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 ("Policy" or "Policies") offered by Allmerica Financial Life Insurance
and Annuity Company ("Company") to eligible applicants who are members of a
non-qualified benefit plan having five or more members and are age 80 years old
and under. 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.

The Policies permit you to allocate net premiums among up to seven of 18
sub-accounts ("Sub-Accounts") of the VEL Account, (a Separate Account of the
Company), and a fixed interest account ("General Account") of the Company
(together "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"), and
Delaware Group Premium Fund, Inc. ("DGPF"). The Trust, VIP, VIP II, T. Rowe
Price and DGPF are open-end, diversified series management investment companies.
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

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

DGPF
- -----
International Equity Series

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

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

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

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

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 will also be adjusted for other factors, including the amount
of charges imposed. The Policy will remain in effect so long as the Policy Value
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 the 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. If the Guideline Premium
Test is in effect (See "Election of Sum Insured Options"), 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), and may change between Sum Insured Option 1 and Option 2, subject to
certain conditions. If the Cash Value Accumulation Test is in effect, Sum
Insured Option 3 (the Sum Insured is fixed in amount) will apply. A Minimum Sum
Insured, equivalent to a percentage of the Policy Value, will apply if greater
than the Sum Insured otherwise payable under Option 1, Option 2 or Option 3.

In certain circumstances, a Policy may be considered a "modified endowment
contract." Under the Internal Revenue Code ("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."

The purpose of the Policy is to provide insurance protection for the Beneficiary
named therein. This Summary is intended to provide only a very brief overview of
the more significant aspects of the Policy. Further detail is provided in this
Prospectus and in the Policy. No claim is made that the Policy is in any way
similar or comparable to a systematic investment plan of a mutual fund. The
Policy, together with its attached application, constitutes the entire agreement
between you and the Company.

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.

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TABLE OF CONTENTS

<TABLE>
<S> <C>
SPECIAL TERMS........................................................................ 5
SUMMARY.............................................................................. 7
PERFORMANCE INFORMATION.............................................................. 16
DESCRIPTION OF THE COMPANY, THE VEL ACCOUNT, THE TRUST, FIDELITY VIP, FIDELITY VIP
II, T. ROWE PRICE AND DGPF.......................................................... 19
INVESTMENT OBJECTIVES AND POLICIES................................................... 21
INVESTMENT ADVISORY SERVICES......................................................... 23
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS.................................... 26
VOTING RIGHTS........................................................................ 27
THE POLICY........................................................................... 27
Applying for a Policy.............................................................. 27
Free-Look Period................................................................... 28
Conversion Privileges.............................................................. 29
Premium Payments................................................................... 29
Paid-Up Insurance Option........................................................... 30
Allocation of Net Premiums......................................................... 30
Transfer Privilege................................................................. 31
Death Proceeds..................................................................... 32
Guideline Premium Test and Cash Value Accumulation Test............................ 32
Election of Sum Insured Options.................................................... 33
Change in Sum Insured Option....................................................... 35
Change in Face Amount.............................................................. 36
Policy Value and Surrender Value................................................... 37
Payment Options.................................................................... 38
Optional Insurance Benefits........................................................ 39
Surrender.......................................................................... 39
Partial Withdrawal................................................................. 39
CHARGES AND DEDUCTIONS............................................................... 39
State Premium Tax.................................................................. 40
Monthly Deduction from Policy Value................................................ 40
Charges Against Assets of the VEL Account.......................................... 42
Surrender Charge................................................................... 43
Charges on Partial Withdrawal...................................................... 44
Transfer Charges................................................................... 45
Charge for Increase in Face Amount................................................. 45
Other Administrative Charges....................................................... 45
POLICY LOANS......................................................................... 45
Loan Interest...................................................................... 46
Repayment of Loans................................................................. 46
Effect of Policy Loans............................................................. 46
POLICY TERMINATION AND REINSTATEMENT................................................. 47
Termination........................................................................ 47
Reinstatement...................................................................... 47
OTHER POLICY PROVISIONS.............................................................. 48
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY...................................... 50
DISTRIBUTION......................................................................... 50
SERVICES............................................................................. 51
REPORTS.............................................................................. 51
LEGAL PROCEEDINGS.................................................................... 51
FURTHER INFORMATION.................................................................. 51
</TABLE>

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<TABLE>
<S> <C>
INDEPENDENT ACCOUNTANTS.............................................................. 51
FEDERAL TAX CONSIDERATIONS........................................................... 52
The Company and the VEL Account.................................................... 52
Taxation of the Policies........................................................... 52
Policy Loans....................................................................... 53
Modified Endowment Contracts....................................................... 53
MORE INFORMATION ABOUT THE GENERAL ACCOUNT........................................... 54
General Description................................................................ 54
General Account Value.............................................................. 54
The Policy......................................................................... 55
Transfers, Surrenders, Partial Withdrawals and Policy Loans........................ 55
FINANCIAL STATEMENTS................................................................. F-1
APPENDIX A -- OPTIONAL BENEFITS...................................................... A-1
APPENDIX B -- PAYMENT OPTIONS........................................................ A-2
APPENDIX C -- ILLUSTRATIONS.......................................................... A-4
APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES............................... A-12
</TABLE>

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SPECIAL TERMS

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

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

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

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 the Policy used to determine the Monthly
Payment Date, Policy months, Policy years, and Policy anniversaries.

DEATH PROCEEDS: Prior to the Final Premium Payment Date, the Death Proceeds
equal the amount calculated under the applicable Sum Insured Option, 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
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, 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: The Policy anniversary nearest the Insured's 95th
birthday. The Final Premium Payment Date 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 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 Table, Smoker or Non-Smoker, Male, Female (or Table B for
unisex Policies), net investment earnings at an annual effective rate of 5%, and
fees and charges as set forth in the 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 the
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.

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

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

MONTHLY DEDUCTION: Charges deducted monthly from the Policy Value of a Policy
prior to the 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.

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

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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 the
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 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 subdivision of the VEL Account. Each Sub-Account invests
exclusively in the shares of a corresponding Fund of the Allmerica Investment
Trust, a corresponding Portfolio of the Variable Insurance Products Fund or the
Variable Insurance Products Fund II, the Portfolio of T. Rowe Price
International Series, Inc., or the Series of Delaware Group Premium Fund, Inc.

SUM INSURED: The amount payable upon the death of the Insured before the 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 will always be at least equal to
the Face Amount.

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

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
materially affected.

VALUATION PERIOD: The interval between two consecutive Valuation Dates.

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

WRITTEN REQUEST: A request by the Policyowner in writing, 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

FREE-LOOK PERIOD -- The Policy provides for an initial free-look period. You
may cancel the 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,

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

- ten 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 POLICY - "Free-Look Period."

CONVERSION PRIVILEGES -- During the first 24 Policy months after the Date of
Issue, subject to certain restrictions, you may convert the 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 risk classifications as the
original Policy. See THE POLICY - "Conversion Privileges."

ABOUT THE POLICY

The Policy allows you to make premium payments in any amount and frequency,
subject to certain limitations. As long as the 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, unlike the fixed benefits of ordinary whole life insurance,
the Policy Value will, and under certain circumstances the Death Proceeds may,
increase or decrease depending on the investment experience of the Sub-Accounts
of the VEL Account.

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FLEXIBLE PREMIUM

The Policy is a "flexible premium" policy because, unlike traditional insurance
policies, there is no fixed schedule for premium payments. 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, nor will making the planned premium payments guarantee that a Policy will
remain in force. Thus, you may, but are not required to, pay additional
premiums.

The Policy 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.

APPLYING FOR A POLICY

At the time of applying for a Policy, the proposed Insured will complete an
application, which lists the proposed amount of insurance and indicates how much
of that insurance is considered eligible for simplified underwriting. If the
eligibility questions on the application are answered "Yes" and the application
is returned within 30 days of the eligibility date, the Company will provide
immediate coverage equal to the simplified underwriting amount. If the proposed
Insured is a standard premium class, any insurance in excess of the simplified
underwriting amount will begin on the date the application and medical
examinations, if any, are completed. If the proposed Insured cannot answer the
eligibility questions "Yes" and if the proposed Insured is not a standard risk,
insurance coverage will begin only after the Company (1) approves the
application, (2) the Policy is delivered and accepted, and (3) the first premium
is paid.

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

Upon completion of issuance procedures, delivery of the Policy, and receipt of
any additional premiums, if less than $10,000 of initial Net Premiums have been
received by the Company, such Net Premiums will be allocated to the Sub-Accounts
according to your instructions. Generally, 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. Thereafter, such amounts will be allocated to the Sub-Accounts
as instructed. If the 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 upon return of a
Delivery Receipt to the Principal Office. See THE POLICY - "Applying For A
Policy."

ALLOCATION OF NET PREMIUMS

Net Premiums are the premiums paid less the actual premium tax. 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 risk of Net
Premiums 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 POLICY -
"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.

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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 Accounts, 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 surrender
charges. The Surrender Value is relevant, for example, in the computation of the
amounts available upon partial withdrawals, Policy loans or surrender.

POLICY LAPSE AND REINSTATEMENT

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, if any, or

(b) Debt exceeds Policy Value.

A 62-day grace period applies to each situation.

Subject to certain conditions (including Evidence of Insurability showing that
the Insured is insurable according to the Company's underwriting rules and the
payment of sufficient premium), a Policy may be reinstated at any time within
three years after the expiration of the grace period and prior to the Final
Premium Payment Date. See POLICY TERMINATION AND REINSTATEMENT.

PARTIAL WITHDRAWAL

After the first Policy year, you may make partial withdrawals in a minimum
amount of $500 from the Policy Value. Under Option 1 or Option 3, 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.

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 POLICY - "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
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
Policy Value less the surrender charge.

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%.

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Therefore, a Policy loan may have a permanent impact on the Policy Value even
though it is eventually 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
Policies. 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 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%. Our 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.

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, 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. Three Sum Insured Options are available. Under Option 1 and
Option 3, the Sum Insured is the greater of the Face Amount of the Policy or the
Guideline Minimum Sum Insured. Under Option 2, the Sum Insured is the greater of
the Face Amount of the 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 POLICY - "Death Proceeds."

The Death Proceeds under the Policy may be received in a lump sum or under one
of the Payment Options described in the Policy. See "APPENDIX B -- 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 Final Premium Payment Date, 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
POLICY - "Change In Face Amount."

The minimum increase in Face Amount is $10,000, and any increase may also
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 POLICY - "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, Living Benefits Rider, and Exchange to Term Insurance Rider. See
APPENDIX A -- OPTIONAL BENEFITS.

10
<PAGE>
The cost of these optional insurance benefits will be deducted from Policy Value
as part of the Monthly Deduction. See CHARGES AND DEDUCTIONS - "Monthly
Deduction from Policy Value."

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.

PREMIUM TAX CHARGE

A charge for state and local premium taxes (if any) is deducted from each
premium payment. State premium taxes generally range from 0.75% to 5%, while
local premium taxes (if any) vary by jurisdiction within a state. The premium
tax charge will change when either the applicable jurisdiction changes or the
tax rate within the applicable jurisdiction changes. The Company should be
notified of any change in address of the Insured as soon as possible.

MONTHLY DEDUCTIONS FROM POLICY VALUE

On the Date of Issue and each Monthly Payment Date thereafter prior to the Final
Premium 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 the cost of any additional benefits provided by rider,
and a charge for administrative expenses. 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.

The MONTHLY COST OF INSURANCE charge is determined by multiplying the Insurance
Amount at Risk (the Sum Insured minus the Policy Value) 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.

A MONTHLY ADMINISTRATIVE CHARGE of $5 per month is made for administrative
expenses. 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. The monthly
administrative charge is described in CHARGES AND DEDUCTIONS - "Monthly
Deduction from Policy Value."

As noted above, certain additional insurance rider benefits are available under
the Policy for an additional monthly charge. See APPENDIX A -- OPTIONAL
BENEFITS.

DEDUCTIONS FROM THE VEL ACCOUNT

A daily charge equivalent to an effective annual rate of 0.65% 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."

In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Underlying Funds. See CHARGES AND DEDUCTIONS -
"Charges Against Assets of the VEL Account." The levels of fees and expenses
vary among the Underlying Funds.

SURRENDER CHARGES

At any time that a Policy is in effect, a Policyowner may elect to surrender the
Policy and receive its Surrender Value. A surrender charge is calculated upon
issuance of the Policy and upon each increase in Face Amount. The surrender
charge is only imposed if less than ten 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.

11
<PAGE>
DEFERRED ADMINISTRATIVE CHARGE

A component of the surrender charge is a charge for administrative expenses.
This deferred administrative charge is $8.50 per thousand dollars of the initial
Face Amount or of an increase in 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. Because the maximum surrender charge reduces
by 1% per month after the 44th Policy month and becomes zero after the 120th
month after Date of Issue or the effective date of an increase in Face Amount,
in certain situations some or all of the deferred administrative charge may not
be assessed upon surrender of the Policy. See THE POLICY - "Surrender" and
CHARGES AND DEDUCTIONS - "Surrender Charge."

SURRENDER CHARGE ON THE INITIAL FACE AMOUNT

The maximum surrender charge calculated upon issuance of the 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 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 of initial Face
Amount, as indicated in APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES.
The maximum surrender charge remains level for the first 44 Policy months,
reduces by 1% per month for the next 76 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 surrender charge imposed may be less than the maximum. See THE POLICY
- -"Surrender" and CHARGES AND DEDUCTIONS - "Surrender Charge."

SURRENDER CHARGE ON INCREASES IN 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 D -- CALCULATION OF MAXIMUM SURRENDER CHARGES. 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 76 Policy months, and is zero thereafter. The actual surrender charge with
respect to the increase may be less than the maximum. See THE POLICY -
"Surrender" and CHARGES AND DEDUCTIONS - "Surrender Charge."

SURRENDER CHARGES ON DECREASES IN 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 POLICY
- -"Surrender" and CHARGES AND DEDUCTIONS - "Surrender Charge."

OTHER CHARGES (NON-PERIODIC)

TRANSACTION CHARGE ON PARTIAL WITHDRAWALS

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

12
<PAGE>
CHARGE FOR INCREASE IN FACE AMOUNT

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

OTHER ADMINISTRATIVE 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. 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 is currently comprised of
nineteen Sub-Accounts ("Sub-Accounts"). Of these 19 Sub-Accounts, 18 are
available to the Policies. Each Sub-Account invests exclusively in a
corresponding Underlying Fund of the Allmerica Investment Trust ("Trust")
managed by Allmerica Investment, the Variable Insurance Products Fund ("Fidelity
VIP") or the 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.
("Price-Fleming") with respect to the T. Rowe Price International Stock
Portfolio, or the Delaware Group Premium Fund, Inc. ("DGPF") managed by Delaware
International with respect to the International Equity Series. In some states,
insurance regulations may restrict the availability of particular Underlying
Funds. The Policies permit you to 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 POLICY - "Transfer
Privilege."

The Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF are open-end,
diversified series management investment companies. Each of the Funds has its
own investment objectives. However, certain underlying Funds have investment
objectives similar to other underlying Funds. The following Funds are available
under the Policies:

<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 FIDELITY VIP II
Growth Fund Asset Manager Portfolio
Equity Index Fund DGPF
Select Growth and Income Fund International Equity Series
Investment Grade Income Fund T. ROWE PRICE
Government Bond Fund T. Rowe Price International Stock
Money Market Fund Portfolio
</TABLE>

13
<PAGE>
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. For more information, see "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."

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.

<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>

* Under the Management Agreement with Allmerica Investment Trust, Allmerica
Investment Management Company, Inc. ("Allmerica Investment") 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%.

14
<PAGE>
*** These Funds have entered into agreements with brokers whereby the brokers
rebate a portion of commissions. Had these amounts been treated as reductions of
expenses the total operating expenses would have been 1.20% 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.

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. For more information, see
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.

TAX TREATMENT

A Policy is generally subject to the same federal income tax treatment as a
conventional fixed benefit life insurance policy. Under current tax law, to the
extent there is no change in benefits, you will be taxed on Policy Value
withdrawn from the 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 Internal Revenue Code because of a reduction in benefits under the
Policy. Death Proceeds under the Policy are 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 offered by this Prospectus may be considered a "modified endowment
contract" if it fails a "seven-pay" test. The 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 exceeds 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 the Policy is considered a
modified endowment contract, all distributions (including Policy loans, partial
withdrawals, 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."

------------------------

15
<PAGE>
PERFORMANCE INFORMATION

The Policies were first offered to the public 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) under a "representative" Policy that is
surrendered at the end of the applicable period. FOR MORE INFORMATION ON CHARGES
UNDER THE POLICIES, SEE CHARGES AND DEDUCTIONS.

Performance information may be compared, in reports and promotional literature,
to: (1) the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"), Dow
Jones Industrial Average (DJIA), Shearson Lehman Aggregate Bond Index or other
unmanaged indices so that investors may compare results with those of a group of
unmanaged securities widely regarded by investors as representative of the
securities markets in general; (2) other groups of variable 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 (3) the Consumer Price Index (a measure for inflation) to
assess the real rate of return from an investment. Unmanaged indices may assume
the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.

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.

16
<PAGE>
TABLE I: SUB-ACCOUNT PERFORMANCE
NET OF ALL CHARGES AND ASSUMING SURRENDER OF THE 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.

AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/96

Years
10 Years Since
One-Year or Since Inception
Total 5 Inception (if less
Underlying Fund Return Years (if less) than 10)*
<S> <C> <C> <C> <C>
Select International Equity Fund.............. -92.77% N/A -19.89% 2.67
DGPF International Equity Series.............. -94.51% N/A -3.46% 4.17
Fidelity VIP Overseas Portfolio............... -100.00% -3.03% 3.73% 9.92
T. Rowe Price International Stock Portfolio... -99.34% N/A -26.43% 2.58
Select Aggressive Growth Fund................. -95.85% N/A 6.01% 4.36
Select Capital Appreciation Fund.............. -100.00% N/A -40.05% 1.67
Small-Mid Cap Value Fund...................... -86.79% N/A 4.71% 3.67
Select Growth Fund............................ -92.70% N/A -2.20% 4.36
Growth Fund................................... -94.36% 1.16% 10.95% 10.00
Fidelity VIP Growth Portfolio................. -99.32% 3.85% 11.32% 10.00
Equity Index Fund............................. -92.45% 3.22% 10.22% 6.26
Select Growth and Income Fund................. -93.39% N/A -0.88% 4.36
Fidelity VIP Equity-Income Portfolio.......... -99.71% 7.00% 9.87% 10.00
Fidelity VIP II Asset Manager Portfolio....... -99.41% -0.34% 5.31% 7.32
Fidelity VIP High Income Portfolio............ -99.93% 3.63% 7.18% 10.00
Investment Grade Income Fund.................. -100.00% -5.19% 4.26% 10.00
Government Bond Fund.......................... -100.00% -7.22% -4.29% 5.35
Money Market Fund............................. -100.00% -8.62% 1.73% 10.00

</TABLE>

* 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 Select Capital Appreciation: 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.

17
<PAGE>
TABLE II: SUB-ACCOUNT PERFORMANCE
EXCLUDING MONTHLY POLICY CHARGES AND SURRENDER CHARGES

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 POLICIES 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.

AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/96

10 Years
Years Since
One-Year or Since Inception
Total 5 Inception (if less
Underlying Fund Return Years (if less) than 10)*
<S> <C> <C> <C> <C>
Select International Equity Fund................ 21.21% N/A 12.94% 2.67
DGPF International Equity Series................ 19.30% N/A 11.72% 4.17
Fidelity VIP Overseas Portfolio................. 12.53% 8.22% 7.18% 9.92
T. Rowe Price International Stock Portfolio..... 13.99% N/A 9.22% 2.58
Select Aggressive Growth Fund................... 17.83% N/A 18.99% 4.36
Select Capital Appreciation Fund................ 8.14% N/A 27.50% 1.67
Small-Mid Cap Value Fund........................ 27.76% N/A 14.11% 3.67
Select Growth Fund.............................. 21.28% N/A 11.92% 4.36
Growth Fund..................................... 19.46% 11.84% 14.04% 10.00
Fidelity VIP Growth Portfolio................... 14.01% 14.20% 14.40% 10.00
Equity Index Fund............................... 21.56% 13.64% 16.99% 6.26
Select Growth and Income Fund................... 20.53% N/A 13.04% 4.36
Fidelity VIP Equity-Income Portfolio............ 13.59% 16.99% 13.00% 10.00
Fidelity VIP II Asset Manager Portfolio......... 13.91% 10.54% 10.96% 7.32
Fidelity VIP High Income Portfolio.............. 13.34% 14.00% 10.40% 10.00
Investment Grade Income Fund.................... 2.93% 6.38% 7.60% 10.00
Government Bond Fund............................ 2.88% 4.67% 6.21% 5.35
Money Market Fund............................... 4.72% 3.50% 5.18% 10.00
</TABLE>

18
<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 April 2, 1987. 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 and apart 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, of
which 18 are available to the Policies. 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.

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 First Allmerica 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 First Allmerica, the
Company, or other affiliated insurance companies. Eleven investment portfolios
of the Trust ("Funds") are available under the Policies, each issuing a series
of shares. Each Fund operates as a separate

19
<PAGE>
investment vehicle, and the income or losses of one Fund generally have no
effect on the investment performance of another Fund. Shares of the Trust are
not offered to the general public but solely to such Separate Accounts.

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 Funds. See INVESTMENT ADVISORY SERVICES - "Investment Advisory Services to
The Trust."

VARIABLE INSURANCE PRODUCTS FUND

Variable Insurance Products Fund ("Fidelity VIP"), managed by Fidelity
Management & Research Company ("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. Four of its investment
portfolios are available under the Policies: High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio.

Various Fidelity companies perform certain activities required to operate
Fidelity VIP. FMR, a registered investment adviser under the 1940 Act, is one of
America's largest investment management organizations and has its principal
business address at 82 Devonshire Street, Boston MA 02109. 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. The Portfolios of Fidelity VIP, as part of their operating
expenses, pay an investment management fee to FMR. See INVESTMENT ADVISORY
SERVICES - "Investment Advisory Services to Fidelity VIP and Fidelity VIP II."

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 registered with the SEC under the 1940 Act. One of
its investment portfolios is available under the Policies: 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 - "Investment Advisory Services to T. Rowe Price"), is an open-end,
diversified management investment company organized as a Maryland corporation in
1994 and registered with the SEC under the 1940 Act. One of its investment
portfolios is available under the Policies: 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 Policies, the International Equity
Series. The investment adviser for the International Equity Series is Delaware
International Advisers Ltd. ("Delaware International"). See INVESTMENT ADVISORY
SERVICES - "Investment Advisory Services to DGPF."

20
<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 INVESTMENT COMPANIES 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 will invest primarily in common
stock of industries and companies which are 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
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.

21
<PAGE>
EQUITY INDEX FUND -- The Equity Index Fund of the Trust seeks to provide
investment results that correspond generally to the composite price and yield
performance of United States publicly traded common stocks. The Equity Index
Fund seeks to achieve its objective by attempting to replicate the composite
price and yield performance of the S & P 500.

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 Fiedelity 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
realized and unrealized capital gains) 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 debt instruments with the
objective of obtaining maximum current income consistent with the preservation
of capital and liquidity.

CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR TO
THOSE OF OTHER UNDERLYING FUNDS OR SERIES. 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 by you to another
Sub-Account or to the General Account. The Company must receive your Written
Request within 60 days of the later of (1) the effective date of such change in
the investment policy, or (2) the receipt of the notice of your right to
transfer. You may then change your premium and deduction allocation percentages.

22
<PAGE>
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 Management Company, Inc. ("Allmerica Investment"), an
indirect wholly owned subsidiary of First Allmerica, 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 compensation, if any, of officers and Trustees who are affiliated
with Allmerica Investment.

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 commission, fees and expenses of the Trustees who are not
affiliated with Allmerica Investment, expenses for proxies, prospectuses, and
reports to shareholders, and other expenses. The Prospectus of the Trust
contains additional information concerning the Funds, including information
concerning additional expenses paid by the Funds, and should be read in
conjunction with this Prospectus.

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>
<CAPTION>
Fund Net Asset Value Rate
- ------------------------------ ----------------- ---------
<S> <C> <C>
Select International Equity * 1.00%
Fund

Select Aggressive Growth Fund * 1.00%

Select Capital Appreciation * 1.00%
Fund

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

23
<PAGE>
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 affected Fund. Allmerica Investment is solely responsible for the payment of
all fees for investment management services to the Sub-Advisers.

The fees, 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 Select International Equity First $50 million 0.45%
Management (U.S.) Limited Fund 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 First $100 million 0.60%
Fund 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 3.50%

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

Miller, Anderson & Sherrerd, Growth Fund * *
LLP

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

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, Investment Grade Income Fund ** 0.20%
Inc.

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

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

24
<PAGE>
Allmerica Investment will pay a fee to Miller, Anderson & Sherrerd 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, 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.

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 concerning
additional expenses paid by the Portfolios, and should be read in conjunction
with this Prospectus.

FIDELITY VIP AND FIDELITY VIP II PORTFOLIOS

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.

One-twelfth of the annual management fee rate is applied to net assets averaged
over the most recent month, resulting in a dollar amount which is the management
fee for that month.

Each of the Fidelity VIP Equity-Income, Fidelity VIP Growth, Fidelity VIP II
Asset Manager and Fidelity VIP Overseas Portfolios' fee rates is 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 of 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

25
<PAGE>

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 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 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 the 1940 Act or other applicable 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 corresponding to a new
Underlying Fund or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required SEC approval,
the Company may, in its sole discretion, establish new Sub-Accounts or eliminate
one or more Sub-Accounts if marketing needs, tax considerations or investment
conditions warrant. Any new Sub-Accounts may be made available to existing
Policyowners on a basis to be determined by the Company.

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

If any of these substitutions or changes is made, the Company may by appropriate
endorsement change the Policy 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

26
<PAGE>
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 received from all persons with an interest in such Sub-Account
furnishing instructions to the Company. The Company will also vote shares held
in the VEL Account that it owns and which are not attributable to Policies in
the same proportion.

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 subclassification 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 POLICY

APPLYING FOR A POLICY

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 such verification procedures as medical examinations, and
may require that further information be provided by the proposed Policyowner
before a determination of insurability can be made. A Policy cannot be issued
until this underwriting procedure has been completed. The Company reserves the
right to reject an application which does not meet the Company's underwriting
guidelines, but in underwriting insurance, the Company shall comply with all
applicable federal and state prohibitions concerning unfair discrimination.

When applying for a Policy, the proposed Insured will complete an application,
which lists the proposed amount of insurance and indicates how much of that
insurance is considered eligible for simplified underwriting. If the eligibility
questions on the application are answered "Yes" and the application is returned
within 30 days of the eligibility date, the Company will provide immediate
coverage equal to the simplified underwriting amount. If the proposed Insured is
in a standard premium class, any insurance in excess of the simplified
underwriting amount will begin on the date the application and medical
examinations, if any, are

27
<PAGE>

completed. If the proposed Insured cannot answer the eligibility questions "Yes"
and if the proposed Insured is not a standard risk, insurance coverage will
begin only after the Company (1) approves the enrollment form, (2) the
Certificate is delivered and accepted, and (3) the first premium is paid.

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 the Policy is issued and accepted, the initial
premium held in the General Account will be credited with interest not later
than the date of receipt of the premium at the Company's Principal Office. IF A
POLICY IS NOT ISSUED, THE PREMIUMS WILL BE RETURNED TO YOU WITHOUT INTEREST.

If your Policy provides for a full refund of the initial payment under its
"Right to Examine Policy" provision as required in your state, all Policy Value
in the General Account that you initially designated to go to the Sub-Accounts
will be transferred to the Sub-Accounts you have chosen not later than the
expiration of the period during which you may exercise the "Right to Examine
Policy" provision. If the "Payor Provision" is in effect (see POLICY TERMINATION
AND REINSTATEMENT - "Payor Provisions"), Payor premiums which are not "excess
premiums" will be transferred to the Money Market Fund of the Trust not later
than three days after underwriting approval of the Policy.

If the 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, upon return of a Delivery Receipt
to the Principal Office. For all other Policyowners, if the initial Net Premiums
are less than $10,000, the amounts held in the Company's General Account will be
allocated to the Sub-Accounts (according to your instructions) not later than
three days after underwriting approval of the Policy. If the amount allocated to
the VEL Account exceeds $10,000 annually, or if the Policy provides for planned
premium payments during the first year of $5,000 semi-annually, $2,500 quarterly
or $1,000 monthly, the entire amount will remain in the General Account until
return of a Delivery Receipt to the Principal Office. The entire amount will
then be allocated to the Sub-Accounts according to your instructions. Amounts
remaining in the General Account will continue to be credited interest from date
of receipt of the premium at the Principal Office.

FREE-LOOK PERIOD

The Policy provides for an initial "free-look" period. You may cancel the 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 the Policy is signed, or

- - 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.

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:

28
<PAGE>
- - 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

- - 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
Policy 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 the 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 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, 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 risk classifications as
the original Policy.

PREMIUM PAYMENTS

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

PREMIUM FLEXIBILITY

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 the Policy to lapse. You may also make unscheduled premium payments
at any time prior to the Final Premium Payment Date or skip planned premium
payments, subject to the maximum and minimum premium limitations described
below. Therefore, unlike conventional insurance policies, a Policy does not
obligate you to pay premiums in accordance with a rigid and inflexible premium
schedule.

You may also 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 MAP 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 cover the next Monthly Deduction plus loan
interest accrued, or the Policy may lapse. See POLICY TERMINATION AND
REINSTATEMENT.

In no event may the total of all premiums paid exceed the current maximum
premium limitations set forth in the 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 will make total premiums equal the maximum.
Any part of the premiums in excess of that amount will be returned and no

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<PAGE>
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 the 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 Variable Account 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 Sum Insured options will not apply.

- - The Company will transfer the Policy Value in the Variable 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 Variable Account.

- - The Policyowner may not make further 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 the 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 loans.

ALLOCATION OF NET PREMIUMS

The Net Premium equals the premium paid less the premium tax 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 Request or telephone request. 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 policy of the Company and
its agents and affiliates is that they will not be responsible for losses
resulting from acting upon telephone requests reasonably believed to be genuine.
The Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; otherwise, the Company may be liable for
any losses due to unauthorized or fraudulent instructions. The procedures the
Company follows for transactions initiated by telephone include requirements
that callers on behalf of a Policyowner identify

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<PAGE>
themselves by name and identify the Policyowner by name, date of birth and
social security number. All transfer instructions by telephone are tape
recorded. An allocation change will be effective as of the date of receipt of
the notice at the Principal Office. No charge is currently 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.

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 should periodically 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 requests. As discussed in THE POLICY - "Allocation of Net
Premiums," a properly completed authorization form must be on file at the
Principal Office before telephone requests will by 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,

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

- - 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 the Policy remains in force (see POLICY TERMINATION AND
REINSTATEMENT), the Company will, upon due proof of the Insured's death, pay the
Death Proceeds of the 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 a lump sum or under one or more of the payment
options the Company offers. See APPENDIX B -- PAYMENT OPTIONS. The Death
Proceeds payable depends on the current Face Amount and the Sum Insured Option
that is in effect on the date of death. Prior to the Final Premium Payment Date,
the Death Proceeds are: (1) The Sum Insured provided under Option 1, Option 2,
or Option 3, whichever is in effect on the date of death; plus (2) any
additional insurance on the Insured's life that is provided by rider; minus (3)
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 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.

GUIDELINE PREMIUM TEST AND CASH VALUE ACCUMULATION TEST

Federal tax law requires a minimum death benefit in relation to cash value for a
Policy to qualify as life insurance. Under current federal tax law, either the
Guideline Premium Test or the Cash Value Accumulation Test can be used to
determine if a Policy complies with the definition of "life insurance" in
Section 7702 of the Code. At the time of application, the employer may elect
either of the tests. THE CASH VALUE ACCUMULATION TEST MAY NOT BE AVAILABLE IN
ALL STATES.

There are two main differences between the Guideline Premium Test and the Cash
Value Accumulation Test. First, the Guideline Premium Test limits the amount of
premium that may be paid into a Policy, while no such limits apply under the
Cash Value Accumulation Test. Second, the factors that determine the minimum Sum
Insured relative to the Policy Value are different. Required increases in the
minimum Sum Insured due to growth in Policy Value will generally be greater
under the Cash Value Accumulation Test than under the Guideline Premium Test.

The Guideline Premium Test limits the amount of premiums payable under a Policy
to a certain amount for an insured of a particular age and sex. Under the
Guideline Premium Test, the Policyowner may choose between Sum Insured Option 1
and Option 2, as described below. After issuance of the Policy, the Policyowner
may change the selection from Option 1 to Option 2 or vice versa. The Cash Value
Accumulation Test requires that the Sum Insured must be sufficient so that the
cash Surrender Value, as defined in Section 7702, does not at any time exceed
the net single premium required to fund the future benefits under the Policy. If
the Cash Value Accumulation Test is chosen by the employer, ONLY Sum Insured
Option 3 will apply. Sum Insured Option 1 and Option 2 are NOT available under
the Cash Value Accumulation Test.

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<PAGE>
ELECTION OF SUM INSURED OPTIONS

If the Guideline Premium Test is chosen by the employer, the Policyowner may
choose between Sum Insured Option 1 or Option 2. The Policyowner may designate
the desired Sum Insured Option in the enrollment form, and may change the option
once per Policy year by Written Request. There is no charge for a change in
option.

Option 3 is available only under the Cash Value Accumulation Test, described
above.

OPTION 1 -- LEVEL SUM INSURED

Under Option 1, the Sum Insured is equal to the greater of Face Amount or the
Minimum Sum Insured, as set forth in the table below. Under Option 1, the Sum
Insured will remain level unless the Minimum Sum Insured is greater than the
Face Amount, in which case the Sum Insured will vary as the Policy Value varies.
Option 1 will offer the best opportunity for the Policy Value under a Policy to
increase without increasing the Death Proceeds as quickly as it might under the
other options. The Sum Insured will never go below the Face Amount.

OPTION 2 -- ADJUSTABLE SUM INSURED

Under Option 2, the Sum Insured is equal to the greater of the Face Amount plus
the Policy Value or the Minimum Sum Insured, as set forth in the table below.
The Sum Insured will, therefore, vary as the Policy Value changes, but will
never be less than the Face Amount. Option 2 will offer the best opportunity for
the Policyowner who would like to have an increasing Sum Insured as early as
possible. The Sum Insured will increase whenever there is an increase in the
Policy Value and will decrease whenever there is a decrease in the Policy Value,
but will never go below the Face Amount.

OPTION 3 -- LEVEL SUM INSURED WITH CASH VALUE ACCUMULATION TEST

Under Option 3, the Sum Insured will equal the Face Amount, unless the Policy
Value, multiplied by the applicable Option 3 Sum Insured Factor, gives a higher
Sum Insured. A complete list of Option 3 Sum Insured Factors is set forth in the
Policy. The applicable Sum Insured Factor depends upon the sex, risk
classification, and then-attained age of the insured. The Sum Insured Factor
decreases slightly from year to year as the attained age of the insured
increases. Option 3 will offer the best opportunity for the Policyowner who is
looking for an increasing Sum Insured in later Policy years and/or would like to
fund the Policy at the "seven-pay" limit for the full seven years. When the
Policy Value multiplied by the applicable Sum Insured Factor exceeds the Face
Amount, the Sum Insured will increase whenever there is an increase in the
Policy Value and will decrease whenever there is a decrease in the Policy Value,
but will never go below the Face Amount. OPTION 3 MAY NOT BE AVAILABLE IN ALL
STATES.

MINIMUM SUM INSURED UNDER OPTION 1 AND OPTION 2

The Minimum Sum Insured under Option 1 or Option 2 is equal to a percentage of
the Policy Value as set forth below. The Minimum Sum Insured is determined in
accordance with the Code regulations to ensure that the Policy qualifies as a
life insurance contract and that the insurance proceeds may be excluded from the
gross income of the Beneficiary.

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<PAGE>
MINIMUM SUM INSURED TABLE
(OPTION 1 AND OPTION 2)

<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.

For any Face Amount, the amount of the Sum Insured, and thus the Death Proceeds,
will be greater under Option 2 than under Option 1, since the Policy Value is
added to the specified Face Amount and included in the Death Proceeds only under
Option 2. However, the cost of insurance included in the Monthly Deduction will
be greater, and thus the rate at which Policy Value will accumulate will be
slower, under Option 2 than under Option 1. 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 the 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, however, 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 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%.

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<PAGE>
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 the 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, if Sum Insured Option 1 or Option 2 is in effect, 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. IF OPTION 3 IS IN
EFFECT, YOU MAY NOT CHANGE TO EITHER OPTION 1 OR OPTION 2.

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 less than $40,000. 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
Value will be added to the new specified Face Amount, the Sum Insured will vary
with the Policy Value. Thus, under Option 2, the Insurance Amount at Risk will
always equal the Face Amount unless the Guideline Minimum Sum Insured is in
effect. The cost of insurance may also be higher or lower than it otherwise
would have been without the change in Sum Insured Option. See CHARGES AND
DEDUCTIONS - "Monthly Deduction from Policy Value."

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<PAGE>
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 will affect the determination of the Sum Insured from that point on,
however, since the Policy Value will no longer 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, respectively, reduce or increase 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 POLICY - "Premium
Payments."

CHANGE IN 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 is also required whenever
the Face Amount is increased. A request for an increase in 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
Policy Value is less than $50 plus an amount equal to the sum of two Monthly
Deductions. On the effective date of each increase in Face Amount, a transaction
charge of $40 will be deducted from 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 will also
be calculated for the increase. See CHARGES AND DEDUCTIONS - "Monthly Deduction
from 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 Value to
the General Account free of charge. See THE POLICY - "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 Face Amount is $10,000. By current Company
practice, the Face Amount in force after any decrease may not be less than
$50,000. If, following a decrease in Face Amount,

36
<PAGE>
the Policy would not comply with the maximum premium limitation applicable under
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 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: (1) the Face Amount provided by
the most recent increase; (2) the next most recent increases successively; and
(3) the initial Face Amount. This order will also be used to determine whether a
surrender charge will be deducted and in what amount. If the Face Amount is
decreased while the "Payor Provisions" apply (see POLICY TERMINATION AND
REINSTATEMENT - "Termination"), the above order may be modified to determine the
cost of insurance charge. In such case, you may reduce or eliminate any Face
Amount for which you are paying the insurance charges on a last-in, first-out
basis before you reduce or eliminate amounts of insurance which are paid by the
Payor.

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 the accumulation in the General Account and 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 any surrender charge).
See THE POLICY - "Surrender." There is no guaranteed minimum Policy Value.
Because Policy Value on any date depends upon a number of variables, it cannot
be predetermined.

Policy Value and 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; see THE POLICY
- -"Application for a Policy") less any Monthly Deductions due. On each Valuation
Date after the Date of Issue the Policy Value will be:

(1) 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

(2) 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.

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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 the 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 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 (1) by (2) and subtracting (3) from the result, where

(1) 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;

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

(3) is a charge for each day in the Valuation Period equal to 0.65% on an annual
basis 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.

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 -- PAYMENT
OPTIONS. These choices are also available at the Final Premium Payment Date and
if the Policy is surrendered. 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.

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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 Policy
Value."

SURRENDER

You may at any time surrender the Policy and receive its Surrender Value. The
Surrender Value is the Policy Value, less 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 will be deducted when a Policy is surrendered if less
than ten full Policy years have elapsed from the Date of Issue of the Policy or
from the effective date of any increase in Face Amount. 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 -- PAYMENT OPTIONS. The Company normally
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 WITHDRAWAL

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 or Option 3, 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.

A partial 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." The Company will normally 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." For important tax consequences which may result from partial
withdrawals, see FEDERAL TAX CONSIDERATIONS.

CHARGES AND DEDUCTIONS

Charges will be deducted in connection with the Policy to compensate the Company
for providing the insurance benefits set forth in the Policy and any additional
benefits added by rider, administering the Policy, incurring distribution
expenses, and assuming certain risks in connection with the Policies. 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.

The Company may waive or reduce the premium tax charge, administrative charges,
surrender charge, or 5% partial withdrawal charge, and will not pay commissions
on Policies where the Policyowner, as of the date of application, is within the
following class of individuals:

All employees of First Allmerica and its affiliates and subsidiaries
located at First Allmerica's home office (or at off-site locations if
such employees are on First Allmerica's home office payroll);

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all directors of First Allmerica and its affiliates and subsidiaries;
all retired employees of First Allmerica and its affiliates and
subsidiaries eligible under the Pension Plans of First Allmerica or of
its affiliates or any successor plan; all General Agents, agents and
field staff of First Allmerica; and all spouses, children, siblings,
parents and grandparents of any individuals identified above, who reside
in the same household.

Certain of the charges and deductions described below may be reduced for
Policies issued in connection with a specific group in accordance with the
Company's rules in effect as of the date an application. To qualify for a
reduction, a group must satisfy certain criteria such as the size of the group,
expected number of participants and anticipated premium payments from the group.
Generally, the sales contacts and effort, administrative costs and mortality
costs vary based on such factors as the size of the group, the purposes for
which the Policies are purchased and certain characteristics of the group's
members. The amount of reduction and the criteria for qualification will reflect
in the reduced sales effort and administrative costs resulting from, and the
different mortality experience expected as a result of, sales to qualifying
groups. The Company may modify both the amounts of reductions and the criteria
for qualification. Reductions in these charges will not be unfairly
discriminatory against any person, including the affected Policyowners and all
other Policyowners who purchase a Policy.

STATE PREMIUM TAX

MONTHLY DEDUCTION FROM POLICY VALUE

Prior to the Final Premium Payment Date, a Monthly Deduction from 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 charges are
discussed below. The Monthly Deduction on or following the effective date of a
requested increase in the Face Amount will also include a $40 administrative
charge for the increase. See THE POLICY - "Change In Face Amount."

Prior to the Final Premium Payment Date, 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. However, if 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.

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. 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 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

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Option 1 or Option 3, 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 owners who have selected Sum Insured Option
2 than for those who have selected Sum Insured Option 1 or Option 3, 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 or Option 3 remains
constant while the Sum Insured under Option 2 varies with the Policy Value, any
Policy Value increases will reduce the insurance charge under Option 1 or Option
3 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 Face Amount. If you select Sum Insured
Option 1 or Option 3, 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.

If the Guideline Minimum Sum Insured is in effect under either Option, a monthly
cost of insurance charge will also be calculated for that portion of the Sum
Insured which exceeds the current Face Amount. 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) less the greater of the Face Amount or the Policy Value if you
selected Sum Insured Option 1 or Option 3, or less 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 in the preceding
two paragraphs.

The monthly cost of insurance charge will also be adjusted for any decreases in
Face Amount. See THE POLICY - "Change In Face Amount" and "Decreases."

COST OF INSURANCE RATES

The Policy is sold to eligible individuals who are members of a non-qualified
employee benefit plan having five or more members. Premium billing will be
administered through one premium administrator. A portion of the initial Face
Amount may be issued on a guaranteed or simplified underwriting basis. The
amount of this portion will be determined for each group, and may vary within
the group based on Age.

The determination of the class of risk for the guaranteed or simplified issue
portion will, in part, be based on the type of group; the number of persons
eligible to participate in the plan; expected percentage of eligible persons
participating in the plan; and the amount of guaranteed or simplified
underwriting insurance to be issued. Larger groups, higher participation rates
and occupations with historically favorable mortality rates will generally
result in the individuals within that group being placed in a more favorable
class of risk.

Cost of insurance rates are based on a blended unisex rate table, Age and
Premium Class of the Insured at the Date of Issue, the effective date of an
increase or date of rider, as applicable, the amount of premiums paid less any
Debt, any partial withdrawals and withdrawal charges, and risk classification.
For those Policies issued in certain states or in certain cases on a unisex
basis, 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 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, Non-smoker, Male, Female (or Mortality Table B for
unisex Policies) and the Insured's Age. The tables used for this purpose set
forth different mortality estimates for smokers and non-smokers. Any change in
the cost of insurance rates will apply to all persons of the same insuring Age
and Premium Class whose Policies have been in force for the same length of time.

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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. The Premium Classes are also 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.

The cost of insurance rate is determined separately for the initial Face Amount
and for the amount of any increase in Face Amount. For each increase in 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 a monthly administrative charge of $5
per month will be deducted from the Policy Value. 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 currently makes a charge on an annual basis of 0.65% 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 Policies. 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 will therefore pay an
aggregate amount of Death Proceeds greater than anticipated. The expense risk
assumed is that the expenses incurred in issuing and administering the Policies
will exceed the amounts realized from the administrative charges. 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.

In addition, 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.

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No charges are currently 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.

SURRENDER CHARGE

The Policy provides for a contingent surrender charge. A separate contingent
surrender charge, described in more detail below, is calculated upon the
issuance of the Policy and for each increase 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 the Policy. The
contingent deferred sales charge compensates the Company for expenses relating
to the distribution of the Policy, including agents' commissions, advertising
and the printing of the prospectuses and sales literature.

A Surrender Charge may be deducted if you request a full surrender of the Policy
or a decrease in Face Amount if less than ten 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 the Policy is equal to the
sum of (1) plus (2) where (1) is a deferred administrative charge equal to $8.50
per thousand dollars of the initial Face Amount, and (2) 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 D -- CALCULATION OF MAXIMUM SURRENDER CHARGES.
The maximum surrender charge continues in a level amount for 44 Policy months,
reduces by 1% per month for the next 76 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.

If you surrender the 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 D -- CALCULATION OF MAXIMUM SURRENDER
CHARGES.

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 (1) plus (2), where (1) is equal to $8.50 per thousand dollars of
increase, and (2) 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 D -- CALCULATION OF MAXIMUM SURRENDER
CHARGES. As is true for the initial Face Amount, (1) is a deferred
administrative charge, and (2) 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 (1) $8.50 per thousand dollars of increase in Face Amount, plus (2) 30% of
the Policy Value on the date of increase associated with the increase in Face
Amount, plus (3) 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
Face Amount 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

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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 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; (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.

CHARGES ON PARTIAL WITHDRAWAL

After the first Policy year, partial withdrawals of Surrender Value may be made.
The minimum withdrawal is $500. Under Option 1 or Option 3, 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.

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 (i.e., ten years have elapsed from
the Date of Issue and from the effective date of any increase in the Face
Amount).

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.

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 for an example
illustrating the calculation of the charges on partial withdrawal and their
impact on the surrender charge(s).

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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 will
never exceed $25. The Company also reserves the right to change the number of
free transfers allowed in a Policy Year. See THE POLICY - "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 ("Dollar-Cost
Averaging"); or

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

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 POLICY - "Conversion Privileges" and POLICY LOANS.

CHARGE FOR INCREASE IN FACE AMOUNT

For each increase in 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

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 second Policy year and thereafter is
90% of an amount equal to Policy Value reduced by applicable surrender charges.
There is no minimum limit on the amount of the loan. The loan amount will
normally be paid within seven days after the Company receives the loan request
at its 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. 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 cancelled. This will reduce the Policy Value in these Sub-Accounts. These
transactions are not treated as transfers for purposes of the transfer charge.

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LOAN INTEREST

LOAN AMOUNT EARNS INTEREST IN GENERAL ACCOUNT

As long as the Policy is in force, 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. NO ADDITIONAL INTEREST WILL BE CREDITED TO SUCH POLICY
VALUE.

PREFERRED LOAN OPTION -- A preferred loan option is available under the
Policies. 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 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%. Our 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

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 bear interest at the same rate. After the
due and unpaid interest is added to the loan amount, if the new loan amount
exceeds the Policy Value in the General Account, the Company will transfer
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 Debt 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 Policy
Value previously transferred from the VEL Account to secure the Debt.

If the Debt exceeds the Policy Value less the surrender charge, the 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.

EFFECT OF POLICY LOANS

Although Policy loans may be repaid at any time prior to the lapse of the
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.

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<PAGE>
POLICY TERMINATION AND REINSTATEMENT

TERMINATION

The failure to make premium payments will not cause the Policy to lapse unless:
(1) the Surrender Value is insufficient to cover the next Monthly Deduction plus
loan interest accrued; or (2) if Debt exceeds the Policy Value. If one of these
situations occurs, the Policy will be in default. You will then 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 will still be payable, but any Monthly Deductions due and unpaid
through the Policy month in which the Insured dies and any other overdue charges
will be deducted from the Death Proceeds.

PAYOR PROVISIONS

Subject to approval in the state in which your Policy was issued, if you name a
"payor" in your application supplement, then the following "Payor Provisions"
will apply:

The payor may designate what portion, if any, of each payment of a premium is
"excess premium" to be allocated to the General Account and Sub-Accounts
according to your allocation instructions then in effect. Except for excess
premium, the payor's premium will automatically be allocated to the Sub-Account
which invests in the Money Market Fund of the Trust, from which the Monthly
Deductions will be made. Payor premiums which are initially held in the General
Account (which are not "excess premiums") will be transferred to the Money
Market Fund not later than three days after underwriting approval of the Policy.
No Policy loans, partial withdrawals or transfers may be made from the amount in
the Money Market Fund attributable to premiums allocated thereto by the payor.

If the amount in the Money Market Fund attributable to premiums allocated by the
payor is insufficient to cover the next Monthly Deduction, the Company will send
the payor a notice of the due date and amount of premium which is due. The
premium may be paid during a grace period of 62 days beginning on the premium
due date. If the premium payable is not received by the Company within 31 days
of the end of the grace period, a second notice will be sent to the payor. A
31-day grace period notice will also be sent to you at this time if your Policy
Value is insufficient to cover the Monthly Deductions then due.

If the amount in the Money Market Fund attributable to premiums allocated
thereto by the payor is insufficient to cover the Monthly Deductions due at the
end of the grace period, the balance of such Monthly Deductions will be
withdrawn on a Pro-Rata Allocation from the Policy Value, if any, in the General
Account and the Sub-Accounts.

A lapse occurs if the Policy Value is insufficient, at the end of the grace
period, to pay the Monthly Deductions which are due. The Policy terminates on
the date of lapse. Any Death Proceeds payable during the grace period will be
reduced by any overdue charges.

The above payor provisions, if applicable, are in lieu of the grace-period
notice and default provisions applicable when "(a) the Surrender Value is
insufficient to cover the next Monthly Deduction plus loan interest accrued,"
but do not apply to "(b) if Debt exceeds the Policy Value." See the first
paragraph of this section captioned "Termination." You or the payor may, upon
Written Request, discontinue the above payor provisions. If the payor makes
Written Request to discontinue the payor provisions, we will send you a notice
of the discontinuance to your last known address.

REINSTATEMENT

If the Policy has not been surrendered and the Insured is alive, the terminated
Policy may be reinstated anytime within three years after the date of default
and before the Final Premium Payment Date. The

47
<PAGE>
reinstatement will be effective on the Monthly Payment Date following the date
you submit the following to the Company: (1) a written application for
reinstatement; (2) Evidence of Insurability showing that the Insured is
insurable according to the Company's underwriting rules; and (3) a premium that,
after the deduction of the premium tax charge, is large enough to cover the
Monthly Deductions for the three-month period beginning on the date of
reinstatement.

POLICY SURRENDER CHARGE

The surrender charge on the date of reinstatement is the surrender charge which
should have been in effect had the Policy remained in force from the Date of
Issue.

POLICY VALUE ON REINSTATEMENT

The Policy Value on the date of reinstatement is:

- - the Net Premium paid to reinstate the 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, 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 the Policy. The Policyowner is generally 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 the 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.

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 rider or any increase in the Face Amount
after such rider or increase 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

48
<PAGE>
for the Policy, without interest, less any outstanding Debt and less 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

If the Insured's Age as stated in the application for a Policy is not correct,
benefits under a Policy will be adjusted to reflect the correct Age, if death
occurs prior to 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. In no event will the Sum Insured be reduced to less than the
Guideline Minimum Sum Insured.

ASSIGNMENT

The Policyowner may assign a Policy as collateral or make an absolute assignment
of the Policy. All rights under the 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: (1) the New York Stock Exchange is closed
for other than customary weekend and holiday closings, or trading on the New
York Stock Exchange is restricted as determined by the SEC, or (2) 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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<PAGE>
DIRECTORS AND 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., an indirect 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 independent broker-dealers.

The Company pays commissions, based on a commission schedule, to registered
representatives who sell the Policy. After issue of the Policy or an increase in
Face Amount, commissions may be up to 30% of first-year

50
<PAGE>
premiums. Thereafter, commissions may be up to 15% of any additional premiums.
Alternative commission schedules are available with lower initial commission
amounts based on premium payments, plus ongoing annual compensation of up to
0.50% of Policy Value. 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 may also receive overriding commissions, which
will not exceed 2.5% of first-year or 4% of renewal premiums.

To the extent permitted by NASD rules, promotional incentives or payments may
also be provided to broker-dealers based on sales volumes, the assumption of
wholesaling functions or other sales-related criteria. Other payments may be
made for other services that do not directly involve the sale of the Policies.
These services may include the recruitment and training of personnel,
productions of promotional literature, and similar services.

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 the Policyowner
or to the Separate 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
investment advisers or other service providers of other Underlying Funds.

REPORTS

The Company will maintain the records relating to the VEL Account. You will be
promptly sent statements of significant transactions such as premium payments
(other than payments made pursuant to the MAP procedure), 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. An annual
statement will also 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 will also 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.

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<PAGE>
FURTHER INFORMATION

A Registration Statement under the 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted from this Prospectus pursuant to the rules and
regulations of the SEC. Statements contained in this Prospectus concerning the
Policy and other legal documents are summaries. The complete documents and
omitted information may be obtained from the SEC'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 Plus Account of the Company at December 31, 1996 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 a 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 are currently interpreted. From time to time
legislation is proposed which, if passed, could significantly, adversely and
possibly retroactively affect the taxation of the Policies. 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 the Policies 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 should always 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 these expectations, no charge is
made for federal income taxes which may be attributable to the VEL Account.

The Company will review periodically 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 is ultimately 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 may also 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.

52
<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 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, the Policies may need to be modified to comply with such
regulations. For these reasons, the Policies 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 the Policy may have tax consequences. In
particular, under specified conditions, a distribution under the Policy during
the first 15 years from Date of Issue that reduces future benefits under the
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 the 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 ("1988 Act") adversely
affects the tax treatment of distributions under so-called "modified endowment
contracts." Under the 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 fails to satisfy the seven-pay test if the
cumulative premiums paid under the

53
<PAGE>
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 under
the policy will be taxed on an "income first" basis. Most distributions received
by a policyowner directly or indirectly (including loans, withdrawals, partial
surrenders, or the assignment or pledge of any portion of the value of the
policy) will be includible in gross income to the extent that the cash surrender
value of the policy exceeds the policyowner's investment in the contract. 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 the 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 permanently classified 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 the 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 VALUE

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. However, the excess interest rate, if any,
in effect on the date a premium is received at the Principal Office is
guaranteed on that premium for one year, unless the Policy Value associated with
the premium becomes security for a Policy loan.

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<PAGE>

AFTER SUCH INITIAL ONE-YEAR GUARANTEE OF INTEREST ON NET PREMIUM, ANY INTEREST
CREDITED ON THE POLICY 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.

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 Debt. However, such Policy Value 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 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 POLICY

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

TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND POLICY LOANS

If a Policy is surrendered or if a partial withdrawal is made, a surrender
charge or partial withdrawal charge, as applicable, is imposed if such event
occurs before the Policy, or an increase in Face Amount, has been in force for
ten policy years. In the event of a decrease in 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
Policy Value allocated to the General Account.

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

Transfers, surrenders, partial withdrawals, Death Proceeds and Policy loans
payable from the General Account may be delayed up to 12 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 3.5% 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 VEL Account and the Company are included in this
Prospectus beginning immediately after this section. The financial statements of
the Company which are included in this Prospectus should be considered only as
bearing on the ability of the Company to meet its obligations under the Policy.
They should not be considered as bearing on the investment performance of the
assets held in the VEL Account.

55
<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 as defined

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

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) -- --
Real estate and other invested assets.... (11,929) (24,544) (2,392)
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.

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 funded by

F-52
<PAGE>
VEL ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

NOTE 4 -- RELATED PARTY TRANSACTIONS (CONTINUED)
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 the Policies
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 the Policy to insure a different person,
subject to Company guidelines.

LIVING BENEFITS RIDER

This rider permits part of the proceeds of the Policy to be available before
death if the Insured becomes terminally ill or is permanently confined to a
nursing home.

EXCHANGE TO TERM INSURANCE RIDER

This rider allows a Policy Owner which is a corporation or corporate grantor
trust to exchange the Policy prior to the third Policy anniversary for a
five-year non-convertible term insurance policy. An exchange credit will be
paid to the Policy Owner. This rider may not be available in all states.

A-1
<PAGE>
APPENDIX B -- 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 would otherwise 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 Policies; or

- - the rate in the Policy for the applicable payment option.

The following payment options are currently available. The amounts payable under
these options are paid from the General Account. None is based on the investment
experience of the Variable 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),

(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 3.5%.
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 3.5%. 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;

(2) in an amount equal to two-thirds of the original amount; or

(3) in an amount equal to one-half-half of the original amount.

Payments under Option E 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 becomes 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 this 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. However, should a payee under Option B or E die prior to the due
date of the second monthly payment, 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 Policy's Sum Insured and
Policy Value could vary over an extended period of time.

ASSUMPTIONS

The tables illustrate a Policy issued to a male, Age 30, under a standard
Premium Class and qualifying for the non-smoker discount, and a Policy issued to
a male, Age 45, under a standard Premium Class and qualifying for the non-smoker
discount. In each case, one table illustrates the guaranteed cost of insurance
rates and the other table illustrates the current cost of insurance rates as
presently in effect.

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
shows 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 Policy Values take into account the
deduction from premium for the premium tax charge, the Monthly Deduction from
Policy Value, and the daily charge against the VEL Account for mortality and
expense risks equivalent to an effective annual rate of 0.65% of the average
daily value of the assets in the VEL Account attributable to the Policies. 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
0.36% to an annual rate of 1.35% of average daily net assets. The fees and
expenses associated with your Policy may be more or less than 0.85% in the
aggregate, depending upon how you make allocations of Policy Value among the
Sub-Accounts.

EXPENSES OF THE UNDERLYING FUNDS

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
Aggressive Growth Fund and Select Capital Appreciation 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. FMR has voluntarily agreed to temporarily limit
the total operating expenses (excluding interest, taxes, brokerage commissions
and extraordinary expenses) of the Equity-Income, Growth and Overseas Portfolios
to an annual rate of 1.50%, and of the High Income Portfolio to an annual rate
of 1.00%, and of the Asset Manager Portfolio to an annual rate of 1.25%, of each
Portfolio's average net assets. The total operating expenses of the Portfolios
of Fidelity VIP and Fidelity VIP II were less than their respective caps in
1996. Delaware International has

A-4
<PAGE>
agreed voluntarily 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. In 1996 the expenses of the Underlying Funds did not exceed their
respective caps.

NET ANNUAL RATES OF INVESTMENT

Taking into account the 0.65% charge to the VEL Account 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 -1.50%, 4.50% and 10.50%, respectively.

The hypothetical returns shown in the table 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
VARIABLE EXCEPTIONAL LIFE POLICY

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 AT --------------------------------- --------------------------------- ---------------------------------
POLICY 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --------- ----------- ----------- --------- --------- ----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 193 3,536 250,000 423 3,766 250,000 654 3,996 250,000
2 9,040 3,651 6,994 250,000 4,334 7,677 250,000 5,045 8,388 250,000
3 13,903 7,030 10,373 250,000 8,394 11,737 250,000 9,872 13,215 250,000
4 19,008 10,461 13,670 250,000 12,741 15,950 250,000 15,312 18,521 250,000
5 24,368 14,077 16,885 250,000 17,515 20,323 250,000 21,551 24,359 250,000

6 29,996 17,610 20,017 250,000 22,456 24,863 250,000 28,378 30,785 250,000
7 35,906 21,052 23,058 250,000 27,562 29,568 250,000 35,850 37,856 250,000
8 42,112 24,405 26,010 250,000 32,844 34,449 250,000 44,040 45,645 250,000
9 48,627 27,667 28,870 250,000 38,309 39,512 250,000 53,027 54,231 250,000
10 55,469 30,833 31,635 250,000 43,961 44,763 250,000 62,898 63,700 250,000

11 62,652 34,300 34,300 250,000 50,208 50,208 250,000 74,149 74,149 250,000
12 70,195 36,830 36,830 250,000 55,824 55,824 250,000 85,663 85,663 250,000
13 78,114 39,221 39,221 250,000 61,618 61,618 250,000 98,365 98,365 250,000
14 86,430 41,476 41,476 250,000 67,606 67,606 250,000 112,404 112,404 250,000
15 95,161 43,586 43,586 250,000 73,793 73,793 250,000 127,936 127,936 250,000

16 104,330 45,538 45,538 250,000 80,183 80,183 250,000 145,142 145,142 250,000
17 113,956 47,354 47,354 250,000 86,812 86,812 250,000 164,247 164,247 250,000
18 124,064 49,022 49,022 250,000 93,687 93,687 250,000 185,488 185,488 250,000
19 134,677 50,527 50,527 250,000 100,819 100,819 250,000 209,122 209,122 259,312
20 145,820 51,854 51,854 250,000 108,219 108,219 250,000 235,257 235,257 287,013

Age 60 95,161 43,586 43,586 250,000 73,793 73,793 250,000 127,936 127,936 250,000
Age 65 142,820 51,854 51,854 250,000 108,219 108,219 250,000 235,257 235,257 287,013
Age 70 210,477 54,865 54,865 250,000 149,669 149,669 250,000 412,104 412,104 478,041
Age 75 292,995 49,603 49,603 250,000 201,650 201,650 250,000 701,510 701,510 750,616
</TABLE>

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.

Assumes that no Policy loan has been made. Excessive loans or withdrawals may
cause the 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 REPRESENTATIVES 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
VARIABLE EXCEPTIONAL LIFE POLICY

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
INTEREST AT --------------------------------- --------------------------------- ---------------------------------
POLICY 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --------- ----------- ----------- --------- --------- ----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 0 3,201 250,000 77 3,420 250,000 297 3,640 250,000
2 9,040 2,963 6,306 250,000 3,604 6,946 250,000 4,271 7,614 250,000
3 13,903 5,971 9,314 250,000 7,239 10,581 250,000 8,614 11,957 250,000
4 19,008 9,009 12,218 250,000 11,114 14,323 250,000 13,493 16,702 250,000
5 24,368 12,210 15,018 250,000 15,368 18,176 250,000 19,085 21,893 250,000

6 29,996 15,303 17,710 250,000 19,735 22,142 250,000 25,169 27,576 250,000
7 35,906 18,275 20,281 250,000 24,208 26,214 250,000 31,790 33,795 250,000
8 42,112 21,118 22,723 250,000 28,783 30,388 250,000 38,999 40,604 250,000
9 48,627 23,819 25,023 250,000 33,455 34,658 250,000 46,856 48,059 250,000
10 55,469 26,365 27,167 250,000 38,215 39,018 250,000 55,424 56,227 250,000

11 62,652 29,148 29,148 250,000 43,465 43,465 250,000 65,187 65,187 250,000
12 70,195 30,956 30,956 250,000 48,000 48,000 250,000 75,034 75,034 250,000
13 78,114 32,582 32,582 250,000 52,620 52,620 250,000 85,872 85,872 250,000
14 86,430 34,019 34,019 250,000 57,327 57,327 250,000 97,827 97,827 250,000
15 95,161 35,253 35,253 250,000 62,122 62,122 250,000 111,040 111,040 250,000

16 104,330 36,259 36,259 250,000 66,992 66,992 250,000 125,665 125,665 250,000
17 113,956 37,015 37,015 250,000 71,929 71,929 250,000 141,891 141,891 250,000
18 124,064 37,485 37,485 250,000 76,919 76,919 250,000 159,930 159,930 250,000
19 134,677 37,621 37,621 250,000 81,937 81,937 250,000 180,037 180,037 250,000
20 145,820 37,381 37,381 250,000 86,969 86,969 250,000 202,524 202,524 250,000

Age 60 95,161 35,253 35,253 250,000 62,122 62,122 250,000 111,040 111,040 250,000
Age 65 142,820 37,381 37,381 250,000 86,969 86,969 250,000 202,524 202,524 250,000
Age 70 210,477 29,094 29,094 250,000 112,109 112,109 250,000 355,310 355,310 412,160
Age 75 292,995 1,229 1,229 250,000 135,915 135,915 250,000 602,932 602,932 645,137
</TABLE>

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.

Assumes that no Policy loan has been made. Excessive loans or withdrawals may
cause the Policy to lapse because of insufficient Policy Value

A-7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARIABLE EXCEPTIONAL LIFE POLICY

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 VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --------- ----------- ----------- --------- --------- ----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 406 1,233 76,233 484 1,311 76,311 563 1,390 76,390
2 3,014 1,620 2,447 77,447 1,854 2,681 77,681 2,098 2,925 77,925
3 4,634 2,816 3,643 78,643 3,286 4,113 79,113 3,795 4,622 79,622
4 6,336 4,026 4,820 79,820 4,815 5,609 80,609 5,703 6,497 81,497
5 8,123 5,283 5,978 80,978 6,475 7,170 82,170 7,872 8,567 83,567

6 9,999 6,521 7,116 82,116 8,205 8,800 83,800 10,258 10,854 85,854
7 11,969 7,739 8,235 83,235 10,005 10,501 85,501 12,882 13,379 88,379
8 14,037 8,937 9,334 84,334 11,879 12,276 87,276 15,770 16,167 91,167
9 16,209 10,114 10,412 85,412 13,829 14,127 89,127 18,946 19,244 94,244
10 18,490 11,270 11,468 86,468 15,858 16,057 91,057 22,443 22,641 97,641

11 20,884 12,504 12,504 87,504 18,069 18,069 93,069 26,392 26,392 101,392
12 23,398 13,517 13,517 88,517 20,165 20,165 95,165 30,531 30,531 105,531
13 26,038 14,508 14,508 89,508 22,350 22,350 97,350 35,102 35,102 110,102
14 28,810 15,477 15,477 90,477 24,626 24,626 99,626 40,147 40,147 115,147
15 31,720 16,423 16,423 91,423 26,998 26,998 101,998 45,718 45,718 120,718

16 34,777 17,346 17,346 92,346 29,468 29,468 104,468 51,868 51,868 126,868
17 37,985 18,244 18,244 93,244 32,041 32,041 107,041 58,659 58,659 133,659
18 41,355 19,118 19,118 94,118 34,719 34,719 109,719 66,156 66,156 141,156
19 44,892 19,967 19,967 94,967 37,507 37,507 112,507 74,435 74,435 149,435
20 48,607 20,790 20,790 95,790 40,409 40,409 115,409 83,575 83,575 159,629

Age 60 97,665 27,181 27,181 102,181 76,397 76,397 151,397 247,354 247,354 331,454
Age 65 132,771 28,533 28,533 103,533 99,635 99,635 174,635 413,827 413,827 504,869
Age 70 177,576 27,884 27,884 102,884 126,545 126,545 201,545 685,427 685,427 795,095
Age 75 234,759 24,205 24,205 99,205 156,689 156,689 231,689 1,129,869 1,129,869 1,208,960
</TABLE>

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.

Assumes that no Policy loan has been made. Excessive loans or withdrawals may
cause the Policy to lapse because of insufficient Policy Value

A-8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARIABLE EXCEPTIONAL LIFE POLICY

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 VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --------- ----------- ----------- --------- ----------- ----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 362 1,189 76,189 439 1,266 76,266 516 1,343 76,343
2 3,014 1,532 2,359 77,359 1,761 2,588 77,588 1,999 2,826 77,826
3 4,634 2,683 3,511 78,511 3,141 3,968 78,968 3,637 4,464 79,464
4 6,336 3,849 4,643 79,643 4,615 5,409 80,409 5,478 6,272 81,272
5 8,123 5,059 5,754 80,754 6,215 6,910 81,910 7,571 8,266 83,266

6 9,999 6,249 6,844 81,844 7,880 8,475 83,475 9,870 10,466 85,466
7 11,969 7,416 7,913 82,913 9,610 10,106 85,106 12,396 12,892 87,892
8 14,037 8,562 8,959 83,959 11,407 11,804 86,804 15,171 15,568 90,568
9 16,209 9,683 9,981 84,981 13,272 13,569 88,569 18,219 18,516 93,516
10 18,490 10,779 10,978 85,978 15,207 15,406 90,406 21,568 21,767 96,767

11 20,884 11,950 11,950 86,950 17,315 17,315 92,315 25,349 25,349 100,349
12 23,398 12,894 12,894 87,894 19,298 19,298 94,298 29,298 29,298 104,298
13 26,038 13,813 13,813 88,813 21,359 21,359 96,359 33,651 33,651 108,651
14 28,810 14,704 14,704 89,704 23,499 23,499 98,499 38,449 38,449 113,449
15 31,720 15,567 15,567 90,567 25,722 25,722 100,722 43,740 43,740 118,740

16 34,777 16,399 16,399 91,399 28,028 28,028 103,028 49,572 49,572 124,572
17 37,985 17,201 17,201 92,201 30,421 30,421 105,421 56,002 56,002 131,002
18 41,355 17,972 17,972 92,972 32,903 32,903 107,903 63,092 63,092 138,092
19 44,892 18,708 18,708 93,708 35,475 35,475 110,475 70,909 70,909 145,909
20 48,607 19,410 19,410 94,410 38,140 38,140 113,140 79,529 79,529 154,529

Age 60 97,665 23,764 23,764 98,764 69,954 69,954 144,954 232,642 232,642 311,740
Age 65 132,771 23,127 23,127 98,127 89,018 89,018 164,018 386,691 386,691 471,764
Age 70 177,576 19,005 19,005 94,005 108,826 108,826 183,826 635,074 635,074 736,686
Age 75 234,759 9,309 9,309 84,309 126,909 126,909 201,909 1,037,284 1,037,284 1,112,284
</TABLE>

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.

Assumes that no Policy loan has been made. Excessive loans or withdrawals may
cause the Policy to lapse because of insufficient Policy Value

A-9
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARIABLE EXCEPTIONAL LIFE PLUS

UNISEX NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT = $250,000
SUM INSURED OPTION 3

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 ----------------------------------- ----------------------------------- ------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ---------- ----------- ----------- ----------- --------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,818 8,756 12,198 250,000 9,514 12,956 250,000 10,272 13,714
2 28,327 20,760 24,202 250,000 23,044 26,486 250,000 25,420 28,862
3 43,561 32,576 36,018 250,000 31,179 40,621 250,000 42,159 45,601
4 59,557 44,341 47,646 250,000 52,083 55,388 250,000 60,797 64,102
5 76,353 56,199 59,091 250,000 67,930 70,822 250,000 81,668 84,560

6 93,989 67,878 70,357 250,000 84,478 86,957 250,000 104,648 107,127
7 112,506 79,380 81,445 250,000 101,719 103,784 269,838 129,860 131,925
8 131,950 90,707 92,359 250,000 119,614 121,266 305,590 157,520 159,172
9 152,365 101,852 103,091 251,541 138,187 139,426 340,199 187,866 189,105
10 173,801 113,588 113,588 269,204 158,280 158,280 375,124 221,977 221,977

11 196,309 123,853 123,853 284,863 177,850 177,850 409,055 258,067 258,067
12 219,943 133,865 133,865 298,518 198,122 198,122 441,813 297,629 297,629
13 244,758 143,623 143,623 310,226 219,115 219,115 473,289 340,985 340,985
14 270,814 153,132 153,132 321,577 240,850 240,850 505,784 388,489 388,489
15 298,173 162,390 162,390 331,276 263,338 263,338 537,210 440,515 440,515

16 326,899 171,385 171,385 341,056 286,576 286,576 570,287 497,436 497,436
17 357,062 180,158 180,158 347,704 310,646 310,646 599,547 559,814 559,814
18 388,733 188,695 188,695 354,747 335,545 335,545 630,825 628,110 628,110
19 421,988 196,998 196,998 360,507 361,291 361,291 661,163 702,861 702,861
20 456,905 205,070 205,070 365,024 387,906 387,906 690,473 784,661 784,661

Age 60 298,173 162,390 162,390 331,276 263,338 263,338 537,210 440,515 440,515
Age 65 456,905 205,070 205,070 365,024 387,906 387,906 690,473 784,661 784,661
Age 70 659,493 241,527 241,527 381,613 533,607 533,607 843,099 1,321,111 1,321,111
Age 75 918,052 271,856 271,856 386,036 701,774 701,774 996,520 2,149,046 2,149,046

CERTIFICAT DEATH
YEAR BENEFIT
- ---------- ---------
<S> <C>
1 250,000
2 250,000
3 250,000
4 250,000
5 250,000
6 287,100
7 343,004
8 401,112
9 461,417
10 526,086
11 593,553
12 663,712
13 736,527
14 815,827
15 898,651
16 989,897
17 1,080,441
18 1,180,847
19 1,286,236
20 1,396,697
Age 60 898,651
Age 65 1,396,697
Age 70 2,087,355
Age 75 3,051,645
</TABLE>

(1) Assumes a $13,160 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 POLICY OWNER,
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 REPRESENTATIVES 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-10
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARIABLE EXCEPTIONAL LIFE PLUS

UNISEX NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT = $250,000
SUM INSURED OPTION 3

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 ----------------------------------- ----------------------------------- ------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ---------- ----------- ----------- ----------- --------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,818 8,432 11,874 250,000 9,180 12,622 250,000 9,929 13,371
2 28,327 20,110 23,552 250,000 22,356 25,798 250,000 24,692 28,134
3 43,561 31,596 35,038 250,000 36,114 39,556 250,000 41,004 44,446
4 59,557 43,027 46,332 250,000 50,620 53,925 250,000 59,171 62,476
5 76,353 54,549 57,441 250,000 66,051 68,943 250,000 79,531 82,423

6 93,989 65,889 68,368 250,000 82,166 84,645 250,000 101,945 104,424
7 112,506 77,047 79,112 250,000 98,961 101,026 262,669 126,438 128,503
8 131,950 88,023 89,675 250,000 116,315 117,967 297,277 153,192 154,844
9 152,365 98,819 100,058 250,000 134,235 135,474 330,556 182,400 183,639
10 173,801 110,164 110,164 261,088 153,540 153,540 363,891 215,084 215,084

11 196,309 119,977 119,977 275,947 172,175 172,175 396,003 249,407 249,407
12 219,943 129,500 129,500 288,785 191,387 191,387 426,792 286,857 286,857
13 244,758 138,737 138,737 299,672 211,186 211,186 456,163 327,706 327,706
14 270,814 147,683 147,683 310,134 231,570 231,570 486,298 372,228 372,228
15 298,173 156,342 156,342 318,938 252,549 252,549 515,200 420,739 420,739

16 326,899 164,692 164,692 327,737 274,086 274,086 545,432 473,501 473,501
17 357,062 172,754 172,754 333,415 296,217 296,217 571,698 530,918 530,918
18 388,733 180,501 180,501 339,342 318,890 318,890 599,513 593,276 593,276
19 421,988 187,924 187,924 343,900 342,080 342,380 626,007 660,918 660,918
20 456,905 195,021 195,021 347,138 365,775 365,775 651,080 734,235 734,235

Age 60 298,173 156,342 156,342 318,938 252,549 252,549 515,200 420,739 420,739
Age 65 456,905 195,021 195,021 347,138 365,775 365,775 651,080 734,235 734,235
Age 70 659,493 225,530 225,530 356,337 490,936 490,936 775,678 1,200,581 1,200,581
Age 75 918,052 247,861 247,861 351,963 624,920 624,920 887,386 1,879,156 1,879,156

CERTIFICAT DEATH
YEAR BENEFIT
- ---------- ---------
<S> <C>
1 250,000
2 250,000
3 250,000
4 250,000
5 250,000
6 279,857
7 334,109
8 390,206
9 448,079
10 509,749
11 573,637
12 639,690
13 707,845
14 781,678
15 858,307
16 942,266
17 1,024,673
18 1,115,359
19 1,209,479
20 1,306,939
Age 60 858,307
Age 65 1,306,939
Age 70 1,896,918
Age 75 2,668,401
</TABLE>

(1) Assumes a $13,160 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 POLICY OWNER,
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 REPRESENTATIVES 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-11
<PAGE>
APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES

A separate surrender charge is calculated upon issuance of the Policy and upon
each increase in Face Amount. The maximum surrender charge calculated upon
issuance of the 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>
<S> <C> <C>
Maximum surrender charge = (8.5 X Face Amount ) + (0.3 X Guideline Annual Premium)
------------
1000
</TABLE>

In accordance with limitations under state insurance regulations, the amount of
the maximum surrender charges at certain Ages will not exceed a specified amount
per $1,000 of initial Face Amount (or increase in Face Amount) as shown below.

The maximum surrender charge remains level for the first 44 Policy months,
reduces by 1% per month for the next 76 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) as indicated in the table below.

MAXIMUM SURRENDER CHARGE PER $1,000 FACE AMOUNT

<TABLE>
<CAPTION>
Age at Age at
issue or Unisex Unisex issue or Unisex Unisex
increase Nonsmoker Smoker increase Nonsmoker Smoker
- ------------- ------------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
0 7.53 41 12.88 14.18
1 7.54 42 13.08 14.46
2 7.66 43 13.30 14.75
3 7.79 44 13.53 15.05
4 7.93 45 13.77 15.37
5 8.08 46 14.03 15.71
6 8.24 47 14.31 16.07
7 8.40 48 14.60 16.45
8 8.57 49 14.91 16.85
9 8.76 50 15.24 17.27
10 8.96 51 15.59 17.72
11 9.16 52 15.97 18.20
12 9.38 53 16.37 18.70
13 9.60 54 16.80 19.23
14 9.83 55 17.25 19.80
15 10.07 56 17.73 20.39
16 10.30 57 18.25 21.01
17 10.53 58 18.80 21.68
18 9.91 10.77 59 19.39 22.38
19 10.06 10.84 60 20.02 23.14
20 10.22 0.92 61 20.70 23.94
21 10.39 10.99 62 21.42 24.79
22 10.57 11.08 63 22.20 25.70
23 10.64 11.16 64 23.04 26.66
24 10.71 11.26 65 23.93 27.67
25 10.78 11.36 66 24.88 28.74
</TABLE>

A-12
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM SURRENDER CHARGE PER $1,000 FACE AMOUNT (Continued)
Age at Age at
issue or Unisex Unisex issue or Unisex Unisex
increase Nonsmoker Smoker increase Nonsmoker Smoker
- ------------- ------------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
26 10.86 11.46 67 25.90 29.87
27 10.95 11.58 68 27.00 31.07
28 11.04 11.70 69 28.18 32.35
29 11.14 11.83 70 29.46 33.73
30 11.24 11.97 71 30.85 35.21
31 11.35 12.12 72 32.33 36.79
32 11.47 12.28 73 33.94 38.48
33 11.59 12.44 74 35.66 40.26
34 11.72 12.62 75 37.50 42.14
35 11.86 12.81 76 39.46 44.11
36 12.01 13.01 77 41.56 45.84
37 12.16 13.22 78 43.82 45.59
38 12.32 13.44 79 44.20 45.31
39 12.50 13.67 80 43.88 45.02
40 12.68 13.92
</TABLE>

EXAMPLES

For the purposes of these examples, assume that a male, Age 45, non-smoker
purchases a $100,000 Policy. In this example the Guideline Annual Premium equals
$1,682.90. His maximum surrender charge at issue is calculated as follows:

<TABLE>
<S> <C>
(1) Deferred Administrative Charge $ 850.00
($8.50/$1,000 of Face Amount)

(2) Deferred Sales Charge $ 504.87
(30% of Guideline Annual Premium)
-----------

Maximum Surrender Charge $ 1,354.87
</TABLE>

The actual surrender charge is the smaller of the maximum surrender charge and
the following sum:

<TABLE>
<S> <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 $1,354.87. All premiums are associated with the
initial face amount unless the face amount is increased.

Example 1:

Assume the Policyowner surrenders the Policy in the tenth 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 $1,682.90 or
greater, the actual surrender charge would be $1,354.87.

A-13
<PAGE>
Example 2:

Assume the Policyowner surrenders the 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 ($13.5487 per month in this example). In this
example the maximum surrender charge would be $1,219.38. The actual surrender
charge is $1,219.38. If instead of $1,500, he had paid total premiums of less
than $1,231.27, the actual surrender charge would be less than $1,219.38.

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
Policy is increased. Assume our sample Policyowner increases his Face Amount to
$250,000 on the 25th monthly payment date at Age 47. In this example the
Guideline Annual Premium for the increase is $2,681.26.

The maximum surrender charge for the increase is $2,109.49 as calculated below:

<TABLE>
<S> <C>
(1) Deferred Administrative Charge $ 1,275.00
($8.50/$1,000 of Face Amount)

(2) Deferred Sales Charge $ 804.38
(30% of Guideline Annual Premium for the increase)
-----------

Maximum Surrender Charge $ 2,079.38
</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>
(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:

(1) Premium is allocated to the initial face amount if it is received before an
application for an increase.

(2) 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, 39.4% of premium
($1,740.95/$4,422.21) is allocated to the initial face amount and 60.6% of
premium ($2,681.26/$4,422.21) is allocated to the increase.

(3) 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 60.6% ($2,681.26/$4,422.21) of
the Policy Value will be allocated to the increase.

Continuing the example, assume that the Policyowner has paid $1,500 of premium
before and $2,000 after the effective date of the increase. Also, assume that
the Policy Value of the Policy on the effective date of the increase is $1,300.
The following values result when the 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 $1,219.38.

A-14
<PAGE>
2. The actual surrender charge is the lesser of $1,219.38 and the following
sum.

<TABLE>
<S> <C>
(a) Deferred Administrative Charge $ 850.00

(b) 30% of premium paid before the increase $ 450.00

The actual surrender charge for the initial Face Amount is thus $1,219.38.

(B) Related to the Increase in Face Amount

1. The maximum surrender charge is $2,079.38, 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 $2,079.38 and the following
sum.

<TABLE>
<S> <C>
(a) Deferred Administrative Charge $1,275.00

(b) 18.18% (.30 X .606) of the $1,300 Policy value on the $ 236.34
effective date of the increase

The surrender charge for the increase in Face Amount is $1,874.94. 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 $3,094.32 (the sum of $1,219.38 + $1,874.94).

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 Policy in the 54th Policy month, the maximum
surrender charge for the increase is $2,036.88 (the difference of $2,079.38 -
$42.50) and the actual surrender charge for the increase is $1,932.44 (the
difference of $1,874.94 - $42.50).

The total surrender charge on the Policy is $3,051.82 (the sum of $1,219.38 +
$1,832.44).

A-15