --------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,290,737 $ 253,392
============== ==============
* Date of initial investment.
</TABLE>

The accompanying notes are an integral part of these financial statements.

SA-8

<PAGE>

FULCRUM SEPARATE ACCOUNT

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION

The Fulcrum Separate Account (the Separate Account) is a separate
investment account of Allmerica Financial Life Insurance and Annuity Company
(the Company), established on November 15, 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
the Separate Account are clearly identified and distinguished from the other
assets and liabilities of the Company. The Separate Account cannot be charged
with liabilities arising out of any other business of the Company.

The Separate Account is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). The Separate
Account currently offers fifteen Sub-Accounts under the Fulcrum variable
annuity contracts. Each Sub-Account invests exclusively in a corresponding
portfolio of The Fulcrum Trust or the Allmerica Investment Trust (AIT)
managed by Allmerica Financial Investment Management Services, Inc.(AFIMS), a
wholly-owned subsidiary of the Company; or of the AIM Variable Insurance
Funds, Inc. (AVIF) managed by AIM Advisors, Inc.; or of the Delaware Group
Premium Fund (DGPF) managed by Delaware Management Company; or of the Lazard
Retirement Series, Inc. (Lazard) managed by Lazard Asset Management; or of
the MFS Variable Insurance Trust (MFS Trust) managed by Massachusetts
Financial Services Company; or of the Oppenheimer Variable Account Funds
(Oppenheimer) managed by OppenheimerFunds, Inc.; or of the PBHG Insurance
Series Fund, Inc. (PBHG) managed by Pilgrim Baxter & Associates, Ltd. The
Fulcrum Trust, AIT, AVIF, DGPF, Lazard, MFS Trust, Oppenheimer and PBHG (the
Funds) are open-end, management investment companies registered under the
1940 Act.

Effective May 1, 1999, DGPF Delaware Fund was renamed DGPF Delaware
Balanced Fund.

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 the Separate
Account. Therefore, no provision for income taxes has been charged against the
Separate Account.

SA-9
<PAGE>

FULCRUM SEPARATE ACCOUNT

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>
Value .................................................. 483,492 $ 6,446,918 $ 12.840
Growth ................................................ 269,836 3,323,586 14.420
International Growth ................................... 211,343 2,166,064 12.220
Strategic Income ....................................... 116,402 1,160,239 9.450
Global Interactive/Telecomm ............................ 303,361 5,224,946 21.880
AIT Money Market ....................................... 1,715,619 1,715,619 1.000
Oppenheimer Aggressive Growth .......................... 6,960 388,782 82.310
Oppenheimer Main Street Growth & Income ................ 54,967 1,195,929 24.630
DGPF Small Cap Value ................................... 16,055 252,440 15.360
DGPF Delaware Balanced* ................................ 40,895 767,639 17.340
MFS Emerging Growth .................................... 63,230 1,525,838 37.940
MFS Growth With Income ................................. 84,784 1,713,902 21.310
Lazard Retirement International Equity ................. 59,349 693,088 13.490
AIM V.I Value ......................................... 121,085 3,459,888 33.500
PBHG Select 20 ......................................... 131,215 2,421,402 32.700
</TABLE>

* Name changed. See Note 1.

NOTE 4 - RELATED PARTY TRANSACTIONS

The Company makes a charge of 1.25% 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 0.20% 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 monthly basis.

A contract fee is currently deducted on the contract anniversary date and
upon full surrender of the contract when the accumulated value is less than
$100,000. The contract 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
the Separate Account, 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.

SA-10
<PAGE>

FULCRUM SEPARATE ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS

Transactions from contractowners and sponsor were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
-------------------------------------- -----------------------------------
UNITS AMOUNT UNITS AMOUNT
----------------- ------------------ -------------- ----------------
<S> <C> <C> <C> <C>
Value
Issuance of Units ................................. 1,011,597 $ 1,397,445 3,248,287 $ 4,093,571
Redemption of Units ............................... (2,348,583) (3,167,718) (1,752,721) (2,153,520)
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... (1,336,986) $ (1,770,273) 1,495,566 $ 1,940,051
================= ================== ============== ================

Growth
Issuance of Units ................................. 977,193 $ 1,129,865 1,849,166 $ 1,879,858
Redemption of Units ............................... (1,875,901) (2,165,422) (1,769,009) (1,749,693)
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... (898,708) $ (1,035,557) 80,157 $ 130,165
================= ================== ============== ================

International Growth
Issuance of Units ................................. 460,184 $ 419,476 1,152,910 $ 1,001,788
Redemption of Units ............................... (1,225,811) (1,146,583) (1,506,466) (1,309,075)
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... (765,627) $ (727,107) (353,556) $ (307,287)
================= ================== ============== ================

Strategic Income
Issuance of Units ................................. 993,668 $ 1,154,888 848,577 $ 904,146
Redemption of Units ............................... (1,578,424) (1,763,110) (800,752) (840,335)
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... (584,756) $ (608,222) 47,825 $ 63,811
================= ================== ============== ================

Global Interactive/Telecomm
Issuance of Units ................................. 1,933,354 $ 3,914,505 1,684,192 $ 2,273,751
Redemption of Units ............................... (1,714,239) (3,583,453) (917,300) (1,132,526)
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... 219,115 $ 331,052 766,892 $ 1,141,225
================= ================== ============== ================

AIT Money Market
Issuance of Units ................................. 11,853,156 $ 11,297,384 6,923,833 $ 7,139,933
Redemption of Units ............................... (13,419,443) (13,022,739) (4,255,115) (4,301,521)
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... (1,566,287) $ (1,725,355) 2,668,718 $ 2,838,412
================= ================== ============== ================

Oppenheimer Aggressive Growth
Issuance of Units ................................. 270,342 $ 431,883 3,418 $ 4,020
Redemption of Units ............................... (29,589) (57,294) - -
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... 240,753 $ 374,589 3,418 $ 4,020
================= ================== ============== ================

Oppenheimer Main Street Growth & Income
Issuance of Units ................................. 1,076,945 $ 1,432,907 591,729 $ 470,941
Redemption of Units ............................... (424,614) (578,233) (314,447) (166,656)
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... 652,331 $ 854,674 277,282 $ 304,285
================= ================== ============== ================
</TABLE>

SA-11
<PAGE>

FULCRUM SEPARATE ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
-------------------------------------- -----------------------------------
UNITS AMOUNT UNITS AMOUNT
----------------- ------------------ -------------- ----------------
<S> <C> <C> <C> <C>
DGPF Small Cap Value
Issuance of Units ................................. 145,853 $ 169,951 92,361 $ 105,332
Redemption of Units ............................... (19,664) (23,013) - -
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... 126,189 $ 146,938 92,361 $ 105,332
================= ================== ============== ================

DGPF Delaware Balanced*
Issuance of Units ................................. 613,414 $ 704,395 303,246 $ 346,381
Redemption of Units ............................... (250,912) (297,816) (80) (92)
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... 362,502 $ 406,579 303,166 $ 346,289
================= ================== ============== ================

MFS Emerging Growth
Issuance of Units ................................. 1,420,924 $ 1,984,525 23,379 $ 31,022
Redemption of Units ............................... (406,682) (484,333) - -
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... 1,014,242 $ 1,500,192 23,379 $ 31,022
================= ================== ============== ================

MFS Growth With Income
Issuance of Units ................................. 1,668,235 $ 1,940,341 170,556 $ 198,935
Redemption of Units ............................... (406,414) (413,128) (5,087) (5,777)
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... 1,261,821 $ 1,527,213 165,469 $ 193,158
================= ================== ============== ================

Lazard Retirement International Equity
Issuance of Units ................................. 446,416 $ 534,433 207,467 $ 219,946
Redemption of Units ............................... (55,185) (65,090) (148) (160)
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... 391,231 $ 469,343 207,319 $ 219,786
================= ================== ============== ================

AIM V.I Value
Issuance of Units ................................. 2,911,427 $ 4,091,700 233,298 $ 281,498
Redemption of Units ............................... (701,264) (998,492) (1,128) (1,360)
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... 2,210,163 $ 3,093,208 232,170 $ 280,138
================= ================== ============== ================

PBHG Select 20
Issuance of Units ................................. 2,108,321 $ 3,020,918 201,331 $ 227,654
Redemption of Units ............................... (587,164) (845,136) (164) (185)
----------------- ------------------ -------------- ----------------
Net increase (decrease) ......................... 1,521,157 $ 2,175,782 201,167 $ 227,469
================= ================== ============== ================
</TABLE>

* Name changed. See Note 1.

SA-12
<PAGE>

FULCRUM SEPARATE ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 the Separate Account satisfies the
current requirements of the regulations, and it intends that the Separate
Account will continue to meet such requirements.

NOTE 7 - PURCHASES AND SALES OF SECURITIES

Cost of purchases and proceeds from sales of shares of the Funds during
the year ended December 31, 1999 were as follows:

<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
-------------------- ----------------- ------------------
<S> <C> <C>
Value ................................................ $1,730,171 $ 2,866,761
Growth ............................................... 839,460 1,935,598
International Growth ................................. 379,398 1,133,212
Strategic Income ..................................... 1,116,226 1,679,426
Global Interactive/Telecomm .......................... 4,298,980 3,223,284
AIT Money Market ..................................... 8,539,743 10,159,940
Oppenheimer Aggressive Growth ........................ 430,574 59,113
Oppenheimer Main Street Growth & Income .............. 1,379,360 531,882
DGPF Small Cap Value ................................. 183,174 35,989
DGPF Delaware Balanced* .............................. 725,871 294,214
MFS Emerging Growth .................................. 1,970,624 484,058
MFS Growth With Income ............................... 1,920,073 403,687
Lazard Retirement International Equity ............... 539,954 71,239
AIM V.I Value ....................................... 4,039,133 919,034
PBHG Select 20 ....................................... 2,803,228 654,728
----------------- ------------------
Totals ............................................. $30,895,969 $ 24,452,165
================= ==================
</TABLE>

* Name changed. See Note 1.

NOTE 8 - PLAN OF SUBSTITUTION FOR PORTFOLIO OF THE TRUST

An application has been filed with the Securities and Exchange Commission
(SEC) seeking an order approving the substitution of shares of the AIT Select
Investment Grade Income Fund (SIGIF) for all of the shares of the Strategic
Income Portfolio (SIP). To the extent required by law, approvals of such
substitution will also be obtained from the state insurance regulators in
certain jurisdictions. The effect of the substitution will be to replace SIP
shares with SIGIF shares. The substitution is planned to be effective on or
about July 1, 2000.

SA-13
<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 Fulcrum Separate Account 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 in
Registrant's Initial Registration Statement on September 4,
1996, 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 Sales Agreement 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. 5, and
is incorporated by reference herein. Amended Specifications
Page was previously filed on August 27, 1998 in
Post-Effective Amendment No. 3 and is incorporated by
reference herein. Contract Form was previously filed in
Registrant's Initial Registration Statement on September 4,
1996, and is incorporated by reference herein.

EXHIBIT 5 Amended Application Form was previously filed on August 27,
1998 in Post-Effective Amendment No. 3, and is incorporated
by reference herein. Application Form was previously filed
in Registrant's Initial Registration Statement on September
4, 1996, and is incorporated by reference herein.

EXHIBIT 6 The Depositor's Articles of Incorporation and Bylaws were
previously filed in Registrant's Initial Registration
Statement on September 4, 1996, and are incorporated by
reference herein.

EXHIBIT 7 Not Applicable.

EXHIBIT 8 (a) BFDS Agreements for lockbox and mailroom services were
previously filed on

<PAGE>

April 30, 1998 in Post-Effective Amendment No. 2, and
are incorporated by reference herein.

(b) 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) Participation Agreement with The Palladian Trust was
previously filed on August 27, 1998 in Post-Effective
Amendment No. 3, and is incorporated by reference
herein.

(b) Participation Agreement with Allmerica Investment Trust
dated March 22, 2000 was previously filed in April 2000
in Post-Effective Amendment No. 17 of Registration
Statement No. 33-39702/811-6293, and is incorporated
by reference herein.

(c) Form of Amendment to AIM Participation Agreement was
previously filed in April 2000 in Post-Effective
Amendment No. 19 of Registration Statement No. 33-44830/
811-6293, and is incorporated by reference herein.
Participation Agreement with AIM Variable Insurance
Funds, Inc. was previously filed on August 27, 1998 in
Post-Effective Amendment No. 3, and is incorporated by
reference herein.

(d) Form of Amendment to Delaware Participation Agreement
was previously filed in April 2000 in Post-Effective
Amendment No. 19 of Registration Statement No.
33-44830/811-6293, and is incorporated by reference
herein. Participation Agreement with Delaware Group
Premium Fund was previously filed on August 27, 1998 in
Post-Effective Amendment No. 3, and is incorporated by
reference herein.

(e) Participation Agreement with Lazard Retirement Series,
Inc. was previously filed on August 27, 1998 in
Post-Effective Amendment No. 3, and is incorporated by
reference herein.

(f) Participation Agreement with MFS Variable Insurance
Trust was previously filed on August 27, 1998 in
Post-Effective Amendment No. 3, and is incorporated
by reference herein.

(g) Participation Agreement with Oppenheimer Variable
Account Funds was previously filed on August 27, 1998
in Post-Effective Amendment No. 3, and is incorporated
by reference herein.

<PAGE>

(h) Participation Agreement with PBHG Insurance Series Fund,
Inc. was previously filed on October 15, 1998 in
Post-Effective Amendment No. 4, 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

<PAGE>

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
Director Secretary (since 1992) of First Allmerica

Warren E. Barnes Vice President (since 1996) and Corporate Controller (since 1998) of
Vice President and First 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.

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

<PAGE>

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

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

<PAGE>

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

Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-dealer
Worcester MA 01653

Allmerica Investments Insurance Agency Inc. of 200 Southbridge Parkway Insurance Agency
Alabama Suite 400
Birmingham, AL 35209

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

<PAGE>

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

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

<PAGE>

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 108 Contract holders of qualified Contracts
and 324 Contract holders of non-qualified Contracts.

ITEM 28. INDEMNIFICATION

Article VIII of the Bylaws of Allmerica Financial Life Insurance and Annuity
Company (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

<PAGE>

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 judgement, 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, 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

<TABLE>
<CAPTION>
NAME POSITION OR OFFICE WITH UNDERWRITER
---- -----------------------------------
<S> <C>
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

Philip L. Heffernan Vice President

<PAGE>

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
</TABLE>

(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.

ITEM 31. MANAGEMENT SERVICES

The Company provides daily unit value calculations and related services for
the Company's separate accounts.

ITEM 32. UNDERTAKINGS

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

(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 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 represents that the aggregate fees and charges under
the Contracts are reasonable in relation to the services rendered,
expenses expected to be incurred, and risks assumed by the 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.

FULCRUM SEPARATE ACCOUNT 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 by the following persons
in the capacities and on the date indicated.

<TABLE>
<S><C>
Signatures Title Date
- ---------- ----- ----
/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
(333-11377)
<PAGE>

EXHIBIT TABLE

Exhibit 8(b) 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.

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, 1999

Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653

RE: FULCRUM SEPARATE ACCOUNT OF ALLMERICA FINANCIAL LIFE INSURANCE AND
ANNUITY COMPANY
FILE NOS. 333-11377 AND 811-7799

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
Fulcrum Separate Account on Form N-4 under the Securities Act of 1933 and the
Investment Company Act of 1940, with respect to the Company's variable annuity
contracts.

I am of the following opinion:

1. Fulcrum Separate Account 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 Fulcrum Separate Account 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 Fulcrum Separate
Account on Form N-4 filed under the Securities Act of 1933.

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 the Fulcrum Separate Account 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 the Fulcrum Separate Account 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 24, 2000

<PAGE>

<TABLE>
<CAPTION>
FULCRUM ANNUITY - AFLIAC Since Inception of Underlying Sub-Account
1 Year Without Surrender
<S> <C> <C>
Global Interactive/Telecomm Portfolio (2.574718-1.664797)/1.664797 = 54.66%
Oppenheimer Aggressive Growth Fund (2.346056-1.296073)/1.296073 = 81.01%
MFS Emerging Growth Series (2.311951-1.327214)/1.327214 = 74.20%
Delaware Small Cap Value Series (1.128366-1.203472)/1.203472 = (6.24%)
Lazard Retirement International Equity Portfolio (1.337592-1.117805)/1.117805 = 19.66%
International Growth Portfolio (1.113943-0.823289)/0.823289 = 35.30%
PBHG Select 20 Portfolio (2.491248-1.259615)/1.259615 = 97.78%
Growth Portfolio (1.236500-1.044935)/1.044935 = 18.33%
Value Portfolio (1.403353-1.317442)/1.317442 = 6.52%
AIM V.I. Value Fund (1.660852-1.297244)/1.297244 = 28.03%
MFS Growth With Income Series (1.265863-1.203885)/1.203885 = 5.15%
Oppenheimer Main Street Growth & Income Fund (1.456340-1.214038)/1.214038 = 19.96%
Delaware Balanced Series (1.065269-1.173112)/1.173112 = (9.19%)
Strategic Income Portfolio (1.031066-1.079904)/1.079904 = (4.52%)
Money Market Fund (1.112416-1.073116)/1.073116 = 3.66%
</TABLE>

<TABLE>
<CAPTION>
Since Inception of Underlying Sub-Account
5 Years Without Surrender
<S> <C>
Global Interactive/Telecomm Portfolio N/A
Oppenheimer Aggressive Growth Fund N/A
MFS Emerging Growth Series N/A
Delaware Small Cap Value Series N/A
Lazard Retirement International Equity Portfolio N/A
International Growth Portfolio N/A
PBHG Select 20 Portfolio N/A
Growth Portfolio N/A
Value Portfolio N/A
AIM V.I. Value Fund N/A
MFS Growth With Income Series N/A
Oppenheimer Main Street Growth & Income Fund N/A
Delaware Balanced Series N/A
Strategic Income Portfolio N/A
Money Market Fund N/A
</TABLE>

<TABLE>
<CAPTION>
Since Inception of Underlying Sub-Account
10 Years or Since Inception Without Surrender
<S> <C> <C>
Global Interactive/Telecomm Portfolio ((2.574718/1.000000)^(365/1023))-1 = 40.13%
Oppenheimer Aggressive Growth Fund ((2.346056/1.000000)^(365/486))-1 = 89.73%
MFS Emerging Growth Series ((2.311951/1.000000)^(365/486))-1 = 87.65%
Delaware Small Cap Value Series ((1.128366/1.000000)^(365/486))-1 = 9.49%
Lazard Retirement International Equity Portfolio ((1.337592/1.000000)^(365/486))-1 = 24.41%
International Growth Portfolio ((1.113943/1.000000)^(365/1023))-1 = 3.93%
PBHG Select 20 Portfolio ((2.491248/1.000000)^(365/424))-1 = 119.41%
Growth Portfolio ((1.236500/1.000000)^(365/1023))-1 = 7.87%
Value Portfolio ((1.403353/1.000000)^(365/1023))-1 = 12.85%
AIM V.I. Value Fund ((1.660852/1.000000)^(365/486))-1 = 46.38%
MFS Growth With Income Series ((1.265863/1.000000)^(365/486))-1 = 19.37%
Oppenheimer Main Street Growth & Income Fund ((1.456340/1.000000)^(365/486))-1 = 32.62%
Delaware Balanced Series ((1.065269/1.000000)^(365/486))-1 = 4.86%
Strategic Income Portfolio ((1.031066/1.000000)^(365/1023))-1 = 1.10%
Money Market Fund ((1.112416/1.000000)^(365/1023))-1 = 3.87%
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
FULCRUM ANNUITY - AFLIAC Since Inception of Underlying Sub-Account
1 Year With Surrender
<S> <C> <C>
Global Interactive/Telecomm Portfolio (2.574718-(0.07*1.664797))/1.664797-0.0055-1 = 47.11%
Oppenheimer Aggressive Growth Fund (2.346056-(0.07*1.296073))/1.296073-0.00001-1 = 74.01%
MFS Emerging Growth Series (2.311951-(0.07*1.327214))/1.327214-0.00001-1 = 67.19%
Delaware Small Cap Value Series (1.128366-(0.07*0.959111))/1.203472-0.00001-1 = (11.82%)
Lazard Retirement International Equity Portfolio (1.337592-(0.07*1.117805))/1.117805-0.00001-1 = 12.66%
International Growth Portfolio (1.113943-(0.07*0.823289))/0.823289-0.0054-1 = 27.76%
PBHG Select 20 Portfolio (2.491248-(0.07*1.259615))/1.259615-0.00001-1 = 90.78%
Growth Portfolio (1.2365-(0.07*1.044935))/1.044935-0.0071-1 = 10.62%
Value Portfolio (1.403353-(0.07*1.19285))/1.317442-0.0077-1 = (0.59%)
AIM V.I. Value Fund (1.660852-(0.07*1.297244))/1.297244-0.00001-1 = 21.03%
MFS Growth With Income Series (1.265863-(0.07*1.075984))/1.203885-0.0001-1 = (1.12%)
Oppenheimer Main Street Growth & Income Fund (1.45634-(0.07*1.214038))/1.214038-0.0002-1 = 12.94%
Delaware Balanced Series (1.065269-(0.07*0.905479))/1.173112-0.00001-1 = (14.60%)
Strategic Income Portfolio (1.031066-(0.07*0.876406))/1.079904-0.0024-1 = (10.44%)
Money Market Fund (1.112416-(0.07*0.945554))/1.073116-0.0007-1 = (2.58%)
</TABLE>

<TABLE>
<CAPTION>
Since Inception of Underlying Sub-Account
5 Years With Surrender
<S> <C>
Global Interactive/Telecomm Portfolio N/A
Oppenheimer Aggressive Growth Fund N/A
MFS Emerging Growth Series N/A
Delaware Small Cap Value Series N/A
Lazard Retirement International Equity Portfolio N/A
International Growth Portfolio N/A
PBHG Select 20 Portfolio N/A
Growth Portfolio N/A
Value Portfolio N/A
AIM V.I. Value Fund N/A
MFS Growth With Income Series N/A
Oppenheimer Main Street Growth & Income Fund N/A
Delaware Balanced Series N/A
Strategic Income Portfolio N/A
Money Market Fund N/A
</TABLE>

<TABLE>
<CAPTION>
Since Inception of Underlying Sub-Account
10 Years or Since Inception With Surrender
<S> <C> <C>
Global Interactive/Telecomm Portfolio ((2.574718-(0.05*1))/1)^(365/1023)-0.0044-1 = 38.72%
Oppenheimer Aggressive Growth Fund ((2.346056-(0.06*1))/1)^(365/486)-0.00001-1 = 86.07%
MFS Emerging Growth Series ((2.311951-(0.06*1))/1)^(365/486)-0.00001-1 = 83.98%
Delaware Small Cap Value Series ((1.128366-(0.06*0.959111))/1)^(365/486)-0.00001-1 = 5.27%
Lazard Retirement International Equity Portfolio ((1.337592-(0.06*1))/1)^(365/486)-0.0001-1 = 20.19%
International Growth Portfolio ((1.113943-(0.05*0.946852))/1)^(365/1023)-0.0064-1 = 1.69%
PBHG Select 20 Portfolio ((2.491248-(0.06*1))/1)^(365/424)-0.00001-1 = 114.85%
Growth Portfolio ((1.2365-(0.05*1))/1)^(365/1023)-0.0074-1 = 5.55%
Value Portfolio ((1.403353-(0.05*1))/1)^(365/1023)-0.0076-1 = 10.64%
AIM V.I. Value Fund ((1.660852-(0.06*1))/1)^(365/486)-0.0001-1 = 42.38%
MFS Growth With Income Series ((1.265863-(0.06*1))/1)^(365/486)-0.0002-1 = 15.08%
Oppenheimer Main Street Growth & Income Fund ((1.45634-(0.06*1))/1)^(365/486)-0.0003-1 = 28.47%
Delaware Balanced Series ((1.065269-(0.06*0.905479))/1)^(365/486)-0.0001-1 = 0.81%
Strategic Income Portfolio ((1.031066-(0.05*0.876406))/1)^(365/1023)-0.0026-1 = (0.72%)
Money Market Fund ((1.112416-(0.05*0.945554))/1)^(365/1023)-0.0007-1 = 2.21%
</TABLE>