FULCRUM VARIABLE LIFE SEP ACCT OF ALLMERICA FIN LIFE INS &AN, 497, 1998-05-07

FULCRUM VARIABLE LIFE SEP ACCT OF ALLMERICA FIN LIFE INS &AN
497, 1998-05-07

Previous: LINCOLN LIFE & ANNUITY VAR ANN SEP ACCT L GROUP VAR ANN III, 497J, 1998-05-07

Next: 8X8 INC, 10-K, 1998-05-07

<PAGE>
THE FULCRUM FUND-SM- NEXT GENERATION

A MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT

This Prospectus describes THE FULCRUM FUND -SM- NEXT GENERATION contracts ("the
Contract"), a modified single payment variable life insurance contract offered
by Allmerica Financial Life Insurance and Annuity Company ("we," "our," "us" or
"Company"). The Contract provides for life insurance coverage and for the
accumulation of a Contract Value. The Contract requires the Contract Owner to
make an initial Payment of at least $25,000.

Contract Value may accumulate on a variable basis in the Contract's variable
account, known as the Fulcrum Variable Life Separate Account ("Variable
Account"). The assets of the Variable Account are divided into sub-accounts
("Sub-Accounts"), each investing exclusively in shares of one of the series of
an underlying investment company. The following portfolios of THE PALLADIAN-SM-
TRUST ("The Palladian-SM- Trust" or "Palladian") are offered under the Contract:

VALUE PORTFOLIO

GROWTH PORTFOLIO

INTERNATIONAL GROWTH PORTFOLIO

GLOBAL STRATEGIC INCOME PORTFOLIO

GLOBAL INTERACTIVE/TELECOMM PORTFOLIO

The following series of ALLMERICA INVESTMENT TRUST ("Trust") is offered under
the Contract:

MONEY MARKET FUND

Contract Values may also be allocated to the Fixed Account, which is part of the
Company's General Account. Amounts allocated to the Fixed Account earn interest
at a guaranteed rate from the date allocated to the next Contract anniversary.

Each Contract is a "modified endowment contract" for federal income tax
purposes, except in certain circumstances described in FEDERAL TAX
CONSIDERATIONS. A loan, distribution or other amounts received from a modified
endowment contract during the life of the Insured will be taxed to the extent of
accumulated income in the Contract. Death Benefits under a modified endowment
contract, however, are generally not subject to federal income tax, except in
certain cases described in FEDERAL TAX CONSIDERATIONS.

IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING INSURANCE WITH THE CONTRACT. THIS
PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF THE
PALLADIAN-SM- TRUST AND ALLMERICA INVESTMENT TRUST. INVESTORS SHOULD RETAIN A
COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.

THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES COMMISSIONS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED ON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE CONTRACTS ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY, AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE CONTRACTS ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT
UNION. THE CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS IN THE
CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.

DATED MAY 1, 1998

440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653

(508) 855-1000
<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
SPECIAL TERMS.............................................................. 3
SUMMARY.................................................................... 6
DESCRIPTION OF ALLMERICA FINANCIAL, THE VARIABLE ACCOUNT,
THE PALLADIAN-SM- TRUST AND ALLMERICA INVESTMENT TRUST.................... 14
Allmerica Financial...................................................... 14
The Variable Account..................................................... 14
The Palladian-SM- Trust.................................................. 14
Allmerica Investment Trust............................................... 15
INVESTMENT OBJECTIVES AND POLICIES......................................... 16
THE CONTRACT............................................................... 17
Application for a Contract............................................... 17
Free-Look Period......................................................... 17
Conversion Privilege..................................................... 17
Payments................................................................. 18
Allocation of Net Payments............................................... 18
Transfer Privilege....................................................... 18
Death Benefit............................................................ 19
Contract Value........................................................... 20
Payment Options.......................................................... 22
Optional Insurance Benefits.............................................. 22
Surrender................................................................ 22
Partial Withdrawal....................................................... 22
CHARGES AND DEDUCTIONS..................................................... 23
Monthly Deductions....................................................... 23
Daily Deductions......................................................... 24
Surrender Charge......................................................... 24
Partial Withdrawal Costs................................................. 25
Transfer Charges......................................................... 25
CONTRACT LOANS............................................................. 25
CONTRACT TERMINATION AND REINSTATEMENT..................................... 26
OTHER CONTRACT PROVISIONS.................................................. 27
FEDERAL TAX CONSIDERATIONS................................................. 28
Allmerica Financial and The Variable Account............................. 28
Taxation of the Contracts................................................ 28
VOTING RIGHTS.............................................................. 30
DIRECTORS AND PRINCIPAL OFFICERS........................................... 31
DISTRIBUTION............................................................... 32
REPORTS.................................................................... 32
PERFORMANCE INFORMATION.................................................... 32
LEGAL PROCEEDINGS.......................................................... 34
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS.......................... 34
FURTHER INFORMATION........................................................ 34
INDEPENDENT ACCOUNTANTS.................................................... 35
MORE INFORMATION ABOUT THE FIXED ACCOUNT................................... 35
FINANCIAL STATEMENTS....................................................... 35
APPENDIX A -- GUIDELINE MINIMUM SUM INSURED TABLE.......................... A-1
APPENDIX B -- OPTIONAL INSURANCE BENEFITS.................................. B-1
APPENDIX C -- PAYMENT OPTIONS.............................................. C-1
APPENDIX D -- ILLUSTRATIONS................................................ D-1
</TABLE>

2
<PAGE>
SPECIAL TERMS

AGE: how old the Insured is on his/her last birthday measured on the Date of
Issue and each Contract anniversary.

ALLMERICA FINANCIAL: Allmerica Financial Life Insurance and Annuity Company.
"We," "our," "us" and "Company" refer to Allmerica Financial in this Prospectus.

BENEFICIARY: the person or persons you name to receive the Net Death Benefit
when the Insured dies.

CONTRACT OWNER: the person who may exercise all rights under the Contract, with
the consent of any irrevocable Beneficiary. "You" and "your" refer to the
Contract Owner in this Prospectus.

CONTRACT VALUE: the total value of your Contract. It is the SUM of the:

- Value of the units of the Sub-Accounts credited to your Contract; PLUS

- Accumulation in the Fixed Account credited to the Contract.

DATE OF ISSUE: the date the Contract was issued, used to measure the Monthly
Processing Date, Contract months, Contract years and Contract anniversaries.

DEATH BENEFIT: the Face Amount (the amount of insurance determined by your
Payment) or the Guideline Minimum Sum Insured ( the minimum death benefit
federal law requires), whichever is greater.

EVIDENCE OF INSURABILITY: information, including medical information, used to
decide the Insured's Underwriting Class.

FACE AMOUNT: the amount of insurance coverage. The Face Amount is shown in your
Contract.

FINAL PAYMENT DATE: the Contract anniversary before the Insured's 100th
birthday. After this date, no Payments may be made and the Net Death Benefit is
the Contract value less any Outstanding Loan.

FIXED ACCOUNT: a guaranteed account of the General Account that guarantees
principal and a fixed minimum interest rate.

FUNDS: the portfolios of The Palladian-SM- Trust and the fund of Allmerica
Investment Trust which are offered under the Contract. These are the Value
Portfolio, Growth Portfolio, International Growth Portfolio, Global Strategic
Income Portfolio, and Global Interactive/Telecomm Portfolio of The Palladian-SM-
Trust and the Money Market Fund of Allmerica Investment Trust.

GENERAL ACCOUNT: all our assets other than those held in separate investment
accounts.

GUIDELINE MINIMUM SUM INSURED: the minimum death benefit required to qualify the
Contract as "life insurance" under federal tax laws. The guideline minimum sum
insured is the PRODUCT of

- The Contract Value TIMES

- A percentage based on the Insured's Age

GUIDELINE SINGLE PREMIUM: used to determine the Face Amount under the Contract.

INSURED: the person or persons covered under the Contract. If more than one
person is named, all provisions of the Contract that are based on the death of
the Insured will be based on the date of death of the last surviving Insured.

3
<PAGE>
ISSUANCE AND ACCEPTANCE: the date we mail the Contract if the application is
approved with no changes requiring your consent; otherwise, the date we receive
your written consent to any changes.

LOAN VALUE: the maximum amount you may borrow under the Contract.

MONTHLY DEDUCTIONS: the amount of money that we deduct from the Contract Value
each month to pay for the Monthly Maintenance Fee, Administration Charge,
Monthly Insurance Protection Charge, Distribution Charge and the Federal and
State Payment Tax Charge.

MONTHLY INSURANCE PROTECTION CHARGE: the amount of money that we deduct from the
Contract Value each month to pay for the insurance.

MONTHLY PROCESSING DATE: the date, shown in your Contract, when Monthly
Deductions are deducted.

NET DEATH BENEFIT: Before the Final Payment Date, the Net Death Benefit is:

- The Death Benefit; MINUS

- Any Outstanding Loan on the Insured's death, rider charges and Monthly
Deductions due and unpaid through the Contract month in which the Insured
dies, as well as any partial withdrawal costs and surrender charges.

After the Final Payment Date, the Net Death Benefit is:

- The Contract Value; MINUS

- Any Outstanding Loan on the Insured's death.

OUTSTANDING LOAN: all unpaid Contract loans plus loan interest due or accrued.

PAYMENT: the payment you must make to us.

PRINCIPAL OFFICE: our office at 440 Lincoln Street, Worcester, Massachusetts
01653.

PRO-RATA ALLOCATION: an allocation among the Fixed Account and the Sub-Accounts
of the Variable Account in the same proportion that, on the date of allocation,
the Contract Value in the Fixed Account (other than value subject to Outstanding
Loan) and the Contract Value in each Sub-Account bear to the total Contract
Value.

SECOND-TO-DIE: the Contract may be issued as a joint survivorship
("Second-to-Die") policy. Life insurance coverage is provided for two Insureds,
with death benefits payable at the death of the last surviving Insured.

SUB-ACCOUNT: a subdivision of the Variable Account investing exclusively in the
shares of a Fund.

SURRENDER VALUE: the amount payable on a full surrender. It is the Contract
Value less any Outstanding Loan and surrender charges.

UNDERWRITING CLASS: the insurance risk classification that we assign the Insured
based on the information in the application and other Evidence of Insurability
we consider. The Insured's Underwriting Class will affect the Monthly Insurance
Protection Charge.

UNIT: a measure of your interest in a Sub-Account.

4
<PAGE>
VALUATION DATE: any day on which the net asset value of the shares of any Funds
and Unit values of any Sub-Accounts are computed. Valuation Dates currently
occur on:

- Each day the New York Stock Exchange is open for trading; and

- Other days (other than a day during which no Payment, partial withdrawal
or surrender of a Contract was received) when there is a sufficient degree
of trading in a Fund's portfolio securities so that the current net asset
value of the Sub-Accounts may be materially affected.

VALUATION PERIOD: the interval between two consecutive Valuation Dates.

VARIABLE ACCOUNT: Fulcrum Variable Life Separate Account, one of Allmerica
Financial's separate investment accounts.

WRITTEN REQUEST: your request in writing, satisfactory to us, received at our
Principal Office.

5
<PAGE>
SUMMARY

WHAT IS THE CONTRACT'S OBJECTIVE?

The objective of the Contract is to give permanent life insurance protection and
to help you build assets tax deferred. Benefits available through the Contract
include:

- A life insurance benefit that can protect your family;

- Payment options that can guarantee an income for life, if you want to use
your Contract for retirement income;

- A personalized investment portfolio you may tailor to meet your needs,
time frame and risk tolerance level;

- Experienced professional investment advisers who are compensated on an
incentive fee basis; and

- Tax deferral on earnings while your money is accumulating.

The Contract combines features and benefits of traditional life insurance with
the advantages of professional money management. However, unlike the fixed
benefits of ordinary life insurance, the Contract Value will increase or
decrease depending on investment results. Unlike traditional insurance policies,
the Contract has no fixed schedule for payments.

WHO ARE THE KEY PERSONS UNDER THE CONTRACT?

The Contract is a contract between you and us. Each Contract has a Contract
Owner ("you"), the Insured and a Beneficiary. As Contract Owner, you make the
payments, choose investment allocations, and select the Insured and Beneficiary.
The Insured is the person covered under the Contract. The Beneficiary is the
person who receives the Net Death Benefit when the Insured dies.

WHAT HAPPENS WHEN THE INSURED DIES?

We will pay the Net Death Benefit to the Beneficiary when the Insured dies while
the Contract is in effect. If the Contract was issued as a Second-to-Die policy,
the Net Death Benefit will be paid on the death of the last surviving Insured.
The Death Benefit is the Face Amount (the amount of insurance determined by your
Payment) or the minimum death benefit federal tax law requires, whichever is
greater. The Net Death Benefit is the Death Benefit less any Outstanding Loan,
rider charges and Monthly Deductions due and unpaid through the Contract month
in which the Insured dies, as well as any partial withdrawals and surrender
charges. However, after the Final Payment Date, the Net Death Benefit is the
Contract Value less any Outstanding Loan. The Beneficiary may receive the Net
Death Benefit in a lump sum or under a payment option we offer.

CAN I EXAMINE THE CONTRACT?

Yes. You have the right to examine and cancel your Contract by returning it to
us or to one of our representatives within 10 days (or such later date as
required in your state) after you receive the Contract.

If your Contract provides for a full refund under its "Right to Cancel"
provision as required in your state, your refund will be your entire Payment.

If your Contract does not provide for a full refund, you will receive:

- Amounts allocated to the Fixed Account; PLUS

- The Contract Value in the Variable Account; PLUS

- All fees, charges and taxes which have been imposed.

6
<PAGE>
Your refund will be determined as of the Valuation Date that the Contract is
received at our Principal Office.

WHAT ARE MY INVESTMENT CHOICES?

You currently have a choice of six Funds:

- Value Portfolio of The Palladian-SM- Trust
Managed by GAMCO Investors, Inc.;

- Growth Portfolio of The Palladian-SM- Trust
Managed by Stonehill Capital Management, Inc.;

- International Growth Portfolio of The Palladian-SM- Trust,
Managed by Bee & Associates Incorporated;

- Global Strategic Income Portfolio of The Palladian-SM- Trust,
Managed by Allmerica Asset Management, Inc.

- Global Interactive/Telecomm Portfolio of The Palladian-SM- Trust,
Managed by GAMCO Investors, Inc.; and

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

This range of investment choices allows you to allocate your money among the
various Funds to meet your investment needs. If your Contract provides for a
full refund under its "Right to Cancel" provision as required in your state, we
will allocate all Sub-Account investments to the Money Market Fund. Relocation
will then be made to the Sub-Account investments you selected on the application
no later than the expiration of the Right to Cancel period.

The Contract also offers a Fixed Account. The Fixed Account is a guaranteed
account offering a minimum interest rate. It is part of the General Account of
the Company.

WHO ARE THE INVESTMENT ADVISERS?

THE PALLADIAN-SM- TRUST. Allmerica Financial Investment Management Services,
Inc. ("AFIMS"), an affiliate of the Company, serves as overall manager of The
Palladian-SM- Trust and is responsible for administrative and general
supervisory services to the Portfolios. The Palladian-SM- Trust and AFIMS have
entered into Sub-Adviser Agreements with certain investment advisers for
investment management services for the Portfolios.

The Portfolio Managers of the five Portfolios of The Palladian-SM- Trust are as
follows:

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

The Portfolio Managers (other than Allmerica Asset Management, Inc.) are not
affiliated with the Company or the Trust.

ALLMERICA INVESTMENT TRUST. AFIMS is the investment manager of Allmerica
Investment Trust and, subject to the direction of its Board of Trustees, handles
the day-to-day affairs of the Trust. AFIMS has entered into a Sub-Adviser
Agreement with its affiliate, Allmerica Asset Management, Inc., for investment
management services for the Money Market Fund.

7
<PAGE>
For more information, see "The Palladian-SM- Trust" and "Allmerica Investment
Trust."

CAN I MAKE TRANSFERS AMONG THE FUNDS AND THE FIXED ACCOUNT?

Yes. You may transfer among the Funds and the Fixed Account, subject to our
consent and then current rules. You will incur no current taxes on transfers
while your money is in the Contract. You also may elect automatic account
rebalancing so that assets remain allocated according to a desired mix, or
choose automatic dollar-cost averaging to gradually move funds into one or more
Sub-Accounts. See THE CONTRACT -- "Transfer Privilege."

HOW MUCH CAN I INVEST AND HOW OFTEN?

The Contract requires a single payment on or before the Date of Issue.
Additional Payments of at least $10,000 may be made as long as the total
Payments do not exceed the Maximum Payment amount specified in the Contract.

WHAT IF I NEED MY MONEY?

You may borrow up to the Loan Value of your Contract. The Loan Value is 90% of
your Contract Value less the surrender charge. You may also make partial
withdrawals and surrender the Contract for its Surrender Value.

The guaranteed annual interest rate credited to the Contract Value securing a
loan will be at least 4.0%. However, any portion of the Outstanding Loan that is
a preferred loan will be credited with not less than 5.50%.

We will allocate Contract loans among the Sub-Accounts and the Fixed Account
according to your instructions. If you do not make an allocation, we will make a
Pro-Rata Allocation. We will transfer the Contract Value in each Sub-Account
equal to the Contract loan to the Fixed Account.

You may surrender your Contract and receive its Surrender Value. You may make
partial withdrawals of $1,000 or more from the Contract Value, subject to
partial withdrawal costs and any applicable surrender charges. The Face Amount
is reduced by each partial withdrawal. We will not allow a partial withdrawal if
it would reduce the Contract Value below $25,000. A surrender or partial
withdrawal may have tax consequences. See FEDERAL TAX CONSIDERATIONS --
"Taxation of the Contracts."

CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?

Yes. There are several changes you can make after receiving your Contract,
within limits. You may

- Cancel your Contract under its "Right to Cancel" provision;

- Transfer your ownership to someone else;

- Change the Beneficiary;

- Change the allocation for any additional Payment, with no tax consequences
under current law;

- Make transfers of the Contract Value among the Funds, with no taxes
incurred under current law; and

- Add or remove the optional insurance benefits provided by the rider.

8
<PAGE>
CAN I CONVERT MY CONTRACT INTO A NON-VARIABLE CONTRACT?

Yes. You can convert your Contract without charge during the first 24 months
after the Date of Issue. On conversion, we will transfer the Contract Value in
the Variable Account to the Fixed Account. We will allocate any future payments
to the Fixed Account, unless you instruct us otherwise.

WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?

The following charges will apply to your Contract under the circumstances
described. Some of these charges apply throughout the Contract's duration.

We deduct the following monthly charges from the Contract Value:

- a $2.50 maintenance fee from Contracts with a Contract Value of less than
$50,000 (See "Maintenance Fee");

- 0.40% on an annual basis for the administrative expenses (See
"Administration Charge");

- 0.20% to 2.50% (depending on the type of Contract and Underwriting Class)
on an annual basis for the cost of insurance (See "Monthly Insurance
Protection Charge"); and

For the first ten Contract years:

* 0.30% on an annual basis for distribution expenses (See "Distribution
Fee"); and

* 0.40% on an annual basis for federal, state and local taxes (See
"Federal & State Payment Tax Charge").

The following daily charge is deducted from the Variable Account:

- 0.90% on an annual basis for the mortality and expense risks (See
"Mortality and Expense Risk Charge").

WHAT ARE THE EXPENSES AND FEES OF THE FUNDS?

In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Funds. The levels of fees and expenses vary
among the Funds. For more information concerning fees and expenses, see the
prospectuses of the Funds.

The following table gives certain fee and expense information for the Funds for
1997. However, a performance-based management fee is provided for under the
Management Agreements for the Portfolios of The Palladian-SM- 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

9
<PAGE>
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."

<TABLE>
<CAPTION>
OTHER EXPENSES
(AFTER ANY
MANAGEMENT APPLICABLE TOTAL FUND
FUND FEES REIMBURSEMENT) EXPENSES
- ------------------------------------------------ ---------------- ------------------- ---------------
<S> <C> <C> <C>
Value Portfolio................................. 0.14%(1) 1.00%(2) 1.14%
Growth Portfolio................................ 0.20%(1) 1.00%(2) 1.20%
International Growth Portfolio.................. 0.58%(1) 1.20%(2) 1.78%
Global Strategic Income Portfolio............... 0.40%(3) 1.20%(2) 1.60%
Global Interactive/Telecomm Portfolio........... 0.27%(1) 1.20%(2) 1.47%
Money Market Fund............................... 0.27% 0.08% 0.35%(4)
</TABLE>

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

(2) Restated to reflect the expense limitation in effect during 1998. AFIMS has
agreed to limit operating expenses and reimburse those expenses to the extent
that the Portfolios' "other expenses" during 1998 (i.e., expenses other than
management fees) exceed the following expense limitations: 1.00% for the Value
Portfolio, 1.00% for the Growth Portfolio, 1.20% for the International Growth
Portfolio, 1.20% for the Global Strategic Income Portfolio, and 1.20% for the
Global Interactive/Telecomm Portfolio. The limitations are in effect through
December 31, 1998. For the Value Portfolio and the Growth Portfolio, different
expense limitations were in effect during 1997. Without the effect of expense
limitations, the 1997 "Other Expenses" ratios would have been the following:
4.75% for the Value Portfolio, 6.12% for the Growth Portfolio, 7.11%% for the
International Growth Portfolio, 6.68% for the Global Strategic Income Portfolio,
and 7.26% for the Global Interactive/Telecomm Portfolio.

(3) The actual management fee for the Global Strategic Income Portfolio for 1997
was 0.41%. The fee has been restated to 0.40% because, effective April 13, 1998,
a new Portfolio Manager is in place. At a meeting of the Board of Trustees of
The Palladian-SM- Trust ("Board") which was held on April 9, 1998, the Board
approved a new Portfolio Management Agreement with Allmerica Asset Management,
Inc. ("AAM"). The Portfolio Management Agreement is subject to the approval of
shareholders at a meeting scheduled for June 8, 1998. The Portfolio Management
Agreement provides that during the Portfolio Manager's first year of service,
the Portfolio will pay a fixed annual fee of 0.80% of average daily net assets,
rather than paying a performance-based fee. After the twelfth full calendar
month has elapsed under the Portfolio Management Agreement, the
performance-based fee will be in effect. Although the Agreement sets the fee at
0.80% through April 30, 1999, the fee is subject to two important limitations.
First, until June 8, 1998, when the Portfolio Management Agreement is to be
presented at the shareholder meeting for approval, the fee will be calculated at
the lesser of the following two rates: (1) 0.80%; and (2) the rate that would
have applied under the old advisory Agreement. The latter rate varies based on
prior performance, but as noted above was 0.41% for 1997. Second, the Manager
and the Portfolio Manager have voluntarily agreed to limit their fee from June
9, 1998 through April 30, 1999 to an annual rate of 0.40%. See the Prospectus of
The Palladian-SM- Trust for more information.

(4) 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 1997. The
limitation may be terminated at any time.

MORE INFORMATION ABOUT PERFORMANCE FEES

The tables below show the expenses of the Portfolios of The Palladian-SM- Trust
as if the Portfolios paid performance based management fees of 0%, 2%, and 4%,
respectively.

A performance-based management fee is currently in effect for the Portfolios of
The Palladian-SM- Trust, other than the Global Strategic Income Portfolio. The
base fee is 2.00%, but the actual fee may vary from between

10
<PAGE>
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 Palladian-SM- 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 1997, the actual
management fees were 0.14% for the Value Portfolio, 0.20% for the Growth
Portfolio, 0.58% for the International Growth Portfolio, and 0.27% for the and
Global Interactive/Telecomm Portfolio.

For the first 12 full calendar months after a new Portfolio Manager is hired
(or, in the case of a Portfolio that had only one Portfolio Manager, for the
first 12 full calendar months of operations, the advisory agreement set the
management fee at an annual rate of 0.80% of the Portfolio's average daily net
assets. As of the date of this prospectus, this initial fee is relevant for only
one Portfolio -- the Global Strategic Income Portfolio. That Portfolio has
retained AAM as Portfolio Manager effective April 13, 1998. The Portfolio
Management Agreement with AAM provides that, during AAM's first year of service
the Portfolio will pay a fixed annual fee of 0.80% of average daily net assets,
rather than paying a performance-based fee. After the twelfth full calendar
month has elapsed under the Portfolio Management Agreement, the
performance-based fee arrangement described above will be in effect. However,
AFIMS and AAM have voluntarily agreed that for the first year (through April 30,
1999) the management fee will be capped at 0.40%. The fee is subject to
additional limitations. For more information, see Footnote 3, below, and the
prospectus for The Palladian-SM- Trust.

EXAMPLE 1 -- ASSUMING ADVISORY FEE OF 0.00% FOR THE PORTFOLIOS OF THE
PALLADIAN-SM- 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
(AFTER ANY
MANAGEMENT APPLICABLE TOTAL FUND
FUND FEES REIMBURSEMENT) EXPENSES
- ------------------------------------------------ ---------------- ------------------- ---------------
<S> <C> <C> <C>
Value Portfolio................................. 0.00%(1) 1.00%(2) 1.00%
Growth Portfolio................................ 0.00%(1) 1.00%(2) 1.00%
International Growth Portfolio.................. 0.00%(1) 1.20%(2) 1.20%
Global Strategic Income Portfolio............... 0.00%(3) 1.20%(2) 1.20%
Global Interactive/Telecomm Portfolio........... 0.00%(1) 1.20%(2) 1.20%
Money Market Fund............................... 0.27% 0.08% 0.35%(4)
</TABLE>

EXAMPLE 2 -- ASSUMING ADVISORY FEE OF 2.00% FOR THE PORTFOLIOS OF THE
PALLADIAN-SM- 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
(AFTER ANY
MANAGEMENT APPLICABLE TOTAL FUND
FUND FEES REIMBURSEMENT) EXPENSES
- ------------------------------------------------ ---------------- ------------------- ---------------
<S> <C> <C> <C>
Value Portfolio................................. 2.00%(1) 1.00%(2) 3.00%
Growth Portfolio................................ 2.00%(1) 1.00%(2) 3.00%
International Growth Portfolio.................. 2.00%(1) 1.20%(2) 3.20%
Global Strategic Income Portfolio............... 2.00%(3) 1.20%(2) 3.20%
Global Interactive/Telecomm Portfolio........... 2.00%(1) 1.20%(2) 3.20%
Money Market Fund............................... 0.27% 0.08% 0.35%(4)
</TABLE>

11
<PAGE>
EXAMPLE 3 -- ASSUMING ADVISORY FEE OF 4.00% FOR THE PORTFOLIOS OF THE
PALLADIAN-SM- 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
(AFTER ANY
MANAGEMENT APPLICABLE TOTAL FUND
FUND FEES REIMBURSEMENT) EXPENSES
- ------------------------------------------------ ---------------- ------------------- ---------------
<S> <C> <C> <C>
Value Portfolio................................. 4.00%(1) 1.00%(2) 5.00%
Growth Portfolio................................ 4.00%(1) 1.00%(2) 5.00%
International Growth Portfolio.................. 4.00%(1) 1.20%(2) 5.20%
Global Strategic Income Portfolio............... 4.00%(3) 1.20%(2) 5.20%
Global Interactive/Telecomm Portfolio........... 4.00%(1) 1.20%(2) 5.20%
Money Market Fund............................... 0.27% 0.08% 0.35%(4)
</TABLE>

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

(2) AFIMS has agreed to limit operating expenses and reimburse those expenses to
the extent that the "other expenses" of the Portfolios during 1998 (i.e.,
expenses other than management fees) exceed the following expense limitations:
1.00% for the Value Portfolio, 1.00% for the Growth Portfolio, 1.20% for the
International Growth Portfolio, 1.20% for the Global Strategic Income Portfolio,
and 1.20% for the Global Interactive/Telecomm Portfolio. The limitations are in
effect through December 31, 1998. For the Value Portfolio and the Growth
Portfolio, different expense limitations were in effect during 1997. Without the
effect of expense limitations, the 1997 "Other Expenses" ratios would have been
the following: 4.75% for the Value Portfolio, 6.12% for the Growth Portfolio,
7.11% for the International Growth Portfolio, 6.68% for the Global Strategic
Income Portfolio, and 7.26% for the Global Interactive/Telecomm Portfolio.

THE PRECEDING EXPENSE INFORMATION WAS PROVIDED TO US BY THE FUNDS, AND WE HAVE
NOT INDEPENDENTLY VERIFIED SUCH INFORMATION. THESE FUND EXPENSES ARE NOT DIRECT
CHARGES AGAINST SUB-ACCOUNT ASSETS OR REDUCTIONS FROM CONTRACT VALUE; RATHER,
THESE FUND EXPENSES ARE TAKEN INTO CONSIDERATION IN COMPUTING EACH FUND'S NET
ASSET VALUE, WHICH IS THE SHARE PRICE USED THE CALCULATE THE UNIT VALUES OF THE
SUB-ACCOUNTS. FOR MORE INFORMATION CONCERNING FEES AND EXPENSES, SEE THE
PROSPECTUSES OF THE PALLADIAN-SM- TRUST AND ALLMERICA INVESTMENT TRUST.

12
<PAGE>
WHAT CHARGES DO I INCUR IF I SURRENDER MY CONTRACT OR MAKE A PARTIAL WITHDRAWAL?

The charges below apply only if you surrender your Contract or make partial
withdrawals:

- Surrender Charge -- This charge applies on full surrenders within ten
Contract years. The surrender charge begins at 9.75% of the Payment and
decreases to 0% by the tenth Contract year.

- Partial Withdrawal Costs -- We deduct from the Contract Value the
following for partial withdrawals:

- A transaction fee of 2.0% of the amount withdrawn, not to exceed $25,
for each partial withdrawal for processing costs; and

- A surrender charge on a withdrawal exceeding the "Free 10% Withdrawal."

The first 12 transfers of Contract Value in a Contract year are free. A transfer
charge not to exceed $25 may apply for each additional transfer in the same
Contract year. This charge is for the costs of processing the transfer.

WHAT ARE THE LAPSE AND REINSTATEMENT PROVISIONS OF MY CONTRACT?

The Contract will not lapse unless the Surrender Value on a Monthly Processing
Date is less than zero.

There is a 62-day grace period in this situation. You may reinstate your
Contract within three years after the grace period, within limits.

HOW IS MY CONTRACT TAXED?

The Contract has been designed to be a "modified endowment contract." However,
an exchange under Section 1035 of the Internal Revenue Service Code ("Code") of
a life insurance contract entered into before June 21, 1988 will not cause the
this Contract to be treated as a modified endowment contract if no additional
payments are made and there is no increase in the death benefit as a result of
the exchange.

If the Contract is considered a modified endowment contract, all distributions
(including Contract loans, partial withdrawals, surrenders and assignments) will
be taxed on an "income-first" basis. Also, a 10% penalty tax may be imposed on
that part of a distribution that is includible in income. However, the Net Death
Benefit under the Contract is excludable from the gross income of the
Beneficiary. In some circumstances, federal estate tax may apply to the Net
Death Benefit or the Contract Value. See FEDERAL TAX CONSIDERATION -- "Taxation
of the Contracts."

This Summary is intended to provide only a very brief overview of the more
significant aspects of the Contract. This Prospectus and the Contract provide
further detail. The Contract provides insurance protection for the named
Beneficiary. The Contract and its attached application are the entire agreement
between you and the Company.

13
<PAGE>
DESCRIPTION OF ALLMERICA FINANCIAL,
THE VARIABLE ACCOUNT, THE PALLADIAN-SM- TRUST
AND ALLMERICA INVESTMENT TRUST

ALLMERICA FINANCIAL. Allmerica Financial is a life insurance company organized
under the laws of Delaware in 1974. We are an indirect, wholly owned subsidiary
of First Allmerica Financial Life Insurance Company, formerly named State Mutual
Life Assurance Company of America ("First Allmerica"). First Allmerica was
organized under the laws of Massachusetts in 1844, and is the fifth oldest life
insurance company in America. Our Principal Office is 440 Lincoln Street,
Worcester, Massachusetts 01653, Telephone 1-508-855-1000. We are subject to the
laws of the state of Delaware, to regulation by the Commissioner of Insurance of
Delaware, and to other laws and regulations where we are licensed to operate.

Allmerica Financial is a charter member of the Insurance Marketplace Standard
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 ACCOUNT. The Variable Account is a separate investment account
with six Sub-Accounts. Each Sub-Account invests in a Fund of The Palladian Trust
and Allmerica Investment Trust. The assets used to fund the variable part of the
Contracts are set aside in Sub-Accounts and are separate from our general
assets. We administer and account for each Sub-Account as part of our general
business. However, income, capital gains and capital losses are allocated to
each Sub-Account without regard to any of our other income, capital gains or
capital losses. Under Delaware law, the assets of the Variable Account may not
be charged with any liabilities arising out of any other business of ours.

Our Board of Directors authorized the Variable Account by vote on June 13, 1996.
The Variable Account meets the definition of "separate account" under federal
securities laws. It is registered with the Securities and Exchange Commission
("SEC") as a unit investment trust under the Investment Company Act of 1940
("1940 Act"). This registration does not involve SEC supervision of the
management or investment practices or policies of the Variable Account or of
Allmerica Financial. We reserve the right, subject to law, to change the names
of the Variable Account and the Sub-Accounts.

THE PALLADIAN-SM- TRUST. 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. Five investment portfolios are currently
available under the Contract. The assets of each Portfolio are held separate
from the assets of the other Portfolios. Each Portfolio operates as a separate
investment vehicle and the income or losses of one Portfolio have no effect on
the investment performance of another Portfolio. Shares of The Palladian-SM-
Trust are not offered to the general public, but solely to separate accounts of
insurance companies for the purpose of providing a vehicle for the investment of
assets.

Allmerica Financial Investment Management Services, Inc. ("AFIMS") serves as
overall manager of The Palladian-SM- Trust and is responsible for general
investment supervisory services to the Portfolios. The Palladian-SM- 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.

14
<PAGE>
The five Portfolios of The Palladian-SM- Trust and their respective Portfolio
Managers are as follows:

<TABLE>
<CAPTION>
PORTFOLIO PORTFOLIO MANAGER
- ------------------------------------ ------------------------------------
<S> <C>
The Value Portfolio GAMCO Investors, Inc.
The Growth Portfolio Stonehill Capital Management, Inc.
The International Growth Portfolio Bee & Associates Incorporated
The Global Strategic Income Allmerica Asset Management, Inc.
Portfolio GAMCO Investors, Inc.
The Global Interactive/Telecomm
Portfolio
</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 Palladian-SM- 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. As of the date of this
prospectus, this first year fee arrangement is in effect for only one Portfolio
- -- the Global Strategic Income Portfolio. That Portfolio has a new Portfolio
Manager, Allmerica Asset Management, Inc. ("AAM"), effective April 13, 1998. The
Portfolio Management Agreement with AAM is subject to the approval of
shareholders at a meeting scheduled to be held no later than June 8, 1998. Until
the Portfolio Management Agreement is approved by shareholders, the advisory fee
will be the lesser of (1) the 0.80% fee and (2) the rate that would have applied
under the advisory agreement with the Portfolio's previous Portfolio Manager.
However, AFIMS and AAM have voluntarily agreed that for the first year (through
April 30, 1999) the management fee for the Global Strategic Income Portfolio
will be set at 0.40%.

Other than for the Global Strategic Income Portfolio, 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 is an open-end,
diversified, management investment company registered with the SEC under the
1940 Act.

Allmerica Investment 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 variable accounts established by the Company or other
affiliated insurance companies. The Money Market Fund of Allmerica Investment
Trust is available under the Contract; certain other 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.

AFIMS is the investment manager of Allmerica Investment Trust and, subject to
the direction of the Board of Trustees, handles the day-to-day affairs of the
Trust. AFIMS has entered into a Sub-Adviser Agreement with its affiliate,
Allmerica Asset Management, Inc. ("AAM") for investment management services for
the Money Market Fund. Under the Sub-Adviser Agreement, AAM is authorized to
engage in portfolio transactions on behalf of the Money Market Fund, subject to
such general or specific instructions as may be given by the Trustees. The terms
of the Sub-Adviser Agreement cannot be materially changed without the approval
of a majority in interest of the shareholders of the Fund. Both AFIMS and AAM
are located at 440 Lincoln Street, Worcester, Massachusetts 01653.

15
<PAGE>
Other than the expenses specifically assumed by AFIMS under the Management
Agreement, all expenses incurred in the operation of the Trust are borne by it,
including fees and expenses associated with the registration and qualification
of the Trust's shares under the Securities Act of 1933 ("1933 Act") other fees
payable to the SEC, independent public accountant, legal and custodian fees,
association membership dues, taxes, interest, insurance premiums, brokerage
commissions, fees and expenses of the Trustees who are not affiliated with First
Allmerica and its affiliates and subsidiaries, expenses for proxies,
prospectuses, reports to shareholders and other expenses.

For providing its services under the Management Agreement, AFIMS will receive a
fee, computed daily at an annual rate based on the average daily net asset value
of the Money Market Fund as follows: 0.35% on net asset value up to $50,000,000;
0.25% on the next $200,000,000; and 0.20% on the remainder. The fee is paid from
the assets of the Money Market Fund. AFIMS is solely responsible for the payment
of all fees for investment management services to AAM, which will be a fee of
0.10%, computed daily at an annual rate based on the average daily net asset
value of the Money Market Fund.

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
FUNDS MAY BE FOUND IN THE PROSPECTUSES OF THE PALLADIAN-SM- TRUST AND ALLMERICA
INVESTMENT TRUST WHICH ACCOMPANY THIS PROSPECTUS, AND SHOULD BE READ CAREFULLY
BEFORE INVESTING. The Statements of Additional Information of Palladian-SM- and
the Trust 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.

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.

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

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

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

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.

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 Contract
Owner will be notified of the change. If the Contract Owner has Contract Value
allocated to that Fund, he or she may have the Contract Value reallocated
without charge to another Fund or to the Fixed Account, where available, on
Written Request received by the Company within sixty (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 Contract Owner's right to transfer.

16
<PAGE>
THE CONTRACT

APPLICATION FOR A CONTRACT. Individuals wishing to purchase a Contract must
complete an application and submit it to an authorized registered agent or to
Allmerica Financial at its Principal Office. We offer Contracts to applicants 89
years old and under. After receiving a completed application from a prospective
Contract Owner, we will begin underwriting to decide the insurability of the
proposed Insured. We may require medical examinations and other information
before deciding insurability. We issue a Contract only after underwriting has
been completed. We may reject an application that does not meet our underwriting
guidelines.

If a prospective Contract Owner makes the initial Payment with the application,
we will provide fixed conditional insurance during underwriting. The conditional
insurance will be based upon Death Benefit Factors shown in the Conditional
Insurance Agreement, up to a maximum of $500,000, depending on Age and
Underwriting Class. This coverage will continue for a maximum of 90 days from
the date of the application or, if required, the completed medical exam. If
death is by suicide, we will return only the Payment made.

If the initial Payment is not made with the application, on Contract delivery we
will require the initial Payment to place the insurance in force.

If you made the initial Payment before the date of Issuance and Acceptance, we
will allocate the Payment to our General Account within two business days of
receipt of the Payment at our Principal Office. IF WE ARE UNABLE TO ISSUE THE
CONTRACT, WE WILL ISSUE AN ANNUITY CONTRACT. HOWEVER, IF THE CONTRACT OWNER HAS
ELECTED NOT TO RECEIVE THE ANNUITY CONTRACT ON THE APPLICATION, THE PAYMENT WILL
BE RETURNED TO THE CONTRACT OWNER WITHOUT INTEREST.

If your application is approved and the Contract is issued and accepted, we will
allocate your Contract Value on Issuance and Acceptance according to your
instructions. However, if your Contract provides for a full refund of Payments
under its "Right to Cancel" provision as required in your state (see THE
CONTRACT -- "Free-Look Period"), we will initially allocate your Sub-Account
investments to the Money Market Fund. We will reallocate all amounts according
to your investment choices no later than the expiration of the right to cancel
period.

FREE-LOOK PERIOD. The Contract provides for a free-look period under the Right
to Cancel provision. You have the right to examine and cancel your Contract by
returning it to us or to one of our representatives on or before the tenth day
(or such later date as required in your state) after you receive the Contract.

If your Contract provides for a full refund under its "Right to Cancel"
provision as required in your state, your refund will be your entire Payment. If
your Contract does not provide for a full refund, you will receive:

- Amounts allocated to the Fixed Account; PLUS

- The Contract Value in the Variable Account: PLUS

- All fees, charges and taxes which have been imposed.

We may delay a refund of any Payment made by check until the check has cleared
your bank. Your refund will be determined as of the Valuation Date that the
Contract is received at our Principal Office.

CONVERSION PRIVILEGE. Within 24 months of the Date of Issue, you can convert
your Contract into a non-variable Contract by transferring all Contract Value in
the Sub-Accounts to the Fixed Account. The conversion will take effect at the
end of the Valuation Period in which we receive, at our Principal Office, notice
of the conversion satisfactory to us. There is no charge for this conversion. We
will allocate any future Payments to the Fixed Account, unless you instruct us
otherwise.

17
<PAGE>
PAYMENTS. The Contracts are designed for a large single Payment to be paid by
the Contract Owner on or before the Date of Issue. The minimum initial Payment
Allmerica Financial requires for a contract is $25,000. The initial Payment is
used to determine the Face Amount. The Face Amount will be determined by
treating the Payment as equal to 100% of the Guideline Single Premium. You may
indicate the desired Face Amount on the application. If the Face Amount
specified exceeds 100% of the Guideline Single Premium for the Payment amount,
the application will be amended and a Contract with a higher Face Amount will be
issued. If the Face Amount specified is less than 80% of the Guideline Single
Premium for the Payment amount, the application will be amended and a Contract
with a lower Face Amount will be issued. The Contract Owner must agree to any
amendment to the application.

Under our underwriting rules, the Face Amount must be based on 100% of the
Guideline Single Premium to be eligible for simplified underwriting.

Payments are payable to Allmerica Financial. Payments may be made by mail to our
Principal Office or through our authorized representative. Any additional
Payment, after the initial Payment, is credited to the Variable Account or Fixed
Account on the date of receipt at the Principal Office.

The Contract limits the ability to make additional Payments. However, no
additional Payment may be less than $10,000 without our consent. Any additional
Payments may not cause total Payments to exceed the Maximum Payment on the
specifications page of your Contract.

Total Payments may not exceed the current maximum payment limits under federal
tax law. Where total Payments would exceed the current maximum payment limits,
we will only accept that part of a Payment that will make total Payments equal
the maximum. We will return any part of a Payment that is greater than that
amount. However, we will accept a Payment needed to prevent Contract lapse
during a Contract year. See CONTRACT TERMINATION AND REINSTATEMENT.

ALLOCATION OF PAYMENTS. In the application for your Contract, you decide the
initial allocation of the Payment among the Sub-Account and the Fixed Account.
You may allocate the Payment to one or more of the Sub-Accounts and/or the Fixed
Account. The minimum amount that you may allocate to a Sub-Account is 1.0% of
the Payment. Allocation percentages must be in whole numbers (for example,
33 1/3% may not be chosen) and must total 100%.

You may change the allocation of any future Payment by Written Request or
telephone request. You have the privilege to make telephone requests, unless you
elected not to have the privilege on the application. The policy of Allmerica
Financial and its representatives and affiliates is that they will not be
responsible for losses resulting from acting on telephone requests reasonably
believed to be genuine. We will use reasonable methods to confirm that
instructions communicated by telephone are genuine; otherwise, Allmerica
Financial may be liable for any losses from unauthorized or fraudulent
instructions. We require that callers on behalf of a Contract Owner identify
themselves by name and identify the Contract Owner by name, date of birth and
social security number. All telephone requests are tape recorded. An allocation
change will take effect on the date of receipt of the notice at the Principal
Office. No charge is currently imposed for changing Payment allocation
instructions. We reserve the right to impose a charge in the future, but
guarantee that the charge will not exceed $25.

The Contract Value in the Sub-Accounts will vary with investment experience. You
bear this investment risk. Investment performance may also affect the Death
Benefit. Review your allocations of Contract Value as market conditions and your
financial planning needs change.

TRANSFER PRIVILEGE. At any time prior to the election of a Payment Option,
subject to our then current rules, you may transfer amounts among the
Sub-Accounts or between a Sub-Account and the Fixed Account. (You may not
transfer that portion of the Contract Value held in the Fixed Account that
secures a Contract loan.)

18
<PAGE>
We will make transfers at your Written Request or telephone request, as
described in THE CONTRACT -- "Allocation of Net Payments." Transfers are
effected at the value next computed after receipt of the transfer order.

The first 12 transfers in a Contract year are free. After that, we will deduct a
transfer charge not to exceed $25 from amounts transferred in that Contract
year.

You may apply for automatic transfers from the Fixed Account, the Global
Strategic Income Sub-Account or the Money Market Sub-Account to one or more of
the other Sub-Accounts every one, two, three, six or twelve months. Each
automatic transfer must be at least $100. If the Fixed Account or the
Sub-Account from which the automatic transfer is to be made is zero, the
automatic transfer will cease. The Contract Owner must reapply for any future
automatic transfers.

You may also apply for automatic account rebalancing in order to allocate
Contract Value among the Sub-Accounts every one, two, three, six or twelve
months. The Fixed Account is not included in the automatic account rebalancing.

We will process automatic transfers or automatic rebalancing on the 15th of each
scheduled month. If the 15th is not a business day or is the Monthly Processing
Date, we will process the automatic transfer or automatic rebalancing on the
next business day.

The first automatic transfer counts as one transfer toward the 12 free transfers
allowed in each Contract year. Each subsequent automatic transfer is free and
does not reduce the remaining number of transfers that are free in a Contract
year. Any transfers made for a conversion privilege, Contract loan or material
change in investment policy will not count toward the 12 free transfers.

The transfer privilege is subject to our consent. We reserve the right to impose
limits on transfers including, but not limited to, the:

- Minimum amount that may be transferred;

- Minimum amount that may remain in a Sub-Account following a transfer from
that Sub-Account;

- Minimum period between transfers involving the Fixed Account; and

- Maximum amounts that may be transferred from the Fixed Account.

Transfers involving the Fixed Account are currently permitted only if:

- There has been at least a ninety (90) day period since the last transfer
from the Fixed Account; and

- The amount transferred from the Fixed Account in each transfer does not
exceed the lesser of $100,000 or 25% of the Contract Value.

These rules are subject to change by Allmerica Financial.

DEATH BENEFIT. If the Contract is in force on the Insured's death, we will,
with due proof of death, pay the Net Death Benefit to the named Beneficiary. For
second-to-die Contracts, the Net Death Benefit is payable on the death of the
last surviving Insured. There is no Death Benefit payable on the death of the
first Insured to die. We will normally pay the Net Death Benefit within seven
days of receiving due proof of the Insured's death, but we may delay payment of
Net Death Benefits. See OTHER CONTRACT PROVISIONS -- "Delay of Benefit
Payments." The Beneficiary may receive the Net Death Benefit in a lump sum or
under a payment option, unless the payment option has been restricted by the
Contract owner. See APPENDIX C -- PAYMENT OPTIONS.

19
<PAGE>
Before the Final Payment Date, the Net Death Benefit is:

- The Death Benefit: MINUS

- Any Outstanding Loan, rider charges and Monthly Deductions due and unpaid
through the Contract month in which the Insured dies, as well as any
partial withdrawals and surrender charges.

After the Final Payment Date, the Net Death benefit is:

- The Contract Value; MINUS

- Any Outstanding Loan.

In most states, we will compute the Net Death Benefit on the date we receive due
proof of the Insured's death.

The Death Benefit is the GREATER of the:

- Face Amount; OR

- Guideline Minimum Sum Insured.

GUIDELINE MINIMUM SUM INSURED. The guideline minimum sum insured is a
percentage of the Contract Value as set forth in APPENDIX A -- GUIDELINE MINIMUM
SUM INSURED TABLE. The guideline minimum sum insured is computed based on
federal tax regulations to ensure that the Contract qualifies as a life
insurance contract, and that the insurance proceeds will be excluded from the
gross income of the Beneficiary.

ILLUSTRATION. In this illustration, assume that the Insured is under the age of
40, and that there is no Outstanding Loan.

A Contract with a $100,000 Face Amount will have a Death Benefit of $100,000.
However, because the Death Benefit must be equal to or greater than 250% of
Contract Value, if the Contract Value exceeds $40,000 the Death Benefit will
exceed the $100,000 Face Amount. In this example, each dollar of Contract Value
above $40,000 will increase the Death Benefit by $2.50. For example, a Contract
with a Contract Value of $50,000 will have a guideline minimum sum insured of
$125,000 ($50,000 X 2.50); Contract Value of $60,000 will produce a guideline
minimum sum insured of $150,000 ($60,000 X 2.50); and Contract Value of $75,000
will produce a guideline minimum sum insured of $187,500 ($75,000 X 2.50).

Similarly, if Contract Value exceeds $40,000, each dollar taken out of Contract
Value will reduce the Death Benefit by $2.50. If, for example, the Contract
Value is reduced from $60,000 to $50,000 because of partial withdrawals, charges
or negative investment performance, the Death Benefit will be reduced from
$150,000 to $125,000. If, however, the Contract Value multiplied by the
applicable percentage from the table in APPENDIX A is less than the Face Amount,
the Death Benefit will equal the Face Amount.

The applicable percentage becomes lower as the Insured's age increases. If the
Insured's age in the above example were, for example, 50 (rather than between
zero and 40), the applicable percentage would be 185%. The Death Benefit would
not exceed the $100,000 face amount unless the Contract Value exceeded $54,054
(rather than $40,000), and each dollar then added to or taken from Contract
Value would change the Death Benefit by $1.85.

CONTRACT VALUE. The Contract Value is the total value of your Contract. It is
the SUM of:

- Your accumulation in the Fixed Account; PLUS

- The value of your Units in the Sub-Accounts.

20
<PAGE>
There is no guaranteed minimum Contract Value. The Contract Value on any date
depends on variables that cannot be predetermined.

Your Contract Value is affected by the:

- Amount of your Payments;

- Interest credited in the Fixed Account;

- Investment performance of the Funds you select;

- Partial withdrawals;

- Loans, loan repayments and loan interest paid or credited; and

- Charges and deductions under the Contract.

COMPUTING CONTRACT VALUE. We compute the Contract Value on the Date of Issue
and on each Valuation Date. On the Date of Issue, the Contract Value is:

- Your Payment plus any interest earned during the period it was allocated
to the General Account (see THE CONTRACT -- "Application for a Contract");
MINUS

- The Monthly Deductions due.

On each Valuation Date after the Date of Issue, the Contract Value is the SUM
of:

- Accumulations in the Fixed Account; PLUS

- The SUM of the PRODUCTS of:

- The number of Units in each Sub-Account; TIMES

- The value of a Unit in each Sub-Account on the Valuation Date.

THE UNIT. We allocate each Payment to the Sub-Accounts you selected. We credit
allocations to the Sub-Accounts as Units. Units are credited separately for each
Sub-Account.

The number of Units of each Sub-Account credited to the Contract is the QUOTIENT
of:

- That part of the Payment allocated to the Sub-Account; DIVIDED BY

- The dollar value of a Unit on the Valuation Date the Payment is received
at our Principal Office.

The number of Units will remain fixed unless changed by a split of Unit value,
transfer, loan, partial withdrawal or surrender. Also, Monthly Deductions taken
from a Sub-Account will result in cancellation of Units equal in value to the
amount deducted.

The dollar value of a Unit of a Sub-Account varies from Valuation Date to
Valuation Date based on the investment experience of that Sub-Account. This
investment experience reflects the investment performance, expenses and charges
of the Fund in which the Sub-Account invests. The value of each Unit was set at
$1.00 on the first Valuation Date of each Sub-Account.

The value of a Unit on any Valuation Date is the PRODUCT of:

- The dollar value of the Unit on the preceding Valuation Date; TIMES

- The net investment factor.

21
<PAGE>
NET INVESTMENT FACTOR. The net investment factor measures the investment
performance of a Sub-Account during the Valuation Period just ended. The net
investment factor for each Sub-Account is the result of:

- The net asset value per share of a Fund held in the Sub-Account determined
at the end of the current Valuation Period; PLUS

- The per share amount of any dividend or capital gain distributions made by
the Fund on shares in the Sub-Account if the "ex-dividend" date occurs
during the current Valuation Period; DIVIDED BY

- The net asset value per share of a Fund share held in the Sub-Account
determined as of the end of the immediately preceding Valuation Period;
MINUS

- The mortality and expense risk charge for each day in the Valuation
Period, currently at an annual rate of 0.90% of the daily net asset value
of that Sub-Account.

The net investment factor may be greater or less than one.

PAYMENT OPTIONS. The Net Death Benefit payable may be paid in a single sum or
under one or more of the payment options then offered by Allmerica Financial.
See APPENDIX C -- PAYMENT OPTIONS. These payment options also are available at
the Final Payment Date or if the Contract is surrendered. If no election is
made, we will pay the Net Death Benefit in a single sum.

OPTIONAL INSURANCE BENEFITS. You may add an optional insurance benefit to the
Contract by rider, as described in APPENDIX B -- OPTIONAL BENEFIT.

SURRENDER. You may surrender the Contract and receive its Surrender Value. The
Surrender Value is:

- The Contract Value; MINUS

- Any Outstanding Loan and surrender charges.

We will compute the Surrender Value on the Valuation Date on which we receive
the Contract with a Written Request for surrender. We will deduct a surrender
charge if you surrender the Contract within 10 full Contract years of the Date
of Issue. See CHARGES AND DEDUCTIONS -- SURRENDER CHARGE. The Surrender Value
may be paid in a lump sum or under a payment option then offered by us. See
APPENDIX C -- PAYMENT OPTIONS. We will normally pay the Surrender Value within
seven days following our receipt of Written Request. We may delay benefit
payments under the circumstances described in OTHER CONTRACT PROVISIONS --
"Delay of Benefit Payments."

For important tax consequences of a surrender, see FEDERAL TAX CONSIDERATIONS.

PARTIAL WITHDRAWAL. You may withdraw part of the Contract Value of your Contract
on Written Request. Your Written Request must state the dollar amount you wish
to receive. You may allocate the amount withdrawn among the Sub-Accounts and the
Fixed Account. If you do not provide allocation instructions, we will make a
Pro-Rata Allocation. Each partial withdrawal must be at least $1,000. We will
not allow a partial withdrawal if it would reduce the Contract Value below
$25,000. The Face Amount is reduced proportionately based on the ratio of the
amount of the partial withdrawal and charges to the Contract Value on the date
of withdrawal.

On a partial withdrawal from a Sub-Account, we will cancel the number of Units
equal in value to the amount withdrawn. The amount withdrawn will be the amount
you requested plus the partial withdrawal costs and any applicable surrender
fee. See CHARGES AND DEDUCTIONS -- SURRENDER CHARGES and CHARGES AND DEDUCTIONS
- -- "Partial Withdrawal Costs." We will normally pay the partial withdrawal
within seven days following our receipt of Written Request. We may delay payment
as described in OTHER CONTRACT PROVISIONS -- "Delay of Benefit Payments."

22
<PAGE>
For important tax consequences of partial withdrawals, see FEDERAL TAX
CONSIDERATIONS.

CHARGES AND DEDUCTIONS

The following charges will apply to your Contract under the circumstances
described. Some of these charges apply throughout the Contract's duration.

No surrender charges or partial withdrawal charges are imposed, and no
commissions are paid where the Contract Owner as of the date of application is
within the following class of individuals:

All employees of First Allmerica and its affiliates and subsidiaries located
at First Allmerica's home office (or at off-site locations if such employees
are on First Allmerica's home office payroll); all employees and registered
representatives of any broker-dealer that has entered into a sales agreement
with us or Allmerica Investments, Inc. to sell the Contracts and any spouses
of the above persons or any children of the above persons.

MONTHLY DEDUCTIONS. On the Monthly Processing Date, the Company will deduct an
amount to cover charges and expenses incurred in connection with the Contract.
This Monthly Deduction will be deducted by subtracting values from the Fixed
Account accumulation and/or canceling Units from each applicable Sub-Account in
the ratio that the Contract Value in the Sub-Account bears to the Contract
Value. The amount of the Monthly Deduction will vary from month to month. If the
Contract Value is not sufficient to cover the Monthly Deduction which is due,
the Contract may lapse. (See CONTRACT TERMINATION AND REINSTATEMENT.) The
Monthly Deduction is comprised of the following charges:

- MAINTENANCE FEE: The Company will make a deduction of $2.50 from any
Contract with less than $50,000 in Contract Value to cover charges and
expenses incurred in connection with the Contract. This charge is to
reimburse the Company for expenses related to issuance and maintenance of
the Contract. The Company does not intend to profit from this charge.

- ADMINISTRATION CHARGE: The Company imposes a monthly charge at an annual
rate of 0.40% of the Contract Value. This charge is to reimburse us for
administrative expenses incurred in the administration of the Contract. It
is not expected to be a source of profit.

- MONTHLY INSURANCE PROTECTION CHARGE: Immediately after the Contract is
issued, the Death Benefit will be greater than the Payment. While the
Contract is in force, prior to the Final Payment Date, the Death Benefit
will generally be greater than the Contract Value. To enable us to pay
this excess of the Death Benefit over the Contract Value, a monthly cost
of insurance charge is deducted. This charge varies between an annual rate
of 0.20% and 2.50% of the Contract Value depending on the type of Contract
and the Underwriting Class. In no event will the current deduction for the
cost of insurance exceed the guaranteed maximum insurance protection rates
set forth in the Contract. These guaranteed rates are based on the
Commissioners 1980 Standard Ordinary Mortality Tables, Tobacco User or
Non-Tobacco User (Mortality Table B for unisex Contracts and Mortality
Table D for second-to-die Contracts) and the Insured's sex and Age. The
Tables used for this purpose set forth different mortality estimates for
males and females and for tobacco users and non-tobacco users. Any change
in the insurance protection rates will apply to all Insureds of the same
Age, sex and Underwriting Class whose Contracts have been in force for the
same period.

The Underwriting Class of an Insured will affect the insurance protection rate.
We currently place Insureds into standard Underwriting Classes and non-standard
Underwriting Classes. The Underwriting Classes are also divided into two
categories: tobacco user and non-tobacco user. We will place Insureds under the
Age of 18 at the Date of Issue in a standard (regular??) or non-standard
Underwriting Class. We will then classify the Insured as a non-tobacco user.

- DISTRIBUTION EXPENSE: During the first ten Contract years, we make a
monthly deduction to compensate for a portion of the sales expense which
are incurred by us with respect to the Contracts. This

23
<PAGE>
charge is equal to 0.30% of the Contract Value. We will monitor
distribution charges, federal tax charges and the sales charge portion of
the surrender fee deducted under a Contract to ensure that the sum of
these charges will never exceed 9% of the Payments made under the
Contract.

- FEDERAL & STATE PAYMENT TAX CHARGE: During the first ten Contract years,
we make a monthly deduction to compensate the Company for the increase in
federal tax liability from the application of Section 848 of the Code and
to offset the average premium tax the Company is expected to pay to
various state and local jurisdictions but will not necessarily equal the
premium tax paid by us for a particular Contract. The Company expects to
pay an average premium tax of approximately 2.5% of premiums in all
states, although such rates can generally range from 0% to 4%. The Company
does not intend to profit from the premium tax portion of this charge.

DAILY DEDUCTIONS. We assess each Sub-Account with a charge for mortality and
expense risks we assume. Fund expenses are also reflected in the Variable
Account.

- MORTALITY AND EXPENSE RISK CHARGE: We impose a daily charge at a current
annual rate of 0.90% of the average daily net asset value of each
Sub-Account. This charge compensates us for assuming mortality and expense
risks for variable interests in the Contracts. The mortality risk we
assume is that Insureds may live for a shorter time than anticipated. If
this happens, we will pay more Net Death Benefits than anticipated. The
expense risk we assume is that the expenses incurred in issuing and
administering the Contracts will exceed those compensated by the
maintenance fee and administration charges in the Contracts. If the charge
for mortality and expense risks is not sufficient to cover mortality
experience and expenses, we will absorb the losses. If the charge turns
out to be higher than mortality and expense risk expenses, the difference
will be a profit to us. If the charge provides us with a profit, the
profit will be available for our use to pay distribution, sales and other
expenses.

- FUND EXPENSES: The value of the Units of the Sub-Accounts will reflect the
investment management fee and other expenses of the Funds whose shares the
Sub-Accounts purchase. The prospectuses and statements of additional
information of Palladian-SM- and the Trust contain more information
concerning the fees and expenses.

No charges are currently made against the Sub-Accounts for federal or state
income taxes. Should income taxes be imposed, we may make deductions from the
Sub-Accounts to pay the taxes. See FEDERAL TAX CONSIDERATIONS.

SURRENDER CHARGE. The Contract's contingent surrender charge is a deferred sales
charge and an unrecovered payment tax charge. The deferred sales charge
compensates us for distribution expenses, including commissions to our
representatives, advertising and the printing of prospectuses and sales
literature. The unrecovered payment tax charge is designed to reimburse us for
the unrecovered federal and state taxes the Company has paid.
<TABLE>
<CAPTION>
Contract Year* 1 2 3 4 5 6 7 8 9

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deferred Sale Charge 7.50% 7.50% 6.00% 6.00% 4.50% 4.50% 3.00% 3.00% 1.50%

Unrecovered Payment Tax
Charge 2.25% 2.00% 1.75% 1.25% 1.50% 1.00% 0.75% 0.50% 0.25%

Total Surrender Charge 9.75% 9.50% 7.75% 7.25% 5.75% 5.50% 3.75% 3.50% 1.75%

<CAPTION>
Contract Year* 10+
<S> <C>
Deferred Sale Charge 0%
Unrecovered Payment Tax
Charge 0%
Total Surrender Charge 0%
</TABLE>

The surrender charge applies for ten Contract years. We impose the surrender
charge only if, during its duration, you request a full surrender or a partial
withdrawal in excess of the free withdrawal amount.

* For a Contract that lapses and reinstates, see REINSTATEMENT.

24
<PAGE>
PARTIAL WITHDRAWAL COSTS. For each partial withdrawal, we deduct a transaction
fee of 2.0% of the amount withdrawn, not to exceed $25. This fee is intended to
reimburse us for the cost of processing the withdrawal.

A partial withdrawal charge may also be deducted from Contract Value. However,
in any Contract year, you may withdraw, without a partial withdrawal charge, up
to:

- 10% of the Contract Value; MINUS

- The total of any prior free withdrawals in the same Contract year ("Free
10% Withdrawal.")

The right to make the Free 10% Withdrawal is not cumulative from Contract year
to Contract year. For example, if only 8% of Contract Value were withdrawn in
the second Contract year, the amount you could withdraw in future Contract years
would not be increased by the amount you did not withdraw in the second Contract
year.

We impose any applicable surrender charge on any withdrawal greater than the
Free 10% Withdrawal.

TRANSFER CHARGES. The first 12 transfers in a Contract year are free. After
that, we may deduct a transfer charge, not to exceed $25, from amounts
transferred in that Contract year. This charge reimburses us for the
administrative costs of processing the transfer.

If you apply for automatic transfers, the first automatic transfer counts as one
transfer. Each future automatic transfer is without charge and does not reduce
the remaining number of transfers that may be made without charge.

Each of the following transfers of Contract Value from the Sub-Accounts to the
Fixed Account is free and does not count as one of the 12 free transfers in a
Contract year:

- A conversion within the first 24 months from Date of Issue;

- A transfer to the Fixed Account to secure a loan; and

- A transfer from the Fixed Account as a results of a loan repayment.

CONTRACT LOANS

You may borrow money secured by your Contract Value, both during and after the
first Contract year. The total amount you may borrow is the Loan Value. The Loan
Value is 90% of the Contract Value minus any surrender charges.

The minimum loan is $1,000. The maximum loan is the Loan Value minus any
Outstanding Loan. We will usually pay the loan within seven days after we
receive the Written Request. We may delay the payment of loans as stated in
OTHER CONTRACT PROVISIONS -- Delay of Payments.

We will allocate the loan among the Sub-Accounts and the Fixed Account according
to your instructions. If you do not make an allocation, we will make a Pro-Rata
Allocation. We will transfer Contract Value in each Sub-Account equal to the
Contract loan to the Fixed Account. We will not count this transfer as a
transfer subject to the transfer charge.

Contract Value equal to the Outstanding Loan will earn monthly interest in the
Fixed Account at an annual rate of at least 4.0%.

PREFERRED LOAN OPTION. Any portion of the Outstanding Loan that represents
earnings in this Contract, a loan from an exchanged life insurance policy that
was as carried over to this Contract or the gain in the

25
<PAGE>
exchanged life insurance policy that was carried over to this Contract may be
treated as a preferred loan. The available percentage of the gain carried over
from an exchanged policy less any policy loan carried over which will be
eligible for preferred loan treatment is as follows:
<TABLE>
<CAPTION>
Beginning of
Contract Year 1 2 3 4 5 6 7 8 9
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Unloaned Gain Available 0% 10% 20% 30% 40% 50% 60% 70% 80%

<CAPTION>
Beginning of
Contract Year 10 11
<S> <C> <C>
- -----------------------
Unloaned Gain Available 90% 100%
</TABLE>

The guaranteed annual interest rate credited to the Contract Value securing a
preferred loan will be at least 5.5%.

LOAN INTEREST CHARGED. Interest accrues daily at the annual rate of 6.0%.
Interest is due and payable in arrears at the end of each Contract year or for
as short a period as the loan may exist. Interest not paid when due will be
added to the Outstanding Loan by transferring Contract Value equal to the
interest due to the Fixed Account. The interest due will bear interest at the
same rate.

REPAYMENT OF OUTSTANDING LOAN. You may pay any loans before Contract lapse. We
will allocate that part of the Contract Value in the Fixed Account that secured
a repaid loan to the Sub-Accounts and Fixed Account according to your
instructions. If you do not make a repayment allocation, we will allocate
Contract Value according to your most recent Payment allocation instructions.
However, loan repayments allocated to the Variable Account cannot exceed
Contract Value previously transferred from the Variable Account to secure the
outstanding loan.

If the Outstanding Loan exceeds the Contract Value less the surrender charge,
the Contract will terminate. We will mail a notice of termination to the last
known address of you and any assignee. If you do not make sufficient payment
within 62 days after this notice is mailed, the Contract will terminate with no
value. See CONTRACT TERMINATION AND REINSTATEMENT.

- EFFECT OF CONTRACT LOANS: Contract loans will permanently affect the
Contract Value and Surrender Value, and may permanently affect the Death
Benefit. The effect could be favorable or unfavorable, depending on
whether the investment performance of the Sub-Accounts is less than or
greater than the interest credited to the Contract Value in the Fixed
Account that secures the loan.

We will deduct any Outstanding Loan from the proceeds payable when the Insured
dies or from a surrender.

CONTRACT TERMINATION AND REINSTATEMENT

TERMINATION. The Contract will terminate if, on a Monthly Processing Date, the
Surrender Value is less than $0 (zero.) If this situation occurs, the Contract
will be in default. You will then have a grace period of 62 days, measured from
the date of default, to make a Payment sufficient to prevent termination. On the
date of default, we will send a notice to you and to any assignee of record. The
notice will state the Payment due and the date by which it must be paid.

Failure to make a sufficient Payment within the grace period will result in the
Contract terminating without value. If the Insured dies during the grace period,
we will deduct from the Net Death Benefit any overdue charges.

REINSTATEMENT. A terminated Contract may be reinstated within three years of the
date of default and before the Final Payment Date. The reinstatement takes
effect on the Monthly Processing Date following the date you submit to us:

- Written application for reinstatement;

26
<PAGE>
- Evidence of Insurability showing that the Insured is insurable according
to our current underwriting rules;

- A Payment that is large enough to cover the cost of all Contract charges
that were due and unpaid during the grace period;

- A Payment that is large enough to keep the Contract in force for three
months; and

- A Payment or reinstatement of any loan against the Contract that existed
at the end of the grace period.

Contracts which have been surrendered may not be reinstated.

SURRENDER CHARGE. For the purpose of measuring the surrender charge period, the
contract will be reinstated as of the date of default. The surrender charge on
the date of reinstatement is the surrender charge that would have been in effect
on the date of default.

CONTRACT VALUE ON REINSTATEMENT -- The Contract Value on the date of
reinstatement is:

- The Payment made to reinstate the Contract and interest earned from the
date the Payment was received at our Principal Office; PLUS

- The Contract Value less any Outstanding Loan on the date of default (not
to exceed the surrender charge on the date of reinstatement); MINUS

- The Monthly Deductions due on the date of reinstatement.

You may reinstate any Outstanding Loan.

OTHER CONTRACT PROVISIONS

CONTRACT OWNER -- The Contract Owner named on the specifications page of the
Contract is the Insured unless another Contract Owner has been named in the
application. As Contract Owner, you are entitled to exercise all rights under
your Contract while the Insured is alive, with the consent of any irrevocable
Beneficiary.

BENEFICIARY -- The Beneficiary is the person or persons to whom the Net Death
Benefit is payable on the Insured's death. Unless otherwise stated in the
Contract, the Beneficiary has no rights in the Contract before the Insured dies.
While the Insured is alive, you may change the Beneficiary, unless you have
declared the Beneficiary to be irrevocable. If no Beneficiary is alive when the
Insured dies, the Contract Owner (or the Contract Owner's estate) will be the
Beneficiary. If more than one Beneficiary is alive when the Insured dies, we
will pay each Beneficiary in equal shares, unless you have chosen otherwise.
Where there is more than one Beneficiary, the interest of a Beneficiary who dies
before the Insured will pass to surviving Beneficiaries proportionately, unless
the Contract owner has requested otherwise.

ASSIGNMENT -- You may assign a Contract as collateral or make an absolute
assignment. All Contract rights will be transferred as to the assignee's
interest. The consent of the assignee may be required to make changes in Payment
allocations, make transfers or to exercise other rights under the Contract. We
are not bound by an assignment or release thereof, unless it is in writing and
recorded at our Principal Office. When recorded, the assignment will take effect
on the date the Written Request was signed. Any rights the assignment creates
will be subject to any payments we made or actions we took before the assignment
is recorded. We are not responsible for determining the validity of any
assignment or release.

The following Contract provisions may vary by state.

LIMIT ON RIGHT TO CONTEST THE CONTRACT -- We cannot challenge the validity of
your Contract if the Insured was alive after the Contract had been in force for
two years from the Date of Issue.

27
<PAGE>
SUICIDE -- The Net Death Benefit will not be paid if the Insured commits
suicide, while sane or insane, within two years from the Date of Issue. Instead,
we will pay the Beneficiary all Payments made for the Contract, without
interest, less any Outstanding Loan and partial withdrawals.

MISSTATEMENT OF AGE OR SEX -- If the Insured's Age or sex is not correctly
stated in the Contract application, we will adjust benefits under the Contract
to reflect the correct Age and sex. The adjustment will be based upon the ratio
of the Maximum Payment for the Contract to the Maximum Payment for the Contract
issued for the correct Age or sex. We will not reduce the Death Benefit to less
than the Guideline Minimum Sum Insured. For a unisex Contract, there is no
adjusted benefit for misstatement of sex.

DELAY OF PAYMENTS -- Amounts payable from the Variable Account for surrender,
partial withdrawals, Net Death Benefit, Contract loans and transfers may be
postponed whenever:

- The New York Stock Exchange is closed other than customary weekend and
holiday closings;

- The SEC restricts trading on the New York Stock Exchange; or

- The SEC determines an emergency exists, so that disposal of securities is
not reasonably practicable or it is not reasonably practicable to compute
the value of the Variable Account's net assets.

We may delay paying any amount derived from a Payment you made by check until
the check has cleared your bank.

We reserve the right to defer amounts payable from the Fixed Account. This delay
may not exceed six months. However, if payment is delayed for 30 days or more,
we will pay interest at least equal to an effective annual yield of 3.0% per
year for the deferment. Amounts from the Fixed Account used to make payments on
contracts that we or our affiliates issue will not be delayed.

FEDERAL TAX CONSIDERATIONS

The following summary of federal tax considerations is based on our
understanding of the present federal income tax laws as they are currently
interpreted. Legislation may be proposed which, if passed, could adversely and
possibly retroactively affect the taxation of the Contracts. This summary is not
exhaustive, does not purport to cover all situations, and is not intended as tax
advice. We do not address tax provisions that may apply if the Contract Owner is
a corporation or the Trustee of an employee benefit plan. You should consult a
qualified tax adviser to apply the law to your circumstances.

ALLMERICA FINANCIAL AND THE VARIABLE ACCOUNT -- Allmerica Financial is taxed as
a life insurance company under Subchapter L of the Code. We file a consolidated
tax return with our parent and affiliates. We do not currently charge for any
income tax on the earnings or realized capital gains in the Variable Account. We
do not currently charge for federal income taxes respecting the Variable
Account. A charge may apply in the future for any federal income taxes we incur.
The charge may become necessary, for example, if there is a change in our tax
status. Any charge would be designed to cover the federal income taxes on the
investment results of the Variable Account.

Under current laws, Allmerica Financial may incur state and local taxes besides
premium taxes. These taxes are not currently significant. If there is a material
change in these taxes affecting the Variable Account, we may charge for taxes
paid or for tax reserves.

TAXATION OF THE CONTRACTS -- We believe that the Contracts described in this
prospectus are life insurance contracts under Section 7702 of the Code. Section
7702 affects the taxation of life insurance contracts and places limits on the
relationship of the Contract Value to the Death Benefit. As a life insurance
contract, the Net Death Benefit of the Contract is excludable from the gross
income of the Beneficiary. Also, any increase in Contract Value is not taxable
until received by you or your designee. Although the Company

28
<PAGE>
believes the Contracts are in compliance with Section 7702 of the Code, the
manner in which Section 7702 should be applied to a last survivorship life
insurance contract is not directly addressed by Section 7702. In absence of
final regulations or other guidance issued under Section 7702, there is
necessarily some uncertainty whether a Contract will meet the Section 7702
definition of a life insurance contract. This is true particularly if the
Contract Owner pays the full amount of payments permitted under the Contract. A
Contract Owner contemplating the payment of such amounts should do so only after
consulting a tax advisor. If a Contract were determined not to be a life
insurance contract under Section 7702, it would not have most of the tax
advantages normally provided by a life insurance contract.

A life insurance contract is treated as a "modified endowment contract" under
Section 7702A of the Code if it meets the definition of life insurance in
Section 7702 but fails the seven-pay test of Section 7702A. The seven-pay test
provides that payments can not be paid at a rate more rapidly than allowed by
the payment of seven annual payments using specified computational rules
provided in Section 7702A.

If the Contract is considered a modified endowment contract, distributions
(including Contract loans, partial withdrawals, surrenders and assignments) will
be taxed on an "income-first" basis and includible in gross income to the extent
that the Surrender Value exceeds the Contract Owner's investment in the
Contract. Any other amounts will be treated as a return of capital up to the
Contract Owner's basis in the Contract. A 10% tax is imposed on that part of any
distribution that is includible in income, unless the distribution is:

- Made after the taxpayer becomes disabled;

- Made after the taxpayer attains age 59 1/2; or

- Part of a series of substantially equal periodic payments for the
taxpayer's life or life expectancy or joint life expectancies of the
taxpayer and beneficiary.

Allmerica Financial has designed this Contract to meet the definition of a
modified endowment contract.

Any Contract received in exchange for a modified endowment contract will also be
a modified endowment contract. However, an exchange under Section 1035 of the
Code of a life insurance contract entered into before June 21, 1988 will not
cause the new Contract to be treated as a modified endowment contract if no
additional payments are made and there is no increase in the death benefit as a
result of the exchange.

All modified endowment contracts issued by the same insurance company to the
same Contract Owner during any 12-month period will be treated as a single
modified endowment contract in computing taxable distributions.

Consumer interest paid on Contract loans under an individually owned Contract is
not tax deductible. A business may deduct interest on loans up $50,000 subject
to a prescribed maximum amount, provided that the Insured is a "key person" of
that business. The Code defines "key person" to mean an officer or a 20% owner.

Federal tax law requires that the investment of each Sub-Account funding the
Contracts is adequately diversified according to Treasury regulations. Although
we do not have control over the investments of the Funds, we believe that the
Funds currently meet the Treasury's diversification requirements. We will
monitor continued compliance with these requirements.

The Treasury Department has announced that previous regulations on
diversification do not provide guidance concerning the extent to which Contract
Owners may direct their investments to divisions of a separate investment
account. Regulations may provide guidance in the future. The Contracts or our
administrative rules may be modified as necessary to prevent a Contract Owner
from being considered the owner of the assets of the Variable Account.

29
<PAGE>
VOTING RIGHTS

Where the law requires, we will vote Fund shares that each Sub-Account holds
according to instructions received from Contract Owners with Contract Value in
the Sub-Account. If, under the 1940 Act or its rules, we may vote shares in our
own right, whether or not the shares relate to the Contracts, we reserve the
right to do so.

We will provide each person having a voting interest in a Fund with proxy
materials and voting instructions. We will vote shares held in each Sub-Account
for which no timely instructions are received in proportion to all instructions
received for the Sub-Account. We will also vote in the same proportion our
shares held in the Variable Account that do not relate to the Contracts.

We will compute the number of votes that a Contract Owner has the right to
instruct on the record date established for the Fund. This number is the
quotient of:

- Each Contract Owner's Contract Value in the Sub-Account; divided by

- The net asset value of one share in the Fund in which the assets of the
Sub-Account are invested.

We may disregard voting instructions Contract Owners or the Trustees initiate in
favor of any change in the investment policies or in any investment adviser or
principal underwriter. Our disapproval of any change must be reasonable. A
change in investment policies or investment adviser must be based on a good
faith determination that the change would be contrary to state law or otherwise
is improper under the objectives and purposes of the funds. If we do disregard
voting instructions, we will include a summary of and reasons for that action in
the next report to Contract Owners.

30
<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY

<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ---------------------------------------- --------------------------------------------------
<S> <C>
Bruce C. Anderson Director of First Allmerica since 1996; Vice
Director President, First Allmerica since 1984

Abigail M. Armstrong Secretary of First Allmerica since 1996; Counsel,
Secretary and Counsel First Allmerica since 1991

Robert E. Bruce Director and Chief Information Officer of First
Director and Chief Information Officer Allmerica since 1997; Vice President of First
Allmerica since 1995; Corporate Manager, Digital
Equipment Corporation 1979 to 1995

John P. Kavanaugh Director and Chief Investment Officer of First
Director, Vice President and Allmerica since 1996; Vice President, First
Chief Investment Officer Allmerica since 1991

John F. Kelly Director of First Allmerica since 1996; General
Director, Vice President and Counsel since 1981; Senior Vice President
General Counsel since1986, and Assistant Secretary, First
Allmerica since 1991

J. Barry May Director of First Allmerica since 1996; Director
Director and President, The Hanover Insurance Company
since 1996; Vice President, The Hanover Insurance
Company, 1993 to 1996; General Manager, The
Hanover Insurance Company 1989 to 1993

James R. McAuliffe Director of First Allmerica since 1996; Director
Director of Citizens Insurance Company of America since
1992; President since 1994 and CEO since 1996;
Vice President, First Allmerica 1982 to 1994 and
Chief Investment Officer, First Allmerica 1986 to
1994.

John F. O'Brien Director, Chairman of the Board, President and
Director and Chairman of the Board Chief Executive Officer, First Allmerica since
1989

Edward J. Parry, III Director and Chief Financial Officer of First
Director, Vice President, Allmerica since 1996; Vice President and
Chief Financial Officer, and Treasurer Treasurer, First Allmerica since 1993

Richard M. Reilly Director of First Allmerica since 1996; Vice
Director, President and President, First Allmerica since 1990; Director,
Chief Executive Officer Allmerica Investments, Inc. since 1990; Director
and President, Allmerica Financial Investment
Management Services, Inc. since 1990

Eric A. Simonsen Director of First Allmerica since 1996; Vice
Director and Vice President President, First Allmerica since 1990; Chief
Financial Officer, First Allmerica 1990 to 1996

Phillip E. Soule Director of First Allmerica since 1996; Vice
Director President, First Allmerica since 1987
</TABLE>

31
<PAGE>
DISTRIBUTION

Allmerica Investments, Inc., an indirect wholly owned subsidiary of First
Allmerica, acts as the principal underwriter and general distributor of the
Contracts. Allmerica Investments, Inc. is registered with the SEC as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. ("NASD"). Broker-dealers sell the Contracts through their registered
representatives who are appointed by us.

We pay to broker-dealers who sell the Contract commissions based on a commission
schedule. After the Date of Issue, commissions will not exceed 8.5% of the
Payment. After Contract year 10, we pay broker-dealer a persistency bonus and
commence paying annual compensation of up to 0.25% of unloaned Contract Value.
Alternative commission schedules are available with lower commission amounts
based upon the age of the Contract Owner. To the extent permitted by NASD rules,
promotional incentives or payments may also be provided to broker-dealers based
on sales volumes, the assumption of wholesaling functions or other sales-related
criteria. Other payments may be made for other services that do not directly
involve the sale of the Contracts. These services may include the recruitment
and training of personnel, production of promotional literature, and similar
services.

We intend to recoup commissions and other sales expenses through a combination
of the contingent surrender charge and investment earnings on amounts allocated
under the Contracts to the Fixed Account. Commissions paid on the Contracts,
including other incentives or payments, are not charged to Contract Owners or to
the Separate Account.

REPORTS

We will maintain the records for the Variable Account. We will promptly send you
statements of transactions under your Contract, including:

- Payments;

- Transfers among Sub-Accounts and the Fixed Account;

- Partial withdrawals;

- Increases in loan amount or loan repayments;

- Lapse or termination for any reason; and

- Reinstatement.

We will send an annual statement to you that will summarize all of the above
transactions and deductions of charges during the Contract year. It will also
set forth the status of the Death Benefit, Contract Value, Surrender Value,
amounts in the Sub-Accounts and Fixed Account, and any Contract loans. We will
send you reports containing financial statements and other information for the
Variable Account, Palladian-SM- and the Trust as the 1940 Act requires.

PERFORMANCE INFORMATION

The Contracts were first offered in 1997. However, the Allmerica Financial may
advertise "Total Return" and "Average Annual Total Return" performance
information based on the periods that the Funds have been in existence. The
results for any period prior to the Contracts being offered will be calculated
as if the Contracts had been offered during that period of time, with all
charges assumed to be those applicable to the Sub-Accounts and the Funds.

Total return and average annual total return are based on the hypothetical
profile of a representative Contract Owner and historical earnings and are not
intended to indicate future performance. "Total return" is the total income
generated net of certain expenses and charges. "Average annual total return" is
net of the same expenses and charges, but reflects the hypothetical return
compounded annually. This hypothetical return is

32
<PAGE>
equal to cumulative return had performance been constant over the entire period.
Average annual total returns are not the same as yearly results and tend to
smooth out variations in the Fund's return.

Performance information under the Contracts is net of Fund expenses, Monthly
Deductions and surrender charges. We take a representative Contract Owner and
assume that:

- The Insured is a male Age 36, standard (non-tobacco user) Underwriting
Class;

- The Contract Owner had allocations in each of the Sub-Accounts for the
Fund durations shown; and

- There was a full surrender at the end of the applicable period.

We may compare performance information for a Sub-Account in reports and
promotional literature to:

- Standard & Poor's 500 Stock Index ("S&P 500");

- Dow Jones Industrial Average ("DJIA");

- Shearson Lehman Aggregate Bond Index;

- Other unmanaged indices of unmanaged securities widely regarded by
investors as representative of the securities markets;

- Other groups of variable life separate accounts or other investment
products tracked by Lipper Analytical Services;

- Other services, companies, publications, or persons such as Morningstar,
Inc., who rank the investment products on performance or other criteria;
and

- The Consumer Price Index.

Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for insurance and administrative charges, separate account
charges and fund management costs and expenses. Performance information for any
Sub-Account reflects only the performance of a hypothetical investment in the
Sub-Account during a period. It is not representative of what may be achieved in
the future. However, performance information may be helpful in reviewing market
conditions during a period and in considering a fund's success in meeting its
investment objectives.

In advertising, sales literature, publications or other materials, we may give
information on various topics of interest to Contract Owners and prospective
Contract 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 and automatic account rebalancing);

- The advantages and disadvantages of investing in tax-deferred and taxable
investments;

- Customer profiles and hypothetical Payment 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 Contracts and the
characteristics of and market for the financial instruments.

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, Inc. ("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/heath
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 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.

33
<PAGE>
PERFORMANCE INFORMATION REFLECTS ONLY THE PERFORMANCE OF A HYPOTHETICAL
INVESTMENT DURING THE PARTICULAR TIME PERIOD ON WHICH THE CALCULATIONS ARE
BASED. ONE-YEAR TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN FIGURES ARE BASED
ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF THE INVESTMENT
OBJECTIVES AND POLICIES, CHARACTERISTICS AND QUALITY OF THE PORTFOLIO OF THE
FUND IN WHICH A 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.

LEGAL PROCEEDINGS

There are no pending legal proceedings involving the Variable Account or its
assets. Allmerica Financial is not involved in any litigation that is materially
important to its total assets.

ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS

We reserve the right, subject to law, to make additions to, deletions from, or
substitutions for the shares that are held in the Sub-Accounts. We may redeem
the shares of a Fund and substitute shares of another registered open-end
management company, if:

- The shares of the Fund are no longer available for investment: OR

- In our judgment further investment in the Fund would be improper based on
the purposes of the Variable Account or the affected Sub-Account.

Where the 1940 Act or other law requires, we will not substitute any shares
respecting a Contract interest in a Sub-Account without notice to Contract
Owners and prior approval of the SEC and state insurance authorities. The
Variable Account may, as the law allows, purchase other securities for other
contracts or allow a conversion between contracts on a Contract Owner's request.

We reserve the right to establish additional Sub-Accounts funded by a new fund
or by another investment company. Subject to law, we may, in our sole
discretion, establish new Sub-Accounts or eliminate one or more Sub-Accounts.

Shares of the Funds are issued to other separate accounts of Allmerica Financial
and its affiliates that fund variable annuity contracts ("mixed funding.")
Shares of the Portfolios of Palladian-SM- are also issued to other unaffiliated
insurance companies ("shared funding.") It is conceivable that in the future
such mixed funding or shared funding may be disadvantageous for variable life
contract owners or variable annuity contract owners. Allmerica Financial,
Palladian-SM- and the Trust do not believe that mixed funding is currently
disadvantageous to either variable life insurance Contract Owners or variable
annuity contract owners. Allmerica Financial will monitor events to identify any
material conflicts among Contract Owners because of mixed funding. If the
Company concludes that separate funds should be established for variable life
and variable annuity separate accounts, we will bear the expenses.

We may change the Contract to reflect a substitution or other change and will
notify Contract Owners of the change. Subject to any approvals the law may
require, the variable account or any sub-accounts may be:

- Operated as a management company under the 1940 Act;

- Deregistered under the 1940 Act if registration is no longer required; OR

- Combined with other sub-accounts or our other separate accounts.

FURTHER INFORMATION

We have filed a registration statement for this offering under the 1933 Act with
the SEC. Under SEC rules and regulations, we have omitted from this prospectus
parts of the registration statement and amendments. Statements contained in this
prospectus are summaries of the Contract and other legal documents. The complete
documents and omitted information may be obtained from the SEC's principal
office in Washington, D.C., on payment of the SEC's prescribed fees.

34
<PAGE>
INDEPENDENT ACCOUNTANTS

The financial statements of the Company as of December 31, 1997 and 1996 and for
each of the two years in the period ended December 31, 1997, included in this
prospectus constituting part of this Registration Statement, have been so
included in reliance on the report of Price Waterhouse 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
Policies.

MORE INFORMATION ABOUT THE FIXED ACCOUNT

This Prospectus serves as a disclosure document only for the aspects of the
Contract relating to the Variable Account. For complete details on the Fixed
Account, read the Contract itself. The Fixed Account and other interests in the
General Account are not regulated under the 1933 Act or the 1940 Act because of
exemption and exclusionary provisions. Provisions of the 1933 Act on the
accuracy and completeness of statements made in prospectuses may apply to
information on the fixed part of the Contract and the Fixed Account. The SEC has
not reviewed the disclosures in this section of the Prospectus.

GENERAL DESCRIPTION -- You may allocate part or all of your Payment to
accumulate at a fixed rate of interest in the Fixed Account. The Fixed Account
is a part of our General Account. The General Account is made up of all of our
general assets other than those allocated to any separate account. Allocations
to the Fixed Account become part of our General Account assets and are used to
support insurance and annuity obligations.

FIXED ACCOUNT INTEREST -- We guarantee amounts allocated to the Fixed Account as
to principal and a minimum rate of interest. The minimum interest we will credit
on amounts allocated to the Fixed Account is 4.0% compounded annually. "Excess
interest" may or may not be credited at our sole discretion. We will guarantee
initial rates on amounts allocated to the Fixed Account, either as a Payment or
a transfer, to the next Contract anniversary.

TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND CONTRACT LOANS -- If a Contract
is surrendered or if a partial withdrawal is made, a surrender charge and/or
partial withdrawal charge may be imposed. We deduct partial withdrawals from
Contract Value allocated to the Fixed Account on a last-in/first out basis.

The first 12 transfers in a Contract year are free. After that, we may deduct a
transfer charge, not to exceed $25, for each transfer in that Contract year. The
transfer privilege is subject to our consent and to our then current rules.

Contract loans may also be made from the Contract Value in the Fixed Account. We
will credit that part of the Contract value that is equal to any Outstanding
Loan with interest at an effective annual yield of at least 4.0% (5.5% for
preferred loans).

We may delay transfers, surrenders, partial withdrawals, Net Death Benefits and
Contract loans up to six months. However, if payment is delayed for 30 days or
more, we will pay interest at least equal to an effective annual yield of 3.0%
per year for the deferment. Amounts from the Fixed Account used to make payments
on contracts that we or our affiliates issue will not be delayed.

FINANCIAL STATEMENTS

Financial Statements for Allmerica Financial are included in this Prospectus,
starting on the next page. The financial statements of Allmerica Financial
should be considered only as bearing on our ability to meet our obligations
under the Contract. They should not be considered as bearing on the investment
performance of the assets held in the Variable Account.

35
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY

FINANCIAL STATEMENTS
DECEMBER 31, 1997
<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, of shareholder's equity, and of cash flows
present fairly, in all material respects, the financial position of Allmerica
Financial Life Insurance and Annuity Company at December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. 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
generally accepted auditing standards 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/ Price Waterhouse LLP

Price Waterhouse LLP
Boston, Massachusetts
February 3, 1998
<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) 1997 1996
----------------------------------------------- ------- -------
<S> <C> <C>
REVENUES
Premiums..................................... $ 22.8 $ 32.7
Universal life and investment product
policy fees.............................. 212.2 176.2
Net investment income...................... 164.2 171.7
Net realized investment gains (losses)..... 2.9 (3.6)
Other income............................... 1.4 0.9
------- -------
Total revenues......................... 403.5 377.9
------- -------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 187.8 192.6
Policy acquisition expenses................ 2.8 49.9
Loss from cession of disability income
business................................. 53.9 --
Other operating expenses................... 101.3 86.6
------- -------
Total benefits, losses and expenses.... 345.8 329.1
------- -------
Income before federal income taxes............. 57.7 48.8
------- -------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 13.9 26.9
Deferred................................... 7.1 (9.8)
------- -------
Total federal income tax expense....... 21.0 17.1
------- -------
Net income..................................... $ 36.7 $ 31.7
------- -------
------- -------
</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) 1997 1996
-------------------------------------------------------- ---------- ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,340.5 and $1,660.2)............................ $ 1,402.5 $ 1,698.0
Equity securities at fair value (cost of $34.4 and
$33.0)............................................ 54.0 41.5
Mortgage loans...................................... 228.2 221.6
Real estate......................................... 12.0 26.1
Policy loans........................................ 140.1 131.7
Other long term investments......................... 20.3 7.9
---------- ---------
Total investments............................... 1,857.1 2,126.8
---------- ---------
Cash and cash equivalents............................. 31.1 18.8
Accrued investment income............................. 34.2 37.7
Deferred policy acquisition costs..................... 765.3 632.7
Reinsurance receivables on paid and unpaid losses,
benefits and unearned premiums...................... 251.1 81.5
Other assets.......................................... 10.7 8.2
Separate account assets............................... 7,567.3 4,524.0
---------- ---------
Total assets.................................... $ 10,516.8 $ 7,429.7
---------- ---------
---------- ---------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,097.3 $ 2,171.3
Outstanding claims, losses and loss adjustment
expenses.......................................... 18.5 16.1
Unearned premiums................................... 1.8 2.7
Contractholder deposit funds and other policy
liabilities....................................... 32.5 32.8
---------- ---------
Total policy liabilities and accruals........... 2,150.1 2,222.9
---------- ---------
Expenses and taxes payable............................ 77.6 77.3
Reinsurance premiums payable.......................... 4.9 --
Deferred federal income taxes......................... 75.9 60.2
Separate account liabilities.......................... 7,567.3 4,523.6
---------- ---------
Total liabilities............................... 9,875.8 6,884.0
---------- ---------
Commitments and contingencies (Note 13)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares
authorized, 2,521 and 2,518 shares issued and
outstanding......................................... 2.5 2.5
Additional paid in capital............................ 386.9 346.3
Unrealized appreciation on investments, net........... 38.5 20.5
Retained earnings..................................... 213.1 176.4
---------- ---------
Total shareholder's equity...................... 641.0 545.7
---------- ---------
Total liabilities and shareholder's equity...... $ 10,516.8 $ 7,429.7
---------- ---------
---------- ---------
</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) 1997 1996
----------------------------------------------- ------- -------
<S> <C> <C>
COMMON STOCK
Balance at beginning of period............. $ 2.5 $ 2.5
Issued during year......................... -- --
------- -------
Balance at end of period................... 2.5 2.5
------- -------
ADDITIONAL PAID IN CAPITAL
Balance at beginning of period............. 346.3 324.3
Contribution from Parent................... 40.6 22.0
------- -------
Balance at end of period................... 386.9 346.3
------- -------
RETAINED EARNINGS
Balance at beginning of period............. 176.4 144.7
Net income................................. 36.7 31.7
------- -------
Balance at end of period................... 213.1 176.4
------- -------
NET UNREALIZED APPRECIATION ON INVESTMENTS
Balance at beginning of period............. 20.5 23.8
Net appreciation (depreciation) on
available for sale securities............ 27.0 (5.1)
(Provision) benefit for deferred federal
income taxes............................. (9.0) 1.8
------- -------
Balance at end of period................... 38.5 20.5
------- -------
Total shareholder's equity............. $ 641.0 $ 545.7
------- -------
------- -------
</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 CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
-------------------------------------------- -------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 36.7 $ 31.7
Adjustments to reconcile net income to
net cash used in operating activities:
Net realized gains.................. (2.9) 3.6
Net amortization and depreciation... -- 3.5
Loss from cession of disability
income business................... 53.9 --
Deferred federal income taxes....... 7.1 (9.8)
Payment related to cession of
disability income business........ (207.0) --
Change in deferred acquisition
costs............................. (181.3) (66.8)
Change in premiums and notes
receivable, net of reinsurance
payable........................... 3.9 (0.2)
Change in accrued investment
income............................ 3.5 1.2
Change in policy liabilities and
accruals, net..................... (72.4) (39.9)
Change in reinsurance receivable.... 22.1 (1.5)
Change in expenses and taxes
payable........................... 0.2 32.3
Separate account activity, net...... 0.4 10.5
Other, net.......................... (7.5) (0.2)
-------- --------
Net used in operating
activities.................... (343.3) (35.6)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................ 909.7 809.4
Proceeds from disposals of equity
securities............................ 2.4 1.5
Proceeds from disposals of other
investments........................... 23.7 17.4
Proceeds from mortgages matured or
collected............................. 62.9 34.0
Purchase of available-for-sale fixed
maturities............................ (579.7) (795.8)
Purchase of equity securities........... (3.2) (13.2)
Purchase of other investments........... (79.4) (36.2)
Other investing activities, net......... -- (2.0)
-------- --------
Net cash provided by investing
activities........................ 336.4 15.1
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and
capital paid in....................... 19.2 22.0
-------- --------
Net cash provided by financing
activities........................ 19.2 22.0
-------- --------
Net change in cash and cash equivalents..... 12.3 1.5
Cash and cash equivalents, beginning of
period..................................... 18.8 17.3
-------- --------
Cash and cash equivalents, end of period.... $ 31.1 $ 18.8
-------- --------
-------- --------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ -- $ 3.4
Income taxes paid....................... $ 5.4 $ 16.5
</TABLE>

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

F-4
<PAGE>
NOTES TO 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 SMA Financial Corporation ("SMAFCO"), which is wholly owned by
First Allmerica Financial Life Insurance Company ("FAFLIC"). FAFLIC is a
wholly-owned subsidiary of Allmerica Financial Corporation ("AFC").

The consolidated financial statements of AFLIAC include the accounts of Somerset
Square, Inc., a wholly-owned non-insurance company and its results of operations
for the month of December, 1997. Somerset Square, Inc. was transferred from
SMAFCO effective November 30, 1997. (See Significant Transactions.)

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 management 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. Certain reclassifications have been
made to the 1996 financial statements in order to conform to the 1997
presentation.

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 reevaluates such designation as of each balance sheet date.

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 management 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 management believes may not be collectible in
full. In establishing reserves, management 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 committed to a plan to dispose of all real estate
assets by the end of 1998. As a result of this decision real estate held by the
Company and real estate joint ventures were written down to the estimated fair
value less cost to sell. Depreciation is not recorded on these assets while they
are 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

F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

or a group of investments is determined, a realized investment loss is recorded.
Changes in the valuation allowance for mortgage loans and real estate 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 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, management 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 certain pension, 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, health 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 2 1/2% to 6% for
life insurance and 2% to 9 1/2% for

F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

annuities. Mortality, morbidity and withdrawal assumptions for all policies are
based on the Company's own experience and industry standards. Liabilities for
universal life 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. Individual health
benefit liabilities for active lives are estimated using the net level premium
method, and assumptions as to future morbidity, withdrawals 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, losses and loss adjustment expenses are
estimates of payments to be made for reported claims and estimates of claims
incurred but not reported. These liabilities are determined using case basis
evaluations and statistical analyses and represent estimates of the ultimate
cost of all claims incurred but not paid. These estimates are continually
reviewed and adjusted as necessary; such adjustments are reflected in current
operations.

Premiums for individual accident and health insurance are reported as earned on
a pro-rata basis over the contract period.

The unexpired portion of these premiums is recorded as unearned premiums.

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.

All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, management
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 and health insurance and individual annuity
products, excluding universal life and investment-related products, are
considered revenue when due. Individual accident and health insurance premiums
are recognized as revenue over the related contract periods. 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 primarily consist of 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, and mortality, administration and surrender charges
assessed against the fund values. Related benefit expenses include universal
life benefits 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, its life insurance subsidiaries, FAFLIC and AFLIAC, and its non-life
insurance domestic subsidiaries file a life-nonlife 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 insurance company taxable
operating losses that can be applied to offset life insurance company taxable
income. Allmerica P&C and its subsidiaries will be included in the AFC
consolidated return as part of the

F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

non-life insurance company subgroup for the period July 17, 1997 through
December 31, 1997. For the period January 1, 1997 through July 16, 1997,
Allmerica P&C and its subsidiaries will file a separate consolidated United
States Federal income tax return.

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" (SFAS No.
109). These differences result primarily from loss reserves, policy acquisition
expenses, and unrealized appreciation/depreciation on investments.

J. NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. 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. The Company anticipates no impact from the adoption of
Statement No. 131.

In June 1997, the FASB also issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME, which established 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 other events and circumstances from non-owner sources. This statement is
effective for fiscal years beginning after December 15, 1997. The Company
anticipates that the adoption of Statement No. 130 will result primarily in
reporting the changes in unrealized gains and losses on investments in debt and
equity securities in comprehensive income.

2. SIGNIFICANT TRANSACTIONS

On April 14, 1997, the Company entered into an agreement in principle to
transfer the Company's individual disability income under a 100% coinsurance
agreement to Metropolitan Life Insurance Company. 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.

During the 4th quarter of 1997, SMAFCO contributed $40.6 million of additional
paid in capital to the Company. The nature of the contribution was $19.2 million
in cash and $21.4 million in other assets including Somerset Square, Inc.

F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Effective January 1, 1998, the Company entered into an agreement with
Reinsurance Group of America, Inc. to reinsure the mortality risk on the
universal life and variable universal life blocks of business. Management
believes that this agreement will not have a material effect on the results of
operations or financial position of the Company.

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 SFAS No. 115.

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

<TABLE>
<CAPTION>
1997
--------------------------------------------
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....... $ 6.3 $ .5 $-- $ 6.8
States and political subdivisions....... 2.8 .2 -- 3.0
Foreign governments..................... 50.1 2.0 -- 52.1
Corporate fixed maturities.............. 1,147.5 58.7 3.3 1,202.9
Mortgage-backed securities.............. 133.8 5.2 1.3 137.7
---------- -------- --------- --------
Total fixed maturities
available-for-sale..................... $1,340.5 $66.6 $ 4.6 $1,402.5
---------- -------- --------- --------
Equity securities....................... $ 34.4 $19.9 $ 0.3 $ 54.0
---------- -------- --------- --------
---------- -------- --------- --------

1996
--------------------------------------------
U.S. Treasury securities and U.S.
government and agency securities....... $ 15.7 $ 0.5 $ 0.2 $ 16.0
States and political subdivisions....... 8.9 1.6 -- 10.5
Foreign governments..................... 53.2 2.9 -- 56.1
Corporate fixed maturities.............. 1,437.2 38.6 6.1 1,469.7
Mortgage-backed securities.............. 145.2 2.2 1.7 145.7
---------- -------- --------- --------
Total fixed maturities
available-for-sale..................... $1,660.2 $45.8 $ 8.0 $1,698.0
---------- -------- --------- --------
Equity securities....................... $ 33.0 $10.2 $ 1.7 $ 41.5
---------- -------- --------- --------
---------- -------- --------- --------
</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, 1997, the amortized
cost and market value of these assets on deposit were $276.8 million and $291.7
million, respectively. At December 31, 1996, the amortized cost and market value
of these assets on deposit were $284.9 million and $292.2 million, respectively.
In addition, fixed maturities, excluding those securities on deposit in New
York, with an amortized cost of $4.2 million were on deposit with various state
and governmental authorities at December 31, 1997 and 1996.

There were no contractual fixed maturity investment commitments at December 31,
1997 and 1996, respectively.

F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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>
1997
--------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------------------------------------------------------ --------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 63.0 $ 63.5
Due after one year through five years....................... 328.8 343.9
Due after five years through ten years...................... 649.5 679.9
Due after ten years......................................... 299.2 315.2
--------- ---------
Total....................................................... $1,340.5 $1,402.5
--------- ---------
--------- ---------
</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>
1997
Fixed maturities............................................ $702.9 $ 11.4 $ 5.0
Equity securities........................................... $ 1.3 $ 0.5 $ --

1996
Fixed maturities............................................ $496.6 $ 4.3 $ 8.3
Equity securities........................................... $ 1.5 $ 0.4 $ 0.1
</TABLE>

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

<TABLE>
<CAPTION>
EQUITY
FOR THE YEAR ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- ------
<S> <C> <C> <C>
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 appreciation on other investments of $11.1 million in 1997, and
$2.2 million in 1996.

F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- ------
<S> <C> <C> <C>
Net appreciation, beginning of year......................... $ 20.4 $ 3.4 $ 23.8
Net (depreciation) appreciation on available-for-sale
securities................................................. (20.8) 6.7 (14.1)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 9.0 -- 9.0
Benefit (provision) for deferred federal income taxes....... 4.1 (2.3) 1.8
---------- ----- ------
(7.7) 4.4 (3.3)
---------- ----- ------
Net appreciation, end of year............................... $ 12.7 $ 7.8 $ 20.5
---------- ----- ------
---------- ----- ------
</TABLE>

(1) Includes net appreciation on other investments of $11.1 million in 1997, and
$2.2 million in 1996.

B. MORTGAGE LOANS AND REAL ESTATE

AFLIAC's mortgage loans and real estate are diversified by property type and
location. Real estate investments have been obtained primarily 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 real estate investments net of
applicable reserves were as follows:

<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Mortgage loans.............................................. $228.2 $221.6
Real estate:
Held for sale............................................. 12.0 26.1
Held for production of income............................. -- --
---------- ------
Total real estate....................................... $ 12.0 $ 26.1
---------- ------
Total mortgage loans and real estate........................ $240.2 $247.7
---------- ------
---------- ------
</TABLE>

Reserves for mortgage loans were $9.4 million and $9.5 million at December 31,
1997 and 1996, respectively.

During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. As a result, real estate assets with a carrying
amount of $15.7 million were written down to the estimated fair value less cost
to sell of $12.0 million, and a net realized investment loss of $3.7 million was
recognized. Depreciation is not recorded on these assets while they are held for
disposal.

There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1997. During 1996, non-cash investing
activities included real estate acquired through foreclosure of mortgage loans,
which had a fair value of $0.9 million.

At December 31, 1997, contractual commitments to extend credit under commercial
mortgage loan agreements amounted to approximately $18.7 million. These
commitments generally expire within one year.

F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Property type:
Office building........................................... $101.7 $ 86.1
Residential............................................... 19.3 39.0
Retail.................................................... 42.2 55.9
Industrial/warehouse...................................... 61.9 52.6
Other..................................................... 24.5 25.3
Valuation allowances...................................... (9.4) (11.2)
---------- ------
Total....................................................... $240.2 $247.7
---------- ------
---------- ------
Geographic region:
South Atlantic............................................ $ 68.7 $ 72.9
Pacific................................................... 56.6 37.0
East North Central........................................ 61.4 58.3
Middle Atlantic........................................... 29.8 35.0
West South Central........................................ 6.9 5.7
New England............................................... 12.4 21.9
Other..................................................... 13.8 28.1
Valuation allowances...................................... (9.4) (11.2)
---------- ------
Total....................................................... $240.2 $247.7
---------- ------
---------- ------
</TABLE>

At December 31, 1997, scheduled mortgage loan maturities were as follows: 1998
- -- $52.0 million; 1999 -- $17.1 million; 2000 -- $46.3 million; 2001 -- $7.0
million; 2002 -- $11.7 million; and $94.1 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 1997, the Company did not refinance any mortgage loans based
on terms which differed from those granted to new borrowers.

C. INVESTMENT VALUATION ALLOWANCES

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

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 ADDITIONS DEDUCTIONS DECEMBER 31
- ------------------------------------------------------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
----- --- --- -----
----- --- --- -----

1996
Mortgage loans.............................................. $ 12.5 $ 4.5 $ 7.5 $ 9.5
Real estate................................................. 2.1 -- 0.4 1.7
----- --- --- -----
Total................................................... $ 14.6 $ 4.5 $ 7.9 $ 11.2
----- --- --- -----
----- --- --- -----
</TABLE>

F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Deductions of $5.4 million to the investment valuation allowance related to real
estate in 1997 primarily reflect writedowns to the estimated fair value less
cost to sell pursuant to the aforementioned 1997 plan of disposal.

The carrying value of impaired loans was $20.6 million and $21.5 million, with
related reserves of $7.1 million and $7.3 million as of December 31, 1997 and
1996, respectively. All impaired loans were reserved as of December 31, 1997 and
1996.

The average carrying value of impaired loans was $19.8 million and $26.3
million, with related interest income while such loans were impaired of $2.2
million and $3.4 million as of December 31, 1997 and 1996, respectively.

D. OTHER

At December 31, 1997, 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 YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Fixed maturities............................................ $130.0 $137.2
Mortgage loans.............................................. 20.4 22.0
Equity securities........................................... 1.3 0.7
Policy loans................................................ 10.8 10.2
Real estate................................................. 3.9 6.2
Other long-term investments................................. 1.0 0.8
Short-term investments...................................... 1.4 1.4
---------- ------
Gross investment income..................................... 168.8 178.5
Less investment expenses.................................... (4.6) (6.8)
---------- ------
Net investment income....................................... $164.2 $171.7
---------- ------
---------- ------
</TABLE>

At December 31, 1997, mortgage loans on non-accrual status were $2.8 million,
which were all restructured loans. There were no fixed maturities on non-accrual
status at December 31, 1997. The effect of non-accruals, compared with amounts
that would have been recognized in accordance with the original terms of the
investment, had no impact in 1997, and reduced net income by $0.1 million in
1996.

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 $21.1 million and $25.4 million at December 31, 1997 and 1996,
respectively. Interest income on restructured mortgage loans that would have
been recorded in accordance with the original terms of such loans amounted to
$1.9 million and $3.6 million in 1997 and 1996, respectively. Actual interest
income on these loans included in net investment income aggregated $2.1 million
and $2.2 million in 1997 and 1996, respectively.

There were no fixed maturities or mortgage loans which were non-income producing
for the twelve months ended December 31, 1997.

F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

B. REALIZED INVESTMENT GAINS AND LOSSES

Realized gains (losses) on investments were as follows:

5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS

SFAS 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

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.

F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

REINSURANCE RECEIVABLES

The carrying amount of the reinsurance receivable for outstanding claims, losses
and loss adjustment expenses reported in the balance sheet approximates fair
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.

INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)

Fair values for the Company's liabilities under investment type contracts are
estimated based on current surrender values.

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

<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 31.1 $ 31.1 $ 18.8 $ 18.8
Fixed maturities.......................................... 1,402.5 1,402.5 1,698.0 1,698.0
Equity securities......................................... 54.0 54.0 41.5 41.5
Mortgage loans............................................ 228.2 239.8 221.6 229.3
Policy loans.............................................. 140.1 140.1 131.7 131.7
Reinsurance receivables................................... 251.1 251.1 72.5 72.5
--------- --------- --------- ---------
$2,107.0 $2,118.6 $2,184.1 $2,191.8
--------- --------- --------- ---------
--------- --------- --------- ---------
FINANCIAL LIABILITIES
Individual annuity contracts.............................. 876.0 850.6 910.2 885.9
Supplemental contracts without life contingencies......... 15.3 15.3 15.9 15.9
Other individual contract deposit funds................... 0.3 0.3 0.3 0.3
--------- --------- --------- ---------
$ 891.6 $ 866.2 $ 926.4 $ 902.1
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

6. DEBT

In 1997 the Company incurred no debt. During 1996, the Company utilized
repurchase agreements to finance certain investments.

Interest expense was $3.4 million in 1996, relating to the repurchase
agreements, and is recorded in other operating expenses.

F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. FEDERAL INCOME TAXES

Provisions for federal income taxes have been calculated in accordance with the
provisions of SFAS No. 109. A summary of the federal income tax expense
(benefit) in the statement of income is shown below:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- ------
<S> <C> <C>
Federal income tax expense (benefit)
Current................................................... $ 13.9 $ 26.9
Deferred.................................................. 7.1 (9.8)
----- -----
Total....................................................... $ 21.0 $ 17.1
----- -----
----- -----
</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
tax (assets) liabilities are comprised of the following at December 31, 1997:

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Deferred tax (assets) liabilitie
Loss reserves............................................. $(175.8) $(137.0)
Deferred acquisition costs................................ 226.4 186.9
Investments, net.......................................... 27.0 14.2
Bad debt reserve.......................................... (2.0) (1.1)
Other, net................................................ 0.3 (2.8)
---------- -------------
Deferred tax liability, net............................... $ 75.9 $ 60.2
---------- -------------
---------- -------------
</TABLE>

Gross deferred income tax liabilities totaled $253.7 million and $201.1 million
at December 31, 1997 and 1996. Gross deferred income tax assets totaled $177.8
million and $140.9 at December 31, 1997 and 1996.

Management believes, based on the Company's 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, management 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 IRS, and
provisions are routinely made in the financial statements in anticipation of the
results of these audits. The IRS has examined the life-nonlife consolidated
group's federal income tax returns through 1991. The Company is currently
considering its response to certain adjustments proposed by the IRS with respect
to the life-nonlife consolidated group's federal income tax returns for 1989,
1990, and 1991. In management's opinion, adequate tax liabilities have 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.

8. 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 $124.1 million and $112.4 million in 1997 and 1996. The
net amounts payable to FAFLIC and affiliates for accrued expenses and various
other liabilities and receivables were $15.0 million and $13.3 million at
December 31, 1997 and 1996.

F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. 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.

At January 1, 1998, AFLIAC could pay dividends of $33.9 million to FAFLIC
without prior approval.

10. 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 SFAS No. 113.

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 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.

The effects of reinsurance were as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Insurance premiums:
Direct.................................................... $ 48.8 $ 53.3
Assumed................................................... 2.6 3.1
Ceded..................................................... (28.6) (23.7)
---------- ------
Net premiums................................................ $ 22.8 $ 32.7
---------- ------
---------- ------
Insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
Direct.................................................... $226.0 $206.4
Assumed................................................... 4.2 4.5
Ceded..................................................... (42.4) (18.3)
---------- ------
Net policy benefits, claims, losses and loss adjustment
expenses................................................... $187.8 $192.6
---------- ------
---------- ------
</TABLE>

F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. DEFERRED POLICY ACQUISITION EXPENSES

The following reflects the changes to the deferred policy acquisition asset:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Balance at beginning of year................................ $632.7 $555.7
Acquisition expenses deferred............................. 184.1 116.6
Amortized to expense during the year...................... (53.0) (49.9)
Adjustment to equity during the year...................... (10.2) 10.3
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...................................... $765.3 $632.7
---------- ------
---------- ------
</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.

12. LIABILITIES FOR INDIVIDUAL ACCIDENT AND HEALTH BENEFITS

The Company regularly updates its estimates of liabilities for future policy
benefits and outstanding claims, losses and loss adjustment expenses as new
information becomes available and further events occur which may impact the
resolution of unsettled claims. Changes in prior estimates are reflected in
results of operations in the year such changes are determined to be needed and
recorded.

The liability for future policy benefits and outstanding claims, losses and loss
adjustment expenses related to the Company's accident and health business was
$219.9 million and $226.2 million at December 31, 1997 and 1996. Accident and
health claim liabilities have been re-estimated for all prior years and were
increased by $-0- million in 1997 and $3.2 million in 1996. Due to the
reinsurance agreement whereby the Company has ceded substantially all of its
accident and health business to the Metropolitan, management 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 are revised.

13. 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 was instituted in Louisiana against Allmerica Financial
Corp. and certain of its subsidiaries 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 refiled the action in Federal
District Court in Worcester, Massachusetts. The plaintiffs

F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

seek to be certified as a class. The case is in the early stages of discovery
and the Company is evaluating the claims. Although the Company believes it has
meritorious defenses to plaintiffs' claims, there can be no assurance that the
claims will be resolved on a basis which is satisfactory to the Company.

The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the opinion of management, based on the advice
of legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's 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 is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
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. Although the Company does not
believe that there is a material contingency associated with the Year 2000
project, there can be no assurance that exposure for material contingencies will
not arise.

14. 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 for
stock life insurance companies 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. Statutory net income and
surplus are as follows:

<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Statutory net income........................................ $ 31.5 $ 5.4
Statutory Surplus........................................... $307.1 $234.0
---------- ------
---------- ------
</TABLE>

F-19
<PAGE>
FULCRUM VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
(UNAUDITED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERNATIONAL GLOBAL GLOBAL
VALUE GROWTH GROWTH STRATEGIC INCOME INTERACTIVE/TELECOMM
------------ ------------ ------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment
Trust..................................... $ -- $ -- $ -- $ -- $ --
Investments in shares of The Palladian
Trust..................................... -- -- -- -- --
------------ ------------ ------------- ---------------- --------------------
Total assets.............................. -- -- -- -- --

LIABILITIES: -- -- -- -- --
------------ ------------ ------------- ---------------- --------------------
Net assets................................ $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------- ---------------- --------------------
------------ ------------ ------------- ---------------- --------------------

<CAPTION>
AIT
MONEY MARKET
------------
<S> <C>
ASSETS:
Investment in shares of Allmerica Investment
Trust..................................... $ --
Investments in shares of The Palladian
Trust..................................... --
------------
Total assets.............................. --
LIABILITIES: --
------------
Net assets................................ $ --
------------
------------
</TABLE>

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

SA-1
<PAGE>
FULCRUM VARIABLE LIFE SEPARATE ACCOUNT

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 -- ORGANIZATION

The Fulcrum Variable Life Separate Account (the Variable Account) is a
separate investment account of Allmerica Financial Life Insurance and Annuity
Company (the Company), established on August 26, 1997 for the purpose of
separating from the general assets of the Company those assets used to fund
certain modified single payment variable life insurance 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 Variable Account are clearly identified
and distinguished from the other assets and liabilities of the Company. The
Variable Account cannot be charged with liabilities arising out of any other
business of the Company.

The Variable Account is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). The Variable Account
currently offers six Sub-Accounts under the Fulcrum Fund Next Generation
variable life contracts. Each Sub-Account invests exclusively in one of five
investment portfolios of The Palladian Trust managed by Palladian Advisors,
Inc., or in the Money Market Fund of the Allmerica Investment Trust (AIT)
managed by Allmerica Investment Management Company, Inc., a wholly-owned
subsidiary of First Allmerica. The Palladian Trust and AIT (the Funds) are
open-end management investment companies registered under the 1940 Act.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

INVESTMENTS -- Security transactions are recorded on the trade date.
Investments held by the Sub-Accounts are stated at the net asset value per share
of the respective investment portfolio of The Palladian Trust or AIT. Net
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 Palladian Trust or AIT 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 Variable
Account. Therefore, no provision for income taxes has been charged against the
Variable Account.

NOTE 3 -- INVESTMENTS

There were no investment purchases or sales for the period ended December 31,
1997.

NOTE 4 -- RELATED PARTY TRANSACTIONS

The Company makes a charge of 0.90% per annum based on the average daily net
assets of each Sub-Account at each valuation date for mortality and expense
risks. This charge is deducted from the daily value of each Sub-Account and is
paid to the Company on a daily basis.

The following charges are deducted monthly from each contract's contract
value: a $2.50 monthly maintenance fee from contracts with a contract value of
less than $50,000; 0.40% on an annual basis for administrative expenses; 0.20%
to 2.50% on an annual basis for cost of insurance charges; for the first ten
contract years, 0.30% on an annual basis for distribution expenses and 0.40% on
an annual basis for federal,

SA-2
<PAGE>
FULCRUM VARIABLE LIFE SEPARATE ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 4 -- RELATED PARTY TRANSACTIONS (CONTINUED)

state and local taxes. For the period ended December 31, 1997, there were no
charges deducted from contract values in the Variable Account.

Allmerica Investments, Inc. (Allmerica Investments), a wholly-owned
subsidiary of First Allmerica, is principal underwriter and general distributor
of the Variable Account, and does not receive any compensation for sales of the
contracts. Commissions are paid to registered representatives of Allmerica
Investments by the Company. As the current series of contracts have a contingent
deferred sales charge, no deduction is made for sales charges at the time of the
sale.

NOTE 5 -- DIVERSIFICATION REQUIREMENTS

Under the provisions of Section 817(h) of the Code, a variable contract,
other than a contract issued in connection with certain types of employee
benefit life plans, will not be treated as a life insurance 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 Variable Account satisfies the current
requirements of the regulations, and it intends that the Variable Account will
continue to meet such requirements.

NOTE 6 -- SUBSEQUENT EVENTS

Effective February 12, 1998, Allmerica Investment Management Company, Inc.
(AIMCO) assumed the function of Manager for The Palladian Trust (Trust),
replacing Palladian Advisors, Inc. (PAI). AIMCO's advisory agreement will remain
in effect past June 11, 1998, only if approved by shareholders of the Trust.
AIMCO is an indirect, wholly-owned subsidiary of AFC.

PAI had agreed to limit operating expenses and reimburse those expenses to
the extent that each Portfolio's "other expenses" (i.e., expenses other than
management fees) exceeded certain expense limitations. In January of 1998, PAI
advised the Board of Trustees of the Trust that it did not have sufficient
assets to make the required payment under the expense limitation. On January 28,
1998, a group (consisting of Allmerica Financial Life Insurance and Annuity
Company and certain principals of PAI and entities selling the variable
contracts) offered to make payment of the full amount due under the expense
limitation. The Board of Trustees accepted the offer, and the Trust has been
fully reimbursed for amounts owed under the 1997 expense limitation agreement.
The expense limitations in effect for 1998 have been modified with respect to
certain portfolios of the Trust and these payments are to be made by AIMCO.

SA-3
<PAGE>
APPENDIX A
GUIDELINE MINIMUM SUM INSURED TABLE

The guideline minimum sum insured is a percentage of the Contract Value as set
forth below, according to federal tax regulations:

GUIDELINE MINIMUM SUM INSURED

<TABLE>
<CAPTION>
AGE OF INSURED PERCENTAGE OF
ON DATE OF DEATH CONTRACT VALUE
- ------------------------------------------------------------------- ---------------
<S> <C>
40 and under....................................................... 250%
45................................................................. 215%
50................................................................. 185%
55................................................................. 150%
60................................................................. 130%
65................................................................. 120%
70................................................................. 115%
75................................................................. 105%
80................................................................. 105%
85................................................................. 105%
90................................................................. 105%
95 and above....................................................... 100%
</TABLE>

For the ages not listed, the progression between the listed ages is linear.

A-1
<PAGE>
APPENDIX B
OPTIONAL INSURANCE BENEFITS

This Appendix provides only a summary of other insurance benefits available by
rider. For more information, contact your representative.

OPTION TO ACCELERATE BENEFITS ENDORSEMENT (MAY NOT BE AVAILABLE IN ALL STATES)

This endorsement allows part of the Contract proceeds to be available before
death if the Insured becomes terminally ill or is permanently confined to a
nursing home.

B-1
<PAGE>
APPENDIX C
PAYMENT OPTIONS

PAYMENT OPTIONS -- On Written Request, the Surrender Value or all or part of any
payable Net Death Benefit may be paid under one or more payment options then
offered by Allmerica Financial. If you do not make an election, we will pay the
benefits in a single sum. If a payment option is selected, the B eneficiary may
pay to us any amount that would otherwise be deducted from the Death Benefit. A
certificate will be provided to the payee describing the payment option
selected.

The amounts payable under a payment option are paid from the General Account.
These amounts are not based on the investment experience of the Variable
Account. The amounts payable under these options, for each $1,000 applied, will
be:

(a) the rate per $1,000 of benefit based on our non-guaranteed current benefit
option rates for this class of Contracts, or

(b) the rate in your Contract for the applicable benefit option, whichever is
greater.

If you choose a benefit option, the beneficiary may, when filing a proof of
claim, pay us any amount that otherwise would be deducted from the proceeds.

- OPTION A: BENEFITS FOR A SPECIFIED NUMBER OF YEARS -- We will make equal
payments for any selected number of years up to 30 years. These payments
may be made annually, semi-annually, quarterly or monthly, whichever you
choose.

- OPTION B: LIFETIME MONTHLY BENEFIT -- Benefits are based on the age of the
person who receives the money (called the payee) on the date the first
payment will be made. You may choose one of the three following options to
specify when benefits will cease:

* when the payee dies with no further benefits due (Life Annuity);

* when the payee dies but not before the total benefit payments made by us
equals the amount applied under this option (Life Annuity with
Installment Refund); or

* when the payee dies but not before 10 years have elapsed from the date
of the first payment (Life Annuity with Payments Guaranteed for 10
years).

- OPTION C: INTEREST BENEFITS -- We will pay interest at a rate we determine
each year. It will not be less than 3% per year. We will make payments
annually, semi-annually, quarterly, or monthly, whichever is preferred.
These benefits will stop when the amount left has been withdrawn. If the
payee dies, any unpaid balance plus accrued interest will be paid in a
lump sum.

- OPTION D: BENEFITS FOR A SPECIFIED AMOUNT -- Interest will be credited to
the unpaid balance and we will make payments until the unpaid balance is
gone. We will credit interest at a rate we determine each year, but not
less than 3%. We will make payments annually, semi-annually, quarterly, or
monthly, whichever is preferred. The benefit level chosen must provide for
an annual benefit of at least 8% of the amount applied.

- OPTION E: LIFETIME MONTHLY BENEFITS FOR TWO PAYEES -- We will pay a
benefit jointly to two payees during their joint lifetime. After one payee
dies, the benefits to the survivor will be:

* the same as the original amount, or

* in an amount equal to b of the original amount.

C-1
<PAGE>
Benefits are based on the payees' ages on the date the first payment is due.
Benefits will end when the second payee dies.

SELECTION OF PAYMENT OPTIONS -- The amount applied under any one option for any
one payee must be at least $5,000. The periodic payment for any one payee must
be at least $50. Subject to the Contract Owner and Beneficiary provisions, any
option selection may be changed before the Net Death Benefit become payable. If
you make no selection, the beneficiary may select an option when the Net Death
Benefit becomes payable.

If the amount of the monthly benefit under Option B for the age of the payee is
the same for different periods certain, the payee will be entitled to the
longest period certain for the payee's age.

You may give the beneficiary the right to change from Option C or D to any other
option at any time. If Option C or D is chosen by the payee when this Contract
becomes a claim, the payee may reserve the right to change to any other option.
The payee who elects to change options must be the payee under the option
selected.

ADDITIONAL DEPOSITS -- An additional deposit may be added to any proceeds when
they are applied under Option B and E. We reserve the right to limit the amount
of any additional deposit. We may levy a charge of no more than 3% on any
additional deposits.

RIGHTS AND LIMITATIONS -- A payee has no right to assign any amount payable
under any option, nor to demand a lump sum benefit in place of any amount
payable under Options B or E. A payee will have the right to receive a lump sum
in place of installments under Option A. The payee must provide us with a
Written Request to reserve this right. If the right to receive a lump sum is
exercised, we will determine the lump sum benefit at the same interest rates
used to calculate the installments. The amount left under Option C and any
unpaid balance under Option D, may be withdrawn only as noted in the Written
Request selecting the option.

A corporate or fiduciary payee may select only Option A, C or D, subject to our
approval.

PAYMENT DATES -- The first payment under any option, except Option C, will be
due on the date this Contract matures, by death or otherwise, unless another
date is designated. Benefits under Option C begin at the end of the first
benefit period.

The last payment under any option will be made as stated in the option's
description. However, if a payee under Options B or E dies before the due date
of the second monthly payment, the amount applied, minus the first monthly
payment, will be paid in a lump sum or under any option other than Option E.
This payment will be made to the surviving payee under Option E or the
succeeding payee under Option B.

BENEFIT RATES -- The Benefit Option Tables in your Contract show benefit amounts
for Option A, B and E. If you choose one of these options, either within five
years of the date of surrender or the date the proceeds are otherwise payable,
we will apply either the benefit rates listed in the Tables, or the rates we use
on the date the proceeds are paid, whichever is more favorable. Benefits that
begin more than five years after that date, or as a result of additional
deposits, will be based on the rates we use on the date the first benefit is
due.

C-2
<PAGE>
APPENDIX D
ILLUSTRATIONS OF DEATH BENEFIT,
CONTRACT VALUES AND ACCUMULATED PAYMENTS

The following tables illustrate the way in which a Contract's Death Benefit and
Contract Value could vary over an extended period.

ASSUMPTIONS

The tables illustrate the following Contracts: a Contract issued to a male, age
55, qualifying for the non-tobacco user discount; a Contract issued on a unisex
basis to an Insured Age 55, qualifying for the non-tobacco user discount; a
second-to-die Contract issued to a male, age 65, qualifying for the non-tobacco
user discount and a female, age 65, qualifying for the non-tobacco user
discount; and a second-to-die Contract issued on a unisex basis to two Insureds,
both age 65, qualifying for the non-tobacco user discount. The tables illustrate
the guaranteed insurance protection rates and the current insurance protection
rates as presently in effect. ON REQUEST, WE WILL PROVIDE A COMPARABLE
ILLUSTRATION BASED ON THE PROPOSED INSURED'S AGE, SEX, AND UNDERWRITING CLASS,
AND A SPECIFIED PAYMENT.

Contract Values are based on the assumptions that no Contract loans have been
made, that no partial withdrawals have been made, and that no more than 12
transfers have been made in any Contract year (so that no transaction or
transfer charges have been incurred).

The tables assume that the initial payment is allocated to and remains in the
Variable Account for the entire period shown. They are based on hypothetical
gross investment rates of return for the fund (i.e., investment income and
capital gains and losses, realized or unrealized) equal to constant Gross Annual
Rates of 0%, 6%, and 12%. The second column of the tables show the amount that
would accumulate if the initial Payment was invested to earn interest, at 5%
compounded annually.

The Contract Values and Death Benefit would be different from those shown even
if the gross annual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below the averages for individual
Contract years. The values would also be different depending on the allocation
of the Contract's total Contract Value among the Sub-Accounts, if the rates of
return averaged 0%, 6% or 12%, but the rates of each fund varied above and below
the averages.

DEDUCTIONS FOR CHARGES

The amounts shown for the Death Benefit and Contract Values take into account
the daily deduction of the mortality and expense risk charge and the deduction
from Contract Value for the Monthly Deductions. The amounts shown in the tables
also take into account underlying Fund advisory fees and operating expenses,
based on the assumptions described below. The amounts shown in the tables also
take into account the underlying Fund advisory fees and operating expenses. In
1997, the total fund expenses of the underlying funds (in the case of the
Portfolios, as restated to reflect certain voluntary expense limitations,
described below) ranged from 0.35% to 1.78%. For the purposes of the following
illustrations the total fund expenses are assumed to be 1.30% of the average
daily net assets of the underlying Funds. The fees and expenses associated with
your Contract may be more or less than 1.30% in the aggregate, depending upon
how you make allocations of Contract Value among the Sub-Accounts.

MONEY MARKET FUND OF ALLMERICA INVESTMENT TRUST. The advisory fee for the Money
Market Fund of Allmerica Investment Trust does not vary by performance, and in
1997 was 0.27%. Total Fund Expenses for the Money Market Fund in 1997 were
0.35%. 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 1997. The
limitation may be terminated at any time.

D-1
<PAGE>
PORTFOLIOS OF THE PALLADIAN-SM- TRUST. Each of the Portfolios of The
Palladian-SM- Trust pays a monthly Management Fee, which varies based on a
comparison of the Portfolio's performance (after the deduction of all Portfolio
expenses, including the Management Fee) to the performance of a specific
Benchmark Index. The total Management Fee may vary between 0.00% to 4.00%. A fee
of 4.00% would be paid only if a Portfolio's performance (net of all fees and
expenses, including the advisory fee of 4. 00%) was at least 7.5 percentage
points better than the Benchmark Index. No fee will apply if the Portfolio's
performance (net of all Portfolio expenses, including the Management Fee) is
more than 3.0 percentage points lower then the Benchmark Index. In 1997, the
actual management fees were 0.14% for the Value Portfolio, 0.20% for the Growth
Portfolio, 0.58% for the International Growth Portfolio, 0.41% for the Global
Strategic Income Portfolio, and 0.27% for the and Global Interactive/Telecomm
Portfolio. For more information, see attached prospectus for The Palladian-SM-
Trust.

AFIMS has 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: 1.00% for the Value
Portfolio, 1.00% for the Growth Portfolio, 1.20% for the International Growth
Portfolio, 1.20% for the Global Strategic Income Portfolio, and 1.20% for the
Global Interactive/Telecomm Portfolio. Without the effect of expense
limitations, total fund expenses would have been 4.75% for the Value Portfolio,
6.12% for the Growth Portfolio, 7.11%% for the International Growth Portfolio,
6.68% for the Global Strategic Income Portfolio, and 7.26% for the Global
Interactive/Telecomm Portfolio. The limitations are in effect through December
31, 1998.

NET ANNUAL RATES OF INVESTMENT

Applying the mortality and expense risk charge of 0.90% and the average of total
fund expenses of 1.30%, the Gross Annual Return of 0%, 6% and 12% would produce
net annual rates of -2.20, 3.80% and 9.20%, respectively.

The hypothetical returns shown in the table do not reflect any charges for
income taxes against the Variable Account since no charges are currently made.
However, if in the future the charges are made, in order to produce the
illustrated Death Benefits and Contract Value, the gross annual investment rate
of return would have to exceed 0%, 6% or 12% by an amount sufficient to cover
the tax charges.

D-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THE FULCRUM FUND-SM- NEXT GENERATION
MODIFIED SINGLE PAYMENT VARIABLE LIFE CONTRACT

MALE NONSMOKER AGE 55

SPECIFIED FACE AMOUNT = $67,803

CURRENT COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST ----------------------------------- ----------------------------------- ---------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,532 24,032 67,803 23,008 25,508 67,803 24,483 26,983 67,803
2 27,563 20,789 23,101 67,803 23,714 26,026 67,803 26,813 29,125 67,803
3 28,941 20,080 22,205 67,803 24,431 26,556 67,803 29,316 31,441 67,803
4 30,388 19,405 21,342 67,803 25,159 27,097 67,803 32,005 33,942 67,803
5 31,907 18,762 20,512 67,803 25,900 27,650 67,803 34,896 36,646 67,803

6 33,502 18,150 19,712 67,803 26,652 28,214 67,803 38,004 39,567 67,803
7 35,178 17,756 18,943 67,803 27,603 28,791 67,803 41,536 42,723 67,803
8 36,936 17,390 18,203 67,803 28,568 29,380 67,803 45,321 46,134 67,803
9 38,783 17,115 17,490 67,803 29,607 29,982 67,803 49,444 49,819 67,803
10 40,722 16,805 16,805 67,803 30,597 30,597 67,803 53,830 53,830 67,803

11 42,758 16,258 16,258 67,803 31,444 31,444 67,803 58,591 58,591 70,309
12 44,896 15,729 15,729 67,803 32,316 32,316 67,803 63,774 63,774 75,891
13 47,141 15,215 15,215 67,803 33,213 33,213 67,803 69,400 69,400 81,892
14 49,498 14,718 14,718 67,803 34,136 34,136 67,803 75,519 75,519 88,357
15 51,973 14,235 14,235 67,803 35,085 35,085 67,803 82,176 82,176 95,325

16 54,572 13,768 13,768 67,803 36,062 36,062 67,803 89,421 89,421 102,834
17 57,300 13,315 13,315 67,803 37,066 37,066 67,803 97,304 97,304 109,954
18 60,165 12,876 12,876 67,803 38,099 38,099 67,803 105,883 105,883 117,530
19 63,174 12,450 12,450 67,803 39,162 39,162 67,803 115,260 115,260 125,633
20 66,332 12,038 12,038 67,803 40,256 40,256 67,803 125,544 125,544 134,332

Age 60 31,907 18,762 20,512 67,803 25,900 27,650 67,803 34,896 36,646 67,803
Age 65 40,722 16,805 16,805 67,803 30,597 30,597 67,803 53,830 53,830 67,803
Age 70 51,973 14,235 14,235 67,803 35,085 35,085 67,803 82,176 82,176 95,325
Age 75 66,332 12,038 12,038 67,803 40,256 40,256 67,803 125,544 125,544 134,332
</TABLE>

THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
FUNDS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED OVER ANY PERIOD.

D-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THE FULCRUM FUND-SM- NEXT GENERATION
MODIFIED SINGLE PAYMENT VARIABLE LIFE CONTRACT

MALE NONSMOKER AGE 55

SPECIFIED FACE AMOUNT = $67,803

GUARANTEED COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST ----------------------------------- ----------------------------------- ---------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,305 23,805 67,803 22,782 25,282 67,803 24,259 26,759 67,803
2 27,563 20,290 22,603 67,803 23,225 25,537 67,803 26,337 28,649 67,803
3 28,941 19,261 21,386 67,803 23,635 25,760 67,803 28,557 30,682 67,803
4 30,388 18,215 20,152 67,803 24,013 25,951 67,803 30,938 32,875 67,803
5 31,907 17,139 18,889 67,803 24,347 26,097 67,803 33,490 35,240 67,803

6 33,502 16,030 17,593 67,803 24,636 26,198 67,803 36,238 37,800 67,803
7 35,178 15,063 16,250 67,803 25,054 26,242 67,803 39,386 40,574 67,803
8 36,936 14,039 14,851 67,803 25,409 26,221 67,803 42,775 43,588 67,803
9 38,783 13,006 13,381 67,803 25,748 26,123 67,803 46,497 46,872 67,803
10 40,722 11,814 11,814 67,803 25,928 25,928 67,803 50,461 50,461 67,803

11 42,758 10,223 10,223 67,803 25,817 25,817 67,803 54,821 54,821 67,803
12 44,896 8,498 8,498 67,803 25,595 25,595 67,803 59,652 59,652 70,986
13 47,141 6,617 6,617 67,803 25,245 25,245 67,803 64,915 64,915 76,599
14 49,498 4,556 4,556 67,803 24,746 24,746 67,803 70,626 70,626 82,633
15 51,973 2,285 2,285 67,803 24,074 24,074 67,803 76,825 76,825 89,117

16 54,572 0 0 0 23,191 23,191 67,803 83,551 83,551 96,084
17 57,300 0 0 0 22,048 22,048 67,803 90,884 90,884 102,698
18 60,165 0 0 0 20,591 20,591 67,803 98,890 98,890 109,768
19 63,174 0 0 0 18,738 18,738 67,803 107,648 107,648 117,336
20 66,332 0 0 0 16,407 16,407 67,803 117,253 117,253 125,461

Age 60 31,907 17,139 18,889 67,803 24,347 26,097 67,803 33,490 35,240 67,803
Age 65 40,722 11,814 11,814 67,803 25,928 25,928 67,803 50,461 50,461 67,803
Age 70 51,973 2,285 2,285 67,803 24,074 24,074 67,803 76,825 76,825 89,117
Age 75 66,332 0 0 0 16,407 16,407 67,803 117,253 117,253 125,461
</TABLE>

D-4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THE FULCRUM FUND-SM- NEXT GENERATION
MODIFIED SINGLE PAYMENT VARIABLE LIFE CONTRACT

UNISEX NONSMOKER AGE 55

SPECIFIED FACE AMOUNT = $69,861

CURRENT COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PREMIUMS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ----------------------------------- ----------------------------------- ---------------------------------
POLICY INTEREST AT SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR 5% PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,532 24,032 69,861 23,008 25,508 69,861 24,483 26,983 69,861
2 27,563 20,789 23,101 69,861 23,714 26,026 69,861 26,813 29,125 69,861
3 28,941 20,080 22,205 69,861 24,431 26,556 69,861 29,316 31,441 69,861
4 30,388 19,405 21,342 69,861 25,159 27,097 69,861 32,005 33,942 69,861
5 31,907 18,762 20,512 69,861 25,900 27,650 69,861 34,896 36,646 69,861

6 33,502 18,150 19,712 69,861 26,652 28,214 69,861 38,004 39,567 69,861
7 35,178 17,756 18,943 69,861 27,603 28,791 69,861 41,536 42,723 69,861
8 36,936 17,390 18,203 69,861 28,568 29,380 69,861 45,321 46,134 69,861
9 38,783 17,115 17,490 69,861 29,607 29,982 69,861 49,444 49,819 69,861
10 40,722 16,805 16,805 69,861 30,597 30,597 69,861 53,830 53,830 69,861

11 42,758 16,258 16,258 69,861 31,444 31,444 69,861 58,587 58,587 70,305
12 44,896 15,729 15,729 69,861 32,316 32,316 69,861 63,793 63,793 75,914
13 47,141 15,215 15,215 69,861 33,213 33,213 69,861 69,448 69,448 81,949
14 49,498 14,718 14,718 69,861 34,136 34,136 69,861 75,591 75,591 88,441
15 51,973 14,235 14,235 69,861 35,085 35,085 69,861 82,262 82,262 95,424

16 54,572 13,768 13,768 69,861 36,062 36,062 69,861 89,514 89,514 102,941
17 57,300 13,315 13,315 69,861 37,066 37,066 69,861 97,412 97,412 110,076
18 60,165 12,876 12,876 69,861 38,099 38,099 69,861 106,041 106,041 117,705
19 63,174 12,450 12,450 69,861 39,162 39,162 69,861 115,479 115,479 125,872
20 66,332 12,038 12,038 69,861 40,256 40,256 69,861 125,827 125,827 134,635

Age 60 31,907 18,762 20,512 69,861 25,900 27,650 69,861 34,896 36,646 69,861
Age 65 40,722 16,805 16,805 69,861 30,597 30,597 69,861 53,830 53,830 69,861
Age 70 51,973 14,235 14,235 69,861 35,085 35,085 69,861 82,262 82,262 95,424
Age 75 66,332 12,038 12,038 69,861 40,256 40,256 69,861 125,827 125,827 134,635
</TABLE>

D-5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THE FULCRUM FUND-SM- NEXT GENERATION
MODIFIED SINGLE PAYMENT VARIABLE LIFE CONTRACT

UNISEX NONSMOKER AGE 55

SPECIFIED FACE AMOUNT = $69,861

GUARANTEED COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PREMIUMS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PAID PLUS ----------------------------------- ----------------------------------- ---------------------------------
POLICY INTEREST AT SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR 5% PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,304 23,804 69,861 22,781 25,281 69,861 24,258 26,758 69,861
2 27,563 20,288 22,600 69,861 23,221 25,534 69,861 26,332 28,645 69,861
3 28,941 19,267 21,392 69,861 23,638 25,763 69,861 28,556 30,681 69,861
4 30,388 18,227 20,165 69,861 24,020 25,958 69,861 30,937 32,875 69,861
5 31,907 17,168 18,918 69,861 24,366 26,116 69,861 33,495 35,245 69,861

6 33,502 16,081 17,644 69,861 24,671 26,233 69,861 36,248 37,810 69,861
7 35,178 15,139 16,326 69,861 25,108 26,296 69,861 39,401 40,588 69,861
8 36,936 14,145 14,958 69,861 25,484 26,296 69,861 42,791 43,604 69,861
9 38,783 13,146 13,521 69,861 25,847 26,222 69,861 46,510 46,885 69,861
10 40,722 11,999 11,999 69,861 26,059 26,059 69,861 50,467 50,467 69,861

11 42,758 10,459 10,459 69,861 25,984 25,984 69,861 54,810 54,810 69,861
12 44,896 8,799 8,799 69,861 25,806 25,806 69,861 59,628 59,628 70,958
13 47,141 6,996 6,996 69,861 25,509 25,509 69,861 64,914 64,914 76,598
14 49,498 5,034 5,034 69,861 25,079 25,079 69,861 70,656 70,656 82,667
15 51,973 2,879 2,879 69,861 24,488 24,488 69,861 76,891 76,891 89,194

16 54,572 479 479 69,861 23,693 23,693 69,861 83,659 83,659 96,208
17 57,300 0 0 0 22,663 22,663 69,861 91,041 91,041 102,876
18 60,165 0 0 0 21,355 21,355 69,861 99,105 99,105 110,006
19 63,174 0 0 0 19,693 19,693 69,861 107,926 107,926 117,639
20 66,332 0 0 0 17,599 17,599 69,861 117,597 117,597 125,829

Age 60 31,907 17,168 18,918 69,861 24,366 26,116 69,861 33,495 35,245 69,861
Age 65 40,722 11,999 11,999 69,861 26,059 26,059 69,861 50,467 50,467 69,861
Age 70 51,973 2,879 2,879 69,861 24,488 24,488 69,861 76,891 76,891 89,194
Age 75 66,332 0 0 0 17,599 17,599 69,861 117,597 117,597 125,829
</TABLE>

D-6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THE FULCRUM FUND-SM- NEXT GENERATION
MODIFIED SINGLE PAYMENT VARIABLE LIFE CONTRACT

MALE NONSMOKER AGE 65

FEMALE NONSMOKER AGE 65

SPECIFIED FACE AMOUNT = $66,006

CURRENT COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST ----------------------------------- ----------------------------------- ---------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,640 24,140 66,006 23,122 25,622 66,006 24,605 27,105 66,006
2 27,563 20,964 23,277 66,006 23,919 26,231 66,006 27,049 29,362 66,006
3 28,941 20,316 22,441 66,006 24,721 26,846 66,006 29,667 31,792 66,006
4 30,388 19,697 21,635 66,006 25,538 27,476 66,006 32,487 34,425 66,006
5 31,907 19,106 20,856 66,006 26,371 28,121 66,006 35,529 37,279 66,006

6 33,502 18,541 20,104 66,006 27,219 28,782 66,006 38,809 40,372 66,006
7 35,178 18,191 19,378 66,006 28,272 29,459 66,006 42,536 43,724 66,006
8 36,936 17,865 18,678 66,006 29,341 30,153 66,006 46,545 47,357 66,006
9 38,783 17,626 18,001 66,006 30,489 30,864 66,006 50,928 51,303 66,006
10 40,722 17,348 17,348 66,006 31,593 31,593 66,006 55,602 55,602 66,006

11 42,758 16,836 16,836 66,006 32,566 32,566 66,006 60,686 60,686 66,006
12 44,896 16,337 16,337 66,006 33,571 33,571 66,006 66,266 66,266 69,579
13 47,141 15,853 15,853 66,006 34,608 34,608 66,006 72,352 72,352 75,970
14 49,498 15,382 15,382 66,006 35,677 35,677 66,006 78,973 78,973 82,921
15 51,973 14,924 14,924 66,006 36,781 36,781 66,006 86,193 86,193 90,503

16 54,572 14,478 14,478 66,006 37,920 37,920 66,006 94,074 94,074 98,778
17 57,300 14,046 14,046 66,006 39,095 39,095 66,006 102,675 102,675 107,809
18 60,165 13,625 13,625 66,006 40,307 40,307 66,006 112,063 112,063 117,666
19 63,174 13,216 13,216 66,006 41,558 41,558 66,006 122,309 122,309 128,424
20 66,332 12,818 12,818 66,006 42,849 42,849 66,006 133,492 133,492 140,166

Age 70 31,907 19,106 20,856 66,006 26,371 28,121 66,006 35,529 37,279 66,006
Age 75 40,722 17,348 17,348 66,006 31,593 31,593 66,006 55,602 55,602 66,006
</TABLE>

D-7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THE FULCRUM FUND-SM- NEXT GENERATION
MODIFIED SINGLE PAYMENT VARIABLE LIFE CONTRACT

MALE NONSMOKER AGE 65

FEMALE NONSMOKER AGE 65

SPECIFIED FACE AMOUNT = $66,006

GUARANTEED COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
HYPOTHETICAL 12%
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% GROSS INVESTMENT
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN RETURN
INTEREST ----------------------------------- ------------------------------------- ----------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- --------- ----------- ----------- --------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,640 24,140 66,006 23,122 25,622 66,006 24,605 27,105
2 27,563 20,964 23,277 66,006 23,919 26,231 66,006 27,049 29,362
3 28,941 20,277 22,402 66,006 24,695 26,820 66,006 29,657 31,782
4 30,388 19,570 21,507 66,006 25,445 27,383 66,006 32,439 34,376
5 31,907 18,830 20,580 66,006 26,160 27,910 66,006 35,410 37,160

6 33,502 18,043 19,606 66,006 26,829 28,392 66,006 38,588 40,151
7 35,178 17,379 18,567 66,006 27,626 28,814 66,006 42,179 43,367
8 36,936 16,625 17,438 66,006 28,346 29,158 66,006 46,021 46,833
9 38,783 15,812 16,187 66,006 29,027 29,402 66,006 50,209 50,584
10 40,722 14,778 14,778 66,006 29,518 29,518 66,006 54,688 54,688

11 42,758 13,266 13,266 66,006 29,691 29,691 66,006 59,601 59,601
12 44,896 11,492 11,492 66,006 29,684 29,684 66,006 65,059 65,059
13 47,141 9,401 9,401 66,006 29,462 29,462 66,006 71,035 71,035
14 49,498 6,922 6,922 66,006 28,979 28,979 66,006 77,535 77,535
15 51,973 3,965 3,965 66,006 28,173 28,173 66,006 84,599 84,599

16 54,572 405 405 66,006 26,962 26,962 66,006 92,266 92,266
17 57,300 0 0 0 25,229 25,229 66,006 100,579 100,579
18 60,165 0 0 0 22,814 22,814 66,006 109,578 109,578
19 63,174 0 0 0 19,500 19,500 66,006 119,303 119,303
20 66,332 0 0 0 14,992 14,992 66,006 129,795 129,795

Age 70 31,907 18,830 20,580 66,006 26,160 27,910 66,006 35,410 37,160
Age 75 40,722 14,778 14,778 66,006 29,518 29,518 66,006 54,688 54,688

POLICY DEATH
YEAR BENEFIT
- --------- ---------
<S> <C>
1 66,006
2 66,006
3 66,006
4 66,006
5 66,006
6 66,006
7 66,006
8 66,006
9 66,006
10 66,006
11 66,006
12 68,312
13 74,587
14 81,412
15 88,829
16 96,879
17 105,608
18 115,057
19 125,268
20 136,285
Age 70 66,006
Age 75 66,006
</TABLE>

D-8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THE FULCRUM FUND-SM- NEXT GENERATION
MODIFIED SINGLE PAYMENT VARIABLE LIFE CONTRACT

UNISEX NONSMOKER AGE 65

SPECIFIED FACE AMOUNT = $65,807

CURRENT COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST ----------------------------------- ----------------------------------- ---------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,640 24,140 65,807 23,122 25,622 65,807 24,604 27,104 65,807
2 27,563 20,963 23,275 65,807 23,917 26,229 65,807 27,048 29,360 65,807
3 28,941 20,315 22,440 65,807 24,719 26,844 65,807 29,664 31,789 65,807
4 30,388 19,695 21,633 65,807 25,536 27,474 65,807 32,485 34,423 65,807
5 31,907 19,104 20,854 65,807 26,369 28,119 65,807 35,526 37,276 65,807

6 33,502 18,540 20,102 65,807 27,217 28,780 65,807 38,807 40,369 65,807
7 35,178 18,189 19,377 65,807 28,269 29,457 65,807 42,534 43,721 65,807
8 36,936 17,864 18,676 65,807 29,338 30,151 65,807 46,542 47,354 65,807
9 38,783 17,625 18,000 65,807 30,487 30,862 65,807 50,924 51,299 65,807
10 40,722 17,347 17,347 65,807 31,590 31,590 65,807 55,599 55,599 65,807

11 42,758 16,834 16,834 65,807 32,564 32,564 65,807 60,682 60,682 65,807
12 44,896 16,336 16,336 65,807 33,569 33,569 65,807 66,261 66,261 69,574
13 47,141 15,851 15,851 65,807 34,605 34,605 65,807 72,346 72,346 75,963
14 49,498 15,380 15,380 65,807 35,675 35,675 65,807 78,963 78,963 82,912
15 51,973 14,922 14,922 65,807 36,778 36,778 65,807 86,183 86,183 90,492

16 54,572 14,477 14,477 65,807 37,917 37,917 65,807 94,063 94,063 98,766
17 57,300 14,044 14,044 65,807 39,092 39,092 65,807 102,663 102,663 107,796
18 60,165 13,624 13,624 65,807 40,304 40,304 65,807 112,050 112,050 117,652
19 63,174 13,215 13,215 65,807 41,555 41,555 65,807 122,294 122,294 128,409
20 66,332 12,817 12,817 65,807 42,845 42,845 65,807 133,476 133,476 140,150

Age 70 31,907 19,104 20,854 65,807 26,369 28,119 65,807 35,526 37,276 65,807
Age 75 40,722 17,347 17,347 65,807 31,590 31,590 65,807 55,599 55,599 65,807
</TABLE>

D-9
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THE FULCRUM FUND-SM- NEXT GENERATION
MODIFIED SINGLE PAYMENT VARIABLE LIFE CONTRACT

UNISEX NONSMOKER AGE 65

SPECIFIED FACE AMOUNT = $65,807

GUARANTEED COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST ----------------------------------- ----------------------------------- ---------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,640 24,140 65,807 23,122 25,622 65,807 24,604 27,104 65,807
2 27,563 20,963 23,275 65,807 23,917 26,229 65,807 27,048 29,360 65,807
3 28,941 20,273 22,398 65,807 24,691 26,816 65,807 29,652 31,777 65,807
4 30,388 19,560 21,498 65,807 25,436 27,374 65,807 32,430 34,368 65,807
5 31,907 18,814 20,564 65,807 26,145 27,895 65,807 35,397 37,147 65,807

6 33,502 18,017 19,580 65,807 26,805 28,367 65,807 38,567 40,129 65,807
7 35,178 17,340 18,527 65,807 27,589 28,777 65,807 42,149 43,336 65,807
8 36,936 16,571 17,383 65,807 28,295 29,108 65,807 45,981 46,793 65,807
9 38,783 15,740 16,115 65,807 28,961 29,336 65,807 50,160 50,535 65,807
10 40,722 14,686 14,686 65,807 29,434 29,434 65,807 54,631 54,631 65,807

11 42,758 13,150 13,150 65,807 29,586 29,586 65,807 59,536 59,536 65,807
12 44,896 11,353 11,353 65,807 29,558 29,558 65,807 64,989 64,989 68,238
13 47,141 9,237 9,237 65,807 29,314 29,314 65,807 70,956 70,956 74,504
14 49,498 6,735 6,735 65,807 28,808 28,808 65,807 77,447 77,447 81,319
15 51,973 3,757 3,757 65,807 27,981 27,981 65,807 84,500 84,500 88,725

16 54,572 180 180 65,807 26,750 26,750 65,807 92,157 92,157 96,765
17 57,300 0 0 0 25,002 25,002 65,807 100,460 100,460 105,483
18 60,165 0 0 0 22,576 22,576 65,807 109,448 109,448 114,920
19 63,174 0 0 0 19,258 19,258 65,807 119,163 119,163 125,121
20 66,332 0 0 0 14,758 14,758 65,807 129,645 129,645 136,127

Age 70 31,907 18,814 20,564 65,807 26,145 27,895 65,807 35,397 37,147 65,807
Age 75 40,722 14,686 14,686 65,807 29,434 29,434 65,807 54,631 54,631 65,807
</TABLE>

D-10