VEL ACCOUNT OF ALLMERICA FINANCIAL LIFE INSURANCE & ANN CO, 497, 1997-05-09

VEL ACCOUNT OF ALLMERICA FINANCIAL LIFE INSURANCE & ANN CO
497, 1997-05-09

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This Prospectus describes individual flexible premium variable life insurance
policies ("Policies" or "Policy") which have been issued by Allmerica Financial
Life Insurance and Annuity Company ("Company") on Policy Form No. 1018-87 ("VEL
87 Policies") and on Policy Form No. 1018-91 ("VEL 91 Policies"). The VEL 87
Policies and VEL 91 Policies differ in certain respects, as described in the
SUMMARY and referenced sections of the Prospectus.

The Policies permit you to allocate net premiums among up to seven of 19
sub-accounts ("Sub-Accounts") of the VEL Account, a separate account of the
Company, and a fixed-interest account ("General Account") of the Company
(collectively, "Accounts"). Each Sub-Account invests its assets in a
corresponding investment portfolio of Allmerica Investment Trust ("Trust"),
Variable Insurance Products Fund ("Fidelity VIP"), Variable Insurance Products
Fund II ("Fidelity VIP II"), T. Rowe Price International Series, Inc. ("T. Rowe
Price") or Delaware Group Premium Fund, Inc. ("DGPF"). The following Underlying
Funds are available under the Policies:

ALLMERICA INVESTMENT TRUST
- ----------------------------------
Select International Equity Fund
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Small-Mid Cap Value Fund
Select Growth Fund
Growth Fund
Equity Index Fund
Select Growth and Income Fund
Investment Grade Income Fund
Government Bond Fund
Money Market Fund

FIDELITY VIP
- --------------
Overseas Portfolio
Equity-Income Portfolio
Growth Portfolio
High Income Portfolio
Money Market Portfolio

FIDELITY VIP II
- ----------------
Asset Manager Portfolio

T. ROWE PRICE
- ---------------
T. Rowe Price International Stock Portfolio

DGPF
- -----
International Equity Series

THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF THE
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE
PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL SERIES, INC., AND DELAWARE GROUP
PREMIUM FUND, INC. THE FIDELITY VIP HIGH INCOME PORTFOLIO INVESTS IN
HIGHER-YIELDING, HIGHER RISK, LOWER-RATED DEBT SECURITIES (SEE "INVESTMENT
OBJECTIVES AND POLICIES" IN THIS PROSPECTUS). INVESTORS SHOULD RETAIN A COPY OF
THIS PROSPECTUS FOR FUTURE REFERENCE.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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

PROSPECTUS DATED MAY 1, 1997
WORCESTER, MASSACHUSETTS 01653 (508) 855-1000
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(Continued from cover page)

Each Underlying Fund has its own investment objectives. The accompanying
prospectuses of the Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF
describe the investment objectives and certain attendant risks of each
Underlying Fund.

Within limits, you may choose the amount of initial premium desired and the
initial Sum Insured. You have the flexibility to vary the frequency and amount
of premium payments, subject to certain restrictions and conditions. You may
withdraw a portion of the Policy's Surrender Value, or the Policy may be fully
surrendered at any time, subject to certain limitations. Because of the
substantial nature of the surrender charge, the Policy is not suitable for
short-term investment purposes. A Policyowner contemplating surrender of a
Policy should pay special attention to the limitation of deferred sales charges
on surrenders in the first two years following issuance or Face Amount increase.

There is no guaranteed minimum Policy Value. The value of a Policy will vary up
or down to reflect the investment experience of allocations to the Sub-Accounts
and the fixed rates of interest earned by allocations to the General Account.
The Policy Value also will be adjusted for other factors, including the amount
of charges imposed. A Policy will remain in effect so long as the Policy Value
less any surrender charges and less any outstanding Debt is sufficient to pay
certain monthly charges imposed in connection with the Policy. The Policy Value
may decrease to the point where the Policy will lapse and provide no further
death benefit without additional premium payments.

If a Policy is in effect at the death of the Insured, the Company will pay a
death benefit (the "Death Proceeds") to the Beneficiary. Prior to the Final
Premium Payment Date, the Death Proceeds equal the Sum Insured, less any Debt,
partial withdrawals, and any due and unpaid charges. You may choose either Sum
Insured Option 1 (the Sum Insured is fixed in amount) or Sum Insured Option 2
(the Sum Insured includes the Policy Value in addition to a fixed insurance
amount). A Policyowner has the right to change the Sum Insured Option, subject
to certain conditions. A Guideline Minimum Sum Insured, equivalent to a
percentage of the Policy Value, will apply if greater than the Sum Insured
otherwise payable under Option 1 or Option 2.

In certain circumstances, a Policy may be considered a "modified endowment
contract." Under the Internal Revenue Code (the "Code"), any Policy loan,
partial withdrawal or surrender from a modified endowment contract may be
subject to tax and tax penalties. See FEDERAL TAX CONSIDERATIONS -- "Modified
Endowment Contracts."

IT MAY NOT BE ADVANTAGEOUS TO PURCHASE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
AS A REPLACEMENT FOR YOUR CURRENT LIFE INSURANCE, OR IF YOU ALREADY OWN A
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY.

THE PURPOSE OF THE POLICIES IS TO PROVIDE INSURANCE PROTECTION FOR THE
BENEFICIARY. NO CLAIM IS MADE THAT A POLICY IS IN ANY WAY SIMILAR OR COMPARABLE
TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND. A POLICY, TOGETHER WITH ITS
ATTACHED APPLICATION, CONSTITUTES THE ENTIRE AGREEMENT BETWEEN YOU AND THE
COMPANY.

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TABLE OF CONTENTS

<TABLE>
<S> <C>
SPECIAL TERMS........................................................................ 5
SUMMARY.............................................................................. 8
PERFORMANCE INFORMATION.............................................................. 19
DESCRIPTION OF THE COMPANY, THE VEL ACCOUNT, ALLMERICA INVESTMENT TRUST, VARIABLE
INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II, T. ROWE PRICE
INTERNATIONAL SERIES, INC., AND DELAWARE GROUP PREMIUM FUND, INC.................... 23
INVESTMENT OBJECTIVES AND POLICIES................................................... 25
INVESTMENT ADVISORY SERVICES......................................................... 26
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS.................................... 30
VOTING RIGHTS........................................................................ 30
THE POLICIES......................................................................... 31
Applying for a Policy.............................................................. 31
Free-Look Period................................................................... 32
Conversion Privileges.............................................................. 32
Premium Payments................................................................... 33
Paid-Up Insurance Option........................................................... 34
Allocation of Net Premiums......................................................... 34
Transfer Privilege................................................................. 35
Death Proceeds..................................................................... 36
Sum Insured Options................................................................ 36
Change in Sum Insured Option....................................................... 38
Change in the Face Amount.......................................................... 39
Policy Value and Surrender Value................................................... 40
Death Proceeds Payment Options..................................................... 42
Optional Insurance Benefits........................................................ 42
Policy Surrender................................................................... 42
Partial Withdrawal................................................................. 42
CHARGES AND DEDUCTIONS............................................................... 43
Tax Expense Charge................................................................. 43
Monthly Deductions from the Policy Value........................................... 43
Charges Against Assets of The VEL Account.......................................... 45
Surrender Charge................................................................... 46
Transfer Charges................................................................... 49
Charge for Increase in the Face Amount............................................. 49
Other Administrative Charges....................................................... 49
POLICY LOANS......................................................................... 49
Loan Interest...................................................................... 50
Repayment of Loans................................................................. 50
Effect of Policy Loans............................................................. 51
POLICY TERMINATION AND REINSTATEMENT................................................. 51
Termination........................................................................ 51
Reinstatement under VEL 87 Policies................................................ 51
Reinstatement under VEL 91 Policies................................................ 52
OTHER POLICY PROVISIONS.............................................................. 53
Policyowner........................................................................ 53
Beneficiary........................................................................ 53
Incontestability................................................................... 54
Suicide............................................................................ 54
Age and Sex........................................................................ 54
</TABLE>

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<TABLE>
<S> <C>
Assignment......................................................................... 54
Postponement of Payments........................................................... 54
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY...................................... 55
DISTRIBUTION......................................................................... 55
SERVICES............................................................................. 56
REPORTS.............................................................................. 56
LEGAL PROCEEDINGS.................................................................... 56
FURTHER INFORMATION.................................................................. 56
INDEPENDENT ACCOUNTANTS.............................................................. 57
FEDERAL TAX CONSIDERATIONS........................................................... 57
The Company and the VEL Account.................................................... 57
Taxation of the Policies........................................................... 57
Modified Endowment Contracts......................................................... 58
MORE INFORMATION ABOUT THE GENERAL ACCOUNT........................................... 59
General Description................................................................ 59
General Account Values............................................................. 59
The Policies....................................................................... 60
FINANCIAL STATEMENTS................................................................. F-1
APPENDIX A -- OPTIONAL BENEFITS...................................................... A-1
APPENDIX B -- DEATH PROCEEDS PAYMENT OPTIONS......................................... A-2
APPENDIX C -- ILLUSTRATIONS OF SUM INSURED, POLICY VALUES AND ACCUMULATED PREMIUMS... A-4
APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES VEL 87 POLICIES............... A-10
APPENDIX E -- CALCULATION OF MAXIMUM SURRENDER CHARGES VEL 91 POLICIES............... A-14
</TABLE>

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SPECIAL TERMS

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

AGE: the Insured's age as of the nearest birthday measured from a Policy
anniversary.

BENEFICIARY: the person(s) designated by the Policyowner to receive the
insurance proceeds upon the death of the Insured.

COMPANY: Allmerica Financial Life Insurance and Annuity Company.

DATE OF ISSUE: the date set forth in a Policy used to determine the Monthly
Payment Date, Policy months, Policy years, and Policy anniversaries.

DEATH PROCEEDS: Prior to the Final Premium Payment Date for a VEL 91 Policy or
the Maturity Date for a VEL 87 Policy, the Death Proceeds equal the amount
calculated under the applicable Sum Insured Option (Option 1 or Option 2), less
Debt outstanding at the time of the Insured's death, partial withdrawals, if
any, partial withdrawal charges, and any due and unpaid Monthly Deductions.
After the Final Premium Payment Date, the Death Proceeds equal the Surrender
Value of the VEL 91 Policy.

DEBT: all unpaid Policy loans plus interest due or accrued on such loans.

DELIVERY RECEIPT: an acknowledgment, signed by the Policyowner and returned to
the Company's Principal Office, that the Policyowner has received the Policy and
the Notice of Withdrawal Rights.

EVIDENCE OF INSURABILITY: information, including medical information
satisfactory to the Company, that is used to determine the Insured's Premium
Class.

FACE AMOUNT: the amount of insurance coverage applied for; the Face Amount of
each Policy is set forth in the specification pages of the Policy.

FINAL PREMIUM PAYMENT DATE: Under a VEL 91 Policy, the Policy anniversary
nearest the Insured's 95th birthday. The Final Premium Payment Date under a VEL
91 Policy is the latest date on which a premium payment may be made. After this
date, the Death Proceeds equal the Surrender Value of the Policy.

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

GUIDELINE ANNUAL PREMIUM: the annual amount of premium that would be payable
through the Final Premium Payment Date or Maturity Date of a Policy for the
specified Sum Insured, if premiums were fixed by the Company as to both timing
and amount, and monthly cost of insurance charges were based on the 1980
Commissioners Standard Ordinary Mortality Tables (Mortality Table B, Smoker or
Non-Smoker, for unisex Policies), net investment earnings at an annual effective
rate of 5%, and fees and charges as set forth in a Policy and any Policy riders.
The Sum Insured Option 1 Guideline Annual Premium is used when calculating the
maximum surrender charge.

GUIDELINE MINIMUM SUM INSURED: the minimum Sum Insured required to qualify a
Policy as "life insurance" under federal tax laws. The Guideline Minimum Sum
Insured varies by age; it is calculated by multiplying the Policy Value by a
percentage determined by the Insured's Age.

INSURANCE AMOUNT AT RISK: the Sum Insured less the Policy Value.

LOAN VALUE: the maximum amount that may be borrowed under the Policy.

MATURITY DATE: Under a VEL 87 Policy, the Maturity Date is the Policy
anniversary nearest the Insured's 95th birthday. The Maturity Date is the latest
date to which insurance may remain in force under a VEL 87 Policy. If the
Insured under a VEL 87 Policy is still living on the Maturity Date, the Company
pays the Policy Value on the Maturity Date (less any outstanding Debt) to the
Policyowner, and the VEL 87 Policy terminates.

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MINIMUM MONTHLY FACTOR: a monthly premium amount calculated by the Company and
specified in your Policy. If you pay this amount, the Company guarantees that
your Policy will not lapse prior to the 49th Monthly Deduction after the Date of
Issue or the effective date of an increase in the Face Amount for a VEL 91
Policy (13th Monthly Deduction for a VEL 87 Policy). Making payments at least
equal to the Minimum Monthly Factors, however, will not prevent a Policy from
lapsing if (a) Debt exceeds Policy Value less surrender charges, or (b) partial
withdrawals and partial withdrawal charges have reduced premium payments below
an amount equal to the Minimum Monthly Factor multiplied by the number of months
since the Date of Issue or the effective date of an increase.

MONTHLY DEDUCTION: charges deducted monthly from the Policy Value of a Policy
prior to the Maturity Date or Final Premium Payment Date. The charges include
the monthly cost of insurance, the monthly cost of any benefits provided by
riders, and the monthly administrative charge.

MONTHLY PAYMENT DATE: the date on which the Monthly Deduction is deducted from
a Policy Value.

NET PREMIUM: an amount equal to the premium less a tax expense charge.

POLICY CHANGE: any change in the Face Amount, the addition or deletion of a
rider, or a change in the Sum Insured Option.

POLICY VALUE: the total amount available for investment under a Policy at any
time. It is equal to the sum of (a) the value of the Accumulation Units credited
to a Policy in the Sub-Accounts, and (b) the accumulation in the General Account
credited to that Policy.

POLICYOWNER: the person, persons or entity entitled to exercise the rights and
privileges under the Policy.

PREMIUM CLASS: the risk classification that the Company assigns the Insured
based on the information in the application and any other Evidence of
Insurability considered by the Company. The Insured's Premium Class will affect
the cost of insurance charge and the amount of premium required to keep a Policy
in force.

PRINCIPAL OFFICE: the Company's office, located at 440 Lincoln Street,
Worcester, Massachusetts 01653.

PRO-RATA ALLOCATION: In certain circumstances, you may specify from which
Sub-Account certain deductions will be made or to which Sub-Account the Policy
Value will be allocated. If you do not, the Company will allocate the deduction
or Policy Value among the General Account and the Sub-Accounts in the same
proportion that the Policy Value in the General Account and the Policy Value in
each Sub-Account bear to the total Policy Value on the date of deduction or
allocation.

SEPARATE ACCOUNT: A Separate Account consists of assets segregated from the
Company's other assets. The investment performance of the assets of each
Separate Account is determined separately from the other assets of the Company.
The assets of a Separate Account which are equal to the reserves and other
contract liabilities are not chargeable with liabilities arising out of any
other business which the Company may conduct.

SUB-ACCOUNT: a division of the VEL Account. Each Sub-Account invests
exclusively in the shares of a corresponding Fund of the Allmerica Investment
Trust ("Trust"), a corresponding Portfolio of the Variable Insurance Products
Fund ("Fidelity VIP") or the Variable Insurance Products Fund II ("Fidelity VIP
II"), the T. Rowe Price International Stock Portfolio of T. Rowe Price
International Series, Inc. ("T. Rowe Price") or the International Equity Series
of the Delaware Group Premium Fund, Inc. ("DGPF").

SUM INSURED: the amount payable upon the death of the Insured, before the
Maturity Date or Final Premium Payment Date, prior to deductions for Debt
outstanding at the time of the Insured's death, partial withdrawals and partial
withdrawal charges, if any, and any due and unpaid Monthly Deductions. The
amount of the Sum Insured will depend on the Sum Insured Option chosen, but
always will be at least equal to the Face Amount.

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SURRENDER VALUE: the amount payable upon a full surrender of the Policy. It is
the Policy Value less any Debt and applicable surrender charges.

UNDERLYING FUNDS (FUNDS): the Funds of the Allmerica Investment Trust, the
Portfolios of the Variable Insurance Products Fund and Variable Insurance
Products Fund II, the Portfolio of T. Rowe Price International Series, Inc., and
the Series of the Delaware Group Premium Fund, Inc. available under the Policy.

VALUATION DATE: a day on which the net asset value of the shares of any of the
Underlying Funds is determined and Accumulation Unit values of the Sub-Accounts
are determined. Valuation Dates currently occur on each day on which the New
York Stock Exchange is open for trading, and on such other days (other than a
day during which no payment, partial withdrawal, or surrender of a Policy is
received) when there is a sufficient degree of trading in an Underlying Fund's
securities such that the current net asset value of the Sub-Accounts may be
affected materially.

VEL ACCOUNT: a Separate Account of the Company to which the Policyowner may
make Net Premium allocations.

WRITTEN REQUEST: a request in writing, by the Policyowner, satisfactory to the
Company.

YOU OR YOUR: the Policyowner, as shown in the application or the latest change
filed with the Company.

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SUMMARY

This Prospectus describes individual flexible premium variable life insurance
policies ("Policies" or "Policy") which have been issued by Allmerica Financial
Life Insurance and Annuity Company ("Company") on Policy Form No. 1018-87 ("VEL
87 Policies") and on Policy Form No. 1018-91 ("VEL 91 Policies"). The VEL 87
Policies and VEL 91 Policies differ in certain respects, as described below and
in the referenced sections of the Prospectus. You can determine whether you own
a VEL 87 Policy or a VEL 91 Policy by checking the Form Number on the lower
left-hand corner of the cover page of your Policy.

DIFFERENCES BETWEEN VEL 87 POLICIES AND VEL 91 POLICIES

"MATURITY DATE" VERSUS "FINAL PREMIUM PAYMENT DATE" -- Under VEL 87 Policies,
the "Maturity Date" is the Policy anniversary nearest the Insured's 95th
birthday. It is the latest date to which insurance may remain in force. If the
Insured is still living on the Maturity Date, the Company pays the Policy Value
on the Maturity Date (less any outstanding Debt) to the Policyowner, and the VEL
87 Policy terminates.

Under VEL 91 Policies, the "Final Premium Payment Date" is also the Policy
anniversary nearest the Insured's 95th birthday. However, a VEL 91 Policy does
not terminate on the Final Premium Payment Date. The Policyowner may surrender a
VEL 91 Policy on or after the Final Premium Payment Date without the assessment
of any surrender charge. If the VEL 91 Policy is not surrendered, the Company
will not assess any further Monthly Deductions for the cost of insurance and
administrative charges, and the Death Benefit under the VEL 91 Policy will equal
the Policy Value (less any outstanding Debt).

DEFERRED ADMINISTRATIVE SERVICE CHARGE -- Under VEL 87 Policies, the component
of the surrender charge which is attributable to administrative services is
$4.50 per thousand dollars of Face Amount. Under VEL 91 Policies, this charge is
$8.50 per thousand dollars of Face Amount.

MAXIMUM SURRENDER CHARGES -- Under VEL 87 Policies, the maximum surrender charge
is computed by multiplying the otherwise applicable surrender charge by a factor
which varies with the age and smoker/ nonsmoker status of the Insured, as set
forth in "APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES -- VEL 87
POLICIES." Under VEL 91 Policies, the maximum surrender charge may be reduced by
a dollar amount per thousand dollars of Face Amount of the VEL 91 Policy, as set
forth in "APPENDIX E -- CALCULATION OF MAXIMUM SURRENDER CHARGES -- VEL 91
POLICIES."

MINIMUM MONTHLY FACTOR GUARANTEE PERIODS -- Under VEL 87 Policies, if the
Policyowner pays premiums at least equal to the Minimum Monthly Factor, the VEL
87 Policy is guaranteed not to lapse during the 12 months following the issuance
of the VEL 87 Policy or an Increase in the Face Amount of the VEL 87 Policy.
Under VEL 91 Policies, the 12-month period is currently extended to 48 months,
with the guarantee that the period shall not be less than 36 months.

MINIMUM FACE AMOUNT FOLLOWING A DECREASE OR WITHDRAWAL -- Under VEL 87 Policies,
the minimum Face Amount following a requested decrease or withdrawal is $25,000.
Under VEL 91 Policies, this amount is $50,000.

REINSTATEMENT PROVISIONS -- If a VEL 87 Policy lapses and reinstatement is
requested within one year of Date of Issue, the Policyowner is required to pay
the Minimum Monthly factor multiplied by the number of months which elapsed
since the date of default, plus the Minimum Monthly Factor for the next three
months. If reinstatement occurred more than one year after the Date of Issue,
the Policyowner must pay all unpaid first-year monthly administrative fees.
Under VEL 91 Policies, the Policyowner is not required to pay these amounts. The
period during which the charges are payable is suspended. Upon reinstatement,
the charges resume from the date of default. See "Policy Lapse and
Reinstatement" below, and "POLICY TERMINATION AND REINSTATEMENT."

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ABOUT THE POLICIES

THE FOLLOWING INFORMATION APPLIES TO BOTH VEL 87 POLICIES AND VEL 91 POLICIES,
EXCEPT AS NOTED.

The Policies allow you to make premium payments in any amount and frequency,
subject to certain limitations. As long as a Policy remains in force, it will
provide for:

- - life insurance coverage on the named Insured,

- - Policy Value,

- - surrender rights and partial withdrawal rights,

- - loan privileges, and

- - in some cases, additional insurance benefits available by rider for an
additional charge.

LIFE INSURANCE

The Policies are life insurance contracts with death benefits, Policy Value, and
other features traditionally associated with life insurance. The Policies are
"variable" because the Policy Value will increase or decrease depending on the
investment experience of the Sub-Accounts of the VEL Account. Under some
circumstances, the death benefit may vary with the investment experience of the
Sub-Accounts.

FLEXIBLE PREMIUM

The Policies are "flexible premium" policies because, unlike traditional
insurance policies, there is no fixed schedule for premium payments. You may
vary the frequency and amount of future premium payments, subject to certain
limits, restrictions and conditions set by Company standards and federal tax
laws. Although you may establish a schedule of premium payments ("planned
premium payments"), failure to make the planned premium payments will not
necessarily cause a Policy to lapse. Because of the variable nature of the
Policies, making planned premium payments does not guarantee that a Policy will
remain in force. Thus, you may, but are not required to, pay additional
premiums.

The Policies will remain in force until the Surrender Value is insufficient to
cover the next Monthly Deduction and loan interest accrued, if any, and a grace
period of 62 days has expired without adequate payment being made by you. During
the first 48 Policy months for a VEL 91 Policy (12 months for a VEL 87 Policy)
after the Date of Issue or the effective date of an increase in the Face Amount,
a Policy will not lapse if the total premiums paid less the Debt, partial
withdrawals and withdrawal charges are equal to or exceed the sum of the Minimum
Monthly Factors for the number of months the Policy, increase, or a Policy
Change which causes a change in the Minimum Monthly Factor has been in force.
Even during these periods, however, making payments at least equal to the
Minimum Monthly Factor will not prevent a Policy from lapsing if the Debt equals
or exceeds the Policy Value less surrender charges.

CONDITIONAL INSURANCE

If at the time of application you make a payment equal to at least one Minimum
Monthly Factor for a Policy as applied for, the Company will provide conditional
insurance, equal to the amount of insurance applied for but not to exceed
$500,000. If the application is approved, the Policy will be issued as of the
date the terms of the conditional insurance are met. If you do not wish to make
any payment at the time of application, insurance coverage will not be in force
until delivery of the Policy and payment of sufficient premium to place the
insurance in force.

If any premiums are paid prior to the issuance of the Policy, such premiums will
be held in the Company's General Account. If your application is approved and
the Policy is issued and accepted, the initial premiums held in the General
Account will be credited with interest at a specified rate beginning not later

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than the date of receipt of the premiums at the Principal Office. IF A POLICY IS
NOT ISSUED AND ACCEPTED, THE INITIAL PREMIUMS WILL BE RETURNED TO YOU WITHOUT
INTEREST.

MINIMUM MONTHLY FACTOR

The Minimum Monthly Factor is a monthly premium amount calculated by the Company
and specified in your Policy. If you pay this amount, the Company guarantees
that a Policy will not lapse prior to the 49th Monthly Deduction for a VEL 91
Policy (13th Monthly Deduction for a VEL 87 Policy) after the Date of Issue or
the effective date of an increase in the Face Amount. At all other times,
however, payments of such premiums do not guarantee that a Policy will remain in
force. See THE POLICIES -- "Premium Payments." Moreover, even during the
48-month period, if Debt exceeds the Policy Value less surrender charges, then
making payments at least equal to the Minimum Monthly Factor will not prevent a
Policy from lapsing.

ALLOCATION OF INITIAL PREMIUMS

Upon completion of issuance procedures, delivery of the Policy, and receipt of
any additional premiums, if you have paid less than $10,000 of initial Net
Premiums, such Net Premiums will be allocated to the Sub-Accounts according to
your instructions. If initial Net Premiums equal or exceed $10,000, or if the
Policy provides for planned premium payments during the first year equal to or
exceeding $10,000 annually, $5,000 semi-annually, $2,500 quarterly or $1,000
monthly, the entire Net Premium plus any interest earned will be allocated to
the Sub-Accounts upon return to the Company of a Delivery Receipt. See THE
POLICIES -- "Applying For a Policy."

Net premiums may be allocated to one or more Sub-Accounts of the VEL Account, to
the General Account, or to any combination of accounts. You bear the investment
risks of amounts allocated to the Sub-Accounts. Allocations may be made to no
more than seven Sub-Accounts at any one time. The minimum allocation is 1% of
Net Premium. All allocations must be in whole numbers and must total 100%. See
THE POLICIES -- "Allocation of Net Premiums." Premiums allocated to the
Company's General Account will earn a fixed rate of interest. Net premiums and
minimum interest are guaranteed by the Company. For more information, see "MORE
INFORMATION ABOUT THE GENERAL ACCOUNT."

PARTIAL WITHDRAWALS

After the first Policy year, you may make partial withdrawals in a minimum
amount of $500 from the Policy Value. Under Option 1, the Face Amount is reduced
by the amount of the partial withdrawal. A partial withdrawal will not be
allowed under Option 1 if it would reduce the Face Amount below $40,000 ($25,000
for a VEL 87 Policy).

A transaction charge, which is described in CHARGES AND DEDUCTIONS -- "Charges
On Partial Withdrawal," will be assessed to reimburse the Company for the cost
of processing each partial withdrawal. A partial withdrawal charge also may be
imposed upon a partial withdrawal. Generally, amounts withdrawn during each
Policy year in excess of 10% of the Policy Value ("excess withdrawal") are
subject to the partial withdrawal charge. The partial withdrawal charge is equal
to 5% of the excess withdrawal up to the surrender charge on the date of
withdrawal. If no surrender charge is applicable at the time of withdrawal, no
partial withdrawal charge will be deducted. The Policy's outstanding surrender
charge will be reduced by the amount of the partial withdrawal charge deducted.
See THE POLICIES -- "Partial Withdrawal" and CHARGES AND DEDUCTIONS -- "Charges
On Partial Withdrawal."

LOAN PRIVILEGE

You may borrow against the Policy Value. The total amount you may borrow is the
Loan Value. Loan Value in the first Policy year is 75% of an amount equal to the
Policy Value less surrender charge, Monthly Deductions, and interest on Debt to
the end of the Policy year. Thereafter, Loan Value is 90% of an amount equal to
the Policy Value less the surrender charge.

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Policy loans will be allocated among the General Account and the Sub-Accounts in
accordance with your instructions. If no allocation is made by you, the Company
will make a Pro-Rata Allocation among the Accounts. In either case, Policy Value
equal to the Policy loan will be transferred from the appropriate Sub-Account(s)
to the General Account, and will earn monthly interest at an effective annual
rate of at least 6%. Therefore, a Policy loan may have a permanent impact on the
Policy Value even though it eventually is repaid. Although the loan amount is a
part of the Policy Value, the Death Proceeds will be reduced by the amount of
outstanding Debt at the time of death.

Policy loans will bear interest at a fixed rate of 8% per year, due and payable
in arrears at the end of each Policy year. If interest is not paid when due, it
will be added to the loan balance. Policy loans may be repaid at any time. You
must notify the Company if a payment is a loan repayment; otherwise, it will be
considered a premium payment. Any partial or full repayment of Debt by you will
be allocated to the General Account or Sub-Accounts in accordance with your
instructions. If you do not specify an allocation, the Company will allocate the
loan repayment in accordance with your most recent premium allocation
instructions. See "POLICY LOANS."

PREFERRED LOAN OPTION -- A preferred loan option is available under the Policy.
The preferred loan option will be available upon Written Request. It may be
revoked by you at any time. If this option has been selected, after the tenth
Policy anniversary the Policy Value in the General Account equal to the loan
amount will be credited with interest at an effective annual yield of at least
7.5%. The Company's current practice is to credit a rate of interest equal to
the rate being charged for the preferred loan.

There is some uncertainty as to the tax treatment of preferred loans. Consult a
qualified tax adviser (and see "FEDERAL TAX CONSIDERATIONS"). THE PREFERRED LOAN
OPTION IS NOT AVAILABLE IN ALL STATES.

POLICY LAPSE AND REINSTATEMENT

The provisions for Policy Lapse and Reinstatement differ slightly for VEL 87
Policies and VEL 91 Policies.

The failure to make premium payments will not cause a VEL 87 Policy or VEL 91
Policy to lapse unless:

(a) the Surrender Value is insufficient to cover the next Monthly Deduction plus
loan interest accrued, if any; or

(b) Debt exceeds Policy Value less surrender charges.

A 62-day grace period applies to each situation.

Even if the situation described in (a) above exists, a Policy will not lapse if
you meet the so-called "Minimum Monthly Factor" test. The Minimum Monthly Factor
test is only used to determine whether a Policy will enter the grace period for
a certain period of months after the Date of Issue or following an increase in
the Face Amount. This period is currently 48 months for a VEL 91 Policy and 12
months for a VEL 87 Policy. Under the Minimum Monthly Factor test, the Company
determines two amounts:

- - the sum of the payments you have made, MINUS any Policy loans, withdrawals and
withdrawal charges, and

- - the amount of the Minimum Monthly Factor (as set forth in the Policy)
MULTIPLIED by the number of months a Policy has been in force or the number of
months which have elapsed since the last increase in the Face Amount.

The Company then compares the first amount to the second amount. A Policy will
not enter the grace period if the first amount is greater than the second
amount.

If a VEL 87 Policy lapses, it may be reinstated within three years of the date
of default (but not later than the Maturity Date). In order to reinstate, you
must provide satisfactory Evidence of Insurability, and the payment of
sufficient premium and of any unpaid first-year administrative charges which
were due and not yet deducted. See "POLICY TERMINATION AND REINSTATEMENT."

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<PAGE>
If a VEL 91 Policy lapses, it may be reinstated within three years of the date
of default (but not later than the Final Premium Payment Date). In order to
reinstate, you must pay the reinstatement premium and provide satisfactory
Evidence of Insurability. The Company reserves the right to increase the Minimum
Monthly Factor upon reinstatement. See "POLICY TERMINATION AND REINSTATEMENT."

POLICY VALUE AND SURRENDER VALUE

The Policy Value is the total amount available for investment under a Policy at
any time. It is the sum of the value of all Accumulation Units in the
Sub-Accounts of the VEL Account and all accumulations in the General Account of
the Company credited to the Policy. The Policy Value reflects the amount and
frequency of Net Premiums paid, charges and deductions imposed under the Policy,
interest credited to accumulations in the General Account, investment
performance of the Sub-Account(s) to which Policy Value has been allocated, and
partial withdrawals. The Policy Value may be relevant to the computation of the
Death Proceeds. You bear the entire investment risk for amounts allocated to the
VEL Account. The Company does not guarantee a minimum Policy Value.

The Surrender Value will be the Policy Value less any Debt and applicable
surrender charges. The Surrender Value is relevant, for example, to the
continuation of a Policy and in the computation of the amounts available upon
partial withdrawals, Policy loans or surrender.

DEATH PROCEEDS

The Policy provides for the payment of certain Death Proceeds to the named
Beneficiary upon the death of the Insured. Prior to the Final Premium Payment
Date under a VEL 91 Policy (the Maturity Date under a VEL 87 Policy), the Death
Proceeds will be equal to the Sum Insured, reduced by any outstanding Debt,
partial withdrawals, partial withdrawal charges, and any Monthly Deductions due
and not yet deducted through the Policy month in which the Insured dies.

Two Sum Insured Options are available. Under Option 1, the Sum Insured is the
greater of the Face Amount of a Policy or the Guideline Minimum Sum Insured.
Under Option 2, the Sum Insured is the greater of the Face Amount of a Policy
plus the Policy Value or the Guideline Minimum Sum Insured. The Guideline
Minimum Sum Insured is equivalent to a percentage (determined each month based
on the Insured's Age) of the Policy Value. On or after the Final Premium Payment
Date, the Death Proceeds will equal the Surrender Value. See THE POLICIES --
"Death Proceeds."

The Death Proceeds under a Policy may be received in a lump sum or under one of
the Payment Options described in the Policy. See "APPENDIX B -- DEATH PROCEEDS
PAYMENT OPTIONS."

FLEXIBILITY TO ADJUST SUM INSURED

Subject to certain limitations, you may adjust the Sum Insured, and thus the
Death Proceeds, at any time prior to the Maturity Date for VEL 87 Policies or
the Final Premium Payment Date for VEL 91 Policies, by increasing or decreasing
the Face Amount of the Policy. Any change in the Face Amount will affect the
monthly cost of insurance charges and the amount of the surrender charge. If the
Face Amount is decreased, a pro-rata surrender charge may be imposed. The Policy
Value is reduced by the amount of the charge. See THE POLICIES -- "Change In
Face Amount."

The minimum increase in Face Amount is $10,000 and any increase also may require
additional Evidence of Insurability satisfactory to the Company. The increase is
subject to a "free-look period" and, during the first 24 months after the
increase, to a conversion privilege. See THE POLICIES -- "Free-Look Period" and
"Conversion Privileges."

ADDITIONAL INSURANCE BENEFITS

You have the flexibility to add additional insurance benefits by rider. These
include the Waiver of Premium Rider, Accidental Death Benefit Rider, Guaranteed
Insurability Rider, Other Insured Rider, Children's Insurance Rider, Exchange
Option Rider, and Living Benefits Rider. See "APPENDIX A -- OPTIONAL BENEFITS."

12
<PAGE>

The cost of these optional insurance benefits will be deducted from the Policy
Value as part of the Monthly Deduction. See CHARGES AND DEDUCTIONS -- "Monthly
Deduction from the Policy Value."

FREE-LOOK PERIOD -- The Policies provide for an initial free-look period. You
may cancel a Policy by mailing or delivering it to the Principal Office or to an
agent of the Company on or before the latest of:

- - 45 days after the application for the Policy is signed,

- - 10 days after you receive the Policy (or, if required by state law, the longer
period indicated in your Policy), or

- - 10 days after the Company mails or personally delivers a Notice of Withdrawal
Rights to you.

Upon returning the Policy, you will receive a refund equal to the sum of:

(1) the difference between the premium, including fees and charges paid, and any
amount allocated to the VEL Account, PLUS

(2) the value of the amounts allocated to the VEL Account, PLUS

(3) any fees or charges imposed on the amounts allocated to the VEL Account.

The amount refunded in (1) above includes any premiums allocated to the General
Account. Where required by state law, however, the Company will refund the
entire amount of premiums paid. A free-look privilege also applies after a
requested increase in the Face Amount. See THE POLICIES -- "Free-Look Period."

CONVERSION PRIVILEGES -- During the first 24 Policy months after the Date of
Issue, subject to certain restrictions, you may convert a Policy to a
non-variable flexible premium adjustable life insurance policy by simultaneously
transferring all accumulated value in the Sub-Accounts to the General Account
and instructing the Company to allocate all future premiums to the General
Account. A similar conversion privilege is in effect for 24 Policy months after
the date of an increase in the Face Amount. Where required by state law, and at
your request, the Company will issue a flexible premium adjustable life
insurance policy to you. The new policy will have the same Face Amount, issue
age, Date of Issue, and Premium Class as the original Policy. See THE POLICIES
- -- "Conversion Privileges."

POLICY FEES AND CHARGES

THERE ARE COSTS RELATED TO THE INSURANCE AND INVESTMENT FEATURES OF THE POLICY.
FEES AND CHARGES TO COVER THESE COSTS ARE DEDUCTED IN SEVERAL WAYS.

DEDUCTIONS FROM EACH PREMIUM

A tax expense charge will be deducted from each premium payment to compensate
the Company for premium taxes imposed by various states and local jurisdictions.
The tax expense charge is currently 2 1/2% but may be increased or decreased to
reflect changing tax rates. See CHARGES AND DEDUCTIONS -- "Tax Expense Charge."

MONTHLY DEDUCTIONS FROM THE POLICY VALUE

On the Date of Issue and each Monthly Payment Date, certain charges ("Monthly
Deductions") will be deducted from the Policy Value. The Monthly Deduction
consists of a charge for cost of insurance, a charge for administrative
expenses, and a charge for the cost of any additional benefits provided by
rider. You may instruct the Company to deduct the Monthly Deduction from one
specific Sub-Account. If you do not, the Company will make a Pro-Rata Allocation
of the charge. No Monthly Deductions are made on or after the Final Premium
Payment Date. See CHARGES AND DEDUCTIONS -- "Monthly Deductions from the Policy
Value."

The MONTHLY COST OF INSURANCE CHARGE is determined by multiplying the Insurance
Amount at Risk for each Policy month by the applicable cost of insurance rate or
rates. The Insurance Amount at Risk will be affected by any decreases or
increases in the Face Amount.

13
<PAGE>

A MONTHLY ADMINISTRATIVE CHARGE is made for administrative expenses. The charge
is $25 per month for the first 12 Monthly Deductions and $5 per month
thereafter. The charge is designed to reimburse the Company for the costs
associated with issuing and administering the Policies, such as processing
premium payments, Policy loans and loan repayments, changes in Sum Insured
Option, and death claims. These charges also help cover the cost of providing
annual statements and responding to Policyowner inquiries. If a Policy is
surrendered in the first Policy year, the first-year monthly administrative
charges will be deducted at surrender in addition to any surrender charges which
may be applicable. Under VEL 91 Policies, the Monthly Administrative Charge is
not assessed after the Final Premium Payment Date.

As noted above, certain ADDITIONAL INSURANCE RIDER BENEFITS are available under
the Policies for an additional monthly charge. See "APPENDIX A -- OPTIONAL
BENEFITS."

DEDUCTIONS FROM THE VEL ACCOUNT

A daily charge currently equivalent to an effective annual rate of 0.90% of the
average daily net asset value of each Sub-Account of the VEL Account is imposed
to compensate the Company for its assumption of certain mortality and expense
risks. See CHARGES AND DEDUCTIONS -- "Charges Against Assets of the VEL
Account."

The Underlying Funds also incur certain expenses which are reflected in the net
asset value of the Sub-Accounts. See "INVESTMENT OPTIONS -- CHARGES OF THE
UNDERLYING FUNDS," below.

OTHER CHARGES (NON-PERIODIC)

TRANSACTION CHARGE ON PARTIAL WITHDRAWALS

A transaction charge is assessed at the time of each partial withdrawal to
reimburse the Company for the cost of processing the withdrawal. The transaction
charge is the smaller of 2% of the amount withdrawn or $25. In addition to the
transaction charge, a partial withdrawal charge also may be made under certain
circumstances. See CHARGES AND DEDUCTIONS -- "Charges On Partial Withdrawal."

CHARGE FOR INCREASE IN THE FACE AMOUNT

For each increase in the Face Amount, a charge of $40 will be deducted from the
Policy Value. This charge is designed to reimburse the Company for underwriting
and administrative costs associated with the increase. See THE POLICIES --
"Change in the Face Amount" and CHARGES AND DEDUCTIONS -- "Charge for Increase
in the Face Amount."

TRANSFER CHARGE

The first 12 transfers of Policy Value in a Policy year will be free of charge.
Thereafter, with certain exceptions, a transfer charge of $10 will be imposed
for each transfer request to reimburse the Company for the costs of processing
the transfer. See THE POLICIES -- "Transfer Privilege" and CHARGES AND
DEDUCTIONS -- "Transfer Charges."

SURRENDER CHARGES UNDER VEL 91 POLICIES

At any time that a VEL 91 Policy is in effect, a Policyowner may elect to
surrender the VEL 91 Policy and receive its Surrender Value. A surrender charge
is calculated upon issuance of the VEL 91 Policy and upon each increase in Face
Amount. The surrender charge is only imposed if less than 12 years have elapsed
from the Date of Issue or any increase in the Face Amount and you request a full
surrender or a decrease in Face Amount. If the Policy is surrendered, any $25
monthly administrative charges not yet deducted will be deducted at surrender.

SURRENDER CHARGE ON THE INITIAL FACE AMOUNT

The maximum surrender charge calculated upon issuance of the VEL 91 Policy is
equal to the sum of (a) plus (b), where (a) is a deferred administrative charge,
and (b) is a deferred sales charge.

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<PAGE>
The DEFERRED ADMINISTRATIVE CHARGE is $8.50 per thousand dollars of the initial
Face Amount or of an increase in the Face Amount. The charge is designed to
reimburse the Company for administrative costs associated with product research
and development, underwriting, Policy administration, decreasing the Face
Amount, and surrendering a Policy. The deferred sales charge is equal to 30% of
the Guideline Annual Premium.

In accordance with state insurance regulations, the amount of the maximum
surrender charge will not exceed a specified amount per $1,000 of the initial
Face Amount, as indicated in "APPENDIX E -- CALCULATION OF MAXIMUM SURRENDER
CHARGES -- VEL 91 POLICIES." The maximum surrender charge remains level for the
first 44 Policy months, reduces by 1% per month for the next 100 Policy months,
and is zero thereafter. If you surrender the Policy before making premium
payments associated with the initial Face Amount which are at least equal to the
Guideline Annual Premium, the actual charge imposed by be less than the maximum.
See THE POLICIES -- "Policy Surrender" and CHARGES AND DEDUCTIONS -- "Surrender
Charge."

If you surrender a Policy during the first two Policy years following the Date
of Issue, before making premium payments associated with the initial Face Amount
which are at least equal to one Guideline Annual Premium, the deferred
administrative charge will be $8.50 per thousand dollars of the initial Face
Amount, as described above. The deferred sales charge, however, will not exceed
30% of premiums received. See THE POLICIES -- "Policy Surrender" and CHARGES AND
DEDUCTIONS -- "Surrender Charge."

SURRENDER CHARGES FOR INCREASES IN THE FACE AMOUNT

A separate surrender charge will apply to and is calculated for each increase in
Face Amount. The maximum surrender charge for the increase is equal to the sum
of (a) plus (b) where (a) is equal to $8.50 per thousand dollars of increase,
and (b) is equal to 30% of the Guideline Annual Premium for the increase. In
accordance with limitations under state insurance regulations, the amount of the
Surrender Charge will not exceed a specified amount per $1,000 of increase, as
indicated in "APPENDIX E -- CALCULATION OF MAXIMUM SURRENDER CHARGES -- VEL 91
POLICIES." As is true for the initial Face Amount, (a) is a deferred
administrative charge and (b) is a deferred sales charge. This maximum surrender
charge remains level for the first 44 Policy months following the increase,
reduces by 1% per month for the next 100 Policy months, and is zero thereafter.
The actual surrender charge with respect to the increase may be less than the
maximum. See THE POLICIES -- "Surrender" and CHARGES AND DEDUCTIONS --
"Surrender Charge."

SURRENDER CHARGES ON DECREASES IN THE FACE AMOUNT

In the event of a decrease in the Face Amount, the surrender charge imposed is
proportional to the charge that would apply to a full Policy surrender. See THE
POLICIES -- "Policy Surrender" and CHARGES AND DEDUCTIONS -- "Surrender Charge."

SURRENDER CHARGES UNDER VEL 87 POLICIES

At any time that a VEL 87 Policy is in effect, a Policyowner may elect to
surrender the VEL 87 Policy and receive its Surrender Value. A surrender charge
is calculated upon issuance of a Policy and upon each increase in Face Amount.
The surrender charge is only imposed if less than 12 years have elapsed from the
Date of Issue or any increase in the Face Amount and you request a full
surrender or a decrease in Face Amount. If a Policy is surrendered, any $25
monthly administrative charges not yet deducted will be deducted at surrender.

SURRENDER CHARGE ON THE INITIAL FACE AMOUNT

The maximum surrender charge calculated upon issuance of the VEL 87 Policy is
equal to the sum of (a) plus (b) where (a) is a deferred administrative charge
equal to $4.50 per thousand dollars of the initial Face Amount and (b) is a
deferred sales charge equal to 30% of the Guideline Annual Premium times a
factor which is not greater than 1.0 and is as specified in "APPENDIX D --
CALCULATION OF MAXIMUM SURRENDER CHARGES -- VEL 87 POLICIES." As the factors
used in calculating the deferred sales charge in (b) vary with the attained Age
and Premium Class (smoker or nonsmoker) of the

15
<PAGE>

Insured, the deferred sales charge may range between 10.25% and 30% of the
Guideline Annual Premium. The maximum surrender charge remains level for the
first 44 Policy months, reduces by 1% per month for the next 100 Policy months,
and is zero thereafter. If you surrender the VEL 87 Policy before making premium
payments associated with the initial Face Amount which are at least equal to the
Guideline Annual Premium, the actual surrender charge imposed may be less than
the maximum. See THE POLICIES -- "Surrender" and CHARGES AND DEDUCTIONS --
"Surrender Charge."

SURRENDER CHARGE FOR INCREASES IN THE FACE AMOUNT

A separate surrender charge will apply to and is calculated for each increase in
Face Amount of a VEL 87 Policy. The maximum surrender charge for the increase is
equal to the sum of (a) plus (b) where (a) is equal to $4.50 per thousand
dollars of increase, and (b) is equal to 30% of the Guideline Annual Premium for
the increase times a factor of not greater than 1.0, as specified in "APPENDIX D
- -- CALCULATION OF MAXIMUM SURRENDER CHARGES -- VEL 87 POLICIES." As is true for
the initial Face Amount, (a) is a deferred administrative charge and (b) is a
deferred sales charge. This maximum surrender charge remains level for the first
44 Policy months following the increase, reduces by 1% per month for the next
100 Policy months, and is zero thereafter. The actual surrender charge with
respect to the increase may be less than the maximum. See THE POLICIES --
"Surrender" and CHARGES AND DEDUCTIONS -- "Surrender Charge."

SURRENDER CHARGES ON DECREASES IN THE FACE AMOUNT

In the event of a decrease in Face Amount, the surrender charge imposed is
proportional to the charge that would apply to a full surrender. See THE
POLICIES -- "Surrender" and CHARGES AND DEDUCTIONS -- "Surrender Charge."

OTHER CHARGES

The Company reserves the right to impose a charge for the administrative costs
associated with changing the Net Premium allocation instructions, for changing
the allocation of any Monthly Deductions among the various Sub-Accounts, or for
a projection of values. No such charges currently are imposed, and any such
charge is guaranteed not to exceed $25. See CHARGES AND DEDUCTIONS -- "Other
Administrative Charges."

INVESTMENT OPTIONS

The Policies permit Net Premiums to be allocated either to the Company's General
Account or to the VEL Account. The VEL Account currently is comprised of VEL
Sub-Accounts ("Sub-Accounts"). Each Sub-Account invests exclusively in a
corresponding Underlying Fund of the Allmerica Investment Trust ("Trust")
managed by Allmerica Investment Management Company, Inc., Fidelity Variable
Insurance Products Fund ("Fidelity VIP") and Fidelity Variable Insurance
Products Fund II ("Fidelity VIP II") managed by Fidelity Management and Research
Company ("FMR"), T. Rowe Price International Series, Inc. ("T. Rowe Price")
managed by Rowe Price-Fleming International, Inc., with respect to the T. Rowe
Price International Stock Portfolio, or the Delaware Group Premium Fund, Inc.
("DGPF") managed by Delaware International Advisers, Ltd. with respect to the
International Equity Series. You may transfer Policy Value among the available
Sub-Accounts and between the Sub-Accounts and the General Account of the
Company, subject to certain limitations described under THE POLICIES --
"Transfer Privilege." The Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price
and DGPF are open-end,

16
<PAGE>
diversified series management investment companies. The following Underlying
Funds are available under the Policy:

<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VIP
Select International Equity Fund Overseas Portfolio
Select Aggressive Growth Fund Equity-Income Portfolio
Select Capital Appreciation Fund Growth Portfolio
Small-Mid Cap Value Fund High Income Portfolio
Select Growth Fund Money Market Portfolio
Growth Fund FIDELITY VIP II
Equity Index Fund Asset Manager Portfolio
Select Growth and Income Fund T. ROWE PRICE
Investment Grade Income Fund T. Rowe Price International Stock
Government Bond Fund Portfolio
Money Market Fund DGPF
International Equity Series
</TABLE>

Each of the Underlying Funds has its own investment objectives. Certain
Underlying Funds, however, have investment objectives similar to certain other
Underlying Funds.

The value of each Sub-Account will vary daily depending upon the performance of
the Underlying Fund in which it invests. Each Sub-Account reinvests dividends or
capital gains distributions received from an Underlying Fund in additional
shares of that Underlying Fund. There can be no assurance that the investment
objectives of the Underlying Funds can be achieved.

CHARGES OF THE UNDERLYING FUNDS

In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Underlying Funds. The levels of fees and
expenses vary among the Underlying Funds. The following table shows the expenses
of the Underlying Funds for 1996. For more information concerning fees and
expenses, see the prospectuses of the Underlying Funds. In addition to the
charges described above, certain fees and expenses are deducted from the assets
of the Underlying Funds. The levels of fees and expenses vary among the
Underlying Funds. The following table shows the expenses of the Underlying Funds
for 1996. For more information concerning fees and expenses, see the
prospectuses of the Underlying Funds.

<TABLE>
<CAPTION>
OTHER FUND
EXPENSES (AFTER
MANAGEMENT ANY APPLICABLE TOTAL FUND
UNDERLYING FUND FEE REIMBURSEMENTS) EXPENSES
- -------------------------------------------- ------------- ----------------- -------------
<S> <C> <C> <C>
Select International Equity Fund 1.00% 0.23%* 1.23%***
DGPF International Equity Series 0.64% 0.16%** 0.80%
Fidelity VIP Overseas Portfolio 0.76% 0.17% 0.93%****
T. Rowe Price International Stock Portfolio 1.05% 0.00% 1.05%
Select Aggressive Growth Fund 1.00% 0.08%* 1.08%
Select Capital Appreciation Fund 1.00% 0.13%* 1.13%
Small-Mid Cap Value Fund 0.85% 0.12%* 0.97%
Select Growth Fund 0.85% 0.08%* 0.93%***
Growth Fund 0.44% 0.07%* 0.51%
Fidelity VIP Growth Portfolio 0.61% 0.08% 0.69%****
Equity Index Fund 0.32% 0.14%* 0.46%
Select Growth and Income Fund 0.75% 0.08%* 0.83%***
Fidelity VIP Equity-Income Portfolio 0.51% 0.07% 0.58%****
Fidelity VIP II Asset Manager Portfolio 0.64% 0.10% 0.74%**
Fidelity VIP High Income Portfolio 0.59% 0.12% 0.71%
Investment Grade Income Fund 0.40% 0.14%* 0.52%
Government Bond Fund 0.50% 0.16%* 0.66%
Money Market Fund 0.28% 0.06%* 0.34%
</TABLE>

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<PAGE>
* Under the Management Agreement with Allmerica Investment Trust, Allmerica
Investment Management Company, Inc. ("Manager") has declared a voluntary expense
limitation of 1.50% of average net assets for the Select International Equity
Fund, 1.35% for the Select Aggressive Growth Fund and Select Capital
Appreciation Fund, 1.25% for the Small-Mid Cap Value Fund, 1.20% for the Growth
Fund and Select Growth Fund, 1.10% for the Select Growth and Income Fund, 1.00%
for the Investment Grade Income Fund and Government Bond Fund, and 0.60% for the
Money Market Fund and Equity Index Fund. The total operating expenses of the
funds of the Trust were less than their respective expense limitations
throughout 1996. The declaration of a voluntary expense limitation in any year
does not bind the Manager to declare future expense limitations with respect to
these funds.

** Delaware International Advisers Ltd., the investment adviser for the
International Equity Series, has agreed to waive its management fee and
reimburse the International Equity Series to limit certain expenses to 8/10 of
1% of the corresponding net assets. This waiver has been in effect from the
commencement of the public offering for the Series and has been extended through
June 30, 1997. Without the expense limitation, in 1996 the total annual expenses
of the International Equity Series would have been 1.04%.

*** These Funds have entered into agreements with brokers whereby the brokers
rebate a protion of commissions. Had these amounts been treated as reductions of
expenses the total operating expenses would have been 1.2% for the Select
International Equity Fund, 0.92% for the Select Growth Fund and 0.80% for the
Select Growth and Income Fund.

**** A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into arrangements
with their custodian and transfer agent whereby interest earned on uninvested
cash balances was used to reduce custodian and transfer agent expenses.
Including these reductions, the total operating expenses presented in the table
would have been 0.56% for Fidelity VIP Equity-Income Portfolio, 0.67% for
Fidelity VIP Growth Portfolio, 0.92% for Fidelity VIP Overseas Portfolio and
0.73% for Fidelity VIP II Asset Manager Portfolio.

TAXATION OF THE POLICIES

The Policies generally are subject to the same federal income tax treatment as a
conventional fixed benefit life insurance policies. Under current tax law, to
the extent there is no change in benefits, the Policyowner will be taxed on
Policy Value withdrawn from a Policy only to the extent that the amount
withdrawn exceeds the total premiums paid. Withdrawals in excess of premiums
paid will be treated as ordinary income. During the first 15 Policy years,
however, an "interest first" rule applies to any distribution of cash that is
required under Section 7702 of the Code because of a reduction in benefits under
the Policy. Death Proceeds under a Policy are generally excludable from the
gross income of the Beneficiary, but in some circumstances the Death Proceeds or
the Policy Value may be subject to federal estate tax. See FEDERAL TAX
CONSIDERATIONS -- "Taxation of the Policies."

A Policy may be considered a "modified endowment contract" if it fails a
"seven-pay" test at any time during the first seven Policy years. A Policy fails
to satisfy the seven-pay test if the cumulative premiums paid under the Policy
at any time during the first seven Policy years exceed the sum of the net level
premiums that would have been paid had the Policy provided for paid-up future
benefits after the payment of seven level premiums. If a Policy is considered a
modified endowment contract, all distributions (including Policy loans, partial
withdrawals, Policy surrenders or assignments) will be taxed on an "income-
first" basis. With certain exceptions, an additional 10% penalty will be imposed
on the portion of any distribution that is includible in income. For more
information, see FEDERAL TAX CONSIDERATIONS -- "Modified Endowment Contracts."

18
<PAGE>
PERFORMANCE INFORMATION

The VEL 87 Policies were first offered to the public in 1987, and the VEL 91
Policies were first offered in 1991. The Company, however, may advertise "Total
Return" and "Average Annual Total Return" performance information based on the
periods that the Underlying Funds have been in existence. The results for any
period prior to the Policies being offered will be calculated as if the Policies
had been offered during that period of time, with all charges assumed to be
those applicable to the Sub-Accounts, the Underlying Funds, and (in TABLE I(A)
and TABLE I(B)) under a "representative" Policy that is surrendered at the end
of the applicable period. FOR MORE INFORMATION ON CHARGES UNDER THE POLICY, SEE
"CHARGES AND DEDUCTIONS."

Performance information may be compared, in reports and promotional literature,
to:

- - Standard & Poor's 500 Composite Stock Price Index ("S&P 500"), Dow Jones
Industrial Average ("DJIA"), Shearson, Lehman Aggregate Bond Index, or other
unmanaged indices so that investors may compare results with those of a group
of unmanaged securities widely regarded by investors as representative of the
securities markets in general (unmanaged indices may assume the reinvestment
of dividends, but generally do not reflect deductions for administrative and
management costs and expenses); or

- - other groups of variable life separate accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment products by overall performance,
investment objectives and assets, or tracked by other services, companies,
publications or persons, such as Morningstar, Inc., who rank such investment
products on overall performance or other criteria; or

- - the Consumer Price Index (a measure for inflation) to assess the real rate of
return from an investment.

The Company may provide information on various topics of interest to
Policyowners and prospective Policyowners in sales literature, periodic
publications or other materials. These topics may include the relationship
between sectors of the economy and the economy as a whole and its effect on
various securities markets, investment strategies and techniques (such as value
investing, market timing, dollar-cost averaging, asset allocation, constant
ratio transfer and account rebalancing), the advantages and disadvantages of
investing in tax-deferred and taxable investments, customer profiles and
hypothetical purchase and investment scenarios, financial management and tax and
retirement planning, and investment alternatives to certificates of deposit and
other financial instruments.

In each table below, "One-Year Total Return" refers to the total of the income
generated by a Sub-Account, based on certain charges and assumptions as
described in the respective tables, for the one-year period ended December 31,
1996. "Average Annual Total Return" is based on the same charges and
assumptions, but reflects the hypothetical annually compounded return that would
have produced the same cumulative return if the Sub-Account's performance had
been constant over the entire period. Because average annual total returns tend
to smooth out variations in annual performance return, they are not the same as
actual year-by-year results. TABLE 1(A) and TABLE 1(B) show Sub-Account
performance net of all charges of the Underlying Funds, all Sub-Account charges,
and all Policy charges (including surrender charges) of a representative VEL 87
Policy and of a VEL 91 Policy, respectively. TABLE 2 shows Sub-Account
performance net of total Underlying Fund expenses, all Sub-Account charges, and
premium tax and expense charges. The information in TABLE 2 does NOT reflect
monthly charges or surrender charges under the VEL 87 Policy or the VEL 91
Policy.

19
<PAGE>
TABLE I (A): SUB-ACCOUNT PERFORMANCE
NET OF ALL CHARGES AND ASSUMING SURRENDER OF A VEL 87 POLICY

The following performance information is based on the periods that the
Underlying Funds have been in existence. The data is net of expenses of the
Underlying Funds, all Sub-Account charges, and all Policy charges (including
surrender charges) for a representative Policy. It is assumed that the Insured
is male, Age 36, standard (nonsmoker) Premium Class, that the Face Amount of the
Policy is $250,000, that an annual premium payment of $3,000 (approximately one
Guideline Annual Premium) was made at the beginning of each Policy year, that
ALL premiums were allocated to EACH Sub-Account individually, and that there was
a full surrender of the Policy at the end of the applicable period.

10 Years
One-Year or Life Years
Total 5 of Fund Since
Underlying Fund Return Years (if less) Inception*
<S> <C> <C> <C> <C>
Select International Equity Fund -70.64% N/A -16.44% 2.67
DGPF International Equity Series -72.27% N/A -3.69% 4.17
Fidelity VIP Overseas Portfolio -78.01% -3.59% 1.90% 9.92
T. Rowe Price International Stock Portfolio -76.77% N/A -21.99% 2.58
Select Aggressive Growth Fund -73.51% N/A 5.09% 4.36
Select Capital Appreciation Fund -81.72% N/A -29.61% 1.67
Small-Mid Cap Value Fund -65.07% N/A -4.37% 3.67
Select Growth Fund -70.59% N/A -2.63% 4.36
Growth Fund -72.13% 0.39 9.24% 10.00
Fidelity VIP Growth Portfolio -76.75% 2.97% 9.62% 10.00
Equity Index Fund -70.35% 2.36% 8.69% 6.26
Select Growth and Income Fund -71.23% N/A -1.39% 4.36
Fidelity VIP Equity-Income Portfolio -77.11% 5.97% 8.14% 10.00
Fidelity VIP II Asset Manager Portfolio -76.84% -1.26% 3.86% 7.32
Fidelity VIP High Income Portfolio -77.32% 2.74% 5.39% 10.00
Investment Grade Income Fund -86.12% -5.62% 2.40% 10.00
Government Bond Fund -86.16% -7.54% -5.09% 5.35
Money Market Fund -84.61% -8.85% -0.22% 10.00
Fidelity VIP Money Market Portfolio -84.61% -8.85% -0.22% 10.00
</TABLE>

* If less than 10 years. The inception dates for the Underlying Funds are:
4/29/85 for Growth, Investment Grade and Money Market; 9/28/90 for Equity Index;
8/26/91 for Government Bond; 8/21/92 for Select Aggressive Growth, Select
Growth, and Select Growth and Income; 4/30/93 for Small-Mid Cap Value; 5/01/94
for Select International Equity; 4/28/95 for the Select Capital Appreciation
Fund; 10/09/86 for Fidelity VIP Equity-Income and Fidelity VIP Growth; 9/19/85
for Fidelity VIP High Income; 1/28/87 for Fidelity VIP Overseas; 9/06/89 for
Fidelity VIP II Asset Manager; 10/29/92 for DGPF International Equity; and
3/31/94 for the T. Rowe Price International Stock.

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
UNDERLYING 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.

20
<PAGE>
TABLE I (B): SUB-ACCOUNT PERFORMANCE
NET OF ALL CHARGES AND ASSUMING SURRENDER OF A VEL 91 POLICY

10 Years
One-Year or Life Years
Total 5 of Fund Since
Underlying Fund Return Years (if less) Inception*
<S> <C> <C> <C> <C>
Select International Equity Fund -100.00% N/A -26.66% 2.67
DGPF International Equity Series -100.00% N/A -7.33% 4.17
Fidelity VIP Overseas Portfolio -100.00% -5.90% 1.87% 9.92
T. Rowe Price International Stock Portfolio -100.00% N/A -33.48% 2.58
Select Aggressive Growth Fund -100.00% N/A 2.33% 4.36
Select Capital Appreciation Fund -100.00% N/A -50.38% 1.67
Small-Mid Cap Value Fund -100.00% N/A -9.28% 3.67
Select Growth Fund -100.00% N/A -5.90% 4.36
Growth Fund -100.00% -1.68% 9.22% 10.00
Fidelity VIP Growth Portfolio -100.00% 1.04% 9.60% 10.00
Equity Index Fund -100.00% 0.40% 7.83% 6.26
Select Growth and Income Fund -100.00% N/A -4.57% 4.36
Fidelity VIP Equity-Income Portfolio -100.00% 4.19% 8.13% 10.00
Fidelity VIP II Asset Manager Portfolio -100.00% -3.43% 3.26% 7.32
Fidelity VIP High Income Portfolio -100.00% 0.80% 5.37% 10.00
Investment Grade Income Fund -100.00% -8.07% 2.38% 10.00
Government Bond Fund -100.00% -10.13% -7.21% 5.35
Money Market Fund -100.00% -11.53% -0.24% 10.00
Fidelity VIP Money Market Portfolio -100.00% -11.53% -0.24% 10.00
</TABLE>

21
<PAGE>
TABLE 2: SUB-ACCOUNT PERFORMANCE
EXCLUDING MONTHLY POLICY CHARGES AND SURRENDER CHARGES
VEL 87 POLICY OR VEL 91 POLICY

The following performance information is based on the periods that the
Underlying Funds have been in existence. The performance information is net of
total Underlying Fund expenses, all Sub-Account charges, and premium tax and
expense charges. THE DATA DOES NOT REFLECT MONTHLY CHARGES UNDER THE POLICY OR
SURRENDER CHARGES. It is assumed that an annual premium payment of $3,000
(approximately one Guideline Annual Premium) was made at the beginning of each
Policy year and that ALL premiums were allocated to EACH Sub-Account
individually.

10 Years
One-Year or Life Years
Total 5 of Fund Since
Underlying Fund Return Years (if less) Inception*
<S> <C> <C> <C> <C>
Select International Equity Fund 20.86% N/A 12.65% 2.67
DGPF International Equity Series 18.95% N/A 11.44% 4.17
Fidelity VIP Overseas Portfolio 12.20% 8.15% 6.91% 9.92
T. Rowe Price International Stock Portfolio 13.65% N/A 8.95% 2.58
Select Aggressive Growth Fund 17.49% N/A 18.69% 4.36
Select Capital Appreciation Fund 7.82% N/A 27.18% 1.67
Small-Mid Cap Value Fund 27.39% N/A 13.82% 3.67
Select Growth Fund 20.92% N/A 11.63% 4.36
Growth Fund 19.11% 11.77% 13.75% 10.00
Fidelity VIP Growth Portfolio 13.68% 14.14% 14.11% 10.00
Equity Index Fund 21.20% 13.58% 16.70% 6.26
Select Growth and Income Fund 20.17% N/A 12.75% 4.36
Fidelity VIP Equity-Income Portfolio 13.26% 16.92% 12.71% 10.00
Fidelity VIP II Asset Manager Portfolio 13.57% 10.26% 10.68% 7.32
Fidelity VIP High Income Portfolio 13.01% 13.93% 10.12% 10.00
Investment Grade Income Fund 2.62% 6.32% 7.33% 10.00
Government Bond Fund 2.58% 4.60% 5.95% 5.35
Money Market Fund 4.41% 3.44% 4.91% 10.00
Fidelity VIP Money Market Portfolio 4.41% 3.59% 5.00% 10.00
</TABLE>

22
<PAGE>
DESCRIPTION OF THE COMPANY, THE VEL ACCOUNT,
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND,
VARIABLE INSURANCE PRODUCTS FUND II,
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
AND DELAWARE GROUP PREMIUM FUND, INC.

THE COMPANY

The Company is a life insurance company organized under the laws of Delaware in
July 1974. Its Principal Office is located at 440 Lincoln Street, Worcester,
Massachusetts 01653, Telephone 508-855-1000. The Company is subject to the laws
of the state of Delaware governing insurance companies and to regulation by the
Commissioner of Insurance of Delaware. In addition, the Company is subject to
the insurance laws and regulations of other states and jurisdictions in which it
is licensed to operate.

Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirect wholly owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica") which, in turn, is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company and adopted its present name on
October 16, 1995. First Allmerica is the fifth oldest life insurance company in
America.

THE VEL ACCOUNT

The VEL Account was authorized by vote of the Board of Directors of the Company
on January 21, 1993. The VEL Account is registered with the Securities and
Exchange Commission ("SEC") as a unit investment trust under the Investment
Company Act of 1940 ("1940 Act"). Such registration does not involve the
supervision of its management or investment practices or policies of the VEL
Account or the Company by the SEC.

The assets used to fund the variable portion of the Policies are set aside in
the VEL Account, and are kept separate from the general assets of the Company.
Under Delaware law, assets equal to the reserves and other liabilities of the
VEL Account may not be charged with any liabilities arising out of any other
business of the Company. The VEL Account currently has 19 Sub-Accounts. Each
Sub-Account is administered and accounted for as part of the general business of
the Company, but the income, capital gains, or capital losses of each
Sub-Account are allocated to such Sub-Account, without regard to other income,
capital gains or capital losses of the Company, or the other Sub-Accounts. Each
Sub-Account invests exclusively in a corresponding Underlying Fund of one of the
following investment companies:

- - Allmerica Investment Trust

- - Variable Insurance Products Fund

- - Variable Insurance Products Fund II

- - T. Rowe Price International Series, Inc.

- - Delaware Group Premium Fund, Inc.

The assets of each Underlying Fund are held separate from the assets of the
other Underlying Funds. Each Underlying Fund operates as a separate investment
vehicle, and the income or losses of one Underlying Fund generally have no
effect on the investment performance of another Underlying Fund. Shares of each
Underlying Fund are not offered to the general public but solely to separate
accounts of life insurance companies, such as the VEL Account.

The Company reserves the right, subject to compliance with applicable law, to
change the names of the Sub-Accounts and the VEL Account.

23
<PAGE>
ALLMERICA INVESTMENT TRUST

Allmerica Investment Trust (the "Trust") is an open-end, diversified management
investment company registered with the SEC under the 1940 Act. Such registration
does not involve supervision by the SEC of the investments or investment policy
of the Trust or its separate investment funds.

The Trust was established by the Company as a Massachusetts business trust on
October 11, 1984, for the purpose of providing a vehicle for the investment of
assets of various separate accounts established by the Company, or other
affiliated insurance companies. Eleven investment portfolios of the Trust
("Funds") are available under the Policy, each issuing a series of shares: the
Growth Fund, Investment Grade Income Fund, Money Market Fund, Equity Index Fund,
Government Bond Fund, Select International Equity Fund, Select Aggressive Growth
Fund, Select Capital Appreciation Fund, Select Growth Fund, Select Growth and
Income Fund and Small-Mid Cap Value Fund.

Allmerica Investment Management Company, Inc. ("Allmerica Investment") serves as
investment adviser of the Trust and has entered into sub-advisory agreements
with other investment managers ("Sub-Advisers") who manage the investments of
the Underlying Funds of the Trust. See INVESTMENT ADVISORY SERVICES --
"Investment Advisory Services to the Trust."

VARIABLE INSURANCE PRODUCTS FUND

Variable Insurance Products Fund ("Fidelity VIP"), managed by FMR, is an
open-end, diversified, management investment company organized as a
Massachusetts business trust on November 13, 1981, and is registered with the
SEC under the 1940 Act. Five of its investment portfolios are available under
the Policy: Fidelity VIP High Income Portfolio, Fidelity VIP Equity-Income
Portfolio, Fidelity VIP Growth Portfolio and Fidelity VIP Overseas Portfolio and
Fidelity Money Market Portfolio.

Various Fidelity companies perform certain activities required to operate
Fidelity VIP. FMR is one of America's largest investment management
organizations, and has its principal business address at 82 Devonshire Street,
Boston, Massachusetts. It is composed of a number of different companies which
provide a variety of financial services and products. FMR is the original
Fidelity company, founded in 1946. It provides a number of mutual funds and
other clients with investment research and portfolio management services.

VARIABLE INSURANCE PRODUCTS FUND II

Variable Insurance Products Fund II ("Fidelity VIP II"), managed by FMR (see
discussion under "Variable Insurance Products Fund"), is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on March 21, 1988 and is registered with the SEC under the 1940 Act. One
of its investment portfolios is available under the Policy: the Fidelity VIP II
Asset Manager Portfolio.

T. ROWE PRICE INTERNATIONAL SERIES, INC.

T. Rowe Price International Series, Inc. ("T. Rowe Price"), managed by Rowe
Price-Fleming International, Inc. ("Price-Fleming") (see "Investment Advisory
Services to T. Rowe Price"), is an open-end, diversified management investment
company organized as a Maryland corporation in 1994, and is registered with the
SEC under the 1940 Act. One of its investment portfolios is available under the
Policy: the T. Rowe Price International Stock Portfolio.

DELAWARE GROUP PREMIUM FUND, INC.

Delaware Group Premium Fund, Inc. ("DGPF") is an open-end, diversified
management investment company registered with the SEC under the 1940 Act. Such
registration does not involve supervision by the SEC of the investments or
investment policy of DGPF or its separate investment series. DGPF was
established to provide a vehicle for the investment of assets of various
separate accounts supporting variable insurance policies. One investment
portfolio ("Series") is available under the Policy: the International Equity
Series. The Investment adviser for the International Equity Series is Delaware
International Advisers Ltd. ("Delaware International"). See "Investment Advisory
Services to DGPF."

24
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

A summary of investment objectives of each of the Underlying Funds is set forth
below. The Underlying Funds are listed by general investment risk
characteristics. MORE DETAILED INFORMATION REGARDING THE INVESTMENT OBJECTIVES,
RESTRICTIONS AND RISKS, EXPENSES PAID BY THE UNDERLYING FUNDS AND OTHER RELEVANT
INFORMATION REGARDING THE UNDERLYING FUNDS MAY BE FOUND IN THEIR RESPECTIVE
PROSPECTUSES, WHICH ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ CAREFULLY
BEFORE INVESTING. The statements of additional information of the Underlying
Funds are available upon request. There can be no assurance that the investment
objectives of the Underlying Funds can be achieved.

SELECT INTERNATIONAL EQUITY FUND -- The Select International Equity Fund of the
Trust seeks maximum long-term total return (capital appreciation and income)
primarily by investing in common stocks of established non-U.S. companies.

DGPF INTERNATIONAL EQUITY SERIES -- The International Equity Series of DGPF
seeks long-term growth without undue risk to principal by investing primarily in
equity securities of foreign issuers providing the potential for capital
appreciation and income.

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

T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO -- The T. Rowe Price International
Stock Portfolio seeks long-term growth of capital through investments primarily
in common stocks of established, non-U.S. companies.

SELECT AGGRESSIVE GROWTH FUND -- The Select Aggressive Growth Fund of the Trust
seeks above-average capital appreciation by investing primarily in common stocks
of companies which are believed to have significant potential for capital
appreciation.

SELECT CAPITAL APPRECIATION FUND -- The Select Capital Appreciation Fund of the
Trust seeks long-term growth of capital in a manner consistent with the
preservation of capital. Realization of income is not a significant investment
consideration and any income realized on the Fund's investments will be
incidental to its primary objective. The Fund invests primarily in common stock
of industries and companies which are believed to be experiencing favorable
demand for their products and services, and which operate in a favorable
competitive environment and regulatory climate.

SMALL-MID CAP VALUE FUND -- The Small-Mid Cap Value Fund of the Trust seeks
long-term growth by investing principally in a diversified portfolio of common
stocks of small and mid-size companies whose securities at the time of purchase
are considered by the Sub-Adviser to be undervalued.

SELECT GROWTH FUND -- The Select Growth Fund of the Trust seeks to achieve
long-term growth of capital by investing in a diversified portfolio consisting
primarily of common stocks selected on the basis of their long-term growth
potential.

GROWTH FUND -- The Growth Fund of the Trust is invested in common stocks and
securities convertible into common stocks that are believed to represent
significant underlying value in relation to current market prices. The objective
of the Growth Fund is to achieve long-term growth of capital. Realization of
current investment income, if any, is incidental to this objective.

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

EQUITY INDEX FUND -- The Equity Index Fund of the Trust seeks to provide
investment results that correspond to the aggregate price and yield performance
of a representative selection of United States publicly traded common stocks.
The Equity Index Fund seeks to achieve its objective by attempting to replicate
the aggregate price and yield performance of the S&P 500 Stocks.

25
<PAGE>
SELECT GROWTH AND INCOME FUND -- The Select Growth and Income Fund seeks a
combination of long-term growth of capital and current income. The Fund will
invest primarily in dividend-paying common stocks and securities convertible
into common stocks.

FIDELITY VIP EQUITY-INCOME PORTFOLIO -- The Equity-Income Portfolio of Fidelity
VIP seeks reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Portfolio also will consider the
potential for capital appreciation. The Portfolio's goal is to achieve a yield
which exceeds the composite yield on the securities comprising the S&P 500.

FIDELITY VIP II ASSET MANAGER PORTFOLIO -- The Asset Manager Portfolio of
Fidelity VIP II seeks high total return with reduced risk over the long term by
allocating its assets among domestic and foreign stocks, bonds and short-term
fixed-income instruments.

FIDELITY VIP HIGH INCOME PORTFOLIO -- The High Income Portfolio of Fidelity VIP
seeks to obtain a high level of current income by investing primarily in
high-yielding, lower-rated fixed-income securities (commonly referred to as
"junk bonds"), while also considering growth of capital. These securities often
are considered to be speculative, and involve greater risk of default or price
changes than securities assigned a high quality rating. See the Fidelity VIP
prospectus.

INVESTMENT GRADE INCOME FUND -- The Investment Grade Income Fund of the Trust is
invested in a diversified portfolio of fixed income securities with the
objective of seeking as high a level of total return (including both income and
capital appreciation) as is consistent with prudent investment management.

GOVERNMENT BOND FUND -- The Government Bond Fund of the Trust has the investment
objectives of seeking high income, preservation of capital and maintenance of
liquidity, primarily through investments in debt instruments issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, and in
related options, futures and repurchase agreements.

MONEY MARKET FUND -- The Money Market Fund of the Trust is invested in a
diversified portfolio of high-quality, short-term money market instruments with
the objective of obtaining maximum current income consistent with the
preservation of capital and liquidity.

FIDELITY VIP MONEY MARKET PORTFOLIO -- The Money Market Portfolio of Fidelity
VIP seeks to obtain as high a level of current income as is consistent with
preserving capital and providing liquidity. The Money Market Portfolio will
invest only in high-quality money market instruments.

CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR TO
THOSE OF OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE SUB-ACCOUNTS WHICH
BEST WILL MEET YOUR NEEDS AND OBJECTIVES, CAREFULLY READ THE PROSPECTUSES OF THE
TRUST, FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE AND DGPF, ALONG WITH THIS
PROSPECTUS. IN SOME STATES, INSURANCE REGULATIONS MAY RESTRICT THE AVAILABILITY
OF PARTICULAR SUB-ACCOUNTS.

If required in your state, in the event of a material change in the investment
policy of a Sub-Account or the Underlying Fund in which it invests, you will be
notified of the change. If you have Policy Value in that Sub-Account, the
Company will transfer it without charge on Written Request within sixty (60)
days of the later of (1) the effective date of such change in the investment
policy, or (2) your receipt of the notice of the right to transfer. You may then
change the percentages of your premium and deduction allocations.

INVESTMENT ADVISORY SERVICES

INVESTMENT ADVISORY SERVICES TO THE TRUST

The overall responsibility for the supervision of the affairs of the Trust vests
in the Trustees. The Trustees have entered into a Management Agreement with
Allmerica Investment to handle the day-to-day affairs of the Trust. Allmerica
Investment, subject to review by the Trustees, is responsible for the general
management of the Funds. Allmerica Investment also performs certain
administrative and management services for the Trust, furnishes to the Trust all
necessary office space, facilities and equipment, and pays the

26
<PAGE>
compensation, if any, of officers and Trustees who are affiliated with Allmerica
Investment. Allmerica Asset Management, Inc., an indirect wholly-owned
subsidiary of Allmerica Financial Corporation, is an affiliate of the Company.

Other than the expenses specifically assumed by Allmerica Investment 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 Allmerica Investment, expenses for proxies, prospectuses,
reports to shareholders, and other expenses.

For providing its services under the Management Agreement, Allmerica Investment
will receive a fee, computed daily at an annual rate based on the average daily
net asset value of each Fund as follows:

<TABLE>
<S> <C> <C>
Select International Equity Fund * 1.00%

Select Aggressive Growth Fund * 1.00%

Select Capital Appreciation Fund * 1.00%

Small-Mid Cap Value Fund First $100 million 1.00%
$100 - 250 million 0.85%
$250 - $500 million 0.80%
$500 - $750 million 0.75%
Over $750 million 0.70%

Select Growth Fund * 0.85%

Growth Fund First $50 million 0.60%
$50 - 250 million 0.50%
Over $250 million 0.35%

Equity Index Fund First $50 million 0.35%
$50 - 250 million 0.30%
Over $250 million 0.25%

Select Growth and Income Fund * 0.75%

Investment Grade Income Fund First $50 million 0.50%
$50 - 250 million 0.35%
Over $250 million 0.25%

Government Bond Fund * 0.50%

Money Market Fund First $50 million 0.35%
$50 - 250 million 0.25%
Over $250 million 0.20%
</TABLE>

*For the Government Bond Fund, Select International Equity Fund, Select
Aggressive Growth Fund, Select Capital Appreciation Fund, Select Growth Fund,
and Select Growth and Income Fund, each rate applicable to Allmerica Investment
does not vary according to the level of assets in the Fund.

Allmerica Investment's fee, computed for each Fund, will be paid from the assets
of such Fund. Pursuant to the Management Agreement with the Trust, Allmerica
Investment has entered into agreements ("Sub-Adviser Agreements") with other
investment advisers ("Sub-Advisers") under which each Sub-Adviser manages the
investments of one or more of the Funds. Under the Sub-Adviser Agreement, the
Sub-Adviser is authorized to engage in portfolio transactions on behalf of the
applicable Fund, subject to such general or specific instructions as may be
given by the Trustees. The terms of a Sub-Adviser Agreement cannot be materially
changed without the approval of a majority in interest of the shareholders of
the

27
<PAGE>
affected Fund. Allmerica Investment is solely responsible for the payment of all
fees for investment management services to the Sub-Advisers.

The Sub-Advisers and the fees they receive from Allmerica Investment (computed
daily at an annual rate based on the average daily net asset value of each
Fund), are as follows:

<TABLE>
<CAPTION>
Sub-Adviser Fund Net Asset Value Rate
- ------------------------------------------------------------------ -------------------- ------
<S> <C> <C> <C>
Bank of Ireland Asset Management Select International Equity Fund First $50 million 0.45%
(U.S.) Limited Next $50 million 0.40%
Over $100 million 0.30%

Nicholas-Applegate Capital Select Aggressive Growth Fund ** 0.60%
Management, L.P.

Janus Capital Corporation Select Capital Appreciation Fund First $100 million 0.60%
Over $100 million 0.55%

CRM Advisors, LLC Small-Mid Cap Value Fund First $100 million 0.60%
$100 - 250 million 0.50%
$250 - $500 million 0.40%
$500 - $750 million 0.375%
Over $750 million 0.35%

Putnam Investment Management, Select Growth Fund First $50 million 0.50%
Inc. $50 - 150 million 0.45%
$150 - 250 million 0.35%
$250 - 350 million 0.30%
Over $350 million 0.25%

Miller, Anderson & Sherrerd, LLP Growth Fund * *

Allmerica Asset Management, Inc. Equity Index Fund ** 0.10%

John A. Levin & Co., Inc. Select Growth and Income Fund First $100 million 0.40%
Next $200 million 0.25%
Over $300 million 0.30%

Allmerica Asset Management, Inc. Investment Grade Income Fund ** 0.20%

Allmerica Asset Management, Inc. Government Bond Fund ** 0.20%

Allmerica Asset Management, Inc. Money Market Fund ** 0.10%
</TABLE>

*Allmerica Investment will pay a fee to Miller, Anderson & Sherrerd LLP based on
the aggregate assets of the Growth Fund and certain other accounts of First
Allmerica and its affiliates (collectively, the "Affiliated Accounts") which
are managed by Miller, Anderson & Sherrerd LLP, under the following schedule:

<TABLE>
<CAPTION>
Aggregate Average Net Assets Rate
---------------------------- ------
<S> <C>
First $50 million 0.500%
$50 - $100 million 0.375%
$100 - $500 million 0.250%
$500 - $850 million 0.200%
Over $850 million 0.150%
</TABLE>

**For the Investment Grade Income Fund, Money Market Fund, Equity Index Fund,
Government Bond Fund, and Select Aggressive Growth Fund, each rate applicable to
the Sub-Advisers does not vary according to the level of assets in the Fund.

The prospectus of the Trust contains additional information concerning the
Funds, including information about additional expenses paid by the Funds, and
should be read in conjunction with this Prospectus.

28
<PAGE>
INVESTMENT ADVISORY SERVICES TO FIDELITY VIP AND FIDELITY VIP II

For managing investments and business affairs, each Portfolio pays a monthly fee
to FMR. The prospectuses of Fidelity VIP and Fidelity VIP II contain additional
information concerning the Portfolios, including information about additional
expenses paid by the Portfolios, and should be read in conjunction with this
Prospectus.

The Money Market Portfolio's management fee is (a) the sum of a group fee rate
and an individual fund fee rate of 0.03%, and (b) the addition of an income
component of 6% of the Portfolio's gross income in excess of a 5% annual yield.
The result is multiplied by the Portfolio's average net assets. The group fee
rate, which is based on the average net assets of all of the mutual funds
advised by FMR, cannot rise above 0.37%, and it drops as total assets under
management increase. The income component cannot rise above 0.24%.

The Fidelity VIP High Income Portfolio pays a monthly fee to FMR at an annual
fee rate made up of the sum of two components:

1. A group fee rate based on the monthly average net assets of all the mutual
funds advised by FMR. On an annual basis this rate cannot rise above 0.37%,
and drops as total assets in all these funds rise.

2. An individual fund fee rate of 0.45% of the Fidelity VIP High Income
Portfolio's average net assets throughout the month.

The fee rates of each of the Fidelity VIP Equity-Income, Fidelity VIP Growth,
Fidelity VIP II Asset Manager and Fidelity VIP Overseas Portfolios are made of
two components:

1. A group fee rate based on the monthly average net assets of all of the
mutual funds advised by FMR. On an annual basis, this rate cannot rise above
0.52%, and drops as total assets in all these mutual funds rise.

2. An individual Portfolio fee rate of 0.20% for the Fidelity VIP Equity-Income
Portfolio, 0.30% for the Fidelity VIP Growth Portfolio, 0.25% for the
Fidelity VIP II Asset Manager Portfolio and 0.45% for the Fidelity VIP
Overseas Portfolio.

One-twelfth of the sum of these two rates is applied to the respective
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month. Thus, the Fidelity VIP High Income
Portfolio may have a fee as high as 0.82% of its average net assets. The
Fidelity VIP Equity-Income Portfolio may have a fee as high as 0.72% of its
average net assets. The Fidelity VIP Growth Portfolio may have a fee as high as
0.82% of its average net assets. The Fidelity VIP II Asset Manager Portfolio may
have a fee as high as 0.77% of its average net assets. The Fidelity VIP Overseas
Portfolio may have a fee as high as 0.97% of its average net assets. The actual
fee rate may be less depending on the total assets in the funds advised by FMR.

INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE

The Investment Adviser for the T. Rowe Price International Stock Portfolio is
Rowe Price-Fleming International, Inc. ("Price-Fleming"). Price-Fleming, founded
in 1979 as a joint venture between T. Rowe Price Associates, Inc. and Robert
Fleming Holdings, Limited, is one of America's largest international mutual fund
asset managers with approximately $25 billion under management in its offices in
Baltimore, London, Tokyo and Hong Kong. To cover investment management and
operating expenses, the T. Rowe Price International Stock Portfolio pays
Price-Fleming a single, all-inclusive fee of 1.05% of its average daily net
assets.

INVESTMENT ADVISORY SERVICES TO DGPF

Each Series of DGPF pays an investment adviser an annual fee for managing the
portfolios and making the investment decisions for the Series. The investment
adviser for the International Equity Series is Delaware

29
<PAGE>
International Advisers Ltd. ("Delaware International"). The annual fee paid by
the International Equity Series to Delaware International is equal to 0.75% of
the average daily net assets of the Series.

ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS

The Company reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Underlying Fund are no longer available for investment or if in the Company's
judgment further investment in any Underlying Fund should become inappropriate
in view of the purposes of the VEL Account or the affected Sub-Account, the
Company may redeem the shares of that Underlying Fund and substitute shares of
another registered open-end management company. The Company will not substitute
any shares attributable to a Policy interest in a Sub-Account without notice to
the Policyowner and prior approval of the SEC and state insurance authorities,
to the extent required by law. The VEL Account may, to the extent permitted by
law, purchase other securities for other policies or permit a conversion between
policies upon request by a Policyowner.

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

Shares of the Funds of the Trust also are issued to Separate Accounts of the
Company and its affiliates which issue variable annuity contracts ("mixed
funding"). Shares of the Portfolios of Fidelity VIP and Fidelity VIP II, the
Portfolio of T. Rowe Price and the Series of DGPF also are issued to other
unaffiliated insurance companies ("shared funding"). It is conceivable that in
the future such mixed funding or shared funding may be disadvantageous for
variable life Policyowners or variable annuity contract owners. Although the
Company and the Underlying Funds currently do not foresee any such disadvantages
to either variable life insurance Policyowners or variable annuity contract
owners, the Company and the respective Trustees intend to monitor events in
order to identify any material conflicts and to determine what action, if any,
should be taken. If the Trustees were to conclude that separate Funds should be
established for variable life and variable annuity separate accounts, the
Company will bear the expenses.

If any of these substitutions or changes is made, the Company may endorse the
Policies to reflect the substitution or change, and will notify Policyowners of
all such changes. If the Company deems it to be in the best interest of
Policyowners, and subject to any approvals that may be required under applicable
law, the VEL Account or any Sub-Account(s) may be operated as a management
company under the 1940 Act, may be deregistered under the 1940 Act if
registration is no longer required, or may be combined with other Sub-Accounts
or other Separate Accounts of the Company.

VOTING RIGHTS

To the extent required by law, the Company will vote Underlying Fund shares held
by each Sub-Account in accordance with instructions received from Policyowners
with Policy Value in such Sub-Account. If the 1940 Act or any rules thereunder
should be amended, or if the present interpretation of the 1940 Act or such
rules should change and, as a result the Company determines that it is permitted
to vote shares in its own right, whether or not such shares are attributable to
the Policies, the Company reserves the right to do so.

Each person having a voting interest will be provided with proxy materials of
the respective Underlying Fund, together with an appropriate form with which to
give voting instructions to the Company. Shares held in each Sub-Account for
which no timely instructions are received will be voted in proportion to the
instructions which have been received by the Company. The Company also will vote
shares held in the VEL Account that it owns and which are not attributable to
the Policies in the same proportion.

30
<PAGE>
The number of votes which a Policyowner has the right to instruct will be
determined by the Company as of the record date established for the Underlying
Fund. This number is determined by dividing each Policyowner's Policy Value in
the Sub-Account, if any, by the net asset value of one share in the
corresponding Underlying Fund in which the assets of the Sub-Account are
invested.

The Company may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as (1) to cause a change in the sub-classification or investment
objective of one or more of the Underlying Funds, or (2) to approve or
disapprove an investment advisory contract for the Underlying Funds. In
addition, the Company may disregard voting instructions in favor of any change
in the investment policies or in any investment adviser or principal underwriter
initiated by Policyowners or the Trustees. The Company's disapproval of any such
change must be reasonable and, in the case of a change in investment policies or
investment adviser, based on a good faith determination that such change would
be contrary to state law or otherwise is inappropriate in light of the
objectives and purposes of the Underlying Funds. In the event the Company does
disregard voting instructions, a summary of and the reasons for that action will
be included in the next periodic report to Policyowners.

THE POLICIES

APPLYING FOR A POLICY

A Policy cannot be issued until the underwriting procedure has been completed.
Upon receipt at its Principal Office of a completed application from a
prospective Policyowner, the Company will follow certain insurance underwriting
procedures designed to determine whether the proposed Insured is insurable. This
process may involve medical examinations, and may require that further
information be provided by the proposed Policyowner before a determination of
insurability can be made. The Company reserves the right to reject an
application which does not meet its underwriting guidelines, but in underwriting
insurance, the Company complies with all applicable federal and state
prohibitions concerning unfair discrimination.

CONDITIONAL INSURANCE AGREEMENT

It is possible to obtain life insurance protection during the underwriting
process through a Conditional Insurance Agreement. If at the time of application
you make a payment equal to at least one "Minimum Monthly Factor" for the Policy
as applied for, the Company will provide fixed conditional insurance in the
amount of insurance applied for up to a maximum of $500,000, pending
underwriting approval. This coverage generally will continue for a maximum of 90
days from the date of the application or the completion of a medical exam,
should one be required. In no event will any insurance proceeds be paid under
the Conditional Insurance Agreement if death is by suicide.

If the application is approved, a Policy will be issued as of the date the terms
of the Conditional Insurance Agreement were met. If no Conditional Insurance
Agreement is in effect because the prospective Policyowner does not wish to make
any payment until the Policy is issued or has paid an initial premium that is
not sufficient to place the Policy in force, upon delivery of the Policy the
Company will require payment of sufficient premium to place the insurance in
force.

PREMIUMS HELD IN THE GENERAL ACCOUNT PENDING UNDERWRITING APPROVAL

Pending completion of insurance underwriting and Policy issuance procedures, the
initial premium will be held in the Company's General Account. If the
application is approved and a Policy is issued and accepted by you, the initial
premium held in the General Account will be credited with interest at a
specified rate, beginning not later than the date of receipt of the premium at
the Principal Office. IF A POLICY IS NOT ISSUED, THE PREMIUMS WILL BE RETURNED
TO YOU WITHOUT INTEREST.

If a Policy is issued to the trustee of an employee benefit plan, the amounts
held in the Company's General Account will be allocated to the Sub-Accounts
according to the Policyowner's instructions when the

31
<PAGE>

Delivery Receipt is returned to the Principal Office. For all other
Policyowners, the date the Company transfers the initial net premium from the
General Account to the selected Sub-Accounts depends on the premium amount. If
the initial net premiums are less than $10,000, the amounts held in the General
Account will be allocated to the selected Sub-Accounts not later than three days
after underwriting approval of the Policy. If the initial net premiums equal or
exceed $10,000, or if the Policy provides for planned premium payments during
the first year equal to or exceeding $10,000 annually, $5,000 semi-annually,
$2,500 quarterly or $1,000 monthly, the entire Net Premium, plus any interest
earned, will remain in the General Account until return of the Policy's Delivery
Receipt to the Principal Office. The entire amount held in the General Account
for allocation to the VEL Account then will be allocated to the Sub-Accounts
according to your instructions.

FREE-LOOK PERIOD

The Policies provide for an initial "free-look" period. You may cancel a Policy
by mailing or delivering the Policy to the Principal Office or an agent of the
Company on or before the latest of:

- - 45 days after the application for a Policy is signed, or

- - 10 days after you receive the Policy (or longer if required by state law), or

- - 10 days after the Company mails or personally delivers a notice of withdrawal
rights to you.

When you return the Policy, the Company will mail within seven days a refund
equal to the sum of:

(1) the difference between the premiums, including fees and charges paid, and
any amounts allocated to the VEL Account, PLUS

(2) the value of the amounts allocated to the VEL Account, PLUS

(3) any fees or charges imposed on the amounts allocated to the VEL Account.

The amount refunded in (1) above includes any premiums allocated to the General
Account. Where required by state law, the refund will equal the premiums paid.
The refund of any premium paid by check, however, may be delayed until the check
has cleared your bank.

FREE LOOK WITH FACE AMOUNT INCREASES -- After an increase in the Face Amount,
the Company will mail or personally deliver a notice of a "free look" with
respect to the increase. You will have the right to cancel the increase before
the latest of:

- - 45 days after the application for the increase is signed, or

- - 10 days after you receive the new specification pages issued for the increase
(or longer if required by state law), or

- - 10 days after the Company mails or delivers a notice of withdrawal rights to
you.

Upon canceling the increase, you will receive a credit to your Policy Value of
charges which would not have been deducted but for the increase. The amount to
be credited will be refunded if you so request. The Company also will waive any
surrender charge calculated for the increase.

CONVERSION PRIVILEGES

Once during the first 24 months after the Date of Issue or after the effective
date of an increase in Face Amount (assuming your Policy is in force), you may
convert your Policy without Evidence of Insurability to a flexible premium
adjustable life insurance policy with fixed and guaranteed minimum benefits.
Assuming that there have been no increases in the initial Face Amount, you can
accomplish this within 24 months after the Date of Issue by transferring,
without charge, the Policy Value in the VEL Account to the General Account and
by simultaneously changing your premium allocation instructions to allocate
future premium payments to the General Account. Within 24 months after the
effective date of each increase, you can transfer, without charge, all or part
of the Policy Value in the VEL Account to the General

32
<PAGE>
Account and simultaneously change your premium allocation instructions to
allocate all or part of future premium payments to the General Account.

Where required by state law, at your request the Company will issue a flexible
premium adjustable life insurance Policy to you. The new Policy will have the
same Face Amount, issue Age, Dates of Issue, and Premium Class as the original
Policy.

PREMIUM PAYMENTS

Premium payments are payable to the Company, and may be mailed to the Principal
Office or paid through one of the Company's authorized agents. All premium
payments after the initial premium payment are credited to the VEL Account or
the General Account as of date of receipt at the Principal Office.

PREMIUM FLEXIBILITY

Unlike conventional insurance policies, the Policies do not obligate you to pay
premiums in accordance with a rigid and inflexible premium schedule. You may
establish a schedule of planned premiums which will be billed by the Company at
regular intervals. Failure to pay planned premiums, however, will not itself
cause a Policy to lapse.

You also may make unscheduled premium payments or skip planned premium payments,
subject to the maximum and minimum premium limitations described below.

You also may elect to pay premiums by means of a monthly automatic payment
("MAP") procedure. Under a MAP procedure, amounts will be deducted each month,
generally on the Monthly Payment Date, from your checking account and applied as
a premium under a Policy. The minimum payment permitted under a MAP procedure is
$50.

Premiums are not limited as to frequency and number. No premium payment may be
less than $100, however, without the Company's consent. Moreover, premium
payments must be sufficient to provide a positive Surrender Value at the end of
each Policy month, or a Policy may lapse. See "POLICY TERMINATION AND
REINSTATEMENT."

MINIMUM MONTHLY FACTOR

If, in the first 48 Policy months for a VEL 91 Policy (12 months for a VEL 87
Policy) following issue or an increase in the Face Amount, you make premium
payments, less partial withdrawals and partial withdrawal charges, at least
equal to the sum of the Minimum Monthly Factor for the number of months the
Policy, increase in Face Amount, or Policy Change which causes a change in the
Minimum Monthly Factor, has been in force, a Policy is guaranteed not to lapse
during that period. EXCEPT FOR THE 48 POLICY MONTHS FOR A VEL 91 POLICY (12
MONTHS FOR A VEL 87 POLICY) AFTER THE DATE OF ISSUE, OR THE EFFECTIVE DATE OF AN
INCREASE IN THE FACE AMOUNT, MAKING MONTHLY PAYMENTS AT LEAST EQUAL TO THE
MINIMUM MONTHLY FACTOR DOES NOT GUARANTEE THAT A POLICY WILL REMAIN IN FORCE.

In no event may the total of all premiums paid exceed the current maximum
premium limitations set forth in a Policy which are required by federal tax
laws. These maximum premium limitations will change whenever there is any change
in the Face Amount, the addition or deletion of a rider, or a change in the Sum
Insured Option. If a premium is paid which would result in total premiums
exceeding the current maximum premium limitations, the Company will accept only
that portion of the premiums which shall make total premiums equal the maximum.
Any part of the premiums in excess of that amount will be

33
<PAGE>

returned, and no further premiums will be accepted until allowed by the current
maximum premium limitation prescribed by Internal Revenue Service ("IRS") rules.
Notwithstanding the current maximum premium limitations, however, the Company
will accept a premium which is needed in order to prevent a lapse of a Policy
during a Policy year. See "POLICY TERMINATION AND REINSTATEMENT."

PAID-UP INSURANCE OPTION

Upon Written Request, a Policyowner may exercise a paid-up insurance option.
Paid-up life insurance is fixed insurance, usually having a reduced Face Amount,
for the lifetime of the insured with no further premiums due. If the Policyowner
elects this option, certain Policyowner rights and benefits may be limited.

The paid-up fixed insurance will be in the amount, up to the Face Amount of the
Policy, that the Surrender Value of the Policy can purchase for a net single
premium at the Insured's age and underwriting class on the date this option is
elected. The Company will transfer any Policy Value in the Sub-Accounts to the
General Account on the date it receives the written request to elect the option.
If the Surrender Value exceeds the net single premium necessary for the fixed
insurance, the Company will pay the excess to the Policyowner. The net single
premium is based on the Commissioners 1980 Standard Ordinary Mortality Table,
Smoker or Non-Smoker (male, female or Table B for unisex Policies) with
increases in the tables for non-standard risks. Interest will not be less than
4.5%.

IF THE PAID-UP INSURANCE OPTION IS ELECTED, THE FOLLOWING POLICYOWNER RIGHTS AND
BENEFITS WILL BE AFFECTED:

- - As described above, the paid-up insurance benefit is computed differently from
the net death benefit, and the death benefit options will not apply.

- - The Company will transfer the Policy Value in the VEL Account to the General
Account on the date it receives the Written Request to elect the option. The
Company will not allow transfers of Policy Value from the General Account back
to the VEL Account.

- - The Policyowner may not make further premium payments.

- - The Policyowner may not increase or decrease the Face Amount or make partial
withdrawals.

- - Riders will continue only with the Company's consent.

After electing paid-up fixed insurance, the Policyowner may surrender a Policy
for its net cash value. The cash value is equal to the net single premium for
paid-up insurance at the Insured's attained age. The net cash value is the cash
value less any outstanding Debt.

ALLOCATION OF NET PREMIUMS

The Net Premium equals the premium paid less the tax expense charge. In the
application for a Policy, you indicate the initial allocation of Net Premiums
among the General Account and the Sub-Accounts of the VEL Account. You may
allocate premiums to one or more Sub-Accounts, but may not have Policy Value in
more than seven Sub-Accounts at any one time. The minimum amount which may be
allocated to a Sub-Account is 1% of Net Premium paid. Allocation percentages
must be in whole numbers (for example, 33 1/3% may not be chosen) and must total
100%.

FUTURE CHANGES ALLOWED

You may change the allocation of future Net Premiums at any time pursuant to
written or telephone request. An allocation change will be effective as of the
date of receipt of the notice at the Principal Office. Currently, no charge is
imposed for changing premium allocation instructions. The Company reserves the
right to impose such a charge in the future, but guarantees that the charge will
not exceed $25.

If allocation changes by telephone are elected by the Policyowner, a properly
completed authorization form must be on file before telephone requests will be
honored. The Company and its agents and affiliates

34
<PAGE>
will not be responsible for losses resulting from acting upon telephone requests
reasonably believed to be genuine. The Company will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine; otherwise,
the Company may be liable for any losses due to unauthorized or fraudulent
instructions.

The procedures the Company follows for telephone transactions include requiring
callers to identify themselves by name, and to identify the Policyowner by name,
date of birth and social security number. All transfer instructions by telephone
are tape recorded.

INVESTMENT RISK

The Policy Value in the Sub-Accounts will vary with their investment experience;
you bear this investment risk. The investment performance may affect the Death
Proceeds as well. Policyowners periodically should review their allocations of
premiums and Policy Value in light of market conditions and overall financial
planning requirements.

TRANSFER PRIVILEGE

Subject to the Company's then current rules, you may at any time transfer the
Policy Value among the Sub-Accounts or between a Sub-Account and the General
Account. However, the Policy Value held in the General Account to secure a
Policy loan may not be transferred.

All requests for transfers must be made to the Principal Office. The amount
transferred will be based on the Policy Value in the Account(s) next computed
after receipt of the transfer order. The Company will make transfers pursuant to
written or telephone request. As discussed in THE POLICIES -- "Allocation of Net
Premiums," a properly completed authorization form must be on file at the
Principal Office before telephone requests will be honored.

Currently, transfers involving the General Account are permitted only if:

- - there has been at least a 90-day period since the last transfer from the
General Account, and

- - the amount transferred from the General Account in each transfer does not
exceed the lesser of $100,000 or 25% of the Accumulated Value under the
Policy.

These rules are subject to change by the Company.

DOLLAR-COST AVERAGING OPTION AND AUTOMATIC REBALANCING OPTION

You may have automatic transfers of at least $100 a month made on a periodic
basis:

- - from the Sub-Accounts which invest in the Money Market Fund and Government
Bond Fund of the Trust, respectively, to one or more of the other Sub-Accounts
("Dollar-Cost Averaging Option"), or

- - to reallocate Policy Value among the Sub-Accounts ("Automatic Rebalancing
Option").

Automatic transfers may be made on a monthly, bi-monthly, quarterly, semi-annual
or annual schedule. Generally, all transfers will be processed on the 15th of
each scheduled month. If the 15th is not a business day, however, or is the
Monthly Payment Date, the automatic transfer will be processed on the next
business day. The Dollar-Cost Averaging Option and the Automatic Rebalancing
Option may not be in effect at the same time.

TRANSFER PRIVILEGE SUBJECT TO POSSIBLE LIMITS

The transfer privilege is subject to the Company's consent. The Company reserves
the right to impose limitations on transfers including, but not limited to:

- - the minimum amount that may be transferred,

- - the minimum amount that may remain in a Sub-Account following a transfer from
that Sub-Account,

35
<PAGE>
- - the minimum period of time between transfers involving the General Account,
and

- - the maximum amount that may be transferred each time from the General Account.

Currently, the first 12 transfers in a Policy year will be free of any charge.
Thereafter, a $10 transfer charge will be deducted from the amount transferred
for each transfer in that Policy year. The Company may increase or decrease this
charge, but it is guaranteed never to exceed $25. The first automatic transfer
counts as one transfer towards the 12 free transfers allowed in each Policy
year; each subsequent automatic transfer is without charge and does not reduce
the remaining number of transfers which may be made free of charge. Any
transfers made with respect to a conversion privilege, Policy loan or material
change in investment policy will not count towards the 12 free transfers.

DEATH PROCEEDS

As long as a Policy remains in force (see "POLICY TERMINATION AND
REINSTATEMENT"), upon due proof of the Insured's death, the Company will pay the
Death Proceeds of a Policy to the named Beneficiary. The Company normally will
pay the Death Proceeds within seven days of receiving due proof of the Insured's
death, but the Company may delay payments under certain circumstances. See OTHER
POLICY PROVISIONS -- "Postponement Of Payments." The Death Proceeds may be
received by the Beneficiary in cash or under one or more of the payment options
set forth in the Policy. See "APPENDIX B -- DEATH PROCEEDS PAYMENT OPTIONS."

Prior to the Final Premium Payment Date or Maturity Date, the Death Proceeds are
equal to:

- - the Sum Insured provided under Option 1 or Option 2, whichever is elected and
in effect on the date of death; PLUS

- - any additional insurance on the Insured's life that is provided by rider;
MINUS

- - any outstanding Debt, any partial withdrawals and partial withdrawal charges,
and any Monthly Deductions due and unpaid through the Policy month in which
the Insured dies.

After the Final Premium Payment Date, the Death Proceeds equal the Surrender
Value of the VEL 91 Policy. The amount of Death Proceeds payable will be
determined as of the date of the Company's receipt of due proof of the Insured's
death.

SUM INSURED OPTIONS

The Policies provide two Sum Insured Options: Option 1 and Option 2, as
described below. You designate the desired Sum Insured Option in the
application. You may change the Option once per Policy year by Written Request.
There is no charge for a change in Option. Under Option 1, the Sum Insured is
equal to the greater of the Face Amount of insurance or the Guideline Minimum
Sum Insured. Under Option 2, the Sum Insured is equal to the greater of the Face
Amount of insurance plus the Policy Value or the Guideline Minimum Sum Insured.

GUIDELINE MINIMUM SUM INSURED

To remain qualified as "life insurance" for federal tax purposes, federal tax
law requires that policies have a minimum amount of pure life insurance
protection in relation to the size of the Policy Value. The Guideline Minimum
Sum Insured is used to determine compliance with this requirement. So long as a
Policy qualifies as a life insurance contract, the insurance proceeds will be
excluded from the gross income of the Beneficiary.

36
<PAGE>
GUIDELINE MINIMUM SUM INSURED TABLE

<TABLE>
<CAPTION>
Age of Insured Percentage of
on Date of Death Policy 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.

Under both Option 1 and Option 2, the Sum Insured provides insurance protection.
Under Option 1, the Sum Insured remains level unless the applicable percentage
of Policy Value under the Guideline Minimum Sum Insured exceeds the Face Amount,
in which case the Sum Insured will vary as the Policy Value varies. Under Option
2, the Sum Insured varies as the Policy Value changes.

For any Face Amount, the amount of the Sum Insured (and the Death Proceeds) will
be greater under Option 2 than under Option 1. This is because the Policy Value
is added to the specified Face Amount and included in the Death Proceeds only
under Option 2. Under Option 2, however, the cost of insurance included in the
Monthly Deduction will be greater, and the rate at which Policy Value will
accumulate will be slower (assuming the same specified Face Amount and the same
actual premiums paid). See CHARGES AND DEDUCTIONS -- "Monthly Deduction From
Policy Value."

If you desire to have premium payments and investment performance reflected in
the amount of the Sum Insured, you should choose Option 2. If you desire premium
payments and investment performance reflected to the maximum extent in the
Policy Value, you should select Option 1.

ILLUSTRATIONS

For the purposes of the following illustrations, assume that the Insured is
under the Age of 40 and that there is no outstanding Debt.

ILLUSTRATION OF OPTION 1 -- Under Option 1, the Face Amount of a Policy
generally will equal the Sum Insured. If at any time, however, the Policy Value
multiplied by the applicable percentage is less than the Face Amount, the Sum
Insured will equal the Face Amount of the Policy.

For example, a Policy with a $50,000 Face Amount will generally have a Sum
Insured equal to $50,000. Because the Sum Insured must be equal to or greater
than 250% of Policy Value if at any time the Policy Value exceeds $20,000, the
Sum Insured will exceed the $50,000 Face Amount. In this example, each
additional dollar of Policy Value above $20,000 will increase the Sum Insured by
$2.50. For example, a Policy with a Policy Value of $35,000 will have a
Guideline Minimum Sum Insured of $87,500 ($35,000 x 2.50); Policy Value of
$40,000 will produce a Guideline Minimum Sum Insured of $100,000 ($40,000 x
2.50); and Policy Value of $50,000 will produce a Guideline Minimum Sum Insured
of $125,000 ($50,000 x 2.50).

Similarly, so long as Policy Value exceeds $20,000, each dollar taken out of
Policy Value will reduce the Sum Insured by $2.50. If, for example, the Policy
Value is reduced from $25,000 to $20,000 (because of

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partial withdrawals, charges or negative investment performance), the Sum
Insured will be reduced from $62,500 to $50,000.

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 0
and 40), the applicable percentage would be 185%. The Sum Insured would not
exceed the $50,000 Face Amount unless the Policy Value exceeded $27,027 (rather
than $20,000), and each dollar then added to or taken from Policy Value would
change the Sum Insured by $1.85.

ILLUSTRATION OF OPTION 2 -- Under Option 2, the Sum Insured is generally equal
to the Face Amount of a Policy plus the Policy Value. The Sum Insured under
Option 2, however, always will be the greater of:

- - the Face Amount plus Policy Value; or

- - the Policy Value multiplied by the applicable percentage from the Guideline
Minimum Sum Insured Table.

For example, a Policy with a Face Amount of $50,000 and with Policy Value of
$5,000 will produce a Sum Insured of $55,000 ($50,000 + $5,000). Policy Value of
$10,000 will produce a Sum Insured of $60,000 ($50,000 + $10,000); Policy Value
of $25,000 will produce a Sum Insured of $75,000 ($50,000 + $25,000).

According to the Guideline Minimum Sum Insured Table, however, the Sum Insured
for the example must be at least 250% of the Policy Value. Therefore, if the
Policy Value is greater than $33,333, 250% of that amount will be the required
Sum Insured, which will be greater than the Face Amount plus Policy Value. In
this example, each additional dollar of Policy Value above $33,333 will increase
the Sum Insured by $2.50. For example, if the Policy Value is $35,000, the
Guideline Minimum Sum Insured will be $87,500 ($35,000 x 2.50); Policy Value of
$40,000 will produce a Guideline Minimum Sum Insured of $100,000 ($40,000 x
2.50); and Policy Value of $50,000 will produce a Guideline Minimum Sum Insured
of $125,000 ($50,000 x 2.50).

Similarly, if the Policy Value exceeds $33,333, each dollar taken out of the
Policy Value will reduce the Sum Insured by $2.50. If, for example, the Policy
Value is reduced from $45,000 to $40,000 because of partial withdrawals, charges
or negative investment performance, the Sum Insured will be reduced from
$112,500 to $100,000. If at any time, however, Policy Value multiplied by the
applicable percentage is less than the Face Amount plus Policy Value, then the
Sum Insured will be the current Face Amount plus the Policy Value.

The applicable percentage becomes lower as the Insured's Age increases. If the
Insured's Age in the above example were 50, the Sum Insured must be at least
1.85 times the Policy Value. The amount of the Sum Insured would be the sum of
the Policy Value plus $50,000 unless the Policy Value exceeded $58,824 (rather
than $33,000). Each dollar added to or subtracted from the Policy would change
the Sum Insured by $1.85.

CHANGE IN SUM INSURED OPTION

Generally, the Sum Insured Option in effect may be changed once each Policy year
by sending a Written Request for change to the Principal Office. Changing Sum
Insured Options will not require Evidence of Insurability. The effective date of
any such change will be the Monthly Payment Date on or following the date of
receipt of the request. No charges will be imposed on changes in Sum Insured
Options.

CHANGE FROM OPTION 1 TO OPTION 2

If the Sum Insured Option is changed from Option 1 to Option 2, the Face Amount
will be decreased to equal the Sum Insured less the Policy Value on the
effective date of the change. This change may not be made if it would result in
a Face Amount of less than $40,000 for a VEL 91 Policy ($25,000 for a VEL 87
Policy). A change from Option 1 to Option 2 will not alter the amount of the Sum
Insured at the time of the change, but will affect the determination of the Sum
Insured from that point on. Because the Policy

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Value will be added to the new specified Face Amount, the Sum Insured will vary
with the Policy Value. Under Option 2, the Insurance Amount at Risk always will
equal the Face Amount unless the Guideline Minimum Sum Insured is in effect. The
cost of insurance also may be higher or lower than it otherwise would have been
without the change in Sum Insured Option. See CHARGES AND DEDUCTIONS -- "Monthly
Deduction from the Policy Value."

CHANGE FROM OPTION 2 TO OPTION 1

If the Sum Insured Option is changed from Option 2 to Option 1, the Face Amount
will be increased to equal the Sum Insured which would have been payable under
Option 2 on the effective date of the change (i.e., the Face Amount immediately
prior to the change plus the Policy Value on the date of the change). The amount
of the Sum Insured will not be altered at the time of the change. The change in
option, however, will affect the determination of the Sum Insured from that
point on, since the Policy Value no longer will be added to the Face Amount in
determining the Sum Insured; the Sum Insured will equal the new Face Amount (or,
if higher, the Guideline Minimum Sum Insured). The cost of insurance may be
higher or lower than it otherwise would have been since any increases or
decreases in Policy Value will reduce or increase, respectively, the Insurance
Amount at Risk under Option 1. Assuming a positive net investment return with
respect to any amounts in the VEL Account, changing the Sum Insured Option from
Option 2 to Option 1 will reduce the Insurance Amount at Risk and therefore the
cost of insurance charge for all subsequent Monthly Deductions, compared to what
such charge would have been if no such change were made.

A change in Sum Insured Option may result in total premiums paid exceeding the
then-current maximum premium limitation determined by IRS Rules. In such event,
the Company will pay the excess to the Policyowner. See THE POLICIES -- "Premium
Payments."

CHANGE IN THE FACE AMOUNT

Subject to certain limitations, you may increase or decrease the specified Face
Amount of a Policy at any time by submitting a Written Request to the Company.
Any increase or decrease in the specified Face Amount requested by you will
become effective on the Monthly Payment Date on or next following the date of
receipt of the request at the Principal Office or, if Evidence of Insurability
is required, the date of approval of the request.

INCREASES IN THE FACE AMOUNT

Along with the Written Request for an increase, you must submit satisfactory
Evidence of Insurability. The consent of the Insured also is required whenever
the Face Amount is increased. A request for an increase in the Face Amount may
not be less than $10,000. You may not increase the Face Amount after the Insured
reaches Age 80. An increase must be accompanied by an additional premium if the
Surrender Value is less than $50 plus an amount equal to the sum of two Minimum
Monthly Factors.

On the effective date of each increase in the Face Amount, a transaction charge
of $40 will be deducted from the Policy Value for administrative costs. The
effective date of the increase will be the first Monthly Payment Date on or
following the date all of the conditions for the increase are met.

An increase in the Face Amount generally will affect the Insurance Amount at
Risk, and may affect the portion of the Insurance Amount at Risk included in
various Premium Classes (if more than one Premium Class applies), both of which
may affect the monthly cost of insurance charges. A surrender charge also will
be calculated for the increase. See CHARGES AND DEDUCTIONS -- "Monthly Deduction
from the Policy Value" and "Surrender Charge."

After increasing the Face Amount, you will have the right (1) during a free-look
period, to have the increase canceled and the charges which would not have been
deducted but for the increase will be credited to the Policy, and (2) during the
first 24 months following the increase, to transfer any or all Policy

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<PAGE>

Value to the General Account free of charge. See THE POLICIES -- "Free-Look
Period" and "Conversion Privileges." A refund of charges which would not have
been deducted but for the increase will be made at your request.

DECREASES IN THE FACE AMOUNT

The minimum amount for a decrease in the Face Amount is $10,000. The Face Amount
in force after any decrease may not be less than $40,000 ($25,000 for a VEL 87
Policy). If, following a decrease in the Face Amount, a Policy would not comply
with the maximum premium limitation applicable under the IRS Rules, the decrease
may be limited or Policy Value may be returned to the Policyowner (at your
election) to the extent necessary to meet the requirements. A return of Policy
Value may result in tax liability to you.

A decrease in the Face Amount will affect the total Insurance Amount at Risk and
the portion of the Insurance Amount at Risk covered by various Premium Classes,
both of which may affect a Policyowner's monthly cost of insurance charges. See
CHARGES AND DEDUCTIONS -- "Monthly Deduction from the Policy Value." For
purposes of determining the cost of insurance charge, any decrease in the Face
Amount will reduce the Face Amount in the following order:

- - the Face Amount provided by the most recent increase;

- - the next most recent increases successively; and

- - the initial Face Amount.

This order also will be used to determine whether a surrender charge will be
deducted and in what amount. If you request a decrease in the Face Amount, the
amount of any surrender charge deducted will reduce the current Policy Value.
You may specify one Sub-Account from which the surrender charge will be
deducted. If no specification is provided, the Company will make a Pro-Rata
Allocation. The current surrender charge will be reduced by the amount deducted.
See CHARGES AND DEDUCTIONS -- "Surrender Charge."

POLICY VALUE AND SURRENDER VALUE

The Policy Value is the total amount available for investment, and is equal to
the sum of:

- - your accumulation in the General Account, PLUS

- - the value of the Accumulation Units in the Sub-Accounts.

The Policy Value is used in determining the Surrender Value (the Policy Value
less any Debt and applicable surrender charges). See THE POLICIES -- "Policy
Surrender." There is no guaranteed minimum Policy Value. Because the Policy
Value on any date depends upon a number of variables, it cannot be
predetermined.

The Policy Value and the Surrender Value will reflect frequency and amount of
Net Premiums paid, interest credited to accumulations in the General Account,
the investment performance of the chosen Sub-Accounts, any partial withdrawals,
any loans, any loan repayments, any loan interest paid or credited, and any
charges assessed in connection with the Policy.

CALCULATION OF POLICY VALUE

The Policy Value is determined first on the Date of Issue and thereafter on each
Valuation Date. On the Date of Issue, the Policy Value will be the Net Premiums
received, plus any interest earned during the period when premiums are held in
the General Account (before being transferred to the VEL Account;

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see THE POLICIES -- "Applying For A Policy") less any Monthly Deductions due. On
each Valuation Date after the Date of Issue the Policy Value will be:

- - the aggregate of the values in each of the Sub-Accounts on the Valuation Date,
determined for each Sub-Account by multiplying the value of an Accumulation
Unit in that Sub-Account on that date by the number of such Accumulations
Units allocated to the Policy; PLUS

- - the value in the General Account (including any amounts transferred to the
General Account with respect to a loan).

Thus, the Policy Value is determined by multiplying the number of Accumulation
Units in each Sub-Account by the value of the applicable Accumulation Units on
the particular Valuation Date, adding the products, and adding the amount of the
accumulations in the General Account, if any.

THE ACCUMULATION UNIT

Each Net Premium is allocated to the Sub-Account(s) selected by you. Allocations
to the Sub-Accounts are credited to the Policy in the form of Accumulation
Units. Accumulation Units are credited separately for each Sub-Account.

The number of Accumulation Units of each Sub-Account credited to a Policy is
equal to the portion of the Net Premium allocated to the Sub-Account, divided by
the dollar value of the applicable Accumulation Unit as of the Valuation Date
the payment is received at the Principal Office. The number of Accumulation
Units will remain fixed unless changed by a subsequent split of Accumulation
Unit value, transfer, partial withdrawal or Policy surrender. In addition, if
the Company is deducting the Monthly Deduction or other charges from a
Sub-Account, each such deduction will result in cancellation of a number of
Accumulation Units equal in value to the amount deducted.

The dollar value of an Accumulation Unit of each Sub-Account varies from
Valuation Date to Valuation Date based on the investment experience of that
Sub-Account. That experience, in turn, will reflect the investment performance,
expenses and charges of the respective Underlying Fund. The value of an
Accumulation Unit was set at $1.00 on the first Valuation Date for each
Sub-Account. The dollar value of an Accumulation Unit on a given Valuation Date
is determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.

NET INVESTMENT FACTOR

The net investment factor measures the investment performance of a Sub-Account
of the VEL Account during the Valuation Period just ended. The net investment
factor for each Sub-Account is equal to 1.0000 plus the number arrived at by
dividing (a) by (b) and subtracting (c) from the result, where:

(a) is the investment income of that Sub-Account for the Valuation Period, plus
capital gains, realized or unrealized, credited during the Valuation Period;
minus capital losses, realized or unrealized, charged during the Valuation
Period; adjusted for provisions made for taxes, if any;

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

(c) is a charge for each day in the Valuation Period equal, on an annual basis,
to 0.90% of the daily net asset value of that Sub-Account for mortality and
expense risks. This charge may be increased or decreased by the Company, but
may not exceed 1.275%.

The net investment factor may be greater or less than one. Therefore, the value
of an Accumulation Unit may increase or decrease. You bear the investment risk.

Allocations to the General Account are not converted into Accumulation Units,
but are credited interest at a rate periodically set by the Company. See "MORE
INFORMATION ABOUT THE GENERAL ACCOUNT."

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DEATH PROCEEDS PAYMENT OPTIONS

During the Insured's lifetime, you may arrange for the Death Proceeds to be paid
in a single sum or under one or more of the available payment options. The
payment options currently available are described in "APPENDIX B -- DEATH
PROCEEDS PAYMENT OPTIONS." These choices also are available if a Policy is
surrendered at the Final Premium Payment Date for a VEL 91 Policy, and at the
Maturity Date for a VEL 87 Policy. The Company may make more payment options
available in the future.

If no election is made, the Company will pay the Death Proceeds in a single sum.
When the Death Proceeds are payable in a single sum, the Beneficiary may, within
one year of the Insured's death, select one or more of the payment options if no
payments have yet been made.

OPTIONAL INSURANCE BENEFITS

Subject to certain requirements, one or more of the optional insurance benefits
described in "APPENDIX A -- OPTIONAL BENEFITS" may be added to a Policy by
rider. The cost of any optional insurance benefits will be deducted as part of
the Monthly Deduction. See CHARGES AND DEDUCTIONS -- "Monthly Deduction from the
Policy Value."

POLICY SURRENDER

You may surrender a Policy at any time and receive its Surrender Value. The
Surrender Value is equal to:

- - the Policy Value, MINUS

- - any Debt and applicable surrender charges.

The Surrender Value will be calculated as of the Valuation Date on which a
written request for surrender, and the Policy, are received at the Principal
Office. A surrender charge may be deducted when a Policy is surrendered. See
CHARGES AND DEDUCTIONS -- "Surrender Charge."

The proceeds on surrender may be paid in a single lump sum or under one of the
payment options described in "APPENDIX B -- DEATH PROCEEDS PAYMENT OPTIONS."
Normally, the Company will pay the Surrender Value within seven days following
the Company's receipt of the surrender request, but the Company may delay
payment under the circumstances described in OTHER POLICY PROVISIONS --
"Postponement of Payments."

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

PARTIAL WITHDRAWALS

Any time after the first Policy year, you may withdraw a portion of the
Surrender Value of your Policy, subject to the limits stated below, upon written
request filed at the Principal Office. The written request must indicate the
dollar amount you wish to receive and the Accounts from which such amount is to
be withdrawn. You may allocate the amount withdrawn among the Sub-Accounts and
the General Account. If you do not provide allocation instructions, the Company
will make a Pro-Rata Allocation. Each partial withdrawal must be in a minimum
amount of $500.

Under Option 1, the Face Amount is reduced by the amount of the withdrawal, and
a withdrawal will not be allowed if it would reduce the Face Amount below
$40,000 ($25,000 for VEL 87 Policies).

A withdrawal from a Sub-Account will result in the cancellation of the number of
Accumulation Units equivalent in value to the amount withdrawn. The amount
withdrawn equals the amount requested by you plus the transaction charge and any
applicable partial withdrawal charge as described under CHARGES AND DEDUCTIONS
- -- "Charges On Partial Withdrawal." Normally, the Company will pay the amount of
the partial withdrawal within seven days following the Company's receipt of the
partial withdrawal request, but the Company may delay payment under certain
circumstances described in OTHER POLICY PROVISIONS -- "Postponement of
Payments."

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CHARGES AND DEDUCTIONS

Charges will be deducted in connection with the Policies to compensate the
Company for providing the insurance benefits set forth in a Policy and any
additional benefits added by rider, administering a Policy, incurring
distribution expenses, and assuming certain risks in connection with a Policy.
Each of the charges identified as an administrative charge is intended to
reimburse the Company for actual administrative costs incurred, and is not
intended to result in a profit to the Company.

TAX EXPENSE CHARGE

Currently, a deduction of 2 1/2% of premiums for state and local premium taxes
is made from each premium payment. The premium payment, less the tax expense
charge, equals the Net Premium.

While the premium tax of 2 1/2% is deducted from each premium payment, some
jurisdictions may not impose premium taxes. Premium taxes vary from state to
state, ranging from zero to 4.0%, and the 2 1/2% rate attributable to premiums
for state and local premium taxes approximates the average expenses to the
Company associated with the premium taxes. The 2 1/2% charge may be higher or
lower than the actual premium tax imposed by the applicable jurisdiction. The
Company, however, does not expect to make a profit from this charge.

MONTHLY DEDUCTION FROM THE POLICY VALUE

Prior to the Final Premium Payment Date under a VEL 91 Policy (Maturity Date
under a VEL 87 Policy), a Monthly Deduction from the Policy Value will be made
to cover a charge for the cost of insurance, a charge for any optional insurance
benefits added by rider, and a monthly administrative charge. The cost of
insurance charge and the monthly administrative charge is discussed below. The
Monthly Deduction on or following the effective date of a requested increase in
the Face Amount also will include a $40 administrative charge for the increase.
See THE POLICIES -- "Change in the Face Amount."

The Monthly Deduction will be deducted as of each Monthly Payment Date
commencing with the Date of Issue of the Policy. It will be allocated to one
Sub-Account according to your instructions or, if no allocation is specified,
the Company will make a Pro-Rata Allocation. If the Sub-Account you specify does
not have sufficient funds to cover the Monthly Deduction, the Company will
deduct the charge for that month as if no specification were made. If, however,
on subsequent Monthly Payment Dates there is sufficient Policy Value in the
Sub-Account you specified, the Monthly Deduction will be deducted from that
Sub-Account. No Monthly Deductions will be made on or after the Final Premium
Payment Date of a VEL 91 Policy.

COST OF INSURANCE

This charge is designed to compensate the Company for the anticipated cost of
providing Death Proceeds to Beneficiaries of those Insureds who die prior to the
Final Premium Payment Date under a VEL 91 Policy or the Maturity Date under a
VEL 87 Policy. The cost of insurance is determined on a monthly basis, and is
determined separately for the initial Face Amount and for each subsequent
increase in the Face Amount. Because the cost of insurance depends upon a number
of variables, it can vary from month to month.

CALCULATION OF THE CHARGE -- If you select Sum Insured Option 2, the monthly
cost of insurance charge for the initial Face Amount will equal the applicable
cost of insurance rate multiplied by the initial Face Amount. If you select Sum
Insured Option 1, however, the applicable cost of insurance rate will be
multiplied by the initial Face Amount less the Policy Value (minus charges for
rider benefits) at the beginning of the Policy month. Thus, the cost of
insurance charge may be greater for Policyowners who have selected Sum Insured
Option 2 than for those who have selected Sum Insured Option 1 ( assuming the
same Face Amount in each case and assuming that the Guideline Minimum Sum
Insured is not in effect). In other words, since the Sum Insured under Option 1
remains constant while the Sum Insured

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<PAGE>
under Option 2 varies with the Policy Value, any Policy Value increases will
reduce the insurance charge under Option 1 but not under Option 2.

If you select Sum Insured Option 2, the monthly insurance charge for each
increase in Face Amount (other than an increase caused by a change in Sum
Insured Option) will be equal to the cost of insurance rate applicable to that
increase multiplied by the increase in the Face Amount. If you select Sum
Insured Option 1, the applicable cost of insurance rate will be multiplied by
the increase in the Face Amount reduced by any Policy Value (minus rider
charges) in excess of the initial Face Amount at the beginning of the Policy
month.

EFFECT OF THE GUIDELINE MINIMUM SUM INSURED -- If the Guideline Minimum Sum
Insured is in effect under either Option, a monthly cost of insurance charge
also will be calculated for that additional portion of the Sum Insured which is
required to comply with the Guideline rules. This charge will be calculated by:

- - multiplying the cost of insurance rate applicable to the initial Face Amount
times the Guideline Minimum Sum Insured (Policy Value times the applicable
percentage), MINUS

- the greater of the Face Amount or the Policy Value (if you selected Sum
Insured Option 1)

- the Face Amount PLUS the Policy Value (if you selected Sum Insured Option
2).

When the Guideline Minimum Sum Insured is in effect, the cost of insurance
charge for the initial Face Amount and for any increases will be calculated as
set forth above. The monthly cost of insurance charge also will be adjusted for
any decreases in the Face Amount. See THE POLICIES -- "Change in the Face
Amount" and "Decreases."

COST OF INSURANCE RATES -- Cost of insurance rates are based on male, female or
a blended unisex rate table, Age and Premium Class of the Insured, the effective
date of an increase or date of rider, as applicable, the amount of premiums paid
less Debt, any partial withdrawals and withdrawal charges, and risk
classification. For those Policies issued on a unisex basis in certain states or
in certain cases, sex-distinct rates do not apply.

The cost of insurance rates are determined at the beginning of each Policy year
for the initial Face Amount. The cost of insurance rates for an increase in the
Face Amount or rider are determined annually on the anniversary of the effective
date of each increase or rider. The cost of insurance rates generally increase
as the Insured's Age increases. The actual monthly cost of insurance rates will
be based on the Company's expectations as to future mortality experience. They
will not, however, be greater than the guaranteed cost of insurance rates set
forth in the Policy. These guaranteed rates are based on the 1980 Commissioners
Standard Ordinary Mortality Table, Smoker or Non-Smoker, male, female or Table B
for unisex Policies and the Insured's sex and Age. The Tables used for this
purpose set forth different mortality estimates for males and females and for
smokers and non-smokers. Any change in the cost of insurance rates will apply to
all persons of the same insuring Age, sex and Premium Class whose Policies have
been in force for the same length of time.

The Premium Class of an Insured will affect the cost of insurance rates. The
Company currently places Insureds into preferred Premium Classes, standard
Premium Classes and substandard Premium Classes. In an otherwise identical
Policy, an Insured in the preferred Premium Class will have a lower cost of
insurance than an Insured in a standard Premium Class who, in turn, will have a
lower cost of insurance than an Insured in a substandard Premium Class with a
higher mortality risk.

Premium Classes also are divided into two categories: smokers and non-smokers.
Non-smoking Insureds will incur lower cost of insurance rates than Insureds who
are classified as smokers but who are otherwise in the same Premium Class. Any
Insured with an Age at issuance under 18 will be classified initially as regular
or substandard. The Insured then will be classified as a smoker at Age 18 unless
the Insured provides satisfactory evidence that the Insured is a non-smoker. The
Company will provide notice to you of the opportunity for the Insured to be
classified as a non-smoker when the Insured reaches Age 18.

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The cost of insurance rate is determined separately for the initial Face Amount
and for the amount of any increase in the Face Amount. For each increase in the
Face Amount you request, at a time when the Insured is in a less favorable
Premium Class than previously, a correspondingly higher cost of insurance rate
will apply only to that portion of the Insurance Amount at Risk for the
increase. For the initial Face Amount and any prior increases, the Company will
use the Premium Class previously applicable. On the other hand, if the Insured's
Premium Class improves on an increase, the lower cost of insurance rate
generally will apply to the entire Insurance Amount at Risk.

MONTHLY ADMINISTRATIVE CHARGES

Prior to the Final Premium Payment Date (Maturity Date for a VEL 87 Policy), a
monthly administrative charge will be deducted from the Policy Value. The charge
is $25 per month for the first 12 monthly deductions, and $5 per month
thereafter. This charge will be used to compensate the Company for expenses
incurred in the administration of the Policy, and will compensate the Company
for first-year underwriting and other start-up expenses incurred in connection
with the Policy. These expenses include the cost of processing applications,
conducting medical examinations, determining insurability and the Insured's
Premium Class, and establishing Policy records. The Company does not expect to
derive a profit from these charges.

CHARGES AGAINST ASSETS OF THE VEL ACCOUNT

The Company assesses each Sub-Account with a charge for mortality and expense
risks assumed by the Company, and a charge for administrative expenses of the
VEL Account.

MORTALITY AND EXPENSE RISK CHARGE

The Company currently makes a charge on an annual basis of 0.90% of the daily
net asset value in each Sub-Account. This charge is for the mortality risk and
expense risk which the Company assumes in relation to the variable portion of
the Policy. The total charges may be increased or decreased by the Board of
Directors of the Company once each year, subject to compliance with applicable
state and federal requirements, but it may not exceed 1.275% on an annual basis.

The mortality risk assumed by the Company is that Insureds may live for a
shorter time than anticipated, and that the Company therefore will pay an
aggregate amount of Death Proceeds greater than anticipated. The expense risk
assumed is that the expenses incurred in issuing and administering a Policy will
exceed the amounts realized from the administrative charges provided in the
Policy. If the charge for mortality and expense risks is not sufficient to cover
actual mortality experience and expenses, the Company will absorb the losses. If
costs are less than the amounts provided, the difference will be a profit to the
Company. To the extent this charge results in a current profit to the Company,
such profit will be available for use by the Company for, among other things,
the payment of distribution, sales and other expenses. Since mortality and
expense risks involve future contingencies which are not subject to precise
determination in advance, it is not feasible to identify specifically the
portion of the charge which is applicable to each.

OTHER CHARGES AND EXPENSES

Because the Sub-Accounts purchase shares of the Underlying Funds, the value of
the Accumulation Units of the Sub-Accounts will reflect the investment advisory
fee and other expenses incurred by the Underlying Funds. The prospectuses and
statements of additional information of the Trust, Fidelity VIP, Fidelity VIP
II, T. Rowe Price and DGPF contain additional information concerning such fees
and expenses.

Currently, no charges are made against the Sub-Accounts for federal or state
income taxes. Should the Company determine that taxes will be imposed, the
Company may make deductions from the Sub-Account to pay such taxes. See "FEDERAL
TAX CONSIDERATIONS." The imposition of such taxes would result in a reduction of
the Policy Value in the Sub-Accounts.

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SURRENDER CHARGE

The Policies provides for a contingent surrender charge, which differs for VEL
91 Policies and VEL 87 Policies. A separate surrender charge is calculated upon
the issuance of a Policy and for each increase in the Face Amount. A surrender
charge may be deducted if you request a full surrender of a Policy or a decrease
in the Face Amount.

The surrender charge is comprised of a contingent deferred administrative charge
and a contingent deferred sales charge. The contingent deferred administrative
charge compensates the Company for expenses incurred in administering a Policy.
The contingent deferred sales charge compensates the Company for expenses
relating to the distribution of a Policy, including agent's commissions,
advertising and the printing of the Prospectus and sales literature.

SURRENDER CHARGE UNDER VEL 87 POLICIES

A Surrender Charge may be deducted if you request a full surrender of a Policy
or a decrease in Face Amount if less than 12 years have elapsed from the Date of
Issue or from the effective date of any increase in the Face Amount. The maximum
Surrender Charge calculated upon issuance of a Policy is equal to the sum of (a)
plus (b) where (a) is a deferred administrative charge equal to $4.50 per
thousand dollars of the initial Face Amount and (b) is a deferred sales expense
charge equal to 30% of the Guideline Annual Premium times a factor of not
greater than 1.0, as specified in "APPENDIX D -- CALCULATION OF MAXIMUM
SURRENDER CHARGES -- VEL 87 POLICIES." As the factors used in calculating the
deferred sales charge in (b) vary with the Age and Premium Class (smoker versus
nonsmoker) of the Insured, the deferred sales charge may range between 10.25%
and 30% of the Guideline Annual Premium. The maximum Surrender Charge continues
in a level amount for 44 Policy months, reduces by 1% per month for the next 100
policy months, and is zero thereafter. This reduction in the maximum Surrender
Charge will reduce the deferred sales charge and the deferred administrative
charge proportionately. Any $25 monthly administrative charge not yet deducted
will also be deducted at surrender.

If you surrender a Policy before making premium payments with respect to the
initial Face Amount which are at least equal to the Guideline Annual Premium,
the actual Surrender Charge imposed may be less than the maximum. The actual
Surrender Charge imposed will be the lesser of either the maximum Surrender
Charge or the sum of $4.50 per thousand dollars of initial Face Amount plus 30%
of premiums paid. Thus, if the amount of the Surrender Charge is less than the
maximum, such amount is comprised of the entire deferred administrative charge
plus 30% of premiums paid. See "APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER
CHARGES -- VEL 87 POLICIES."

A separate Surrender Charge will apply to and is calculated for each increase in
Face Amount. The surrender charge for the increase is in addition to that for
the initial Face Amount. The maximum Surrender Charge for the increase is equal
to the sum of (a) plus (b), where (a) is equal to $4.50 per thousand dollars of
increase, and (b) is equal to 30% of the Guideline Annual Premium for the
increase times a factor of not greater than 1.0 as specified in "APPENDIX D --
CALCULATION OF MAXIMUM SURRENDER CHARGES -- VEL 87 POLICIES." As is true for the
initial Face Amount, (a) is a deferred administrative charge and (b) is a
deferred sales charge. The actual Surrender Charge with respect to the increase
may be less than the maximum. The actual Surrender Charge is the lesser of
either the maximum Surrender Charge or the sum of (a) $4.50 per thousand dollars
of increase in Face Amount plus (b) 30% of the Policy Value on the date of
increase associated with the increase in Face Amount, plus (c) 30% of premiums
paid which are associated with the increase in Face Amount.

46
<PAGE>
the increase. Thus, existing Policy Value associated with the increase will
equal the portion of Policy Value allocated to the increase on the effective
date of the increase, before any deductions are made. Premiums associated with
the increase will equal the portion of the premium payments actually made on or
after the effective date of the increase which are allocated to the increase.

See "APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES -- VEL 87 POLICIES,"
for examples illustrating the calculation of the maximum surrender charge for
the initial Face Amount and for any increases, as well as for the surrender
charge based on actual premiums paid or associated with any increases.

A surrender charge may be deducted on a decrease in the Face Amount. In the
event of a decrease, the surrender charge deducted is a fraction of the charge
that would apply to a full surrender of the Policy. The fraction will be
determined by dividing the amount of the decrease by the current Face Amount and
multiplying the result by the surrender charge. If more than one surrender
charge is in effect (i.e., pursuant to one or more increases in the Face Amount
of a Policy), the surrender charge will be applied in the following order: (1)
the most recent increase followed by (2) the next most recent increases
successively, and (3) the initial Face Amount. Where a decrease causes a partial
reduction in an increase or in the initial Face Amount, a proportionate share of
the surrender charge for that increase or for the initial Face Amount will be
deducted.

SURRENDER CHARGE UNDER VEL 91 POLICIES

A surrender charge may be deducted if you request a full surrender of a Policy
or a decrease in Face Amount if less than 12 years have elapsed from the Date of
Issue or from the effective date of any increase in the Face Amount. The maximum
surrender charge calculated upon issuance of a Policy is equal to the sum of (a)
plus (b) where (a) is a deferred administrative charge equal to $8.50 per
thousand dollars of the initial Face Amount and (b) is a deferred sales expense
charge equal to 30% of the Guideline Annual Premium. In accordance with
limitations under state insurance regulations, the amount of the maximum
surrender charge will not exceed a specified amount per $1,000 initial Face
Amount, as indicated in "APPENDIX E -- CALCULATION OF MAXIMUM SURRENDER CHARGES
- -- VEL 91 POLICIES."

The maximum surrender charge continues in a level amount for 44 Policy months,
reduces by 1% per month for the next 100 policy months, and is zero thereafter.
This reduction in the maximum surrender charge will reduce the deferred sales
charge and the deferred administrative charge proportionately. Any $25 monthly
administrative charge not yet deducted will also be deducted at surrender.

If you surrender a Policy before making premium payments with respect to the
initial Face Amount which are at least equal to the Guideline Annual Premium,
the actual surrender charge imposed may be less than the maximum. The actual
surrender charge imposed will be the lesser of either the maximum surrender
charge or the sum of $8.50 per thousand dollars of initial Face Amount plus 30%
of premiums paid. Thus, if the amount of the surrender charge is less than the
maximum, such amount is comprised of the entire deferred administrative charge
plus 30% of premiums paid. See "APPENDIX E -- CALCULATION OF MAXIMUM SURRENDER
CHARGES -- VEL 91 POLICIES."

A separate surrender charge will apply to and is calculated for each increase in
Face Amount. The surrender charge for the increase is in addition to that for
the initial Face Amount. The maximum surrender charge for the increase is equal
to the sum of (a) plus (b), where (a) is equal to $8.50 per thousand dollars of
increase, and (b) is equal to 30% of the Guideline Annual Premium for the
increase. In accordance with limitations under state insurance regulations, the
amount of the surrender charge will not exceed a specified amount per $1,000 of
increase, as indicated in "APPENDIX E -- CALCULATION OF MAXIMUM SURRENDER
CHARGES -- VEL 91 POLICIES." As is true for the initial Face Amount, (a) is a
deferred administrative charge and (b) is a deferred sales charge. The actual
surrender charge with respect to the increase may be less than the maximum. The
actual surrender charge is the lesser of either the maximum surrender charge or
the sum of (a) $8.50 per thousand dollars of increase in Face Amount

47
<PAGE>
plus (b) 30% of the Policy Value on the date of increase associated with the
increase in Face Amount, plus (c) 30% of premiums paid which are associated with
the increase in Face Amount.

Additional premium payments may not be required to fund a requested increase in
Face Amount. Therefore, a special rule, which is based on relative Guideline
Annual Premium payments, applies to allocate a portion of existing Policy Value
to the increase and to allocate subsequent premium payments between the initial
Policy and the increase. For example, suppose the Guideline Annual Premium is
equal to $1,500 before an increase and is equal to $2,000 as a result of the
increase. The Policy Value on the effective date of the increase would be
allocated 75% ($1,500/$2,000) to the initial Face Amount and 25% to the
increase. All future premiums would also be allocated 75% to the initial Face
Amount and 25% to the increase. Thus, existing Policy Value associated with the
increase will equal the portion of Policy Value allocated to the increase on the
effective date of the increase, before any deductions are made. Premiums
associated with the increase will equal the portion of the premium payments
actually made on or after the effective date of the increase which are allocated
to the increase.

See "APPENDIX E -- CALCULATION OF MAXIMUM SURRENDER CHARGES -- VEL 91 POLICIES,"
for examples illustrating the calculation of the maximum surrender charge for
the initial Face Amount and for any increases, as well as for the surrender
charge based on actual premiums paid or associated with any increases.

CHARGES ON PARTIAL WITHDRAWAL

After the first policy year, partial withdrawals of Surrender Value may be made
under VEL 87 Policies and VEL 91 Policies. The minimum withdrawal is $500. Under
Option 1, the Face Amount is reduced by the amount of the partial withdrawal,
and a partial withdrawal will not be allowed if it would reduce the Face Amount
below $40,000 for VEL 91 Policies ($25,000 for VEL 87 Policies).

A transaction charge which is the smaller of 2% of the amount withdrawn or $25
will be assessed on each partial withdrawal to reimburse the Company for the
cost of processing the withdrawal. The Company does not expect to make a profit
on this charge.

A partial withdrawal charge may also be deducted from Policy Value. For each
partial withdrawal you may withdraw an amount equal to 10% of the Policy Value
on the date the written withdrawal request is received by the Company less the
total of any prior withdrawals in that Policy year which were not subject to the
Partial Withdrawal charge, without incurring a partial withdrawal charge. Any
partial withdrawal in excess of this amount ("excess withdrawal") will be
subject to the partial withdrawal charge. The partial withdrawal charge is equal
to 5% of the excess withdrawal up to the amount of the surrender charge(s) on
the date of withdrawal. There will be no partial withdrawal charge if there is
no surrender charge on the date of withdrawal.

This right is not cumulative from Policy year to Policy year. For example, if
only 8% of Policy Value were withdrawn in Policy year two, the amount you could
withdraw in subsequent Policy years would not be increased by the amount you did
not withdraw in the second Policy year.

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<PAGE>

The Policy's outstanding surrender charge will be reduced by the amount of the
partial withdrawal charge deducted, by proportionately reducing the deferred
sales charge component and the deferred administrative charge component. The
partial withdrawal charge deducted will decrease existing surrender charges in
the following order:

- - first, the surrender charge for the most recent increase in Face Amount;

- - second, the surrender charge for the next most recent increase successively;

- - last, the surrender charge for the initial Face Amount.

See "APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES -- VEL 87 POLICIES"
and "APPENDIX E -- CALCULATION OF MAXIMUM SURRENDER CHARGES -- VEL 91 POLICIES"
for examples illustrating the calculation of the charges on partial withdrawal
and their impact on the surrender charge(s).

TRANSFER CHARGES

The first 12 transfers in a Policy year will be free of charge. Thereafter, a
transfer charge of $10 will be imposed for each transfer request to reimburse
the Company for the administrative costs incurred in processing the transfer
request. The Company reserves the right to increase the charge, but it never
will exceed $25. The Company also reserves the right to change the number of
free transfers allowed in a Policy year. See THE POLICIES -- "Transfer
Privilege."

You may have automatic transfers of at least $100 a month made on a periodic
basis:

- - from the Sub-Accounts which invest in the Money Market Fund and Government
Bond Fund of the Trust to one or more of the other Sub-Accounts; or

- - to reallocate Policy Value among the Sub-Accounts.

The first automatic transfer counts as one transfer towards the 12 free
transfers allowed in each Policy year. Each subsequent automatic transfer is
without charge and does not reduce the remaining number of transfers which may
be made without charge.

If you utilize the Conversion Privilege, Loan Privilege or reallocate Policy
Value within 20 days of the Date of Issue of the Policy, any resulting transfer
of Policy Value from the Sub-Accounts to the General Account will be free of
charge, and in addition to the 12 free transfers in a Policy year. See THE
POLICIES -- "Conversion Privileges," and POLICY LOANS.

CHARGE FOR INCREASE IN THE FACE AMOUNT

For each increase in the Face Amount you request, a transaction charge of $40
will be deducted from Policy Value to reimburse the Company for administrative
costs associated with the increase. This charge is guaranteed not to increase,
and the Company does not expect to make a profit on this charge.

OTHER ADMINISTRATIVE CHARGES

The Company reserves the right to impose a charge for the administrative costs
incurred for changing the Net Premium allocation instructions, for changing the
allocation of any Monthly Deductions among the various Sub-Accounts, or for a
projection of values. No such charges are currently imposed and any such charge
is guaranteed not to exceed $25.

POLICY LOANS

You may borrow against the Policy Value. Policy loans may be obtained by request
to the Company on the sole security of the Policy. The total amount which may be
borrowed is the Loan Value.

In the first Policy year, the Loan Value is 75% of Policy Value reduced by
applicable surrender charges, as well as Monthly Deductions and interest on Debt
to the end of the Policy year. The Loan Value in the

49
<PAGE>
second Policy year and thereafter is 90% of an amount equal to the Policy Value
reduced by applicable surrender charges. There is no minimum limit on the amount
of the loan.

The loan amount normally will be paid within seven days after the Company
receives the loan request at the Principal Office, but the Company may delay
payments under certain circumstances. See OTHER POLICY PROVISIONS --
"Postponement of Payments."

A Policy loan may be allocated among the General Account and one or more
Sub-Accounts. If you do not make an allocation, the Company will make a Pro-Rata
Allocation based on the amounts in the Accounts on the date the Company receives
the loan request. The Policy Value in each Sub-Account equal to the Policy loan
allocated to such Sub-Account will be transferred to the General Account, and
the number of Accumulation Units equal to the Policy Value so transferred will
be canceled. This will reduce the Policy Value in these Sub-Accounts. These
transactions are not treated as transfers for purposes of the transfer charge.

LOAN INTEREST

LOAN AMOUNT EARNS INTEREST IN GENERAL ACCOUNT

As long as a Policy is in force, the Policy Value in the General Account equal
to the loan amount will be credited with interest at an effective annual yield
of at least 6.00% per year.

PREFERRED LOAN OPTION -- A preferred loan option is available under the Policy.
The preferred loan option will be available upon written request. It may be
revoked by you at any time. If this option has been selected, after the tenth
Policy anniversary the Policy Value in the General Account that is equal to the
loan amount will be credited with interest at an effective annual yield of at
least 7.5%. The Company's current practice is to credit a rate of interest equal
to the rate being charged for the preferred loan.

There is some uncertainty as to the tax treatment of preferred loans. Consult a
qualified tax adviser (and see "FEDERAL TAX CONSIDERATIONS"). THE PREFERRED LOAN
OPTION IS NOT AVAILABLE IN ALL STATES.

LOAN INTEREST CHARGED

Outstanding Policy loans are charged interest. Interest accrues daily and is
payable in arrears at the annual rate of 8%. Interest is due and payable at the
end of each Policy year or on a pro-rata basis for such shorter period as the
loan may exist. Interest not paid when due will be added to the loan amount and
will bear interest at the same rate. If the new loan amount exceeds the Policy
Value in the General Account after the due and unpaid interest is added to the
loan amount, the Company will transfer the Policy Value equal to that excess
loan amount from the Policy Value in each Sub-Account to the General Account as
security for the excess loan amount. The Company will allocate the amount
transferred among the Sub-Accounts in the same proportion that the Policy Value
in each Sub-Account bears to the total Policy Value in all Sub-Accounts.

REPAYMENT OF LOANS

Loans may be repaid at any time prior to the lapse of the Policy. Upon repayment
of the Debt, the portion of the Policy Value that is in the General Account
securing the loan repaid will be allocated to the various Accounts and increase
the Policy Value in such Accounts in accordance with your instructions. If you
do not make a repayment allocation, the Company will allocate Policy Value in
accordance with your most recent premium allocation instructions; provided,
however, that loan repayments allocated to the VEL Account cannot exceed the
Policy Value previously transferred from the VEL Account to secure the Debt.

If Debt exceeds the Policy Value less the surrender charge, a Policy will
terminate. A notice of such pending termination will be mailed 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 Policy will terminate with no value. See
"POLICY TERMINATION AND REINSTATEMENT."

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<PAGE>
EFFECT OF POLICY LOANS

Although Policy loans may be repaid at any time prior to the lapse of a Policy,
Policy loans will permanently affect the Policy Value and Surrender Value, and
may permanently affect the Death Proceeds. The effect could be favorable or
unfavorable, depending upon whether the investment performance of the
Sub-Account(s) is less than or greater than the interest credited to the Policy
Value in the General Account attributable to the loan. Moreover, outstanding
Policy loans and the accrued interest will be deducted from the proceeds payable
upon the death of the Insured or surrender.

POLICY TERMINATION AND REINSTATEMENT

TERMINATION

The failure to make premium payments will not cause a Policy to lapse unless:

(a) the Surrender Value is insufficient to cover the next Monthly Deduction plus
loan interest accrued; or

(b) the Debt exceeds the Policy Value less surrender charges.

If one of these situations occurs, the Policy will be in default. You then will
have a grace period of 62 days, measured from the date of default, to make
sufficient payments to prevent termination. On the date of default, the Company
will send a notice to you and to any assignee of record. The notice will state
the amount of premium due and the date on which it is due.

Failure to make a sufficient payment within the grace period will result in
termination of the Policy. If the Insured dies during the grace period, the
Death Proceeds still will be payable, but any Monthly Deductions due and unpaid
through the Policy month in which the Insured dies, and any other overdue
charge, will be deducted from the Death Proceeds.

LIMITED GUARANTEE

Except for the situation described in (b) above, a Policy is guaranteed not to
lapse during the first 48 months for a VEL 91 Policy (12 months for a VEL 87
Policy) after the Date of Issue or the effective date of an increase in the Face
Amount if you make a minimum amount of premium payments. The minimum amount
paid, minus the Debt, partial withdrawals and partial withdrawal charges, must
be at least equal to the sum of the Minimum Monthly Factor for the number of
months the Policy, increase, or a Policy Change which causes a change in the
Minimum Monthly Factor has been in force. A Policy Change which causes a change
in the Minimum Monthly Factor is a change in the Face Amount or the addition or
deletion of a rider.

Except for the first 48 months after the Date of Issue or the effective date of
an increase for a VEL 91 Policy (12 months for a VEL 87 Policy), making payments
equal to the Minimum Monthly Factor does not guarantee that a Policy will remain
in force.

REINSTATEMENT UNDER VEL 87 POLICIES

A terminated VEL 87 Policy may be reinstated anytime within three years after
the date of default and before the Maturity Date, if the VEL 87 Policy has not
been surrendered and the Insured is alive. The reinstatement will be effective
on the Monthly Payment Date following the date you submit the following to the
Company:

- - a written application for reinstatement,

- - Evidence of Insurability showing that the Insured is insurable according to
the Company's underwriting rules, and

- - a premium that, after the deduction of the tax expense charge, is large enough
to cover the minimum amount payable, as described below.

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<PAGE>
MINIMUM AMOUNT PAYABLE

If reinstatement is requested less than 12 months either after the Date of Issue
of the VEL 87 Policy or the effective date of an increase in the Face Amount,
you must pay the lesser of the amount shown in (a) or (b):

Under A, the minimum amount payable is the sum of the Minimum Monthly Factor for
the three-month period beginning on the date of reinstatement.

Under (b), the minimum amount payable is the sum of:

- - the amount by which the surrender charge as of the date of reinstatement
exceeds the Policy Value on the date of default; plus

- - Monthly Deductions for the three-month period beginning on the date of
reinstatement.

If reinstatement is requested 12 months or more after the Date of Issue of the
VEL 87 Policy or an increase in the Face Amount, you must pay the amount shown
in (b) above.

SURRENDER CHARGE

The surrender charge on the date of reinstatement is the surrender charge which
would have been in effect had the VEL 87 Policy remained in force from the Date
of Issue. The Policy Value less Debt on the date of default will be restored to
the VEL 87 Policy to the extent it does not exceed the surrender charge on the
date of reinstatement. Any Policy Value less Debt as of the date of default
which exceeds the surrender charge on the date of reinstatement will not be
restored.

POLICY VALUE ON REINSTATEMENT

The Policy Value on the date of reinstatement is:

- - the Net Premium paid to reinstate the VEL 87 Policy increased by interest from
the date the payment was received at the Principal Office;

- - plus an amount equal to the Policy Value less Debt on the date of default to
the extent it does not exceed the surrender charge on the date of
reinstatement;

- - minus the Monthly Deduction due on the date of reinstatement.

You may not reinstate any Debt outstanding on the date of default or
foreclosure.

REINSTATEMENT UNDER VEL 91 POLICIES

A terminated VEL 91 Policy may be reinstated any time within three years after
the date of default and before the Final Premium Payment Date, if the VEL 91
Policy has not been surrendered and the Insured is alive. The reinstatement will
be effective on the Monthly Payment Date following the date you submit the
following to the Company:

- - a written application for reinstatement,

- - Evidence of Insurability showing that the Insured is insurable according to
the Company's underwriting rules, and

- - a premium that, after the deduction of the tax expense charge, is large enough
to cover the minimum amount payable, as described below.

MINIMUM AMOUNT PAYABLE

If reinstatement is requested when fewer than 48 Monthly Deductions have been
made since the Date of Issue or the effective date of an increase in the Face
Amount of a VEL 91 Policy, you must pay the lesser of the amount shown in (a) or
(b).

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<PAGE>

Under (a), the minimum amount payable is the Minimum Monthly Factor for the
three-month period beginning on the date of reinstatement.

Under (b), the minimum amount payable is the sum of:

- - the amount by which the surrender charge as of the date of reinstatement
exceeds the Policy Value on the date of default, PLUS

- - Monthly Deductions for the three-month period beginning on the date of
reinstatement.

If reinstatement is requested after 48 Monthly Deductions have been made since
the Date of Issue of the VEL 91 Policy or any increase in the Face Amount, you
must pay the amount shown in (b) above. The Company reserves the right to
increase the Minimum Monthly Factor upon reinstatement.

SURRENDER CHARGE

The surrender charge on the date of reinstatement is the surrender charge which
would have been in effect had the VEL 91 Policy remained in force from the Date
of Issue. The Policy Value less Debt on the date of default will be restored to
the VEL 91 Policy to the extent it does not exceed the surrender charge on the
date of reinstatement. Any Policy Value less the Debt as of the date of default
which exceeds the surrender charge on the date of reinstatement will not be
restored.

POLICY VALUE ON REINSTATEMENT

The Policy Value on the date of reinstatement is:

- - the Net Premium paid to reinstate the VEL 91 Policy increased by interest from
the date the payment was received at the Principal Office, PLUS

- - an amount equal to the Policy Value less Debt on the date of default to the
extent it does not exceed the surrender charge on the date of reinstatement,
MINUS

- - the Monthly Deduction due on the date of reinstatement.

You may not reinstate any Debt outstanding on the date of default or
foreclosure.

OTHER POLICY PROVISIONS

The following Policy provisions may vary in certain states in order to comply
with requirements of the insurance laws, regulations and insurance regulatory
agencies in those states.

POLICYOWNER

The Policyowner is the Insured unless another Policyowner has been named in the
application for a Policy. The Policyowner generally is entitled to exercise all
rights under a Policy while the Insured is alive, subject to the consent of any
irrevocable Beneficiary (the consent of a revocable Beneficiary is not
required). The consent of the Insured is required whenever the Face Amount of
insurance is increased.

BENEFICIARY

The Beneficiary is the person or persons to whom the insurance proceeds are
payable upon the Insured's death. Unless otherwise stated in the Policy, the
Beneficiary has no rights in a Policy before the death of the Insured. While the
Insured is alive, you may change any Beneficiary unless you have declared a
Beneficiary to be irrevocable. If no Beneficiary is alive when the Insured dies,
the Policyowner (or the Policyowner's estate) will be the Beneficiary. If more
than one Beneficiary is alive when the Insured dies, they will be paid 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 proportionally.

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<PAGE>
INCONTESTABILITY

The Company will not contest the validity of a Policy after it has been in force
during the Insured's lifetime for two years from the Date of Issue. The Company
will not contest the validity of any increase in the Face Amount after such
increase or rider has been in force during the Insured's lifetime for two years
from its effective date.

SUICIDE

The Death Proceeds will not be paid if the Insured commits suicide, while sane
or insane, within two years from the Date of Issue. Instead, the Company will
pay the Beneficiary an amount equal to all premiums paid for the Policy, without
interest, and less any outstanding Debt and any partial withdrawals. If the
Insured commits suicide, while sane or insane, generally within two years from
the effective date of any increase in the Sum Insured, the Company's liability
with respect to such increase will be limited to a refund of the cost thereof.
The Beneficiary will receive the administrative charges and insurance charges
paid for such increase.

AGE AND SEX

If the Insured's Age or sex as stated in the application for a Policy is not
correct, benefits under the Policy will be adjusted to reflect the correct Age
and sex, if death occurs prior to the Maturity Date or the Final Premium Payment
Date. The adjusted benefit will be that which the most recent cost of insurance
charge would have purchased for the correct Age and sex. In no event will the
Sum Insured be reduced to less than the Guideline Minimum Sum Insured. In the
case of a Policy issued on a unisex basis, this provision as it relates to
misstatement of sex does not apply.

ASSIGNMENT

The Policyowner may assign a Policy as collateral or make an absolute assignment
of the Policy. All rights under a Policy will be transferred to the extent of
the assignee's interest. The consent of the assignee may be required in order to
make changes in premium allocations, to make transfers, or to exercise other
rights under the Policy. The Company is not bound by an assignment or release
thereof, unless it is in writing and is recorded at the Principal Office. When
recorded, the assignment will take effect as of the date the Written Request was
signed. Any rights created by the assignment will be subject to any payments
made or actions taken by the Company before the assignment is recorded. The
Company is not responsible for determining the validity of any assignment or
release.

POSTPONEMENT OF PAYMENTS

Payments of any amount due from the VEL Account upon surrender, partial
withdrawals, or death of the Insured, as well as payments of a Policy loan and
transfers, may be postponed whenever:

- - the New York Stock Exchange is closed other than customary weekend and holiday
closings, or trading on the New York Stock Exchange is restricted as
determined by the SEC; or

- - an emergency exists, as determined by the SEC, as a result of which disposal
of securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the VEL Account's net assets.

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

The Company also reserves the right to defer payment of any amount due from the
General Account upon surrender, partial withdrawal or death of the Insured, as
well as payments of Policy loans and transfers from the General Account, for a
period not to exceed six months.

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DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY

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

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

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

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

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

James R. McAuliffe Director of First Allmerica since 1996; President
Director and CEO, Citizens Insurance Company of America
since 1994; Vice President 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, Chief Allmerica since 1996; Vice President and
Financial Officer and Treasurer Treasurer, First Allmerica since 1993

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

Larry C. Renfro Director of First Allmerica since 1996; Vice
Director President, First Allmerica

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

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

DISTRIBUTION

Allmerica Investments, Inc., a subsidiary of First Allmerica, acts as the
principal underwriter of the Policies pursuant to a Sales and Administrative
Services Agreement with the Company and the VEL Account. 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"). The Policies are sold
by agents of the Company who are registered representatives of Allmerica
Investments, Inc., or of certain independent broker-dealers which are members of
the NASD.

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<PAGE>
The Company pays commissions to registered representatives who sell the Policies
based on a commission schedule. After issue of the Policy or an increase in the
Face Amount, commissions generally will equal 50% of the first-year premiums up
to a basic premium amount established by the Company. Thereafter, commissions
generally will equal 4% of any additional premiums. Certain registered
representatives, including registered representatives enrolled in the Company's
training program for new agents, may receive additional first-year and renewal
commissions and training reimbursements. General Agents of the Company and
certain registered representatives also may be eligible to receive expense
reimbursements based on the amount of earned commissions. General Agents may
also receive overriding commissions, which will not exceed 11% of first-year or
14% of renewal premiums.

The Company intends to recoup the commission and other sales expense through a
combination of the deferred sales charge component of the anticipated surrender
and partial withdrawal charges, and the investment earnings on amounts allocated
to accumulate on a fixed basis in excess of the interest credited on fixed
accumulations by the Company. There is no additional charge to Policyowners or
to the VEL Account. Any surrender charge assessed on a Policy will be retained
by the Company except for amounts it may pay to Allmerica Investments, Inc. for
services it performs and expenses it may incur as principal underwriter and
general distributor.

SERVICES

The Company receives fees from the investment advisers or other service
providers of certain Underlying Funds in return for providing certain services
to Policyowners. Currently, the Company receives service fees with respect to
the Fidelity VIP Overseas Portfolio, Fidelity VIP Equity-Income Portfolio,
Fidelity VIP Growth Portfolio, Fidelity VIP High Income Portfolio, and Fidelity
VIP II Asset Manager Portfolio, at an annual rate of 0.10% of the aggregate net
asset value, respectively, of the shares of such Underlying Funds held by the
VEL Account. With respect to the T. Rowe Price International Stock Portfolio,
the Company receives service fees at an annual rate of 0.15% per annum of the
aggregate net asset value of shares held by the VEL Account. The Company may in
the future render services for which it will receive compensation from the the
investment advisers or other service providers of other Underlying Funds.

REPORTS

The Company will maintain the records relating to the VEL Account. Statements of
significant transactions such as premium payments, changes in specified Face
Amount, changes in Sum Insured Option, transfers among Sub-Accounts and the
General Account, partial withdrawals, increases in loan amount by you, loan
repayments, lapse, termination for any reason, and reinstatement will be sent to
you promptly. An annual statement also will be sent to you within 30 days after
a Policy anniversary. The annual statement will summarize all of the above
transactions and deductions of charges during the Policy year. It also will set
forth the status of the Death Proceeds, Policy Value, Surrender Value, amounts
in the Sub-Accounts and General Account, and any Policy loan(s). In addition,
you will be sent periodic reports containing financial statements and other
information for the VEL Account and the Underlying Funds as required by the 1940
Act.

LEGAL PROCEEDINGS

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

FURTHER INFORMATION

A Registration Statement under the 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted from this Prospectus pursuant to the rules and
regulations of the SEC. Statements contained in this Prospectus concerning the
Policies and other legal documents are summaries. The complete documents and
omitted information may be

56
<PAGE>

obtained from the Commission's principal office in Washington, D.C., upon
payment of the SEC's prescribed fees.

INDEPENDENT ACCOUNTANTS

The financial statements of Allmerica Financial Life Insurance and Annuity
Company prepared in accordance with generally accepted accounting principles as
of and for the year ended December 31, 1996, the statutory basis financial
statements of Allmerica Financial Life Insurance and Annuity Company for 1995
and each of the three years ended December 31, 1995 and the financial statements
of the VEL Account of the Company at December 31, 1995 and for the periods
indicated included in this Prospectus constituting part of this Registration
Statement, have been so included in reliance on the reports of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The financial statements of Allmerica Financial Life Insurance and Annuity
Company included herein should be considered only as bearing on the ability of
Allmerica Financial Life Insurance and Annuity Company to meet its obligations
under the Policies.

FEDERAL TAX CONSIDERATIONS

The effect of federal income taxes on the value of the Policy, on loans,
withdrawals, or surrenders, on death benefit payments, and on the economic
benefit to you or the Beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of the present
federal income tax laws as they currently are interpreted. From time to time
legislation is proposed which, if passed, could significantly, adversely and
possibly retroactively affect the taxation of the Policy. No representation is
made regarding the likelihood of continuation of current federal income tax laws
or of current interpretations by the IRS. Moreover, no attempt has been made to
consider any applicable state or other tax laws.

It should be recognized that the following summary of federal income tax aspects
of amounts received under a Policy is not exhaustive, does not purport to cover
all situations, and is not intended as tax advice. Specifically, the discussion
below does not address certain tax provisions that may be applicable if the
Policyowner is a corporation or the Trustee of an employee benefit plan. A
qualified tax adviser always should be consulted with regard to the application
of law to individual circumstances.

THE COMPANY AND THE VEL ACCOUNT

The Company is taxed as a life insurance company under Subchapter L of the Code
and files a consolidated tax return with its parent and affiliates. The Company
does not expect to incur any income tax upon the earnings or realized capital
gains attributable to the VEL Account. Based on this, no charge is made for
federal income taxes which may be attributable to the VEL Account.

Periodically, the Company will review the question of a charge to the VEL
Account for federal income taxes. Such a charge may be made in future years for
any federal income taxes incurred by the Company. This might become necessary if
the tax treatment of the Company ultimately is determined to be other than what
the Company believes it to be, if there are changes made in the federal income
tax treatment of variable life insurance at the Company level, or if there is a
change in the Company's tax status. Any such charge would be designed to cover
the federal income taxes attributable to the investment results of the VEL
Account.

Under current laws the Company also may incur state and local taxes (in addition
to premium taxes) in several states. At present these taxes are not significant.
If there is a material change in applicable state or local tax laws, charges may
be made for such taxes paid, or reserves for such taxes, attributable to the VEL
Account.

57
<PAGE>
TAXATION OF THE POLICIES

The Company believes that the Policies described in this Prospectus will be
considered life insurance contracts under Section 7702 of the Code, which
generally provides for the taxation of life insurance policies and places
limitations on the relationship of the policy value to the insurance amount at
risk. As a result, the death proceeds payable are excludable from the gross
income of the beneficiary. Moreover, any increase in the policy value is not
taxable until received by the policyowner or the policyowner's designee. But see
"Modified Endowment Contracts."

The Code also requires that the investment of each Sub-Account be adequately
diversified in accordance with Treasury regulations in order to be treated as a
life insurance policy for tax purposes. Although the Company does not have
control over the investments of the Underlying Funds, the Company believes that
the Underlying Funds currently meet the Treasury's diversification requirements,
and the Company will monitor continued compliance with these requirements. In
connection with the issuance of previous regulations relating to diversification
requirements, the Treasury Department announced that such regulations do not
provide guidance concerning the extent to which Policyowners may direct their
investments to particular divisions of a separate account. Regulations in this
regard may be issued in the future. It is possible that if and when regulations
are issued, a Policy may need to be modified to comply with such regulations.
For these reasons, a Policy or the Company's administrative rules may be
modified as necessary to prevent a Policyowner from being considered the owner
of the assets of the VEL Account.

Depending upon the circumstances, a surrender, partial withdrawal, change in the
Sum Insured Option, change in the Face Amount, lapse with Policy loan
outstanding or assignment of a Policy may have tax consequences. In particular,
under specified conditions, a distribution under a Policy during the first 15
years from Date of Issue that reduces future benefits under a Policy will be
taxed to the Policyowner as ordinary income to the extent of any investment
earnings in the Policy. Federal, state and local income, estate, inheritance,
and other tax consequences of ownership or receipt of Policy proceeds depend on
the circumstances of each Insured, Policyowner or Beneficiary.

POLICY LOANS

The Company believes that non-preferred loans received under a Policy will be
treated as an indebtedness of the Policyowner for federal income tax purposes.
Under current law, these loans will not constitute income for the Policyowner
while the Policy is in force (but see "Modified Endowment Contracts"). There is
a risk, however, that a preferred loan may be characterized by the IRS as a
withdrawal and taxed accordingly. At the present time, the IRS has not issued
any guidance on whether loans with the attributes of a preferred loan should be
treated differently than a non-preferred loan. This lack of specific guidance
makes the tax treatment of preferred loans uncertain. In the event IRS
guidelines are issued in the future, you may revoke your request for a preferred
loan.

Section 264 of the Code restricts the deduction of interest on Policy loans.
Consumer interest paid on Policy loans under an individually owned Policy is not
tax deductible. Generally, no tax deduction for interest is allowed on Policy
loans, if the Insured is an officer or employee of, or is financially interested
in, any business carried on by the taxpayer. There is an exception to this rule
which permits a deduction for interest on loans up to $50,000 related to any
policies covering the greater of (1) five individuals or (2) the lesser of (a)
5% of the total number of officers and employees of the corporation or (b) 20
individuals.

MODIFIED ENDOWMENT CONTRACTS

The Technical and Miscellaneous Revenue Act of 1988 ("the 1988 Act") adversely
affects the tax treatment of distributions under so-called "modified endowment
contracts." Under the 1988 Act, any life insurance policy, including a Policy
offered by this Prospectus, that fails to satisfy a "seven-pay" test is
considered a modified endowment contract. A policy would fail to satisfy the
seven-pay test if the cumulative premiums paid under the policy at any time
during the first seven policy years exceed the sum of the net level premiums
that would have been paid, had the policy provided for paid-up future benefits
after the payment of seven level premiums.

58
<PAGE>
If a Policy is considered a modified endowment contract, all distributions under
the Policy will be taxed on an "income-first" basis. Most distributions received
by the Policyowner directly or indirectly (including loans, withdrawals,
surrenders, or the assignment or pledge of any portion of the Policy Value) will
be includible in gross income to the extent that the cash Surrender Value of the
Policy exceeds the Policyowner's investment in the Policy. Any additional
amounts will be treated as a return of capital to the extent of the
Policyowner's basis in the Policy. With certain exceptions, an additional 10%
tax will be imposed on the portion of any distribution that is includible in
income. All modified endowment contracts issued by the same insurance company to
the same Policyowner during any 12-month period will be treated as a single
modified endowment contract in determining taxable distributions.

Currently, each Policy is reviewed when premiums are received to determine if it
satisfies the seven-pay test. If a Policy does not satisfy the seven-pay test,
the Company will notify the Policyowner of the option of requesting a refund of
the excess premium. The refund process must be completed within 60 days after
the Policy anniversary, or the Policy will be classified permanently as a
modified endowment contract.

MORE INFORMATION ABOUT THE GENERAL ACCOUNT

As discussed earlier, you may allocate Net Premiums and transfer Policy Value to
the General Account. Because of exemption and exclusionary provisions in the
securities law, any amount in the General Account is not generally subject to
regulation under the provisions of the 1933 Act or the 1940 Act. Accordingly,
the disclosures in this Section have not been reviewed by the SEC. Disclosures
regarding the fixed portion of a Policy and the General Account may, however, be
subject to certain generally applicable provisions of the federal securities
laws concerning the accuracy and completeness of statements made in
prospectuses.

GENERAL DESCRIPTION

The General Account of the Company is made up of all of the general assets of
the Company other than those allocated to any Separate Account. Allocations to
the General Account become part of the assets of the Company and are used to
support insurance and annuity obligations. Subject to applicable law, the
Company has sole discretion over the investment of assets of the General
Account.

A portion or all of Net Premiums may be allocated or transferred to accumulate
at a fixed rate of interest in the General Account. Such net amounts are
guaranteed by the Company as to principal and a minimum rate of interest. The
allocation or transfer of funds to the General Account does not entitle you to
share in the investment experience of the General Account.

GENERAL ACCOUNT VALUES

The Company bears the full investment risk for amounts allocated to the General
Account, and guarantees that interest credited to each Policyowner's Policy
Value in the General Account will not be less than an annual rate of 4%
("Guaranteed Minimum Rate").

The Company may, AT ITS SOLE DISCRETION, credit a higher rate of interest
("excess interest"), although it is not obligated to credit interest in excess
of 4% per year, and might not do so. The excess interest rate, if any, in effect
on the date a premium is received at the Principal Office, however, is
guaranteed on that premium for one year, unless the Policy Value associated with
the premium becomes security for a Policy loan. AFTER SUCH INITIAL ONE-YEAR
GUARANTEE OF INTEREST ON NET PREMIUM, ANY INTEREST CREDITED ON A POLICY'S
ACCUMULATED VALUE IN THE GENERAL ACCOUNT IN EXCESS OF THE GUARANTEED MINIMUM
RATE PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF THE COMPANY. THE
POLICYOWNER ASSUMES THE RISK THAT INTEREST CREDITED MAY NOT EXCEED THE
GUARANTEED MINIMUM RATE.

59
<PAGE>
Even if excess interest is credited to accumulated value in the General Account,
no excess interest will be credited to that portion of the Policy Value which is
equal to the Debt. Such Policy Value, however, will be credited interest at an
effective annual yield of at least 6%.

The Company guarantees that, on each Monthly Payment Date, the Policy Value in
the General Account will be the amount of the Net Premiums allocated or the
Policy Value transferred to the General Account, plus interest at an annual rate
of 4% per year, plus any excess interest which the Company credits, less the sum
of all Policy charges allocable to the General Account and any amounts deducted
from the General Account in connection with loans, partial withdrawals,
surrenders or transfers.

THE POLICIES

This Prospectus describes flexible premium variable life insurance Policies and
is intended generally to serve as a disclosure document only for the aspects of
a Policy relating to the VEL Account. For complete details regarding the General
Account, see the Policy itself.

SURRENDERS AND PARTIAL WITHDRAWALS

If a Policy is surrendered or if a partial withdrawal is made, a surrender
charge or partial withdrawal charge, as applicable, may be imposed. In the event
of a decrease in the Face Amount, the surrender charge deducted is a fraction of
the charge that would apply to a full surrender of the Policy. Partial
withdrawals are made on a last-in/first-out basis from the Policy Value
allocated to the General Account.

TRANSFERS

The first 12 transfers in a Policy year are free of charge. Thereafter, a $10
transfer charge will be deducted for each transfer in that Policy year. The
transfer privilege is subject to the consent of the Company and to the Company's
then current rules.

Policy loans also may be made from the Policy Value in the General Account.

DELAY OF PAYMENTS

Transfers, surrenders, partial withdrawals, Death Proceeds and Policy loans
payable from the General Account may be delayed up to six months. If payment is
delayed for 30 days or more, however, the Company will pay interest at least
equal to an effective annual yield of 3 1/2% per year for the period of
deferment. Amounts from the General Account used to pay premiums on policies
with the Company will not be delayed.

FINANCIAL STATEMENTS

Financial Statements for the Company and the VEL Account are included in this
Prospectus beginning immediately after this section. The financial statements of
the Company should be considered only as bearing on the ability of the Company
to meet its obligations under the Policies. They should not be considered as
bearing on the investment performance of the assets held in the VEL Account.

60
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY

FINANCIAL STATEMENTS
DECEMBER 31, 1996
<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 balance sheet and the related statement 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, 1996, and the results of their operations
and their cash flows for the year 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 audit. We conducted our audit 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 audit provides a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP

Price Waterhouse LLP
Boston, Massachusetts
February 3, 1997
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
STATEMENT OF INCOME

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
(IN MILLIONS) 1996
----------------------------------------------- ---------
<S> <C>
REVENUES
Premiums..................................... $ 32.7
Universal life and investment product
policy fees............................... 176.2
Net investment income...................... 171.7
Net realized investment losses............. (3.6)
Other income............................... 0.9
---------
Total revenues......................... 377.9
---------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses....................... 192.6
Policy acquisition expenses................ 49.9
Other operating expenses................... 86.6
---------
Total benefits, losses and expenses.... 329.1
---------
Income before federal income taxes............. 48.8
---------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 26.9
Deferred................................... (9.8)
---------
Total federal income tax expense....... 17.1
---------
Net income..................................... $ 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)
BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1996
-------------------------------------------------------- ----------
<S> <C>
ASSETS
Investments:
Fixed maturities-at fair value (amortized cost of
$1,660.2).......................................... $ 1,698.0
Equity securities-at fair value (cost of $33.0)..... 41.5
Mortgage loans...................................... 221.6
Real estate......................................... 26.1
Policy loans........................................ 131.7
Other long-term investments......................... 7.9
----------
Total investments............................... 2,126.8
----------
Cash and cash equivalents............................. 18.8
Accrued investment income............................. 37.7
Deferred policy acquisition costs..................... 632.7
----------
Reinsurance receivables:
Future policy benefits.............................. 68.1
Outstanding claims, losses and loss adjustment
expenses........................................... 3.5
Other............................................... 0.9
----------
Total reinsurance receivables................... 72.5
----------
Other assets.......................................... 8.2
Separate account assets............................... 4,524.0
----------
Total assets.................................... $ 7,420.7
----------
----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,163.0
Outstanding claims, losses and loss adjustment
expenses........................................... 15.4
Unearned premiums................................... 2.7
Contractholder deposit funds and other policy
liabilities........................................ 32.8
----------
Total policy liabilities and accruals........... 2,213.9
----------
Expenses and taxes payable............................ 77.3
Deferred federal income taxes......................... 60.2
Separate account liabilities.......................... 4,523.6
----------
Total liabilities............................... 6,875.0
----------
Commitments and contingencies (Note 12)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares
authorized, 2,518 shares issued and outstanding...... 2.5
Additional paid-in-capital............................ 346.3
Unrealized appreciation on investments, net........... 20.5
Retained earnings..................................... 176.4
----------
Total shareholder's equity...................... 545.7
----------
Total liabilities and shareholder's equity...... $ 7,420.7
----------
----------
</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)

STATEMENTS OF SHAREHOLDER'S EQUITY

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
(IN MILLIONS) 1996
----------------------------------------------- ---------
<S> <C>
COMMON STOCK
Balance at beginning of year............... $ 2.5
Issued during year......................... --
---------
Balance at end of year..................... 2.5
---------
ADDITIONAL PAID-IN-CAPITAL
Balance at beginning of year............... 324.3
Contributed from parent.................... 22.0
---------
Balance at end of year..................... 346.3
---------
RETAINED EARNINGS
Balance at beginning of year............... 144.7
Net income................................. 31.7
---------
Balance at end of year..................... 176.4
---------
NET UNREALIZED APPRECIATION (DEPRECIATION) ON
INVESTMENTS
Balance at beginning of year............... 23.8
---------
Appreciation (depreciation) during the
period:
Net appreciation (depreciation) on
available-for-sale securities........... (5.1)
(Provision) benefit for deferred
federal income taxes.................... 1.8
---------
(3.3)
---------
Balance at end of year................. 20.5
---------
Total shareholder's equity......... $ 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)
STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
(IN MILLIONS) 1996
-------------------------------------------- ----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 31.7
Adjustments to reconcile net income to
net cash provided by operating
activities:
Net realized losses................. 3.6
Net amortization and depreciation... 3.5
Deferred federal income taxes
(benefits)........................... (9.8)
Change in deferred policy
acquisition costs.................... (66.8)
Change in premiums and notes
receivable, net of reinsurance
payable.............................. (0.2)
Change in accrued investment
income............................... 1.2
Change in policy liabilities and
accruals, net........................ (39.9)
Change in reinsurance receivable.... (1.5)
Change in expenses and taxes
payable.............................. 32.3
Separate account activity, net...... 10.5
Other, net.......................... (0.2)
----------
Net cash provided by operating
activities.................... (35.6)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................. 809.4
Proceeds from disposals of equity
securities............................. 1.5
Proceeds from disposals of other
investments............................ 17.5
Proceeds from mortgages matured or
collected.............................. 34.0
Purchase of available-for-sale fixed
maturities............................. (795.8)
Purchase of equity securities........... (13.2)
Purchase of other investments........... (36.2)
Other investing activities, net......... (2.1)
----------
Net cash (used in) provided by
investing activities.......... 15.1
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and
capital paid in........................ 22.0
----------
Net cash provided by financing
activities.................... 22.0
----------
Net change in cash and cash equivalents..... 1.5
Cash and cash equivalents, beginning of
year....................................... 17.3
----------
Cash and cash equivalents, end of year...... $ 18.8
----------
----------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ 3.4
Income taxes paid....................... $ 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

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, which is wholly owned by First
Allmerica Financial Life Insurance Company ("FAFLIC"). FAFLIC is a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC").

The 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.

B. VALUATION OF INVESTMENTS

The Company classifies all debt and equity securities as available-for-sale.

Realized gains and losses on sales of fixed maturities and equity securities
are determined on the specific-identification basis using amortized cost for
fixed maturities and cost for equity securities. Fixed maturities and equity
securities with other than temporary declines in fair value are written down to
estimated fair value resulting in the recognition of realized losses.

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.

Real estate that has been acquired through the foreclosure of mortgage loans
is valued at the estimated fair value at the time of foreclosure. The Company
considers several methods in determining fair value at foreclosure, using
primarily third-party appraisals and discounted cash flow analyses. After
foreclosure, the Company makes a determination as to whether the asset should be
held for production of income or held for sale.

Real estate investments held for the production of income and held for sale
are carried at depreciated cost less valuation allowances, if necessary, to
reduce the carrying value to fair value. Depreciation is generally calculated
using the straight-line method.

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

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

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 and group variable
universal life products and contractholder deposit funds are deferred and
amortized in proportion to total estimated gross profits over the expected life
of the contracts using a revised interest rate applied to the remaining benefit
period. Acquisition costs related to annuity and other life insurance businesses
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 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.

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

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.

I. FEDERAL INCOME TAXES

AFC, FAFLIC, AFLIAC and FAFLIC's non-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 tax losses that can be applied to offset life company taxable
income.

The Board of Directors has delegated to AFC management the development and
maintenance of appropriate Federal Income Tax allocation policies and
procedures, which are subject to written agreement between the companies. The
Federal income tax for all subsidiaries in the consolidated life-nonlife 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

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

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 March, 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", was issued. This statement
requires companies to write down to fair value long-lived assets whose carrying
value is greater than the undiscounted cash flows of those assets. The statement
also requires that long-lived assets of which management is committed to
dispose, either by sale or abandonment, be valued at the lower of their carrying
amount or fair value less costs to sell. This statement is effective for fiscal
years beginning after December 15, 1995. The adoption of this statement has not
had a material effect on the financial statements.

2. 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>
1996
--------------------------------------------
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....... $ 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 March 1994, AFLIAC voluntarily withdrew its license in New York in order
to provide for certain commission arrangements prohibited by New York comparable
to AFLIAC's competitors. In connection with the withdrawal, FAFLIC, which is
licensed in New York, became qualified to sell the products previously sold by
AFLIAC 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 general
account liabilities of AFLIAC for New York policyholders, claimants and
creditors. At December 31, 1996, the amortized cost and market value of 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, 1996.

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

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

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

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>
1996
--------------------
DECEMBER 31 AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------------------------------------------------------ --------- ---------

<S> <C> <C>
Due in one year or less..................................... $ 129.2 $ 130.0
Due after one year through five years....................... 459.0 473.4
Due after five years through ten years...................... 735.1 751.1
Due after ten years......................................... 336.9 343.5
--------- ---------
Total................................................... $1,660.2 $1,698.0
--------- ---------
--------- ---------
</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>
FOR THE YEAR ENDED DECEMBER 31 PROCEEDS FROM GROSS GROSS
(IN MILLIONS) VOLUNTARY SALES GAINS LOSSES
- ------------------------------------------------------------ ------------------ ----- ------

<S> <C> <C> <C>
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>
1996

Net appreciation (depreciation), 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
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 $2.2 million.

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.

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

The carrying values of mortgage loans and real estate investments net of
applicable reserves were as follows:

<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1996
- ---------------------------------------- ------

<S> <C>
Mortgage loans.......................... $221.6
------
Real estate:
Held for sale......................... 26.1
Held for production of income......... --
------
Total real estate................... 26.1
------
Total mortgage loans and real estate.... $247.7
------
------
</TABLE>

Reserves for mortgage loans were $9.5 million at December 31, 1996.

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, 1996, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $16.0 million.
These commitments generally expire within one year.

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

<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1996
- ---------------------------------------- ------

<S> <C>
Property type:
Office building....................... $ 86.1
Residential........................... 39.0
Retail................................ 55.9
Industrial / warehouse................ 52.6
Other................................. 25.3
Valuation allowances.................. (11.2)
------
Total................................... $247.7
------
------
Geographic region:

South Atlantic........................ $ 72.9
Pacific............................... 37.0
East North Central.................... 58.3
Middle Atlantic....................... 35.0
West South Central.................... 5.7
New England........................... 21.9
Other................................. 28.1
Valuation allowances.................. (11.2)
------
Total................................... $247.7
------
------
</TABLE>

At December 31, 1996, scheduled mortgage loan maturities were as follows:
1997 -- $58.6 million; 1998 -- $53.1 million; 1999 -- $21.5 million; 2000 --
$52.3 million; 2001 -- $7.7 million; and $28.4 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 1996, the Company refinanced $7.8 million of mortgage
loans based on terms which differed from those granted to new borrowers.

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

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 BALANCE AT
DECEMBER 31 BALANCE AT DECEMBER
(IN MILLIONS) JANUARY 1 ADDITIONS DEDUCTIONS 31
- ------------------------- ---------- --------- ---------- ----------

<S> <C> <C> <C> <C>
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>

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

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

D. OTHER

At December 31, 1996, AFLIAC had no concentration of investments in a single
investee exceeding 10% of shareholder's equity.

3. 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) 1996
- --------------------------------------------- ------

<S> <C>
Fixed maturities............................. $137.2
Mortgage loans............................... 22.0
Equity securities............................ 0.7
Policy loans................................. 10.2
Real estate.................................. 6.2
Other long-term investments.................. 0.8
Short-term investments....................... 1.4
------
Gross investment income...................... 178.5
Less investment expenses..................... (6.8)
------
Net investment income........................ $171.7
------
------
</TABLE>

At December 31, 1996, mortgage loans on non-accrual status were $5.0
million, including restructured loans of $2.6 million. The effect of
non-accruals, compared with amounts that would have been recognized in
accordance with the original terms of the investments, was to reduce net income
by $0.1 million in 1996. There were no fixed maturities on non-accrual status at
December 31, 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 $25.4 million at December 31, 1996. Interest income on
restructured mortgage loans that would have been recorded in accordance with the
original terms of such loans amounted to $3.6 million in 1996. Actual interest
income on these loans included in net investment income aggregated $2.2 million
in 1996.

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

There were no fixed maturities or mortgage loans which were non-income
producing for the twelve months ended December 31, 1996.

B. REALIZED INVESTMENT GAINS AND LOSSES

Realized gains (losses) on investments were as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1996
- --------------------------------------------- -----

<S> <C>
Fixed maturities............................. $(3.3)
Mortgage loans............................... (3.2)
Equity securities............................ 0.3
Real estate.................................. 2.5
Other........................................ 0.1
-----
Net realized investment losses............... $(3.6)
-----
-----
</TABLE>

Proceeds from voluntary sales of investments in fixed maturities were $496.6
million in 1996. Realized gains on such sales were $4.3 million, and realized
losses were $8.3 million for 1996.

4. 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-12
<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>
1996
--------------------
DECEMBER 31 CARRYING FAIR
(IN MILLIONS) VALUE VALUE
- --------------------------------------------- --------- --------

<S> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents.................. $ 18.8 $ 18.8
Fixed maturities........................... 1,698.0 1,698.0
Equity securities.......................... 41.5 41.5
Mortgage loans............................. 221.6 229.3
Policy loans............................... 131.7 131.7
Reinsurance receivables.................... 72.5 72.5
--------- --------
$2,184.1 $2,191.8
--------- --------
--------- --------

FINANCIAL LIABILITIES
Individual annuity contracts............... 910.2 703.6
Supplemental contracts without life
contingencies............................. 15.9 15.9
Other individual contract deposit funds.... 0.3 0.3
--------- --------
$ 926.4 $ 719.8
--------- --------
--------- --------
</TABLE>

5. DEBT

During 1996, the Company utilized repurchase agreements to finance certain
investments. Although the repurchase agreements were entirely settled by year
end, management may utilize this policy again in future periods.

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

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

6. 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) 1996
- --------------------------------------------- -----
<S> <C>
Federal income tax expense (benefit)
Current.................................... $26.9
Deferred................................... (9.8)
-----
Total........................................ $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, 1996:

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

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

7. RELATED PARTY TRANSACTIONS

The Company has no employees of its own, but has agreements under which FAFLIC
provides management, space and other services, including accounting, electronic
data processing, human resources, legal and other staff functions. Charges for
these services are based on full cost including all direct and indirect overhead
costs, and amounted to $112.4 million in 1996. The net amounts payable to FAFLIC
and affiliates for accrued expenses and various other liabilities and
receivables were $13.3 million at December 31, 1996.

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

8. DIVIDEND RESTRICTIONS

Delaware has enacted laws governing the payment of dividends to stockholders by
insurers. These laws affect the dividend paying ability of the Company.

Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding December 31
or (ii) the individual company's statutory net gain from operations for the
preceding calendar year (if such insurer is a life company) or its net income
(not including realized capital gains) for the preceding calendar year (if such
insurer is not a life company). Any dividends to be paid by an insurer, whether
or not in excess of the aforementioned threshold, from a source other than
statutory earned surplus would also require the prior approval of the Delaware
Commissioner of Insurance.

At January 1, 1997, AFLIAC could pay dividends of $11.9 million to FAFLIC
without prior approval.

9. REINSURANCE

In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Reinsurance transactions are accounted for in
accordance with the provisions of 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) 1996
----------------------------------------------- ---------
<S> <C>
Life insurance premiums:
Direct....................................... $ 53.3
Assumed...................................... 3.1
Ceded........................................ (23.7)
---------
Net premiums................................... $ 32.7
---------
Life insurance and other individual policy
benefits, claims, losses and loss adjustment
expenses:
Direct....................................... $ 206.4
Assumed...................................... 4.5
Ceded........................................ (18.3)
---------
Net policy benefits, claims, losses and loss
adjustment expenses........................... $ 192.6
---------
---------
</TABLE>

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

10. 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) 1996
-------------------------------------------------- --------
<S> <C>
Balance at beginning of year...................... $ 555.7
Acquisition expenses deferred................... 116.6
Amortized to expense during the year............ (49.9)
Adjustment to equity during the year............ 10.3
--------
Balance at end of year............................ $ 632.7
--------
--------
</TABLE>

11. 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 $178.6 million at December 31, 1996. Accident and health claim liabilities
have been re-estimated for all prior years and were increased by $3.2 million in
1996.

12. CONTINGENCIES

REGULATORY AND INDUSTRY DEVELOPMENTS

Unfavorable economic conditions may contribute to an increase in the number
of insurance companies that are under regulatory supervision. This may result in
an increase in mandatory assessments by state guaranty funds, or voluntary
payments by solvent insurance companies to cover losses to policyholders of
insolvent or rehabilitated companies. Mandatory assessments, which are subject
to statutory limits, can be partially recovered through a reduction in future
premium taxes in some states. The Company is not able to reasonably estimate the
potential effect on it of any such future assessments or voluntary payments.

LITIGATION

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.

13. STATUTORY FINANCIAL INFORMATION

The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles for
stock life insurance companies primarily because policy acquisition costs are
expensed when incurred, investment

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

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) 1996
--------------------------------------------------- ---------
<S> <C>
Statutory net income............................... $ 5.4
Statutory Surplus.................................. $ 234.0
---------
</TABLE>

14. SUBSEQUENT EVENT (UNAUDITED)
On April 14, 1997, the Company entered into an agreement in principle to
transfer the Company's individual disability income business under a 100%
coinsurance arrangement to Metropolitan Life Insurance Company. The consummation
of the transaction is subject to the negotiation of definitive agreements and
regulatory approvals and is expected to occur on or before October 1, 1997. In
connection with this transaction, the Company has recorded an after-tax charge
of $35 million to net income in the first quarter of 1997 related to the
reinsurance of this business.

F-17
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
(FORMERLY SMA LIFE ASSURANCE COMPANY)
STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1995

F-18
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DECEMBER 31, 1995

<TABLE>
<S> <C>
Statutory Financial Statements

Report of Independent Accountants.................................................... F-20

Statement of Assets, Liabilities, Surplus and Other Funds............................ F-22

Statement of Operations and Changes in Capital and Surplus........................... F-23

Statement of Cash Flows.............................................................. F-24

Notes to Statutory Financial Statements.............................................. F-25
</TABLE>

F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholder of
Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company)

We have audited the accompanying statutory basis statement of assets,
liabilities, surplus and other funds of Allmerica Financial Life Insurance and
Annuity Company as of December 31, 1995 and 1994, and the related statutory
basis statements of operations and changes in capital and surplus, and of cash
flows for each of the three years ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

As described more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, which practices
differ from generally accepted accounting principles. The effects on the
financial statements of the variances between the statutory basis of accounting
and generally accepted accounting principles, although not reasonably
determinable, are presumed to be material.

In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Allmerica Financial Life Insurance and Annuity Company as of December 31,
1995 and 1994, or the results of its operations or its cash flows for each of
the three years ended December 31, 1995.

F-20
<PAGE>
To the Board of Directors and Stockholder of
Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company)

Page 2

In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities, surplus and other funds of
Allmerica Financial Life Insurance and Annuity Company as of December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years ended December 31, 1995, on the basis of accounting described in
Note 1.

As discussed in Note 1 to the financial statements, the Company's parent, State
Mutual Life Assurance Company of America, converted from a Massachusetts mutual
life insurance company to a Massachusetts stock life insurance company on
October 16, 1995. In connection with this transaction, the Company changed its
name to Allmerica Financial Life Insurance and Annuity Company and its parent
became a wholly-owned subsidiary of Allmerica Financial Corporation.

/s/ Price Waterhouse LLP

Price Waterhouse LLP
Boston, MA

February 5, 1996

F-21
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)

STATEMENT OF ASSETS, LIABILITIES, SURPLUS AND OTHER FUNDS
AS OF DECEMBER 31,
(IN THOUSANDS)

<TABLE>
<CAPTION>
ASSETS 1995 1994
---------- ----------

<S> <C> <C>
Cash......................................... $ 7,791 $ 7,248
Investments:
Bonds...................................... 1,659,575 1,595,275
Stocks..................................... 18,132 12,283
Mortgage loans............................. 239,522 295,532
Policy loans............................... 122,696 116,600
Real estate................................ 40,967 51,288
Short term investments..................... 3,500 45,239
Other invested assets...................... 40,196 27,443
---------- ----------
Total cash and investments............. 2,132,379 2,150,908

Premiums deferred and uncollected............ (1,231) 5,452
Investment income due and accrued............ 38,413 39,442
Other assets................................. 6,060 10,569
Assets held in separate accounts............. 2,978,409 1,869,695
---------- ----------
$5,154,030 $4,076,066
---------- ----------
---------- ----------

LIABILITIES, SURPLUS AND OTHER FUNDS

Liabilities:

Policy liabilities:
Life reserves.............................. $ 856,239 $ 890,880
Annuity and other fund reserves............ 865,216 928,325
Accident and health reserves............... 167,246 121,580
Claims payable............................. 11,047 11,720
---------- ----------
Total policy liabilities............... 1,899,748 1,952,505

Expenses and taxes payable................... 20,824 17,484
Other liabilities............................ 27,499 36,466
Asset valuation reserve...................... 31,556 20,786
Obligations related to separate account
business.................................... 2,967,547 1,859,502
---------- ----------
Total liabilities...................... 4,947,174 3,886,743
---------- ----------

Surplus and Other Funds:
Common stock, $1,000 par value
Authorized -- 10,000 shares
Issued and outstanding -- 2,517
shares.................................... 2,517 2,517
Paid-in surplus............................ 199,307 199,307
Unassigned surplus (deficit)............... 4,282 (13,621)
Special contingency reserves............... 750 1,120
---------- ----------
Total surplus and other funds.......... 206,856 189,323
---------- ----------
$5,154,030 $4,076,066
---------- ----------
---------- ----------
</TABLE>

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

F-22
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)

STATEMENT OF OPERATIONS AND CHANGES IN CAPITAL AND SURPLUS
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS)

<TABLE>
<CAPTION>
REVENUE 1995 1994 1993
----------- ----------- -----------

<S> <C> <C> <C>
Premiums and other considerations:
Life..................................... $ 156,864 $ 195,633 $ 189,285
Annuities................................ 729,222 707,172 660,143
Accident and health...................... 31,790 31,927 35,718
Reinsurance commissions and reserve
adjustments............................. 20,198 4,195 2,309
----------- ----------- -----------
Total premiums and other
considerations........................ 938,074 938,927 887,455

Net investment income...................... 167,470 170,430 177,612
Realized capital losses, net of tax........ (2,295) (17,172) (7,225)
Other revenue.............................. 37,466 26,065 19,055
----------- ----------- -----------
Total revenue.......................... 1,140,715 1,118,250 1,076,897
----------- ----------- -----------

POLICY BENEFITS AND OPERATING EXPENSES

Policy benefits:
Claims, surrenders and other benefits.... 391,254 331,418 275,290
Increase (decrease) in policy reserves... (22,669) 40,113 15,292
----------- ----------- -----------
Total policy benefits.................. 368,585 371,531 290,582
Operating and selling expenses............. 150,215 164,175 160,928
Taxes, except capital gains tax............ 26,536 22,846 19,066
Net transfers to separate accounts......... 556,856 553,295 586,539
----------- ----------- -----------
Total policy benefits and operating
expenses.............................. 1,102,192 1,111,847 1,057,115
----------- ----------- -----------

NET INCOME................................... 38,523 6,403 19,782

Capital and Surplus, Beginning of Year....... 189,323 182,216 171,941
Unrealized capital gains (losses) on
investments............................... 8,279 12,170 (9,052)
Transfer from (to) asset valuation
reserve................................... (10,770) (9,822) 1,974
Other adjustments.......................... (18,499) (1,644) (2,429)
----------- ----------- -----------

CAPITAL AND SURPLUS, END OF YEAR............. $ 206,856 $ 189,323 $ 182,216
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

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

F-23
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS)

<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES 1995 1994 1993
---------- ---------- ----------

<S> <C> <C> <C>
Premiums, deposits and other income......... $ 964,129 $ 962,147 $ 902,725
Allowances and reserve adjustments on
reinsurance ceded......................... 20,693 3,279 22,185
Net investment income...................... 170,949 173,294 182,843
Net increase in policy loans............... (6,096) (7,585) (7,812)
Benefits to policyholders and
beneficiaries............................. (393,472) (330,900) (298,612)
Operating and selling expenses and taxes... (153,504) (193,796) (171,533)
Net transfers to separate accounts......... (608,480) (600,760) (634,021)
Federal income tax (excluding tax on
capital gains)............................ (6,771) (19,603) (4828)
Other sources (applications)............... (13,642) 19,868 7,757
---------- ---------- ----------

NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.................................. (26,194) 5,944 (1,296)
---------- ---------- ----------

CASH FLOW FROM INVESTING ACTIVITIES

Sales and maturities of long term
investments:
Bonds.................................... 572,640 478,512 386,414
Stocks................................... 481 63 64
Real estate and other invested assets.... 13,008 3,008 11,094
Repayment of mortgage principal.......... 55,202 65,334 79,844
Capital gains tax........................ (400) (968) (3,296)
Acquisition of long term investments:
Bonds.................................... (640,339) (508,603) (466,086)
Stocks................................... (44) -- --
(24,544)
Real estate and other invested assets.... (11,929) ( 392)
Mortgage loans........................... (415) (364) (2,266)
Other investing activities............... (3,206) 18,934 (27,254)
---------- ---------- ----------

NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES.................................. (15,002) 31,372 (23,878)
---------- ---------- ----------
Net change in cash and short term
investments................................. (41,196) 37,316 (25,174)

CASH AND SHORT TERM INVESTMENTS

Beginning of the year...................... 52,487 15,171 40,345
---------- ---------- ----------
End of the year............................ $ 11,291 $ 52,487 $ 15,171
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

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

F-24
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)

NOTES TO STATUTORY FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION -- Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Financial" or the "Company", formerly SMA Life
Assurance Company) is a wholly owned subsidiary of SMA Financial Corp., which is
wholly owned by First Allmerica Financial Life Insurance Company ("First
Allmerica", formerly, State Mutual Life Assurance Company of America), a stock
life insurance company. On October 16, 1995, First Allmerica converted from a
mutual life insurance company to a stock life insurance company. Concurrent with
this transaction, First Allmerica became a wholly owned subsidiary of Allmerica
Financial Corporation ("AFC").

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

The Company's financial statements have been prepared on the basis of accounting
practices prescribed or permitted by the Insurance Department of the State of
Delaware and in conformity with practices prescribed by the National Association
of Insurance Commissioners (NAIC), which while common in the industry, vary in
some respects from generally accepted accounting principles. Significant
differences include:

- Bonds considered to be "available-for-sale" or "trading" are
not carried at fair value and changes in fair value are not
recognized through surplus or the statement of operations,
respectively;

- The Asset Valuation Reserve, represents a reserve against
possible losses on investments and is recorded as a liability
through a charge to surplus. The Interest Maintenance Reserve
is designed to include deferred realized gains and losses (net
of applicable federal income taxes) due to interest rate
changes and is also recorded as a liability, however, the
deferred net realized investment gains and losses are amortized
into future income generally over the original period to
maturity of the assets sold. These liabilities are not required
under generally accepted accounting principles;

- Total premiums, deposits and benefits on certain
investment-type contracts are reflected in the statement of
operations, instead of using the deposit method of accounting;

- Policy acquisition costs, such as commissions, premium taxes
and other items, are not deferred and amortized in relation to
the revenue/gross profit streams from the related contracts;

- Benefit reserves are determined using statutorily prescribed
interest, morbidity and mortality assumptions instead of using
more realistic expense, interest, morbidity, mortality and
voluntary withdrawal assumptions with provision made for
adverse deviation;

- Amounts recoverable from reinsurers for unpaid losses are not
recorded as assets, but as offsets against the respective
liabilities;

- Deferred federal income taxes are not provided for temporary
differences between amounts reported in the financial
statements and those included in the tax returns;

- Certain adjustments related to prior years are recorded as
direct charges or credits to surplus;

F-25
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)

NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED

- Certain assets, designated as "non-admitted" assets
(principally agents' balances), are not recorded as assets, but
are charged to surplus; and,

- Costs related to other postretirement benefits are recognized
only for employees that are fully vested.

The preparation of financial statements in accordance with practices prescribed
or permitted by the Insurance Department of the State of Delaware and in
conformity with practices prescribed by the NAIC 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 prior year amounts to conform with
the current year presentation.

VALUATION OF INVESTMENTS -- Investments in bonds are carried principally at
amortized cost, in accordance with NAIC guidelines. Preferred stocks are carried
generally at cost and common stocks are carried at market value. Policy loans
are carried principally at unpaid principal balances.

Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts. Mortgage loans are reduced for 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 determining
the amount of the loss, management considers, among other things, the estimated
fair value of the underlying collateral. Investment real estate and real estate
acquired through foreclosure are carried at the lower of depreciated cost or
market value. Depreciation is generally calculated using the straight-line
method.

An asset valuation reserve (AVR) for bonds, mortgage loans, stocks, real estate,
and other invested assets is maintained by appropriations from surplus in
accordance with a formula specified by the NAIC and is classified as a
liability.

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

RECOGNITION OF PREMIUM INCOME AND ACQUISITION COSTS -- In general, premiums are
recognized as revenue over the premium paying period of the policies;
commissions and other costs of acquiring the policies are charged to operations
when incurred.

SEPARATE ACCOUNTS -- Separate account assets and liabilities represent
segregated funds administered and invested by the Company for the benefit of
certain variable annuity and variable life contract holders. 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 contract holders 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 capital and surplus.

INSURANCE RESERVES AND ANNUITY AND OTHER FUND RESERVES -- Reserves for life
insurance, annuities, and accident and health insurance are established in
amounts adequate to meet the estimated future obligations of policies in force.
These liabilities are computed based upon mortality, morbidity and interest rate

F-26
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)

NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED

assumptions applicable to these coverages, including provision for adverse
deviation. Reserves are computed using interest rates ranging from 3% to 6% for
individual life insurance policies, 3% to 5 1/2% for accident and health
policies and 3 1/2% to 9 1/2% for annuity contracts. Mortality, morbidity and
withdrawal assumptions for all policies are based on the Company's own
experience and industry standards. The assumptions vary by plan, age at issue,
year of issue and duration. Claims reserves are computed based on historical
experience modified for expected trends in frequency and severity. Withdrawal
characteristics of annuity and other fund reserves vary by contract. At December
31, 1995 and 1994, approximately 84% and 77%, respectively, of the contracts
(included in both the general account and separate accounts of the Company) were
not subject to discretionary withdrawal or were subject to withdrawal at book
value less surrender charge.

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.

FEDERAL INCOME TAXES -- AFC, its life insurance subsidiaries, First Allmerica
and Allmerica Financial and its non-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 taxable operating losses that can be applied to offset life
company taxable income. Allmerica P&C and its subsidiaries file a separate
United States Federal income tax return.

The federal income tax allocation policies and procedures 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.

CAPITAL GAINS AND LOSSES -- Realized capital gains and losses, net of applicable
capital gains tax or benefit, exclusive of those transferred to the interest
maintenance reserve ("IMR"), are included in the statement of operations.
Unrealized capital gains and losses are reflected as direct credits or charges
to capital and surplus. The IMR, which is included in other liabilities,
establishes a reserve for realized gains and losses, net of tax, resulting from
changes in interest rates on short and long term fixed income investments. Net
realized gains and losses charged to the IMR are amortized into net investment
income over the remaining life of the investment sold. The Company uses the
seriatim method of amortization for interest related gains and losses arising
from the sale of mortgages, and uses the group method to amortize interest
related gains and losses arising from all other fixed income investments.

F-27
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)

NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED

NOTE 2 -- INVESTMENTS

BONDS -- The carrying value and fair value of investments in bonds are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) VALUE APPRECIATION DEPRECIATION VALUE
---------- ------------- ------------- ----------

<S> <C> <C> <C> <C>
Federal government bonds.................................. $ 67,039 $ 3,063 $ -- $ 70,102
State, local and government agency bonds.................. 13,607 2,290 23 15,874
Foreign government bonds.................................. 12,121 772 249 12,644
Corporate securities...................................... 1,471,422 55,836 6,275 1,520,983
Mortgage-backed securities................................ 95,385 951 -- 96,336
---------- ------------- ------------- ----------
Total..................................................... $1,659,574 $62,912 $ 6,457 $1,715,939
---------- ------------- ------------- ----------
---------- ------------- ------------- ----------

DECEMBER 31, 1994
------------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) VALUE APPRECIATION DEPRECIATION VALUE
---------- ------------- ------------- ----------
<S> <C> <C> <C> <C>

Federal government bonds.................................. $ 17,651 $ 8 $ 762 $ 16,897
State, local and government agency bonds.................. 1,110 54 -- 1,164
Foreign government bonds.................................. 31,863 83 3,735 28,211
Corporate securities...................................... 1,462,871 8,145 56,011 1,415,005
Mortgage-backed securities................................ 81,780 268 1,737 80,311
---------- ------------- ------------- ----------
Total..................................................... $1,595,275 $ 8,558 $62,245 $1,541,588
---------- ------------- ------------- ----------
---------- ------------- ------------- ----------
</TABLE>

The carrying value and fair value by contractual maturity at December 31, 1995,
are shown below. Actual maturities will 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 obligation back to the issuer. Mortgage-backed securities are
classified based on expected maturities.

<TABLE>
<CAPTION>
CARRYING FAIR
(IN THOUSANDS) VALUE VALUE
--------------------

<S> <C> <C>
Due in one year or less................. $ 250,578 $ 258,436
Due after one year through five years... 736,003 763,179
Due after five years through ten
years.................................. 538,897 558,445
Due after ten years..................... 134,097 135,880
--------------------
Total................................... $1,659,575 $1,715,940
--------------------
--------------------
</TABLE>

MORTGAGE LOANS AND REAL ESTATE -- Mortgage loans and real estate investments,
are diversified by property type and location. Real estate investments have been
obtained primarily through foreclosure. Mortgage

F-28
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)

NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED

loans are collateralized by the related properties and are generally no more
than 75% of the property value at the time the original loan is made. At
December 31, 1995 and 1994, mortgage loan and real estate investments were
distributed by the following types and geographic regions:
<TABLE>
<CAPTION>
(IN THOUSANDS)
PROPERTY TYPE 1995 1994
- ---------------------------------------- -------- --------

<S> <C> <C>
Office buildings........................ $127,149 $140,292
Residential............................. 59,934 57,061
Retail.................................. 29,578 72,787
Industrial/Warehouse.................... 38,192 39,424
Other................................... 25,636 37,256
-------- --------
Total................................... $280,489 $346,820
-------- --------
-------- --------

GEOGRAPHIC REGION 1995 1994
- ---------------------------------------- -------- --------
<S> <C> <C>

South Atlantic.......................... $ 86,410 $ 92,934
East North Central...................... 55,991 72,704
Middle Atlantic......................... 38,666 48,688
Pacific................................. 32,803 39,892
West North Central...................... 21,486 27,377
Mountain................................ 9,939 12,211
New England............................. 24,886 26,613
East South Central...................... 5,487 6,224
West South Central...................... 4,821 20,177
-------- --------
Total................................... $280,489 $346,820
-------- --------
-------- --------
</TABLE>

Reserves for mortgage loans and real estate reflected in the above amounts were
$18.9 million and $21.0 million at December 31, 1995 and 1994, respectively.

NET INVESTMENT INCOME -- The components of net investment income for the year
ended December 31 were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Bonds........................................ $122,318 $123,495 $126,729
Stocks....................................... 1,653 1,799 953
Mortgage loans............................... 26,356 31,945 40,823
Real estate.................................. 9,139 8,425 9,493
Policy loans................................. 9,486 8,797 8,215
Other investments............................ 3,951 1,651 674
Short term investments....................... 2,252 1,378 840
-------- -------- --------
175,155 177,490 187,727
Less investment expenses................... 9,703 9,138 11,026
-------- -------- --------
Net investment income, before IMR
amortization................................ 165,452 168,352 176,701
IMR amortization........................... 2,018 2,078 911
-------- -------- --------
Net investment income........................ $167,470 $170,430 $177,612
-------- -------- --------
-------- -------- --------
</TABLE>

F-29
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)

NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED

REALIZED CAPITAL GAINS AND LOSSES -- Realized capital gains (losses) on
investments for the years ended December 31 were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Bonds........................................ $ 727 $ 645 $ 10,133
Stocks....................................... (263) (62) 16
Mortgage loans............................... (1,083) (17,142) (83)
Real estate.................................. (1,892) 605 (2,044)
-------- -------- --------
(2,511) (15,954) 8,022
Less income tax.............................. 400 968 3,296
-------- -------- --------

Net realized capital gains (losses) before
transfer to IMR............................. (2,911) (16,922) 4,726
Net realized capital gains transferred to
IMR......................................... 616 (250) (11,951)
-------- -------- --------

Net realized capital gains (losses).......... $ (2,295) $(17,172) $ (7,225)
-------- -------- --------
-------- -------- --------
</TABLE>

Proceeds from voluntary sales of investments in bonds during 1995, 1994 and 1993
were $22.4 million, $17.9 million, and $13.2 million, respectively. Gross gains
of $4.3 million, $3.0 million, and $4.5 million and gross losses of $5.2
million, $4.6 million, and $.5 million, respectively, were realized on those
sales.

NOTE 3 -- FAIR VALUE DISCLOSURES OF FINANCIAL INFORMATION

Statement of Financial Accounting Standards 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 recognized 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:

FINANCIAL ASSETS:

CASH AND SHORT TERM INVESTMENTS -- The carrying amounts reported in the
statement of assets, liabilities, surplus and other funds approximate fair
value.

BONDS -- 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.

STOCKS -- 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.

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 is limited to the lesser of the present value of
the cash flows or book value.

F-30
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)

NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED

POLICY LOANS -- The carrying amount reported in the statement of assets,
liabilities, surplus and other funds approximates fair value since policy loans
have no defined maturity dates and are inseparable from the insurance contracts.

FINANCIAL LIABILITIES:

ANNUITY AND OTHER FUND RESERVES (WITHOUT MORTALITY/MORBIDITY FEATURES) -- Fair
values for the Company's liabilities under individual annuity contracts are
estimated based on current surrender values.

The estimated fair values of the financial instruments as of December 31 were as
follows:

<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------

<S> <C> <C> <C> <C>
Financial Assets:
Cash.................................. $ 7,791 $ 7,791 $ 7,248 $ 7,248
Short term investments................ 3,500 3,500 45,239 45,239
Bonds................................. 1,659,575 1,715,940 1,595,275 1,541,588
Stocks................................ 18,132 18,414 12,283 12,590
Mortgage loans........................ 239,522 250,196 295,532 291,704
Policy loans.......................... 122,696 122,696 116,600 116,600

Financial Liabilities:
Individual annuity contracts.......... 803,099 797,024 869,230 862,662
Supplemental contracts without life
contingencies........................ 16,796 16,796 16,673 16,673
Other contract deposit funds............ 632 632 1,105 1,105
</TABLE>

NOTE 4 -- FEDERAL INCOME TAXES

The federal income tax provisions for 1995, 1994 and 1993 were $17.4 million,
$13.1 million and $8.6 million, respectively, which include taxes applicable to
realized capital gains of $.4 million, $1.0 million and $3.3 million.

The effective federal income tax rates were 27%, 67% and 30% in 1995, 1994 and
1993, respectively. The differences between the federal statutory rate and the
Company's effective tax rates are primarily related to decreases in taxable
income for the write-offs of mortgage loans; and increases in taxable income for
differences in policyholder liabilities for federal income tax purposes and
financial reporting purposes and the deferral of policy acquisition costs for
federal tax purposes.

The consolidated federal income tax returns are routinely audited by the
Internal Revenue Service (IRS) and provisions are routinely made in the
financial statements in anticipation of the results of these audits. The IRS has
completed its examination of all of the consolidated federal income tax returns
through 1988. In management's opinion, adequate tax liabilities have been
established for all years. However, the amount of these liabilities could be
revised in the near term if estimates of the Company's ultimate liability are
revised.

F-31
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)

NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED

NOTE 5 -- REINSURANCE

The Company participates in reinsurance to reduce overall risks, including
exposure to large losses and to permit recovery of a portion of direct losses.
Reinsurance contracts do not relieve the Company from its obligation to its
policyholders. Reinsurance financial data for the years ended December 31, is as
follows:

<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
------- ------- -------

<S> <C> <C> <C>
Reinsurance premiums assumed................. $ 3,442 $ 3,788 $ 4,190
Reinsurance premiums ceded................... 42,914 17,430 14,798
Deduction from insurance liability including
reinsurance recoverable on unpaid claims.... 82,227 46,734 42,805
</TABLE>

Individual life premiums ceded to First Allmerica aggregated $6.8 million, $7.8
million and $9.0 million in 1995, 1994 and 1993, respectively. The Company has
also entered into various reinsurance agreements with First Allmerica under
which certain insurance risks related to individual accident and health
business, premium income and related expenses are assumed by the Company from
First Allmerica. Premiums assumed pursuant to these agreements aggregated $3.4
million, $3.8 million and $4.2 million in 1995, 1994 and 1993, respectively.

During the year Allmerica Financial entered into a coinsurance agreement to
reinsure substantially all of its yearly renewable term life insurance. Premiums
ceded and reinsurance credits taken under this agreement amounted to $25.4
million and $20.7 million, respectively. At December 31, 1995, the deduction
from insurance liability, including reinsurance recoverable on unpaid claims
under this agreement was $12.7 million.

NOTE 6 -- ACCIDENT AND HEALTH POLICY AND CLAIM LIABILITIES

The Company regularly updates its estimates of policy and claims liabilities as
new information becomes available and further events occur which may impact the
resolution of unsettled claims for its accident and health line of business.
Changes in prior estimates are generally reflected in results of operations in
the year such changes are determined to be needed and recorded.

The policy and claims liabilities related to the Company's accident and health
business were $169.7 million and $123.5 million at December 31, 1995 and 1994,
respectively. Accident and health policy and claims liabilities have been
re-estimated for all prior years and were increased by $42.5 million, $10.9
million and $13.2 million, in 1995, 1994 and 1993, respectively, including $21.9
million and $2.8 million recorded as an adjustment to surplus in 1995 and 1993,
respectively. The unfavorable development is primarily due to reserve
strengthening and adverse experience in the Company's individual accident and
health line of business.

NOTE 7 -- 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 statutory policyholder 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

F-32
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)

NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED

other than statutory earned surplus would also require the prior approval of the
Delaware Commissioner of Insurance. At January 1, 1996, the Company could pay
dividends of $4.3 million to First Allmerica, without prior approval.

NOTE 8 -- OTHER RELATED PARTY TRANSACTIONS

First Allmerica provides management, operating personnel and facilities on a
cost reimbursement basis to the Company. Expenses for services received from
First Allmerica were $85.8 million, $102.5 million and $98.9 million in 1995,
1994 and 1993, respectively. The net amounts payable to First Allmerica and
affiliates for accrued expenses and various other liabilities and receivables
were $12.6 million and $8.3 million at December 31, 1995 and 1994, respectively.

NOTE 9 -- FUNDS ON DEPOSIT

In March 1994, the Company voluntarily withdrew from being licensed in New York.
In connection with the withdrawal First Allmerica, which is licensed in New
York, became qualified to sell the products previously sold by Allmerica
Financial in New York. The Company 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 general account liabilities of the Company for New York
policyholders, claimants and creditors. As of December 31, 1995, the carrying
value and fair value of the assets or deposit was $295.0 million and $303.6
million, respectively, which is in excess of the required amount.

Additional securities with a carrying value of $4.2 million and $3.9 million
were on deposit with various other state and governmental authorities as of
December 31, 1995 and 1994, respectively.

NOTE 10 -- LITIGATION

F-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Allmerica Financial Life Insurance
and Annuity Company and Policyowners of VEL Account
of Allmerica Financial Life Insurance and Annuity Company

In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts (1, 2,
3, 4, 5, 6, 7, 8, 9, 11, 12, 101, 102, 103, 104, 105, 106, 150, and 207)
constituting the VEL Account of Allmerica Financial Life Insurance and Annuity
Company at December 31, 1996, and the results of each of their operations and
the changes in each of their net assets for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of Allmerica Financial Life Insurance and Annuity Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with 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, which included
confirmation of investments owned at December 31, 1996 by correspondence with
the Funds, provide a reasonable basis for the opinion expressed above.

/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
March 26, 1997

F-34
<PAGE>
VEL ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENT EQUITY
GROWTH GRADE INCOME MONEY MARKET INDEX GOVERNMENT BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
1 2 3 4 5
----------- ------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... $41,566,662 $9,836,397 $7,682,889 $14,109,882 $1,883,646
Investments in shares of Fidelity Variable
Insurance Products Funds.................. -- -- -- -- --
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- -- -- --
----------- ------------ ------------ ----------- ---------------
Total assets............................ 41,566,662 9,836,397 7,682,889 14,109,882 1,883,646

LIABILITIES: -- -- -- -- --
----------- ------------ ------------ ----------- ---------------
Net assets.............................. $41,566,662 $9,836,397 $7,682,889 $14,109,882 $1,883,646
----------- ------------ ------------ ----------- ---------------
----------- ------------ ------------ ----------- ---------------

Net asset distribution by category:
VEL '87 and VEL '91 Series variable life
policies................................ $40,744,662 $9,271,003 $7,311,565 $13,536,515 $1,853,282
VEL Plus Series variable life policies.... 822,000 565,394 371,324 573,367 30,364
----------- ------------ ------------ ----------- ---------------
$41,566,662 $9,836,397 $7,682,889 $14,109,882 $1,883,646
----------- ------------ ------------ ----------- ---------------
----------- ------------ ------------ ----------- ---------------

Units outstanding and net asset value per
unit:
VEL '87 and VEL '91 Series:
Units outstanding, December 31, 1996...... 10,718,754 4,571,361 4,754,466 5,232,814 1,413,893
Net asset value per unit, December 31,
1996.................................... $ 3.801250 $ 2.028062 $ 1.537831 $ 2.586852 $ 1.310765
VEL Plus Series:
Units outstanding, December 31, 1996...... 215,608 277,963 240,748 220,997 23,096
Net asset value per unit, December 31,
1996.................................... $ 3.812473 $ 2.034064 $ 1.542378 $ 2.594459 $ 1.314652

<CAPTION>
SELECT SELECT SMALL CAP
AGGRESSIVE GROWTH SELECT GROWTH GROWTH AND INCOME VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
6 7 8 9
----------------- ------------- ----------------- -----------
<S> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... $18,587,866 $8,047,365 $8,421,981 $5,370,143
Investments in shares of Fidelity Variable
Insurance Products Funds.................. -- -- -- --
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- -- --
----------------- ------------- ----------------- -----------
Total assets............................ 18,587,866 8,047,365 8,421,981 5,370,143
LIABILITIES: -- -- -- --
----------------- ------------- ----------------- -----------
Net assets.............................. $18,587,866 $8,047,365 $8,421,981 $5,370,143
----------------- ------------- ----------------- -----------
----------------- ------------- ----------------- -----------
Net asset distribution by category:
VEL '87 and VEL '91 Series variable life
policies................................ $17,020,864 $7,695,358 $8,175,161 $4,812,096
VEL Plus Series variable life policies.... 1,567,002 352,007 246,820 558,047
----------------- ------------- ----------------- -----------
$18,587,866 $8,047,365 $8,421,981 $5,370,143
----------------- ------------- ----------------- -----------
----------------- ------------- ----------------- -----------
Units outstanding and net asset value per
unit:
VEL '87 and VEL '91 Series:
Units outstanding, December 31, 1996...... 8,429,012 4,982,914 4,854,958 3,018,305
Net asset value per unit, December 31,
1996.................................... $ 2.019319 $ 1.544349 $ 1.683879 $ 1.594304
VEL Plus Series:
Units outstanding, December 31, 1996...... 773,748 227,266 146,148 349,002
Net asset value per unit, December 31,
1996.................................... $ 2.025211 $ 1.548874 $ 1.688842 $ 1.598982
</TABLE>

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

F-35
<PAGE>
VEL ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SELECT SELECT VIPF
INTERNATIONAL CAPITAL MONEY VIPF VIPF VIPF
EQUITY APPRECIATION MARKET HIGH INCOME EQUITY-INCOME GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
11 12 101 102 103 104
------------- ------------ ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... $6,003,581 $3,962,999 -- -- -- --
Investments in shares of Fidelity Variable
Insurance Products Funds.................. -- -- $2,469,604 $10,811,172 $57,569,775 $59,340,985
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- -- -- -- --
------------- ------------ ----------- ------------- ------------- -----------
Total assets............................ 6,003,581 3,962,999 2,469,604 10,811,172 57,569,775 59,340,985

LIABILITIES: -- -- -- -- -- --
------------- ------------ ----------- ------------- ------------- -----------
Net assets.............................. $6,003,581 $3,962,999 $2,469,604 $10,811,172 $57,569,775 $59,340,985
------------- ------------ ----------- ------------- ------------- -----------
------------- ------------ ----------- ------------- ------------- -----------

Net asset distribution by category:
VEL '87 and VEL '91 Series variable life
policies................................ $5,294,675 $3,470,503 $2,469,604 $10,249,110 $54,732,526 $57,164,925
VEL Plus Series variable life policies.... 708,906 492,496 -- 562,062 2,837,249 2,176,060
------------- ------------ ----------- ------------- ------------- -----------
$6,003,581 $3,962,999 $2,469,604 $10,811,172 $57,569,775 $59,340,985
------------- ------------ ----------- ------------- ------------- -----------
------------- ------------ ----------- ------------- ------------- -----------

Units outstanding and net asset value per
unit:
VEL '87 and VEL '91 Series:
Units outstanding, December 31, 1996...... 3,851,757 2,320,069 1,586,103 3,872,739 15,118,538 14,180,640
Net asset value per unit, December 31,
1996.................................... $ 1.374613 $ 1.495862 $ 1.557026 $ 2.646476 $ 3.620226 $ 4.031195
VEL Plus Series:
Units outstanding, December 31, 1996...... 514,205 328,270 -- 211,755 781,416 538,224
Net asset value per unit, December 31,
1996.................................... $ 1.378643 $ 1.500275 -- $ 2.654301 $ 3.630908 $ 4.043037

<CAPTION>
T. ROWE PRICE DGPF
VIPF VIPF II INTERNATIONAL INTERNATIONAL
OVERSEAS ASSET MANAGER STOCK EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
105 106 150 207
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... -- -- -- --
Investments in shares of Fidelity Variable
Insurance Products Funds.................. $18,409,373 $1,285,685 -- --
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- $2,076,456 --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- -- $4,770,003
------------ ------------- ------------- -------------
Total assets............................ 18,409,373 1,285,685 2,076,456 4,770,003
LIABILITIES: -- -- -- --
------------ ------------- ------------- -------------
Net assets.............................. $18,409,373 $1,285,685 $2,076,456 $4,770,003
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Net asset distribution by category:
VEL '87 and VEL '91 Series variable life
policies................................ $17,860,417 $1,068,944 $1,951,801 $4,476,767
VEL Plus Series variable life policies.... 548,956 216,741 124,655 293,236
------------ ------------- ------------- -------------
$18,409,373 $1,285,685 $2,076,456 $4,770,003
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Units outstanding and net asset value per
unit:
VEL '87 and VEL '91 Series:
Units outstanding, December 31, 1996...... 8,154,701 820,894 1,630,460 2,879,163
Net asset value per unit, December 31,
1996.................................... $ 2.190199 $ 1.302170 $ 1.197086 $ 1.554885
VEL Plus Series:
Units outstanding, December 31, 1996...... 249,905 165,957 103,827 188,036
Net asset value per unit, December 31,
1996.................................... $ 2.196660 $ 1.306013 $ 1.200611 $ 1.559470
</TABLE>

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

F-36
<PAGE>
VEL ACCOUNT
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
GROWTH INVESTMENT GRADE INCOME MONEY MARKET
SUB-ACCOUNT 1 SUB-ACCOUNT 2 SUB-ACCOUNT 3
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER
DECEMBER 31, DECEMBER 31, 31,
---------------------------------- -------------------------------- ----------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
---------- ---------- ---------- -------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $4,503,521 $3,398,296 $1,692,992 $634,850 $ 598,145 $ 503,268 $355,812 $340,880 $235,657

EXPENSES (NOTE 4):
Mortality and expense
risk fees............ 345,030 276,867 222,505 87,871 80,882 72,076 61,058 54,030 55,533
---------- ---------- ---------- -------- ---------- ---------- -------- -------- --------
Net investment income
(loss)............... 4,158,491 3,121,429 1,470,487 546,979 517,263 431,192 294,754 286,850 180,124
---------- ---------- ---------- -------- ---------- ---------- -------- -------- --------

REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain
(loss)............... 603,156 114,997 43,236 (181) (8,055) (44,126) -- -- --
Net unrealized gain
(loss)............... 1,960,758 5,074,547 (1,707,945) (291,424) 867,289 (710,225) -- -- --
---------- ---------- ---------- -------- ---------- ---------- -------- -------- --------
Net realized and
unrealized gain
(loss) on
investments.......... 2,563,914 5,189,544 (1,664,709) (291,605) 859,234 (754,351) -- -- --
---------- ---------- ---------- -------- ---------- ---------- -------- -------- --------
Net increase (decrease)
in net assets from
operations........... $6,722,405 $8,310,973 $ (194,222) $255,374 $1,376,497 $ (323,159) $294,754 $286,850 $180,124
---------- ---------- ---------- -------- ---------- ---------- -------- -------- --------
---------- ---------- ---------- -------- ---------- ---------- -------- -------- --------
</TABLE>

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

F-37
<PAGE>
VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
EQUITY INDEX GOVERNMENT BOND SELECT AGGRESSIVE GROWTH
SUB-ACCOUNT 4 SUB-ACCOUNT 5 SUB-ACCOUNT 6
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------------------------- --------------------------------- ----------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
----------- ---------- ---------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends......... $ 520,359 $1,616,618 $ 529,861 $112,649 $ 122,508 $ 183,079 $1,307,228 $ -- $ --

EXPENSES (NOTE 4):
Mortality and
expense risk
fees............ 167,515 168,665 135,800 17,338 18,980 29,934 149,550 107,755 68,536
----------- ---------- ---------- -------- ---------- ---------- ---------- ---------- ----------
Net investment
income (loss)... 352,844 1,447,953 394,061 95,311 103,528 153,145 1,157,678 (107,755) (68,536)
----------- ---------- ---------- -------- ---------- ---------- ---------- ---------- ----------

REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Net realized gain
(loss).......... 4,187,907 98,943 139,128 (10,826) (27,790) (127,304) 1,036,112 110,726 16,672
Net unrealized
gain (loss)..... (1,586,677) 3,975,325 (506,142) (37,905) 162,592 (98,119) 385,516 3,205,669 (222,557)
----------- ---------- ---------- -------- ---------- ---------- ---------- ---------- ----------
Net realized and
unrealized gain
(loss) on
investments..... 2,601,230 4,074,268 (367,014) (48,731) 134,802 (225,423) 1,421,628 3,316,395 (205,885)
----------- ---------- ---------- -------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in
net assets from
operations...... $ 2,954,074 $5,522,221 $ 27,047 $ 46,580 $ 238,330 $ (72,278) $2,579,306 $3,208,640 $ (274,421)
----------- ---------- ---------- -------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- -------- ---------- ---------- ---------- ---------- ----------
</TABLE>

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

F-38
<PAGE>
VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
SELECT GROWTH SELECT GROWTH AND INCOME SMALL CAP VALUE
SUB-ACCOUNT 7 SUB-ACCOUNT 8 SUB-ACCOUNT 9
FOR THE YEAR ENDED DECEMBER 31, FOR THE YEAR ENDED DECEMBER 31, FOR THE YEAR ENDED DECEMBER 31,
--------------------------------- ---------------------------------- --------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
---------- ---------- --------- ---------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends........... $1,154,995 $ 909 $ 13,907 $ 713,270 $ 332,182 $ 209,665 $ 273,095 $123,752 $ 11,138

EXPENSES (NOTE 4):
Mortality and
expense risk
fees.............. 63,265 50,997 36,095 66,237 48,963 37,644 39,343 28,223 15,883
---------- ---------- --------- ---------- ---------- ---------- ---------- -------- ----------
Net investment
income (loss)..... 1,091,730 (50,088) (22,188) 647,033 283,219 172,021 233,752 95,529 (4,745)
---------- ---------- --------- ---------- ---------- ---------- ---------- -------- ----------

REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Net realized gain
(loss)............ 444,292 67,387 15,084 195,278 68,712 10,373 216,241 35,178 (1,911)
Net unrealized gain
(loss)............ (203,667) 1,114,016 (87,571) 506,567 1,034,046 (196,007) 612,764 350,342 (138,299)
---------- ---------- --------- ---------- ---------- ---------- ---------- -------- ----------
Net realized and
unrealized gain
(loss) on
investments....... 240,625 1,181,403 (72,487) 701,845 1,102,758 (185,634) 829,005 385,520 (140,210)
---------- ---------- --------- ---------- ---------- ---------- ---------- -------- ----------
Net increase
(decrease) in net
assets from
operations........ $1,332,355 $1,131,315 $ (94,675) $1,348,878 $1,385,977 $ (13,613) $1,062,757 $481,049 $ (144,955)
---------- ---------- --------- ---------- ---------- ---------- ---------- -------- ----------
---------- ---------- --------- ---------- ---------- ---------- ---------- -------- ----------
</TABLE>

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

F-39
<PAGE>
VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
SELECT INTERNATIONAL EQUITY
SUB-ACCOUNT 11 SELECT CAPITAL APPRECIATION VIPF MONEY MARKET
FOR THE SUB-ACCOUNT 12 SUB-ACCOUNT 101
YEAR ENDED FOR THE FOR THE YEAR ENDED DECEMBER
DECEMBER 31, YEAR 31,
------------------ FOR THE PERIOD ENDED FOR THE PERIOD ----------------------------
1996 1995 5/4/94* TO 12/31/94 12/31/96 4/28/95* TO 12/31/95 1996 1995 1994
-------- -------- ------------------- --------- -------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends............. $124,913 $ 28,461 $ 1,381 $ 9,311 $ 24,495 $120,292 $156,906 $113,645

EXPENSES (NOTE 4):
Mortality and expense
risk fees........... 34,090 11,453 1,484 24,307 3,057 20,908 24,582 24,557
-------- -------- -------- --------- ----------- -------- -------- --------
Net investment income
(loss).............. 90,823 17,008 (103) (14,996) 21,438 99,384 132,324 89,088
-------- -------- -------- --------- ----------- -------- -------- --------

REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain
(loss).............. 99,532 3,984 (142) 29,698 1,577 -- -- --
Net unrealized gain
(loss).............. 624,842 187,492 (20,162) 42,479 106,054 -- -- --
-------- -------- -------- --------- ----------- -------- -------- --------
Net realized and
unrealized gain
(loss) on
investments......... 724,374 191,476 (20,304) 72,177 107,631 -- -- --
-------- -------- -------- --------- ----------- -------- -------- --------
Net increase
(decrease) in net
assets from
operations.......... $815,197 $208,484 $(20,407) $ 57,181 $ 129,069 $ 99,384 $132,324 $ 89,088
-------- -------- -------- --------- ----------- -------- -------- --------
-------- -------- -------- --------- ----------- -------- -------- --------
</TABLE>

* Date of initial investment.

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

F-40
<PAGE>
VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
VIPF HIGH INCOME VIPF EQUITY-INCOME VIPF GROWTH
SUB-ACCOUNT 102 SUB-ACCOUNT 103 SUB-ACCOUNT 104
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------------------- ----------------------------------- -------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends....... $ 873,222 $ 527,909 $ 595,097 $2,384,256 $ 2,886,679 $2,322,480 $3,774,817 $ 210,037 $ 2,037,179

EXPENSES (NOTE 4):
Mortality and
expense risk
fees.......... 90,412 75,188 62,457 486,502 395,590 296,761 509,772 424,764 311,684
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- ------------
Net investment
income
(loss)........ 782,810 452,721 532,640 1,897,754 2,491,089 2,025,719 3,265,045 (214,727) 1,725,495
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- ------------

REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Net realized
gain (loss)... 403,489 65,770 54,603 1,285,708 359,460 142,856 1,452,352 789,394 205,961
Net unrealized
gain (loss)... 49,497 936,558 (764,492) 3,673,472 9,834,460 (231,521) 2,500,114 12,592,041 (2,127,245)
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- ------------
Net realized and
unrealized
gain (loss) on
investments... 452,986 1,002,328 (709,889) 4,959,180 10,193,920 (88,665) 3,952,466 13,381,435 (1,921,284)
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- ------------
Net increase
(decrease) in
net assets
from
operations.... $1,235,796 $1,455,049 $ (177,249) $6,856,934 $12,685,009 $1,937,054 $7,217,511 $13,166,708 $ (195,789)
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- ------------
---------- ---------- ---------- ---------- ----------- ---------- ---------- ----------- ------------
</TABLE>

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

F-41
<PAGE>
VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
VIPF OVERSEAS VIPF II ASSET MANAGER
SUB-ACCOUNT 105 SUB-ACCOUNT 106
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31,
---------------------------------- -------------------- FOR THE PERIOD
1996 1995 1994 1996 1995 5/4/94* TO 12/31/94
---------- ---------- ---------- -------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................. $ 446,304 $ 129,738 $ 69,245 $ 80,333 $ 21,513 $ 421

EXPENSES (NOTE 4):
Mortality and expense risk fees........... 167,042 159,261 141,965 11,226 10,599 2,688
---------- ---------- ---------- -------- ---------- --------
Net investment income (loss).............. 279,262 (29,523) (72,720) 69,107 10,914 (2,267)
---------- ---------- ---------- -------- ---------- --------

REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss).................. 749,908 304,440 168,454 48,794 13,540 124
Net unrealized gain (loss)................ 1,102,752 1,219,736 (120,715) 41,554 154,558 (21,891)
---------- ---------- ---------- -------- ---------- --------
Net realized and unrealized gain (loss) on
investments............................. 1,852,660 1,524,176 47,739 90,348 168,098 (21,767)
---------- ---------- ---------- -------- ---------- --------
Net increase (decrease) in net assets from
operations.............................. $2,131,922 $1,494,653 $ (24,981) $159,455 $ 179,012 $(24,034)
---------- ---------- ---------- -------- ---------- --------
---------- ---------- ---------- -------- ---------- --------
</TABLE>

* Date of initial investment.

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

F-42
<PAGE>
VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
T. ROWE PRICE INTERNATIONAL DGPF INTERNATIONAL EQUITY
STOCK SUB-ACCOUNT 207
SUB-ACCOUNT 150 FOR THE YEAR ENDED
FOR THE FOR THE PERIOD DECEMBER 31,
YEAR ENDED 6/23/95* TO ----------------------------
12/31/96 12/31/95 1996 1995 1994
---------- ------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................. $ 31,594 $ -- $152,182 $ 75,738 $ 7,466

EXPENSES (NOTE 4):
Mortality and expense risk fees........... 11,039 1,301 36,315 28,475 16,641
---------- ------- -------- -------- --------
Net investment income (loss).............. 20,555 (1,301) 115,867 47,263 (9,175)
---------- ------- -------- -------- --------

REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss).................. 34,883 (98) 113,363 18,892 11,520
Net unrealized gain (loss)................ 103,877 15,909 490,548 320,817 (15,611)
---------- ------- -------- -------- --------
Net realized and unrealized gain (loss) on
investments............................. 138,760 15,811 603,911 339,709 (4,091)
---------- ------- -------- -------- --------
Net increase (decrease) in net assets from
operations.............................. $159,315 $14,510 $719,778 $386,972 $(13,266)
---------- ------- -------- -------- --------
---------- ------- -------- -------- --------
</TABLE>

* Date of initial investment.

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

F-43
<PAGE>
VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
GROWTH INVESTMENT GRADE INCOME MONEY MARKET
SUB-ACCOUNT 1 SUB-ACCOUNT 2 SUB-ACCOUNT 3
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------------- ---------------------------------- ----------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS:
FROM OPERATIONS:
Net investment
income (loss)... $ 4,158,491 $ 3,121,429 $ 1,470,487 $ 546,979 $ 517,263 $ 431,192 $ 294,754 $ 286,850 $ 180,124
Net realized gain
(loss) on
investments..... 603,156 114,997 43,236 (181) (8,055) (44,126) -- -- --
Net unrealized
gain (loss) on
investments..... 1,960,758 5,074,547 (1,707,945) (291,424) 867,289 (710,225) -- -- --
----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in
net assets from
operations...... 6,722,405 8,310,973 (194,222) 255,374 1,376,497 (323,159) 294,754 286,850 180,124
----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------

FROM CAPITAL
TRANSACTIONS:
Net premiums...... 5,044,215 5,348,444 6,198,543 1,542,885 1,777,991 2,301,855 3,687,528 3,733,510 4,928,805
Terminations...... (1,571,480) (962,528) (746,445) (475,070) (315,011) (276,756) (563,991) (337,981) (154,224)
Other transfers
from (to) the
General Account
of Allmerica
Financial Life
Insurance and
Annuity Company
(Sponsor)....... (4,085,194) (2,848,977) (4,055,993) (1,394,780) (974,910) (1,566,287) (1,872,826) (3,371,022) (5,809,172)
Net increase
(decrease) in
net assets from
investment by
Allmerica
Financial Life
Insurance and
Annuity Company
(Sponsor)....... -- -- -- -- -- -- -- -- --
----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in
net assets from
capital
transactions.... (612,459) 1,536,939 1,396,105 (326,965) 488,070 458,812 1,250,711 24,507 (1,034,591)
----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in
net assets...... 6,109,946 9,847,912 1,201,883 (71,591) 1,864,567 135,653 1,545,465 311,357 (854,467)

NET ASSETS:
Beginning of
year............ 35,456,716 25,608,804 24,406,921 9,907,988 8,043,421 7,907,768 6,137,424 5,826,067 6,680,534
----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
End of year....... $41,566,662 $35,456,716 $25,608,804 $9,836,397 $9,907,988 $8,043,421 $7,682,889 $6,137,424 $5,826,067
----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
----------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>

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

F-44
<PAGE>
VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
EQUITY INDEX GOVERNMENT BOND
SUB-ACCOUNT 4 SUB-ACCOUNT 5
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- -----------------------------------
1996 1995 1994 1996 1995 1994
------------ ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss).............. $ 352,844 $ 1,447,953 $ 394,061 $ 95,311 $ 103,528 $ 153,145
Net realized gain (loss) on investments... 4,187,907 98,943 139,128 (10,826) (27,790) (127,304)
Net unrealized gain (loss) on
investments............................. (1,586,677) 3,975,325 (506,142) (37,905) 162,592 (98,119)
------------ ----------- ----------- ---------- ----------- ----------
Net increase (decrease) in net assets from
operations.............................. 2,954,074 5,522,221 27,047 46,580 238,330 (72,278)
------------ ----------- ----------- ---------- ----------- ----------

FROM CAPITAL TRANSACTIONS:
Net premiums.............................. 1,682,234 1,721,701 1,921,153 842,750 1,087,763 2,156,088
Terminations.............................. (413,060) (251,519) (220,185) (101,929) (224,574) (39,422)
Other transfers from (to) the General
Account of Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................... (739,624) (319,428) (1,226,276) (960,159) (1,337,123) (3,997,857)
Net increase (decrease) in net assets from
investment by Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................... (11,394,141) -- -- -- -- --
------------ ----------- ----------- ---------- ----------- ----------
Net increase (decrease) in net assets from
capital transactions.................... (10,864,591) 1,150,754 474,692 (219,338) (473,934) (1,881,191)
------------ ----------- ----------- ---------- ----------- ----------
Net increase (decrease) in net assets..... (7,910,517) 6,672,975 501,739 (172,758) (235,604) (1,953,469)

NET ASSETS:
Beginning of year......................... 22,020,399 15,347,424 14,845,685 2,056,404 2,292,008 4,245,477
------------ ----------- ----------- ---------- ----------- ----------
End of year............................... $ 14,109,882 $22,020,399 $15,347,424 $1,883,646 $ 2,056,404 $2,292,008
------------ ----------- ----------- ---------- ----------- ----------
------------ ----------- ----------- ---------- ----------- ----------

<CAPTION>
SELECT AGGRESSIVE GROWTH
SUB-ACCOUNT 6
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss).............. $ 1,157,678 $ (107,755) $ (68,536)
Net realized gain (loss) on investments... 1,036,112 110,726 16,672
Net unrealized gain (loss) on
investments............................. 385,516 3,205,669 (222,557)
----------- ----------- ----------
Net increase (decrease) in net assets from
operations.............................. 2,579,306 3,208,640 (274,421)
----------- ----------- ----------
FROM CAPITAL TRANSACTIONS:
Net premiums.............................. 3,003,875 2,791,210 3,158,118
Terminations.............................. (515,815) (332,835) (217,838)
Other transfers from (to) the General
Account of Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................... (860,510) (703,235) 967,628
Net increase (decrease) in net assets from
investment by Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................... -- -- --
----------- ----------- ----------
Net increase (decrease) in net assets from
capital transactions.................... 1,627,550 1,755,140 3,907,908
----------- ----------- ----------
Net increase (decrease) in net assets..... 4,206,856 4,963,780 3,633,487
NET ASSETS:
Beginning of year......................... 14,381,010 9,417,230 5,783,743
----------- ----------- ----------
End of year............................... $18,587,866 $14,381,010 $9,417,230
----------- ----------- ----------
----------- ----------- ----------
</TABLE>

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

F-45
<PAGE>
VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
SELECT GROWTH SELECT GROWTH AND INCOME SMALL CAP VALUE
SUB-ACCOUNT 7 SUB-ACCOUNT 8 SUB-ACCOUNT 9
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------------- ---------------------------------- ----------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS:
FROM OPERATIONS:
Net investment
income (loss)... $1,091,730 $ (50,088) $ (22,188) $ 647,033 $ 283,219 $ 172,021 $ 233,752 $ 95,529 $ (4,745)
Net realized gain
(loss) on
investments..... 444,292 67,387 15,084 195,278 68,712 10,373 216,241 35,178 (1,911)
Net unrealized
gain (loss) on
investments..... (203,667) 1,114,016 (87,571) 506,567 1,034,046 (196,007) 612,764 350,342 (138,299)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in
net assets from
operations...... 1,332,355 1,131,315 (94,675) 1,348,878 1,385,977 (13,613) 1,062,757 481,049 (144,955)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------

FROM CAPITAL
TRANSACTIONS:
Net premiums...... 1,147,398 1,207,487 1,506,265 1,132,705 1,173,049 1,435,394 738,397 728,709 768,133
Terminations...... (206,706) (185,136) (67,997) (149,501) (161,150) (102,727) (141,088) (66,720) (15,056)
Other transfers
from (to) the
General Account
of Allmerica
Financial Life
Insurance and
Annuity Company
(Sponsor)....... (447,763) (535,607) (517,387) (401,850) (567,886) (56,409) (2,000) 38,711 977,932
Net increase
(decrease) in
net assets from
investment by
Allmerica
Financial Life
Insurance and
Annuity Company
(Sponsor)....... -- -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in
net assets from
capital
transactions.... 492,929 486,744 920,881 581,354 444,013 1,276,258 595,309 700,700 1,731,009
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in
net assets...... 1,825,284 1,618,059 826,206 1,930,232 1,829,990 1,262,645 1,658,066 1,181,749 1,586,054

NET ASSETS:
Beginning of
year............ 6,222,081 4,604,022 3,777,816 6,491,749 4,661,759 3,399,114 3,712,077 2,530,328 944,274
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
End of year....... $8,047,365 $6,222,081 $4,604,022 $8,421,981 $6,491,749 $4,661,759 $5,370,143 $3,712,077 $2,530,328
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>

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

F-46
<PAGE>
VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT INTERNATIONAL EQUITY
SUB-ACCOUNT 11 SELECT CAPITAL APPRECIATION
YEAR ENDED SUB-ACCOUNT 12
---------------------- PERIOD FROM YEAR ENDED PERIOD FROM
1996 1995 5/4/94* TO 12/31/94 12/31/96 4/28/95* TO 12/31/95
---------- ---------- ------------------- ----------- ---------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)............ $ 90,823 $ 17,008 $ (103) $ (14,996) $ 21,438
Net realized gain (loss) on
investments........................... 99,532 3,984 (142) 29,698 1,577
Net unrealized gain (loss) on
investments........................... 624,842 187,492 (20,162) 42,479 106,054
---------- ---------- -------- ----------- -----------
Net increase (decrease) in net assets
from operations....................... 815,197 208,484 (20,407) 57,181 129,069
---------- ---------- -------- ----------- -----------

FROM CAPITAL TRANSACTIONS:
Net premiums............................ 827,029 370,401 179,090 721,364 139,022
Terminations............................ (75,751) (16,371) (6,006) (55,631) (2,350)
Other transfers from (to) the General
Account of Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................. 2,288,642 942,142 491,164 1,953,211 1,021,228
Net increase (decrease) in net assets
from investment by Allmerica Financial
Life Insurance and Annuity Company
(Sponsor)............................. (133) -- 100 (295) 200
---------- ---------- -------- ----------- -----------
Net increase (decrease) in net assets
from capital transactions............. 3,039,787 1,296,172 664,348 2,618,649 1,158,100
---------- ---------- -------- ----------- -----------
Net increase (decrease) in net assets... 3,854,984 1,504,656 643,941 2,675,830 1,287,169

NET ASSETS:
Beginning of year....................... 2,148,597 643,941 -- 1,287,169 --
---------- ---------- -------- ----------- -----------
End of year............................. $6,003,581 $2,148,597 $643,941 $3,962,999 $1,287,169
---------- ---------- -------- ----------- -----------
---------- ---------- -------- ----------- -----------

<CAPTION>
VIPF MONEY MARKET
SUB-ACCOUNT 101
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)............ $ 99,384 $ 132,324 $ 89,088
Net realized gain (loss) on
investments........................... -- -- --
Net unrealized gain (loss) on
investments........................... -- -- --
---------- ---------- ----------
Net increase (decrease) in net assets
from operations....................... 99,384 132,324 89,088
---------- ---------- ----------
FROM CAPITAL TRANSACTIONS:
Net premiums............................ 549,667 810,746 1,070,685
Terminations............................ (95,420) (122,754) (89,552)
Other transfers from (to) the General
Account of Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................. (799,718) (670,797) (1,127,373)
Net increase (decrease) in net assets
from investment by Allmerica Financial
Life Insurance and Annuity Company
(Sponsor)............................. -- -- --
---------- ---------- ----------
Net increase (decrease) in net assets
from capital transactions............. (345,471) 17,195 (146,240)
---------- ---------- ----------
Net increase (decrease) in net assets... (246,087) 149,519 (57,152)
NET ASSETS:
Beginning of year....................... 2,715,691 2,566,172 2,623,324
---------- ---------- ----------
End of year............................. $2,469,604 $2,715,691 $2,566,172
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

* Date of initial investment.

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

F-47
<PAGE>
VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
VIPF HIGH INCOME VIPF EQUITY-INCOME
SUB-ACCOUNT 102 SUB-ACCOUNT 103
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------- -------------------------------------
1996 1995 1994 1996 1995 1994
----------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss).............. $ 782,810 $ 452,721 $ 532,640 $ 1,897,754 $ 2,491,089 $ 2,025,719
Net realized gain (loss) on investments... 403,489 65,770 54,603 1,285,708 359,460 142,856
Net unrealized gain (loss) on
investments............................. 49,497 936,558 (764,492) 3,673,472 9,834,460 (231,521)
----------- ---------- ---------- ----------- ----------- -----------
Net increase (decrease) in net assets from
operations.............................. 1,235,796 1,455,049 (177,249) 6,856,934 12,685,009 1,937,054
----------- ---------- ---------- ----------- ----------- -----------

FROM CAPITAL TRANSACTIONS:
Net premiums.............................. 1,503,725 1,606,889 1,750,959 6,476,408 6,706,020 7,271,670
Terminations.............................. (444,581) (460,673) (265,758) (1,997,718) (1,591,639) (1,104,770)
Other transfers from (to) the General
Account of Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................... (751,223) (525,638) (398,451) (5,426,811) (2,204,684) (1,533,560)
Net increase (decrease) in net assets from
investment by Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................... -- -- -- -- -- --
----------- ---------- ---------- ----------- ----------- -----------
Net increase (decrease) in net assets from
capital transactions.................... 307,921 620,578 1,086,750 (948,121) 2,909,697 4,633,340
----------- ---------- ---------- ----------- ----------- -----------
Net increase (decrease) in net assets..... 1,543,717 2,075,627 909,501 5,908,813 15,594,706 6,570,394

NET ASSETS:
Beginning of year......................... 9,267,455 7,191,828 6,282,327 51,660,962 36,066,256 29,495,862
----------- ---------- ---------- ----------- ----------- -----------
End of year............................... $10,811,172 $9,267,455 $7,191,828 $57,569,775 $51,660,962 $36,066,256
----------- ---------- ---------- ----------- ----------- -----------
----------- ---------- ---------- ----------- ----------- -----------

<CAPTION>
VIPF GROWTH
SUB-ACCOUNT 104
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss).............. $ 3,265,045 $ (214,727) $ 1,725,495
Net realized gain (loss) on investments... 1,452,352 789,394 205,961
Net unrealized gain (loss) on
investments............................. 2,500,114 12,592,041 (2,127,245)
----------- ----------- -----------
Net increase (decrease) in net assets from
operations.............................. 7,217,511 13,166,708 (195,789)
----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Net premiums.............................. 7,257,203 7,347,859 8,139,087
Terminations.............................. (2,245,667) (2,006,847) (1,203,773)
Other transfers from (to) the General
Account of Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................... (5,297,396) (3,680,153) (2,222,672)
Net increase (decrease) in net assets from
investment by Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................... -- -- --
----------- ----------- -----------
Net increase (decrease) in net assets from
capital transactions.................... (285,860) 1,660,859 4,712,642
----------- ----------- -----------
Net increase (decrease) in net assets..... 6,931,651 14,827,567 4,516,853
NET ASSETS:
Beginning of year......................... 52,409,334 37,581,767 33,064,914
----------- ----------- -----------
End of year............................... $59,340,985 $52,409,334 $37,581,767
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

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

F-48
<PAGE>
VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
VIPF II ASSET MANAGER
VIPF OVERSEAS SUB-ACCOUNT 106
SUB-ACCOUNT 105 YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
------------------------------------- ---------------------- PERIOD FROM
1996 1995 1994 1996 1995 5/4/94* TO 12/31/94
----------- ----------- ----------- ---------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss).............. $ 279,262 $ (29,523) $ (72,720) $ 69,107 $ 10,914 $ (2,267)
Net realized gain (loss) on investments... 749,908 304,440 168,454 48,794 13,540 124
Net unrealized gain (loss) on
investments............................. 1,102,752 1,219,736 (120,715) 41,554 154,558 (21,891)
----------- ----------- ----------- ---------- ---------- --------
Net increase (decrease) in net assets from
operations.............................. 2,131,922 1,494,653 (24,981) 159,455 179,012 (24,034)
----------- ----------- ----------- ---------- ---------- --------

FROM CAPITAL TRANSACTIONS:
Net premiums.............................. 2,712,879 3,368,247 3,985,517 192,790 258,611 224,497
Terminations.............................. (723,134) (687,516) (488,309) (42,364) (19,023) (1,887)
Other transfers from (to) the General
Account of Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................... (3,984,757) (2,809,853) 719,983 (277,310) (47,087) 683,055
Net increase (decrease) in net assets from
investment by Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................... -- -- -- (130) -- 100
----------- ----------- ----------- ---------- ---------- --------
Net increase (decrease) in net assets from
capital transactions.................... (1,995,012) (129,122) 4,217,191 (127,014) 192,501 905,765
----------- ----------- ----------- ---------- ---------- --------
Net increase (decrease) in net assets..... 136,910 1,365,531 4,192,210 32,441 371,513 881,731

NET ASSETS:
Beginning of year......................... 18,272,463 16,906,932 12,714,722 1,253,244 881,731 --
----------- ----------- ----------- ---------- ---------- --------
End of year............................... $18,409,373 $18,272,463 $16,906,932 $1,285,685 $1,253,244 $881,731
----------- ----------- ----------- ---------- ---------- --------
----------- ----------- ----------- ---------- ---------- --------
</TABLE>

* Date of initial investment.

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

F-49
<PAGE>
VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
T. ROWE PRICE INTERNATIONAL
STOCK DGPF INTERNATIONAL EQUITY
SUB-ACCOUNT 150 SUB-ACCOUNT 207
PERIOD FROM YEAR ENDED DECEMBER 31,
YEAR ENDED 6/23/95* TO ----------------------------------
12/31/96 12/31/95 1996 1995 1994
---------- ----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss).............. $ 20,555 $ (1,301) $ 115,867 $ 47,263 $ (9,175)
Net realized gain (loss) on investments... 34,883 (98) 113,363 18,892 11,520
Net unrealized gain (loss) on
investments............................. 103,877 15,909 490,548 320,817 (15,611)
---------- -------- ---------- ---------- ----------
Net increase (decrease) in net assets from
operations.............................. 159,315 14,510 719,778 386,972 (13,266)
---------- -------- ---------- ---------- ----------

FROM CAPITAL TRANSACTIONS:
Net premiums.............................. 262,590 42,650 717,027 788,037 727,371
Terminations.............................. (39,469 ) (453) (164,140) (60,216) (36,179)
Other transfers from (to) the General
Account of Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................... 1,164,461 472,852 (57,695) (205,595) 1,016,545
Net increase (decrease) in net assets from
investment by Allmerica Financial Life
Insurance and Annuity Company
(Sponsor)............................... -- -- -- -- --
---------- -------- ---------- ---------- ----------
Net increase (decrease) in net assets from
capital transactions.................... 1,387,582 515,049 495,192 522,226 1,707,737
---------- -------- ---------- ---------- ----------
Net increase (decrease) in net assets..... 1,546,897 529,559 1,214,970 909,198 1,694,471

NET ASSETS:
Beginning of year......................... 529,559 -- 3,555,033 2,645,835 951,364
---------- -------- ---------- ---------- ----------
End of year............................... $2,076,456 $529,559 $4,770,003 $3,555,033 $2,645,835
---------- -------- ---------- ---------- ----------
---------- -------- ---------- ---------- ----------
</TABLE>

* Date of initial investment.

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

F-50
<PAGE>
VEL ACCOUNT

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

NOTE 1 -- ORGANIZATION

The VEL Account ( VEL) is a separate investment account of Allmerica
Financial Life Insurance and Annuity Company (the Company) established on May 1,
1995 for the purpose of separating from the general assets of the Company, those
assets used to fund the variable portion of certain flexible premium variable
life policies 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 VEL are clearly
identified and distinguished from the other assets and liabilities of the
Company. VEL cannot be charged with liabilities arising out of any other
business of the Company.

VEL is registered as a unit investment trust under the Investment Company
Act of 1940, as amended (the 1940 Act). VEL currently offers nineteen
Sub-Accounts. Each Sub-Account invests exclusively in a corresponding investment
portfolio of the Allmerica Investment Trust (the Trust) managed by Allmerica
Investment Management Company, Inc., a wholly-owned subsidiary of First
Allmerica, or of the Variable Insurance Products Fund (VIPF) or the Variable
Insurance Products Fund II (VIPF II) managed by Fidelity Management & Research
Company (FMR), or of the T. Rowe Price International Series, Inc. (T. Rowe)
managed by Rowe Price-Fleming International, Inc., or of the Delaware Group
Premium Fund, Inc. (DGPF) managed by Delaware International Advisers, Ltd. The
Trust, VIPF, VIPF II, T. Rowe and DGPF (the Funds) are open-end, diversified
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 Trust, VIPF, VIPF II, T. Rowe, or
DGPF. 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 Trust, VIPF, VIPF II, T. Rowe, or DGPF at net asset
value.

FEDERAL INCOME TAXES -- The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code and files a consolidated federal
income tax return with First Allmerica. The Company anticipates no tax liability
resulting from the operations of VEL. Therefore, no provision for income taxes
has been charged against VEL.

F-51
<PAGE>
VEL ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

NOTE 3 -- INVESTMENTS

The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Trust, VIPF, VIPF II, T. Rowe and DGPF at
December 31, 1996 were as follows:

<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
----------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
SUB-ACCOUNT INVESTMENT PORTFOLIO SHARES COST PER SHARE
----------- ----------------------------------------------------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Allmerica Investment Trust:
1 Growth................................................... 17,816,829 $35,275,466 $ 2.333
2 Investment Grade Income.................................. 9,074,167 9,852,188 1.084
3 Money Market............................................. 7,682,889 7,682,889 1.000
4 Equity Index............................................. 6,517,267 9,164,247 2.165
5 Government Bond.......................................... 1,818,190 1,913,858 1.036
6 Select Aggressive Growth................................. 9,125,119 14,646,423 2.037
7 Select Growth............................................ 5,627,527 7,089,740 1.430
8 Select Growth and Income................................. 5,994,293 6,944,335 1.405
9 Small Cap Value.......................................... 3,554,032 4,469,269 1.511
11 Select International Equity.............................. 4,427,420 5,211,409 1.356
12 Select Capital Appreciation.............................. 2,668,686 3,814,466 1.485

Fidelity Variable Insurance Products Fund:
101 Money Market............................................. 2,469,604 2,469,604 1.000
102 High Income.............................................. 863,512 9,526,645 12.520
103 Equity-Income............................................ 2,737,507 38,301,646 21.030
104 Growth................................................... 1,905,619 37,676,840 31.140
105 Overseas................................................. 977,143 14,172,914 18.840

Fidelity Variable Insurance Products Fund II:
106 Asset Manager............................................ 75,941 1,111,464 16.930

T. Rowe Price International Series, Inc.:
150 International Stock...................................... 164,277 1,956,671 12.640

Delaware Group Premium Fund, Inc.:
207 International Equity..................................... 315,685 3,907,363 15.110
</TABLE>

NOTE 4 -- RELATED PARTY TRANSACTIONS

On the date of issue and each monthly payment date thereafter, a monthly
charge is deducted from the policy value to compensate the Company for the cost
of insurance , which varies by policy, the cost of any additional benefits
provided by rider, and administrative charges of $25 per month for the first
policy year and $5 per month thereafter. The policyowner may instruct the
Company to deduct this monthly charge from a specific Sub-Account, but if not so
specified, it will be deducted on a pro-rata basis of allocation which is the
same proportion that the policy value in the General Account of the Company and
in each Sub-Account bear to the total policy value. For the years ended December
31, 1996, 1995, and 1994 these monthly deductions from sub-account policy values
amounted to $16,771,511, $16,115,041, and $16,039,234, respectively. These
amounts are included on the statements of changes in net assets with other
transfers to the General Account.

The Company makes a charge of up to .90% per annum based on the average
daily net assets of each Sub-Account at each valuation date for mortality and
expense risks; on the VEL Plus series of policies

F-52
<PAGE>
VEL ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

NOTE 4 -- RELATED PARTY TRANSACTIONS (CONTINUED)
funded by the VEL Account, the charge is .65% per annum. This charge may be
increased or decreased by the Board of Directors of the Company once each year,
subject to compliance with applicable state and federal requirements, but the
total charge may not exceed 1.275% per annum.

Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned
subsidiary of First Allmerica, is principal underwriter and general distributor
of VEL, and does not receive any compensation for sales of VEL policies.
Commissions are paid to registered representatives of Allmerica Investments by
the Company. As the current series of policies have a surrender charge, no
deduction is made for sales charges at the time of the sale. For the years ended
December 31, 1996, 1995, and 1994, the Company received $1,397,146, $1,391,628,
and $1,084,922, respectively, for surrender charges applicable to VEL.

NOTE 5 -- DIVERSIFICATION REQUIREMENTS

Under the provisions of Section 817(h) of the Internal Revenue Code, a
variable life insurance contract, other than a contract issued in connection
with certain types of employee benefit plans, will not be treated as a variable
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 Treasury.

The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that VEL satisfies the current requirements of
the regulations, and it intends that VEL will continue to meet such
requirements.

F-53
<PAGE>
VEL ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

NOTE 6 -- PURCHASES AND SALES OF SECURITIES

Cost of purchases and proceeds from sales of the Trust, VIPF, VIPF II, T.
Rowe, and DGPF shares by VEL during the year ended December 31, 1996 were as
follows:

<TABLE>
<CAPTION>
SUB-ACCOUNT INVESTMENT PORTFOLIO PURCHASES SALES
------------ ------------------------------------------------------------------- ------------ -----------
<C> <S> <C> <C>
Allmerica Investment Trust:
1 Growth........................................................... $ 6,856,910 $ 3,345,197
2 Investment Grade Income.......................................... 1,780,674 1,540,205
3 Money Market..................................................... 7,882,654 6,352,568
4 Equity Index..................................................... 2,603,457 13,113,110
5 Government Bond.................................................. 666,003 786,700
6 Select Aggressive Growth......................................... 6,620,298 3,851,281
7 Select Growth.................................................... 3,482,772 1,900,242
8 Select Growth and Income......................................... 2,221,648 997,137
9 Small Cap Value.................................................. 2,133,587 1,304,140
11 Select International Equity...................................... 4,208,744 1,070,686
12 Select Capital Appreciation...................................... 3,028,678 423,031

Fidelity Variable Insurance Products Fund:
101 Money Market..................................................... 5,848,523 6,091,938
102 High Income...................................................... 5,347,350 4,258,641
103 Equity-Income.................................................... 5,193,450 4,289,584
104 Growth........................................................... 7,259,743 4,337,615
105 Overseas......................................................... 2,235,139 3,975,977

Fidelity Variable Insurance Products Fund II:
106 Asset Manager.................................................... 690,969 750,281

T. Rowe Price International Series, Inc.:
150 International Stock.............................................. 2,044,250 636,549

Delaware Group Premium Fund, Inc.:
207 International Equity............................................. 1,566,006 962,095
------------ -----------
Totals........................................................... $ 71,670,855 $59,986,977
------------ -----------
------------ -----------
</TABLE>

F-54
<PAGE>
APPENDIX A -- OPTIONAL BENEFITS

This Appendix is intended to provide only a very brief overview of additional
insurance benefits available by rider. For more information, contact your agent.

The following supplemental benefits are available for issue under a Policy for
an additional charge.

WAIVER OF PREMIUM RIDER

This rider provides that during periods of total disability, continuing more
than four months, the Company will add to the Policy Value each month an
amount selected by you or the amount needed to pay the Policy charges,
whichever is greater. This value will be used to keep the Policy in force.
This benefit is subject to the Company's maximum issue benefits. Its cost
will change yearly.

GUARANTEED INSURABILITY RIDER

This rider guarantees that insurance may be added at various option dates
without Evidence of Insurability. This benefit may be exercised on the
option dates even if the Insured is disabled.

OTHER INSURED RIDER

This rider provides a term insurance benefit for up to five Insureds. At
present this benefit is only available for the spouse and children of the
primary Insured. The rider includes a feature that allows the "other
Insured" to convert the coverage to a flexible premium adjustable life
insurance Policy.

CHILDREN'S INSURANCE RIDER

This rider provides coverage for eligible minor children. It also covers
future children, including adopted children and stepchildren.

ACCIDENTAL DEATH BENEFIT RIDER

This rider pays an additional benefit for death resulting from a covered
accident prior to the Policy anniversary nearest the Insured's Age 70.

EXCHANGE OPTION RIDER

This rider allows you to use a Policy to insure a different person, subject
to Company guidelines.

LIVING BENEFITS RIDER

This rider permits part of the proceeds of a Policy to be available before
death if the Insured becomes terminally ill or is permanently confined to a
nursing home.

A-1
<PAGE>
APPENDIX B -- DEATH PROCEEDS PAYMENT OPTIONS

PAYMENT OPTIONS

Upon Written Request, the Surrender Value or all or part of the Death Proceeds
may be placed under one or more of the payment options below or any other option
offered by the Company. If you do not make an election, the Company will pay the
benefits in a single sum. A certificate will be provided to the payee describing
the payment option selected. If a payment option is selected, the Beneficiary
may pay to the Company any amount that otherwise would be deducted from the Sum
Insured.

The amounts payable under a payment option for each $1,000 value applied will be
the greater of:

- - the rate per $1,000 of value applied based on the Company's non-guaranteed
current payment option rates for the Policy, or

- - the rate in the Policy for the applicable payment option.

The following payment options currently are available. The amounts payable under
these options are paid from the General Account. None is based on the investment
experience of the VEL Account.

Option A: PAYMENTS FOR A SPECIFIED NUMBER OF YEARS. The Company will make equal
payments for any selected number of years (not greater than 30).
Payments may be made annually, semi-annually, quarterly or monthly.

Option B: LIFETIME MONTHLY PAYMENTS. Payments are based on the payee's age on
the date the first payment will be made. One of three variations may
be chosen. Depending upon this choice, payments will end:

(1) upon the death of the payee, with no further payments due (Life
Annuity), or

(2) upon the death of the payee, but not before the sum of the
payments made first equals or exceeds the amount applied under this
option (Life Annuity with Installment Refund), or

(3) upon the death of the payee, but not before a selected period (5,
10 or 20 years) has elapsed (Life Annuity with Period Certain).

Option C: INTEREST PAYMENTS. The Company will pay interest at a rate determined
by the Company each year, but which will not be less than 3 1/2%.
Payments may be made annually, semi-annually, quarterly or monthly.
Payments will end when the amount left with the Company has been
withdrawn. Payments will not continue, however, after the death of the
payee. Any unpaid balance plus accrued interest will be paid in a lump
sum.

Option D: PAYMENTS FOR A SPECIFIED AMOUNT. Payments will be made until the
unpaid balance is exhausted. Interest will be credited to the unpaid
balance. The rate of interest will be determined by the Company each
year, but will not be less than 3 1/2%. Payments may be made annually,
semi-annually, quarterly or monthly. The payment level selected must
provide for the payment each year of at least 8% of the amount
applied.

Option E: LIFETIME MONTHLY PAYMENTS FOR TWO PAYEES. One of three variations may
be chosen. After the death of one payee, payments will continue to the
survivor:

(1) in the same amount as the original amount; or

(2) in an amount equal to 2/3 of the original amount; or

(3) in an amount equal to 1/2 of the original amount.

Payments are based on the payees' ages on the date the first payment is
due. Payments will end upon the death of the surviving payee.

A-2
<PAGE>
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
your and/or the Beneficiary's provision, any option selection may be changed
before the Death Proceeds become payable. If you make no selection, the
Beneficiary may select an option when the Death Proceeds becomes payable.

If the amount of monthly income payments under Option B(3) for the attained age
of the payee are the same for different periods certain, the Company will deem
an election to have been made for the longest period certain which could have
been elected for such age and amount.

You may give the Beneficiary the right to change from Option C or D to any other
option at any time. If the payee selects Option C or D when a Policy becomes a
claim, the right may be reserved to change to any other option. The payee who
elects to change options must be a payee under the option selected.

ADDITIONAL DEPOSITS

An additional deposit may be made to any proceeds when they are applied under
Option B or E. A charge not to exceed 3% will be made. The Company may limit the
amount of this deposit.

RIGHTS AND LIMITATIONS

A payee does not have the right to assign any amount payable under any option. A
payee does not have the right to commute any amount payable under Option B or E.
A payee will have the right to commute any amount payable under Option A only if
the right is reserved in the Written Request selecting the option. If the right
to commute is exercised, the commuted values will be computed at the interest
rates used to calculate the benefits. The amount left under Option C, and any
unpaid balance under Option D, may be withdrawn by the payee only as set forth
in the Written Request selecting the option.

A corporation or fiduciary payee may select only Option A, C or D. Such
selection will be subject to the consent of the Company.

PAYMENT DATES

The first payment under any option, except Option C, will be due on the date the
Policy matures by death or otherwise, unless another date is designated.
Payments under Option C begin at the end of the first payment period.

The last payment under any option will be made as stated in the description of
that option. Should a payee under Option B or E die prior to the due date of the
second monthly payment, however, the amount applied less the first monthly
payment will be paid in a lump sum or under any option other than Option E. A
lump sum payment will be made to the surviving payee under Option E or the
succeeding payee under Option B.

A-3
<PAGE>
APPENDIX C -- ILLUSTRATIONS OF SUM INSURED, POLICY VALUES
AND ACCUMULATED PREMIUMS

The following tables illustrate the way in which the Surrender Value, Death
Benefit and Policy Value under representative VEL 91 Policies could vary over an
extended period of time. The tables illustrate a VEL 91 Policy issued to a male,
Age 30, under a standard Premium Class and qualifying for the non-smoker
discount, and a VEL 91 Policy issued to a male, Age 45, under a standard Premium
Class and qualifying for the non-smoker discount. For each set of illustrations,
the first table illustrates the current cost of insurance rates and the second
table illustrates the guaranteed cost of insurance rates as presently in effect.

The Surrender Values for Policy years 12 and later, the Death Benefits, and the
Policy Values given in the tables would be the same for VEL 87 Policies issued
with the same underwriting assumptions as the representative VEL 91 Policies
(i.e., to a male, Age 30 or 45, under a standard Premium Class and qualifying
for the non-smoker discount). However, the Surrender Values for a VEL 87 Policy
would generally be slightly higher than for the VEL 91 Policy up until Policy
Year 12, because of the generally lower surrender charges under a VEL 87 Policy.

ASSUMPTIONS

The tables assume that no Policy loans have been made, that you have not
requested an increase or decrease in the initial Face Amount, that no partial
withdrawals have been made, and that no transfers above 12 have been made in any
Policy year (so that no transaction or transfer charges have been incurred).

The tables assume that all premiums are allocated to and remain in the VEL
Account for the entire period shown. The tables are based on hypothetical gross
investment rates of return for the Underlying Fund (i.e., investment income and
capital gains and losses, realized or unrealized) equivalent to constant gross
(after tax) annual rates of 0%, 6%, and 12%. The second column of the tables
show the amount which would accumulate if an amount equal to the Guideline
Annual Premium were invested to earn interest (after taxes) at 5%, compounded
annually.

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

DEDUCTIONS FOR CHARGES

The amounts shown for the Death Proceeds and the Policy Values take into account
the deduction from premium for the tax expense charge, the Monthly Deduction
from Policy Value, and the daily charge against the VEL Account for mortality
and expense risks. The VEL Account charges are equivalent to an effective annual
rate of 0.90% of the average daily value of the assets in the VEL Account.

EXPENSES OF THE UNDERLYING FUNDS

The amounts shown in the tables also take into account the Underlying Fund
advisory fees and operating expenses, which are assumed to be at an annual rate
of 0.85% of the average daily net assets of the Underlying Fund. The actual fees
and expenses of each Underlying Fund vary, and in 1996 ranged from an annual
rate of 0.34%% to an annual rate of 1.23% of average daily net assets. The fees
and expenses associated with the Policy may be more or less than 0.85% in the
aggregate, depending upon how you make allocations of the Policy Value among the
Sub-Accounts.

Under its Management Agreement with the Trust, Allmerica Investments has
declared a voluntary expense limitation of 1.50% of average net average assets
for the Select International Equity Fund, 1.20% for the Growth Fund, 1.00% for
the Investment Grade Income Fund, 0.60% for the Money Market Fund, 0.60% for the
Equity Index Fund, 1.00% for the Government Bond Fund, 1.35% for the Select
Capital

A-4
<PAGE>

Appreciation Fund and the Select Aggressive Growth Fund, 1.20% for the Select
Growth Fund, 1.10% for the Select Growth and Income Fund, and 1.25% for the
Small-Mid Cap Value Fund. In 1996 the expenses of these Funds did not exceed
their expense limitations.

Delaware International voluntarily agreed to waive its management fees and
reimburse the International Equity Series to limit certain expenses to 8/10 of
1% of the average daily net assets. Without the expense limitation, in 1996 the
total annual expenses of the International Equity Series would have been 1.04%

NET ANNUAL RATES OF INVESTMENT

Taking into account the mortality and expense risk charge and the VEL Account
administrative charge and the assumed 0.85% charge for Underlying Fund advisory
fees and operating expenses, the gross annual rates of investment return of 0%,
6% and 12% correspond to net annual rates of -1.75%, 4.25% and 10.25%,
respectively.

The hypothetical returns shown in the tables do not reflect any charges for
income taxes against the VEL Account since no charges are currently made. If in
the future, however, such charges are made in order to produce illustrated death
benefits and cash values, the gross annual investment rate of return would have
to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges.

UPON REQUEST, THE COMPANY WILL PROVIDE A COMPARABLE ILLUSTRATION BASED UPON THE
PROPOSED INSURED'S AGE, SEX, AND UNDERWRITING CLASSIFICATION, AND THE REQUESTED
FACE AMOUNT, SUM INSURED OPTION, AND RIDERS.

TO CHOOSE THE SUB-ACCOUNTS WHICH BEST WILL MEET YOUR NEEDS AND OBJECTIVES,
CAREFULLY READ THE PROSPECTUSES OF THE TRUST, FIDELITY VIP, FIDELITY VIP II, T.
ROWE PRICE AND DGPF ALONG WITH THIS PROSPECTUS.

A-5
<PAGE>

ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VEL 91 POLICY

MALE NON-SMOKER AGE 30
SPECIFIED FACE AMOUNT= $75,000
SUM INSURED OPTION 2

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(1) VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT
- ------ ----------- --------- -------- ------- --------- -------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 100 937 75,937 168 1,006 76,006 237 1,074 76,074
2 3,014 1,256 2,093 77,093 1,460 2,297 77,297 1,673 2,510 77,510
3 4,634 2,389 2,226 78,226 2,804 3,641 78,641 3,253 4,090 79,090
4 6,336 3,533 4,336 79,336 4,235 5,038 80,038 5,024 5,828 80,828
5 8,123 4,719 5,422 80,422 5,787 6,491 81,491 7,036 7,740 82,740

6 9,999 5,881 6,484 81,484 7,396 7,998 82,998 9,238 9,841 84,841
7 11,969 7,018 7,520 82,520 9,062 9,564 84,564 11,649 12,151 87,151
8 14,037 8,129 8,531 83,531 10,786 11,188 86,188 14,287 14,689 89,689
9 16,209 9,213 9,514 84,514 12,570 12,871 87,871 17,177 17,478 92,478
10 18,490 10,269 10,470 85,470 14,415 14,616 89,616 20,341 20,542 95,542

11 20,884 11,298 11,398 86,398 16,322 16,423 91,423 23,807 23,908 98,908
12 23,398 12,297 12,297 87,297 18,293 18,293 93,293 27,604 27,604 102,604
13 26,038 13,166 13,166 88,166 20,228 20,228 95,228 31,665 31,665 106,665
14 28,810 14,005 14,005 89,005 22,230 22,230 97,230 36,126 36,126 111,126
15 31,720 14,813 14,813 89,813 24,300 24,300 99,300 41,028 41,208 116,028

16 37,777 15,588 15,588 90,588 26,439 26,439 101,439 46,412 46,412 121,412
17 37,985 16,330 16,330 91,330 28,649 28,649 103,649 52,326 52,326 127,326
18 41,355 17,037 17,037 92,037 30,930 30,930 105,930 58,823 58,823 133,823
19 44,892 17,708 17,708 92,708 33,284 33,284 108,284 65,962 65,962 140,962
20 48,607 18,342 18,342 93,342 35,711 35,711 110,711 73,805 73,805 148,805

Age 60 97,665 22,170 22,170 97,170 64,098 64,098 139,098 210,403 210,403 285,403
Age 65 132,771 21,672 21,672 96,672 80,793 80,793 155,793 345,185 345,185 421,126
Age 70 177,576 18,618 18,618 93,618 98,352 98,352 173,352 560,687 560,687 650,397
Age 75 234,759 11,963 11,963 86,963 115,531 115,531 190,531 906,193 906,193 981,193
</TABLE>

(1) Assumes a $1,400 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.

(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient Policy Value.

THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE VALUE
OF UNITS, CASH VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGES 0%, 6%, AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.

A-6
<PAGE>

ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VEL 91 POLICY

MALE NON-SMOKER AGE 30
SPECIFIED FACE AMOUNT= $75,000
SUM INSURED OPTION 2

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(1) VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT
- ------ ----------- --------- -------- ------- --------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 100 937 75,937 168 1,006 76,006 237 1,074 76,074
2 3,014 1,256 2,093 77,093 1,460 2,297 77,297 1,673 2,510 77,510
3 4,634 2,389 3,226 78,226 2,804 3,641 78,641 3,253 4,090 79,090
4 6,336 3,533 4,336 79,336 4,235 5,038 80,038 5,024 5,828 80,828
5 8,123 4,719 5,422 80,422 5,787 6,491 81,491 7,036 7,740 82,740

6 9,999 5,881 6,484 81,484 7,396 7,998 82,998 9,238 9,841 84,841
7 11,969 7,108 7,520 82,520 9,062 9,564 84,564 11,649 12,151 87,151
8 14,037 8,129 8,531 83,531 10,786 11,188 86,188 14,287 14,689 89,689
9 16,209 9,213 9,514 84,514 12,570 12,871 87,871 17,177 17,478 92,478
10 18,490 10,269 10,470 85,470 14,415 14,616 89,616 20,341 20,542 95,542

16 34,777 15,588 15,588 90,588 26,439 26,439 101,439 46,412 46,412 121,412
17 37,985 16,330 16,330 91,330 28,649 28,649 103,649 52,326 52,326 127,326
18 41,355 17,037 17,037 92,037 30,930 30,930 105,930 58,823 58,823 133,823
19 44,892 17,708 17,708 92,708 33,284 33,284 108,284 65,962 65,962 140,962
20 48,607 18,342 18,342 93,342 35,711 35,711 110,711 73,805 73,805 148,805

Age 60 97,665 21,807 21,807 96,807 63,665 63,665 138,665 209,882 209,882 284,882
Age 65 132,771 20,478 20,478 95,478 79,280 79,280 154,280 343,223 343,223 418,733
Age 70 177,576 15,421 15,421 90,421 94,084 94,084 169,084 554,655 554,655 643,400
Age 75 234,759 4,335 4,335 79,335 104,900 104,900 179,900 890,014 890,014 965,014
</TABLE>

(1) Assumes a $1,400 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.

(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient Policy Value.

A-7
<PAGE>

ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VEL 91 POLICY

MALE NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT= $250,000
SUM INSURED OPTION 1

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(1) VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT
- ------ ----------- --------- -------- ------- --------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 0 2,935 250,000 0 3,145 250,000 0 3,356 250,000
2 9,040 2,604 6,001 250,000 3,217 6,614 250,000 3,857 7,254 250,000
3 13,903 5,560 8,957 250,000 6,777 10,174 250,000 8,098 11,495 250,000
4 19,008 8,540 11,801 250,000 10,565 13,826 250,000 12,852 16,113 250,000
5 24,368 11,673 14,527 250,000 14,714 17,567 250,000 18,290 21,143 250,000

6 29,996 14,690 17,136 250,000 18,957 21,403 250,000 24,184 26,629 250,000
7 35,906 17,591 19,629 250,000 23,299 25,337 250,000 30,586 32,624 250,000
8 42,112 20,367 21,998 250,000 27,735 29,365 250,000 37,543 39,174 250,000
9 48,627 23,102 24,235 250,000 32,264 33,487 250,000 45,113 46,336 250,000
10 55,469 25,515 26,330 250,000 36,879 37,694 250,000 53,353 54,169 250,000

11 62,652 27,869 28,277 250,000 41,579 41,987 250,000 62,338 62,746 250,000
12 70,195 30,050 30,050 250,000 46,347 46,347 250,000 72,137 72,137 250,000
13 78,114 31,648 31,648 250,000 50,779 50,779 250,000 82,438 82,438 250,000
14 86,430 33,081 33,081 250,000 55,297 55,297 250,000 93,773 93,773 250,000
15 95,161 34,335 34,335 250,000 59,898 59,898 250,000 106,263 106,263 250,000

16 104,330 35,396 35,396 250,000 64,579 64,579 250,000 120,049 120,049 250,000
17 113,956 36,252 36,252 250,000 69,336 69,336 250,000 135,294 135,294 250,000
18 124,064 36,879 36,879 250,000 74,163 74,163 250,000 152,183 152,183 250,000
19 134,677 37,253 37,253 250,000 79,049 79,049 250,000 170,935 170,935 250,000
20 145,820 37,346 37,346 250,000 83,987 83,987 250,000 191,807 191,807 250,000

Age 60 95,161 34,335 34,335 250,000 59,898 59,898 250,000 106,263 106,263 250,000
Age 65 145,820 37,346 37,346 250,000 83,987 83,987 250,000 191,807 191,807 250,000
Age 70 32,896 32,896 32,896 250,000 109,554 109,554 250,000 333,734 333,734 387,132
Age 75 16,689 16,689 16,689 250,000 136,794 136,794 250,000 561,896 561,896 601,229
</TABLE>

(1) Assumes a $4,200 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.

(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient Policy Value.

A-8
<PAGE>

ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VEL 91 POLICY

MALE NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT= $250,000
SUM INSURED OPTION 1

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
INTERESTE ------------------------------ ------------------------------ ------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR(1) VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT
- ------ ------------ --------- -------- ------- --------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 0 2,914 250,000 0 3,124 250,000 0 3,334 250,000
2 9,040 2,563 5,960 250,000 3,173 6,570 250,000 3,810 7,207 250,000
3 13,903 5,496 8,893 250,000 6,707 10,104 250,000 8,022 11,419 250,000
4 19,008 8,452 11,713 250,000 10,466 13,727 250,000 12,742 16,003 250,000
5 24,368 11,560 14,413 250,000 14,583 17,437 250,000 18,139 20,993 250,000

6 29,996 14,547 16,993 250,000 18,788 21,234 250,000 23,985 26,431 250,000
7 35,906 17,400 19,439 250,000 23,073 25,111 250,000 30,316 32,355 250,000
8 42,112 20,108 21,739 250,000 27,427 29,058 250,000 37,174 38,805 250,000
9 48,627 22,661 23,884 250,000 31,846 33,069 250,000 44,610 45,833 250,000
10 55,469 25,042 25,858 250,000 36,317 37,132 250,000 52,677 53,492 250,000

11 62,652 27,241 27,649 250,000 40,833 41,241 250,000 61,441 61,849 250,000
12 70,195 29,245 29,245 250,000 45,386 45,386 250,000 70,977 70,977 250,000
13 78,114 30,638 30,638 250,000 49,567 49,567 250,000 80,970 80,970 250,000
14 86,430 31,817 31,817 250,000 53,777 53,777 250,000 91,931 91,931 250,000
15 95,161 32,760 32,760 250,000 58,002 58,002 250,000 103,974 103,974 250,000

16 104,330 33,444 33,444 250,000 62,230 62,230 250,000 117,232 117,232 250,000
17 113,956 33,843 33,843 250,000 66,444 66,444 250,000 131,862 131,862 250,000
18 124,064 33,920 33,920 250,000 70,622 70,622 250,000 148,046 148,046 250,000
19 134,677 33,629 33,629 250,000 74,734 74,734 250,000 166,001 166,001 250,000
20 145,820 33,922 32,922 250,000 78,752 78,752 250,000 185,990 185,990 250,000

Age 60 94,161 32,760 32,760 250,000 58,002 58,002 250,000 103,974 103,974 250,000
Age 65 142,820 32,922 32,922 250,000 78,752 78,752 250,000 185,990 185,990 250,000
Age 70 210,477 21,383 21,383 250,000 96,595 96,595 250,000 322,407 322,407 373,992
Age 75 292,995 0 0 0 106,325 106,325 250,000 539,916 539,916 577,711
</TABLE>

(1) Assumes a $4,200 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.

(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient Policy Value.

A-9
<PAGE>
APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES
VEL 87 POLICIES

A separate surrender charge is calculated upon issuance of a VEL 87 Policy and
upon each increase in Face Amount. The maximum Surrender Charge calculated upon
issuance of the VEL 87 Policy is equal to $4.50 per thousand dollars of the
initial Face Amount plus 30% of the Guideline Annual Premium times a factor of
not greater than 1.0, as indicated on pages A-10 and A-11. The maximum surrender
charge for an increase in Face Amount is $4.50 per thousand dollars of increase,
plus 30% of the Guideline Annual Premium for the increase times as factor of not
greater than 1.0, as indicated on pages A-10 and A-11. The calculation may be
summarized in the following formula:

<TABLE>
<C> <C> <S>
Face Amount)
Maximum Surrender Charge = (4.5 X ----------- + (0.3 X Guideline Annual Premium X
1000 Factor)
</TABLE>

The maximum surrender charge remains level for the first 44 policy months,
reduces by 1% per month for the next 100 policy months, and is zero thereafter.
The actual surrender charge imposed may be less than the maximum. The actual
surrender charge imposed will be the lesser of either the maximum surrender
charge or the sum of $4.50 per thousand dollars of Face Amount plus 30% of
premiums paid which are associated with the initial Face Amount or increase, as
applicable.

The Factors used in calculating the maximum surrender charges vary with the
issue Age and Premium Class as indicated in the table below.

FACTORS USED IN CALCULATION OF MAXIMUM SURRENDER CHARGES
NONSMOKER FACTORS

<TABLE>
<CAPTION>
AGE FACTOR AGE FACTOR AGE FACTOR
----- ----------- ----- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
18 1.0000 39 0.8600 60 0.6500
19 1.0000 40 0.8500 61 0.6400
20 1.0000 41 0.8400 62 0.6300
21 1.0000 42 0.8300 63 0.6200
22 1.0000 43 0.8200 64 0.6100
23 1.0000 44 0.8100 65 0.6000
24 1.0000 45 0.8000 66 0.5900
25 1.0000 46 0.7900 67 0.5800
26 0.9900 47 0.7800 68 0.5700
27 0.9800 48 0.7700 69 0.5600
28 0.9700 49 0.7600 70 0.5500
29 0.9600 50 0.7500 71 0.5400
30 0.9500 51 0.7400 72 0.5300
31 0.9400 52 0.7300 73 0.5200
32 0.9300 53 0.7200 74 0.5100
33 0.9200 54 0.7100 75 0.5000
34 0.9100 55 0.7000 76 0.4900
35 0.9000 56 0.6900 77 0.4800
36 0.8900 57 0.6800 78 0.4700
37 0.8800 58 0.6700 79 0.4600
38 0.8700 59 0.6600 80 0.4500
</TABLE>

A-10
<PAGE>
SMOKER FACTORS

<TABLE>
<CAPTION>
AGE FACTOR AGE FACTOR AGE FACTOR
----- ----------- ----- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
0 0.8000 27 0.7833 54 0.5583
1 0.8000 28 0.7750 55 0.5500
2 0.8000 29 0.7667 56 0.5417
3 0.8000 30 0.7583 57 0.5333
4 0.8000 31 0.7500 58 0.5250
5 0.8000 32 0.7417 59 0.5167
6 0.8000 33 0.7333 60 0.5083
7 0.8000 34 0.7250 61 0.5000
8 0.8000 35 0.7167 62 0.4917
9 0.8000 36 0.7083 63 0.4833
10 0.8000 37 0.7000 64 0.4750
11 0.8000 38 0.6917 65 0.4667
12 0.8000 39 0.6833 66 0.4583
13 0.8000 40 0.6750 67 0.4500
14 0.8000 41 0.6667 68 0.4417
15 0.8000 42 0.6583 69 0.4333
16 0.8000 43 0.6500 70 0.4250
17 0.8000 44 0.6417 71 0.4167
18 0.8000 45 0.6333 72 0.4083
19 0.8000 46 0.6250 73 0.4000
20 0.8000 47 0.6167 74 0.3917
21 0.8000 48 0.6083 75 0.3833
22 0.8000 49 0.6000 76 0.3750
23 0.8000 50 0.5917 77 0.3667
24 0.8000 51 0.5833 78 0.3583
25 0.8000 52 0.5750 79 0.3500
26 0.7917 53 0.5667 80 0.3417
</TABLE>

EXAMPLES

For the purposes of these examples, assume that a male, Age 45, non-smoker
purchases a $100,000 VEL 87 Policy. In this example the Guideline Annual Premium
equals $1,740.95, and the factor is 0.8000. His maximum surrender charge at
issue is calculated as follows:

<TABLE>
<S> <C> <C>
(1) Deferred Administrative Charge $ 450.00
($4.50/$1,000 of Face Amount)

(2) Deferred Sales Charge $ 417.83
(30% of Guideline Annual Premium X Factor from page A-10)
---------
Maximum Surrender Charge $ 867.83
</TABLE>

The actual surrender charge is the smaller of the maximum surrender charge and
the following sum:

<TABLE>
<S> <C> <C>
(1) Deferred Administrative Charge $ 450.00
($4.50/$1,000 of Face Amount)

(2) Deferred Sales Charge Varies
(30% of Premiums Paid associated with the initial Face
Amount)
---------
Sum of (1) and (2)
</TABLE>

A-11
<PAGE>
The maximum surrender charge is $867.83. All premiums are associated with the
initial Face Amount unless the Face Amount is increased.

Example 1:

Assume the Policyowner surrenders the VEL 87 Policy in the 10th policy
month, having paid total premiums of $1,000. The actual surrender charge would
be $750. If, instead of $1,000, he had paid total premiums of $1,392.76 or
greater, the actual surrender charge would be $867.83.

Example 2:

Assume the Policyowner surrenders the VEL 87 Policy in the 54th month,
having paid total premiums of $1,000. After the 44th policy month, the maximum
surrender charge decreases by 1% per month ($8.6783 per month in this example).
In this example the maximum surrender charge would be $781.05. The actual
surrender charge would be $750. If instead of $1,000, he had paid total premiums
of $1,103.50 or greater, the actual surrender charge would be $781.05.

Example 3:

This example illustrates the calculation of the surrender charge for an
increase. A separate surrender charge is calculated when the Face Amount of a
VEL 87 Policy is increased. Assume our sample Policyowner increases his Face
Amount to $250,000 on the 24th monthly payment date at Age 47. In this example
the Guideline Annual Premium for the increase is $2,781.62 and the factor is
.7800.

The maximum surrender charge for the increase is $1,325.90 as calculated below:

<TABLE>
<S> <C> <C>
(1) Deferred Administrative Charge $ 675.00
($4.50/$1,000 of Face Amount)

(2) Deferred Sales Charge $ 650.90
(30% of Guideline Annual Premium for the increase X
Factor)
---------
Maximum Surrender Charge $1,325.90
</TABLE>

The actual surrender charge for the increase is the smaller of the maximum
surrender charge for the increase and the following sum:

<TABLE>
<S> <C> <C>
(1) Deferred Administrative Charge $ 675.00

(2) Deferred Sales Charge Varies
(30% of the Policy value, on the effective date of the
increase, associated with the increase)

(3) (30% of Premiums paid associated the increase) Varies
---------
Sum of (1), (2),
and (3)
</TABLE>

To calculate the actual surrender charge, premium and accumulated value must be
allocated between the initial Face Amount and the increase. This is done as
follows:

(a) Premium is allocated to the initial Face Amount if it is received before an
application for an increase.

(b) Premium is associated with the base policy and the increase in proportion to
their respective Guideline Annual Premiums if the premium is received after
an application for an increase. In this example, 38.5% of premium
($1,740.95/$4,522.57) is allocated to the initial Face Amount and 61.5% of
premium ($2,781.62/$4,522.57) is allocated to the increase.

A-12
<PAGE>

(c) The Policy value on the effective date of an increase is also allocated
between the initial Face Amount and the increase in proportion to their
Guideline Annual Premiums. In this example 61.5% ($2,781.62/$4,522.57) of
the Policy value will be allocated to the increase.

Continuing the example, assume that the Policyowner has paid $1,000 of premium
before the $2,000 after the effective date of the increase. Also, assume that
the Policy Value of the VEL 87 Policy on the effective date of the increase is
$900. The following values result when the VEL 87 Policy is surrendered in the
54th policy month.

(a) Related to the Initial Face Amount

1. The maximum surrender charge began to decrease in the 44th policy month and
now equals $781.05.

2. The actual surrender charge is the lesser of $781.05 and the following sum.

<TABLE>
<S> <C> <C>
(1) Deferred Administrative Charge $ 450.00

(2) 30% of premium paid before the increase $ 300.00

(3) 11.55% (.30 X .385) of premium paid after the increase $ 231.00
---------
$ 981.00
</TABLE>

The actual surrender charge for the initial Face Amount is thus $781.05

(a) Related to the Increase in Face Amount

1. The maximum surrender charge is $1,325.90, decreasing by 1% per month
beginning in the 68th policy month (44 months after the effective date of
the increase).

2. The actual surrender charge is the lesser of $1,325.90 and the following
sum.

<TABLE>
<S> <C> <C>
(1) Deferred Administrative Charge $ 675.00

(2) 18.45% (.30 x .615) of the $900 Policy value on the
effective date of the increase $ 166.05

(3) 18.45% of the $2,000.00 of premium paid after the $ 369.00
increase
---------
$1,210.05
</TABLE>

The surrender charge for the increase in Face Amount is $1,210.05. The total
surrender charge on the VEL 87 Policy is the sum of the surrender charge for the
initial Face Amount plus the surrender charge for the increase. The total
surrender charge is therefore $1,991.10 (the sum of $781.05 + $1,210.05).

Example 4:

This example illustrates the calculation of the charges on partial
withdrawal and their impact on the surrender charge(s). In addition to the facts
in Example 3, assume that a $1,000 partial withdrawal is made in the 36th Policy
month. Assume that the Policy Value on the date of the partial withdrawal
request was $1,500. The partial withdrawal charge is $42.50 (10% of Policy
Value, $150 in this example, may be withdrawn at no charge other than the
transaction charge. The balance of $850 is assessed a charge of 5%.) A
transaction charge of $20 (equal to the lesser of $25 or 2% of the amount
withdrawn) would also be assessed.

The maximum and actual surrender charges for the increase are reduced by the
partial withdrawal charge of $42.50 (but not the transaction charge of $20).
When the Policyowner surrenders the VEL 87 Policy in the 54th policy month, the
maximum surrender charge for the increase is $1,283.40 (the difference of
$1,325.90 - $42.50) and the actual surrender charge for the increase is
$1,167.55 (the difference of $1,210.05 - $42.50). The total surrender charge on
the Policy is $1,948.60 (the sum of $781.05 + $1,167.55).

A-13
<PAGE>
APPENDIX E -- CALCULATION OF MAXIMUM SURRENDER CHARGES
VEL 91 POLICIES

A separate surrender charge is calculated upon issuance of the VEL 91 Policy and
upon each increase in Face Amount. The maximum surrender charge calculated upon
issuance of the VEL 91 Policy is equal to $8.50 per thousand dollars of the
initial Face Amount plus 30% of the Guideline Annual Premium. The maximum
surrender charge for an increase in Face Amount is $8.50 per thousand dollars of
increase, plus 30% of the Guideline Annual Premium for the increase. The
calculation may be summarized in the following formula:

<TABLE>
<C> <C> <S>
Face Amount)
Maximum Surrender Charge = (8.5 X ----------- + (0.3 X Guideline Annual Premium X
1000 Factor)
</TABLE>

In accordance with limitations under state insurance regulations, the amount of
the maximum surrender charge at certain ages will not exceed a specified amount
per $1,000 of initial Face Amount (or increase in Face Amount ) as shown on page
.

The maximum surrender charge remains level for the first 44 policy months,
reduces by 1% per month for the next 100 Policy months, and is zero thereafter.
The actual surrender charge imposed may be less than the maximum. The actual
surrender charge imposed will be the lesser of either the maximum surrender
charge or the sum of $8.50 per thousand dollars of Face Amount plus 30% of
premiums paid which are associated with the initial Face Amount or increase, as
applicable.

The Factors used in calculating the maximum surrender charges vary with the
issue Age and Premium Class (smoker) under a VEL 91 Policy, as indicated in the
table below.

A-14
<PAGE>
MAXIMUM SURRENDER CHARGE PER $1,000 FACE AMOUNT

<TABLE>
<CAPTION>
Age at
issue or Male Male Female Female Unisex Unisex
increase Nonsmoker Smoker Nonsmoker Smoker Nonsmoker Smoker
- ----------- ------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
0 8.60 7.86 8.46
1 8.57 7,86 8.44
2 8.67 7.95 8.53
3 8.78 8.05 8.64
4 8.89 8.15 8.75
5 9.02 8.25 8.86
6 9.14 8.35 8.98
7 9.28 8.45 9.11
8 9.42 8.56 9.25
9 9.58 8.68 9.40
10 9.74 8.80 9.55
11 9.92 8.93 9.72
12 10.10 9.06 9.89
13 10.29 9.20 10.07
14 10.49 9.34 10.26
15 N/A 9.50 10.45
16 N/A 9.65 N/A
17 N/A 9.82 N/A
18 10.04 N/A 9.37 9.99 9.91 N/A
19 10.20 N/A 9.52 10.16 10.06 N/A
20 10.36 N/A 9.67 10.34 10.22 N/A
21 10.53 N/A 9.83 10.53 10.39 N/A
22 N/A N/A 10.00 N/A N/A N/A
23 N/A N/A 10.17 N/A N/A N/A
24 N/A N/A 10.35 N/A N/A N/A
25-74 N/A N/A N/A N/A N/A N/A
75 N/A 46.14 N/A N/A N/A N/A
76 N/A 46.06 N/A N/A N/A N/A
77 N/A 45.91 N/A N/A N/A 45.84
78 44.57 45.73 N/A N/A 44.51 45.59
79 44.28 45.52 N/A 44.01 44.20 45.31
80 44.00 45.33 43.13 43.63 43.88 45.02
</TABLE>

EXAMPLES

For the purposes of these examples, assume that a male, Age 45, non-smoker
purchases a $100,000 VEL 91 Policy. In this example the Guideline Annual Premium
equals $1,740.95. His maximum surrender charge at issue is calculated as
follows:

<TABLE>
<S> <C> <C>
(1) Deferred Administrative Charge $ 850.00
($8.50/$1,000 of Face Amount)

(2) Deferred Sales Charge $ 522.29
(30% of Guideline Annual Premium)
---------
Maximum Surrender Charge $1,372.29
</TABLE>

A-15
<PAGE>
The actual surrender charge is the smaller of the maximum surrender charge and
the following sum:

<TABLE>
<S> <C> <C>
(1) Deferred Administrative Charge $ 850.00
($8.50/$1,000 of Face Amount)

(2) Deferred Sales Charge Varies
(30% of Premiums Paid associated with the initial Face
Amount)
---------
Sum of (1) and (2)
</TABLE>

The maximum surrender charge is $1,372.29. All premiums are associated with the
initial Face Amount unless the Face Amount is increased.

Example 1:

Assume the Policyowner surrenders the VEL 91 Policy in the 10th policy
month, having paid total premiums of $1,500. The actual surrender charge would
be $1,300. If, instead of $1,500, he had paid total premiums of $1,740.95 or
greater, the actual surrender charge would be $1,372.29.

Example 2:

Assume the Policyowner surrenders the VEL 91 Policy in the 54th month,
having paid total premiums of $1,500. After the 44th policy month, the maximum
surrender charge decreases by 1% per month ($13.7229 per month in this example).
In this example the maximum surrender charge would be $1,235.06. The actual
surrender charge is $1,235.06. If instead of $1,500, he had paid total premiums
of less than $1,283.52, the actual surrender charge would be less than
$1,235.06.

Example 3:

This example illustrates the calculation of the surrender charge for an
increase. A separate surrender charge is calculated when the Face Amount of the
VEL 91 Policy is increased. Assume our sample Policyowner increases his Face
Amount to $250,000 on the 24th monthly payment date at Age 47. In this example
the Guideline Annual Premium for the increase is $2,781.62.

The maximum surrender charge for the increase is $2,109.49 as calculated below:

<TABLE>
<S> <C> <C>
(1) Deferred Administrative Charge $1,275.00
($8.50/$1,000 of Face Amount)

(2) Deferred Sales Charge $ 834.49
(30% of Guideline Annual Premium for the increase X
Factor)
---------
Maximum Surrender Charge $2,109.49
</TABLE>

The actual surrender charge for the increase is the smaller of the maximum
surrender charge for the increase and the following sum:

<TABLE>
<S> <C> <C>
(1) Deferred Administrative Charge $1,275.00

(2) Deferred Sales Charge Varies
(30% of the Policy value, on the effective date of the
increase, associated with the increase)

(3) (30% of Premiums paid associated the increase) Varies
---------
Sum of (1), (2),
and (3)
</TABLE>

To calculate the actual surrender charges, premium and accumulated value must be
allocated between the initial Face Amount and the increase. This is done as
follows:

A-16
<PAGE>

(a) Premium is allocated to the initial Face Amount if it is received before an
application for an increase.

Continuing the example, assume that the Policyowner has paid $1,500 of premium
before the $2,000 after the effective date of the increase. Also, assume that
the Policy Value of the VEL 91 Policy on the effective date of the increase is
$1,300. The following values result when the VEL 91 Policy is surrendered in the
54th policy month.

(a) Related to the Initial Face Amount

1. The maximum surrender charge began to decrease in the 44th policy month and
now equals $1,235.06

2. The actual surrender charge is the lesser of $1,234.06 and the following
sum.

<TABLE>
<S> <C> <C>
(1) Deferred Administrative Charge $ 850.00

(2) 30% of premium paid before the increase $ 450.00

(3) 11.55% (.30 X .385) of premium paid after the increase $ 231.00
---------
$1,531.00
</TABLE>

The actual surrender charge for the initial face amount is thus $1,235.06.

(a) Related to the Increase in Face Amount

1. The maximum surrender charge is $2,109.49, decreasing by 1% per month
beginning in the 68th policy month (44 months after the effective date of
the increase).

2. The actual surrender charge is the lesser of $2,109.49 and the following
sum.

<TABLE>
<S> <C> <C>
(1) Deferred Administrative Charge $1,275.00

(2) 18.45% (.30 x .615) of the $1,300 Policy value on the $ 239.85
effective date of the increase

(3) 18.45% of the $2,000.00 of premium paid after the $ 369.00
increase
---------
$1,883.85
</TABLE>

The surrender charge for the increase in face amount is $1,883.85. The total
surrender charge on the Policy is the sum of the surrender charge for the
initial Face Amount plus the surrender charge for the increase. The total
surrender charge is therefore $3,118.91 (the sum of $1,235.06 + $1,883.85).

Example 4:

A-17
<PAGE>

Policy month, the maximum surrender charge for the increase is $2,066.99 (the
difference of $2,109.49 - $42.50) and the actual surrender charge for the
increase is $1,841.35 (the difference of $1,883.85 - $42.50).

The total surrender charge on the Policy is $3,076.41 (the sum of $1,235.06 +
$1,841.35).

A-18