SEPARATE ACCT VA K OF FIRST ALLMERICA FINANCIAL LIFE INS CO, N-4/A, 2000-09-01

SEPARATE ACCT VA K OF FIRST ALLMERICA FINANCIAL LIFE INS CO
N-4/A, 2000-09-01

Previous: AMVESCAP PLC/LONDON/, 6-K, 2000-09-01

Next: SEPARATE ACCT VA K OF FIRST ALLMERICA FINANCIAL LIFE INS CO, N-4/A, EX-3.(D), 2000-09-01

<PAGE>

File Nos. 333-38276
811-8114

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-4

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1933
Pre-Effective Amendment No. 1

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 33

SEPARATE ACCOUNT VA-K OF
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Exact Name of Registrant)

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

Charles F. Cronin, Secretary
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester MA 01653
(Name and Address of Agent for Service of Process)

It is proposed that this filing will become effective:

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

VARIABLE ANNUITY CONTRACTS

Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940 ("1940
Act"), Registrant hereby declares that an indefinite amount of its securities is
being registered under the Securities Act of 1933 ("1933 Act"). No filing fee is
submitted as a filing fee is not required for this type of filing. The Rule
24f-2 Notice for the issuer's fiscal year ended December 31, 1999 was filed on
or before March 30, 2000.

Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall

<PAGE>

become effective in accordance with section 8(a) of the Securities Act of
1933 or until this Registration Statement shall become effective on such date or
dates as the Commission, acting pursuant to said section 8(a), may determine.

<PAGE>

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

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

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

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

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

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

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

7...........................Description of the Contract - The Accumulation Phase

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

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

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

11..........................Surrender and Withdrawals; Surrender Charge; Withdrawals After the Annuity Date

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

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

14..........................Statement of Additional Information - Table of Contents
</TABLE>

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

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

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

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

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

20..................................Underwriters
</TABLE>

<PAGE>

<TABLE>
<S> <C>
21..................................Performance Information

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

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

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

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

A Statement of Additional Information dated ____________, 2000 containing more
information about this annuity is on file with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. A copy may be
obtained free of charge by calling Allmerica Investments, Inc. at
1-800-533-7881. The Table of Contents of the Statement of Additional Information
is listed on page 4 of this Prospectus. This Prospectus and the Statement of
Additional Information can also be obtained from the Securities and Exchange
Commission's website (http://www.sec.gov).

The Variable Account, known as Separate Account VA-K, is subdivided into
Sub-Accounts. Each Sub-Account invests exclusively in shares of one of the
following funds:

<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
AIT Core Equity Fund (SERVICE CLASS 2)
AIT Equity Index Fund Fidelity VIP II Asset Manager Portfolio
AIT Government Bond Fund
AIT Money Market Fund FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
AIT Select Aggressive Growth Fund (SERVICE CLASS 2)
AIT Select Capital Appreciation Fund Fidelity VIP III Growth Opportunities Portfolio
AIT Select Emerging Markets Fund
AIT Select Growth Fund FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
AIT Select Growth and Income Fund (CLASS 2)
AIT Select International Equity Fund Franklin Natural Resources Securities Fund
AIT Select Investment Grade Income Fund Franklin Small Cap Fund
AIT Select Strategic Growth Fund
AIT Select Value Opportunity Fund INVESCO VARIABLE INVESTMENT FUNDS, INC.
AIM VARIABLE INSURANCE FUNDS INVESCO VIF Health Sciences Fund
AIM V.I. Aggressive Growth Fund JANUS ASPEN SERIES (SERVICE SHARES)
AIM V.I. Value Fund Janus Aspen Growth Portfolio
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC. Janus Aspen Growth and Income Portfolio
(CLASS B) KEMPER VARIABLE SERIES
Alliance Growth and Income Portfolio KVS Dreman Financial Services Portfolio
Alliance Premier Growth Portfolio Kemper Technology Growth Portfolio
DELAWARE GROUP PREMIUM FUND PIONEER VARIABLE CONTRACTS TRUST (CLASS II)
(SERVICE CLASS) Pioneer Emerging Markets VCT Portfolio
DGPF International Equity Series Pioneer Real Estate Growth VCT Portfolio
DGPF Growth Opportunities Series T. ROWE PRICE INTERNATIONAL SERIES, INC.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND T. Rowe Price International Stock Portfolio
(SERVICE CLASS 2)
Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP High Income Portfolio
Fidelity VIP Overseas Portfolio
</TABLE>

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

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

DATED ______, 2000
<PAGE>

In most jurisdictions, values may also be allocated on a fixed basis to the
Fixed Account, which is part of the Company's General Account. The Fixed Account
is an investment option that pays an interest rate guaranteed for one year from
the time a payment is received. Another investment option, the Guarantee Period
Accounts, offers fixed rates of interest for specified periods. Guarantee Period
Accounts may not be available in all states. A Market Value Adjustment is
applied to payments removed from a Guarantee Period Account before the end of
the specified period. The Market Value Adjustment may be positive or negative.
Payments allocated to a Guarantee Period Account are held in the Company's
Separate Account GPA (except in California where they are allocated to the
General Account).

We offer a variety of fixed and variable annuity contracts. They may offer
features, including investment options, fees and/or charges that are different
from those in the contracts offered by this Prospectus. The contracts may be
offered through different distributors. Upon request, your financial
representative can show you information regarding other annuity contracts
offered by the Company. You can also contact us directly to find out more about
these annuity contracts.

<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
SPECIAL TERMS............................................... 5
SUMMARY OF FEES AND EXPENSES................................ 7
SUMMARY OF CONTRACT FEATURES................................ 17
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS, AND THE
UNDERLYING INVESTMENT COMPANIES............................ 22
INVESTMENT OBJECTIVES AND POLICIES.......................... 26
DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE....... 29
A. Payments............................................. 29
B. Computation of Values................................ 29
The Accumulation Unit............................... 30
Net Investment Factor............................... 30
C. Right to Cancel...................................... 30
D. Transfer Privilege................................... 31
Automatic Transfers (Dollar Cost Averaging)......... 31
Automatic Account Rebalancing....................... 32
E. Surrender and Withdrawals............................ 32
Systematic Withdrawals.............................. 33
Life Expectancy Distributions....................... 33
Systematic Level Free of Surrender Charge Withdrawal
Program............................................. 34
F. Death Benefit........................................ 34
Standard Death Benefit.............................. 34
Optional Enhanced Death Benefit Rider............... 35
Payment of the Death Benefit Prior to the Annuity
Date................................................ 35
G. The Spouse of the Owner as Beneficiary............... 36
H. Optional Minimum Guaranteed Annuity Payout (M-GAP)
Rider................................................... 36
I. Assignment........................................... 38
ANNUITIZATION -- THE PAYOUT PHASE........................... 39
A. Electing the Annuity Date............................ 39
B. Choosing the Annuity Payout Option................... 39
Fixed Annuity Payout Options........................ 40
Variable Annuity Payout Options..................... 40
C. Description of Annuity Payout Options................ 40
D. Variable Annuity Benefit Payments.................... 41
The Annuity Unit.................................... 41
Determination of the First Annuity Benefit
Payment............................................. 42
Determination of the Number of Annuity Units........ 42
Dollar Amount of Subsequent Variable Annuity Benefit
Payments............................................ 42
Payment of Annuity Benefit Payments................. 42
E. Transfers of Annuity Units........................... 43
F. Withdrawals After the Annuity Date................... 43
Calculation of Proportionate Reduction.............. 44
Calculation of Present Value........................ 45
Deferral of Withdrawals............................. 46
G. Reversal of Annuitization............................ 47
H. NORRIS Decision...................................... 47
CHARGES AND DEDUCTIONS...................................... 48
A. Variable Account Deductions.......................... 48
Mortality and Expense Risk Charge................... 48
Administrative Expense Charge....................... 48
Other Charges....................................... 48
B. Contract Fee......................................... 49
</TABLE>

3
<PAGE>
<TABLE>
<S> <C>
C. Optional Rider Charges............................... 49
D. Premium Taxes........................................ 49
E. Surrender Charge..................................... 50
Calculation of Surrender Charge..................... 50
Withdrawal Without Surrender Charge................. 51
Effect of Withdrawal Without Surrender Charge
Amount.............................................. 53
Reduction or Elimination of Surrender Charge and
Additional Amounts Credited......................... 54
F. Transfer Charge...................................... 55
G. Withdrawal Adjustment Charge......................... 55
GUARANTEE PERIOD ACCOUNTS................................... 57
FEDERAL TAX CONSIDERATIONS.................................. 59
A. General.............................................. 59
The Company......................................... 59
Diversification Requirements........................ 59
Investor Control.................................... 59
B. Qualified and Non-Qualified Contracts................ 60
C. Taxation of the Contract in General.................. 60
Withdrawals Prior to Annuitization.................. 60
Withdrawals After Annuitization..................... 60
Annuity Payouts After Annuitization................. 61
Penalty on Distribution............................. 61
Assignments or Transfers............................ 61
Nonnatural Owners................................... 61
Deferred Compensation Plans of State and Local
Government and Tax-Exempt Organizations............. 62
D. Tax Withholding...................................... 62
E. Individual Retirement Annuities...................... 62
STATEMENTS AND REPORTS...................................... 62
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS........... 63
CHANGES TO COMPLY WITH LAW AND AMENDMENTS................... 64
VOTING RIGHTS............................................... 64
DISTRIBUTION................................................ 64
LEGAL MATTERS............................................... 65
FURTHER INFORMATION......................................... 65
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT...... A-1
APPENDIX B -- PERFORMANCE INFORMATION....................... B-1
APPENDIX C -- SURRENDER CHARGES AND THE MARKET VALUE
ADJUSTMENT................................................. C-1
APPENDIX D -- CONDENSED FINANCIAL INFORMATION............... D-1
APPENDIX E -- EXAMPLES OF PRESENT VALUE WITHDRAWALS AND
PAYMENT WITHDRAWALS........................................ E-1

STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY............................. 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE
COMPANY.................................................... 3
SERVICES.................................................... 3
UNDERWRITERS................................................ 3
ANNUITY BENEFIT PAYMENTS.................................... 4
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING)
PROGRAM.................................................... 5
PERFORMANCE INFORMATION..................................... 6
FINANCIAL STATEMENTS........................................ F-1
</TABLE>

4
<PAGE>
SPECIAL TERMS

ACCUMULATED VALUE: the total dollar amount of all values in the Sub-Accounts,
the Fixed Account and the Guarantee Period Accounts credited to the Contract on
any day before the Annuity Date.

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

ANNUITANT: the person designated in the Contract whose life is used to determine
the duration of annuity benefit payments involving a life contingency. Joint
Annuitants are permitted and, unless otherwise indicated, any reference to
Annuitant shall include Joint Annuitants.

ANNUITY BENEFIT PAYMENT CHANGE FREQUENCY: the frequency (monthly, quarterly,
semi-annually or annually) that changes due to investment performance will be
reflected in the dollar value of an annuity benefit payment under a variable
annuity payout option.

ANNUITY DATE: the date specified in the Contract or a date elected later by the
Owner to begin annuity benefit payments. This date must be at least one year
after the issue date and may not be later than the Owner's (or youngest Joint
Owner's) 99th birthday.

ANNUITY UNIT: a measure used to calculate annuity benefit payments under a
variable payout option.

ANNUITY VALUE: the value of the amount applied under an annuity payout option.

COMPANY: unless otherwise specified, any reference to the Company shall refer
exclusively to either Allmerica Financial Life Insurance and Annuity Company or
First Allmerica Financial Life Insurance Company.

CONTRACT YEAR: a period of twelve consecutive months starting on the Contract's
issue date or on any anniversary of the issue date.

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

FIXED ANNUITY PAYOUT: an annuity payout option with annuity benefit payments
that are fixed in amount and guaranteed throughout the annuity benefit payment
period.

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

GROSS PAYMENT BASE: the total of all payments invested in the Contract, less any
withdrawals that exceed the Withdrawal Without Surrender Charge amount.

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

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

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

ISSUE DATE: the date the Contract is issued and the date that is used to
determine Contract days, Contract months, Contract years and Contract
anniversaries.

5
<PAGE>
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.

OWNER (YOU): the person, persons (Joint Owners) or entity entitled to exercise
the rights and privileges under this Contract. Unless otherwise indicated, any
reference to Owner shall include Joint Owners.

SUB-ACCOUNT: a subdivision of the Variable Account investing exclusively in the
shares of a corresponding fund of Allmerica Investment Trust ("AIT"), a
corresponding fund of AIM Variable Insurance Funds ("AVIF"), a corresponding
portfolio of Alliance Variable Products Series Fund, Inc. ("Alliance"), a
corresponding series of Delaware Group Premium Fund ("DGPF"), a corresponding
portfolio of the Fidelity Variable Insurance Products Fund ("Fidelity VIP"), a
corresponding portfolio of Fidelity Variable Insurance Products Fund II
("Fidelity VIP II"), a corresponding portfolio of Fidelity Variable Insurance
Products Fund III ("Fidelity VIP III"), a corresponding fund of Franklin
Templeton Variable Insurance Products Trust ("FT VIP"), a corresponding fund of
INVESCO Variable Investment Funds, Inc. ("INVESCO VIF"), a corresponding
portfolio of Janus Aspen Series ("Janus Aspen"), a corresponding portfolio of
Kemper Variable Series ("KVS"), a corresponding portfolio of Pioneer Variable
Contracts Trust ("Pioneer VCT") or a corresponding portfolio of T. Rowe Price
International Series, Inc. ("T. Rowe Price").

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

UNDERLYING FUND (OR FUNDS): an investment portfolio of AIT, AVIF, Alliance,
DGPF, Fidelity VIP, Fidelity VIP II, Fidelity VIP III, FT VIP, INVESCO VIF,
Janus Aspen, KVS, Pioneer VCT or T. Rowe Price in which a Sub-Account invests.

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

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

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

6
<PAGE>
SUMMARY OF FEES AND EXPENSES

There are certain fees and expenses that you will incur directly or indirectly
under the Contract. The purpose of the following tables is to help you
understand these various charges. The tables show (1) charges under the
Contract, (2) annual expenses of the Sub-Accounts, and (3) annual expenses of
the Funds during the accumulation phase. In addition to the charges and expenses
described below, premium taxes are applicable in some states and are deducted as
described under "D. Premium Taxes" under CHARGES AND DEDUCTIONS.

<TABLE>
<CAPTION>
COMPLETE YEARS
FROM DATE OF
PAYMENT CHARGE
(1) CONTRACT CHARGES: -------------- ------
<S> <C> <C>
Less than 1 8.0%
Less than 2 8.0%
Less than 3 8.0%
Less than 4 7.0%
Less than 5 7.0%
Less than 6 6.0%
Less than 7 5.0%
Less than 8 3.0%
Less than 9 1.0%
Thereafter 0%
SURRENDER CHARGE:*
This charge may be assessed upon surrender, withdrawals
or reversal of annuitization. The charge is a percentage
of payments applied to the amount surrendered (in excess
of any amount that is free of surrender charge) within
the indicated time period.

None
TRANSFER CHARGE:
The Company currently does not charge for processing
transfers and guarantees that the first 12 transfers in
a Contract year will not be subject to a transfer
charge. For each subsequent transfer, the Company
reserves the right to assess a charge, guaranteed never
to exceed $25, to reimburse the Company for the costs of
processing the transfer.

$35**
ANNUAL CONTRACT FEE:
The fee is deducted annually and upon surrender prior to
the Annuity Date when Accumulated Value is less than
$75,000.

OPTIONAL RIDER CHARGE:
If an Optional Rider is elected, 1/12th of the annual
charge is deducted pro-rata from the invested accounts
on a monthly basis at the end of each Contract month. A
pro-rated charge will be deducted upon termination of
the Rider. The charge on an annual basis as a percentage
of Accumulated Value is:

1. Minimum Guaranteed Annuity Payout (M-GAP) Rider with
a ten-year waiting period: 0.35%
2. Minimum Guaranteed Annuity Payout (M-GAP) Rider with
a fifteen year waiting period: 0.20%
3. 6% Enhanced Death Benefit Rider With Annual Step-up: 0.25%
4. Enhanced Death Benefit Rider With Annual Step-up
(only available in New York): 0.15%
</TABLE>

*From time to time, the Company may reduce or eliminate the surrender charge,
the period during which it applies, or both, and/or credit additional amounts on
Contracts when Contracts are sold to individuals or groups in a manner that
reduces sales expenses or where the Owner and Annuitant on the date of issue is
within certain classes of eligible individuals. For more information see
"Reduction or Elimination of Surrender Charge and Additional Amounts Credited"
under "E. Surrender Charge" in the CHARGES AND DEDUCTIONS section.

7
<PAGE>
**The fee may be lower in some jurisdictions. See Contract Specifications for
specific charge.

WITHDRAWAL ADJUSTMENT CHARGE AFTER THE ANNUITY DATE:

During the Annuity Payout Phase, you may request withdrawals which will result
in a calculation by the Company of the Present Value of future annuity
payments. For withdrawals taken within 5 years of the Issue Date, the Assumed
Investment Return ("AIR") you have chosen (in the case of a variable annuity
payout option) or the interest rate (in the case of a fixed annuity payout
option) used to determine the Present Value is increased by a Withdrawal
Adjustment Charge in the following manner:

<TABLE>
<S> <C>
ADJUSTMENT TO AIR OR INTEREST RATE:
If 15 or more years of annuity payments are being valued,
the increase is 1.00%*
If 10-14 years of annuity payments are being valued, the
increase is 1.50%*
If less than 10 years of annuity payments are being
valued, the increase is 2.00%*
</TABLE>

The increase to the AIR or the interest rate used to determine the Present Value
results in a greater proportionate reduction in the number of Annuity Units
(under a variable annuity payout option) or dollar amount (under a fixed annuity
payout option), than if the increase had not been made. Because each variable
annuity benefit payment is determined by multiplying the number of Annuity Units
by the value of an Annuity Unit, the reduction in the number of Annuity Units
will result in lower future variable annuity benefit payments. See "D. Variable
Annuity Benefit Payments" and "F. Withdrawals After the Annuity Date" under
ANNUITIZATION -- THE PAYOUT PHASE for additional information.

*The Withdrawal Adjustment Charge may be lower in some jurisdictions. See
Contract Specifications for the specific charge.

<TABLE>
<S> <C>
(2) ANNUAL SUB-ACCOUNT EXPENSES:
(on an annual basis as a percentage of average daily net
assets)
Mortality and Expense Risk Charge: 1.20%
Administrative Expense Charge: 0.20%
------
Total Annual Expenses: 1.40%
</TABLE>

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

8
<PAGE>

<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER EXPENSES EXPENSES
FEE (AFTER ANY (AFTER ANY (AFTER ANY
VOLUNTARY WAIVERS/REIM- WAIVERS/REIM-
UNDERLYING FUND WAIVERS) 12B-1 FEES BURSEMENTS) BURSEMENTS)
--------------- -------------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
AIT Select Strategic Growth Fund........... 0.85% - 0.35% 1.20%(1)(2)
AIT Select Value Opportunity Fund.......... 0.90% - 0.07% 0.97%(1)(2)
AIM V.I. Aggressive Growth Fund............ 0.00% - 1.19% 1.19%(3)
AIM V.I. Value Fund........................ 0.61% - 0.15% 0.76%
Alliance Growth and Income Portfolio
(Class B)................................. 0.63% 0.25% 0.09% 0.97%
Alliance Premier Growth Portfolio
(Class B)................................. 1.00% 0.25% 0.04% 1.29%
DGPF Growth Opportunities Series
(Service Class)........................... 0.75% 0.15% 0.07% 0.97%(4)
DGPF International Equity Series
(Service Class)........................... 0.83% 0.15% 0.12% 1.10%(5)
Fidelity VIP Equity-Income Portfolio
(Service Class 2)......................... 0.48% 0.25% 0.10% 0.83%(6)
Fidelity VIP Growth Portfolio
(Service Class 2)......................... 0.58% 0.25% 0.10% 0.93%(6)
Fidelity VIP High Income Portfolio
(Service Class 2)......................... 0.58% 0.25% 0.12% 0.95%(6)
Fidelity VIP Overseas Portfolio
(Service Class 2)......................... 0.73% 0.25% 0.18% 1.16%(6)
Fidelity VIP II Asset Manager Portfolio
(Service Class 2)......................... 0.53% 0.25% 0.11% 0.89%(6)
Fidelity VIP III Growth Opportunities
Portfolio
(Service Class 2)......................... 0.58% 0.25% 0.13% 0.96%(6)
Franklin Natural Resources Securities Fund
(Class 2)................................. 0.62% 0.25% 0.04% 0.91%(7)
Franklin Small Cap Fund (Class 2).......... 0.55% 0.25% 0.27% 1.07%(7)(8)
INVESCO VIF Health Sciences Fund........... 0.75% - 0.73% 1.48%(9)
Janus Aspen Growth Portfolio (Service
Shares)................................... 0.65% 0.25% 0.02% 0.92%(10)
Janus Aspen Growth and Income Portfolio
(Service Shares).......................... 0.65% 0.25% 0.40% 1.30%(10)
KVS Dreman Financial Services Portfolio.... 0.70% - 0.29% 0.99%(11)
Kemper Technology Growth Portfolio......... 0.51% - 0.44% 0.95%(11)(12)
Pioneer Emerging Markets VCT Portfolio
(Class II)................................ 0.00% 0.25% 1.88% 2.13%(13)(14)
Pioneer Real Estate Growth VCT Portfolio
(Class II)................................ 0.85% 0.25% 0.30% 1.40%(13)(14)
T. Rowe Price International Stock
Portfolio................................. 1.05% - 0.00% 1.05%
</TABLE>

9
<PAGE>

* Effective September 1, 1999, the management fee rates for the Select
Aggressive Growth Fund and Select Capital Appreciation Fund were revised. The
Management Fee and Total Fund Expense ratios shown in the table above have been
adjusted to assume that the revised rates took effect January 1, 1999.

(1) Until further notice, Allmerica Financial Investment Management
Services, Inc. ("AFIMS") has declared a voluntary expense limitation of 1.50% of
average net assets for Select International Equity Fund, 1.35% for Select
Aggressive Growth Fund and Select Capital Appreciation Fund, 1.25% for Select
Value Opportunity Fund, 1.20% for Select Growth Fund and Core Equity Fund, 1.10%
for Select Growth and Income Fund, 1.00% for Select Investment Grade Income Fund
and Government Bond Fund, and 0.60% for Equity Index Fund and Money Market Fund.
The total operating expenses of these Funds of the Trust were less than their
respective expense limitations throughout 1999.

Until further notice, AFIMS has declared a voluntary expense limitation of 1.20%
of average daily net assets for the Select Strategic Growth Fund. In addition,
AFIMS has agreed to voluntarily waive its management fee to the extent that
expenses of the Select Emerging Markets Fund exceed 2.00% of the Fund's average
daily net assets, except that such waiver shall not exceed the net amount of
management fees earned by AFIMS from the Fund after subtracting fees paid by
AFIMS to a sub-advisor.

Until further notice, the Select Value Opportunity Fund's management fee rate
has been voluntarily limited to an annual rate of 0.90% of average daily net
assets, and total expenses are limited to 1.25% of average daily net assets.

The total operating expenses of the funds were less than or equal to their
respective expense limitations throughout 1999 except the Select Strategic
Growth Fund which received a reimbursement of $813.00 in 1999 under its expense
limitation. However, this amount was not enough to make a difference in the
percentage shown for the Fund's total operating expense and expense limitation
(both 1.20%).

The declaration of a voluntary management fee or expense limitation in any year
does not bind AFIMS to declare future expense limitations with respect to these
Funds. These limitations may be terminated at any time.

(2) These Funds have entered into agreements with brokers whereby the brokers
rebate a portion of commissions. These amounts have been treated as reductions
of expenses. Including these reductions to the operating expenses, total annual
fund operating expenses were 1.88% for the Select Emerging Markets Fund, 1.01%
for Select International Equity Fund, 0.84% for Select Aggressive Growth Fund,
0.88% for Select Value Opportunity Fund, 0.81% for Select Growth Fund, 1.17% for
Select Strategic Growth Fund, 0.45% for Core Equity Fund, and 0.73% for Select
Growth and Income Fund.

(3) Had there been no fee waivers or expense reimbursements, the Management Fee,
Other Expenses and Total Fund Expenses of the AIM V.I. Aggressive Growth Fund
would have been 0.80%, 1.62% and 2.42%, respectively.

(4) Service Class inception is May 1, 2000. Fees and Expenses shown are based on
those for the Standard Class. The investment advisor for the DGPF Growth
Opportunities Series is Delaware Management Company ("Delaware Management").
Effective May 1, 2000 through October 31, 2000, the investment advisor has
voluntarily agreed to waive its management fee and reimburse the Series for
expenses to the extent that total expenses, exclusive of 12b-1 fees, will not
exceed 0.85%. The declaration of a voluntary expense limitation does not bind
Delaware Management to declare future expense limitations with respect to this
Series.

(5) Service Class inception is May 1, 2000. Fees and Expenses shown are based on
those for the Standard Class. The investment advisor for the DGPF International
Equity Series is Delaware International Advisers Ltd. ("DIAL"). Effective
May 1, 2000 through October 31, 2000, DIAL has voluntarily agreed to waive its
management fee and reimburse the Series for expenses to the extent that total
expenses, exclusive of 12b-1

10
<PAGE>

fees, will not exceed 0.95%. Without such an arrangement, the total annual
operating expenses for the Series would have been 0.97% (exclusive of 12b-1
fees). The Service Class shares are subject to an annual 12b-1 fee of not more
than 0.30% (currently set at 0.15%). Without the waiver and reimbursement
arrangement and including the 12b-1 fee at its current level, total annual
operating expenses for the Series would have been 1.12%.

(6) Service Class 2 expenses are based on the estimated expenses for the first
year.

(7) The Funds' Class 2 distribution plan or "rule 12b-1 plan" is described in
the Funds' prospectus. The fund administration fee of the Franklin Natural
Resources Securities Fund is paid indirectly through the management fee. The
Franklin Small Cap Fund pays for similar services directly.

(8) On 2/8/00, a merger and reorganization was approved that combined the assets
of the Franklin Small Cap Fund with a similar fund of the Templeton Variable
Products Series Fund, effective 5/1/00. On 2/8/00, fund shareholders approved
new management fees, which apply to the combined fund effective 5/1/00. The
table shows restated total expenses based on the new fees and assets of the fund
as of 12/31/99, and not the assets of the combined fund. However, if the table
reflected both the new fees and the combined assets, the fund's expenses after
5/1/00 would be estimated to be the same.

(9) The Fund's actual Total Annual Fund Operating Expenses were lower than the
figures shown because its custodian fees were reduced under an expense offset
arrangement. Including the reduction for the expense offset arrangement and
voluntary expense waiver, the Fund's Management Fees, Other Expenses and Total
Fund Expenses would have been 0.75%, 0.50% and 1.25% respectively. Certain
expenses of the Fund were absorbed voluntarily by INVESCO in order to ensure
that expenses for the Fund did not exceed 1.25% of the Fund's average net
expenses pursuant to a commitment between the Fund and INVESCO. This commitment
may be changed at any time following consultation with the board of directors.
The Fund's Management Fees, Other Expenses and Total Fund Expenses for the
fiscal year ended December 31, 1999, excluding any voluntary expense waiver and
expense offset arrangements, would have been 0.75%, 2.11% and 2.86%
respectively.

(10) Expenses are based on the estimated expenses that the new Service Shares
Class of each Portfolio expects to incur in its initial fiscal year.

(11)Pursuant to their respective agreements with KVS, the investment manager and
the accounting agent have agreed, for the one year period commencing on May 1,
2000, to limit their respective fees and to reimburse other expenses to the
extent necessary to limit total operating expenses of the KVS Dreman Financial
Services and the Kemper Technology Growth Portfolios to the amounts set forth in
the Total Fund Expenses column of the table above. Without taking into effect
these expense caps, for the KVS Dreman Financial Services and the Kemper
Technology Growth Portfolios of KVS, management fees are estimated to be 0.75%
and 0.75%, respectively. Other expenses are estimated to be 0.44% and 0.29%,
respectively; and total operating expenses would have been 1.19% and 1.04%,
respectively.

(12)The Kemper Technology Growth Portfolio commenced operations on May 1, 1999,
therefore "other expenses" are annualized. Actual expenses may be greater or
less than shown.

(13)Class II shares of the Pioneer Emerging Markets VCT Portfolio and Pioneer
Real Estate Growth VCT Portfolio commenced operations on May 1, 2000; therefore,
expenses shown are estimated and annualized.

(14)Fees and expenses reflect waivers/reimbursements currently applicable to the
portfolios. As of May 1, 2000, Pioneer Investment Management, Inc. has agreed
voluntarily to limit its management fee and, if necessary, to limit other
operating expenses of Class I shares of the Pioneer Emerging Markets VCT
Portfolio and the Pioneer Real Estate Growth VCT Portfolio to 1.75% and 1.25%,
respectively, of the average daily net assets attributable to Class I shares.
The portion of portfolio expenses attributable to Class II shares will be

11
<PAGE>

reduced only to the extent such expenses are reduced for Class I shares. This
agreement is voluntary and temporary and may be revised or terminated at any
time.

THE UNDERLYING FUND INFORMATION ABOVE WAS PROVIDED BY THE UNDERLYING FUNDS AND
WAS NOT INDEPENDENTLY VERIFIED BY THE COMPANY.

EXPENSE EXAMPLES: The following examples demonstrate the cumulative expenses
which an Owner would pay at 1-year, 3-year, 5-year and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-Account
and a 5% annual return on assets and further assumes that the voluntary expense
limitations and the Underlying Fund expenses listed above remain the same in
each of the 1, 3, 5, and 10-year intervals. As required by rules of the
Securities and Exchange Commission ("SEC"), the Contract fee is reflected in the
examples by a method designed to show the average impact on an investment in the
Variable Account. The total Contract fees collected are divided by the total
average net assets attributable to the Contracts. The resulting percentage is
0.04%, and the amount of the Contract fee is assumed to be $0.40 in the
examples. The Contract fee is only deducted when the Accumulated Value is less
than $75,000. Because the expenses of the Underlying Funds differ, separate
examples are used to illustrate the expenses incurred by an Owner on an
investment in the various Sub-Accounts.

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

12
<PAGE>
(1)(a) If, at the end of the applicable time period, you surrender your
Contract, you would have paid the following expenses on a $1,000 investment,
assuming a 5% annual return on assets, and no Riders.

<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
AIT Core Equity Fund....................................... $ 94 $140 $173 $224
AIT Equity Index Fund...................................... $ 93 $136 $167 $210
AIT Government Bond Fund................................... $ 95 $144 $181 $238
AIT Money Market Fund...................................... $ 92 $134 $164 $204
AIT Select Aggressive Growth Fund.......................... $ 98 $151 $193 $264
AIT Select Capital Appreciation Fund....................... $ 98 $153 $198 $274
AIT Select Emerging Markets Fund........................... $107 $179 $244 $364
AIT Select Growth Fund..................................... $ 97 $150 $191 $260
AIT Select Growth and Income Fund.......................... $ 96 $147 $187 $251
AIT Select International Equity Fund....................... $ 99 $155 $201 $279
AIT Select Investment Grade Income Fund.................... $ 94 $140 $174 $226
AIT Select Strategic Growth Fund........................... $101 $160 $210 $297
AIT Select Value Opportunity Fund.......................... $ 98 $153 $198 $274
AIM V.I. Aggressive Growth Fund............................ $100 $159 $209 $296
AIM V.I. Value Fund........................................ $ 97 $148 $188 $253
Alliance Growth and Income Portfolio....................... $ 98 $153 $198 $274
Alliance Premier Growth Portfolio.......................... $101 $162 $214 $306
DGPF International Equity Series........................... $ 98 $153 $198 $274
DGPF Growth Opportunities Series........................... $100 $157 $205 $287
Fidelity VIP Equity-Income Portfolio....................... $ 97 $150 $191 $260
Fidelity VIP Growth Portfolio.............................. $ 98 $152 $196 $270
Fidelity VIP High Income Portfolio......................... $ 98 $153 $197 $272
Fidelity VIP Overseas Portfolio............................ $100 $159 $208 $293
Fidelity VIP II Asset Manager Portfolio.................... $ 98 $151 $194 $266
Fidelity VIP III Growth Opportunities Portfolio............ $ 98 $153 $198 $273
Franklin Natural Resources Securities Fund................. $ 98 $152 $195 $268
Franklin Small Cap Fund.................................... $ 99 $156 $203 $284
INVESCO VIF Health Sciences Fund........................... $103 $167 $224 $324
Janus Aspen Growth Portfolio............................... $ 98 $152 $196 $269
Janus Aspen Growth and Income Portfolio.................... $101 $162 $215 $307
KVS Dreman Financial Services Portfolio.................... $ 99 $154 $199 $276
Kemper Technology Growth Portfolio......................... $ 98 $153 $197 $272
Pioneer Emerging Markets VCT Portfolio..................... $109 $185 $253 $383
Pioneer Real Estate Growth VCT Portfolio................... $102 $165 $220 $316
T. Rowe Price International Stock Portfolio................ $ 99 $156 $202 $282
</TABLE>

13
<PAGE>
(1)(b) If, at the end of the applicable time period, you surrender your
Contract, you would have paid the following expenses on a $1,000 investment,
assuming a 5% annual return on assets and election at issue of the Minimum
Guaranteed Annuity Payout Rider with a ten-year waiting period and the 6%
Enhanced Death Benefit Rider With Annual Step-Up.

<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
AIT Core Equity Fund....................................... $ 99 $156 $204 $285
AIT Equity Index Fund...................................... $ 98 $153 $197 $272
AIT Government Bond Fund................................... $101 $160 $211 $299
AIT Money Market Fund...................................... $ 98 $151 $194 $266
AIT Select Aggressive Growth Fund.......................... $103 $167 $223 $323
AIT Select Capital Appreciation Fund....................... $104 $170 $228 $332
AIT Select Emerging Markets Fund........................... $113 $195 $270 $417
AIT Select Growth Fund..................................... $103 $166 $221 $319
AIT Select Growth and Income Fund.......................... $102 $164 $217 $310
AIT Select International Equity Fund....................... $104 $171 $230 $337
AIT Select Investment Grade Income Fund.................... $100 $157 $205 $287
AIT Select Strategic Growth Fund........................... $106 $176 $238 $354
AIT Select Value Opportunity Fund.......................... $104 $170 $228 $332
AIM V.I. Aggressive Growth Fund............................ $106 $176 $238 $353
AIM V.I. Value Fund........................................ $102 $164 $218 $312
Alliance Growth and Income Portfolio....................... $104 $170 $228 $332
Alliance Premier Growth Portfolio.......................... $107 $178 $242 $362
DGPF International Equity Series........................... $104 $170 $228 $332
DGPF Growth Opportunities Series........................... $105 $173 $234 $344
Fidelity VIP Equity-Income Portfolio....................... $103 $166 $221 $319
Fidelity VIP Growth Portfolio.............................. $104 $169 $226 $328
Fidelity VIP High Income Portfolio......................... $104 $169 $227 $330
Fidelity VIP Overseas Portfolio............................ $106 $175 $237 $350
Fidelity VIP II Asset Manager Portfolio.................... $103 $168 $224 $325
Fidelity VIP III Growth Opportunities Portfolio............ $104 $169 $227 $331
Franklin Natural Resources Securities Fund................. $103 $168 $225 $327
Franklin Small Cap Fund.................................... $105 $172 $233 $342
INVESCO VIF Health Sciences Fund........................... $109 $183 $251 $379
Janus Aspen Growth Portfolio............................... $103 $168 $225 $328
Janus Aspen Growth and Income Portfolio.................... $107 $179 $243 $363
KVS Dreman Financial Services Portfolio.................... $104 $170 $229 $334
Kemper Technology Growth Portfolio......................... $104 $169 $227 $330
Pioneer Emerging Markets VCT Portfolio..................... $114 $201 $279 $434
Pioneer Real Estate Growth VCT Portfolio................... $108 $181 $247 $372
T. Rowe Price International Stock Portfolio................ $105 $172 $232 $340
</TABLE>

14
<PAGE>
(2)(a) If, at the end of the applicable time period, you do not surrender your
Contract or you annuitize,* you would have paid the following expenses on a
$1,000 investment, assuming a 5% annual return on assets, and no Riders.

<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
AIT Core Equity Fund....................................... $19 $ 60 $103 $224
AIT Equity Index Fund...................................... $18 $ 56 $ 97 $210
AIT Government Bond Fund................................... $21 $ 64 $111 $238
AIT Money Market Fund...................................... $18 $ 54 $ 94 $204
AIT Select Aggressive Growth Fund.......................... $23 $ 72 $123 $264
AIT Select Capital Appreciation Fund....................... $24 $ 75 $128 $274
AIT Select Emerging Markets Fund........................... $34 $103 $175 $364
AIT Select Growth Fund..................................... $23 $ 71 $121 $260
AIT Select Growth and Income Fund.......................... $22 $ 68 $117 $251
AIT Select International Equity Fund....................... $25 $ 77 $131 $279
AIT Select Investment Grade Income Fund.................... $20 $ 61 $104 $226
AIT Select Strategic Growth Fund........................... $27 $ 82 $140 $297
AIT Select Value Opportunity Fund.......................... $24 $ 75 $128 $274
AIM V.I. Aggressive Growth Fund............................ $27 $ 82 $139 $296
AIM V.I. Value Fund........................................ $22 $ 69 $118 $253
Alliance Growth and Income Portfolio....................... $24 $ 75 $128 $274
Alliance Premier Growth Portfolio.......................... $28 $ 85 $144 $306
DGPF International Equity Series........................... $24 $ 75 $128 $274
DGPF Growth Opportunities Series........................... $26 $ 79 $135 $287
Fidelity VIP Equity-Income Portfolio....................... $23 $ 71 $121 $260
Fidelity VIP Growth Portfolio.............................. $24 $ 74 $126 $270
Fidelity VIP High Income Portfolio......................... $24 $ 74 $127 $272
Fidelity VIP Overseas Portfolio............................ $26 $ 81 $138 $293
Fidelity VIP II Asset Manager Portfolio.................... $24 $ 73 $124 $266
Fidelity VIP III Growth Opportunities Portfolio............ $24 $ 75 $128 $273
Franklin Natural Resources Securities Fund................. $24 $ 73 $125 $268
Franklin Small Cap Fund.................................... $25 $ 78 $133 $284
INVESCO VIF Health Sciences Fund........................... $29 $ 90 $154 $324
Janus Aspen Growth Portfolio............................... $24 $ 73 $126 $269
Janus Aspen Growth and Income Portfolio.................... $28 $ 85 $145 $307
KVS Dreman Financial Services Portfolio.................... $25 $ 76 $129 $276
Kemper Technology Growth Portfolio......................... $24 $ 74 $127 $272
Pioneer Emerging Markets VCT Portfolio..................... $36 $109 $185 $383
Pioneer Real Estate Growth VCT Portfolio................... $29 $ 88 $150 $316
T. Rowe Price International Stock Portfolio................ $25 $ 77 $132 $282
</TABLE>

15
<PAGE>
(2)(b) If, at the end of the applicable time period, you do not surrender your
Contract or you annuitize,* you would have paid the following expenses on a
$1,000 investment, assuming an annual 5% return on assets and election at issue
of the Minimum Guaranteed Annuity Payout Rider with a ten-year waiting period
and the 6% Enhanced Death Benefit Rider With Annual Step-Up.

<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
AIT Core Equity Fund....................................... $25 $ 78 $134 $285
AIT Equity Index Fund...................................... $24 $ 74 $127 $272
AIT Government Bond Fund................................... $27 $ 82 $141 $299
AIT Money Market Fund...................................... $24 $ 73 $124 $266
AIT Select Aggressive Growth Fund.......................... $29 $ 90 $153 $323
AIT Select Capital Appreciation Fund....................... $30 $ 93 $158 $332
AIT Select Emerging Markets Fund........................... $40 $121 $203 $417
AIT Select Growth Fund..................................... $29 $ 89 $151 $319
AIT Select Growth and Income Fund.......................... $28 $ 86 $147 $310
AIT Select International Equity Fund....................... $31 $ 94 $160 $337
AIT Select Investment Grade Income Fund.................... $26 $ 79 $135 $287
AIT Select Strategic Growth Fund........................... $33 $100 $169 $354
AIT Select Value Opportunity Fund.......................... $30 $ 93 $158 $332
AIM V.I. Aggressive Growth Fund............................ $33 $ 99 $169 $353
AIM V.I. Value Fund........................................ $28 $ 87 $148 $312
Alliance Growth and Income Portfolio....................... $30 $ 93 $158 $332
Alliance Premier Growth Portfolio.......................... $34 $102 $173 $362
DGPF International Equity Series........................... $30 $ 93 $158 $332
DGPF Growth Opportunities Series........................... $32 $ 97 $164 $344
Fidelity VIP Equity-Income Portfolio....................... $29 $ 89 $151 $319
Fidelity VIP Growth Portfolio.............................. $30 $ 92 $156 $328
Fidelity VIP High Income Portfolio......................... $30 $ 92 $157 $330
Fidelity VIP Overseas Portfolio............................ $32 $ 98 $167 $350
Fidelity VIP II Asset Manager Portfolio.................... $30 $ 91 $154 $325
Fidelity VIP III Growth Opportunities Portfolio............ $30 $ 93 $157 $331
Franklin Natural Resources Securities Fund................. $30 $ 91 $155 $327
Franklin Small Cap Fund.................................... $31 $ 96 $163 $342
INVESCO VIF Health Sciences Fund........................... $35 $108 $182 $379
Janus Aspen Growth Portfolio............................... $30 $ 91 $155 $328
Janus Aspen Growth and Income Portfolio.................... $34 $103 $174 $363
KVS Dreman Financial Services Portfolio.................... $31 $ 93 $159 $334
Kemper Technology Growth Portfolio......................... $30 $ 92 $157 $330
Pioneer Emerging Markets VCT Portfolio..................... $42 $127 $213 $434
Pioneer Real Estate Growth VCT Portfolio................... $35 $105 $179 $372
T. Rowe Price International Stock Portfolio................ $31 $ 95 $162 $340
</TABLE>

* The Contract fee is not deducted after annuitization. No surrender charges are
deducted at or after annuitization under any of the available annuity payout
options.

16
<PAGE>
SUMMARY OF CONTRACT FEATURES

WHAT ARE SOME OF THE FEATURES OF THIS VARIABLE ANNUITY CONTRACT?

The variable annuity contract ("Contract") is an insurance contract designed to
help you, the Owner, accumulate assets for your retirement or other important
financial goals on a tax-deferred basis. The Contract may be purchased up to age
90 of the oldest Owner or, if the Owner is not a natural person, the oldest
Annuitant. The Contract combines the concept of professional money management
with the attributes of an annuity contract. Features available through the
Contract include:

- a customized investment portfolio;

- experienced professional investment advisers;

- tax deferral on earnings;

- guarantees that can protect your family;

- withdrawals during the accumulation and annuitization phases; and

- income that you can receive for life.

WHAT HAPPENS IN THE ACCUMULATION PHASE?

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

WHAT HAPPENS UPON MY DEATH DURING THE ACCUMULATION PHASE?

If you or a Joint Owner dies before the Annuity Date, a standard death benefit
will be paid to the beneficiary. (No death benefit is payable at the death of
any Annuitant except when the Owner is not a natural person.) An optional
Enhanced Death Benefit Rider is also available at issue for a separate monthly
charge. See "F. Death Benefit" under DESCRIPTION OF THE CONTRACT -- THE
ACCUMULATION PHASE.

WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?

During the annuity payout phase, you, or the payee you designate, can receive
income based on one of the numerous annuity payout options available under the
Contract. You choose:

- the annuity payout option;

- the date annuity benefit payments begin but no earlier than 1 year after
the Issue Date;

- whether you want variable annuity benefit payments based on the investment
performance of the Underlying Funds, fixed-amount annuity benefit payments
with payment amounts guaranteed by the Company, or a combination of
fixed-amount and variable annuity benefit payments; and

- whether you want certain protections provided under an optional rider.

17
<PAGE>
You may also take withdrawals during the annuity payout phase. The type of
withdrawal and the number of withdrawals that may be made each calendar year
depend upon whether the Owner annuitizes under an annuity payout option with
payments based on the life of one or more Annuitants with no guaranteed payments
(a "Life" annuity payout option), under a life annuity payout option that in
part provides for a guaranteed number of payments (a "Life With Period Certain"
or "Life With Cash Back" annuity payout option), or an annuity payout option
based on a guaranteed number of payments (a "Period Certain" annuity payout
option). Under a Life annuity payout option, the Owner may make one Payment
Withdrawal each calendar year. Under a Life with Period Certain or Life with
Cash Back annuity payout option, the Owner may make one Payment Withdrawal and
one Present Value Withdrawal in each calendar year. Under a Period Certain
annuity payout option, the Owner may make multiple Present Value Withdrawals
each calendar year. For more information, see "F. Withdrawals After the Annuity
Date" under ANNUITIZATION -- THE PAYOUT PHASE. In addition, if you choose a
variable payout option, you may transfer among the available Sub-Accounts.

M-GAP RIDER (NOT AVAILABLE IN NEW YORK). When applying for the Contract, in most
jurisdictions, the Owner currently may elect to purchase the Minimum Guaranteed
Annuity Payout ("M-GAP") Rider for a separate monthly charge. This optional
rider provides a guaranteed minimum amount of income after a specified waiting
period under a life contingent fixed annuity payout option, subject to certain
conditions. The M-GAP Rider is based on the Company's guaranteed fixed annuity
option rates as set forth in the Contract. These annuity option rates determine
the dollar amount of the first payment under each life contingent fixed annuity
payout option for each $1,000 of applied value. The rates are based on the
Annuity 2000 Mortality Table and a 3% Assumed Investment Return ("AIR"). The
M-GAP Rider is not available at all ages.

For more information on this optional rider, see "H. Optional Minimum Guaranteed
Annuity Payout (M-GAP) Rider" under DESCRIPTION OF THE CONTRACT -- THE
ACCUMULATION PHASE.

WHO ARE THE KEY PERSONS UNDER THE CONTRACT?

The Contract is between you, (the "Owner"), and us, Allmerica Financial Life
Insurance and Annuity Company (for contracts issued in all jurisdictions except
New York) and First Allmerica Financial Life Insurance Company (in New York).
Each Contract has an Owner (or an Owner and a Joint Owner), an Annuitant (or an
Annuitant and a Joint Annuitant) and one or more beneficiaries. As Owner, you
may:

- make payments

- choose investment allocations

- choose annuity payout options

- receive annuity benefit payments (or designate someone else to receive
annuity benefit payments)

- select the Annuitant and beneficiary.

The Annuitant is the person whose life is used to determine the duration of
annuity benefit payments involving a life contingency. There must be at least
one Annuitant at all times. If an Annuitant dies and a replacement is not named,
the Owner will become the new Annuitant. The beneficiary is the person(s) or
entity entitled to the death benefit at the death of a sole Owner prior to the
Annuity Date. In the case of the death of a Joint Owner, the surviving Joint
Owner will receive the death benefit. Under certain circumstances, the
beneficiary may be entitled to annuity benefit payments upon the death of an
Owner on or after the Annuity Date.

HOW MUCH CAN I INVEST AND HOW OFTEN?

During the Accumulation Phase, you may make additional payments. Total payments
under the Contract can exceed $5,000,000 only with the Company's prior approval.
The number and frequency of your payments are

18
<PAGE>
flexible, subject only to a $5,000 minimum for your initial payment and a $50
minimum for any additional payments. A lower initial payment is permitted for
certain qualified plans and where monthly payments are being forwarded directly
from a financial institution. A minimum of $1,000 is always required to
establish a Guarantee Period Account.

WHAT ARE MY INVESTMENT CHOICES?

You may choose among the Sub-Accounts investing in the Underlying Funds, the
Guarantee Period Accounts, and the Fixed Account. The Underlying Funds are:

<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
AIT Core Equity Fund (SERVICE CLASS 2)*
AIT Equity Index Fund Fidelity VIP II Asset Manager Portfolio
AIT Government Bond Fund FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
AIT Money Market Fund (SERVICE CLASS 2)*
AIT Select Aggressive Growth Fund Fidelity VIP III Growth Opportunities Portfolio
AIT Select Capital Appreciation Fund FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
AIT Select Emerging Markets Fund (CLASS 2)*
AIT Select Growth Fund Franklin Natural Resources Securities Fund
AIT Select Growth and Income Fund Franklin Small Cap Fund
AIT Select International Equity Fund INVESCO VARIABLE INVESTMENT FUNDS, INC.
AIT Select Investment Grade Income Fund INVESCO VIF Health Sciences Fund
AIT Select Strategic Growth Fund JANUS ASPEN SERIES (SERVICE SHARES)*
AIT Select Value Opportunity Fund Janus Aspen Growth Portfolio
AIM VARIABLE INSURANCE FUNDS Janus Aspen Growth and Income Portfolio
AIM V.I. Aggressive Growth Fund KEMPER VARIABLE SERIES
AIM V.I. Value Fund KVS Dreman Financial Services Portfolio
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC. Kemper Technology Growth Portfolio
(CLASS B)* PIONEER VARIABLE CONTRACTS TRUST (CLASS II)*
Alliance Growth and Income Portfolio Pioneer Emerging Markets VCT Portfolio
Alliance Premier Growth Portfolio Pioneer Real Estate Growth VCT Portfolio
DELAWARE GROUP PREMIUM FUND (SERVICE CLASS)* T. ROWE PRICE INTERNATIONAL SERIES, INC.
DGPF International Equity Series T. Rowe Price International Stock Portfolio
DGPF Growth Opportunities Series
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
(SERVICE CLASS 2)*
Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP High Income Portfolio
Fidelity VIP Overseas Portfolio
</TABLE>

*Class B, Service Class, Service Class 2, Class 2, Service Shares and Class II
all refer to share classes that include 12b-1 fees.

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

19
<PAGE>
GUARANTEE PERIOD ACCOUNTS. Assets supporting the guarantees under the Guarantee
Period Accounts are held in the Company's Separate Account GPA, a non-unitized
insulated separate account (except in California, where assets are held in the
Company's General Account). Values and benefits calculated on the basis of
Guarantee Period Account allocations, however, are obligations of the Company's
General Account. Amounts allocated to a Guarantee Period Account earn a
Guaranteed Interest Rate declared by the Company. The level of the Guaranteed
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company may offer up to nine Guarantee Periods ranging from two to ten years
in duration. Once declared, the Guaranteed Interest Rate will not change during
the duration of the Guarantee Period.

If amounts allocated to a Guarantee Period Account are transferred, surrendered
or applied to any annuity payout option at any time other than the day following
the last day of the applicable Guarantee Period, a Market Value Adjustment will
apply that may increase or decrease the value. However, this adjustment will
never be applied against your principal. In addition, earnings in the GPA AFTER
application of the Market Value Adjustment will not be less than an effective
annual rate of 3%. For more information about the Guarantee Period Accounts and
the Market Value Adjustment, see GUARANTEE PERIOD ACCOUNTS.

THE GUARANTEE PERIOD ACCOUNTS ARE NOT AVAILABLE IN ALL STATES AND ARE NOT
OFFERED AFTER ANNUITIZATION.

FIXED ACCOUNT. The Fixed Account is part of the General Account, which consists
of all the Company's assets other than those allocated to the Variable Account
and any other separate account. Allocations to the Fixed Account are guaranteed
as to principal and a minimum rate of interest. Additional excess interest may
be declared periodically at the Company's discretion. The initial rate in effect
on the date an amount is allocated to the Fixed Account will be guaranteed for
one year from that date. For more information about the Fixed Account, see
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT.

CAN I MAKE TRANSFERS AMONG THE INVESTMENT OPTIONS?

Yes. Prior to the Annuity Date, you may transfer among the Sub-Accounts
investing in the Underlying Funds, the Guarantee Period Accounts, and the Fixed
Account. On and after the Annuity Date, if you have elected a variable option,
you may transfer only among the Sub-Accounts. You will incur no current taxes on
transfers while your money remains in the Contract. See "D. Transfer Privilege"
under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE and "E. Transfers of
Annuity Units" under ANNUITIZATION -- THE PAYOUT PHASE.

The first 12 transfers in a Contract year are guaranteed to be free of a
transfer charge. For each subsequent transfer in a Contract year, the Company
does not currently charge but reserves the right to assess a processing charge
guaranteed never to exceed $25.

If you authorize automatic periodic transfers (under an Automatic Transfers
program (Dollar Cost Averaging) or Automatic Account Rebalancing program), the
first automatic transfer or rebalancing under a request counts as one transfer
for purposes of the 12 transfers guaranteed to be free of a transfer charge in
each Contract year. Each subsequent automatic transfer or rebalancing under that
request is without charge and does not reduce the remaining number of transfers
which may be made free of charge in that Contract year.

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

Before the annuity payout phase begins, you may surrender your Contract or make
withdrawals at any time. Each calendar year you can withdraw without a surrender
charge the greater of:

(1) 100% of cumulative earnings; or

(2) 10% of the Gross Payment Base, reduced by any prior Withdrawal Without
Surrender Charge made in the same calendar year

20
<PAGE>

When the first withdrawal is taken, the Gross Payment Base is equal to total
payments made to the Contract. When subsequent withdrawals are taken, the Gross
Payment Base reduces. For a detailed discussion of how the Withdrawal Without
Surrender Charge amount is calculated, please see CHARGES AND DEDUCTIONS --
SURRENDER CHARGE.

To the extent it exceeds the amount described in the previous paragraph, the
Owner of a Qualified Contract or a Contract issued under a Section 457 Deferred
Compensation Plan may take each calendar year, without surrender charge, an
amount calculated by the Company based on his or her life expectancy. A 10% tax
penalty may apply on all amounts deemed to be earnings if you are under age
59 1/2.

In addition, WHERE PERMITTED BY LAW, the Company will waive surrender charges
if, after the Contract is issued:

- you become disabled before you attain age 65; or

- you are diagnosed with a fatal illness or are confined in a medical care
facility for the later of 90 consecutive days or one year after the Issue
Date.

Additional amounts may be withdrawn at any time. However, the withdrawal of
payments that have not been invested in the Contract for more than nine years
may be subject to a surrender charge. A Market Value Adjustment will apply to
withdrawals from a Guarantee Period Account prior to the expiration of the
Guarantee Period.

CAN I EXAMINE THE CONTRACT?

Yes. Your Contract will be delivered to you after your purchase. If you return
the Contract to the Company within ten days of receipt, the Contract will be
cancelled. There may be a longer period in certain jurisdictions; see the "Right
to Examine" provision on the cover of your Contract.

If you cancel the Contract, you will receive the Contract's Accumulated Value
adjusted for any Market Value Adjustment for amounts allocated to a Guarantee
Period Account, plus any fees or charges that may have been deducted. However,
if required in your state or if the Contract was issued as an Individual
Retirement Annuity (IRA), you will generally receive a refund of your gross
payment(s). In certain jurisdictions this refund may be the greater of (1) your
gross payment(s) or (2) the Accumulated Value adjusted for any Market Value
Adjustment, plus any fees or charges previously deducted. See "C. Right to
Cancel" under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE.

CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?

You can make several changes after receiving your Contract:

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

- You may change the beneficiary, unless you have designated an irrevocable
beneficiary.

- You may change your allocation of payments.

- You may make transfers among the Sub-Accounts without any tax
consequences.

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

21
<PAGE>
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS,
AND THE UNDERLYING INVESTMENT COMPANIES

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

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

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

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

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

THE VARIABLE ACCOUNTS. Each Company maintains a separate account called
Separate Account VA-K (the "Variable Account"). The Variable Account of
Allmerica Financial was authorized by vote of the Board of Directors of the
Company on November 1, 1990 and the Variable Account of First Allmerica was
authorized by vote of the Board of Directors of the Company on August 20, 1991.
Each Variable Account is registered with the SEC as a unit investment trust
under the 1940 Act. This registration does not involve the supervision or
management of investment practices or policies of the Variable Account or the
Company by the SEC.

The Variable Account is a separate investment account of the Company. The assets
used to fund the variable portions of the Contracts are set aside in the
Sub-Accounts of the Variable Account, and are kept separate and apart from the
general assets of the Company. Each Sub-Account is administered and accounted
for as part of our general business, 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. Obligations under
the Contracts are our obligations. Under Delaware and Massachusetts law, the
assets of the Variable Account may not be charged with any liabilities arising
out of any other business of the Company.

We reserve the right, subject to compliance with applicable law, to change the
names of the Variable Account and the Sub-Accounts. We also offer other variable
annuity contracts investing in the Variable Account which are not discussed in
this Prospectus. In addition the Variable Account may invest in other underlying
funds which are not available to the Contracts described in this Prospectus.

22
<PAGE>
THE UNDERLYING INVESTMENT COMPANIES

ALLMERICA INVESTMENT TRUST. Allmerica Investment Trust ("AIT") is an open-end,
diversified, management investment company registered with the SEC under the
1940 Act. AIT was established as a Massachusetts business trust on October 11,
1984, for the purpose of providing a vehicle for the investment of assets of
various separate accounts established by the Company or other affiliated
insurance companies. Thirteen investment portfolios of AIT currently are
available under the Contract, each issuing a series of shares: Core Equity Fund,
Equity Index Fund, Government Bond Fund, Money Market Fund, Select Aggressive
Growth Fund, Select Capital Appreciation Fund, Select Emerging Markets Fund,
Select Growth Fund, Select Growth and Income Fund, Select International Equity
Fund, Select Investment Grade Income Fund, Select Strategic Growth Fund, and the
Select Value Opportunity Fund. The assets of each Fund are held separate from
the assets of the other Funds. Each Fund operates as a separate investment
vehicle and the income or losses of one Fund have no effect on the investment
performance of another Fund. Shares of AIT are not offered to the general public
but solely to such variable accounts.

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

AFIMS has entered into agreements with other investment advisers
("Sub-Advisers") under which each Sub-Adviser manages the investments of one or
more of the Funds of AIT. Under each Sub-Adviser agreement, the Sub-Adviser is
authorized to engage in portfolio transactions on behalf of the Fund, subject to
AFIMS and the Trustees instructions. AFIMS is solely responsible for the payment
of all fees for investment management services to the Sub-Advisers. The
Sub-Advisers, other than Allmerica Asset Management, Inc., are not affiliated
with the Company or AIT.

Other than expenses specifically assumed by AFIMS under the Management
Agreement, AIT bears all expenses incurred in its operation including fees and
expenses associated with the registration and qualification of AIT's shares
under the Securities Act of 1933, other fees payable to the SEC, independent
public accountant fees, legal and custodian fees, association membership dues,
taxes, interest, insurance premiums, brokerage commissions, fees and expenses of
the Trustees who are not affiliated with AFIMS, expenses for proxies,
prospectuses, reports to shareholders and other expenses.

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

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC. Alliance Variable Products Series
Fund, Inc. ("Alliance") is registered with the SEC as an open-end, management
investment company under the 1940 Act. Two of its separate investment portfolios
are currently available under the Contract: the Alliance Growth and Income
Portfolio and the Alliance Premier Growth Portfolio. Alliance Capital
Management, L.P. ("Alliance Capital") serves as the investment adviser to
Alliance. Alliance Capital Management Corporation, the sole general partner of
Alliance Capital, is an indirect wholly owned subsidiary of The Equitable Life
Assurance Society of the United States, which is in turn a wholly owned
subsidiary of the Equitable Companies Incorporated, a holding company which is
controlled by AXA, a French insurance holding company.

23
<PAGE>
DELAWARE GROUP PREMIUM FUND. Delaware Group Premium Fund ("DGPF"), previously a
Maryland Corporation organized on February 19, 1987 and reorganized as a
Delaware business trust on December 15, 1999, is an open-end management
investment company registered with the SEC under the 1940 Act. Delaware
Management Company, a series of Delaware Management Business Trust ("Delaware
Management") is the investment adviser for the DGPF Growth Opportunities Series.
The investment advisor for the DGPF International Equity Series is Delaware
International Advisers Ltd. ("Delaware International").

FIDELITY VARIABLE INSURANCE PRODUCTS FUND. Fidelity 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 registered with the SEC
under the 1940 Act. Four of its investment portfolios are available under the
Contract: Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth Portfolio,
Fidelity VIP High Income Portfolio and Fidelity VIP Overseas Portfolio.

Various Fidelity companies perform certain activities required to operate
Fidelity VIP. FMR is one of America's largest investment management
organizations, and has its principal business address at 82 Devonshire Street,
Boston, Massachusetts. It is composed of a number of different companies which
provide a variety of financial services and products. FMR is the original
Fidelity company, founded in 1946. It provides a number of mutual funds and
other clients with investment research and portfolio management services. As
part of their operating expenses, the portfolios of Fidelity VIP pay a monthly
investment management fee to FMR for managing investment and business affairs.
The prospectus of Fidelity VIP contains additional information concerning the
portfolios, including information about additional expenses paid by the
portfolios, and should be read in conjunction with this Prospectus.

FIDELITY VARIABLE INSURANCE PRODUCTS FUND II. Fidelity Variable Insurance
Products Fund II ("Fidelity VIP II"), managed by FMR (see discussion above), 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
Contract: the Fidelity VIP II Asset Manager Portfolio.

FIDELITY VARIABLE INSURANCE PRODUCTS FUND III. Fidelity Variable Insurance
Products Fund III ("Fidelity VIP III"), managed by FMR (see discussion above),
is an open-end, diversified management investment company registered with the
SEC under the 1940 Act. One of its investment portfolios is available under the
Contract: the Fidelity VIP III Growth Opportunities Portfolio.

FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. Franklin Templeton
Variable Insurance Products Trust ("FT VIP") and the funds' investment managers
and their affiliates manage over $224 billion in assets (as of December 31,
1999). The investment adviser to the Franklin Natural Resources Securities Fund
and the Franklin Small Cap Fund is Franklin Advisers, Inc.

INVESCO VARIABLE INVESTMENT FUNDS, INC. INVESCO Variable Investment
Funds, Inc. ("INVESCO VIF") is an open-end, diversified, no-load management
investment company which was incorporated under the laws of Maryland on
August 19, 1993. The investment adviser to the INVESCO VIF Health Sciences Fund
is INVESCO Funds Group, Inc.

JANUS ASPEN SERIES. Janus Aspen Series ("Janus Aspen") is an open-end,
management investment company registered with the SEC. It was organized as a
Delaware business trust on May 20, 1993. Janus Capital is the investment adviser
of Janus Aspen. Two of its investment portfolios are available under the
Contract: the Janus Aspen Growth Portfolio and Janus Aspen Growth and Income
Portfolio.

KEMPER VARIABLE SERIES. Kemper Variable Series ("KVS"), is a series-type mutual
fund registered with the SEC as an open-end, management investment company. The
KVS Dreman Financial Services Portfolio and

24
<PAGE>
the Kemper Technology Growth Portfolio are offered under the Contract. Scudder
Kemper Investments, Inc. serves as the investment adviser of KVS.

PIONEER VARIABLE CONTRACTS TRUST. Pioneer Variable Contracts Trust ("Pioneer
VCT") is an open-end, management investment company registered with the SEC
under the 1940 Act. Pioneer Investment Management, Inc. ("Pioneer") is the
investment adviser to the Pioneer Emerging Markets VCT Portfolio and the Pioneer
Real Estate Growth VCT Portfolio which are offered under the Contract. Pioneer
is a wholly owned subsidiary of The Pioneer Group, Inc. ("PGI"). PGI,
established in 1928, is one of America's oldest investment managers.

T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Series,
Inc. ("T. Rowe Price"), managed by Rowe Price-Fleming International, Inc.
("Price-Fleming"), is an open-end, diversified, management investment company
organized as a Maryland corporation in 1994 and registered with the SEC under
the 1940 Act. Price-Fleming, founded in 1979 as a joint venture between T. Rowe
Price Associates, Inc. and Robert Fleming Holdings, Limited, is one of the
largest no-load international mutual fund asset managers with approximately
$42.5 billion (as of December 31, 1999) under management in its offices in
Baltimore, London, Tokyo, Hong Kong, Singapore and Buenos Aires. One of its
investment portfolios is available under the Contract: the T. Rowe Price
International Stock Portfolio.

25
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

A summary of investment objectives of each of the Underlying Funds is set forth
below. 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. PLEASE READ
THEM CAREFULLY BEFORE INVESTING. The Statements of Additional Information
("SAI") of the Underlying Funds are available upon request. There can be no
assurance that the investment objectives of the Underlying Funds can be achieved
or that the value of the Contract will equal or exceed the aggregate amount of
the purchase payments made under the Contract.

AIT CORE EQUITY FUND -- seeks long-term growth of capital. Realization of
current investment income, if any, is incidental to this objective. The Core
Equity Fund 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.

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

AIT GOVERNMENT BOND FUND -- seeks 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.

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

AIT SELECT AGGRESSIVE GROWTH FUND -- seeks above-average capital appreciation by
investing primarily in common stocks of companies which are believed to have
significant potential for capital appreciation.

AIT SELECT CAPITAL APPRECIATION FUND -- seeks long-term growth 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.

AIT SELECT EMERGING MARKETS FUND -- seeks long-term growth of capital by
investing in the world's emerging markets.

AIT SELECT GROWTH FUND -- 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.

AIT 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.

AIT SELECT INTERNATIONAL EQUITY FUND -- seeks maximum long-term total return
(capital appreciation and income). The Fund will invest primarily in common
stocks of established non-U.S. companies.

26
<PAGE>

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

AIT SELECT STRATEGIC GROWTH FUND -- seeks long-term growth of capital by
investing primarily in common stocks of established companies.

AIT SELECT VALUE OPPORTUNITY FUND -- seeks long-term growth of capital by
investing principally in 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.

AIM V.I. AGGRESSIVE GROWTH FUND -- seeks to achieve long-term growth of capital
by investing primarily in common stocks, convertible bonds, convertible
preferred stocks and warrants of small and medium sized companies.

AIM V.I. VALUE FUND -- seeks to achieve long-term growth of capital by investing
primarily in equity securities judged by the Fund's investment advisor to be
undervalued relative to the investment advisor's appraisal of the current or
projected earnings of the companies issuing the securities, or relative to
current market values of assets owned by companies issuing the securities or
relative to the equity market generally. Income is a secondary objective.

ALLIANCE GROWTH AND INCOME PORTFOLIO (CLASS B) -- seeks reasonable current
income and reasonable opportunity for appreciation through investments primarily
in dividend paying common stocks of good quality. The Portfolio invests
primarily in stock of large, well established "blue chip" companies, fixed
income and convertible securities, and securities of foreign issuers.

ALLIANCE PREMIER GROWTH PORTFOLIO (CLASS B) -- seeks growth of capital by
pursuing aggressive investment policies. The Portfolio invests primarily in
equity securities in a small number (40-50) of intensely researched U.S.
companies.

DGPF GROWTH OPPORTUNITIES SERIES (SERVICE CLASS) -- seeks long-term capital
appreciation by investing its assets in a diversified portfolio of securities
exhibiting the potential for significant growth.

DGPF INTERNATIONAL EQUITY SERIES (SERVICE CLASS) -- 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 EQUITY-INCOME PORTFOLIO (SERVICE CLASS 2) -- 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 GROWTH PORTFOLIO (SERVICE CLASS 2) -- 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.

FIDELITY VIP HIGH INCOME PORTFOLIO (SERVICE CLASS 2) -- 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 are often considered to be
speculative and involve greater risk of default or price changes than securities
assigned a high quality rating. For more information about these lower-rated
securities, see the Fidelity VIP prospectus.

27
<PAGE>
FIDELITY VIP OVERSEAS PORTFOLIO (SERVICE CLASS 2) -- 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.

FIDELITY VIP II ASSET MANAGER PORTFOLIO (SERVICE CLASS 2) -- seeks high total
return with reduced risk over the long term by allocating its assets among
domestic and foreign stocks, bonds and short-term money market instruments.

FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO (SERVICE CLASS 2) -- seeks to
provide capital growth by primarily investing in common stocks of domestic and
foreign issuers. The Portfolio may also invest in other types of securities
including bonds.

FRANKLIN NATURAL RESOURCES SECURITIES FUND (CLASS 2) -- seeks capital
appreciation. The secondary goal is to provide current income. The Fund invests
primarily in equity securities of companies principally engaged in the natural
resources sector.

FRANKLIN SMALL CAP FUND (CLASS 2) -- seeks capital growth. The Fund invests
primarily in equity securities of small cap U.S. companies.

INVESCO VIF HEALTH SCIENCES FUND -- seeks to make an investment grow. The fund
is aggressively managed and invests primarily in equity securities of companies
that develop, produce or distribute products or services related to health care.

JANUS ASPEN GROWTH PORTFOLIO (SERVICE SHARES) -- seeks long-term growth of
capital in a manner consistent with the preservation of capital. The Portfolio
invests primarily in common stocks of larger, more established companies
selected for their growth potential.

JANUS ASPEN GROWTH AND INCOME PORTFOLIO (SERVICE SHARES) -- seeks long-term
capital growth and income. The Portfolio normally emphasizes investments in
common stocks.

KVS DREMAN FINANCIAL SERVICES PORTFOLIO -- seeks long-term capital appreciation
by investing primarily in common stocks and other equity securities of companies
in the financial services industry believed by the Portfolio's investment
manager to be undervalued.

KEMPER TECHNOLOGY GROWTH PORTFOLIO -- seeks growth of capital.

PIONEER EMERGING MARKETS VCT PORTFOLIO (CLASS II) -- seeks to invest in
securities of emerging market issuers for long-term growth of capital.

PIONEER REAL ESTATE GROWTH VCT PORTFOLIO (CLASS II) -- seeks to invest primarily
in REITs and other real estate industry companies for long-term growth of
capital. Current income is the portfolio's secondary investment objective.

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

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

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

28
<PAGE>
DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE

A. PAYMENTS

The latest Issue Date is age 90 of the oldest Owner, or, if the Owner is not a
natural person, the oldest Annuitant. The Company will issue a Contract when its
underwriting requirements are met. These requirements include receipt of the
initial payment and allocation instructions by the Company at its Principal
Office and may include the proper completion of an application; however, where
permitted by law, the Company may issue a Contract without completion of an
application. If all issue requirements are not completed within five business
days of the Company's receipt of the initial payment, the payment will be
returned immediately unless the applicant authorizes the Company to retain it
pending completion of all issue requirements.

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

- Currently, the initial payment must be at least $5,000.

- Under a salary deduction or monthly automatic payment plan, the minimum
initial payment is $50.

- Each subsequent payment must be at least $50.

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

Payments are to be made payable to the Company. The Company may reduce a
payment by any applicable premium tax before applying it to the Contract. The
initial net payment is credited to the Contract and allocated among the
requested investment options as of the date that all issue requirements are
properly met. The allocation instructions for the initial net payment will
serve as the allocation instructions for all future payments. You can change
the allocation instructions for future payments by notifying the Company. To
the extent permitted by law, however, if the Contract is issued as an IRA or is
issued in certain states, any portion of the initial net payment and additional
net payments received during the Contract's first 15 days measured from the
Issue Date, allocated to any Sub-Account and/or any Guarantee Period Account,
will be held in the AIT Money Market Fund until the end of the 15-day period.
Thereafter, these amounts will be allocated as requested.

You also have the option of specifying how a specific payment should be
allocated. This will not change the allocation instructions for any subsequent
payment.

For a discussion of future payments to an Automatic Transfer Program (Dollar
Cost Averaging), please see "Automatic Transfers (Dollar Cost Averaging)" below.

In order for the Owner to be able to initiate transactions over the telephone, a
properly completed authorization must be on file before telephone requests will
be honored. The policy of the Company and its agents and affiliates is that we
will not be responsible for losses resulting from acting upon telephone requests
reasonably believed to be genuine. The Company will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine; otherwise,
the Company may be liable for any losses due to unauthorized or fraudulent
instructions. Such procedures may include, among others, requiring some form of
personal identification prior to acting upon instructions received by telephone.
All telephone instructions are tape-recorded.

B. COMPUTATION OF VALUES

The Owner may allocate payments among the Sub-Accounts, Guarantee Period
Accounts, and the Fixed Account. Allocations to the Guarantee Period Accounts
and the Fixed Account are not converted into Accumulation Units, but are
credited interest at a rate periodically set by the Company. See GUARANTEE
PERIOD ACCOUNTS and APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT.

29
<PAGE>
The Accumulated Value under the Contract is determined by:

(1) multiplying the number of Accumulation Units in each Sub-Account by the
value of an Accumulation Unit of that Sub-Account on the Valuation Date,

(2) adding together the values of each Sub-Account, and

(3) adding the amount of the accumulations in the Fixed Account and
Guarantee Period Accounts, if any.

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

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

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

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

(3) is a charge for mortality and expense risks equal to 1.20% on an annual
basis of the daily value of the Sub-Account's assets; and

(4) is an administrative charge equal to 0.20% on an annual basis of the
daily value of the Sub-Account's assets.

The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.

For an illustration of an Accumulation Unit calculation using a hypothetical
example see the SAI.

C. RIGHT TO CANCEL

An Owner may cancel the Contract at any time within ten days after receipt of
the Contract (or longer if required by law) and receive a refund. In order to
cancel the Contract, the Owner must mail or deliver it to the Company's
Principal Office at 440 Lincoln Street, Worcester, MA 01653, or to an authorized
representative. Mailing or delivery must occur within ten days after receipt of
the Contract for cancellation to be effective.

In most states, the Company will pay the Owner the Contract's Accumulated Value,
adjusted for any Market Value Adjustment for amounts allocated to a Guarantee
Period Account, plus any amounts deducted for taxes, charges or fees. However,
if the Contract was purchased as an IRA or issued in a state that requires a
full refund of the initial payment(s), the Company will provide a refund equal
to your gross payment(s). In some states, the refund may equal the greater of
(a) your gross payment(s) or (b) the Accumulated Value adjusted for any Market
Value Adjustment, plus any amounts deducted for taxes, charges or fees. At the
time the

30
<PAGE>
Contract is issued, the "Right to Examine" provision on the cover of the
Contract will specifically indicate what the refund will be and the time period
allowed to exercise the right to cancel.

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

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

D. TRANSFER PRIVILEGE

Prior to the Annuity Date, the Owner may transfer amounts among investment
options at any time upon written or telephone request to the Company. As
discussed in "A. Payments," a properly completed authorization form must be on
file before telephone requests will be honored. Transfer values will be based on
the Accumulated Value next computed after receipt of the transfer request.

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

Currently, the Company does not charge for transfers. The first 12 transfers in
a Contract year are guaranteed to be free of any transfer charge. For each
subsequent transfer in a Contract year, the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse it for the expense of
processing transfers. The first automatic transfer or rebalancing under an
Automatic Transfers (Dollar Cost Averaging) program, or Automatic Account
Rebalancing program counts as one transfer for purposes of the 12 transfers
guaranteed to be free of a transfer charge in each Contract year. Each
subsequent automatic transfer or rebalancing under that request is without
charge and does not reduce the remaining number of transfers which may be made
free of charge in that Contract year.

The Contracts are not designed for use by individuals, professional market
timing organizations, or other entities that do "market timing," programmed
transfers, frequent transfers, or transfers that are large in relation to the
total assets of an Underlying Fund. These and similar activities may be
disruptive to the Underlying Funds, and may adversely affect an Underlying
Fund's ability to invest effectively in accordance with its investment
objectives and policies. If it appears that there is a pattern of transfers that
coincides with a market timing strategy and/or that is disruptive to the
Underlying Funds, the Company reserves the right to refuse transfers or to take
other action to prevent or limit the use of such activities.

AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING). You may elect automatic transfers
of a predetermined dollar amount on a periodic basis from the Fixed Account or
the Sub-Accounts investing in the AIT Money Market Fund and the AIT Select
Investment Grade Income Fund ("source accounts"). You may elect automatic
transfers to one or more Sub-Accounts, subject to the following:

- the predetermined dollar amount may not be less than $100;

- the periodic basis may be monthly, quarterly, semi-annually or annually;

- automatic transfers may not be made into the selected source account,
Fixed Account, or the Guarantee Period Accounts; and

- if an automatic transfer would reduce the balance in the source account(s)
to less than $100, the entire balance will be transferred proportionately
to the chosen Sub-Accounts.

31
<PAGE>
Automatic transfers from a particular source account will continue until the
earlier of:

- the amount in the source account on a transfer date is zero; or

- the Owner's request to terminate the option is received by the Company.

If additional amounts are allocated to a source account before its balance has
fallen to zero, those additional amounts will also be automatically transferred.
The original automatic transfer allocations will apply to all amounts in that
source account unless you provide new allocation instructions. New allocation
instructions will apply to the entire balance in the source account. If
additional amounts are allocated to a source account after its balance has
fallen to zero, automatic transfers will not begin again unless you specifically
instruct the Company to do so.

To the extent permitted by law, the Company reserves the right, from time to
time, to credit an enhanced interest rate to an initial and/or subsequent
payment made to the Fixed Account, which is then used as the source account from
which to process automatic transfers. For more information see ENHANCED
AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAM in the SAI.

AUTOMATIC ACCOUNT REBALANCING. The Owner may request automatic rebalancing of
Sub-Account allocations on a monthly, quarterly, semi-annual or annual basis in
accordance with his/her specified percentage allocations. As frequently as
elected by the Owner, the Company will review the percentage allocations in the
Underlying Funds and, if necessary, transfer amounts to ensure conformity with
the designated percentage allocation mix. If the amount necessary to
re-establish the mix on any scheduled date is less than $100, no transfer will
be made.

Automatic Account Rebalancing will continue until (1) the Owner's request to
terminate or change the option is received by the Company or (2) the end date
designated by the Owner when the option was elected. If a subsequent payment is
allocated in a manner different from the percentage allocation mix in effect on
the date the payment is received, on the next scheduled rebalancing date the
payment will be reallocated in accordance with the existing mix.

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

E. SURRENDER AND WITHDRAWALS

Before the Annuity Date, an Owner may surrender the Contract for its Surrender
Value or withdraw a portion of its Accumulated Value. In the case of surrender,
the Owner must send the Contract and a signed written request for surrender,
satisfactory to the Company, to the Principal Office. The Surrender Value will
be calculated based on the Contract's Accumulated Value as of the Valuation
Date.

In the case of a withdrawal, the Owner must submit to the Principal Office a
signed, written request indicating the desired dollar amount and the investment
option from which such amount is to be withdrawn. A withdrawal from a
Sub-Account will result in cancellation of a number of units equivalent in value
to the amount withdrawn. The amount withdrawn will equal the amount requested by
the Owner plus any applicable surrender charge. Each withdrawal must be a
minimum of $100 and the Accumulated Value of the Contract may not be reduced to
less than $1,000.

A surrender charge and a Contract fee may apply when a withdrawal is made or a
Contract is surrendered. See CHARGES AND DEDUCTIONS. However, each calendar year
prior to the Annuity Date, an Owner may withdraw a portion of the Contract's
Surrender Value without any applicable surrender charge; see

32
<PAGE>

"E. Surrender Charge," "Withdrawal Without Surrender Charge" under CHARGES AND
DEDUCTIONS. Amounts withdrawn from a Guarantee Period Account prior to the end
of the applicable Guarantee Period will be subject to a Market Value Adjustment,
as described under GUARANTEE PERIOD ACCOUNTS.

Any distribution is normally payable within seven days following the Company's
receipt of the surrender or withdrawal request. The Company reserves the right
to defer surrenders and withdrawals of amounts allocated to the Company's Fixed
Account and Guarantee Period Accounts for a period not to exceed six months. The
Company reserves the right to defer surrenders and withdrawals of amounts in
each Sub-Account in any period during which:

- trading on the New York Stock Exchange is restricted as determined by the
SEC or such Exchange is closed for other than weekends and holidays,

- the SEC has by order permitted such suspension, or

- an emergency, as determined by the SEC, exists such that disposal of
portfolio securities or valuation of assets of a separate account is not
reasonably practicable.

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

For information about Withdrawals after the Annuity Date, see "F. Withdrawals
After the Annuity Date" under ANNUITIZATION -- THE PAYOUT PHASE.

SYSTEMATIC WITHDRAWALS. The Owner may elect an automatic schedule of
withdrawals (systematic withdrawals) from amounts in the Sub-Accounts and/or the
Fixed Account on a periodic basis (monthly, bimonthly, quarterly, semi-annually
or annually). Systematic withdrawals from Guarantee Period Accounts are not
available. The Owner may request:

- the withdrawal of a SPECIFIC DOLLAR AMOUNT and the percentage of this
amount to be taken from each designated Sub-Account and/or the Fixed
Account; or

- the withdrawal of a SPECIFIC PERCENTAGE of the Accumulated Value
calculated as of the withdrawal dates, and may designate the percentage of
this amount which should be taken from each account.

The first withdrawal will take place on the latest of 15 days after Issue Date,
the date the written request is received at the Principal Office, or on a date
specified by the Owner.

Systematic withdrawals will first be taken from amounts available as a
"Withdrawal Without Surrender Charge" (see "E. Surrender Charge," "Withdrawal
Without Surrender Charge" under CHARGES AND DEDUCTIONS); then from any
applicable payments not subject to a surrender charge, if any; then from
payments subject to a surrender charge. Any applicable surrender charge will be
deducted from the Contract's remaining Accumulated Value.

The minimum amount of each automatic withdrawal is $100 and the Accumulated
Value of the Contract may not be reduced to less than $1,000. Systematic
withdrawals will cease automatically on the Annuity Date. The Owner may change
or terminate systematic withdrawals only by written request to the Principal
Office.

LIFE EXPECTANCY DISTRIBUTIONS (for Qualified Contracts and Contracts issued
under Section 457 Deferred Compensation Plans only). Prior to the Annuity Date,
an Owner may elect to make a series of systematic withdrawals from the Contract
according to the Company's life expectancy distribution ("LED") option by
returning a properly signed LED request form to the Principal Office. Where the
Owner is a trust or other nonnatural person, the Owner may elect the LED option
based on the Annuitant's life expectancy.

33
<PAGE>
If an Owner elects the Company's LED option, in each calendar year a fraction of
the Accumulated Value is withdrawn without a surrender charge, based on the
Owner's life expectancy (or the joint life expectancy of the Owner and a
beneficiary.) The numerator of the fraction is 1 (one). The denominator of the
fraction will be either:

- the remaining life expectancy of the Owner (or Owner and beneficiary), as
determined annually by the Company; or

- the prior year's life expectancy, minus one.

The resulting fraction, expressed as a percentage, is then applied to the
Accumulated Value at the beginning of the year to determine the amount to be
distributed during the year. The Owner may choose to have the applicable life
expectancy redetermined each year or use the prior year's life expectancy, minus
one. Under the Company's LED option, the amount withdrawn from the Contract
changes each year.

The Owner may elect periodic LED distributions on a monthly, bi-monthly,
quarterly, semi-annual, or annual basis. The Owner may terminate the LED option
at any time. The LED option will terminate automatically on the latest possible
Annuity Date permitted under the Contract, at which time an annuity payout
option must be selected.

The LED option may not produce annual distributions that meet the definition of
"substantially equal periodic payments" as defined under Code Section 72(t). The
withdrawals may be treated by the Internal Revenue Service (IRS) as premature
distributions from the Contract and may be subject to a 10% federal tax penalty.
Owners seeking distributions over their life under this definition should
consult their tax advisor. For more information, see "C. Taxation of the
Contract in General" under FEDERAL TAX CONSIDERATIONS. IN ADDITION, IF THE
AMOUNT NECESSARY TO MEET THE "SUBSTANTIALLY EQUAL PERIODIC PAYMENT" DEFINITION
IS GREATER THAN THE COMPANY'S LED AMOUNT, A SURRENDER CHARGE MAY APPLY TO THE
AMOUNT IN EXCESS OF THE LED AMOUNT.

SYSTEMATIC LEVEL FREE OF SURRENDER CHARGE WITHDRAWAL PROGRAM. In order to
receive withdrawals without application of any surrender charge, the Owner may
pre-authorize level periodic withdrawals under the Systematic Level Free of
Surrender Charge Withdrawal Program. Withdrawals under the Program may be made
on a monthly, bi-monthly, quarterly, semi-annual or annual basis. In order to
ensure that no surrender charge is ever applied, the periodic withdrawals in any
calendar year are limited to 10% of the total of all payments invested in the
Contract as reduced by certain prior withdrawal(s) of payments. For more
information on how this amount is calculated, see "E. Surrender Charge,"
"Withdrawal Without Surrender Charge" under CHARGES AND DEDUCTIONS.

The program will automatically terminate if a withdrawal that is not part of the
program is made. Otherwise, withdrawals will continue until all available
Accumulated Value has been exhausted or until the Owner terminates the program
by written request.

F. DEATH BENEFIT

A death benefit is payable if the Owner or the first of Joint Owners dies prior
to the Annuity Date. If the Owner is a natural person, no death benefit is
payable at the death of any Annuitant. If the Owner is not a natural person, a
death benefit will be paid upon the death of any Annuitant. A spousal
beneficiary may elect to continue the Contract rather than receive the death
benefit as provided in "G. The Spouse of the Owner as Beneficiary."

STANDARD DEATH BENEFIT. Unless an enhanced death benefit is elected at issue,
the standard death benefit will be paid. The standard death benefit is equal to
the greater of (a) the Contract's Accumulated Value on the Valuation Date that
the Company receives proof of death, increased by any positive Market Value
Adjustment or (b) gross payments prior to the date of death, proportionately
reduced to reflect withdrawals.

34
<PAGE>
For each withdrawal under (b), the proportionate reduction is calculated by
multiplying the standard death benefit immediately prior to the withdrawal by
the following fraction:

Amount of the withdrawal
------------------------------------------------
Accumulated Value immediately prior to the withdrawal

OPTIONAL ENHANCED DEATH BENEFIT RIDER. When applying for the Contract, an Owner
may elect the optional 6% Enhanced Death Benefit With Annual Step-Up Rider. In
New York, the Enhanced Death Benefit With Annual Step-Up does not offer the 6%
accumulation. A separate charge for an Enhanced Death Benefit Rider is made
against the Contract's Accumulated Value on the last day of each Contract month
for the coverage provided during that month and, if applicable, a prorated
amount on the date the Rider is terminated. The charge is made through a
pro-rata reduction from the invested accounts (based on relative values) of
Accumulation Units in the Sub-Accounts and dollar amounts in the Fixed and
Guarantee Period Accounts. For specific charges and more detail, see
"C. Optional Rider Charges" under CHARGES AND DEDUCTIONS.

The 6% Enhanced Death Benefit With Annual Step-Up Rider provides a death benefit
guarantee if death of an Owner (or an Annuitant if the Owner is not a natural
person) occurs before the Annuity Date. The calculation of the death benefit
depends upon whether death occurs before or on or after the 80th birthday:

I. DEATH BEFORE 80TH BIRTHDAY. If an Owner (or an Annuitant if the Owner is not
a natural person) dies before the Annuity Date and before his/her 80th birthday,
the death benefit is equal to the GREATEST of:

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

(b) gross payments, accumulated daily at an effective annual yield of 6%
from the date each payment is applied until the date of death,
proportionately reduced to reflect withdrawals (in New York, the 6% is
not available; therefore (b) equals gross payments proportionately
reduced to reflect withdrawals); and

(c) the highest Accumulated Value on any Contract anniversary date prior to
the date of death, as determined after being increased for any positive
Market Value Adjustment and subsequent payments and proportionately
reduced for subsequent withdrawals.

The value determined in section (b) above cannot exceed 200% of the total of
gross payments, proportionately reduced for subsequent withdrawals.

II. DEATH ON OR AFTER 80TH BIRTHDAY. If an Owner (or the Annuitant if the
Owner is not a natural person) dies before the Annuity Date but on or after
his/her 80th birthday, the death benefit is equal to the GREATER of:

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

(b) the death benefit, as calculated under Section I above, that would have
been payable on the Contract anniversary prior to the deceased's 80th
birthday, increased for subsequent payments and proportionately reduced
for subsequent withdrawals.

Proportionate reductions are calculated in the same manner as described above
under "Standard Death Benefit."

PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit
generally will be paid to the beneficiary in one sum upon receipt of proof of
death at the Principal Office, unless the Owner has elected to apply the
proceeds to a life annuity not extending beyond the beneficiary's life
expectancy. Instead of payment in one sum, the beneficiary may, by written
request, elect to:

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

35
<PAGE>
(2) receive distributions over the life of the beneficiary or for a period
certain not extending beyond the beneficiary's life expectancy, with
annuity benefit payments beginning within one year from the date of
death.

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

G. THE SPOUSE OF THE OWNER AS BENEFICIARY

If the sole beneficiary is the deceased Owner's spouse, he or she may, by
written request, continue the Contract in lieu of receiving payment of the death
benefit. The spouse will then become the Owner and Annuitant subject to the
following:

(1) any value in the Guarantee Period Accounts will be transferred to the
AIT Money Market Sub-Account; and

(2) the excess, if any, of the death benefit over the Contract's
Accumulated Value also will be added to the AIT Money Market Sub-Account.

The resulting value will never be subject to a surrender charge when withdrawn.
The new Owner may also make additional payments, but a surrender charge will
apply to these additional amounts if they are withdrawn before they have been
invested in the Contract for at least nine years. All other rights and benefits
provided in the Contract will continue, except that any subsequent spouse of the
new Owner, if named as beneficiary, will not be entitled to continue the
Contract when the new Owner dies.

H. OPTIONAL MINIMUM GUARANTEED ANNUITY PAYOUT (M-GAP) RIDER (NOT AVAILABLE IN
NEW YORK)

An optional Minimum Guaranteed Annuity Payout (M-GAP) Rider is currently
available in most jurisdictions on the Issue Date for a separate monthly charge
(see, "C. Optional Rider Charges" under CHARGES AND DEDUCTIONS). The M-GAP Rider
guarantees a minimum amount of fixed annuity lifetime income during the annuity
payout phase after a ten-year or a fifteen-year waiting period, subject to the
conditions described below. The M-GAP Rider may not be available in all
jurisdictions. The Company reserves the right to terminate the availability of
the M-GAP Rider at any time. Such a termination would not effect Riders issued
prior to the termination date but, as noted below, Owners would not be able to
purchase a new Rider under the repurchase feature. (See "Repurchase Feature.")

The M-GAP Rider does not create Accumulated Value or guarantee performance of
any investment option. Annuitization under the terms of this Rider will occur at
the Company's guaranteed fixed annuity option rates listed under the Annuity
Option Tables in the Contract. Because this Rider is based on guaranteed
actuarial factors, the level of lifetime income that it guarantees may often be
less than the level that would be provided by applying the then current annuity
factors. Therefore, the Rider should be regarded as providing a guarantee of a
minimum amount of annuity income.

An M-GAP Benefit Base is determined on the Rider's effective date and each
applicable Contract anniversary thereafter. The M-GAP Benefit Base, less any
applicable premium tax, is the value that will be annuitized at the Company's
guaranteed fixed annuity option rates if the Rider is exercised. As described
below, withdrawals will reduce the Benefit Base.

36
<PAGE>
The M-GAP Benefit Base is equal to the greatest of:

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

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

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

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

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

CONDITIONS ON ELECTION OF THE M-GAP RIDER. The following conditions apply to
the election of the M-GAP Rider:

- The Owner must elect the M-GAP Rider at Contract issue.

- The Owner may not elect to purchase or repurchase a Rider with a ten-year
waiting period if at the time of election the youngest Owner has reached
his or her 87th birthday.

- The Owner may not elect to purchase or repurchase a Rider with a
fifteen-year waiting period if at the time of election the youngest Owner
has reached his or her 82nd birthday (the age limitations may be lower in
some jurisdictions.)

REPURCHASE FEATURE. On any Contract anniversary or within thirty days
immediately following any Contract anniversary, if the M-GAP Rider is still
being offered by the Company, the Owner may elect to terminate and repurchase
the Rider, thereby resetting the benefit based on the Contract's then current
Accumulated Value. The repurchase will be effective as of the termination date
of the prior Rider. A new waiting period, equal to or greater than the prior
waiting period, will commence as of that date. If the benefit is repurchased,
the Company's then current monthly charge for the M-GAP Rider will apply.

EXERCISING THE M-GAP RIDER. The following conditions apply to the exercise of
the M-GAP Rider:

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

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

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

TERMINATING THE M-GAP RIDER. The following conditions apply to the termination
of the M-GAP Rider:

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

37
<PAGE>
- The Owner may terminate the M-GAP Rider any time after the seventh
Contract anniversary following the effective date of the Rider.

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

- The M-GAP Rider will terminate on the date the Contract is surrendered or
annuitized, or on the date that a death benefit is payable unless the
Contract is continued under "G. The Spouse of the Owner as Beneficiary"
(see DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE).

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

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

<TABLE>
<CAPTION>
CONTRACT MINIMUM MINIMUM
ANNIVERSARY GUARANTEED GUARANTEED
AT EXERCISE BENEFIT BASE ANNUAL INCOME(1)
----------- ------------ ----------------
<S> <C> <C>
10 $162,889 $12,178
15 $207,893 $17,688
</TABLE>

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

I. ASSIGNMENT

The Contract, other than one sold in connection with certain qualified plans,
may be assigned by the Owner at any time prior to the Annuity Date and prior to
the death of an Owner (see FEDERAL TAX CONSIDERATIONS). The Company will not be
deemed to have knowledge of an assignment unless it is made in writing and filed
at the Principal Office. The Company will not assume responsibility for
determining the validity of any assignment. If an assignment of the Contract is
in effect on the Annuity Date, the Company reserves the right to pay to the
assignee, in one sum, that portion of the Surrender Value of the Contract to
which the assignee appears to be entitled. The Company will pay the balance, if
any, in one sum to the Owner in full settlement of all liability under the
Contract. The interest of the Owner and of any beneficiary will be subject to
any assignment.

38
<PAGE>
ANNUITIZATION -- THE PAYOUT PHASE

Subject to certain restrictions discussed below, at annuitization the Owner has
the right:

- to select the annuity payout option under which annuity benefit payments
are to be made;

- to determine whether those payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. If a variable
payout annuity option is selected, the Owner must choose an Annuity
Benefit Payment Change Frequency ("Change Frequency") and the date the
first Change Frequency will occur; and

- to select one of the available Assumed Investment Returns ("AIR") for a
variable option (see "D. Variable Annuity Benefit Payments" below for
details);

A. ELECTING THE ANNUITY DATE

Generally, annuity benefit payments under the Contract will begin on the Annuity
Date. The Annuity Date:

- may not be earlier than the first Contract Anniversary; and

- must occur on the first day of any month before the Owner's 99th birthday.
In some states, the Annuity Date may be earlier than Owner's 99th
birthday.

If the Owner does not select an Annuity Date, the Annuity Date will be the later
of (a) the Owner's age 85 or (b) one year after the Issue Date.

If there are Joint Owners, the age of the younger will determine the latest
possible Annuity Date. The Owner may elect to change the Annuity Date by sending
a written request to the Principal Office at least one month before the earlier
of the new Annuity Date or the currently scheduled date.

If the Annuity Date occurs when the Owner is at an advanced age, it is possible
that the Contract will not be considered an annuity for federal tax purposes. In
addition, the Internal Revenue Code ("the Code") and/or the terms of qualified
plans may impose limitations on the age at which annuity benefit payments may
commence and the type of annuity payout option that may be elected. The Owner
should carefully review the Annuity Date and the annuity payout options with
his/her tax adviser. See also FEDERAL TAX CONSIDERATIONS for further
information.

B. CHOOSING THE ANNUITY PAYOUT OPTION

Regardless of how payments were allocated during the accumulation phase, the
Owner may choose a variable annuity payout option, a fixed annuity payout option
or a combination fixed and variable annuity payout option. Currently, all of the
variable annuity payout options described below are available and may be funded
through all of the variable Sub-Accounts. In addition, each of the variable
annuity payout options is also available on a fixed basis. The Company may offer
other annuity payout options.

The Owner may change the annuity payout option up to one month before the
Annuity Date. If the Owner fails to choose an annuity payout option, monthly
benefit payments will be made under a variable Life with Cash Back annuity
payout option. If the Owner exercises the M-GAP Rider, annuity benefit payments
must be made under a fixed annuity payout option involving a life contingency
option.

The annuity payout option selected must result in an initial payment of at least
$100 (a lower amount may be required in certain jurisdictions.) The Company
reserves the right to increase this minimum amount. If the

39
<PAGE>
annuity payout option selected does not produce an initial payment which meets
this minimum, a single payment may be made.

FIXED ANNUITY PAYOUT OPTIONS. If the Owner selects a fixed annuity payout
option, each monthly annuity benefit payment will be equal to the first (unless
a withdrawal is made or as otherwise described under certain reduced survivor
annuity benefits.) Any portion of the Contract's Accumulated Value converted to
a fixed annuity will be held in the Company's General Account. The Contract
provides guaranteed fixed annuity option rates that determine the dollar amount
of the first payment under each form of fixed annuity for each $1,000 of applied
value. These rates are based on the Annuity 2000 Mortality Table and a 3% AIR.
The Company may offer annuity rates more favorable than those contained in the
Contract. Any such rates will be applied uniformly to all Owners of the same
class. For more specific information about fixed annuity payout options, see the
Contract.

VARIABLE ANNUITY PAYOUT OPTIONS. If the Owner selects a variable annuity payout
option, he/she will receive monthly payments equal to the value of the fixed
number of Annuity Units in the chosen Sub-Account(s). The first variable annuity
benefit payment will be based on the current annuity option rates made available
by the Company at the time the variable annuity payout option is selected.
Annuity option rates determine the dollar amount of the first payment for each
$1,000 of applied value. The annuity option rates are based on the Annuity 2000
Mortality Table and a 3% AIR.

Since the value of an Annuity Unit in a Sub-Account reflects the investment
performance of the Sub-Account, the amount of each monthly annuity benefit
payment will usually vary. However, under this Contract, if the Owner elects a
variable payout option, he or she must also select a monthly, quarterly,
semi-annual or annual Change Frequency. The Change Frequency is the frequency
that changes due to the Sub-Account's investment performance will be reflected
in the dollar value of a variable annuity benefit payment. As such, the Change
Frequency chosen will determine how frequently monthly variable annuity payments
will vary. For example, if a monthly Change Frequency is in effect, payments may
vary on a monthly basis. If a quarterly Change Frequency is selected, the amount
of each monthly payment may change every three months and will be level within
each three month cycle.

At the time the Change Frequency is elected, the Owner must also select the date
the first change is to occur. This date may not be later than the length of the
Change Frequency elected. For example, if a semi-annual Change Frequency is
elected, the date of the first change may not be later than six months after the
Annuity Date. If a quarterly Change Frequency is elected, the date of the first
change may not be later than three months after the Annuity Date.

C. DESCRIPTION OF ANNUITY PAYOUT OPTIONS

The Company currently provides the following annuity payout options:

LIFE ANNUITY PAYOUT OPTION

- SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life.
Payments cease with the last annuity benefit payment due prior to the
Annuitant's death.

- JOINT AND SURVIVOR ANNUITIES -- Monthly payments during the Annuitant's
and Joint Annuitant's joint lifetimes. Upon the first death, payments will
continue for the remaining lifetime of the survivor at a previously
elected level of 100%, two-thirds or one-half of the total number of
Annuity Units.

LIFE WITH PERIOD CERTAIN ANNUITY PAYOUT OPTION

- SINGLE LIFE ANNUITY -- Monthly payments guaranteed for a specified number
of years and continuing thereafter during the Annuitant's lifetime. If the
Annuitant dies before all guaranteed payments have

40
<PAGE>

been made, the remaining payments continue to the Owner or the Beneficiary
(whichever is applicable).

- JOINT AND SURVIVOR ANNUITIES -- Monthly payments guaranteed for a
specified number of years and continuing during the Annuitant's and Joint
Annuitant's joint lifetimes. Upon the first death, payments continue for
the survivor's remaining lifetime at the previously elected level of 100%,
two-thirds or one-half of the Annuity Units. If the surviving Annuitant
dies before all guaranteed payments have been made, the remaining payments
continue to the Owner or the Beneficiary (whichever is applicable).

LIFE WITH CASH BACK ANNUITY PAYOUT OPTION

- SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life.
Thereafter, any excess of the original applied Annuity Value, over the
total amount of annuity benefit payments made and withdrawals taken, will
be paid to the Owner or the Beneficiary (whichever is applicable).

- JOINT AND SURVIVOR ANNUITIES -- Monthly payments during the Annuitant's
and Joint Annuitant's joint lifetimes. At the first death, payments
continue for the survivor's remaining lifetime at the previously elected
level of 100%, two-thirds or one-half of the Annuity Units. Thereafter,
any excess of the original applied Annuity Value, over the total amount of
annuity benefit payments made and withdrawals taken, will be paid to the
Owner or the Beneficiary (whichever is applicable).

PERIOD CERTAIN ANNUITY PAYOUT OPTION

Monthly annuity benefit payments for a chosen number of years ranging from five
to thirty or any other period currently offered by the Company are paid. If the
Annuitant dies before the end of the period, remaining payments will continue.
The period certain option does not involve a life contingency. In the
computation of the payments under this option, the charge for annuity rate
guarantees, which includes a factor for mortality risks, is made.

D. VARIABLE ANNUITY BENEFIT PAYMENTS

THE ANNUITY UNIT. On and after the Annuity Date, the Annuity Unit is a measure
of the value of the monthly annuity benefit payments under a variable annuity
payout option. The value of an Annuity Unit in each Sub-Account on its inception
date was set at $1.00. The value of an Annuity Unit of a Sub-Account on any
Valuation Date thereafter is equal to the value of the Annuity Unit on the
immediately preceding Valuation Date multiplied by the product of:

(1) a discount factor equivalent to the AIR; and

(2) the Net Investment Factor of the Sub-Account funding the annuity benefit
payments for the applicable Valuation Period.

Annuity benefit payments will increase from one payment date to the next if the
annualized net rate of return during that period is greater than the AIR and
will decrease if the annualized net rate of return is less than the AIR. Where
permitted by law, the Owner may select an AIR of 3%, 5%, or 7%. A higher AIR
will result in a higher initial payment. However, subsequent payments will
increase more slowly during periods when actual investment performance exceeds
the AIR, and will decrease more rapidly during periods when investment
performance is less than the AIR.

DETERMINATION OF THE FIRST ANNUITY BENEFIT PAYMENT. The amount of the first
periodic variable annuity benefit payment depends on the:

- annuity payout option chosen;

41
<PAGE>
- length of the annuity payout option elected;

- age of the Annuitant;

- gender of the Annuitant (if applicable, see "H. NORRIS Decision");

- value of the amount applied under the annuity payout option;

- applicable annuity option rates based on the Annuity 2000 Mortality Table;
and

- AIR selected.

The dollar amount of the first periodic annuity benefit payment is determined by
multiplying:

(1) the Accumulated Value applied under that option after application of any
Market Value Adjustment and less premium tax, if any, (or the amount of
the death benefit, if applicable) divided by $1,000, by

(2) the applicable amount of the first monthly payment per $1,000 of value.

DETERMINATION OF THE NUMBER OF ANNUITY UNITS. The dollar amount of the first
variable annuity benefit payment is then divided by the value of an Annuity Unit
of the selected Sub-Account(s) to determine the number of Annuity Units
represented by the first payment. The number of Annuity Units remains fixed
under all annuity payout options (except for the survivor annuity benefit
payment under the joint and two-thirds or joint and one-half option) unless the
Owner transfers among Sub-Accounts, makes a withdrawal, or units are split.

DOLLAR AMOUNT OF SUBSEQUENT VARIABLE ANNUITY BENEFIT PAYMENTS. For each
subsequent payment, the dollar amount of the variable annuity benefit payment is
determined by multiplying this fixed number of Annuity Units by the value of an
Annuity Unit on the applicable Valuation Date. The dollar amount of each
periodic variable annuity benefit payment after the first will vary with
subsequent variations in the value of the Annuity Unit of the selected
Sub-Account(s).

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

PAYMENT OF ANNUITY BENEFIT PAYMENTS. The Owner will receive the annuity benefit
payments unless he/ she requests in writing that payments be made to another
person, persons, or entity. If the Owner (or, if there are Joint Owners, the
surviving Joint Owner) dies on or after the Annuity Date, the beneficiary will
become the Owner of the Contract. Any remaining annuity benefit payments will
continue to the beneficiary in accordance with the terms of the annuity benefit
payment option selected. If there are Joint Owners on or after the Annuity Date,
upon the first Owner's death, any remaining annuity benefit payments will
continue to the surviving Joint Owner in accordance with the terms of the
annuity benefit payment option selected.

If an Annuitant dies on or after the Annuity Date but before all guaranteed
annuity benefit payments have been made, any remaining guaranteed payments will
continue to be paid to the Owner or the payee the Owner has designated. Unless
otherwise indicated by the Owner, the present value of any remaining guaranteed
annuity benefit payments may be paid in a single sum to the Owner. For
discussion of present value calculation, see "Calculation of Present Value"
below.

E. TRANSFERS OF ANNUITY UNITS

After the Annuity Date and prior to the death of the Annuitant, the Owner may
transfer among the available Sub-Accounts upon written or telephone request to
the Company. As discussed in "A. Payments," a properly

42
<PAGE>
completed authorization form must be on file before telephone requests will be
honored. A designated number of Annuity Units equal to the dollar amount of the
transfer requested will be exchanged for an equivalent dollar amount of Annuity
Units of another Sub-Account. Transfer values will be based on the Annuity Value
next computed after receipt of the transfer request.

Automatic transfers (Automatic Account Rebalancing) are available during the
annuitization phase subject to the same rules described in "D. Transfer
Privilege."

F. WITHDRAWALS AFTER THE ANNUITY DATE

WITHDRAWALS AFTER THE ANNUITY DATE FROM QUALIFIED AND NON-QUALIFIED CONTRACTS
MAY HAVE ADVERSE TAX CONSEQUENCES. BEFORE MAKING A WITHDRAWAL, PLEASE CONSULT
YOUR TAX ADVISOR AND SEE "C. TAXATION OF THE CONTRACT IN GENERAL," "WITHDRAWALS
AFTER ANNUITIZATION" UNDER FEDERAL TAX CONSIDERATIONS.

After the Annuity Date and prior to the death of the Annuitant, the Owner may
take withdrawals from the Contract. The Owner must submit to the Principal
Office a signed, written request indicating the desired dollar amount of the
withdrawal. The minimum amount of a withdrawal is $1,000. If the amount
requested is greater than the maximum amount that may be withdrawn at that time,
the Company will allow the withdrawal only up to the maximum amount.

The type of withdrawal and the number of withdrawals that may be made each
calendar year depend upon whether the Owner annuitizes under a life annuity
payout option with payments based on the life of one or more Annuitants with no
guaranteed payments (a "Life" annuity payout option), under a life annuity
payout option that in part provides for a guaranteed number of payments (a "Life
With Period Certain" or "Life With Cash Back" annuity payout option), or an
annuity payout option based on a guaranteed number of payments (a "Period
Certain" annuity payout option).

WITHDRAWALS UNDER LIFE ANNUITY PAYOUT OPTIONS

The Owner may make one Payment Withdrawal in each calendar year. A Payment
Withdrawal cannot exceed the previous monthly annuity benefit payment multiplied
by ten (10). The amount of each Payment Withdrawal represents a percentage of
the present value of the remaining annuity benefit payments.

WITHDRAWALS UNDER LIFE WITH PERIOD CERTAIN OR LIFE WITH CASH BACK ANNUITY PAYOUT
OPTIONS

The Owner may make one Present Value Withdrawal in each calendar year, if there
are remaining GUARANTEED annuity benefit payments. The amount of each Present
Value Withdrawal represents a percentage of the present value of the remaining
guaranteed annuity benefit payments. Each year a Present Value Withdrawal is
taken, the Company records the percentage of the present value of the then
remaining guaranteed annuity benefit payments that was withdrawn. The total
percentage withdrawn over the life of the Contract cannot exceed 75%. This means
that each Present Value Withdrawal is limited by the REMAINING AVAILABLE
PERCENTAGE (For example, assume that in year three the Owner withdraws 15% of
the then current present value of the remaining guaranteed annuity benefit
payments. In year seven, the Owner withdraws 20% of the then current

43
<PAGE>
present value of the remaining guaranteed annuity benefit payments. Through year
seven the total percentage withdrawn is 35%. After year seven, the Owner may
make Present Value Withdrawal(s) of up to 40% (75% - 35%) of the present value
of any remaining guaranteed annuity benefit payments).

Under a Life with Period Certain annuity payout option or Life with Cash Back
annuity payout option, if the Annuitant is still living after the guaranteed
annuity benefit payments have been made, the number of Annuity Units or dollar
amount applied to future annuity benefit payments will be restored as if no
Present Value Withdrawal(s) had taken place. See "Calculation of Proportionate
Reduction -- Present Value Withdrawals," below.

WITHDRAWALS UNDER PERIOD CERTAIN ANNUITY PAYOUT OPTIONS

The Owner may make multiple Present Value Withdrawals in each calendar year, up
to 100% of the present value of the guaranteed annuity benefit payments.
Withdrawal of 100% of the present value of the guaranteed annuity benefit
payments will result in termination of the Contract.

The amount of each Payment Withdrawal or Present Value Withdrawal represents a
portion of the present value of the remaining annuity benefit payments or
remaining guaranteed annuity benefit payments, respectively, and proportionately
reduces the number of Annuity Units (under a variable annuity payout option) or
dollar amount (under a fixed annuity payout option) applied to future annuity
benefit payments. Because each variable annuity benefit payment is determined by
multiplying the number of Annuity Units by the value of an Annuity Unit, the
reduction in the number of Annuity Units will result in lower future variable
annuity benefit payments. See "Calculation of Proportionate Reduction," below.
The present value is calculated with a discount rate that will include an
additional charge if a withdrawal is taken within 5 years of the Issue Date. See
"Calculation of Present Value," below.

CALCULATION OF PROPORTIONATE REDUCTION. Each Payment Withdrawal proportionately
reduces the number of Annuity Units applied to each future variable annuity
benefit payment or the dollar amount applied to each future fixed annuity
benefit payment. Each Present Value Withdrawal proportionately reduces the
number of Annuity Units applied to each future GUARANTEED variable annuity
benefit payment or the dollar amount applied to each future GUARANTEED fixed
annuity benefit payment. Because each variable annuity benefit payment is
determined by multiplying the number of Annuity Units by the value of an Annuity
Unit, the reduction in the number of Annuity Units will result in lower future
variable annuity benefit payments.

- PAYMENT WITHDRAWALS. Payment Withdrawals are available under Life, Life with
Period Certain, or Life with Cash Back annuity payout options. The Owner may
make one Payment Withdrawal in each calendar year.

Under a variable annuity payout option, the proportionate reduction in Annuity
Units is calculated by multiplying the number of Annuity Units in each future
variable annuity benefit payment (determined immediately prior to the
withdrawal) by the following fraction:

Amount of the variable withdrawal
------------------------------------------------

Present value of all remaining variable annuity
benefit payments immediately prior to the withdrawal

Under a fixed annuity payout option, the proportionate reduction is calculated
by multiplying the dollar amount of each future fixed annuity benefit payment
by a similar fraction, which is based on the amount of the fixed withdrawal
and present value of remaining guaranteed fixed annuity benefit payments.

44
<PAGE>
If a withdrawal is taken within 5 years of the Issue Date, the discount rate
used to calculate the present value will include an additional charge. See
"Calculation of Present Value," below.

- PRESENT VALUE WITHDRAWALS. Present Value Withdrawals are available under Life
with Period Certain or Life with Cash Back annuity payout options (the Owner
may make one Present Value Withdrawal in each calendar year, if there are
remaining guaranteed annuity benefit payments) and under Period Certain
annuity payout options (the Owner may make multiple Present Value Withdrawals
in each calendar year).

Under a variable annuity payout option, the proportionate reduction in Annuity
Units is calculated by multiplying the number of Annuity Units in each future
variable guaranteed annuity benefit payment (determined immediately prior to
the withdrawal) by the following fraction:

Amount of the variable withdrawal
-------------------------------------------------

Present value of remaining guaranteed variable annuity
benefit payments immediately prior to the withdrawal

Because each variable annuity benefit payment is determined by multiplying the
number of Annuity Units by the value of an Annuity Unit, the reduction in the
number of Annuity Units will result in lower variable annuity benefit payments
with respect to the guaranteed payments. Under a fixed annuity payout option,
the proportionate reduction will result in lower fixed annuity benefit
payments with respect to the guaranteed payments. However, under a Life with
Period Certain annuity payout option or Life with Cash Back annuity payout
option, if the Annuitant is still living after the guaranteed number of
annuity benefit payments has been made, the number of Annuity Units or dollar
amount of future annuity benefit payments will be restored as if no Present
Value Withdrawal(s) had taken place.

If a withdrawal is taken within 5 years of the Issue Date, the discount rate
used to calculate the present value will include an additional charge. See
"Calculation of Present Value," below.

CALCULATION OF PRESENT VALUE. When a withdrawal is taken, the present value of
future annuity benefit payments is calculated based on an assumed mortality
table and a discount rate. The mortality table that is used will be equal to the
mortality table used at the time of annuitization to determine the annuity
benefit payments (currently the Annuity 2000 Mortality Table with male, female,
or unisex rates, as appropriate). The discount rate is the AIR (for a variable
annuity payout option) or the interest rate (for a fixed annuity payout option)
that was used at the time of annuitization to determine the annuity benefit
payments. If a withdrawal is made within 5 years of the Issue Date, the discount
rate is increased by one of the following charges ("Withdrawal Adjustment
Charge"):

15 or more years of annuity benefit payments being valued -- 1.00%*

10-14 years of annuity benefit payments being valued -- 1.50%*

Less than 10 years of annuity benefit payments being valued -- 2.00%*

*The Withdrawal Adjustment Charge may be lower in some jurisdictions. See
Contract Specifications for the specific charge.

The Withdrawal Adjustment Charge does not apply if a withdrawal is made in
connection with the death of an Annuitant or if a withdrawal is made 5 or more
years after the Issue Date.

45
<PAGE>
mortality table that will be equal to the mortality table used at the time of
annuitization to determine the annuity benefit payments (currently the Annuity
2000 Mortality Table).

Because the impact of the Withdrawal Adjustment Charge will depend on the type
of withdrawal taken, you should carefully consider the following before making a
withdrawal (especially if you are making the withdrawal under a Life with Period
Certain or Life with Cash Back annuity payout option):

- For a Payment Withdrawal, the present value calculation (including any
applicable adjustments) affects the proportionate reduction of the
remaining number of Annuity Units (under a variable annuity payout option)
or dollar amount (under a fixed annuity payout option), applied to each
future annuity benefit payment, as explained in "Calculation of
Proportionate Reduction -- Payment Withdrawals," above. If a Withdrawal
Adjustment Charge applies, there will be a larger proportionate reduction
in the number of Annuity Units or the dollar amount applied to each future
annuity benefit payment. This will result in lower future annuity benefit
payments, all other things being equal.

- For a Present Value Withdrawal, the discount factor is used in determining
the maximum amount that can be withdrawn under the present value
calculation. If a Withdrawal Adjustment Charge applies, the discount
factor will be higher, and the maximum amount that can be withdrawn will
be lower. In addition, there will be a larger proportionate reduction in
the number of Annuity Units or the dollar amount applied to each future
guaranteed annuity benefit payment. This will result in lower future
annuity benefit payments with respect to the guaranteed payments, all
other things being equal. See "Calculation of Proportionate Reduction --
Present Value Withdrawals," above.

For examples comparing a Payment Withdrawal and a Present Value Withdrawal, see
APPENDIX D -- EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS.

DEFERRAL OF WITHDRAWALS. A withdrawal is normally payable within seven days
following the Company's receipt of the withdrawal request. However, the Company
reserves the right to defer withdrawals of amounts in each Sub-Account in any
period during which:

- trading on the New York Stock Exchange is restricted as determined by the
SEC or such Exchange is closed for other than weekends and holidays;

- the SEC has by order permitted such suspension; or

- an emergency, as determined by the SEC, exists such that disposal of
portfolio securities or valuation of assets of a separate account is not
reasonably practicable.

The Company reserves the right to defer withdrawals of amounts allocated to the
Company's General Account for a period not to exceed six months.

G. REVERSAL OF ANNUITIZATION

The Owner may reverse the decision to annuitize by written request to the
Company within 90 days of the Annuity Date. Upon receipt of such request, the
Company will return the Contract to the Accumulation Phase, subject to the
following:

(1) The value applied under a fixed annuity payout option at the time of
annuitization (except for the excess value of the M-GAP Benefit Base over
the Annuity Value, if applicable) will be treated as if it had been
invested in the Fixed Account of the Contract on that same date.

(2) The Sub-Account allocations that were in effect at the time of
annuitization will first be used for calculating the reversal. Any
transfers between variable Sub-Accounts during the Annuity Payout phase
will then be treated as transfers during the Accumulation Phase (As a
result, the Contract's

46
<PAGE>
Accumulated Value after the reversal will reflect the same Sub-Account
allocations that were in effect immediately prior to the reversal).

(3) Any annuity benefit payments paid and any withdrawals taken during the
Annuity Payout phase will be treated as a withdrawal of the Surrender
Value in the Accumulation Phase, as of the date of the payment or
withdrawal. Surrender charges may apply to these withdrawals, and there
may be adverse tax consequences. See "C. Taxation of the Contract in
General" under FEDERAL TAX CONSIDERATIONS.

If the Company learns of the Owner's decision to reverse annuitization after the
latest possible Annuity Date permitted under the Contract, the Company will
contact the Owner. The Owner must then immediately select an annuity payout
option (either the original annuity payout option or a different annuity payout
option). If the Owner does not select an annuity payout option, payments will
begin under a variable Life with Cash Back annuity payout option.

H. NORRIS DECISION

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

47
<PAGE>
CHARGES AND DEDUCTIONS

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

A. VARIABLE ACCOUNT DEDUCTIONS

MORTALITY AND EXPENSE RISK CHARGE. The Company assesses a charge against the
assets of each Sub-Account to compensate for certain mortality and expense risks
it has assumed. The mortality and expense risk charge is assessed daily at an
annual rate of 1.20% of each Sub-Account's assets. The charge is imposed during
both the accumulation phase and the annuity payout phase. The mortality risk
arises from the Company's guarantee that it will make annuity benefit payments
in accordance with annuity rate provisions established at the time the Contract
is issued for the life of the Annuitant (or in accordance with the annuity
payout option selected), no matter how long the Annuitant lives and no matter
how long all Annuitants as a class live. The mortality charge is deducted during
the annuity payout phase on all Contracts, including those that do not involve a
life contingency, even though the Company does not bear direct mortality risk
with respect to variable annuity settlement options that do not involve life
contingencies. The expense risk arises from the Company's guarantee that the
charges it makes will not exceed the limits described in the Contract and in
this Prospectus.

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

This charge may not be increased. Since mortality and expense risks involve
future contingencies that 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.

ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account with a
daily Administrative Expense Charge at an annual rate of 0.20% of the average
daily net assets of the Sub-Account. The charge is imposed during both the
accumulation phase and the annuity payout phase. This charge may not be
increased. The daily Administrative Expense Charge is assessed to help defray
administrative expenses actually incurred in the administration of the
Sub-Account. There is no direct relationship, however, between the amount of
administrative expenses imposed on a given Contract and the amount of expenses
actually attributable to that Contract.

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

OTHER CHARGES. Because the Sub-Accounts purchase shares of the Underlying
Funds, the value of the net assets of the Sub-Accounts will reflect the
investment advisory fee and other expenses incurred by the Underlying Funds.
Management fee waivers and/or reimbursements may be in effect for certain or all
of the Underlying Funds. For specific information regarding the existence and
effect of any waivers/reimbursements see "Annual Underlying Fund Expenses" under
SUMMARY OF FEES AND EXPENSES. The prospectuses

48
<PAGE>
and SAIs for the Underlying Funds also contain additional information concerning
expenses of the Underlying Funds and should be read in conjunction with the
Prospectus.

B. CONTRACT FEE

A $35 Contract fee (a lower fee may apply in some states) currently is deducted
during the accumulation phase, on the Contract anniversary date and upon full
surrender of the Contract if the Accumulated Value on any of these dates is less
than $75,000.

Where Accumulated Value has been allocated to more than one account, a
percentage of the total Contract fee will be deducted from the value in each
account. The portion of the charge deducted from each account will be equal to
the percentage which the value in that account bears to the Accumulated Value
under the Contract. The deduction of the Contract fee from a Sub-Account will
result in cancellation of a number of Accumulation Units equal in value to the
portion of the charge deducted from that Sub-Account.

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

C. OPTIONAL RIDER CHARGES

Subject to state availability, the Company offers a number of Riders that are
only available if elected by the Owner at issue. A separate monthly charge is
made for each Rider through a pro-rata reduction of the Accumulated Value of the
Sub-Accounts, the Fixed Account and the Guarantee Period Accounts. The pro-rata
reduction is based on the relative value that the Accumulation Units of the
Sub-Accounts, the dollar amounts in the Fixed Account and the dollar amounts in
the Guarantee Period Accounts bear to the total Accumulated Value.

The applicable charge for the following Riders is assessed on the Accumulated
Value on the last day of each Contract month and, if applicable, a pro-rated
charge on the date the Rider is terminated, multiplied by 1/12th of the
following annual percentage rate:

<TABLE>
<S> <C>
Minimum Guaranteed Annuity Payout Rider with ten-year
waiting period............................................ 0.35%
Minimum Guaranteed Annuity Payout Rider with fifteen-year
waiting period............................................ 0.20%
6% Enhanced Death Benefit Rider With Annual Step-Up......... 0.25%
Enhanced Death Benefit Rider With Annual Step-Up (only
available in New York).................................... 0.15%
</TABLE>

For a description of the Riders, see "Optional Enhanced Death Benefit Rider"
under "F. Death Benefit" and "H. Optional Minimum Guaranteed Annuity Payout
(M-GAP) Rider" under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE,
above.

D. PREMIUM TAXES

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

1. if the premium tax was paid by the Company when payments were received,
the premium tax charge is deducted on a pro-rata basis when withdrawals
are made, upon surrender of the Contract, or when

49
<PAGE>
annuity benefit payments begin (the Company reserves the right instead to
deduct the premium tax charge for a Contract at the time payments are
received); or

2. the premium tax charge is deducted when annuity benefit payments begin.

In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law.

If no amount for premium tax was deducted at the time the payment was received,
but subsequently tax is determined to be due prior to the Annuity Date, the
Company reserves the right to deduct the premium tax from the Contract value at
the time such determination is made.

E. SURRENDER CHARGE

No charge for sales expense is deducted from payments at the time the payments
are made. A surrender charge, however, may be deducted from the Accumulated
Value in the case of surrender or withdrawal within certain time limits
described below.

CALCULATION OF SURRENDER CHARGE. For purposes of determining the surrender
charge, the Accumulated Value is divided into four categories:

- The amount available under the Withdrawal Without Surrender Charge
provision, described below;

- Old Payments -- total payments invested in the Contract for more than nine
years; and

- New Payments -- payments received by the Company during the nine years
preceding the date of the surrender or withdrawal.

Amounts available as a Withdrawal Without Surrender Charge, followed by Old
Payments, may be withdrawn from the Contract at any time without the imposition
of a surrender charge. However, if a withdrawal or surrender is attributable all
or in part to New Payments, a surrender charge may be imposed.

The amount of the charge will depend upon the number of years that any New
Payments to which the withdrawal is attributed have remained credited under the
Contract. For the purpose of calculating surrender charges for New Payments, all
amounts withdrawn are assumed to be deducted first from the oldest New Payment
and then from the next oldest New Payment and so on, until all New Payments have
been exhausted pursuant to the first-in-first-out ("FIFO") method of accounting.
(See FEDERAL TAX CONSIDERATIONS for a discussion of how withdrawals are treated
for income tax purposes.)

The following surrender charge table outlines these charges:

<TABLE>
<CAPTION>
YEARS FROM DATE OF PAYMENT SURRENDER CHARGE AS A PERCENTAGE
TO DATE OF WITHDRAWAL OF THE PAYMENTS WITHDRAWN
--------------------- -------------------------
<S> <C>
Less than 1 8.0%
Less than 2 8.0%
Less than 3 8.0%
Less than 4 7.0%
Less than 5 7.0%
Less than 6 6.0%
Less than 7 5.0%
Less than 8 3.0%
Less than 9 1.0%
Thereafter 0%
</TABLE>

50
<PAGE>
The amount withdrawn equals the amount requested by the Owner plus the surrender
charge, if any. The charge is applied as a percentage of the New Payments
withdrawn.

The total charge equals the aggregate of all applicable surrender charges for a
surrender and withdrawals, including the Withdrawal Adjustment Charge that may
apply if a withdrawal is taken during the Annuity Payout phase (see "F.
Withdrawals after the Annuity Date" under ANNUITIZATION -- THE PAYOUT PHASE). In
no event will the total surrender and withdrawal charges exceed a maximum limit
of 8.5% of total gross New Payments.

WITHDRAWAL WITHOUT SURRENDER CHARGE. Each calendar year prior to the Annuity
Date, an Owner may withdraw a portion of the Contract's Surrender Value without
any applicable surrender charge ("Withdrawal Without Surrender Charge Amount" or
"WWSC amount"). The WWSC amount is equal to the greater of A or B where:

A is earnings at the time of withdrawal and

B is 10% times (X less Y)* less Z where:

X is the total gross payments made to the contract

Y is any previous withdrawals that exceed the WWSC amount

Z is any previous WWSC amount withdrawn in the same CALENDAR year

* In the contract, X less Y is referred to as the Gross Payment
Base

To illustrate how this works assume the following:

- The issue date is February 1, 2000.

- The initial payment to the contract is $100,000.

- No subsequent payments are made to the contract.

- The Owner makes the following withdrawals:

<TABLE>
<CAPTION>
CONTRACT YEAR IN
WHICH EARNINGS AT THE
DATE OF WITHDRAWAL TIME OF AMOUNT OF
WITHDRAWAL MADE WITHDRAWAL WITHDRAWAL
-------------- ---------------- --------------- ----------
<S> <C> <C> <C> <C>
Withdrawal #1 April 1, 2000 1st $2,000 $ 8,000
Withdrawal #2 August 1, 2000 1st $3,680 $ 4,000
Withdrawal #3 April 1, 2001 2nd $7,414 $15,000
Withdrawal #4 August 1, 2001 2nd $3,404 $ 2,000
</TABLE>

WITHDRAWAL #1

First, determine the WWSC amount available at the time of the withdrawal:

A is $2,000

B is 10% times (X less Y) less Z where:

X is $100,000

Y is $0 (no previous withdrawals have been made)

51
<PAGE>

Z is $0 (no previous withdrawals have been made)

10% times ($100,000 less $0) less $0 =

10% times ($100,000) less $0 =

$10,000 less $0 = $10,000

The greater of A or B is $10,000. This is the available WWSC amount at the time
of Withdrawal #1.

Second, compare the amount withdrawn to the available WWSC amount:

Withdrawal #1 of $8,000 is less than the WWSC amount of $10,000.
Thus, it is not subject to surrender charges.

WITHDRAWAL #2

First, determine the WWSC amount available at the time of the withdrawal:

A is $3,680

B is 10% times (X less Y) less Z where:

X is $100,000

Y is $0 (Withdrawal #1, did not exceed the WWSC amount)

Z is $8,000 (Withdrawal #1 was made in the same CALENDAR year)

10% times ($100,000 less $0) less $8,000 =

10% times ($100,000) less $8,000 =

$10,000 less $8,000 = $2,000

The greater of A or B is $3,680. This is the available WWSC amount at the time
of Withdrawal #2.

Second, compare the amount withdrawn to the available WWSC amount:

Withdrawal #2 of $4,000 exceeds the available WWSC amount of $3,680.
Only $3,680 of Withdrawal #2 is part of the WWSC amount and $320
exceeds the WWSC amount.

WITHDRAWAL #3

First, determine the WWSC amount available at the time of the withdrawal:

A is $7,414

B is 10% times (X less Y) less Z where:

X is $100,000

Y is $320 ($320 of Withdrawal #2 exceeded the WWSC amount)

Z is $0 (This is the first withdrawal of this CALENDAR year)

10% times ($100,000 less $320) less $0 =

10% times ($99,680) less $0 =

$9,968 less $0 = $9,968

The greater of A or B is $9,968. This is the available WWSC amount at the time
of Withdrawal #3.

52
<PAGE>

Second, compare the amount withdrawn to the available WWSC amount:

Withdrawal #3 of $15,000 exceeds the available WWSC amount of
$9,968. Only $9,968 of Withdrawal #3 is part of the WWSC amount and
$5,032 exceeds the WWSC amount.

WITHDRAWAL #4

First, determine the WWSC amount available at the time of the withdrawal:

A is $3,404

B is 10% times (X less Y) less Z where:

X is $100,000

Y is $5,352 ($320 of Withdrawal #2 and $5,032 of Withdrawal #3
exceeded the WWSC amount)

Z is $9,968 (Withdrawal #3 was made in the same CALENDAR year.
$9,968 of the total withdrawal of $15,000 was a withdrawal of the
WWSC amount.)

10% times ($100,000 less $5,352) less $9,968 =

10% times ($94,648) less $9,968 =

$9,464.80 less $9,968 = $503.20

The greater of A or B is $3,404. This is the available WWSC amount at the time
of Withdrawal #4.

Second, compare the amount withdrawn to the available WWSC amount:

Withdrawal #4 of $2,000 is less than the available WWSC amount of
$3,404. Thus it, is not subject to surrender charges.

IF YOU NEVER MAKE A WITHDRAWAL IN ANY CALENDAR YEAR THAT EXCEEDS THE WWSC
AMOUNT, THEN THE MAXIMUM AVAILABLE WWSC AMOUNT EACH CALENDAR YEAR WILL NEVER BE
LESS THAN 10% TIMES THE GROSS PAYMENTS MADE TO THE CONTRACT.

EFFECT OF WITHDRAWAL WITHOUT SURRENDER CHARGE AMOUNT. When a withdrawal is
taken, the Company deducts the WWSC amount in the following order.

- The Company first deducts the WWSC Amount from cumulative earnings.

- If the WWSC amount exceeds cumulative earnings, the Company will deem the
excess to be withdrawn from New Payments on a last-in-first-out (LIFO)
basis, so that the newest New Payments are withdrawn first. This results
in those New Payments, which are otherwise subject to the highest
surrender charge at that point in time, being withdrawn first without a
surrender charge.

- If more than one withdrawal is made during the calendar year, on each
subsequent withdrawal the Company will waive the surrender charge, if any,
until the entire Withdrawal Without Surrender Charge amount has been
withdrawn.

After the entire WWSC amount available in a calendar year has been withdrawn,
for the purposes of determining the amount of the surrender charge, if any,
withdrawals will be deemed to be taken in the following order:

- First from Old Payments

53
<PAGE>

- Since Old Payments have been invested in the Contract for more than 9
years, the surrender charge is 0%.

- Second from New Payments

- Payments are now withdrawn from this category on a first-in-first-out
(FIFO) basis, so that the oldest New Payments are now withdrawn first.
This results in the withdrawal of New Payments with the lowest
surrender charge first.

- Third from Earnings

For Qualified Contracts and Contracts issued under Section 457 Deferred
Compensation Plans only, the maximum amount available without a surrender charge
during any calendar year will be the greatest of the WWSC amount described above
and the amount available as a Life Expectancy Distribution less Z (where Z has
the same value as outlined above).

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

REDUCTION OR ELIMINATION OF SURRENDER CHARGE AND ADDITIONAL AMOUNTS
CREDITED. Where permitted by law, the Company will waive the surrender charge
in the event that the Owner (or the Annuitant, if the Owner is not an
individual) becomes physically disabled after the Issue Date of the Contract (or
in the event that the original Owner or Annuitant has changed since issue, after
being named Owner or Annuitant) and before attaining age 65. The Company may
require proof of such disability and continuing disability and reserves the
right to obtain an examination by a licensed physician of its choice and at its
expense.

In addition, the Company will waive the surrender charge in the event that an
Owner (or the Annuitant, if the Owner is not an individual) is:

(1) admitted to a medical care facility after becoming the Owner or
Annuitant under the Contract and remains confined there until the later
of one year after the Issue Date or 90 consecutive days; or

(2) first diagnosed by a licensed physician as having a fatal illness after
the Issue Date of the Contract and after being named Owner or Annuitant.

For purposes of the above provision, "medical care facility" means any
state-licensed facility or, in a state that does not require licensing, a
facility that is operating pursuant to state law, providing medically necessary
inpatient care which is prescribed by a licensed "physician" in writing and
based on physical limitations which prohibit daily living in a non-institutional
setting. "Fatal illness" means a condition diagnosed by a licensed "physician"
which is expected to result in death within two years of the diagnosis.
"Physician" means a person (other than the Owner, Annuitant or a member of one
of their families) who is state licensed to give medical care or treatment and
is acting within the scope of that license. "Physically disabled" means that the
Owner or Annuitant, as applicable, has been unable to engage in an occupation or
to conduct daily activities for a period of at least 12 consecutive months as a
result of disease or bodily injury.

Where surrender charges have been waived under any of the situations discussed
above, no additional payments under this Contract will be accepted unless
required by state law.

In addition, from time to time the Company may allow a reduction in or
elimination of the surrender charges, the period during which the charges apply,
or both, and/or credit additional amounts on Contracts, when Contracts are sold
to individuals or groups of individuals in a manner that reduces sales expenses.
The Company will consider factors such as the following:

54
<PAGE>
- the size and type of group or class, and the persistency expected from
that group or class;

- the total amount of payments to be received, and the manner in which
payments are remitted;

- the purpose for which the Contracts are being purchased, and whether that
purpose makes it likely that costs and expenses will be reduced;

- other transactions where sales expenses are likely to be reduced; or

- the level of commissions paid to selling broker-dealers or certain
financial institutions with respect to Contracts within the same group or
class (for example, broker-dealers who offer this Contract in connection
with financial planning services offered on a fee-for-service basis).

The Company also may reduce or waive the surrender charge, and/or credit
additional amounts on Contracts, where either the Owner or the Annuitant on the
Issue Date is within the following class of individuals ("eligible persons"):

- employees and registered representatives of any broker-dealer which has
entered into a sales agreement with the Company to sell the Contract;

- employees of the Company, its affiliates and subsidiaries; officers,
directors, trustees and employees of any of the Underlying Funds;

- investment managers or sub-advisers of the Underlying Funds; and

- the spouses of and immediate family members residing in the same household
with such eligible persons. "Immediate family members" means children,
siblings, parents, and grandparents.

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

F. TRANSFER CHARGE

The Company currently does not assess a charge for processing transfers. The
Company guarantees that the first 12 transfers in a Contract Year will be free
of transfer charge, but reserves the right to assess a charge, guaranteed never
to exceed $25, for each subsequent transfer in a Contract Year to reimburse it
for the expense of processing transfers. For more information, see "D. Transfer
Privilege" under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE and "E.
Transfers of Annuity Units" under ANNUITIZATION -- THE PAYOUT PHASE.

G. WITHDRAWAL ADJUSTMENT CHARGE

After the Annuity Date, each calendar year the Owner may withdraw a portion of
the present value of either all future annuity benefit payments or future
guaranteed annuity benefit payments. If a withdrawal is made within 5 years of
the Issue Date, the AIR or interest rate used to determine the annuity benefit
payments is increased by one of the following adjustments:

15 or more years of annuity benefit payments being valued -- 1.00%*

10-14 years of annuity benefit payments being valued -- 1.50%*

Less than 10 years of annuity benefit payments being valued -- 2.00%*

*The Withdrawal Adjustment Charge may be lower in some jurisdictions. See
Contract Specifications for the specific charge.

55
<PAGE>
The adjustment to the AIR or interest rate used to determine the present value
results in lower future annuity benefit payments, and may be viewed as a charge
under the Contract. The Withdrawal Adjustment Charge does not apply if a
withdrawal is made in connection with the death of an Annuitant or if a
withdrawal is made 5 or more years after the Issue Date.

For each Payment Withdrawal, the number of years of annuity benefit payments
being valued depends upon the life expectancy of the Annuitant at the time of
the withdrawal. The life expectancy will be determined by a mortality that will
be equal to the mortality table used at the time of annuitization to determine
the annuity benefit payments (currently the Annuity 2000 Mortality Table with
male, female, or unisex rates, as appropriate).

For more information see "F. Withdrawals After the Annuity Date," under
ANNUITIZATION -- THE PAYOUT PHASE.

56
<PAGE>
GUARANTEE PERIOD ACCOUNTS

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

INVESTMENT OPTIONS. In most jurisdictions, Guarantee Periods ranging from two
through ten years may be available. Each Guarantee Period established for the
Owner is accounted for separately in a non-unitized segregated account except in
California where it is accounted for in the Company's General Account. Each
Guarantee Period Account provides for the accumulation of interest at a
Guaranteed Interest Rate. The Guaranteed Interest Rate on amounts allocated or
transferred to a Guarantee Period Account is determined from time to time by the
Company in accordance with market conditions. Once an interest rate is in effect
for a Guarantee Period Account, however, the Company may not change it during
the duration of its Guarantee Period. In no event will the Guaranteed Interest
Rate be less than 3%. The Guarantee Period Accounts are not available in New
York, Oregon, Maryland, and Pennsylvania.

To the extent permitted by law, the Company reserves the right at any time to
offer Guarantee Periods with durations that differ from those which were
available when a Contract initially was issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.

Owners may allocate net payments or make transfers from any of the Sub-Accounts,
the Fixed Account or an existing Guarantee Period Account to establish a new
Guarantee Period Account at any time prior to the Annuity Date. Transfers from a
Guarantee Period Account on any date other than on the day following the
expiration of that Guarantee Period will be subject to a Market Value
Adjustment. The Company establishes a separate investment account each time the
Owner allocates or transfers amounts to a Guarantee Period except that amounts
allocated to the same Guarantee Period on the same day will be treated as one
Guarantee Period Account. The minimum that may be allocated to establish a
Guarantee Period Account is $1,000. If less than $1,000 is allocated, the
Company reserves the right to apply that amount to the AIT Money Market Sub-
Account. The Owner may allocate amounts to any of the Guarantee Periods
available.

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

MARKET VALUE ADJUSTMENT. No Market Value Adjustment will be applied to
transfers, withdrawals, or surrender from a Guarantee Period Account on the
expiration of its Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See "F. Death Benefit" under
DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE. All other transfers,
withdrawals, or a surrender prior to the end of a Guarantee Period will be
subject

57
<PAGE>
to a Market Value Adjustment, which may increase or decrease the value. Amounts
applied under an annuity option are treated as withdrawals when calculating the
Market Value Adjustment. The Market Value Adjustment will be determined by
multiplying the amount taken from each Guarantee Period Account before deduction
of any Surrender Charge by the market value factor. The market value factor for
each Guarantee Period Account is equal to:

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

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

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

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

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

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

In the event that a Market Value Adjustment applies to a withdrawal of a portion
of the value of a Guarantee Period Account, it will be calculated on the amount
requested and deducted from or added to the amount withdrawn. If a surrender
charge applies to the withdrawal, it will be calculated as set forth under
"E. Surrender Charge" after application of the Market Value Adjustment.

58
<PAGE>
FEDERAL TAX CONSIDERATIONS

The effect of federal income taxes on the value of a Contract, on withdrawals or
surrenders, on annuity benefit payments, and on the economic benefit to the
Owner, Annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the IRS. In
addition, this discussion does not address state or local tax consequences that
may be associated with the Contract.

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

A. GENERAL

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

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

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

INVESTOR CONTROL. In order for a variable annuity contract to qualify for tax
deferral, the Company, and not the variable contract owner, must be considered
to be the owner for tax purposes of the assets in the segregated asset account
underlying the variable annuity contract. In certain circumstances, however,
variable annuity contract owners may now be considered the owners of these
assets for federal income tax purposes. Specifically, the IRS has stated in
published rulings that a variable annuity contract owner may be considered the
owner of segregated account assets if the contract owner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection with
the issuance of regulations concerning investment diversification, that those
regulations do not provide guidance governing the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor (i.e., the contract owner), rather than the insurance company, to be
treated as the owner of the assets in the account. This announcement also states
that guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their

59
<PAGE>
investments to particular sub-accounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued. The Company therefore additionally reserves the right to modify the
Contract as necessary in order to attempt to prevent a contract owner from being
considered the owner of a pro rata share of the assets of the segregated asset
account underlying the variable annuity contracts.

B. QUALIFIED AND NON-QUALIFIED CONTRACTS

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

C. TAXATION OF THE CONTRACT IN GENERAL

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

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

WITHDRAWALS AFTER ANNUITIZATION. A withdrawal from a qualified or non-qualified
contract may create significant adverse tax consequences. It is possible that
the Internal Revenue Service may take the view that when withdrawals (other than
annuity payments) are taken during the annuity payout phase of the Contract, all
amounts received by the taxpayer are taxable at ordinary income rates as amounts
"not received as an annuity." In addition, such amounts may be taxable to the
recipient without regard to the Owner's investment in the Contract or any
investment gain that might be present in the current Annuity Value.

For example, assume that a Contract owner with a Contract Value of $100,000 of
which $90,000 is comprised of investment in the Contract and $10,000 is
investment gain, makes a withdrawal of $20,000 during the annuity payout phase.
Under this view, the Contract owner would pay income taxes on the entire $20,000
amount in that tax year. For some taxpayers, such as those under age 59 1/2,
additional tax penalties may also apply.

OWNERS OF QUALIFIED AND NON-QUALIFIED CONTRACTS SHOULD CONSIDER CAREFULLY THE
TAX IMPLICATIONS OF ANY WITHDRAWAL REQUESTS AND THEIR NEED FOR CONTRACT FUNDS
PRIOR TO THE EXERCISE OF THE WITHDRAWAL RIGHT. CONTRACT OWNERS SHOULD ALSO
CONTACT THEIR TAX ADVISER PRIOR TO MAKING WITHDRAWALS.

60
<PAGE>
ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments begin under
the Contract, generally a portion of each payment may be excluded from gross
income. The excludable portion generally is determined by a formula that
establishes the ratio that the investment in the Contract bears to the expected
return under the Contract. The portion of the payment in excess of this
excludable amount is taxable as ordinary income. Once all the investment in the
Contract is recovered, the entire payment is taxable. If the annuitant dies
before cost basis is recovered, a deduction for the difference is allowed on the
Owner's final tax return.

PENALTY ON DISTRIBUTION. A 10% penalty tax may be imposed on the withdrawal of
investment gains if the withdrawal is made prior to age 59 1/2. The penalty tax
will not be imposed on withdrawals:

- taken on or after age 59 1/2; or

- if the withdrawal follows the death of the Owner (or, if the Owner is not
an individual, the death of the primary Annuitant, as defined in the
Code); or

- in the case of the Owner's "total disability" (as defined in the Code); or

- if withdrawals from a qualified Contract are made to an employee who has
terminated employment after reaching age 55; or

- irrespective of age, if the amount received is one of a series of
"substantially equal" periodic payments made at least annually for the
life or life expectancy of the payee.

The requirement of "substantially equal" periodic payments is met when the Owner
elects to have distributions made over the Owner's life expectancy, or over the
joint life expectancy of the Owner and beneficiary. The requirement is also met
when the number of units withdrawn to make each distribution is substantially
the same. Any modification, other than by reason of death or disability, of
distributions which are part of a series of substantially equal periodic
payments that occurs before the later of the Owner's age 59 1/2 or five years,
will subject the Owner to the 10% penalty tax on the prior distributions.

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

ASSIGNMENTS OR TRANSFERS. If the Owner transfers (assigns) the Contract to
another individual as a gift prior to the Annuity Date, the Code provides that
the Owner will incur taxable income at the time of the transfer. An exception is
provided for certain transfers between spouses. The amount of taxable income
upon such taxable transfer is equal to any investment gain in value over the
Owner's cost basis at the time of the transfer. The transfer also is subject to
federal gift tax provisions.

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

61
<PAGE>
however, will not apply in cases of any employer who is the owner of an annuity
contract under a non-qualified deferred compensation plan.

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

D. TAX WITHHOLDING

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

E. INDIVIDUAL RETIREMENT ANNUITIES

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

Sections 408 and 408A of the Code permits eligible individuals to contribute to
an individual retirement program known as an Individual Retirement Annuity
("IRA"). Note: This term covers all IRAs permitted under Sections 408 and 408A
of the Code, including Roth IRAs. IRAs are subject to limits on the amounts that
may be contributed, the persons who may be eligible, and on the time when
distributions may commence. In addition, certain distributions from other types
of retirement plans may be "rolled over," on a tax-deferred basis, to an IRA.
Purchasers of an IRA Contract will be provided with supplementary information as
may be required by the IRS or other appropriate agency, and will have the right
to cancel the Contract as described in this Prospectus. See "C. Right to
Cancel."

Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) for their employees using IRAs. Employer
contributions that may be made to such plans are larger than the amounts that
may be contributed to regular IRAs and may be deductible to the employer.

STATEMENTS AND REPORTS

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

62
<PAGE>
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 no longer are 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 Variable Account or the affected Sub-Account, the
Company may withdraw 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 Contract interest in a Sub-Account without notice
to the Owner and prior approval of the SEC and state insurance authorities, to
the extent required by the 1940 Act or other applicable law. The Variable
Account may, to the extent permitted by law, purchase other securities for other
contracts or permit a conversion between contracts upon request by an Owner.

The Company also reserves the right to establish additional Sub-Accounts of the
Variable Account, each of which would invest in shares corresponding to a new
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
Owners on a basis to be determined by the Company.

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

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

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

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

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

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

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

(6) to change the names of the Variable Account or of the Sub-Accounts. In
no event will the changes described be made without notice to Owners in
accordance with the 1940 Act, and

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

63
<PAGE>
If any of these substitutions or changes are made, the Company may endorse the
Contract to reflect the substitution or change, and will notify Owners of all
such changes. In no event will the changes described above be made without
notice to Owners in accordance with the 1940 Act.

CHANGES TO COMPLY WITH LAW AND AMENDMENTS

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

VOTING RIGHTS

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

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

DISTRIBUTION

The Contracts offered by this Prospectus may be purchased from representatives
of Allmerica Investments, Inc., a registered broker-dealer under the Securities
and Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. ("NASD") or independent broker-dealers. Allmerica Investments,
Inc., 440 Lincoln Street, Worcester, MA 01653, is also the principal underwriter
and distributor and is an indirect wholly owned subsidiary of First Allmerica.
The Contract may also be purchased from certain independent broker-dealers that
are NASD members.

The Company pays commissions not to exceed 5.00% of payments to representatives
of Allmerica Investments, Inc. or to independent broker-dealers who sell the
Contract. Alternative commission schedules are available with lower initial
commission amounts based on payments, plus ongoing annual compensation of up to
1% of Contract value. To the extent permitted by NASD rules, promotional
incentives or payments also may be provided to representatives of Allmerica
Investments, Inc. or to such independent broker-dealers based on sales volumes,
the assumption of wholesaling functions, or other sales-related criteria.
Additional payments may be made for other services not directly related to the
sale of the Contract, including the recruitment and training of personnel,
production of promotional literature, and similar services.

64
<PAGE>
The Company intends to recoup commissions and other sales expenses through a
combination of anticipated surrender charges and profits from the Company's
General Account, which may include amounts derived from mortality and risk
charges. Commissions paid on the Contract, including additional incentives or
payments, do not result in any additional charge to Owners or to the Variable
Account. The Company will retain any surrender charges assessed on a Contract.

Owners may direct any inquiries to their financial representative or to
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653, telephone
1-800-366-1492.

LEGAL MATTERS

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

FURTHER INFORMATION

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

65
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT

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

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

STATE RESTRICTIONS. Certain states may impose restrictions on payments and
transfers to the Fixed Account.

A-1
<PAGE>
APPENDIX B
PERFORMANCE INFORMATION

This Contract was first offered to the public in 2000. However, in order to help
people understand how investment performance can affect money invested in the
Sub-Accounts, the Company may advertise "total return" and "average annual total
return" performance information based on (1) the periods that the Sub-Accounts
have been in existence and (2) the periods that the Underlying Funds have been
in existence. Performance results in Table 1 reflect the applicable deductions
for the Contract fee, Sub-Account charges and Underlying Fund charges under this
Contract and also assume that the Contract is surrendered at the end of the
applicable period. Performance results in Table 2 do not include the Contract
fee and assume that the Contract is not surrendered at the end of the applicable
period. Neither set of tables include optional Rider charges. Both the total
return and yield figures are based on historical earnings and are not intended
to indicate future performance.

The "total return" of a Sub-Account refers to the total of the income generated
by an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Variable Account charges, and expressed as a
percentage. The "average annual total" return represents the average annual
percentage change in the value of an investment in the Sub-Account over a given
period of time. It represents averaged figures as opposed to the actual
performance of a Sub-Account, which will vary from year to year.

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

Quotations of average annual total return as shown in Table 1 are calculated in
the manner prescribed by the SEC and show the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year period or for a period covering the time the Sub-Account has been in
existence, if less than the prescribed periods. The calculation is adjusted to
reflect the deduction of the annual Sub-Account asset charge of 1.40%, the
effect of the $35 annual Contract fee ($30 Contract fee for First Allmerica),
the Underlying Fund charges and the surrender charge which would be assessed if
the investment were completely withdrawn at the end of the specified period. The
calculation is not adjusted to reflect the deduction of any optional Rider
charges. Quotations of supplemental average total returns, as shown in Table 2,
are calculated in exactly the same manner and for the same periods of time
except that it does not reflect the Contract fee and assumes that the Contract
is not surrendered at the end of the periods shown.

For more detailed information about these performance calculations, including
actual formulas, see the SAI.

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

Performance information for a Sub-Account may be compared, in reports and
promotional literature, to:

(1) the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"), Dow
Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond Index
or other unmanaged indices, so that

B-1
<PAGE>
investors may compare the Sub-Account results with those of a group of
unmanaged securities widely regarded by investors as representative of
the securities markets in general; or

(2) other groups of variable annuity 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, who rank such
investment products on overall performance or other criteria; or

(3) the Consumer Price Index (a measure for inflation) to assess the real
rate of return from an investment in the Sub-Account. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses. In
addition, relevant broad-based indices and performance from independent
sources may be used to illustrate the performance of certain Contract
features.

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

B-2
<PAGE>

ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
TABLE 1
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND*
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)

<TABLE>
<CAPTION>
FOR YEAR 10 YEARS OR SINCE
UNDERLYING FUND ENDED INCEPTION
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS IF LESS
---------------------------------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
AIT Core Equity Fund.................. 4/29/85 19.52% 22.88% 15.67%
AIT Equity Index Fund................. 9/28/90 10.72% 25.43% 18.79%
AIT Government Bond Fund.............. 8/26/91 -8.28% 3.54% 4.56%
AIT Money Market Fund................. 4/29/85 -3.76% 2.75% 3.72%
AIT Select Aggressive Growth Fund..... 8/21/92 28.71% 20.96% 18.64%
AIT Select Capital Appreciation Fund... 4/28/95 15.61% N/A 18.83%
AIT Select Emerging Markets Fund...... 2/20/98 55.41% N/A 9.71%
AIT Select Growth Fund................ 8/21/92 19.99% 26.72% 18.50%
AIT Select Growth and Income Fund..... 8/21/92 8.77% 19.30% 14.08%
AIT Select International Equity Fund... 5/2/94 21.85% 16.13% 13.10%
AIT Select Investment Grade Income
Fund................................. 4/29/85 -9.39% 4.74% 6.18%
AIT Select Strategic Growth Fund...... 2/20/98 6.42% N/A 1.19%
AIT Select Value Opportunity Fund..... 4/30/93 -12.80% 11.02% 9.42%
AIM V.I. Aggressive Growth Fund....... 5/1/98 34.63% N/A 17.73%
AIM V.I. Value Fund................... 5/5/93 20.08% 24.87% 20.94%
Alliance Growth and Income
Portfolio**.......................... 1/14/91 1.64% 21.22% 13.43%
Alliance Premier Growth Portfolio**... 6/26/92 22.13% 33.34% 23.94%
DGPF International Equity Series**.... 10/29/92 5.96% 10.56% 9.60%
DGPF Growth Opportunities Series**.... 7/12/91 52.39% 24.40% 14.54%
Fidelity VIP Equity-Income
Portfolio**.......................... 10/9/86 -2.96% 15.89% 12.59%
Fidelity VIP Growth Portfolio**....... 10/9/86 27.15% 27.06% 17.95%
Fidelity VIP High Income Portfolio**... 9/19/85 -1.30% 8.04% 10.57%
Fidelity VIP Overseas Portfolio**..... 1/28/87 32.20% 14.63% 9.58%
Fidelity VIP II Asset Manager
Portfolio**.......................... 9/6/89 1.38% 12.86% 11.27%
Fidelity VIP III Growth Opportunities
Portfolio**.......................... 1/3/95 -4.84% N/A 18.80%
Franklin Natural Resources Securities
Fund**............................... 1/24/89 22.05% -6.01% -1.29%
Franklin Small Cap Fund**............. 11/1/95 85.68% N/A 27.04%
INVESCO VIF Health Sciences Fund...... 5/22/97 -4.62% N/A 11.51%
Janus Aspen Growth Portfolio**........ 9/13/93 33.63% 27.20% 21.65%
Janus Aspen Growth and Income
Portfolio**.......................... 5/1/98 63.16% N/A 48.60%
KVS Dreman Financial Services
Portfolio............................ 5/4/98 -13.13% N/A -10.13%
Kemper Technology Growth Portfolio.... 5/3/99 N/A N/A 67.20%
Pioneer Emerging Markets VCT
Portfolio**.......................... 10/30/98 67.78% N/A 60.03%
Pioneer Real Estate Growth VCT
Portfolio**.......................... 10/30/98 -12.78% N/A 5.42%
T. Rowe Price International Stock
Portfolio............................ 3/31/94 23.44% 12.74% 11.16%
</TABLE>

* Normally an additional table would be included that illustrates the
performance of the Sub-Accounts for the one, five and ten year periods or
since the inception of the Sub-Accounts. This table has been omitted since the
Sub-Accounts are new.

**These funds include a charge for 12b-1 fees ("Class 2 shares"). These
hypothetical performance figures are based upon the historical performance of
the non 12b-1 class of shares, but increased to reflect the effect of the
12b-1 fee on Class 2 shares performance.

B-3
<PAGE>

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

<TABLE>
<CAPTION>
FOR YEAR 10 YEARS OR SINCE
UNDERLYING FUND ENDED INCEPTION
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS IF LESS
---------------------------------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
AIT Core Equity Fund.................. 4/29/85 27.52% 23.50% 15.67%
AIT Equity Index Fund................. 9/28/90 18.72% 25.99% 18.82%
AIT Government Bond Fund.............. 8/26/91 -1.16% 4.74% 4.57%
AIT Money Market Fund................. 4/29/85 3.71% 3.98% 3.73%
AIT Select Aggressive Growth Fund..... 8/21/92 36.72% 21.61% 18.88%
AIT Select Capital Appreciation Fund... 4/28/95 23.62% N/A 19.63%
AIT Select Emerging Markets Fund...... 2/20/98 63.43% N/A 13.63%
AIT Select Growth Fund................ 8/21/92 27.99% 27.27% 18.73%
AIT Select Growth and Income Fund..... 8/21/92 16.77% 19.99% 14.38%
AIT Select International Equity Fund... 5/2/94 29.86% 16.90% 13.80%
AIT Select Investment Grade Income
Fund................................. 4/29/85 -2.35% 5.89% 6.18%
AIT Select Strategic Growth Fund...... 2/20/98 14.43% N/A 5.34%
AIT Select Value Opportunity Fund..... 4/30/93 -6.03% 11.94% 9.96%
AIM V.I. Aggressive Growth Fund....... 5/1/98 42.64% N/A 21.99%
AIM V.I. Value Fund................... 5/5/93 28.08% 25.45% 21.25%
Alliance Growth and Income
Portfolio**.......................... 1/14/91 9.81% 22.17% 13.85%
Alliance Premier Growth Portfolio**... 6/26/92 30.13% 33.79% 24.11%
DGPF International Equity Series**.... 10/29/92 13.97% 11.49% 9.84%
DGPF Growth Opportunities Series**.... 7/12/91 60.40% 24.98% 14.68%
Fidelity VIP Equity-Income
Portfolio**.......................... 10/9/86 4.58% 16.66% 12.60%
Fidelity VIP Growth Portfolio**....... 10/9/86 35.15% 27.60% 17.96%
Fidelity VIP High Income Portfolio**... 9/19/85 6.36% 9.05% 10.58%
Fidelity VIP Overseas Portfolio**..... 1/28/87 40.20% 15.43% 9.59%
Fidelity VIP II Asset Manager
Portfolio**.......................... 9/6/89 9.25% 13.72% 11.28%
Fidelity VIP III Growth Opportunities
Portfolio**.......................... 1/3/95 2.55% N/A 19.51%
Franklin Natural Resources Securities
Fund**............................... 1/24/89 30.06% -4.77% -1.28%
Franklin Small Cap Fund**............. 11/1/95 93.69% N/A 27.83%
INVESCO VIF Health Sciences Fund...... 5/22/97 3.39% N/A 19.52%
Janus Aspen Growth Portfolio**........ 9/13/93 41.63% 27.74% 21.99%
Janus Aspen Growth and Income
Portfolio**.......................... 5/1/98 71.17% N/A 52.26%
KVS Dreman Financial Services
Portfolio............................ 5/4/98 -6.38% N/A -5.98%
Kemper Technology Growth Portfolio.... 5/3/99 N/A N/A 75.21%
Pioneer Emerging Markets VCT
Portfolio**.......................... 10/30/98 75.79% N/A 66.34%
Pioneer Real Estate Growth VCT
Portfolio**.......................... 10/30/98 -6.00% N/A 6.59%
T. Rowe Price International Stock
Portfolio............................ 3/31/94 31.45% 13.61% 11.79%
</TABLE>

B-4
<PAGE>

FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
TABLE 1
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND*
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)

<TABLE>
<CAPTION>
UNDERLYING FOR YEAR 10 YEARS OR
FUND ENDED SINCE INCEPTION
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS IF LESS
---------------------------------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
AIT Core Equity Fund................... 4/29/85 19.52% 22.89% 15.67%
AIT Equity Index Fund.................. 9/28/90 10.72% 25.43% 18.79%
AIT Government Bond Fund............... 8/26/91 -8.28% 3.54% 4.56%
AIT Money Market Fund.................. 4/29/85 -3.76% 2.75% 3.72%
AIT Select Aggressive Growth Fund...... 8/21/92 28.72% 20.96% 18.64%
AIT Select Capital Appreciation Fund... 4/28/95 15.61% N/A 18.84%
AIT Select Emerging Markets Fund....... 2/20/98 55.42% N/A 9.71%
AIT Select Growth Fund................. 8/21/92 19.99% 26.72% 18.50%
AIT Select Growth and Income Fund...... 8/21/92 8.77% 19.31% 14.08%
AIT Select International Equity Fund... 5/2/94 21.85% 16.13% 13.10%
AIT Select Investment Grade Income
Fund.................................. 4/29/85 -9.38% 4.74% 6.18%
AIT Select Strategic Growth Fund....... 2/20/98 6.43% N/A 1.19%
AIT Select Value Opportunity Fund...... 4/30/93 -12.80% 11.03% 9.42%
AIM V.I. Aggressive Growth Fund........ 5/1/98 34.64% N/A 17.73%
AIM V.I. Value Fund.................... 5/5/93 20.08% 24.87% 20.94%
Alliance Growth and Income
Portfolio**........................... 1/14/91 1.64% 21.22% 13.43%
Alliance Premier Growth Portfolio**.... 6/26/92 22.13% 33.34% 23.94%
DGPF International Equity Series**..... 10/29/92 5.96% 10.56% 9.60%
DGPF Growth Opportunities Series**..... 7/12/91 52.39% 24.40% 14.55%
Fidelity VIP Equity-Income
Portfolio**........................... 10/9/86 -2.96% 15.89% 12.60%
Fidelity VIP Growth Portfolio**........ 10/9/86 27.15% 27.06% 17.95%
Fidelity VIP High Income Portfolio**... 9/19/85 -1.30% 8.04% 10.57%
Fidelity VIP Overseas Portfolio**...... 1/28/87 32.20% 14.63% 9.58%
Fidelity VIP II Asset Manager
Portfolio**........................... 9/6/89 1.38% 12.86% 11.27%
Fidelity VIP III Growth Opportunities
Portfolio**........................... 1/3/95 -4.84% N/A 18.81%
Franklin Natural Resources Securities
Fund**................................ 1/24/89 22.05% -6.01% -1.29%
Franklin Small Cap Fund**.............. 11/1/95 85.68% N/A 27.04%
INVESCO VIF Health Sciences Fund....... 5/22/97 -4.62% N/A 11.51%
Janus Aspen Growth Portfolio**......... 9/13/93 33.63% 27.20% 21.65%
Janus Aspen Growth and Income
Portfolio**........................... 5/1/98 63.16% N/A 48.60%
KVS Dreman Financial Services
Portfolio............................. 5/4/98 -13.13% N/A -10.13%
Kemper Technology Growth Portfolio..... 5/3/99 N/A N/A 67.20%
Pioneer Emerging Markets VCT
Portfolio**........................... 10/30/98 67.78% N/A 60.03%
Pioneer Real Estate Growth VCT
Portfolio**........................... 10/30/98 -12.77% N/A 5.43%
T. Rowe Price International Stock
Portfolio............................. 3/31/94 23.45% 12.74% 11.16%
</TABLE>

B-5
<PAGE>

<TABLE>
<CAPTION>
FOR YEAR 10 YEARS OR SINCE
UNDERLYING FUND ENDED INCEPTION
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS IF LESS
---------------------------------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
AIT Core Equity Fund................. 4/29/85 27.52% 23.50% 15.67%
AIT Equity Index Fund................ 9/28/90 18.72% 25.99% 18.82%
AIT Government Bond Fund............. 8/26/91 -1.16% 4.74% 4.57%
AIT Money Market Fund................ 4/29/85 3.71% 3.98% 3.73%
AIT Select Aggressive Growth Fund.... 8/21/92 36.72% 21.61% 18.88%
AIT Select Capital Appreciation Fund... 4/28/95 23.62% N/A 19.63%
AIT Select Emerging Markets Fund..... 2/20/98 63.43% N/A 13.63%
AIT Select Growth Fund............... 8/21/92 27.99% 27.27% 18.73%
AIT Select Growth and Income Fund.... 8/21/92 16.77% 19.99% 14.38%
AIT Select International Equity Fund... 5/2/94 29.86% 16.90% 13.80%
AIT Select Investment Grade Income
Fund................................ 4/29/85 -2.35% 5.89% 6.18%
AIT Select Strategic Growth Fund..... 2/20/98 14.43% N/A 5.34%
AIT Select Value Opportunity Fund.... 4/30/93 -6.03% 11.94% 9.96%
AIM V.I. Aggressive Growth Fund...... 5/1/98 42.64% N/A 21.99%
AIM V.I. Value Fund.................. 5/5/93 28.08% 25.45% 21.25%
Alliance Growth and Income
Portfolio**......................... 1/14/91 9.81% 22.17% 13.85%
Alliance Premier Growth Portfolio**... 6/26/92 30.13% 33.79% 24.11%
DGPF International Equity Series**... 10/29/92 13.97% 11.49% 9.84%
DGPF Growth Opportunities Series**... 7/12/91 60.40% 24.98% 14.68%
Fidelity VIP Equity-Income
Portfolio**......................... 10/9/86 4.58% 16.66% 12.60%
Fidelity VIP Growth Portfolio**...... 10/9/86 35.15% 27.60% 17.96%
Fidelity VIP High Income Portfolio**... 9/19/85 6.36% 9.05% 10.58%
Fidelity VIP Overseas Portfolio**.... 1/28/87 40.20% 15.43% 9.59%
Fidelity VIP II Asset Manager
Portfolio**......................... 9/6/89 9.25% 13.72% 11.28%
Fidelity VIP III Growth Opportunities
Portfolio**......................... 1/3/95 2.55% N/A 19.51%
Franklin Natural Resources Securities
Fund**.............................. 1/24/89 30.06% -4.77% -1.28%
Franklin Small Cap Fund**............ 11/1/95 93.69% N/A 27.83%
INVESCO VIF Health Sciences Fund..... 5/22/97 3.39% N/A 19.52%
Janus Aspen Growth Portfolio**....... 9/13/93 41.63% 27.74% 21.99%
Janus Aspen Growth and Income
Portfolio**......................... 5/1/98 71.17% N/A 52.26%
KVS Dreman Financial Services
Portfolio........................... 5/4/98 -6.38% N/A -5.98%
Kemper Technology Growth Portfolio... 5/3/99 N/A N/A 75.21%
Pioneer Emerging Markets VCT
Portfolio**......................... 10/30/98 75.79% N/A 66.34%
Pioneer Real Estate Growth VCT
Portfolio**......................... 10/30/98 -6.00% N/A 6.59%
T. Rowe Price International Stock
Portfolio........................... 3/31/94 31.45% 13.61% 11.79%
</TABLE>

B-6
<PAGE>
APPENDIX C
SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT

PART 1: SURRENDER CHARGES

FULL SURRENDER -- Assume a payment of $50,000 is made on the Issue Date and no
additional payments are made. Assume there are no partial withdrawals are made
and that the Withdrawal Without Surrender Charge Amount is equal to the greater
of 10% of the Gross Premium Base or the cumulative earnings in the Contract. The
table below presents examples of the surrender charge resulting from a full
surrender, based on Hypothetical Accumulated Values.

<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE CHARGE AMOUNT PERCENTAGE CHARGE
---- ----- ------------- ---------- ------
<S> <C> <C> <C> <C>
1 $54,000 $ 5,000 8.0% $3,920
2 58,320 8,320 8.0% 4,000
3 62,986 12,986 8.0% 4,000
4 68,024 18,024 7.0% 3,500
5 73,466 23,466 7.0% 3,500
6 79,343 29,343 6.0% 3,000
7 85,691 35,691 5.0% 2,500
8 92,547 42,547 3.0% 1,500
9 99,950 49,950 1.0% 500
10 107,946 57,946 0.0% 0
</TABLE>

WITHDRAWALS -- Assume a payment of $50,000 is made on the Issue Date and no
additional payments are made and there are withdrawals as detailed below. The
table below presents examples of the surrender charge resulting from
withdrawals, based on Hypothetical Accumulated Values:

<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE WITHDRAWALS CHARGE AMOUNT PERCENTAGE CHARGE
---- ----- ----------- ------------- ---------- ------
<S> <C> <C> <C> <C> <C>
1 $54,000 $ 0 $ 5,000 8.0% $ 0
2 58,320 0 8,320 8.0% 0
3 62,986 0 12,986 8.0% 0
4 68,024 30,000 18,024 7.0% 838
5 41,066 10,000 3,802 7.0% 487
6 33,552 5,000 3,182 6.0% 151
7 30,836 10,000 3,001 5.0% 386
8 22,503 15,000 2,301 3.0% 400
9 8,103 5,000 1,031 1.0% 44
10 3,351 3,000 634 0.0% 0
</TABLE>

C-1
<PAGE>

PART 2: MARKET VALUE ADJUSTMENT (NOT APPLICABLE TO CONTRACTS OFFERED IN STATES
WHERE GUARANTEE PERIOD ACCOUNTS ARE NOT AVAILABLE)

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

The following examples assume:

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

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

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

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

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

NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)*

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

<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.10)] to the power of 2555/365 - 1
= (.98182) to the power of 7 - 1
= -.12054

The market value adjustment = the market value factor multiplied by the withdrawal
= -.12054 x $62,985.60
= -$7,592.11
</TABLE>

POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)*

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

<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.07)] to the power of 2555/365 - 1
= (1.00935) to the power of 7 - 1
= .06728

The market value adjustment = the market value factor multiplied by the withdrawal
= .06728 x $62,985.60
= $4,237.90
</TABLE>

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

C-2
<PAGE>
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)*

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

<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.11)] to the power of 2555/365 - 1
= (.97297) to the power of 7 - 1
= -.17454

The market value adjustment = Minimum of the market value factor multiplied by the
withdrawal or the negative of the excess interest earned
over 3%
= Minimum (-.17454 x $62,985.60 or -$8,349.25)
= Minimum (-$10,992.38 or -$8,349.25)
= -$8,349.25
</TABLE>

POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)*

Assume that on the date of surrender, the current rate (j) is 5.00% or 0.05

<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.05)] to the power of 2555/365 - 1
= (1.02857) to the power of 7 - 1
= .21798

The market value adjustment = Minimum of the market value factor multiplied by the
withdrawal or the excess interest earned over 3%
= Minimum of (.21798 x $62,985.60 or $8,349.25)
= Minimum of ($13,729.78 or $8,349.25)
= $8,349.25
</TABLE>

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

C-3
<PAGE>
APPENDIX D
EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS

Assume in the examples below that a 65-year-old male annuitizes his contract
exactly two years after the Issue Date. The annuitization amount is $250,000.
Further assume that he selects a variable Life with Period Certain annuity
payout option of Single Life with Payments Guaranteed for 10 Years, an Assumed
Investment Return ("AIR") of 3%, and an annual Change Frequency. Assume that the
Annuity Value purchases 1,370 Annuity Units and the first monthly annuity
benefit payment is equal to $1,370. The following examples assume a net return
of 8% (gross return of 9.35 %).

PRESENT VALUE WITHDRAWALS

EXAMPLE 1. Assume that the Owner has taken no previous withdrawals and would
like to take the maximum Present Value Withdrawal available at the beginning of
the fifth contract year (the third year of the Annuity Payout phase).

Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment prior to withdrawal = $1,506.24

Rate used in Present Value Determination = 5% (3% AIR plus 2% Withdrawal
Adjustment Charge)
Present Value of Future Guaranteed Annuity Benefit Payments = $119,961.92

Maximum Present Value Withdrawal Amount = $89,971.44 ($119,961.92 X 75%)

Annuity Units after withdrawal = 342.50 (1,370 X (1 -
(89,971.44/119,961.92)))
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment after withdrawal = $376.56

Because the withdrawal is being made within 5 years of the Issue Date, the rate
used in the Present Value Determination is increased by a Withdrawal Adjustment
Charge. Since less than 10 years of guaranteed annuity payments are being
valued, the Withdrawal Adjustment Charge is 2%. Because this is a Present Value
Withdrawal, the number of Annuity Units will increase to 1,370 after the end of
the 10-year period during which the Company guaranteed to make payments.

EXAMPLE 2. Assume that the Owner has taken no previous withdrawals and would
like to take the maximum Present Value Withdrawal available at the beginning of
the tenth contract year (eighth year of the Annuity Payout phase).

Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment prior to withdrawal = $1,909.09

Rate used in Present Value Determination = 3% (3% AIR)
Present Value of Future Guaranteed Annuity Benefit Payments = $65,849.08

Maximum Present Value Withdrawal Amount = $49,386.81 ($65,849.08 X 75%)

Annuity Units after withdrawal = 342.50 (1,370 X (1 -
(49,386.81/65,849.08)))
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment after withdrawal = $477.27

Because the withdrawal is being made more than 5 years after the Issue Date, the
rate used in the Present Value Determination is not increased by a Withdrawal
Adjustment Charge. Because this is a Present Value Withdrawal, the number of
Annuity Units will increase to 1,370 after the end of the 10-year period during
which the Company guaranteed to make payments.

D-1
<PAGE>
PAYMENT WITHDRAWALS

EXAMPLE 3. Assume that the Owner has taken no previous withdrawals and would
like to take the maximum Payment Withdrawal of 10 monthly annuity benefit
payments at the beginning of the fifth contract year (the third year of the
Annuity Payout phase). At that time, the Annuitant's life expectancy is greater
than 15 years.

Last Monthly Annuity Benefit Payment = $1,436.50
Withdrawal Amount = $14,365.00 (10 X 1,436.50)

Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment prior to withdrawal = $1,506.24

Rate used in Present Value Determination = 4% (3% AIR plus 1% Withdrawal
Adjustment Charge)
Present Value of Future Annuity Benefit Payments = $234,482.77

Annuity Units after withdrawal = 1,286.07 (1,370 X (1 -
(14,365.00/234,482.77)))
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment after withdrawal = $1,413.96

Because the withdrawal is being made within 5 years of the Issue Date, the rate
used in the Present Value Determination is increased by a Withdrawal Adjustment
Charge. Since there are more than 15 years of annuity payments being valued (the
Annuitant's life expectancy is more than 15 years), the Withdrawal Adjustment
Charge is 1%. Because this is a Payment Withdrawal, the number of Annuity Units
will not increase after the end of the 10-year period during which the Company
guaranteed to make payments.

EXAMPLE 4. Assume that the Owner has taken no previous withdrawals and would
like to take the maximum Payment Withdrawal of 10 monthly annuity benefit
payments at the beginning of the tenth contract year (eighth year of the Annuity
Payout phase).

Last Monthly Annuity Benefit Payment = $1,820.71
Withdrawal Amount = $18,207.10 (10 X 1,820.71)

Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment prior to withdrawal = $1,909.09

Rate used in Present Value Determination = 3% (3% AIR)
Present Value of Future Annuity Benefit Payments = $268,826.18

Annuity Units after withdrawal = 1,272.71 (1,370 X (1 -
(18,207.10/268,826.18)))
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment after withdrawal = $1,779.80

Because the withdrawal is being made more than 5 years after the Issue Date, the
rate used in the Present Value Determination is not increased by a Withdrawal
Adjustment Charge. Because this is a Payment Withdrawal, the number of Annuity
Units will not increase after the end of the 10-year period during which the
Company guaranteed to make payments.

PRESENT VALUE WITHDRAWAL VERSUS PAYMENT WITHDRAWAL

EXAMPLE 5. Assume that the Owner has taken no previous withdrawals and would
like to take a $10,000 withdrawal at the beginning of the fifth contract year
(the third year of the Annuity Payout phase). At that time, the Annuitant's life
expectancy is greater than 15 years. The following examples show the impact of
taking the withdrawal under the Present Value Withdrawal Option and the Payment
Withdrawal Option.

D-2
<PAGE>
PRESENT VALUE WITHDRAWAL

Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment prior to withdrawal = $1,506.24

Rate used in Present Value Determination = 5% (3% AIR plus 2% Withdrawal
Adjustment Charge)
Present Value of future Guaranteed Annuity Benefit Payments = $119,961.92

Withdrawal = $10,000

Annuity Units after withdrawal = 1,255.80 (1,370 X (1 -
(10,000/119,961.92)))
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment after withdrawal = $1,380.67

Because the withdrawal is being made within 5 years of the Issue Date, the rate
used in the Present Value Determination is increased by a Withdrawal Adjustment
Charge. Since less than 10 years of guaranteed annuity payments are being
valued, the Withdrawal Adjustment Charge is 2%. Because this is a Present Value
Withdrawal, the number of Annuity Units will increase to 1,370 at the end of the
10-year period during which the Company guaranteed to make payments.

PAYMENT WITHDRAWAL

Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment prior to withdrawal = $1,506.24

Rate used in Present Value Determination = 4% (3% AIR plus 1% Withdrawal
Adjustment Charge)
Present Value of future Annuity Benefit Payments = $234,482.77

Withdrawal = $10,000

Annuity Units after withdrawal = 1,311.57 (1,370 X (1 -
(10,000/$234,482.77)))
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment after withdrawal = $1,442.00

Because the withdrawal is being made within 5 years of the Issue Date, the rate
used in the Present Value Determination is increased by a Withdrawal Adjustment
Charge. Since there are more than 15 years of annuity payments being valued (the
Annuitant's life expectancy is more than 15 years), the Withdrawal Adjustment
Charge is 1%. Because this is a Payment Withdrawal, the number of Annuity Units
will not increase at the end of the 10-year period during which the Company
guaranteed to make payments.

D-3
<PAGE>

FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

STATEMENT OF ADDITIONAL INFORMATION

INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS FUNDED THROUGH

SUB-ACCOUNTS OF

SEPARATE ACCOUNT VA-K

INVESTING IN SHARES OF THE UNDERLYING FUNDS

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE ALLMERICA ULTIMATE ADVANTAGE PROSPECTUS FOR SEPARATE
ACCOUNT VA-K DATED __, 2000 ("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED
FROM ANNUITY CLIENT SERVICES, FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY,
440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653, TELEPHONE 1-800-533-7881.

DATED __, 2000

<PAGE>

TABLE OF CONTENTS

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

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

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

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

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

ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAM ........6

PERFORMANCE INFORMATION.............................................6

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

GENERAL INFORMATION AND HISTORY

Separate Account VA-K (the "Variable Account") is a separate investment account
of First Allmerica Financial Life Insurance Company (the "Company") authorized
by vote of its Board of Directors on August 20, 1991. The Company, organized
under the laws of Massachusetts in 1844, is among the five oldest life insurance
companies in America. As of December 31, 1999, the Company and its subsidiaries
had over $25 billion in combined assets and over $43 billion of life insurance
in force. Effective October 16, 1995, the Company converted from a mutual life
insurance company, known as State Mutual Life Assurance Company of America, to a
stock life insurance company and adopted its present name. The Company is a
wholly owned subsidiary of Allmerica Financial Corporation ("AFC"). The
Company's principal office (the "Principal Office") is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, telephone (508) 855-1000.

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

Currently, 35 Sub-Accounts of the Variable Account are available under the
Allmerica Ultimate Advantage contract (the "Contract"). Each Sub-Account invests
in a corresponding investment portfolio of Allmerica Investment Trust ("AIT"),
AIM Variable Insurance Funds ("AVIF"), Alliance Variable Products Series Fund,
Inc. ("Alliance"), Delaware Group Premium Fund ("DGPF"), Fidelity Variable
Insurance Products Fund ("Fidelity VIP"), Fidelity Variable Insurance Products
Fund II ("Fidelity VIP II"), Fidelity Variable Insurance Products Fund III
("Fidelity VIP III"), Franklin Templeton Variable Insurance Products Trust ("FT
VIP"), INVESCO Variable Investment Funds, Inc. ("INVESCO VIF"), Janus Aspen
Series ("Janus Aspen"), Kemper Variable Series ("KVS"), Pioneer Variable
Contracts Trust ("Pioneer VCT") and T. Rowe Price International Series, Inc.
("T. Rowe Price").

AIT, AVIF, Alliance, DGPF, Fidelity VIP, Fidelity VIP II, Fidelity VIP III, FT
VIP, INVESCO VIF, Janus Aspen, KVS, Pioneer VCT and T. Rowe Price, are open-end,
diversified management investment companies. Thirteen funds of AIT are available
under the Contract: the Core Equity Fund, Equity Index Fund, Government Bond
Fund, Money Market Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Emerging Markets Fund, Select Growth Fund, Select
Growth and Income Fund,

<PAGE>

Select International Equity Fund, Select Investment Grade Income Fund, Select
Strategic Growth Fund, and the Select Value Opportunity Fund. Two funds of AVIF
are available under the Contract: the AIM V.I. Aggressive Growth Fund and the
AIM V.I. Value Fund. Two portfolios of Alliance are available under the
Contract: the Alliance Growth and Income Portfolio and the Alliance Premier
Growth Portfolio. Two series of DGPF are available under the Contract: the DGPF
International Equity Series and the DGPF Growth Opportunities Series. Four
portfolios of Fidelity VIP are available under the Contract: the Fidelity VIP
Equity-Income Portfolio, Fidelity VIP Growth Portfolio, Fidelity VIP High Income
Portfolio and the Fidelity VIP Overseas Portfolio. One portfolio of Fidelity VIP
II is available under the Contract: the Fidelity VIP II Asset Manager Portfolio.
One Fidelity VIP III portfolio is available under the Contract: the Fidelity VIP
III Growth Opportunities Portfolio. Two FT VIP funds are available under the
Contract: the Franklin Natural Resources Securities Fund and the Franklin Small
Cap Fund. One fund of INVESCO VIF is available under the Contract: the INVESCO
VIF Health Sciences Fund. Two Janus Aspen portfolios are available under the
Contract: the Janus Aspen Growth Portfolio and the Janus Aspen Growth and Income
Portfolio. Two KVS portfolios are available under the Contract: the KVS Dreman
Financial Services Portfolio and the Kemper Technology Growth Portfolio. Two
Pioneer VCT portfolios are available under the Contract: the Pioneer Emerging
Markets VCT Portfolio and the Pioneer Real Estate Growth VCT Portfolio. Each
fund available under the Contract (together, the "Underlying Funds") has its own
investment objectives and certain attendant risks.

TAXATION OF THE CONTRACT, THE VARIABLE
ACCOUNT AND THE COMPANY

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

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

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

SERVICES

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

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

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

<PAGE>

UNDERWRITERS

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

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

Commissions are paid by the Company to its licensed insurance agents on sales
of the Contract. The Company intends to recoup the commission and other sales
expense through a combination of anticipated surrender charges, withdrawal
charges, annuitization withdrawal charges (Withdrawal Adjustment Charge),
profits from the Company's general account, including the investment earnings
on amounts allocated to accumulate on a fixed basis in excess of the interest
credited on fixed accumulations by the Company, and the profit, if any, from
the mortality and expense risk charge.

All persons selling the Contract are required to be licensed by their respective
state insurance authorities for the sale of variable annuity policies.
Registered representatives of Allmerica Investments receive commissions not to
exceed 5% of purchase payments. Independent broker-dealers receive commissions
of up to 5% of purchase payments, of which a portion is paid to their registered
representatives. To the extent permitted by NASD rules, promotional incentives
or payments also may be provided to such entities based on sales volumes, the
assumption of wholesaling functions or other sales-related criteria. Additional
payments may be made for other services not directly related to the sale of the
Contract, including the recruitment and training of personnel, production of
promotional literature and similar services.

Commissions are paid by the Company, and do not result in any charge to Owners
or to the Variable Account in addition to the charges described under "CHARGES
AND DEDUCTIONS" in the Prospectus.

The aggregate amounts of commissions paid to Allmerica Investments for sales of
all contracts funded by Separate Account VA-K (including contracts not described
in the Prospectus) for the years 1997, 1998 and 1999 were $3,098,376, $3,517,208
and $3,451,291.

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

ANNUITY BENEFIT PAYMENTS

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

ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the assets of a Sub-Account at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that

<PAGE>

during the Valuation Period, the investment income and net realized and
unrealized capital gains exceed net realized and unrealized capital losses by
$1,675. The Accumulation Unit Value at the end of the current Valuation Period
would be calculated as follows:
<TABLE>
<S> <C>
(1) Accumulation Unit Value -- Previous Valuation Period...................................$ 1.135000

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

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

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

(5) Annual Charge (one-day equivalent of 1.40% per annum).....................................0.000038

(6) Net Investment Rate (4) - (5).............................................................0.000297

(7) Net Investment Factor 1.000000 + (6)......................................................1.000297

(8) Accumulation Unit Value -- Current Period (1) x (7)....................................$ 1.135337
</TABLE>

Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains of $1,675, the
Accumulation Unit Value at the end of the Valuation Period would have been
$1.134577.

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

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

Next, assume that the Annuity Unit Value for the assumed investment return of
3.0% per annum for the Valuation Date as of which the first payment was
calculated was $1.100000. Annuity Unit Values will not be the same as
Accumulation Unit Values because the former reflect the 3.0% assumed investment
return used in the annuity rate calculations. When the Annuity Unit Value of
$1.100000 is divided into the first monthly payment the number of Annuity Units
represented by that payment is determined to be 267.5818. The value of this same
number of Annuity Units will be paid in each subsequent month under most
options. Assume further that the net investment factor for the Valuation Period
applicable to the next annuity benefit payment is 1.000190. Multiplying this
factor by .999919 (the one-day adjustment factor for the assumed investment
return of 3.0% per annum) produces a factor of 1.000109. This then is multiplied
by the Annuity Unit Value on the immediately preceding Valuation Date (assumed
here to be $1.105000). The result is an Annuity Unit Value of $1.105121 for the
current monthly payment. The current monthly payment then is determined by
multiplying the number of Annuity Units by the current Annuity Unit Value, or
267.5818 times $1.105121, which produces a current monthly payment of $295.71.

<PAGE>

ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAM

ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAMS. To the extent
permitted by law, the Company reserves the right to offer Enhanced Automatic
Transfer Program(s) from time to time. If you elect to participate, the Company
will credit an enhanced interest rate to payments made to the Enhanced Automatic
Transfer Program. Eligible payments:

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

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

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

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

You may be able to establish more than one Enhanced Automatic Transfer Program.

PERFORMANCE INFORMATION

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

<PAGE>

TOTAL RETURN

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

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

(n)
P(1 + T) = ERV

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

T = average annual total return

n = number of years

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

The calculation of Total Return includes the annual charges against the assets
of the Sub-Account. This charge is 1.40% on an annual basis. The calculation of
ending redeemable value assumes (1) the Contract was issued at the beginning of
the period, and (2) a complete surrender of the Contract at the end of the
period. The deduction of the surrender charge, if any, applicable at the end of
the period is included in the calculation, according to the following schedule:

--------------------------------------------------------------------------------
Years From Date of Payment to Surrender Charge as a Percentage of
Date of Withdrawal the Payments Withdrawn*
------------------ -----------------------
--------------------------------------------------------------------------------
<S> <C>
less than 1 8.0%
--------------------------------------------------------------------------------
less than 2 8.0%
--------------------------------------------------------------------------------
less than 3 8.0%
--------------------------------------------------------------------------------
less than 4 7.0%
--------------------------------------------------------------------------------
less than 5 7.0%
--------------------------------------------------------------------------------
less than 6 6.0%
--------------------------------------------------------------------------------
less than 7 5.0%
--------------------------------------------------------------------------------
less than 8 3.0%
--------------------------------------------------------------------------------
less than 9 1.0%
--------------------------------------------------------------------------------
Thereafter 0%
--------------------------------------------------------------------------------
</TABLE>

* Subject to the maximum limit described in the Prospectus.

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

The calculations of Total Return include the deduction of the $30 annual
Contract fee.

YIELD AND EFFECTIVE YIELD - THE MONEY MARKET SUB-ACCOUNT

Set forth below is yield and effective yield information for the Money Market
Sub-Account for the seven-day period ended December 31, 1999:
<TABLE>
<S> <C>
Yield N/A
Effective Yield N/A
</TABLE>

<PAGE>

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

The Money Market Sub-Account computes effective yield by compounding the
unannualized base period return by using the formula:

(365/7)
Effective Yield = [(base period return + 1) ] - 1

The calculations of yield and effective yield reflect the $30 annual Contract
fee.

FINANCIAL STATEMENTS

Financial Statements are included for First Allmerica Financial Life Insurance
Company and for its Separate Account VA-K.

8
<PAGE>
FIRST ALLMERICA
FINANCIAL LIFE
INSURANCE COMPANY

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

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

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, shareholder's equity
and cash flows present fairly, in all material respects, the financial position
of First Allmerica Financial Life Insurance Company (the "Company") at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

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

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums................................... $ 954.5 $1,969.5 $1,980.4
Universal life and investment product
policy fees.............................. 359.3 296.6 237.3
Net investment income...................... 503.1 593.9 619.5
Net realized investment gains.............. 100.3 60.9 76.3
Other income............................... 107.3 100.0 81.5
-------- -------- --------
Total revenues......................... 2,024.5 3,020.9 2,995.0
-------- -------- --------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 1,056.3 1,803.0 1,763.9
Policy acquisition expenses................ 240.9 449.6 421.8
Sales practice litigation.................. -- 31.0 --
Loss from cession of disability income
business................................. -- -- 53.9
Restructuring costs........................ -- 9.0 --
Other operating expenses................... 346.3 419.7 404.0
-------- -------- --------
Total benefits, losses and expenses.... 1,643.5 2,712.3 2,643.6
-------- -------- --------
Income from continuing operations before
federal income taxes.......................... 381.0 308.6 351.4
-------- -------- --------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 88.7 74.6 74.4
Deferred................................... 4.3 (15.4) 14.2
-------- -------- --------
Total federal income tax expense....... 93.0 59.2 88.6
-------- -------- --------
Income from continuing operations before
minority interest............................. 288.0 249.4 262.8
Minority interest.......................... (39.9) (55.0) (79.4)
-------- -------- --------
Income from continuing operations.............. 248.1 194.4 183.4
(Loss) income from operations of discontinued
business (less applicable income taxes
(benefit) of $(10.1), $(7.0) and $8.9 for the
years ended December 31, 1999, 1998 and 1997,
respectively) (17.2) (13.5) 16.6

Loss on disposal of group life and health
business, including provision of $72.2 for
operating losses during phase-out period for
the year ended December 31, 1999 (less
applicable income tax benefit of $16.4) (30.5) -- --
-------- -------- --------
Net income..................................... $ 200.4 $ 180.9 $ 200.0
======== ======== ========
</TABLE>

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

F-1
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998
------------------------------------ --------- ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$3,721.6 and $7,520.8)............................ $ 3,660.7 $ 7,683.9
Equity securities at fair value (cost of $27.9 and
$253.1)........................................... 51.4 397.1
Mortgage loans...................................... 521.2 562.3
Policy loans........................................ 170.5 154.3
Real estate and other long-term investments......... 177.0 163.1
--------- ---------
Total investments............................... 4,580.8 8,960.7
--------- ---------
Cash and cash equivalents............................. 279.3 504.0
Accrued investment income............................. 73.3 141.0
Deferred policy acquisition costs..................... 1,219.5 1,161.2
Reinsurance receivable on unpaid losses, benefits and
unearned premiums................................... 480.3 1,136.4
Deferred federal income taxes......................... 18.1 19.4
Premiums, accounts and notes receivable............... 81.0 510.5
Other assets.......................................... 199.6 530.6
Closed Block assets................................... 772.3 803.1
Separate account assets............................... 17,629.6 13,697.7
--------- ---------
Total assets.................................... $25,333.8 $27,464.6
========= =========
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,825.0 $ 2,802.2
Outstanding claims, losses and loss adjustment
expenses.......................................... 218.8 2,815.9
Unearned premiums................................... 6.6 843.2
Contractholder deposit funds and other policy
liabilities....................................... 2,025.5 2,637.0
--------- ---------
Total policy liabilities and accruals........... 5,075.9 9,098.3
--------- ---------
Expenses and taxes payable............................ 512.0 681.9
Reinsurance premiums payable.......................... 17.9 50.2
Trust instruments supported by funding obligations.... 50.6 --
Short-term debt....................................... -- 221.3
Closed Block liabilities.............................. 842.1 872.0
Separate account liabilities.......................... 17,628.9 13,691.5
--------- ---------
Total liabilities............................... 24,127.4 24,615.2
--------- ---------
Minority interest..................................... -- 532.9
Commitments and contingencies (Notes 16 and 21)
SHAREHOLDER'S EQUITY
Common stock, $10 par value, 1 million shares
authorized, 500,001 shares issued and outstanding... 5.0 5.0
Additional paid-in capital............................ 569.0 444.0
Accumulated other comprehensive (loss) income......... (14.9) 169.2
Retained earnings..................................... 647.3 1,698.3
--------- ---------
Total shareholder's equity...................... 1,206.4 2,316.5
--------- ---------
Total liabilities and shareholder's equity...... $25,333.8 $27,464.6
========= =========
</TABLE>

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

F-2
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
COMMON STOCK................................... $ 5.0 $ 5.0 $ 5.0
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............. 444.0 453.7 392.4
Capital contribution from parent........... 125.0 -- 61.3
Loss on change of interest-Allmerica P&C... -- (9.7) --
-------- -------- --------
Balance at end of period................... 569.0 444.0 453.7
-------- -------- --------

ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Net unrealized (depreciation) appreciation
on investments:
Balance at beginning of period............. 169.2 209.3 131.4
(Depreciation) appreciation during the
period:
Net (depreciation) appreciation on
available-for-sale securities.......... (298.2) (82.4) 170.9
Benefit (provision) for deferred federal
income taxes........................... 105.0 28.9 (59.8)
Minority interest........................ 31.8 13.4 (33.2)
-------- -------- --------
Distribution of subsidiaries (Note 3)...... (22.7) -- --
-------- -------- --------
(184.1) (40.1) 77.9
-------- -------- --------
Balance at end of period................... (14.9) 169.2 209.3
-------- -------- --------
RETAINED EARNINGS
Balance at beginning of period............. 1,698.3 1,567.4 1,367.4
Net income................................. 200.4 180.9 200.0
Dividend to shareholder.................... -- (50.0) --
Distribution of subsidiaries (Note 3)...... (1,251.4) -- --
-------- -------- --------
Balance at end of period................... 647.3 1,698.3 1,567.4
-------- -------- --------
Total shareholder's equity............. $1,206.4 $2,316.5 $2,235.4
======== ======== ========
</TABLE>

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

F-3
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------- ------- ------
<S> <C> <C> <C>
Net income.................................. $ 200.4 $ 180.9 $200.0
Other comprehensive (loss) income:
Net (depreciation) appreciation on
available-for-sale securities......... (298.2) (82.4) 170.9
Benefit (provision) for deferred federal
income taxes.......................... 105.0 28.9 (59.8)
Minority interest....................... 31.8 13.4 (33.2)
Distribution of subsidiaries (Note 3)... (22.7) -- --
------- ------- ------
Other comprehensive (loss) income... (184.1) (40.1) 77.9
------- ------- ------
Comprehensive (loss) income................. $ (16.3) $ 140.8 $277.9
======= ======= ======
</TABLE>

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

F-4
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- --------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 200.4 $ 180.9 $ 200.0
Adjustments to reconcile net income to
net cash provided by operating
activities:
Minority interest................... 39.9 55.0 79.4
Net realized gains.................. (100.9) (62.7) (77.8)
Net amortization and depreciation... 31.5 20.7 31.6
Deferred federal income taxes....... 20.7 (15.4) 14.2
Sales practice litigation expense... -- 31.0 --
Loss from exiting reinsurance
pools............................. -- 25.3 --
Payment related to exiting
reinsurance pools................. -- (30.3) --
Loss from cession of disability
income business................... -- -- 53.9
Payment related to cession of
disability income business........ -- -- (207.0)
Loss from disposal of group life and
health business................... 30.5 -- --
Change in deferred acquisition
costs............................. (181.6) (185.8) (189.7)
Change in premiums and notes
receivable, net of reinsurance
payable........................... (41.8) 56.7 (15.1)
Change in accrued investment
income............................ 8.3 0.8 7.1
Change in policy liabilities and
accruals, net..................... (15.6) 168.1 (134.9)
Change in reinsurance receivable.... (46.3) (115.4) 27.2
Change in expenses and taxes
payable........................... 79.4 (3.3) 49.4
Separate account activity, net...... 5.5 (48.5) --
Other, net.......................... 18.5 (63.8) 20.4
--------- --------- ---------
Net cash provided by (used in)
operating activities.......... 48.5 13.3 (141.3)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and
maturities of available-for-sale
fixed maturities.................. 2,801.0 1,715.2 2,892.9
Proceeds from disposals of equity
securities........................ 422.9 285.3 162.7
Proceeds from disposals of other
investments....................... 30.3 120.8 116.3
Proceeds from mortgages matured or
collected......................... 131.2 171.2 204.7
Purchase of available-for-sale fixed
maturities........................ (2,227.3) (2,374.5) (2,596.0)
Purchase of equity securities....... (78.9) (119.9) (67.0)
Purchase of other investments....... (140.6) (274.4) (175.0)
Capital expenditures................ (29.2) (22.3) (15.3)
Purchase of minority interest in
Citizens Corporation.............. -- (195.9) --
Distribution of subsidiaries........ (202.2) -- --
Other investing activities, net..... -- 26.7 1.3
--------- --------- ---------
Net cash provided by (used in)
investing activities.......... 707.2 (667.8) 524.6
--------- --------- ---------
</TABLE>

F-5
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to
contractholder deposit funds...... 1,514.6 1,419.2 457.6
Withdrawals from contractholder
deposit funds..................... (2,037.5) (625.0) (647.1)
Change in trust agreements supported
by funding agreements............. 50.6 -- --
Change in short-term debt........... (180.9) 188.3 (5.4)
Change in long-term debt............ -- (2.6) (0.1)
Dividend paid to shareholder........ -- (50.0) (9.4)
Contribution from parent............ 36.0 -- 0.1
Subsidiary treasury stock purchased,
at cost........................... (350.0) (1.0) (140.0)
--------- --------- ---------
Net cash (used in) provided by
financing activities.......... (967.2) 928.9 (344.3)
--------- --------- ---------
Net change in cash and cash equivalents..... (211.5) 274.4 39.0
Net change in cash held in the Closed
Block...................................... (13.2) 15.7 (1.0)
Cash and cash equivalents, beginning of
period..................................... 504.0 213.9 175.9
--------- --------- ---------
Cash and cash equivalents, end of period.... $ 279.3 $ 504.0 $ 213.9
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ 3.1 $ 7.3 $ 3.6
Income taxes paid....................... $ 24.0 $ 135.3 $ 66.3
</TABLE>

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

F-6
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

First Allmerica Financial Life Insurance Company ("FAFLIC" or the "Company") is
organized as a stock life insurance company, and is a wholly-owned subsidiary of
Allmerica Financial Corporation ("AFC").

Prior to July 1, 1999, the consolidated financial statements of FAFLIC included
the accounts of its wholly-owned life insurance subsidiary Allmerica Financial
Life Insurance and Annuity Company ("AFLIAC"), its non-insurance subsidiaries
(principally brokerage and investment advisory services), Allmerica Property and
Casualty Companies, Inc. ("Allmerica P&C") (an 85.0%-owned non-insurance holding
company), and various other non-insurance subsidiaries.

Effective July 1, 1999, AFC made certain changes to its corporate structure
(Note 3). These changes included the transfer of the Company's ownership of
Allmerica P&C and its subsidiaries, as well as several other non-insurance
subsidiaries from the Company to AFC. In exchange, AFC contributed capital to
the Company and agreed to maintain the Company's statutory surplus at specified
levels during the following 6 years. Comparability between current and prior
period financial statements and footnotes has been significantly impacted by the
Company's divestiture of these subsidiaries during 1999, as disclosed in Note 3.

The Closed Block (Note 1B) assets and liabilities at December 31, 1999 and 1998
are presented in the consolidated balance sheets as single line items. The
contribution from the Closed Block is included in the consolidated statements of
income in other income. Unless specifically stated, all disclosures contained
herein supporting the consolidated financial statements at December 31, 1999,
1998 and 1997, and the years then ended exclude the Closed Block related
amounts. All significant intercompany accounts and transactions have been
eliminated.

On or about December 3, 1998, the Company acquired all of the outstanding common
stock of Citizens Corporation (formerly an 82.5% owned non-insurance subsidiary
of The Hanover Insurance Company ("Hanover"), a wholly-owned subsidiary of
Allmerica P&C) that it did not already own in exchange for cash of $195.9
million (Note 4). The acquisition has been recognized as a purchase. The
minority interest acquired totaled $158.5 million. A total of $40.8 million
representing the excess of the purchase price over the fair values of the net
assets acquired, net of deferred taxes, has been allocated to goodwill and is
being amortized over a 40-year period.

Prior to the July 1, 1999 changes in AFC's corporate structure, minority
interest relates to the Company's investment in Allmerica P&C and its only
significant subsidiary, Hanover. Hanover's wholly-owned subsidiary is Citizens
Corporation, the holding company for Citizens. Minority interest also includes
an amount related to the minority interest in Citizens Corporation.

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. CLOSED BLOCK

The Company established and began operating a closed block ("the Closed Block")
for the benefit of the participating policies included therein, consisting of
certain individual life insurance participating policies,

F-7
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

individual deferred annuity contracts and supplementary contracts not involving
life contingencies which were in force as of FAFLIC's demutualization on
October 16, 1995; such policies constitute the "Closed Block Business". The
purpose of the Closed Block is to protect the policy dividend expectations of
such FAFLIC dividend paying policies and contracts. Unless the Commonwealth of
Massachusetts Insurance Commissioner ("the Insurance Commissioner") consents to
an earlier termination, the Closed Block will continue to be in effect until the
date none of the Closed Block policies are in force. FAFLIC allocated to the
Closed Block assets in an amount that is expected to produce cash flows which,
together with future revenues from the Closed Block Business, are reasonably
sufficient to support the Closed Block Business, including provision for payment
of policy benefits, certain future expenses and taxes and for continuation of
policyholder dividend scales payable in 1994 so long as the experience
underlying such dividend scales continues. The Company expects that the factors
underlying such experience will fluctuate in the future and policyholder
dividend scales for Closed Block Business will be set accordingly.

Although the assets and income allocated to the Closed Block inure solely to the
benefit of the holders of policies included in the Closed Block, the excess of
Closed Block liabilities over Closed Block assets as measured on a GAAP basis
represent the expected future post-tax income from the Closed Block which may be
recognized in income over the period the policies and contracts in the Closed
Block remain in force.

If the actual income from the Closed Block in any given period equals or exceeds
the expected income for such period as determined at the inception of the Closed
Block, the expected income would be recognized in income for that period.
Further, any excess of the actual income over the expected income would also be
recognized in income to the extent that the aggregate expected income for all
prior periods exceeded the aggregate actual income. Any remaining excess of
actual income over expected income would be accrued as a liability for
policyholder dividends in the Closed Block to be paid to the Closed Block
policyholders. This accrual for future dividends effectively limits the actual
Closed Block income recognized in income to the Closed Block income expected to
emerge from operation of the Closed Block as determined at inception.

If, over the period the policies and contracts in the Closed Block remain in
force, the actual income from the Closed Block is less than the expected income
from the Closed Block, only such actual income (which could reflect a loss)
would be recognized in income. If the actual income from the Closed Block in any
given period is less than the expected income for that period and changes in
dividends scales are inadequate to offset the negative performance in relation
to the expected performance, the income inuring to shareholders of the Company
will be reduced. If a policyholder dividend liability had been previously
established in the Closed Block because the actual income to the relevant date
had exceeded the expected income to such date, such liability would be reduced
by this reduction in income (but not below zero) in any periods in which the
actual income for that period is less than the expected income for such period.

C. VALUATION OF INVESTMENTS

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

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

F-8
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Policy loans are carried principally at unpaid principal balances.

During 1997, the Company adopted a plan to dispose of all real estate assets. As
of December 31, 1999, there were 2 properties remaining in the Company's real
estate portfolio, both of which are being actively marketed. These assets are
carried at the estimated fair value less costs of disposal. Depreciation is not
recorded on these assets while they are held for disposal.

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

D. 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, investment and loan
commitments, swap contracts and interest rate futures contracts. 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.

Derivative financial instruments are accounted for under three different
methods: fair value accounting, deferral accounting and accrual accounting.
Interest rate swap contracts used to hedge interest rate risk are accounted for
using a combination of the fair value method and accrual method, with changes in
fair value reported in unrealized gains and losses in equity consistent with the
underlying hedged security, and the net payment or receipt on the swaps reported
in net investment income. Foreign currency swap contracts used to hedge the
foreign currency exchange risk associated with investment securities are
accounted for using a combination of the fair value method and accrual method,
with changes in fair value reported in unrealized gains and losses in equity
consistent with the underlying hedged security, and the net payment or receipt
on the swaps reported in net investment income. Foreign currency swap contracts
used to hedge foreign currency exchange risk associated with funding agreements
are accounted for using the fair value method, with changes in fair value
reported in other operating income consistent with the underlying hedged trust
obligation liability. Futures contracts used to hedge interest rate risk are
accounted for using the deferral method, with gains and losses deferred in
unrealized gains and losses in equity and recognized in earnings in conjunction
with the earnings recognition of the underlying hedged item. Default swap
contracts entered into for investment purposes are accounted for using the fair
value method, with changes in fair value, if any, reported in realized
investment gains and losses in earnings. Premium paid to the Company on default
swap contracts is reported in net investment income in earnings. Other swap
contracts entered into for investment purposes are accounted for using the fair
value method, with changes in fair value reported in realized investment gains
and

F-9
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

losses in earnings. Any ineffective swaps or futures hedges are recognized
currently in realized investment gains and losses in earnings.

E. 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.

F. 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.
Property and casualty, group life and group health insurance business
acquisition costs are deferred and amortized over the terms of the insurance
policies. Acquisition costs related to universal life products, variable
annuities and contractholder deposit funds are deferred and amortized in
proportion to total estimated gross profits from investment yields, mortality,
surrender charges and expense margins over the expected life of the contracts.
This amortization is reviewed annually and adjusted retrospectively when the
Company revises its estimate of current or future gross profits to be realized
from this group of products, including realized and unrealized gains and losses
from investments. Acquisition costs related to fixed annuities and other life
insurance products are deferred and amortized, generally in proportion to the
ratio of annual revenue to the estimated total revenues over the contract
periods based upon the same assumptions used in estimating the liability for
future policy benefits.

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

G. PROPERTY AND EQUIPMENT

Property, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is provided using the
straight-line or accelerated method over the estimated useful lives of the
related assets which generally range from 3 to 30 years. Amortization of
leasehold improvements is provided using the straight-line method over the
lesser of the term of the leases or the estimated useful life of the
improvements.

H. 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.

F-10
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

I. 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 6.0%
for life insurance and 2% to 9 1/2% for annuities. Estimated liabilities are
established for group life and health policies that contain experience rating
provisions. Mortality, morbidity and withdrawal assumptions for all policies are
based on the Company's own experience and industry standards. Liabilities for
universal life, variable universal life and variable annuities include deposits
received from customers and investment earnings on their fund balances, less
administrative charges. Universal life fund balances are also assessed mortality
and surrender charges. Liabilities for variable annuities include a reserve for
benefit claims in excess of a guaranteed minimum fund value.

Liabilities for outstanding claims, losses and loss adjustment expenses ("LAE")
are estimates of payments to be made on property and casualty and health
insurance for reported losses and LAE and estimates of losses and LAE incurred
but not reported. These liabilities are determined using case basis evaluations
and statistical analyses and represent estimates of the ultimate cost of all
losses incurred but not paid. These estimates are continually reviewed and
adjusted as necessary; such adjustments are reflected in current operations.
Estimated amounts of salvage and subrogation on unpaid property and casualty
losses are deducted from the liability for unpaid claims.

Premiums for property and casualty 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 such as guaranteed investment contracts ("GICs"),
deposit administration funds and immediate participation guarantee funds 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, the Company
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.

J. PREMIUM AND FEE REVENUE AND RELATED EXPENSES

Premiums for individual life and health insurance and individual and group
annuity products, excluding universal life and investment-related products, are
considered revenue when due. Property and casualty 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 include annuity benefit claims in excess of a
guaranteed minimum fund value, and net investment income credited to the fund
values after deduction for investment and risk charges. Revenues for universal
life products consist of net investment income, with mortality, administration
and surrender charges assessed against the fund values. Related benefit expenses
include universal life benefit claims in excess of fund values and net
investment income credited to universal life fund values. Certain policy charges
that represent compensation for services

F-11
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

to be provided in future periods are deferred and amortized over the period
benefited using the same assumptions used to amortize capitalized acquisition
costs.

K. FEDERAL INCOME TAXES

AFC and its domestic subsidiaries (including certain non-insurance operations)
file a consolidated United States federal income tax return. Entities included
within the consolidated group are segregated into either a life insurance or
non-life insurance company subgroup. The consolidation of these subgroups is
subject to certain statutory restrictions on the percentage of eligible non-life
tax losses that can be applied to offset life company taxable income. Prior to
the merger on July 16, 1997, Allmerica P&C and its subsidiaries filed a separate
United States federal income tax return.

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

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

L. NEW ACCOUNTING PRONOUNCEMENTS

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

In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SoP 98-1"). SoP 98-1 requires that
certain costs incurred in developing internal-use computer software be
capitalized and provides guidance for determining whether computer software is
to be considered for internal use. This statement is effective for fiscal years
beginning after December 15, 1998. In the second quarter of 1998, the Company
adopted SoP 98-1 effective January 1, 1998, resulting in an increase in pre-tax
income of $12.4 million through December 31, 1998. The adoption of SOP 98-1 did
not have a material effect on the results of operations or financial position
for the three months ended March 31, 1998.

In December 1997, the AICPA issued Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SoP 97-3").
SoP 97-3 provides guidance on when a liability should be recognized for guaranty
fund and other assessments and how to measure the liability. This statement
allows for the discounting of the liability if the amount and timing of the cash
payments are fixed

F-12
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and determinable. In addition, it provides criteria for when an asset may be
recognized for a portion or all of the assessment liability or paid assessment
that can be recovered through premium tax offsets or policy surcharges. This
statement is effective for fiscal years beginning after December 15, 1998. The
adoption of this statement did not have a material effect on the results of
operations or financial position of the Company.

In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("Statement No. 131"). This statement
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that
selected information about those operating segments be reported in interim
financial statements. This statement supersedes Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement No. 131 requires
that all public enterprises report financial and descriptive information about
their reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This statement
is effective for fiscal years beginning after December 15, 1997. The Company
adopted Statement No. 131 for the first quarter of 1998, which resulted in
certain segment re-definitions, which have no impact on the consolidation
results of operations (See Note 15).

In June 1997, the FASB also issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("Statement No. 130"). Statement
No. 130 establishes standards for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
All items that are required to be recognized under accounting standards as
components of comprehensive income are to be reported in a financial statement
that is displayed with the same prominence as other financial statements. This
statement stipulates that comprehensive income reflect the change in equity of
an enterprise during a period from transactions and other events and
circumstances from non-owner sources. This statement is effective for fiscal
years beginning after December 15, 1997. The Company adopted Statement No. 130
for the first quarter of 1998, which resulted primarily in reporting unrealized
gains and losses on investments in debt and equity securities in comprehensive
income.

M. RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current year
presentation, resulting primarily from the reporting of Discontinued Operations
as disclosed in Note 2.

2. DISCONTINUED OPERATIONS

During the second quarter of 1999, the Company approved a plan to exit its group
life and health insurance business, consisting of its Employee Benefit Services
("EBS") business, its Affinity Group Underwriters ("AGU") business and its
accident and health assumed reinsurance pool business ("reinsurance pool
business"). During the third quarter of 1998, the Company ceased writing new
premium in the reinsurance pool business, subject to certain contractual
obligations. Prior to 1999, these businesses comprised substantially all of the
former Corporate Risk Management Services segment. Accordingly, the operating
results of the discontinued segment, including its reinsurance pool business,
have been reported in the Consolidated Statements of Income as discontinued
operations in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" ("APB Opinion No. 30"). In the third quarter of 1999,
the operating results from the discontinued segment were adjusted to reflect the
recording of additional reserves related to accident claims from prior years. On
October 6, 1999, the Company entered into an agreement with Great-West Life and
Annuity Insurance Company of Denver,

F-13
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

which provides for the sale of the Company's EBS business effective March 1,
2000. The Company has recorded a $30.5 million loss, net of taxes, on the
disposal of its group life and health business. Subsequent to the June 30, 1999
measurement date, operations from the discontinued business generated losses of
approximately $8.7 million, net of taxes.

As permitted by APB Opinion No. 30, the Consolidated Balance Sheets have not
been segregated between continuing and discontinued operations. At December 31,
1999, the discontinued segment had assets of approximately $531.1 million
consisting primarily of invested assets, premiums and fees receivable, and
reinsurance recoverables, and liabilities of approximately $482.5 million
consisting primarily of policy liabilities. Revenues for the discontinued
operations were $361.1 million, $398.5 million, and $389.2 million for the years
ended December 31, 1999, 1998 and 1997, respectively.

3. REORGANIZATION OF AFC CORPORATE STRUCTURE

AFC has made certain changes to its corporate structure effective July 1, 1999.
These changes included transfer of the Company's ownership of Allmerica P&C and
all of its subsidiaries, as well as certain other non-insurance subsidiaries,
from FAFLIC to AFC, referred to as the "distribution of subsidiaries". The
Company retained its ownership of its primary insurance subsidiary, AFLIAC and
certain broker dealer and investment management and advisory subsidiaries. AFC
contributed capital to FAFLIC in the amount of $125.0 million, consisting of
cash and securities of $36.0 million and $89.0 million, respectively, and agreed
to maintain the Company's statutory surplus at specified levels during the
following six years. In addition, any dividend from FAFLIC to AFC during 2000
and 2001 requires the prior approval of the Commonwealth of Massachusetts
Insurance Commissioner. This transaction was approved by the Commissioner on
May 24, 1999.

The equity of the subsidiaries transferred from FAFLIC on July 1, 1999 was
$1,274.1 million. As of June 30, 1999, the transferred subsidiaries had total
assets of $5,334.1 million, including cash and cash equivalents of $202.2
million, and total revenue of $1,196.5 million.

The Company's consolidated results of operations in 1999 include $107.2 million
of net income associated with these subsidiaries through June 30, 1999. The
unaudited pro forma information below presents consolidated results of
operations as if the reorganization had occurred at the beginning of 1998.

The following unaudited pro forma information is not necessarily indicative of
the consolidated results of operations of the Company had the transfer occurred
at the beginning of 1998, nor is it necessarily indicative of future results.

<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- ------ ------
<S> <C> <C>
Revenue..................................................... $828.0 $750.2
====== ======
Net realized capital (losses) gains included in revenue..... (11.8) 19.6
====== ======
Income from continuing operations before taxes.............. 192.1 141.2
Income taxes................................................ 51.2 41.2
------ ------
Net income from continuing operations....................... $140.9 100.0
(Loss) from operations of discontinued business (less
applicable income taxes (benefit) of $(10.4), $(7.0) and
$8.9 for the years ended December 31, 1999, 1998 and 1997,
respectively............................................... (17.2) (13.5)
</TABLE>

F-14
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- ------ ------
<S> <C> <C>
(Loss) on disposal of group life and health business,
including provision of $72.2 for operating losses during
phase-out period for the tear ended December 31, 1999 (less
applicable income tax benefit of $16.4).................... (30.5) --
------ ------
Net income.................................................. $ 93.2 $ 86.5
====== ======
</TABLE>

4. ACQUISITION OF MINORITY INTEREST OF CITIZENS CORPORATION

On December 3, 1998 Citizens Acquisition Corporation, a wholly-owned subsidiary
of the Allmerica P&C, completed a cash tender offer to acquire the outstanding
shares of Citizens Corporation common stock that AFC or its subsidiaries did not
already own at a price of $33.25 per share. Approximately 99.8% of publicly held
shares of Citizens Corporation common stock were tendered. On December 14, 1998,
the Company completed a short-form merger, acquiring all shares of common stock
of Citizens Corporation not purchased in its tender offer, through the merger of
its wholly-owned subsidiary, Citizens Acquisition Corporation with Citizens
Corporation at a price of $33.25 per share. Total consideration for the
transactions amounted to $195.9 million. The acquisition has been recognized as
a purchase. The minority interest acquired totaled $158.5 million. A total of
$40.8 million representing the excess of the purchase price over the fair values
of the net assets acquired, net of deferred taxes, has been allocated to
goodwill and is being amortized over a 40-year period.

The Company's consolidated results of operations include minority interest in
Citizens Corporation prior to December 3, 1998. The unaudited pro forma
information below presents consolidated results of operation as if the
acquisition had occurred at the beginning of 1997.

The following unaudited pro forma information is not necessarily indicative of
the consolidated results of operations of the combined Company had the
acquisition occurred at the beginning of 1997, nor is it necessarily indicative
of future results.

<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997
------------- -------- --------
<S> <C> <C>
Revenue..................................................... $3,006.6 $2,977.1
======== ========
Net realized capital gains included in revenue.............. $ 58.1 $ 71.6
======== ========
Income before taxes and minority interest................... 293.4 332.5
Income taxes................................................ (54.2) (82.4)
Minority Interest:
Equity in earnings........................................ (42.6) (64.1)
-------- --------
Net income.................................................. $ 196.6 $ 186.0
======== ========
</TABLE>

5. OTHER SIGNIFICANT TRANSACTIONS

Effective January 1, 1999, Allmerica P&C entered into a whole account aggregate
excess of loss reinsurance agreement with a highly rated reinsurer. The
reinsurance agreement provides accident year coverage for the three years 1999
to 2001 for the Company's property and casualty business, and is subject to
cancellation or commutation annually at the Company's option. The program covers
losses and allocated loss adjustment

F-15
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

expenses, including those incurred but not yet reported, in excess of a
specified whole account loss and allocated LAE ratio. The annual and aggregate
coverage limits for losses and allocated LAE are $150.0 million and $300.0
million, respectively. The effect of this agreement on results of operations in
each reporting period is based on losses and allocated LAE ceded, reduced by a
sliding scale premium of 50.0-67.0% depending on the size of the loss, and
increased by a ceding commission of 20.0% of ceded premium. In addition, net
investment income is reduced for amounts credited to the reinsurer. Prior to the
AFC corporate reorganization, the Company recognized a net benefit of $16.9
million as a result of this agreement, based on year-to-date and annual
estimates of losses and allocated loss adjustment expenses for accident year
1999.

On October 29, 1998, the Company announced that it had adopted a formal
restructuring plan for its Risk Management business. As part of this initiative,
the segment consolidated its property and casualty field support activities from
fourteen regional branches into three hub locations. As a result of the
Company's restructuring initiative, it recognized a pretax loss of $9.0 million,
in the fourth quarter of 1998.

Approximately $4.8 million of this loss relates to severance and other employee
related costs resulting from the elimination of 306 positions, of which 207 and
106 employees had been terminated as of December 31, 1999 and 1998,
respectively. In addition, lease cancellations and contract terminations
resulted in losses of approximately $2.5 million and $1.7 million, respectively.
The Company made payments of approximately $4.2 million and $0.1 million through
June 30, 1999 and in 1998, respectively, related to this restructuring
initiative.

Effective July 1, 1998, the Company entered into a reinsurance agreement with a
highly rated reinsurer that cedes current and future underwriting losses,
including unfavorable development of prior year reserves, up to a $40.0 million
maximum, relating to the Company's reinsurance pool business. These pools
consist primarily of the Company's assumed stop loss business, small group
managed care pools, long-term disability and long-term care pools, student
accident and special risk business. The agreement is consistent with
management's decision to exit this line of business, which the Company expects
to run-off over the next three years. As a result of this transaction, the
Company recognized a $25.3 million pre-tax loss in the third quarter of 1998.
This loss is reported in 1999 as part of the discontinued operations of the
Company.

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

In 1999, 1998 and 1997, Allmerica P&C redeemed 8,662.7, 3,289.5 and 5,735.3
shares, respectively, of its issued and outstanding common stock owned by AFC
for $350.0 million, $125.0 million and $195.0 million, respectively, thereby
increasing the Company's total ownership to 84.5% as of June 30, 1999. The
increases in the Company's ownership of Allmerica P&C through June 30, 1999, and
for 1998 and 1997 were 14.5%, 4.3% and 6.3%, respectively. The 1999 transaction
consisted of cash and cash equivalents. The 1998 transaction consisted of $124.0
million of securities and $1.0 million of cash. The 1997 transaction consisted
of $55.0 million of securities and $140.0 million of cash.

The merger of Allmerica P&C and a wholly-owned subsidiary of AFC was consummated
on July 16, 1997. Through the merger, AFC acquired all of the outstanding common
stock of Allmerica P&C that FAFLIC did not already own in exchange for cash of
$425.6 million and approximately 9.7 million shares of AFC stock valued at
$372.5 million. At consummation of this transaction AFC owned 59.5% through
FAFLIC and 40.5% directly. The merger has been recognized as a purchase. Total
consideration of approximately $798.1 million

F-16
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

has been allocated to the minority interest in the assets and liabilities based
on estimates of their fair values. The minority interest acquired totaled $703.5
million. A total of $90.6 million representing the excess of the purchase price
over the fair values of the net assets acquired, net of deferred taxes, has been
allocated to goodwill and is being amortized over a 40-year period.

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

6. INVESTMENTS

A. SUMMARY OF INVESTMENTS

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

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

<TABLE>
<CAPTION>
1999
-------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 62.6 $ 1.0 $ 0.5 $ 63.1
States and political subdivisions....... 13.5 0.1 0.1 13.5
Foreign governments..................... 80.0 2.1 0.1 82.0
Corporate fixed maturities.............. 3,206.5 63.2 116.9 3,152.8
Mortgage-backed securities.............. 359.0 1.3 11.0 349.3
-------- ------ ------ --------
Total fixed maturities.................. $3,721.6 $ 67.7 $128.6 $3,660.7
======== ====== ====== ========
Equity securities....................... $ 27.9 $ 24.7 $ 1.2 $ 51.4
======== ====== ====== ========
</TABLE>

<TABLE>
<CAPTION>
1998
-------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 192.8 $ 12.0 $ 24.5 $ 180.3
States and political subdivisions....... 2,408.9 83.0 5.2 2,486.7
Foreign governments..................... 107.9 7.7 4.5 111.1
Corporate fixed maturities.............. 4,293.3 167.8 81.9 4,379.2
Mortgage-backed securities.............. 517.9 11.5 2.8 526.6
-------- ------ ------ --------
Total fixed maturities.................. $7,520.8 $282.0 $118.9 $7,683.9
======== ====== ====== ========
Equity securities....................... $ 253.1 $151.1 $ 7.1 $ 397.1
======== ====== ====== ========
</TABLE>

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

F-17
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with AFLIAC's voluntary withdrawal of its license in New York,
AFLIAC agreed with the New York Department of Insurance to maintain, through a
custodial account in New York, a security deposit, the market value of which
will at all times equal 102% of all outstanding general account liabilities of
AFLIAC for New York policyholders, claimants and creditors. At December 31,
1999, the amortized cost and market value of these assets on deposit in New York
were $196.4 million and $193.0 million, respectively. At December 31, 1998, the
amortized cost and market value of assets on deposit were $268.5 million and
$284.1 million, respectively. In addition, fixed maturities, excluding those
securities on deposit in New York, with an amortized cost of $18.3 million and
$105.4 million were on deposit with various state and governmental authorities
at December 31, 1999 and 1998, respectively.

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

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

<TABLE>
<CAPTION>
1999
-------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
------------- --------- --------
<S> <C> <C>
Due in one year or less..................................... $ 224.4 $ 225.7
Due after one year through five years....................... 1,324.0 1,328.4
Due after five years through ten years...................... 1,409.1 1,369.9
Due after ten years......................................... 764.1 736.7
-------- --------
Total....................................................... $3,721.6 $3,660.7
======== ========
</TABLE>

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

<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
------------- ---------- ------------- ------
<S> <C> <C> <C>
1999
Net appreciation, beginning of year......................... $ 79.0 $ 90.2 $169.2
------ ------ ------
Net (depreciation) appreciation on available-for-sale
securities................................................. (254.4) (122.3) (376.7)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 78.5 -- 78.5
Provision for deferred federal income taxes and minority
interest................................................... 72.1 64.7 136.8
Distribution of subsidiaries (See Note 3)................... (5.6) (17.1) (22.7)
------ ------ ------
(109.4) (74.7) (184.1)
------ ------ ------
Net appreciation, end of year............................... $(30.4) $ 15.5 $(14.9)
====== ====== ======
</TABLE>

F-18
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
------------- ---------- ------------- ------
<S> <C> <C> <C>
1998
Net appreciation, beginning of year......................... $122.6 $ 86.7 $209.3
------ ------ ------
Net (depreciation) appreciation on available-for-sale
securities................................................. (99.3) 4.4 (94.9)
Appreciation due to Allmerica P&C purchase of minority in
interest of Citizens....................................... 10.7 10.7 21.4
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 6.3 -- 6.3
Provision for deferred federal income taxes and minority
interest................................................... 38.7 (11.6) 27.1
------ ------ ------
(43.6) 3.5 (40.1)
------ ------ ------
Net appreciation, end of year............................... $ 79.0 $ 90.2 $169.2
====== ====== ======

1997
Net appreciation, beginning of year......................... $ 71.3 $ 60.1 $131.4
------ ------ ------
Net appreciation (depreciation) on available-for-sale
securities................................................. 83.2 (5.9) 77.3
Appreciation due to AFC purchase of minority interest of
Allmerica P&C.............................................. 50.7 59.6 110.3
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (16.7) -- (16.7)
Provision for deferred federal income taxes and minority
interest................................................... (65.9) (27.1) (93.0)
------ ------ ------
51.3 26.6 77.9
------ ------ ------
Net appreciation, end of year............................... $122.6 $ 86.7 $209.3
====== ====== ======
</TABLE>

(1) Includes net (depreciation) appreciation on other investments of $(1.1)
million, $0.8 million, and $1.8 million, in 1999, 1998, and 1997, respectively.

B. MORTGAGE LOANS AND REAL ESTATE

FAFLIC's mortgage loans are diversified by property type and location. Real
estate investments have been obtained primarily through foreclosure. Mortgage
loans are collateralized by the related properties and generally are no more
than 75% of the property's value at the time the original loan is made.

The carrying values of mortgage loans and real estate investments net of
applicable reserves were $533.6 million and $582.7 million at December 31, 1999
and 1998, respectively. Reserves for mortgage loans were $5.8 million and $11.5
million at December 31, 1999 and 1998, respectively.

During 1997, the Company committed to a plan to dispose of all real estate
assets. At December 31, 1999, there were 2 properties remaining in the Company's
real estate portfolio which are being actively marketed. Depreciation is not
recorded on these assets while they are held for disposal.

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

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

F-19
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- ------ ------
<S> <C> <C>
Property type:
Office building........................................... $301.5 $304.4
Residential............................................... 50.3 52.8
Retail.................................................... 92.2 108.5
Industrial/warehouse...................................... 83.6 110.0
Other..................................................... 11.8 18.5
Valuation allowances...................................... (5.8) (11.5)
------ ------
Total....................................................... $533.6 $582.7
====== ======
Geographic region:
South Atlantic............................................ $132.2 $136.1
Pacific................................................... 133.6 155.1
East North Central........................................ 62.5 80.5
Middle Atlantic........................................... 50.3 61.2
West South Central........................................ 90.8 54.7
New England............................................... 40.7 60.7
Other..................................................... 29.3 45.9
Valuation allowances...................................... (5.8) (11.5)
------ ------
Total....................................................... $533.6 $582.7
====== ======
</TABLE>

At December 31, 1999, scheduled mortgage loan maturities were as follows: 2000
-- $108.1 million; 2001 -- $33.9 million; 2002 -- $27.5 million; 2003 -- $40.6
million; 2004 -- $76.4 million; and $234.7 million thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties and loans may be
refinanced. During 1999, the Company did not refinance any mortgage loans based
on terms which differed from those granted to new borrowers.

C. INVESTMENT VALUATION ALLOWANCES

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

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 PROVISIONS WRITE-OFFS DECEMBER 31
------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
1999
Mortgage loans.............................................. $11.5 $(2.4) $ 3.3 $ 5.8
===== ===== ===== =====
1998
Mortgage loans.............................................. $20.7 $(6.8) $ 2.4 $11.5
===== ===== ===== =====
1997
Mortgage loans.............................................. $19.6 $ 2.5 $ 1.4 $20.7
Real estate................................................. 14.9 6.0 20.9 --
----- ----- ----- -----
Total....................................................... $34.5 $ 8.5 $22.3 $20.7
===== ===== ===== =====
</TABLE>

F-20
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Provisions on mortgages during 1999 and 1998 reflect the release of redundant
specific reserves. Write-offs of $20.9 million to the investment valuation
allowance related to real estate in 1997 primarily reflect write downs to the
estimated fair value less costs to sell pursuant to the aforementioned 1997 plan
of disposal.

The carrying value of impaired loans was $18.0 million and $22.0 million, with
related reserves of $0.8 million and $6.0 million as of December 31, 1999 and
1998, respectively. All impaired loans were reserved for as of December 31, 1999
and 1998.

The average carrying value of impaired loans was $21.0 million, $26.1 million
and $30.8 million, with related interest income while such loans were impaired
of $2.1 million, $3.2 million and $3.2 million as of December 31, 1999, 1998 and
1997, respectively.

D. FUTURES CONTRACTS

The Company purchases long futures contracts and sells short futures contracts
on margin to hedge against interest rate fluctuations associated with the sale
of Guaranteed Investment Contracts ("GICs") and other funding agreements. The
Company is exposed to interest rate risk from the time of sale of the GIC until
the receipt of the deposit and purchase of the underlying asset to back the
liability. The Company only trades futures contracts with nationally recognized
brokers, which the Company believes have adequate capital to ensure that there
is minimal danger of default. The Company does not require collateral or other
securities to support financial instruments with credit risk.

The notional amount of futures contracts outstanding was $37.1 million and $92.7
million at December 31, 1999 and 1998, respectively. The notional amounts of the
contracts represent the extent of the Company's investment but not future cash
requirements, as the Company generally settles open positions prior to maturity.
The maturity of all futures contracts outstanding is less than one year. The
fair value of futures contracts outstanding was $36.8 million and $92.5 million
at December 31, 1999 and 1998, respectively.

Gains and losses on hedge contracts related to interest rate fluctuations are
deferred and recognized in income over the period being hedged corresponding to
related guaranteed investment contracts. If instruments being hedged by futures
contracts are disposed, any unamortized gains or losses on such contracts are
included in the determination of the gain or loss from the disposition. Deferred
hedging losses were $0.9 million and $1.8 million in 1999 and 1998,
respectively. Gains and losses on hedge contracts that are deemed ineffective by
the Company are realized immediately. There was $0.1 million of gains realized
on ineffective hedges in 1998. There were no gains or losses in 1999 and 1997.

A reconciliation of the notional amount of futures contracts is as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- --------- --------- ------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.................... $ 92.7 $ -- $(33.0)
New contracts............................................... 947.0 1,117.5 (0.2)
Contracts terminated........................................ (1,002.6) (1,024.8) 33.2
--------- --------- ------
Contracts outstanding, end of year.......................... $ 37.1 $ 92.7 $ --
========= ========= ======
</TABLE>

E. FOREIGN CURRENCY SWAP CONTRACTS

The Company enters into foreign currency swap contracts with swap counterparties
to hedge foreign currency exposure on specific fixed income securities.
Additionally, in 1999, the Company entered into a foreign

F-21
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

currency swap contract to hedge foreign currency exposure on specific fixed rate
funding agreements. Interest and principal related to foreign fixed income
securities and liabilities payable in foreign currencies, at current exchange
rates, are exchanged for the equivalent payment in U.S dollars translated at a
specific currency exchange rate. The primary risk associated with these
transactions is the inability of the counterparty to meet its obligation. The
Company regularly assesses the financial strength of its counterparties and
generally enters into forward or swap agreements with counterparties rated "A"
or better by nationally recognized rating agencies. The Company's maximum
exposure to counterparty credit risk is the difference between the foreign
currency exchange rate, as agreed upon in the swap contract, and the foreign
currency spot rate on the date of the exchange, as indicated by the fair value
of the contract. The fair values of the foreign currency swap contracts
outstanding were $(4.7) million and $1.2 million at December 31, 1999 and 1998,
respectively. Changes in the fair value of contracts hedging fixed income
securities are reported as an unrealized gain or loss, consistent with the
underlying hedged security. Changes in fair value of contracts hedging fixed
rate funding agreements are reported as other operating income, consistent with
the underlying hedged liability. The net decrease in other operating income
related to these contracts was $2.6 million in 1999. The Company does not
require collateral or other security to support financial instruments with
credit risk.

The difference between amounts paid and received on foreign currency swap
contracts is reflected in the net investment income related to the underlying
assets and is not material in 1999, 1998 and 1997. Any gain or loss on the
termination of swap contracts is deferred and recognized with any gain or loss
on the hedged transaction. The Company had no deferred gain or loss on foreign
currency swap contracts in 1999 or 1998.

A reconciliation of the notional amount of foreign currency swap contracts is as
follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------ ----- ------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.................... $ 42.6 $42.6 $ 47.6
New contracts............................................... 52.9 -- 5.0
Contracts expired........................................... (24.0) -- (10.0)
------ ----- ------
Contracts outstanding, end of year.......................... $ 71.5 $42.6 $ 42.6
====== ===== ======
</TABLE>

Expected maturities of foreign currency swap contracts outstanding at
December 31, 1999 are $8.3 million in 2000, $52.9 million in 2001 and $10.3
million thereafter. There are no expected maturities of such foreign currency
swap contracts in 2002, 2003 and 2004.

F. INTEREST RATE SWAP CONTRACTS

The Company enters into interest rate swap contracts to hedge exposure to
interest rate fluctuations. Specifically, for floating rate GIC liabilities that
are matched with fixed rate securities, the Company manages the interest rate
risk by hedging with interest rate swap contracts. Under these swap contracts,
the Company agrees to exchange, at specified intervals, the difference between
fixed and floating interest amounts calculated on an agreed-upon notional
principal amount. As with foreign currency swap contracts, the primary risk
associated with these transactions is the inability of the counterparty to meet
its obligation. The Company regularly assesses the financial strength of its
counterparties and generally enters into forward or swap agreements with
counterparties rated "A" or better by nationally recognized rating agencies.
Because the underlying principal of swap contracts is not exchanged, the
Company's maximum exposure to counterparty credit risk is the difference in
payments exchanged, which at December 31, 1999 and 1998 were net payables of
$4.2 million and $3.9 million, respectively. The Company does not require
collateral or other security to support financial instruments with credit risk.

F-22
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The net amount receivable or payable is recognized over the life of the swap
contract as an adjustment to net investment income. The decrease in net
investment income related to interest rate swap contracts was $7.0 million, $2.8
million and $0.4 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The fair value of interest rate swap contracts outstanding was
$33.1 million and $(28.3) million at December 31, 1999 and 1998, respectively.
Changes in the fair value of contracts are reported as an unrealized gain or
loss, consistent with the underlying hedged security. Any gain or loss on the
termination of interest rate swap contracts accounted for as hedges are deferred
and recognized with the gain or loss on the hedged transaction. The Company had
no deferred gain or loss on interest rate swap contracts in 1999 or 1998.

A reconciliation of the notional amount of interest rate swap contracts is as
follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- ------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.................... $1,112.6 $ 244.1 $ 5.0
New contracts............................................... 905.4 873.5 244.7
Contracts terminated........................................ (888.5) -- --
Contracts expired........................................... (80.0) (5.0) (5.6)
Distribution of subsidiaries (Note 3)....................... (23.6) -- --
-------- -------- ------
Contracts outstanding, end of year.......................... $1,025.9 $1,112.6 $244.1
======== ======== ======
</TABLE>

Expected maturities of interest rate swap contracts outstanding at December 31,
1999 are $44.0 million in 2000, $43.1 million in 2001, $83.5 million in 2002,
$536.0 million in 2003, and $319.3 million in 2004. There are no expected
maturities of such interest rate swap contracts thereafter.

G. OTHER SWAP CONTRACTS

The Company enters into insurance portfolio-linked and credit default swap
contracts for investment purposes. Under the insurance portfolio-linked swap
contracts, the Company agrees to exchange cash flows according to the
performance of a specified underwriter's portfolio of insurance business. As
with interest rate swap contracts, the primary risk associated with insurance
portfolio-linked swap contracts is the inability of the counterparty to meet its
obligation. Under the terms of the credit default swap contracts, the Company
assumes the default risk of a specific high credit quality issuer in exchange
for a stated annual premium. In the case of default, the Company will pay the
counterparty par value for a pre-determined security of the issuer. The primary
risk associated with these transactions is the default risk of the underlying
companies. The Company regularly assesses the financial strength of its
counterparties and the underlying companies in default swap contracts, and
generally enters into forward or swap agreements with counterparties rated "A"
or better by nationally recognized rating agencies. Because the underlying
principal of swap contracts is not exchanged, the Company's maximum exposure to
counterparty credit risk is the difference in payments exchanged, which at
December 31, 1999, was not material to the Company. The Company does not require
collateral or other security to support financial instruments with credit risk.

The swap contracts are marked to market with any gain or loss recognized
currently. The fair values of swap contracts outstanding were $(0.3) million and
$(0.1) million at December 31, 1999 and 1998, respectively. The net amount
receivable or payable under insurance portfolio-linked swap contracts is
recognized when the contracts are marked to market. The net (decrease) increase
in realized investment gains related to these contracts was $(0.2) million, $1.0
million and $(1.4) million for the years ended December 31, 1999, 1998 and 1997,
respectively.

F-23
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The stated annual premium under credit default swap contracts is recognized
currently in net investment income. The net increase to investment income
related to credit default swap contracts was $0.4 million and $0.2 million for
the years ended December 31, 1999 and 1998, respectively. There was no net
investment income recognized in 1997.

A reconciliation of the notional amount of other swap contracts is as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------- ------ -------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.................... $ 255.0 $ 15.0 $ 58.6
New contracts............................................... 50.0 266.3 192.1
Contracts expired........................................... (115.0) (26.3) (211.6)
Contracts terminated........................................ -- -- (24.1)
------- ------ -------
Contracts outstanding, end of year.......................... $ 190.0 $255.0 $ 15.0
======= ====== =======
</TABLE>

Expected maturities of other swap contracts outstanding at December 31, 1999 are
as follows: $140.0 million in 2000 and $50.0 million in 2001. There are no
expected maturities of such other swap contracts in 2002, 2003, 2004 and
thereafter.

H. OTHER

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

7. INVESTMENT INCOME AND GAINS AND LOSSES

A. NET INVESTMENT INCOME

The components of net investment income were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $415.7 $509.6 $523.3
Mortgage loans.............................................. 45.5 57.6 57.1
Equity securities........................................... 1.7 7.2 10.5
Policy loans................................................ 12.7 11.9 10.9
Real estate and other long-term investments................. 14.4 7.0 31.5
Short-term investments...................................... 26.6 15.6 9.9
------ ------ ------
Gross investment income..................................... 516.6 608.9 643.2
Less investment expenses.................................... (13.5) (15.0) (23.7)
------ ------ ------
Net investment income....................................... $503.1 $593.9 $619.5
====== ====== ======
</TABLE>

At December 31, 1999, the company had fixed maturities with a carrying value of
$1.0 million on non-accrual status. There were no mortgage loans on non-accrual
status at December 31, 1999. At December 31, 1998, there was one mortgage loan
on non-accrual status which had an outstanding principal balance of $4.3
million. This loan was restructured and fully impaired. There were no fixed
maturities on non-accrual status at December 31, 1998. The effect of
non-accruals, compared with amounts that would have been recognized in

F-24
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

accordance with the original terms of the investments, was a reduction in net
income by $1.4 million in 1999, and had no impact in 1998 and 1997.

The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $18.8 million, $28.7 million and $40.3 million at
December 31, 1999, 1998 and 1997, respectively. Interest income on restructured
mortgage loans that would have been recorded in accordance with the original
terms of such loans amounted to $2.5 million, $3.3 million and $3.9 million in
1999, 1998 and 1997, respectively. Actual interest income on these loans
included in net investment income aggregated $1.8 million, $3.3 million and $4.2
million in 1999, 1998 and 1997, respectively.

There were no mortgage loans which were non-income producing for the year ended
December 31, 1999. There were, however, fixed maturities with a carrying value
of $0.3 million which were non-income producing for the year ended December 31,
1999.

Included in other long-term investments is income from limited partnerships of
$6.6 million in 1999, losses of $6.3 million in 1998, and income of $7.6 million
in 1997.

B. NET REALIZED INVESTMENT GAINS AND LOSSES

Realized gains (losses) on investments were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------ ------ -----
<S> <C> <C> <C>
Fixed maturities............................................ $(52.0) $(11.6) $14.2
Mortgage loans.............................................. 2.5 8.8 (1.2)
Equity securities........................................... 141.3 63.7 53.5
Real estate and other....................................... 8.5 -- 9.8
------ ------ -----
Net realized investment gains............................... $100.3 $ 60.9 $76.3
====== ====== =====
</TABLE>

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

<TABLE>
<CAPTION>
PROCEEDS FROM
FOR THE YEARS ENDED DECEMBER 31, VOLUNTARY GROSS GROSS
(IN MILLIONS) SALES GAINS LOSSES
------------- ------------- ------ ------
<S> <C> <C> <C>
1999
Fixed maturities............................................ $1,480.5 $ 9.2 $ 27.1
Equity securities........................................... 421.2 149.0 7.6

1998
Fixed maturities............................................ $ 979.2 $ 17.9 $ 11.3
Equity securities........................................... 258.7 72.8 9.0

1997
Fixed maturities............................................ $1,870.7 $ 27.0 $ 15.9
Equity securities........................................... 144.9 55.5 1.2
</TABLE>

F-25
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

C. OTHER COMPREHENSIVE (LOSS) INCOME RECONCILIATION

The following table provides a reconciliation of gross unrealized (losses) gains
to the net balance shown in the Consolidated Statements of Comprehensive (Loss)
Income:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- ------
<S> <C> <C> <C>
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during period,
(includes $22.7 resulting from the distribution of
subsidiaries in 1999, net of taxes (benefit) and minority
interest of $(103.3) million, $(20.8) million and $123.7
million in 1999, 1998 and 1997, respectively).............. $ (121.9) $ (6.8) $115.5
Less: reclassification adjustment for (losses) gains
included in net income (net of taxes and minority interest
of $33.5 million, $21.5 million and $30.7 million in 1999,
1998 and 1997, respectively)............................... (62.2) 33.3 37.6
-------- -------- ------
Other comprehensive (loss) income........................... $ (184.1) $ (40.1) $ 77.9
======== ======== ======
</TABLE>

8. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS

Statement No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about certain financial
instruments (insurance contracts, real estate, goodwill and taxes are excluded)
for which it is practicable to estimate such values, whether or not these
instruments are included in the balance sheet. The fair values presented for
certain financial instruments are estimates which, in many cases may differ
significantly from the amounts which could be realized upon immediate
liquidation. In cases where market prices are not available, estimates of fair
value are based on discounted cash flow analyses which utilize current interest
rates for similar financial instruments which have comparable terms and credit
quality. Included in the fair value of fixed maturities are swap contracts used
to hedge fixed maturities with a fair value of $31.1 million and $(27.1) million
at December 31, 1999 and 1998, respectively. In addition, the Company held
futures contracts with a carrying value of $(0.9) million and $(1.8) million at
December 31, 1999 and 1998, respectively. The fair value of these contracts was
$36.8 million and $92.5 million at December 31, 1999 and 1998, respectively.

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.

F-26
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

POLICY LOANS

The carrying amount reported in the consolidated balance sheets 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 guaranteed investment type
contracts are estimated using discounted cash flow calculations using current
interest rates for similar contracts with maturities consistent with those
remaining for the contracts being valued. Liabilities under individual fixed
annuity contracts are estimated based on current surrender values, supplemental
contracts without life contingencies reflect current fund balances, and other
individual contract funds represent the present value of future policy benefits.
All other liabilities are based on surrender values.

TRUST INSTRUMENTS SUPPORTED BY FUNDING OBLIGATIONS

Fair values are estimated using discounted cash flow calculations using current
interest rates for similar contracts with maturities consistent with those
remaining for the contracts being valued.

DEBT

The carrying value of short-term debt reported in the balance sheet approximates
fair value.

F-27
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 279.3 $ 279.3 $ 504.0 $ 504.0
Fixed maturities.......................................... 3,660.7 3,660.7 7,683.9 7,683.9
Equity securities......................................... 51.4 51.4 397.1 397.1
Mortgage loans............................................ 521.2 521.9 562.3 587.1
Policy loans.............................................. 170.5 170.5 154.3 154.3
-------- -------- -------- --------
$4,683.1 $4,683.8 $9,301.6 $9,326.4
======== ======== ======== ========
FINANCIAL LIABILITIES
Guaranteed investment contracts........................... $1,316.0 $1,341.4 $1,791.8 $1,830.8
Supplemental contracts without life contingencies......... 48.8 48.8 37.3 37.3
Dividend accumulations.................................... 88.1 88.1 88.4 88.4
Other individual contract deposit funds................... 48.4 48.2 61.6 61.1
Other group contract deposit funds........................ 602.9 583.5 700.4 704.0
Individual fixed annuity contracts........................ 1,092.5 1,057.1 1,110.6 1,073.6
Trust instruments supported by funding obligations........ 50.6 49.6 -- --
Short-term debt........................................... -- -- 221.3 221.3
-------- -------- -------- --------
$3,247.3 $3,216.7 $4,011.4 $4,016.5
======== ======== ======== ========
</TABLE>

F-28
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. CLOSED BLOCK

Included in other income in the Consolidated Statements of Income in 1999, 1998
and 1997 is a net pre-tax contribution from the Closed Block of $13.8 million,
$10.4 million and $9.1 million, respectively. Summarized financial information
of the Closed Block as of December 31, 1999 and 1998 and for the periods ended
December 31, 1999, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- ------ ------
<S> <C> <C>
Assets
Fixed maturities, at fair value (amortized cost of $387.4
and $399.1
respectively)........................................... $372.9 $414.2
Mortgage loans............................................ 136.3 136.0
Policy loans.............................................. 201.1 210.9
Cash and cash equivalents................................. 22.6 9.4
Accrued investment income................................. 14.0 14.1
Deferred policy acquisition costs......................... 13.1 15.6
Other assets.............................................. 12.3 2.9
------ ------
Total assets................................................ $772.3 $803.1
====== ======
Liabilities
Policy liabilities and accruals........................... $835.2 $862.9
Other liabilities......................................... 6.9 9.1
------ ------
Total liabilities........................................... $842.1 $872.0
====== ======
</TABLE>

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------ ------ ------
<S> <C> <C> <C>
Revenues
Premiums and other income................................. $ 52.1 $ 55.4 $ 58.3
Net investment income..................................... 53.8 53.3 53.4
Realized investment (loss) gain........................... (0.6) 0.1 1.3
------ ------ ------
Total revenues.............................................. 105.3 108.8 113.0
------ ------ ------
Benefits and expenses
Policy benefits........................................... 88.9 95.0 100.5
Policy acquisition expenses............................... 2.5 2.7 3.0
Other operating expenses.................................. 0.1 0.7 0.4
------ ------ ------
Total benefits and expenses................................. 91.5 98.4 103.9
------ ------ ------
Contribution from the Closed Block.......................... $ 13.8 $ 10.4 $ 9.1
====== ====== ======
</TABLE>

F-29
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------- ------- -------
<S> <C> <C> <C>
Cash flows
Cash flows from operating activities:
Contribution from the Closed Block........................ $ 13.8 $ 10.4 $ 9.1
Change in:
Deferred policy acquisition costs, net.................. 2.5 2.6 2.9
Premiums and other receivables.......................... -- 0.3 --
Policy liabilities and accruals......................... (13.1) (13.5) (11.6)
Accrued investment income............................... 0.1 - 0.2
Deferred taxes.......................................... -- 0.1 (5.1)
Other assets............................................ (8.3) 2.4 (2.9)
Expenses and taxes payable.............................. (2.9) (2.9) (2.0)
Other, net.............................................. 0.8 (0.1) (1.2)
------- ------- -------
Net cash used in operating activities..................... (7.1) (0.7) (10.6)
Cash flows from investing activities:
Sales, maturities and repayments of investments......... 139.0 83.6 161.6
Purchases of investments................................ (128.5) (106.5) (161.4)
Other, net.............................................. 9.8 7.9 11.4
------- ------- -------
Net cash provided by (used in) investing activities....... 20.3 (15.0) 11.6
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 13.2 (15.7) 1.0
Cash and cash equivalents, beginning of year................ 9.4 25.1 24.1
------- ------- -------
Cash and cash equivalents, end of year...................... $ 22.6 $ 9.4 $ 25.1
======= ======= =======
</TABLE>

There were no valuation allowances on mortgage loans in the Closed Block at
December 31, 1999, 1998 or 1997, respectively.

Many expenses related to Closed Block operations are charged to operations
outside the Closed Block; accordingly, the contribution from the Closed Block
does not represent the actual profitability of the Closed Block operations.
Operating costs and expenses outside of the Closed Block are, therefore,
disproportionate to the business outside the Closed Block.

10. DEBT

Short-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- ------ ------
<S> <C> <C>
Short-term
Commercial paper.......................................... $ -- $ 41.3
Borrowings under bank credit facility..................... -- 150.0
Repurchase agreements..................................... -- 30.0
------ ------
Total short-term debt....................................... $ -- $221.3
====== ======
</TABLE>

F-30
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAFLIC issues commercial paper primarily to manage imbalances between operating
cash flows and existing commitments. Commercial paper borrowing arrangements are
supported by a credit agreement. At December 31, 1999, there was no commercial
paper outstanding.

Effective December 4, 1998, the Company entered into a credit agreement that
expired on February 5, 1999. Borrowings under this agreement were unsecured and
incurred interest at a rate per annum equal to the eurodollar rate plus
applicable margin. Borrowings outstanding under this credit facility at
December 31, 1998 were $150.0 million. These borrowings were repaid in February
1999.

The company utilizes repurchase agreements to finance certain transactions and
had approximately $30 million in such agreements outstanding at December
31,1998. There were no repurchase agreements outstanding at December 31, 1999.

In 1999, there was no interest expense related to borrowings under the credit
agreement. Interest expense related to borrowings under the credit agreement was
approximately $0.7 million and $2.8 million in 1998 and 1997, respectively. All
interest expense is recorded in other operating expenses.

In October, 1995, AFC issued Senior Debentures with a face value of $200.0
million, pay interest at a rate of 7 5/8%, and mature on October 16, 2025. The
primary source of cash for repayment of the debt by AFC is dividends from FAFLIC
and Allmerica P&C.

11. 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) on continuing operations in the consolidated statements of income is
shown below:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------ ------ ------
<S> <C> <C> <C>
Federal income tax expense (benefit)
Current................................................... $88.7 $ 74.6 $74.4
Deferred.................................................. 4.3 (15.4) 14.2
----- ------ -----
Total....................................................... $93.0 $ 59.2 $88.6
===== ====== =====
</TABLE>

The federal income taxes attributable to the consolidated results of continuing
operations are different from the amounts determined by multiplying income
before federal income taxes by the statutory federal income tax rate. The
sources of the difference and the tax effects of each were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- ------ ------
<S> <C> <C> <C>
Expected federal income tax expense on continuing
operations................................................ $133.9 $107.9 $122.9
Tax-exempt interest....................................... (24.2) (38.9) (37.9)
Dividend received deduction............................... -- (5.1) (3.2)
Changes in tax reserve estimates.......................... (8.7) 2.3 7.8
Tax credits............................................... (8.5) (8.5) (2.7)
Other, net................................................ 0.5 1.5 1.7
------ ------ ------
Federal income tax expense on continuing operations......... $ 93.0 $ 59.2 $ 88.6
====== ====== ======
</TABLE>

F-31
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The deferred income tax (asset) liability represents the tax effects of
temporary differences attributable to the Company's consolidated federal tax
return group. Its components were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- -------- --------
<S> <C> <C>
Deferred tax (assets) liabilities
AMT carryforwards......................................... $ -- $ (16.8)
Loss reserve discounting.................................. (283.5) (406.6)
Deferred acquisition costs................................ 355.7 345.8
Employee benefit plans.................................... (52.0) (45.3)
Investments, net.......................................... (19.5) 121.7
Bad debt reserve.......................................... -- (1.8)
Litigation reserve........................................ (6.0) (10.9)
Discontinued operations................................... (11.7) --
Other, net................................................ (1.1) (5.5)
------- -------
Deferred tax asset, net..................................... $ (18.1) $ (19.4)
======= =======
</TABLE>

Gross deferred income tax assets totaled $515.8 million and $486.9 millions at
December 31, 1999 and 1998, respectively. Gross deferred income tax liabilities
totaled $497.7 million and $467.5 million at December 31, 1999 and 1998,
respectively.

The Company believes, based on the its recent earnings history and its future
expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, the Company considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary. At December 31, 1999 there are no available
alternative minimum tax credit carryforwards.

The Company's federal income tax returns are routinely audited by the Internal
Revenue Services ("IRS"), and provisions are routinely made in the financial
statements in anticipation of the results of these audits. The IRS has examined
the FAFLIC/AFLIAC consolidated group's federal income tax returns through 1994.
The IRS has also examined the former Allmerica P&C consolidated group's federal
income tax returns through 1994. The Company has appealed certain adjustments
proposed by the IRS with respect to the federal income tax returns for 1992,
1993 and 1994 for the FAFLIC/AFLIAC consolidated group. Also, certain
adjustments proposed by the IRS with respect to FAFLIC/AFLIAC's federal income
tax returns for 1982 and 1983 remain unresolved. If upheld, these adjustments
would result in additional payments; however, the Company will vigorously defend
its position with respect to these adjustments. In the Company's opinion,
adequate tax liabilities have 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.

12. PENSION PLANS

FAFLIC, as the common employer for all AFC Companies ("affiliated Companies"),
provides multiple benefit plans to employees and agents of these affiliated
Companies, including retirement plans. The salaries of employees and agents
covered by these plans and the expenses of these plans are charged to the
affiliated Companies in accordance with an intercompany cost sharing agreement.

F-32
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAFLIC provides retirement benefits to substantially all of its employees under
a defined benefit pension plan. This plan is based on a defined benefit cash
balance formula, whereby the Company annually provides an allocation to each
eligible employee based on a percentage of that employee's salary, similar to a
defined contribution plan arrangement. The 1999, 1998 and 1997 allocations were
based on 7.0% of each eligible employee's salary. In addition to the cash
balance allocation, certain transition group employees, who have met specified
age and service requirements as of December 31, 1994, are eligible for a
grandfathered benefit based primarily on the employees' years of service and
compensation during their highest five consecutive plan years of employment. The
Company's policy for the plans is to fund at least the minimum amount required
by the Employee Retirement Income Security Act of 1974.

Components of net periodic pension cost were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $ 19.3 $ 19.0 $ 19.9
Interest cost............................................... 26.5 25.5 23.5
Expected return on plan assets.............................. (38.9) (34.9) (31.2)
Recognized net actuarial loss............................... 0.4 0.4 0.1
Amortization of transition asset............................ (1.4) (1.8) (1.9)
Amortization of prior service cost.......................... (2.2) (1.7) (2.0)
------- ------- -------
Net periodic pension cost................................. $ 3.7 $ 6.5 $ 8.4
======= ======= =======
</TABLE>

In 1999, subsequent to the AFC corporate reorganization, approximately $1.7
million of the net periodic pension cost was allocated to the distributed
subsidiaries.

The following table summarizes the status of the plan. At December 31, 1999 and
1998 the plans' assets exceeded their projected benefit obligations.

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- -------- --------
<S> <C> <C>
Change in benefit obligations:
Projected benefit obligation at beginning of year......... $ 414.2 $ 370.4
Service cost -- benefits earned during the year........... 19.3 19.0
Interest cost............................................. 26.5 25.5
Actuarial (gains) losses.................................. (44.4) 20.4
Benefits paid............................................. (22.9) (21.1)
------- -------
Projected benefit obligation at end of year............. 392.7 414.2
------- -------
</TABLE>

F-33
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- -------- --------
<S> <C> <C>
Change in plan assets:
Fair value of plan assets at beginning of year............ 441.6 395.5
Actual return on plan assets.............................. 51.9 67.2
Benefits paid............................................. (22.9) (21.1)
Fair value of plan assets at end of year................ 470.6 441.6
Funded status of the plan................................. 77.9 27.4
Unrecognized transition obligation........................ (21.6) (23.9)
Unamortized prior service cost............................ (12.0) (11.0)
Unrecognized net actuarial gains.......................... (101.6) (54.9)
------- -------
Net pension liability................................... $ (57.3) $ (62.4)
======= =======
</TABLE>

As a result of AFC's merger with Allmerica P&C in 1997, certain pension
liabilities were reduced to reflect their fair value as of the merger date.
These pension liabilities were reduced by $8.9 million and $10.3 million in 1999
and 1998, respectively, which reflects fair value, net of applicable
amortization.

Determination of the projected benefit obligations was based on a weighted
average discount rate of 7.75% and 6.5% in 1999 and 1998, respectively, and the
assumed long-term rate of return on plan assets was 9.0% in both 1999 and 1998.
The actuarial present value of the projected benefit obligations was determined
using assumed rates of increase in future compensation levels ranging from 5.0%
to 5.5%. Plan assets are invested primarily in various separate accounts and the
general account of FAFLIC. Plan assets also include 796,462 shares and 973,262
shares of AFC Common Stock at December 31, 1999 and 1998, respectively, with a
market value of $44.3 million and $56.3 million at December 31, 1999 and 1998,
respectively.

The Company has a defined contribution 401(k) plan for its employees, whereby
the Company matches employee elective 401(k) contributions, up to a maximum
percentage determined annually by the Board of Directors. During 1999, 1998 and
1997, the Company matched 50% of employees' contributions up to 6.0% of eligible
compensation. The total expense related to this plan was $5.9 million, $5.6
million and $3.3 million in 1999, 1998 and 1997, respectively. In 1999,
subsequent to the AFC corporate reorganization, approximately $1.4 million of
the 401(k) expense was allocated to the distributed subsidiaries. In addition to
this plan, the Company has a defined contribution plan for substantially all of
its agents. The plan expense in 1999, 1998 and 1997 was $3.1 million, $3.0
million and $2.8 million, respectively.

On January 1, 1998, substantially all of the defined benefit and defined
contribution 401(k) plans previously provided by the affiliated Companies were
merged with the existing benefit plans of FAFLIC. The merger of benefit plans
resulted in a $5.9 million change of interest adjustment to additional paid-in
capital during 1998. The change of interest adjustment arose from FAFLIC's
forgiveness of certain Allmerica P&C benefit plan liabilities attributable to
Allmerica P&C's minority interest.

13. OTHER POSTRETIREMENT BENEFIT PLANS

FAFLIC, as the common employer for all AFC Companies ("affiliated Companies"),
provides multiple postretirement medical and death benefit plans to employees,
agents and retirees of these affiliated Companies. The costs of these plans are
charged to the affiliated Companies in accordance with an intercompany cost
sharing agreement.

F-34
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Generally, employees become eligible at age 55 with at least 15 years of
service. Spousal coverage is generally provided for up to two years after death
of the retiree. Benefits include hospital, major medical, and a payment at death
equal to retirees' final compensation up to certain limits. Effective
January 1, 1996, the Company revised these benefits so as to establish limits on
future benefit payments and to restrict eligibility to current employees. The
medical plans have varying copayments and deductibles, depending on the plan.
These plans are unfunded.

The plans' funded status reconciled with amounts recognized in the Company's
Consolidated Balance Sheets were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- -------- --------
<S> <C> <C>
Change in benefit obligation:
Accumulated postretirement benefit obligation at beginning
of year................................................... $ 84.0 $ 71.8
Service cost................................................ 2.9 3.1
Interest cost............................................... 4.6 5.1
Actuarial (gains) losses.................................... (21.2) 7.6
Benefits paid............................................... (3.5) (3.6)
------- -------
Accumulated postretirement benefit obligation at end of
year.................................................... 66.8 84.0
------- -------
Fair value of plan assets at end of year.................... -- --
------- -------
Funded status of the plan................................... (66.8) (84.0)
Unamortized prior service cost.............................. (9.8) (12.9)
Unrecognized net actuarial (gains) losses................... (13.8) 7.5
------- -------
Accumulated postretirement benefit costs.................. $ (90.4) $ (89.4)
======= =======
</TABLE>

The components of net periodic postretirement benefit expense were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Service cost................................................ $ 2.9 $ 3.1 $ 3.0
Interest cost............................................... 4.6 5.1 4.6
Recognized net actuarial loss (gain)........................ 0.1 0.1 (0.1)
Amortization of prior service cost.......................... (2.3) (2.4) (2.7)
------ ------ ------
Net periodic postretirement benefit cost.................... $ 5.3 $ 5.9 $ 4.8
====== ====== ======
</TABLE>

In 1999, subsequent to the AFC corporate reorganization, approximately $1.1
million of the net periodic postretirement cost was allocated to the distributed
subsidiaries.

As a result of AFC's merger with Allmerica P&C in 1997, certain postretirement
liabilities were reduced to reflect their fair value as of the merger date.
These postretirement liabilities were reduced by $4.6 million and $5.4 million
in 1999 and 1998, respectively, which reflects fair value, net of applicable
amortization.

For purposes of measuring the accumulated postretirement benefit obligation at
December 31, 1999, health care costs were assumed to increase 6.0% in 2000,
declining thereafter until the ultimate rate of 5.5% is reached in 2001 and
remains at that level thereafter. The health care cost trend rate assumption has
a significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by

F-35
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

one percentage point in each year would increase the accumulated postretirement
benefit obligation at December 31, 1999 by $4.1 million, and the aggregate of
the service and interest cost components of net periodic postretirement benefit
expense for 1999 by $0.6 million. Conversely, decreasing the assumed health care
cost trend rates by one percentage point in each year would decrease the
accumulated postretirement benefit obligation at December 31, 1999 by $3.6
million, and the aggregate of the service and interest cost components of net
periodic postretirement benefit expense for 1999 by $0.5 million.

The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% and 6.5% at December 31, 1999 and
1998, respectively. In addition, the actuarial present value of the accumulated
postretirement benefit obligation was determined using an assumed rate of
increase in future compensation levels of 5.5% for FAFLIC agents.

On January 1, 1998, substantially all of the postretirement medical and death
benefits plans previously provided by the affiliated Companies were merged with
the existing benefit plans of FAFLIC. The merger of benefit plans resulted in a
$3.8 million change of interest adjustment to additional paid-in capital during
1998. The change of interest adjustment arose from FAFLIC's forgiveness of
certain Allmerica P&C benefit plan liabilities attributable to Allmerica P&C's
minority interest.

14. DIVIDEND RESTRICTIONS

Massachusetts and Delaware have enacted laws governing the payment of dividends
to stockholders by insurers. These laws affect the dividend paying ability of
FAFLIC and AFLIAC, respectively.

Massachusetts' statute limits the dividends an insurer may pay in any twelve
month period, without the prior permission of the Commonwealth of Massachusetts
Insurance Commissioner, 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 for the preceding calendar year
(if such insurer is not a life company). In addition, under Massachusetts law,
no domestic insurer shall pay a dividend or make any distribution to its
shareholders from other than unassigned funds unless the Commissioner shall have
approved such dividend or distribution. During 1999 and 1997, no dividends were
declared by FAFLIC to AFC. During 1998, FAFLIC paid dividends of $50.0 million
to AFC. As of July 1, 1999, FAFLIC's ownership of Allmerica P&C, as well as
several non-insurance subsidiaries, was transferred from FAFLIC to AFC. Under an
agreement with the Commissioner, any dividend from FAFLIC to AFC for years 2000
and 2001 would require the prior approval of the Commissioner and may require
AFC to make additional capital contributions to FAFLIC.

Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding
December 31 or (ii) the individual company's statutory net gain from operations
for the preceding calendar year (if such insurer is a life company) or its net
income (not including realized capital gains) for the preceding calendar year
(if such insurer is not a life company). Any dividends to be paid by an insurer,
whether or not in excess of the aforementioned threshold, from a source other
than statutory earned surplus would also require the prior approval of the
Delaware Commissioner of Insurance. No dividends were declared by AFLIAC to
FAFLIC during 1999, 1998 or 1997. During 2000, AFLIAC could pay dividends of
$34.3 million to FAFLIC without prior approval.

F-36
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. SEGMENT INFORMATION

The Company offers Asset Accumulation financial products and services. Prior to
the AFC corporate reorganization, the Company offered financial products and
services in two major areas: Risk Management and Asset Accumulation. Within
these broad areas, the Company conducted business principally in three operating
segments. These segments were Risk Management, Allmerica Financial Services and
Allmerica Asset Management. In accordance with Statement No. 131, the separate
financial information of each segment is presented consistent with the way
results are regularly evaluated by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. A summary of
the Company's reportable segments is included below.

In 1999, the Company reorganized its Property and Casualty business and
Corporate Risk Management Services operations within the Risk Management
segment. Under the new structure, the Risk Management segment manages its
business through five distribution channels identified as Hanover North, Hanover
South, Citizens Midwest, Allmerica Voluntary Benefits and Allmerica Specialty.
During the second quarter of 1999, the Company approved a plan to exit its group
life and health business, consisting of its EBS business, its AGU business and
its reinsurance pool business. Results of operations from this business,
relating to both the current and the prior periods, have been segregated and
reported as a component of discontinued operations in the Consolidated
Statements of Income. Operating results from this business were previously
reported in the Allmerica Voluntary Benefits and Allmerica Specialty
distribution channels. Prior to 1999, results of the group life and health
business were included in the Corporate Risk Management Services segment, while
all other Risk Management business was reflected in the Property and Casualty
segment.

The Risk Management segment's property and casualty business is offered
primarily through the Hanover North, Hanover South and Citizens Midwest
distribution channels utilizing the Company's independent agent network
primarily in the Northeast, Midwest and Southeast United States, maintaining a
strong regional focus. Allmerica Voluntary Benefits focuses on worksite
distribution, which offers discounted property and casualty products through
employer sponsored programs, and affinity group property and casualty business.
Allmerica Specialty offers special niche property and casualty products in
selected markets. On July 1, 1999, AFC made certain changes to its corporate
structure as discussed in Note 3. As a result, FAFLIC distributed its interest
in the property and casualty business after that date.

The Asset Accumulation group includes two segments: Allmerica Financial Services
and Allmerica Asset Management. The Allmerica Financial Services segment
includes variable annuities, variable universal life and traditional life
insurance products distributed via retail channels as well as group retirement
products, such as defined benefit and 401(k) plans and tax-sheltered annuities
distributed to institutions. Through its Allmerica Asset Management segment, the
Company offers its customers the option of investing in GICs such as the
traditional GIC, synthetic GIC and other funding agreements. Funding agreements
are investment contracts issued to institutional buyers, such as money market
funds, corporate cash management programs and securities lending collateral
programs, which typically have short maturities and periodic interest rate
resets based on an index such as LIBOR. This segment is also a Registered
Investment Advisor providing investment advisory services, primarily to
affiliates, and to other institutions, such as insurance companies and pension
plans. As a result of the aforementioned change in the AFC corporate structure,
FAFLIC distributed its ownership of certain investment advisory business as of
July 1, 1999.

In addition to the three operating segments, the Company has a Corporate
segment, which consists primarily of cash, investments, corporate debt, Capital
Securities and corporate overhead expenses. Corporate overhead

F-37
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

expenses reflect costs not attributable to a particular segment, such as those
generated by certain officers and directors, Corporate Technology, Corporate
Finance, Human Resources and the Legal department.

Management evaluates the results of the aforementioned segments based on a
pre-tax and minority interest basis. Segment income is determined by adjusting
net income for net realized investment gains and losses, net gains and losses on
disposals of businesses, discontinued operations, extraordinary items, the
cumulative effect of accounting changes and certain other items which management
believes are not indicative of overall operating trends. While these items may
be significant components in understanding and assessing the Company's financial
performance, management believes that the presentation of segment income
enhances understanding of the Company's results of operations by highlighting
net income attributable to the normal, recurring operations of the business.
However, segment income should not be construed as a substitute for net income
determined in accordance with generally accepted accounting principles.

Summarized below is financial information with respect to business segments:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Segment revenues:
Risk Management........................................... $1,075.2 $2,220.8 $2,227.3
Asset Accumulation
Allmerica Financial Services............................ 797.0 721.2 713.9
Allmerica Asset Management.............................. 144.5 121.7 91.1
-------- -------- --------
Subtotal............................................ 941.5 842.9 805.0
-------- -------- --------
Corporate................................................. 0.4 2.3 4.7
Intersegment revenues..................................... (0.8) (7.6) (11.5)
-------- -------- --------
Total segment revenues including Closed Block........... 2,016.3 3,058.4 3,025.5
-------- -------- --------
Adjustment to segment revenues:
Adjustment for Closed Block........................... (92.1) (98.4) (102.6)
Change in mortality................................... -- -- (4.2)
Net realized gains.................................... 100.3 60.9 76.3
-------- -------- --------
Total revenues............................................ $2,024.5 $3,020.9 $2,995.0
======== ======== ========
</TABLE>

F-38
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
Segment income (loss) before income taxes and minority interest:
<S> <C> <C> <C>
Risk Management............................................. $ 85.1 $ 149.7 $ 174.2
Asset Accumulation
Allmerica Financial Services.............................. 207.1 169.0 134.6
Allmerica Asset Management................................ 21.3 23.7 18.4
-------- -------- --------
Subtotal.............................................. 228.4 192.7 153.0
-------- -------- --------
Corporate................................................... (38.6) (45.2) (44.6)
Segment income before income taxes and minority interest... 274.9 297.2 282.6
Adjustments to segment income:
Net realized investment gains, net of amortization........ 106.1 52.2 78.5
Sales practice litigation expense......................... -- (31.0) --
Gain from change in mortality assumptions................. -- -- 47.0
Loss on cession of disability income business............. -- -- (53.9)
Restructuring costs....................................... -- (9.0) --
Other items............................................... -- (0.8) (2.8)
-------- -------- --------
Income before taxes and minority interest................... $ 381.0 $ 308.6 $ 351.4
======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998 1999 1998
------------- --------- --------- ------------ ------------
IDENTIFIABLE ASSETS DEFERRED ACQUISITION COSTS
<S> <C> <C> <C> <C>
Risk Management............................... $ 542.0 $ 6,216.8 $ 6.0 $ 167.5
Asset Accumulation
Allmerica Financial Services................ 23,410.7 19,407.3 1,213.1 993.1
Allmerica Asset Management.................. 1,381.1 1,810.9 0.4 0.6
--------- --------- --------- ---------
Subtotal................................ 24,791.8 21,218.2 1,213.5 993.7
Corporate................................... -- 29.6 -- --
--------- --------- --------- ---------
Total..................................... $25,333.8 $27,464.6 $ 1,219.5 $ 1,161.2
========= ========= ========= =========
</TABLE>

16. LEASE COMMITMENTS

Rental expenses for operating leases, including those related to the
discontinued operations of the Company, amounted to $22.2 million, $34.9 million
and $33.6 million in 1999, 1998 and 1997, respectively. These expenses relate
primarily to building leases of the Company. At December 31, 1999, future
minimum rental payments under non-cancelable operating leases were approximately
$39.9 million, payable as follows: 2000 - $14.1 million; 2001 -- $12.7 million;
2002 -- $8.1 million; 2003 -- $3.6 million, and $1.4 million thereafter. It is
expected that, in the normal course of business, leases that expire will be
renewed or replaced by leases on other property and equipment; thus, it is
anticipated that future minimum lease commitments will not be less than the
amounts shown for 2000.

F-39
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. REINSURANCE

In the normal course of business, the Company seeks to reduce the losses that
may arise from catastrophes or other events that cause unfavorable underwriting
results by reinsuring certain levels of risk in various areas of exposure with
other insurance enterprises or reinsurers. Reinsurance transactions are
accounted for in accordance with the provisions of Statement of Financial
Accounting Standards No. 113, Accounting and Reporting for Reinsurance of Short
Duration and Long Duration Contracts.

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.

Effective January 1, 1999, Allmerica P&C entered into a whole account aggregate
excess of loss reinsurance agreement with a highly rated insurer (See Note 5).
Prior to the AFC corporate reorganization, the Company was subject to
concentration of risk with respect to this reinsurance agreement, which
represented 10% or more of the Company's reinsurance business. Net premiums
earned and losses and loss adjustment expenses ceded under this agreement in
1999 were $21.9 million and $35.0 million, respectively. In addition, the
Company is subject to concentration of risk with respect to reinsurance ceded to
various residual market mechanisms. As a condition to the ability to conduct
certain business in various states, the Company is required to participate in
various residual market mechanisms and pooling arrangements which provide
various insurance coverages to individuals or other entities that are otherwise
unable to purchase such coverage voluntarily provided by private insurers. These
market mechanisms and pooling arrangements include the Massachusetts
Commonwealth Automobile Reinsurers ("CAR"), the Maine Workers' Compensation
Residual Market Pool ("MWCRP") and the Michigan Catastrophic Claims Association
("MCCA"). Prior to the AFC corporate reorganization, both CAR and MCCA
represented 10% or more of the Company's reinsurance business. As a servicing
carrier in Massachusetts, the Company ceded a significant portion of its private
passenger and commercial automobile premiums to CAR. Net premiums earned and
losses and loss adjustment expenses ceded to CAR in 1999, 1998 and 1997 were
$20.4 million and $21.4 million, $34.3 million and $38.1 million, and $32.3
million and $28.2 million, respectively. The Company ceded to MCCA premiums
earned and losses and loss adjustment expenses in 1999, 1998 and 1997 of $1.8
million and $30.6 million, $3.7 million and $18.0 million, and $9.8 million and
$(0.8) million, respectively.

On June 2, 1998, the Company recorded a $124.2 million one-time reduction of its
direct and ceded written premiums as a result of a return of excess surplus from
MCCA. This transaction had no impact on the total net premiums recorded by the
Company in 1998.

Because the MCCA is supported by assessments permitted by statute, and all
amounts billed by the Company to CAR, MWCRP and MCCA have been paid when due,
the Company believes that it has no significant exposure to uncollectible
reinsurance balances.

F-40
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The effects of reinsurance were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Life and accident and health insurance premiums:
Direct.................................................... $ 53.5 $ 51.4 $ 55.9
Assumed................................................... 0.7 0.7 0.6
Ceded..................................................... (50.0) (47.8) (29.1)
-------- -------- --------
Net premiums................................................ $ 4.2 $ 4.3 $ 27.4
======== ======== ========
Property and casualty premiums written:
Direct.................................................... $1,089.0 $1,970.4 $2,068.5
Assumed................................................... 27.3 58.8 103.1
Ceded..................................................... (135.4) (74.1) (179.8)
-------- -------- --------
Net premiums................................................ $ 980.9 $1,955.1 $1,991.8
======== ======== ========
Property and casualty premiums earned:
Direct.................................................... $1,047.3 $1,966.8 $2,046.1
Assumed................................................... 30.3 64.5 102.0
Ceded..................................................... (127.3) (66.1) (195.1)
-------- -------- --------
Net premiums................................................ $ 950.3 $1,965.2 $1,953.0
======== ======== ========
Life insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
Direct.................................................... $ 391.9 $ 359.5 $ 397.4
Assumed................................................... 0.1 0.3 0.4
Ceded..................................................... (39.2) (49.5) (79.4)
-------- -------- --------
Net policy benefits, claims, losses and loss adjustment
expenses.................................................. $ 352.8 $ 310.3 $ 318.4
======== ======== ========
Property and casualty benefits, claims, losses and loss
adjustment expenses:
Direct.................................................... $ 805.6 $1,588.2 $1,464.9
Assumed................................................... 25.9 62.7 101.2
Ceded..................................................... (128.0) (158.2) (120.6)
-------- -------- --------
Net policy benefits, claims, losses, and loss adjustment
expenses.................................................. $ 703.5 $1,492.7 $1,445.5
======== ======== ========
</TABLE>

F-41
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. DEFERRED POLICY ACQUISITION COSTS

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

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year................................ $1,161.2 $ 965.5 $ 822.7
Acquisition expenses deferred............................... 419.2 638.2 614.3
Amortized to expense during the year........................ (240.9) (449.6) (472.6)
Adjustment for discontinued operations...................... 3.4 ( 0.2) --
Adjustment to equity during the year........................ 39.3 7.3 (11.1)
Adjustment due to distribution of subsidiaries.............. (162.7) -- --
Adjustment for cession of disability income insurance....... -- -- (38.6)
Adjustment for revision of universal and variable universal
life insurance mortality assumptions...................... -- -- 50.8
-------- -------- --------
Balance at end of year...................................... $1,219.5 $1,161.2 $ 965.5
======== ======== ========
</TABLE>

At October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.8 million recapitalization of deferred policy acquisition costs.

19. LIABILITIES FOR OUTSTANDING CLAIMS, LOSSES AND LOSS ADJUSTMENT EXPENSES

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

The liability for future policy benefits and outstanding claims, losses and loss
adjustment expenses related to the Company's accident and health business was
$601.3 million and $568.0 million at December 31, 1999 and 1998, respectively.
Accident and health claim liabilities were re-estimated for all prior years and
were increased by $51.2 million and $14.6 million in 1999 and 1998,
respectively. The increase in 1999 resulted from the Company's reserve
strengthening primarily in the EBS and reinsurance pool business. The 1998
increase also resulted from the Company's reserve strengthening, primarily in
the assumed reinsurance and stop loss only business.

F-42
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a reconciliation of the beginning and ending
property and casualty reserve for unpaid losses and loss adjustment expenses
(LAE):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Reserve for losses and LAE, beginning of the year........... $2,597.3 $2,615.4 $2,744.1
Incurred losses and LAE, net of reinsurance recoverable:
Provision for insured events of the current year.......... 795.6 1,609.0 1,564.1
Decrease in provision for insured events of prior years... (96.1) (127.2) (127.9)
-------- -------- --------
Total incurred losses and LAE............................... 699.5 1,481.8 1,436.2
-------- -------- --------
Payments, net of reinsurance recoverable:
Losses and LAE attributable to insured events of current
year.................................................... 342.1 871.9 775.1
Losses and LAE attributable to insured events of prior
years................................................... 424.2 643.0 732.1
-------- -------- --------
Total payments 766.3 1,514.9 1,507.2
Change in reinsurance recoverable on unpaid losses.......... 44.3 15.0 (50.2)
Distribution of subsidiaries................................ (2,574.8) -- --
Other (1)................................................... -- -- (7.5)
-------- -------- --------
Reserve for losses and LAE, end of year..................... $ -- $2,597.3 $2,615.4
======== ======== ========
</TABLE>

(1) Includes purchase accounting adjustments.

As part of an ongoing process, the reserves have been re-estimated for all prior
accident years and were decreased by $96.1 million, $127.2 million and $127.9
million in 1999, 1998 and 1997, respectively, reflecting increased favorable
development on reserves for both losses and loss adjustment expenses.

Favorable development on prior years' loss reserves was $52.0 million, $58.9
million, and $87.2 million prior to the AFC corporate reorganization in 1999 and
for the years ended December 31, 1998 and 1997, respectively. Favorable
development on prior year's loss adjustment expense reserves was $44.1 million,
$68.3 million, and $40.7 million prior to the AFC corporate reorganization in
1999 and for the years ended December 31, 1998 and 1997, respectively. The
increase in favorable development 1998 is primarily attributable to claims
process improvement initiatives taken by the Company. The Company has lowered
claim settlement costs through increased utilization of in-house attorneys and
consolidation of claim offices.

This favorable development reflects the Company's reserving philosophy
consistently applied over these periods. Conditions and trends that have
affected development of the loss and LAE reserves in the past may not
necessarily occur in the future.

Due to the nature of the business written by the Risk Management segment, the
exposure to environmental liabilities is relatively small and therefore its
reserves are relatively small compared to other types of liabilities. Due to the
AFC corporate reorganization, the Company had no exposure for this item at
December 31, 1999. Loss and LAE reserves related to environmental damage and
toxic tort liability, included in the reserve for losses and LAE, were $49.9
million and $53.1 million, net of reinsurance of $14.2 million and $15.7 million
in 1998 and 1997, respectively. The Company does not specifically underwrite
policies that include this coverage, but as case law expands policy provisions
and insurers' liability beyond the intended coverage, the Company may be
required to defend such claims. The Company estimated its ultimate liability for
these claims based upon currently known facts, reasonable assumptions where the
facts are not known,

F-43
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

current law and methodologies currently available. Although these claims are not
significant, their existence gives rise to uncertainty and is discussed because
of the possibility, however remote, that they may become significant. The
Company believes that, notwithstanding the evolution of case law expanding
liability in environmental claims, recorded reserves related to these claims are
adequate. In addition, the Company is not aware of any litigation or pending
claims that may result in additional material liabilities in excess of recorded
reserves. The environmental liability could be revised in the near term if the
estimates used in determining the liability are revised.

20. MINORITY INTEREST

As a result of the Company's divestiture of certain of its subsidiaries
including its 84.5% ownership of the outstanding shares of the common stock of
Allmerica P&C effective July 1, 1999, there is no minority interest reflected on
the Consolidated Balance Sheets as of December 31, 1999. In prior years, the
Company's interest in Allmerica P&C was represented by ownership of 70.0% and
65.8% of the outstanding shares of common stock at December 31, 1998 and 1997,
respectively. Earnings and shareholder's equity attributable to minority
shareholders are included in minority interest in the consolidated financial
statements through the period ended June 30, 1999 and for the years ended
December 31, 1998 and 1997.

21. CONTINGENCIES

REGULATORY AND INDUSTRY DEVELOPMENTS

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

LITIGATION

In July 1997, a lawsuit on behalf of a putative class was instituted in
Louisiana against AFC and certain of its subsidiaries, including FAFLIC, by
individual plaintiffs alleging fraud, unfair or deceptive acts, breach of
contract, misrepresentation, and related claims in the sale of life insurance
policies. In October 1997, the plaintiffs voluntarily dismissed the Louisiana
suit and filed a substantially similar action in Federal District Court in
Worcester, Massachusetts. In early November 1998, the Company and the plaintiffs
entered into a settlement agreement. The court granted preliminary approval of
the settlement on December 4, 1998. On May 19, 1999, the court issued an order
certifying the class for settlement purposes and granting final approval of the
settlement agreement. FAFLIC recognized a $31.0 million pre-tax expense during
the third quarter of 1998 related to this litigation. Although the Company
believes that this expense reflects appropriate recognition of its obligation
under the settlement, this estimate assumes the availability of insurance
coverage for certain claims, and the estimate may be revised based on the amount
of reimbursement actually tendered by AFC's insurance carriers, and based on
changes in the Company's estimate of the ultimate cost of the benefits to be
provided to members of the class.

The Company has been named a defendant in various other legal proceedings
arising in the normal course of business. In the Company's opinion, based on the
advice of legal counsel, the ultimate resolution of these proceedings will not
have a material effect on the Company's consolidated financial statements.
However,

F-44
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

liabilities related to these proceedings could be established in the near term
if estimates of the ultimate resolution of these proceedings are revised.

YEAR 2000

The Year 2000 issue resulted from computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.

Although the Company does not believe that there is a material contingency
associated with the Year 2000 issue, there can be no assurance that exposure for
material contingencies will not arise.

22. STATUTORY FINANCIAL INFORMATION

The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles
primarily because policy acquisition costs are expensed when incurred,
investment reserves are based on different assumptions, postretirement benefit
costs are based on different assumptions and reflect a different method of
adoption, life insurance reserves are based on different assumptions and income
tax expense reflects only taxes paid or currently payable. In 1999, 49 out of 50
states have adopted the National Association of Insurance Commissioners proposed
Codification, which provides for uniform statutory accounting principles. These
principles are effective January 1, 2001. The Company is currently assessing the
impact that the adoption of Codification will have on its statutory results of
operations and financial position.

Statutory net income and surplus are as follows:

<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Statutory Net Income (Combined)
Property and Casualty Companies........................... $322.6 $ 180.7 $ 190.3
Life and Health Companies................................. 239.0 86.4 191.2

Statutory Shareholder's Surplus (Combined)
Property and Casualty Companies (See Note 3).............. $-- $1,269.3 $1,279.6
Life and Health Companies................................. 590.1 1,164.1 1,221.3
</TABLE>

F-45
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of First Allmerica Financial Life Insurance Company
and the Contractowners of the Separate Account VA-K of First Allmerica Financial
Life Insurance Company

In our opinion, the accompanying statements of assets and liabilities, and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts
constituting the Separate Account VA-K of First Allmerica Financial Life
Insurance Company at December 31, 1999, the results of each of their operations
for the year then ended and the changes in each of their net assets for each of
the two years in the period then ended, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of First Allmerica Financial Life Insurance Company; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the Funds, provide a
reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts
April 3, 2000

<PAGE>

SEPARATE ACCOUNT VA-K

STATEMENTS OF ASSETS AND LIABILITIES

December 31, 9999

<TABLE>
<CAPTION>
INVESTMENT
GROWTH GRADE INCOME MONEY MARKET
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ........................ $ 31,666,387 $ 7,482,662 $ 12,444,661
Investments in shares of Fidelity Variable Insurance Products Funds (VIP) .. - - -
Investment in shares of T. Rowe Price International Series, Inc. ........... - - -
Investment in shares of Delaware Group Premium Fund, Inc ................... - - -
Receivable from First Allmerica Financial Life Insurance
Company (Sponsor) ...................................................... 188,078 - -
--------------- --------------- ---------------
Total assets .......................................................... 31,854,465 7,482,662 12,444,661

LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor) ....................................................... - - 3,249
--------------- --------------- ---------------
Net assets ............................................................. $ 31,854,465 $ 7,482,662 $12,441,412
--------------- --------------- ---------------
--------------- --------------- ---------------
Net asset distribution by category:
Variable annuity contracts ............................................... $ 31,854,465 $ 7,482,662 $ 12,441,412
--------------- --------------- ---------------
--------------- --------------- ---------------
Units outstanding, December 31, 1999 ....................................... 10,700,441 5,686,038 10,043,976
Net asset value per unit, December 31, 1999 ................................ $ 2.976930 $ 1.315971 $ 1.238694

SELECT
EQUITY INDEX GOVERNMENT BOND AGGRESSIVE GROWTH
--------------- --------------- -----------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ........................ $ 37,628,197 $ 5,177,193 $ 30,195,322
Investments in shares of Fidelity Variable Insurance Products Funds (VIP) .. - - -
Investment in shares of T. Rowe Price International Series, Inc. ........... - - -
Investment in shares of Delaware Group Premium Fund, Inc ................... - - -
Receivable from First Allmerica Financial Life Insurance
Company (Sponsor) ...................................................... - - -
--------------- --------------- -----------------
Total assets .......................................................... 37,628,197 5,177,193 30,195,322

LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor) ....................................................... 75,965 - -
--------------- --------------- -----------------
Net assets ............................................................. $ 37,552,232 $ 5,177,193 $ 30,195,322
--------------- --------------- -----------------
--------------- --------------- -----------------
Net asset distribution by category:
Variable annuity contracts ............................................... $ 37,552,232 $ 5,177,193 $ 30,195,322
--------------- --------------- -----------------
--------------- --------------- -----------------

Units outstanding, December 31, 1999 ....................................... 11,440,299 4,117,854 11,108,225
Net asset value per unit, December 31, 1999 ................................ $ 3.282452 $ 1.257255 $ 2.718285

SELECT GROWTH SELECT VALUE
SELECT GROWTH AND INCOME OPPORTUNITY
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ........................ $ 40,381,292 $ 22,998,632 $ 14,229,174
Investments in shares of Fidelity Variable Insurance Products Funds (VIP) .. - - -
Investment in shares of T. Rowe Price International Series, Inc. ........... - - -
Investment in shares of Delaware Group Premium Fund, Inc ................... - - -
Receivable from First Allmerica Financial Life Insurance
Company (Sponsor) ...................................................... - - -
--------------- --------------- ---------------
Total assets .......................................................... 40,381,292 22,998,632 14,229,174

LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor) ....................................................... - 75,512 -
--------------- --------------- ---------------
Net assets ............................................................. $ 40,381,292 $ 22,923,120 $ 14,229,174
--------------- --------------- ---------------
--------------- --------------- ---------------
Net asset distribution by category:
Variable annuity contracts ............................................... $ 40,381,292 $ 22,923,120 $ 14,229,174
--------------- --------------- ---------------
--------------- --------------- ---------------
Units outstanding, December 31, 1999 ....................................... 11,455,113 8,957,758 8,309,201
Net asset value per unit, December 31, 1999 ................................ $ 3.525176 $ 2.559024 $ 1.712460
</TABLE>

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

SA-1
<PAGE>

SEPARATE ACCOUNT VA-K

STATEMENTS OF ASSETS AND LIABILITIES (Continued)

December 31, 9999

<TABLE>
<CAPTION>
SELECT DGPF
INTERNATIONAL SELECT CAPITAL INTERNATIONAL
EQUITY APPRECIATION EQUITY
----------------- ------------------ ----------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ........................ $ 22,588,494 $ 15,467,194 $ -
Investments in shares of Fidelity Variable Insurance Products Funds (VIP) .. - - -
Investment in shares of T. Rowe Price International Series, Inc. ........... - - -
Investment in shares of Delaware Group Premium Fund, Inc ................... - - 7,844,338
Receivable from First Allmerica Financial Life Insurance
Company (Sponsor) ...................................................... - - -
---------------- ---------------- -----------------
Total assets .......................................................... 22,588,494 15,467,194 7,844,338

LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor) ....................................................... 3 - 2
Net assets ............................................................. $ 22,588,491 15,467,194 7,844,336
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net asset distribution by category:
Variable annuity contracts ............................................... $ 22,588,491 $ 15,467,194 $ 7,844,336
---------------- ----------------- ----------------
---------------- ----------------- ----------------

Units outstanding, December 31, 1999 ....................................... 10,840,734 6,678,146 4,559,804
Net asset value per unit, December 31, 1999 ................................ $ 2.083668 $ 2.316091 $ 1.7203236091

FIDELITY VIP FIDELITY VIP FIDELITY VIP
HIGH INCOME EQUITY-INCOME GROWTH
----------------- ---------------- ----------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ........................ $ - $ - $ -
Investments in shares of Fidelity Variable Insurance Products Funds (VIP) .. 23,300,730 41,823,565 60,703,679
Investment in shares of T. Rowe Price International Series, Inc. ........... - - -
Investment in shares of Delaware Group Premium Fund, Inc ................... - - -
Receivable from First Allmerica Financial Life Insurance
Company (Sponsor) ...................................................... - - -
---------------- ---------------- ----------------
Total assets .......................................................... 23,300,730 41,823,565 60,703,679

LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor) ....................................................... - - -
---------------- ---------------- ----------------
Net assets ............................................................. $ 23,300,730 $ 41,823,565 $ 60,703,679
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Net asset distribution by category:
Variable annuity contracts ............................................... $ 23,300,730 $ 41,823,565 $ 60,703,679
---------------- ---------------- ----------------
---------------- ---------------- ----------------

Units outstanding, December 31, 1999 ....................................... 15,019,986 17,835,666 16,527,943
Net asset value per unit, December 31, 1999 ................................ $ 1.551315 $ 2.344940 $ 3.672791

FIDELITY VIP FIDELITY VIP II T. ROWE PRICE
OVERSEAS ASSET MANAGER INTERNATIONAL STOCK
-------------- ------------------ ---------------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ........................ $ - $ - $ -
Investments in shares of Fidelity Variable Insurance Products Funds (VIP) .. 9,725,194 8,748,250 -
Investment in shares of T. Rowe Price International Series, Inc. ........... - - 10,889,577
Investment in shares of Delaware Group Premium Fund, Inc ................... - - -
Receivable from First Allmerica Financial Life Insurance
Company (Sponsor) ...................................................... - - -
-------------- ------------------ ---------------------
Total assets .......................................................... 9,725,194 8,748,250 10,889,577

LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor) ....................................................... - - -
-------------- ------------------ ---------------------
Net assets ............................................................. $ 9,725,194 $ 8,748,250 $ 10,889,577
-------------- ------------------ ---------------------
-------------- ------------------ ---------------------
Net asset distribution by category:
Variable annuity contracts ............................................... $ 9,725,194 $ 8,748,250 $ 10,889,577
-------------- ------------------ ---------------------
-------------- ------------------ ---------------------

Units outstanding, December 31, 1999 ....................................... 4,796,337 4,613,840 5,937,367
Net asset value per unit, December 31, 1999 ................................ $ 2.027630 $ 1.896089 $ 1.834075
</TABLE>

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

SA-2

<PAGE>

SEPARATE ACCOUNT VA-K

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1999

INVESTMENT
GROWTH GRADE INCOME MONEY MARKET EQUITY INDEX
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . $ 165,095 $ 460,500 $ 598,236 $ 284,297
------------- ------------ ------------ ------------
EXPENSES :
Mortality and expense risk fees. . . . . . . . . . . . . . . 323,203 91,695 147,935 373,833
Administrative expense fees. . . . . . . . . . . . . . . . . 52,614 14,927 24,082 60,857
------------- ------------ ------------ ------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . 375,817 106,622 172,017 434,690
------------- ------------ ------------ ------------

Net investment income (loss) . . . . . . . . . . . . . . . (210,722) 353,878 426,219 (150,393)
------------- ------------ ------------ ------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors. . . . . 2,354,633 5,800 - 45,159
Net realized gain (loss) from sales of investments . . . . . 314,692 (11,579) - 294,331
------------- ------------ ------------ ------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . 2,669,325 (5,779) - 339,490
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . 3,944,336 (523,111) - 5,088,920
------------- ------------ ------------ ------------

Net realized and unrealized gain (loss) . . . . . . . . . 6,613,661 (528,890) - 5,428,410
------------- ------------ ------------ ------------
Net increase (decrease) in net assets from operations . . $ 6,402,939 $ (175,012) $ 426,219 $5,278,017
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------

SELECT SELECT GROWTH
GOVERNMENT BOND AGGRESSIVE GROWTH SELECT GROWTH AND INCOME
--------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . $ 267,146 $ - $ 15,054 $ 214,299
--------------- ----------------- ------------- -------------
EXPENSES :
Mortality and expense risk fees. . . . . . . . . . . . . . . 57,267 286,970 367,811 240,871
Administrative expense fees. . . . . . . . . . . . . . . . . 9,322 46,716 59,876 39,211
--------------- ----------------- ------------- -------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . 66,589 333,686 427,687 280,082
--------------- ----------------- ------------- -------------

Net investment income (loss) . . . . . . . . . . . . . . . 200,557 (333,686) (412,633) (65,783)
--------------- ----------------- ------------- -------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors. . . . . - - 956,687 1,417,591
Net realized gain (loss) from sales of investments . . . . . (25,022) 348,108 242,691 166,282
--------------- ----------------- ------------- -------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . (25,022) 348,108 1,199,378 1,583,873
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . (219,399) 7,883,902 7,400,373 1,439,837
--------------- ----------------- ------------- -------------

Net realized and unrealized gain (loss) . . . . . . . . . (244,421) 8,232,010 8,599,751 3,023,710
--------------- ----------------- ------------- -------------
Net increase (decrease) in net assets from operations . . $ (43,864) $ 7,898,324 $ 8,187,118 $ 2,957,927
--------------- ----------------- ------------- -------------
--------------- ----------------- ------------- -------------

SELECT VALUE
OPPORTUNITY
-------------
<S> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . $ 77
-------------
EXPENSES :
Mortality and expense risk fees. . . . . . . . . . . . . . . 168,326
Administrative expense fees. . . . . . . . . . . . . . . . . 27,402
-------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . 195,728
-------------

Net investment income (loss) . . . . . . . . . . . . . . . (195,651)
-------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors. . . . . 770,979
Net realized gain (loss) from sales of investments . . . . . (19,671)
-------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . 751,308
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . (1,364,169)
-------------

Net realized and unrealized gain (loss) . . . . . . . . . (612,861)
-------------
Net increase (decrease) in net assets from operations . . $ (808,512)
-------------
-------------
</TABLE>

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

SA-3
<PAGE>

SEPARATE ACCOUNT VA-K

STATEMENTS OF OPERATIONS (Continued)

FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
SELECT DGPF
INTERNATIONAL SELECT CAPITAL INTERNATIONAL FIDELITY VIP
EQUITY APPRECIATION EQUITY HIGH INCOME
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ - $ 136,850 $1,886,309
------------- -------------- ------------- ------------
EXPENSES :
Mortality and expense risk fees. . . . . . . . . . . . . . . 223,269 155,151 85,251 277,658
Administrative expense fees. . . . . . . . . . . . . . . . . 36,347 25,257 13,879 45,201
------------- -------------- ------------- ------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . 259,616 180,408 99,130 322,859
------------- -------------- ------------- ------------

Net investment income (loss) . . . . . . . . . . . . . . . (259,616) (180,408) 37,720 1,563,450
------------- -------------- ------------- ------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors. . . . . - 18,801 9,995 70,516
Net realized gain (loss) from sales of investments . . . . . 233,508 73,953 85,179 (255,991)
------------- -------------- ------------- ------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . 233,508 92,754 95,174 (185,475)
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . 5,024,680 2,949,396 776,394 (29,248)
------------- -------------- ------------- ------------

Net realized and unrealized gain (loss) . . . . . . . . . 5,258,188 3,042,150 871,568 (214,723)
------------- -------------- ------------- ------------
Net increase (decrease) in net assets from operations . . $ 4,998,572 $ 2,861,742 $ 909,288 $1,348,727
------------- -------------- ------------- ------------
------------- -------------- ------------- ------------

FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP II
EQUITY-INCOME GROWTH OVERSEAS ASSET MANAGER
------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . $ 541,437 $ 64,545 $ 98,590 $ 206,350
------------- -------------- ------------ ---------------
EXPENSES :
Mortality and expense risk fees. . . . . . . . . . . . . . . 500,740 571,004 89,844 89,813
Administrative expense fees. . . . . . . . . . . . . . . . . 81,516 92,955 14,626 14,621
------------- -------------- ------------ ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . 582,256 663,959 104,470 104,434
------------- -------------- ------------ ---------------

Net investment income (loss) . . . . . . . . . . . . . . . (40,819) (599,414) (5,880) 101,916
------------- -------------- ------------ ---------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors. . . . . 1,196,860 4,058,271 159,017 261,376
Net realized gain (loss) from sales of investments . . . . . 518,090 423,817 166,845 43,434
------------- -------------- ------------ ---------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . 1,714,950 4,482,088 325,862 304,810
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . (29,350) 10,852,568 2,373,555 284,089
------------- -------------- ------------ ---------------

Net realized and unrealized gain (loss) . . . . . . . . . 1,685,600 15,334,656 2,699,417 588,899
------------- -------------- ------------ ---------------
Net increase (decrease) in net assets from operations . . $ 1,644,781 $ 14,735,242 $2,693,537 $ 690,815
------------- -------------- ------------ ---------------
------------- -------------- ------------ ---------------

T. ROWE PRICE
INTERNATIONAL STOCK
-------------------
<S> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,305
-------------------
EXPENSES :
Mortality and expense risk fees. . . . . . . . . . . . . . . 108,177
Administrative expense fees. . . . . . . . . . . . . . . . . 17,611
-------------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . 125,788
-------------------

Net investment income (loss) . . . . . . . . . . . . . . . (86,483)
-------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors. . . . . 123,530
Net realized gain (loss) from sales of investments . . . . . 127,661
-------------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . 251,191
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . 2,415,777
-------------------

Net realized and unrealized gain (loss) . . . . . . . . . 2,666,968
-------------------
Net increase (decrease) in net assets from operations . . $ 2,580,485
-------------------
-------------------
</TABLE>

SA-4
<PAGE>

SEPARATE ACCOUNT VA-K

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
INVESTMENT
GROWTH GRADE INCOME
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . $ (210,722) $ (60,681) $ 353,878 $ 284,315
Net realized gain (loss). . . . . . . . . . . . . . . . 2,669,325 227,744 (5,779) 22,115
Net unrealized gain (loss). . . . . . . . . . . . . . . 3,944,336 2,783,753 (523,111) 69,734
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . 6,402,939 2,950,816 (175,012) 376,164
--------------- --------------- --------------- ---------------

FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . 1,252,999 1,295,185 359,462 477,719
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . (987,135) (854,008) (308,427) (278,536)
Contract benefits . . . . . . . . . . . . . . . . . . . . (216,420) (139,181) - -
Contract charges. . . . . . . . . . . . . . . . . . . . . (6,798) (5,051) (949) (805)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . 2,506,045 3,331,381 653,869 1,501,451
Other transfers from (to) the General Account . . . . . . 1,358,025 267,895 (3,653) (45,851)
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . 3,906,716 3,896,221 700,302 1,653,978
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets . . . . . . . . . . 10,309,655 6,847,037 525,290 2,030,142

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . 21,544,810 14,697,773 6,957,372 4,927,230
--------------- --------------- --------------- ---------------
End of year . . . . . . . . . . . . . . . . . . . . . . . $ 31,854,465 $ 21,544,810 $ 7,482,662 $ 6,957,372
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------

MONEY MARKET EQUITY INDEX
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . $ 426,219 $ 412,863 $ (150,393) $ (38,931)
Net realized gain (loss). . . . . . . . . . . . . . . . - - 339,490 783,712
Net unrealized gain (loss). . . . . . . . . . . . . . . - - 5,088,920 3,420,684
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . 426,219 412,863 5,278,017 4,165,465
--------------- --------------- --------------- ---------------

FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . 41,248,758 42,956,520 2,053,314 1,870,086
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . (663,576) (1,527,192) (1,285,807) (1,165,798)
Contract benefits . . . . . . . . . . . . . . . . . . . . (163,706) (7,305) (317,893) (196,777)
Contract charges. . . . . . . . . . . . . . . . . . . . . (2,910) (2,579) (6,761) (4,591)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . (38,919,763) (43,621,528) 6,865,573 5,748,639
Other transfers from (to) the General Account . . . . . . 141,135 2,251,241 1,513,207 548,442
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . 1,639,938 49,157 8,821,633 6,800,001
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets . . . . . . . . . . 2,066,157 462,020 14,099,650 10,965,466

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . 10,375,255 9,913,235 23,452,582 12,487,116
--------------- --------------- --------------- ---------------
End of year . . . . . . . . . . . . . . . . . . . . . . . $ 12,441,412 $ 10,375,255 $ 37,552,232 $ 23,452,582
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------

GOVERNMENT BOND
YEAR ENDED DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . $ 200,557 $ 114,541
Net realized gain (loss). . . . . . . . . . . . . . . . (25,022) 18,037
Net unrealized gain (loss). . . . . . . . . . . . . . . (219,399) 22,198
--------------- ---------------

Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . (43,864) 154,776
--------------- ---------------

FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . 377,457 341,848
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . (121,601) (183,152)
Contract benefits . . . . . . . . . . . . . . . . . . . . (2,353) (230)
Contract charges. . . . . . . . . . . . . . . . . . . . . (695) (486)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . 1,653,622 946,095
Other transfers from (to) the General Account . . . . . . (999) 24,821
--------------- ---------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . 1,905,431 1,128,896
--------------- ---------------

Net increase (decrease) in net assets . . . . . . . . . . 1,861,567 1,283,672

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . 3,315,626 2,031,954
--------------- ---------------
End of year . . . . . . . . . . . . . . . . . . . . . . . $ 5,177,193 $ 3,315,626
--------------- ---------------
--------------- ---------------
</TABLE>

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

SA-5
<PAGE>

SEPARATE ACCOUNT VA-K

STATEMENTS OF CHANGES IN NET ASSETS (Continued)

<TABLE>
<CAPTION>
SELECT
AGGRESSIVE GROWTH SELECT GROWTH
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . $ (333,686) $ (248,987) $ (412,633) $ (223,375)
Net realized gain (loss). . . . . . . . . . . . . . . . 348,108 120,729 1,199,378 343,553
Net unrealized gain (loss). . . . . . . . . . . . . . . 7,883,902 1,626,872 7,400,373 4,813,123
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . 7,898,324 1,498,614 8,187,118 4,933,301
--------------- --------------- --------------- ---------------

FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . 1,341,167 1,667,973 2,185,824 1,762,877
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . (1,018,716) (1,107,960) (1,027,454) (1,154,143)
Contract benefits . . . . . . . . . . . . . . . . . . . . (157,606) (5,407) (66,619) (46,068)
Contract charges. . . . . . . . . . . . . . . . . . . . . (7,973) (6,478) (9,601) (5,919)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . 1,002,025 3,440,969 6,544,402 5,348,619
Other transfers from (to) the General Account . . . . . . 684,379 461,145 1,449,947 743,351
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . 1,843,276 4,450,242 9,076,499 6,648,717
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets . . . . . . . . . . 9,741,600 5,948,856 17,263,617 11,582,018

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . 20,453,722 14,504,866 23,117,675 11,535,657
--------------- --------------- --------------- ---------------
End of year . . . . . . . . . . . . . . . . . . . . . . . $ 30,195,322 $ 20,453,722 $ 40,381,292 $ 23,117,675
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------

SELECT GROWTH SELECT VALUE
AND INCOME OPPORTUNITY
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . $ (65,783) $ (24,404) $ (195,651) $ (54,898)
Net realized gain (loss). . . . . . . . . . . . . . . . 1,583,873 185,469 751,308 67,905
Net unrealized gain (loss). . . . . . . . . . . . . . . 1,439,837 1,752,366 (1,364,169) 319,879
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . 2,957,927 1,913,431 (808,512) 332,886
--------------- --------------- --------------- ---------------

FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . 887,196 916,420 807,164 1,013,793
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . (698,848) (709,978) (578,815) (592,743)
Contract benefits . . . . . . . . . . . . . . . . . . . . (239,854) (158,824) (70,078) (6,487)
Contract charges. . . . . . . . . . . . . . . . . . . . . (4,329) (3,598) (4,406) (3,938)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . 2,882,328 2,191,454 853,303 2,413,513
Other transfers from (to) the General Account . . . . . . 653,591 641,774 823,362 408,183
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . 3,480,084 2,877,248 1,830,530 3,232,321
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets . . . . . . . . . . 6,438,011 4,790,679 1,022,018 3,565,207

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . 16,485,109 11,694,430 13,207,156 9,641,949
--------------- --------------- --------------- ---------------
End of year . . . . . . . . . . . . . . . . . . . . . . . $ 22,923,120 $ 16,485,109 $ 14,229,174 $ 13,207,156
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>

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

SA-6
<PAGE>

SEPARATE ACCOUNT VA-K

STATEMENTS OF CHANGES IN NET ASSETS (Continued)

<TABLE>
<CAPTION>
SELECT INTERNATIONAL SELECT CAPITAL
EQUITY APPRECIATION
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . $ (259,616) $ (1,682) $ (180,408) $ (134,524)
Net realized gain (loss). . . . . . . . . . . . . . . . 233,508 92,023 92,754 1,842,555
Net unrealized gain (loss). . . . . . . . . . . . . . . 5,024,680 1,717,818 2,949,396 (486,273)
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . 4,998,572 1,808,159 2,861,742 1,221,758
--------------- --------------- --------------- ---------------

FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . 938,996 911,710 806,871 977,644
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . (598,035) (543,238) (408,501) (481,265)
Contract benefits . . . . . . . . . . . . . . . . . . . . (103,902) (35,297) (73,268) (6,055)
Contract charges. . . . . . . . . . . . . . . . . . . . . (4,551) (4,110) (3,766) (3,180)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . 1,043,370 1,774,816 844,374 676,351
Other transfers from (to) the General Account . . . . . . 722,884 388,199 291,915 83,210
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . 1,998,762 2,492,080 1,457,625 1,246,705
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets . . . . . . . . . . 6,997,334 4,300,239 4,319,367 2,468,463

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . 15,591,157 11,290,918 11,147,827 8,679,364
--------------- --------------- --------------- ---------------
End of year . . . . . . . . . . . . . . . . . . . . . . . $ 22,588,491 $ 15,591,157 $ 15,467,194 $ 11,147,827
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------

DGPF FIDELITY VIP
INTERNATIONAL EQUITY HIGH INCOME
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . $ 37,720 $ 97,218 $ 1,563,450 $ 834,606
Net realized gain (loss). . . . . . . . . . . . . . . . 95,174 37,951 (185,475) 658,212
Net unrealized gain (loss). . . . . . . . . . . . . . . 776,394 277,546 (29,248) (2,709,154)
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . 909,288 412,715 1,348,727 (1,216,336)
--------------- --------------- --------------- ---------------

FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . 367,188 450,397 1,076,323 2,062,177
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . (323,376) (251,355) (1,108,186) (987,162)
Contract benefits . . . . . . . . . . . . . . . . . . . . (75,382) - (80,940) (107,858)
Contract charges. . . . . . . . . . . . . . . . . . . . . (2,042) (1,772) (4,678) (4,164)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . 460,977 1,017,275 924,886 5,202,627
Other transfers from (to) the General Account . . . . . . 252,896 99,261 472,556 607,069
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . 680,261 1,313,806 1,279,961 6,772,689
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets . . . . . . . . . . 1,589,549 1,726,521 2,628,688 5,556,353

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . 6,254,787 4,528,266 20,672,042 15,115,689
--------------- --------------- --------------- ---------------
End of year . . . . . . . . . . . . . . . . . . . . . . . $ 7,844,336 $ 6,254,787 $ 23,300,730 $ 20,672,042
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>

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

SA-7
<PAGE>

SEPARATE ACCOUNT VA-K

STATEMENTS OF CHANGES IN NET ASSETS (Continued)

<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
EQUITY-INCOME GROWTH
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . $ (40,819) $ (71,964) $ (599,414) $ (282,421)
Net realized gain (loss). . . . . . . . . . . . . . . . 1,714,950 1,679,271 4,482,088 3,404,903
Net unrealized gain (loss). . . . . . . . . . . . . . . (29,350) 1,360,035 10,852,568 6,094,613
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . 1,644,781 2,967,342 14,735,242 9,217,095
--------------- --------------- --------------- ---------------

FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . 2,283,854 2,398,189 3,005,646 2,265,258
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . (1,561,021) (1,518,197) (1,926,189) (1,842,522)
Contract benefits . . . . . . . . . . . . . . . . . . . . (372,120) (137,044) (334,648) (153,105)
Contract charges. . . . . . . . . . . . . . . . . . . . . (11,244) (10,250) (13,812) (11,095)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . 2,505,465 5,061,840 8,245,102 2,328,047
Other transfers from (to) the General Account . . . . . . 1,280,927 935,806 1,647,348 713,595
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . 4,125,861 6,730,344 10,623,447 3,300,178
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets . . . . . . . . . . 5,770,642 9,697,686 25,358,689 12,517,273

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . 36,052,923 26,355,237 35,344,990 22,827,717
--------------- --------------- --------------- ---------------
End of year . . . . . . . . . . . . . . . . . . . . . . . $ 41,823,565 $ 36,052,923 $ 60,703,679 $ 35,344,990
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------

FIDELITY VIP FIDELITY VIP II
OVERSEAS ASSET MANAGER
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . $ (5,880) $ 11,939 $ 101,916 $ 75,632
Net realized gain (loss). . . . . . . . . . . . . . . . 325,862 318,370 304,810 515,185
Net unrealized gain (loss). . . . . . . . . . . . . . . 2,373,555 200,255 284,089 92,247
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . 2,693,537 530,564 690,815 683,064
--------------- --------------- --------------- ---------------

FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . 414,849 436,787 537,213 447,933
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . (327,147) (334,149) (414,012) (551,001)
Contract benefits . . . . . . . . . . . . . . . . . . . . (25,172) (27,009) (32,731) (68,728)
Contract charges. . . . . . . . . . . . . . . . . . . . . (2,345) (2,070) (1,840) (1,417)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . 528,915 833,047 1,419,160 701,410
Other transfers from (to) the General Account . . . . . . 156,409 175,177 464,372 102,018
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . 745,509 1,081,783 1,972,162 630,215
--------------- --------------- --------------- ---------------

Net increase (decrease) in net assets . . . . . . . . . . 3,439,046 1,612,347 2,662,977 1,313,279

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . 6,286,148 4,673,801 6,085,273 4,771,994
--------------- --------------- --------------- ---------------
End of year . . . . . . . . . . . . . . . . . . . . . . . $ 9,725,194 $ 6,286,148 $ 8,748,250 $ 6,085,273
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------

T. ROWE PRICE
INTERNATIONAL STOCK
YEAR ENDED DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . $ (86,483) $ (6,236)
Net realized gain (loss). . . . . . . . . . . . . . . . 251,191 75,474
Net unrealized gain (loss). . . . . . . . . . . . . . . 2,415,777 794,299
--------------- ---------------

Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . 2,580,485 863,537
--------------- ---------------

FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . 425,683 476,174
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . (207,845) (231,411)
Contract benefits . . . . . . . . . . . . . . . . . . . . (102,701) (13,764)
Contract charges. . . . . . . . . . . . . . . . . . . . . (2,157) (1,792)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . (13,653) 1,103,994
Other transfers from (to) the General Account . . . . . . 294,802 174,146
--------------- ---------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . 394,129 1,507,347
--------------- ---------------

Net increase (decrease) in net assets . . . . . . . . . . 2,974,614 2,370,884

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . 7,914,963 5,544,079
--------------- ---------------
End of year . . . . . . . . . . . . . . . . . . . . . . . $ 10,889,577 $ 7,914,963
--------------- ---------------
--------------- ---------------
</TABLE>

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

SA-8
<PAGE>

SEPARATE ACCOUNT VA-K

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION

Separate Account VA-K, which funds the Allmerica Advantage, ExecAnnuity Plus
and Allmerica Immediate Advantage variable annuity contracts, in addition to
other contracts (the Delaware Medallion variable annuity contracts), is a
separate investment account of First Allmerica Financial Life Insurance Company
(the Company). The Company is a wholly-owned subsidiary of Allmerica Financial
Corporation (AFC). Separate Account VA-K was established on April 1, 1994 for
the purpose of separating from the general assets of the Company those assets
used to fund certain variable annuity contracts issued by the Company. Under
applicable insurance law, the assets and liabilities of Separate Account VA-K
are clearly identified and distinguished from the other assets and liabilities
of the Company. Separate Account VA-K cannot be charged with liabilities arising
out of any other business of the Company.

Separate Account VA-K is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). Separate Account VA-K
currently offers eighteen Sub-Accounts under the Allmerica Advantage and
ExecAnnuity Plus variable annuity contracts and twenty Sub-Accounts under the
Allmerica Immediate Advantage variable annuity contracts. Each Sub-Account
invests exclusively in a corresponding investment portfolio of Allmerica
Investment Trust (the Trust) managed by Allmerica Financial Investment
Management Services, Inc. (AFIMS), an indirect wholly-owned subsidiary of the
Company; or of the Variable Insurance Products Fund (Fidelity VIP) or the
Variable Insurance Products Fund II (Fidelity VIP II) managed by Fidelity
Management & Research Company (FMR); or of the Delaware Group Premium Fund
(DGPF) managed by Delaware International Advisers Ltd.; or of the T. Rowe Price
International Series, Inc. (T. Rowe Price) managed by Rowe Price-Fleming
International, Inc. The Trust, Fidelity VIP, Fidelity VIP II, DGPF, and T. Rowe
Price (the Funds) are open-end, management investment companies registered under
the 1940 Act.

Effective May 1, 2000, AIT Investment Grade Income Fund will be renamed
Select Investment Grade Income Fund and AIT Growth Fund will be renamed Core
Equity Fund.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

INVESTMENTS - Security transactions are recorded on the trade date.
Investments held by the Sub-Accounts are stated at the net asset value per share
of the respective investment portfolio of the Funds. Realized gains and losses
on securities sold are determined using the average cost method. Dividends and
capital gain distributions are recorded on the ex-dividend date and are
reinvested in additional shares of the respective investment portfolio of the
Funds at net asset value.

FEDERAL INCOME TAXES - The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code (the Code) and files a
consolidated federal income tax return. The Company anticipates no tax liability
resulting from the operations of Separate Account VA-K. Therefore, no provision
for income taxes has been charged against Separate Account VA-K.

SA-9
<PAGE>

SEPARATE ACCOUNT VA-K

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 - INVESTMENTS

The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Funds at December 31, 1999 were as follows:

<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
---------------------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
INVESTMENT PORTFOLIO SHARES COST PER SHARE
-------------------- -------------- -------------- -----------
<S> <C> <C> <C>
Growth . . . . . . . . . . . . . . . . . . . . . . 9,563,995 $ 24,918,919 $ 3.311
Investment Grade Income . . . . . . . . . . . . . . 7,119,564 7,820,753 1.051
Money Market . . . . . . . . . . . . . . . . . . . 12,444,661 12,444,661 1.000
Equity Index. . . . . . . . . . . . . . . . . . . . 9,268,029 27,182,985 4.060
Government Bond . . . . . . . . . . . . . . . . . . 5,120,863 5,367,144 1.011
Select Aggressive Growth . . . . . . . . . . . . . 8,852,337 18,974,244 3.411
Select Growth . . . . . . . . . . . . . . . . . . . 13,244,110 26,686,731 3.049
Select Growth and Income. . . . . . . . . . . . . . 11,897,895 18,647,029 1.933
Select Value Opportunity. . . . . . . . . . . . . . 9,355,144 14,597,670 1.521
Select International Equity . . . . . . . . . . . . 11,121,858 15,206,169 2.031
Select Capital Appreciation . . . . . . . . . . . . 7,533,947 11,724,744 2.053
DGPF International Equity . . . . . . . . . . . . . 421,059 6,393,416 18.630
Fidelity VIP High Income . . . . . . . . . . . . . 2,060,188 24,328,238 11.310
Fidelity VIP Equity-Income . . . . . . . . . . . . 1,626,743 35,043,958 25.710
Fidelity VIP Growth . . . . . . . . . . . . . . . . 1,105,110 38,840,482 54.930
Fidelity VIP Overseas . . . . . . . . . . . . . . . 354,417 6,671,145 27.440
Fidelity VIP II Asset Manager . . . . . . . . . . . 468,573 7,634,435 18.670
T. Rowe Price International Stock . . . . . . . . . 571,932 7,547,860 19.040
</TABLE>

NOTE 4 - RELATED PARTY TRANSACTIONS

The Company makes a charge of 1.25% per annum to Allmerica Advantage,
ExecAnnuity Plus and to Allmerica Immediate Advantage based on the average daily
net assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account of Allmerica Advantage,
ExecAnnuity Plus and Allmerica Immediate Advantage 0.20% per annum based on the
average daily net assets of each Sub-Account for administrative expenses. These
charges are deducted from the daily value of each Sub-Account and are paid to
the Company on a daily basis.

For contracts issued on Form A3018-94 (ExecAnnuity Plus), a contract fee is
deducted on the contract anniversary and upon full surrender of the contract
when the accumulated value is $50,000 or less. The fee is the lesser of $30 or
3% of the accumulated value on the contract anniversary or full surrender date.
For contracts issued on Form A3025-96 (Allmerica Advantage), a contract fee of
$30 is deducted on the contract anniversary and upon full surrender when the
accumulated value is less than $50,000. The fee is currently waived for all
contracts (ExecAnnuity Plus and Allmerica Advantage) issued to and maintained by
the trustee of a 401(k) plan.

Allmerica Investments, Inc., (Allmerica Investments), an indirect
wholly-owned subsidiary of the Company, is principal underwriter and general
distributor of Separate Account VA-K, and does not receive any compensation for
sales of the contracts. Commissions are paid to registered representatives of
Allmerica Investments by the Company. Allmerica Advantage and ExecAnnuity Plus
contracts have a contingent deferred sales charge and no deduction is made for
sales charges at the time of the sale.

SA-10
<PAGE>

SEPARATE ACCOUNT VA-K

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS

Transactions from contractowners and sponsor were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
----------------------------------- ---------------------------------
UNITS AMOUNT UNITS AMOUNT
---------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Growth
Issuance of Units . . . . . . . . . . . . . . . 2,838,227 $ 7,105,831 3,196,609 $ 6,772,868
Redemption of Units . . . . . . . . . . . . . . (1,362,213) (3,199,115) (1,373,701) (2,876,647)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 1,476,014 $ 3,906,716 1,822,908 $ 3,896,221
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Investment Grade Income
Issuance of Units . . . . . . . . . . . . . . . 1,668,246 $ 2,226,512 2,044,414 $ 2,696,090
Redemption of Units . . . . . . . . . . . . . . (1,141,863) (1,526,210) (773,878) (1,042,112)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 526,383 $ 700,302 1,270,536 $ 1,653,978
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Money Market
Issuance of Units . . . . . . . . . . . . . . . 45,985,028 $ 50,757,480 48,203,810 $ 54,962,039
Redemption of Units . . . . . . . . . . . . . . (44,623,695) (49,117,542) (48,148,881) (54,912,882)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 1,361,333 $ 1,639,938 54,929 $ 49,157
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Equity Index
Issuance of Units . . . . . . . . . . . . . . . 4,377,991 $ 12,478,466 4,063,578 $ 9,923,583
Redemption of Units . . . . . . . . . . . . . . (1,416,195) (3,656,833) (1,295,473) (3,123,582)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 2,961,796 $ 8,821,633 2,768,105 $ 6,800,001
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Government Bond
Issuance of Units . . . . . . . . . . . . . . . 3,481,100 $ 4,068,069 2,440,242 $ 3,015,884
Redemption of Units . . . . . . . . . . . . . . (1,968,201) (2,162,638) (1,529,683) (1,886,988)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 1,512,899 $ 1,905,431 910,559 $ 1,128,896
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Select Aggressive Growth
Issuance of Units . . . . . . . . . . . . . . . 2,754,461 $ 5,755,614 3,742,763 $ 7,274,206
Redemption of Units . . . . . . . . . . . . . . (1,928,576) (3,912,338) (1,407,342) (2,823,964)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 825,885 $ 1,843,276 2,335,421 $ 4,450,242
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Select Growth
Issuance of Units . . . . . . . . . . . . . . . 4,449,518 $ 12,858,990 4,160,290 $ 9,729,097
Redemption of Units . . . . . . . . . . . . . . (1,383,502) (3,782,491) (1,360,001) (3,080,380)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 3,066,016 $ 9,076,499 2,800,289 $ 6,648,717
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Select Growth and Income
Issuance of Units . . . . . . . . . . . . . . . 2,419,585 $ 5,776,930 2,568,312 $ 4,993,792
Redemption of Units . . . . . . . . . . . . . . (980,376) (2,296,846) (1,170,883) (2,116,544)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 1,439,209 $ 3,480,084 1,397,429 $ 2,877,248
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Select Value Opportunity
Issuance of Units . . . . . . . . . . . . . . . 2,585,542 $ 4,303,678 2,771,415 $ 5,006,786
Redemption of Units . . . . . . . . . . . . . . (1,519,807) (2,473,148) (994,406) (1,774,465)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 1,065,735 $ 1,830,530 1,777,009 $ 3,232,321
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

SA-11
<PAGE>

SEPARATE ACCOUNT VA-K

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)

<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
----------------------------------- ---------------------------------
UNITS AMOUNT UNITS AMOUNT
---------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Select International Equity
Issuance of Units . . . . . . . . . . . . . . . 2,901,922 $ 4,637,861 2,894,703 $ 4,527,204
Redemption of Units . . . . . . . . . . . . . . (1,774,034) (2,639,099) (1,258,209) (2,035,124)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 1,127,888 $ 1,998,762 1,636,494 $ 2,492,080
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Select Capital Appreciation
Issuance of Units . . . . . . . . . . . . . . . 1,668,178 $ 3,161,299 1,891,659 $ 3,122,674
Redemption of Units . . . . . . . . . . . . . . (936,701) (1,703,674) (1,142,204) (1,875,969)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 731,477 $ 1,457,625 749,455 $ 1,246,705
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

DGPF International Equity
Issuance of Units . . . . . . . . . . . . . . . 1,442,035 $ 1,822,469 1,486,205 $ 2,175,924
Redemption of Units . . . . . . . . . . . . . . (1,030,011) (1,142,208) (604,270) (862,118)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 412,024 $ 680,261 881,935 $ 1,313,806
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Fidelity VIP High Income
Issuance of Units . . . . . . . . . . . . . . . 5,073,951 $ 7,695,969 6,929,705 $ 10,678,702
Redemption of Units . . . . . . . . . . . . . . (4,257,220) (6,416,008) (2,520,698) (3,906,013)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 816,731 $ 1,279,961 4,409,007 $ 6,772,689
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Fidelity VIP Equity-Income
Issuance of Units . . . . . . . . . . . . . . . 4,637,345 $ 10,608,146 5,589,831 $ 11,872,225
Redemption of Units . . . . . . . . . . . . . . (2,912,701) (6,482,285) (2,438,089) (5,141,881)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 1,724,644 $ 4,125,861 3,151,742 $ 6,730,344
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Fidelity VIP Growth
Issuance of Units . . . . . . . . . . . . . . . 5,332,578 $ 16,144,378 3,232,147 $ 7,273,604
Redemption of Units . . . . . . . . . . . . . . (1,839,285) (5,520,931) (1,772,972) (3,973,426)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 3,493,293 $ 10,623,447 1,459,175 $ 3,300,178
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Fidelity VIP Overseas
Issuance of Units . . . . . . . . . . . . . . . 1,511,089 $ 2,442,012 1,414,651 $ 1,993,759
Redemption of Units . . . . . . . . . . . . . . (1,072,506) (1,696,503) (657,938) (911,976)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 438,583 $ 745,509 756,713 $ 1,081,783
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

Fidelity VIP II Asset Manager
Issuance of Units . . . . . . . . . . . . . . . 1,723,766 $ 2,984,705 1,093,306 $ 1,742,931
Redemption of Units . . . . . . . . . . . . . . (623,602) (1,012,543) (704,485) (1,112,716)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 1,100,164 $ 1,972,162 388,821 $ 630,215
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------

T. Rowe Price International Stock
Issuance of Units . . . . . . . . . . . . . . . 1,268,569 $ 1,791,489 1,891,293 $ 2,454,236
Redemption of Units . . . . . . . . . . . . . . (1,001,312) (1,397,360) (756,997) (946,889)
---------------- ---------------- ------------- ----------------
Net increase (decrease) . . . . . . . . . . . 267,257 $ 394,129 1,134,296 $ 1,507,347
---------------- ---------------- ------------- ----------------
---------------- ---------------- ------------- ----------------
</TABLE>

SA-12
<PAGE>

SEPARATE ACCOUNT VA-K

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 6 - DIVERSIFICATION REQUIREMENTS

Under the provisions of Section 817(h) of the Code, a variable annuity
contract, other than a contract issued in connection with certain types of
employee benefit plans, will not be treated as an annuity contract for federal
income tax purposes for any period for which the investments of the segregated
asset account on which the contract is based are not adequately diversified. The
Code provides that the "adequately diversified" requirement may be met if the
underlying investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by the Secretary of
The Treasury.

The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that Separate Account VA-K satisfies the current
requirements of the regulations, and it intends that Separate Account VA-K will
continue to meet such requirements.

NOTE 7 - PURCHASES AND SALES OF SECURITIES

Cost of purchases and proceeds from sales of shares of the Funds by Separate
Account VA-K during the year ended December 31, 1999 were as follows:

<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
-------------------- -------------- --------------
<S> <C> <C>
Growth . . . . . . . . . . . . . . . . . . . $ 7,440,215 $ 1,859,502
Investment Grade Income. . . . . . . . . . . 2,167,164 1,107,184
Money Market . . . . . . . . . . . . . . . . 29,732,493 27,663,120
Equity Index . . . . . . . . . . . . . . . . 10,065,420 1,234,110
Government Bond. . . . . . . . . . . . . . . 3,952,169 1,846,181
Select Aggressive Growth . . . . . . . . . . 3,077,841 1,568,251
Select Growth . . . . . . . . . . . . . . . 10,606,061 985,508
Select Growth and Income . . . . . . . . . . 5,923,944 984,048
Select Value Opportunity . . . . . . . . . . 3,494,767 1,088,909
Select International Equity. . . . . . . . . 2,921,317 1,182,168
Select Capital Appreciation. . . . . . . . . 1,989,362 693,344
DGPF International Equity. . . . . . . . . . 1,425,526 697,548
Fidelity VIP High Income . . . . . . . . . . 7,052,384 4,138,457
Fidelity VIP Equity-Income . . . . . . . . . 8,326,912 3,045,010
Fidelity VIP Growth. . . . . . . . . . . . . 15,675,402 1,593,098
Fidelity VIP Overseas. . . . . . . . . . . . 2,032,652 1,134,006
Fidelity VIP II Asset Manager. . . . . . . . 2,914,612 579,158
T. Rowe Price International Stock. . . . . . 1,290,960 859,784
-------------- --------------
Totals . . . . . . . . . . . . . . . . . . $120,089,201 $ 52,259,386
-------------- --------------
-------------- --------------
</TABLE>

NOTE 8 - PLAN OF SUBSTITUTION FOR PORTFOLIO OF THE TRUST

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

SA-13
<PAGE>

PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) FINANCIAL STATEMENTS

Financial Statements Included in Part A
None

Financial Statements Included in Part B
Financial Statements for First Allmerica Financial Life Insurance Company
and
Financial Statements for Separate Account VA-K of First Allmerica Financial
Life Insurance Company

Financial Statements Included in Part C
None

(b) EXHIBITS

EXHIBIT 1 Vote of Board of Directors Authorizing Establishment of
Registrant dated August 20, 1991 was previously filed on April
24, 1998 in Post-Effective Amendment No. 9 of Registration
Statement No. 33-71052/811-8114, and is incorporated by reference
herein.

EXHIBIT 2 Not Applicable. Pursuant to Rule 26a-2, the Insurance Company may
hold the assets of the Registrant NOT pursuant to a trust
indenture or other such instrument.

EXHIBIT 3 (a) Underwriting and Administrative Services Agreement was
previously filed on April 24, 1998 in Post-Effective
Amendment No. 9 of Registration Statement No.
33-71052/811-8114, and is incorporated by reference herein.

(b) Sales Agreements were previously filed on April 24, 1998 in
Post-Effective Amendment No. 9 of Registration Statement No.
33-71052/811-8114, and are incorporated by reference herein.

(c) General Agent's Agreement was previously filed on April 24,
1998 in Post-Effective Amendment No. 9 of Registration
Statement No. 33-71052/811-8114, and is incorporated by
reference herein.

(d) Commission Schedule is filed herewith. Career Agent
Agreement with Commission Schedule was previously filed on
April 24, 1998 in Post-Effective Amendment No. 9 of
Registration Statement No. 33-71052/811-8114, and is
incorporated by reference herein.

(e) Registered Representative's Agreement was previously filed
on April 24, 1998 in Post-Effective Amendment No. 9 of
Registration Statement No. 33-71052/811-8114, and is
incorporated by reference herein.

EXHIBIT 4 (a) Form of Contract Form A3033-00 and Specs Pages (Form
A8033-00) were previously filed on June 1, 2000 in
Registrant's initial Registration Statement No.
333-38276/811-8114, and is incorporated by reference herein.

(b) Enhanced Death Benefit Rider with Ratchet (Form 3286-00) is
filed herewith.

<PAGE>

EXHIBIT 5 Application Form 11637 was previously filed on June 1, 2000 in
Registrant's initial Registration Statement No.
333-38276/811-8114, and is incorporated by reference herein.

EXHIBIT 6 The Depositor's Articles of Incorporation and Bylaws, as amended
to reflect its name change, were previously filed on October 1,
1995 in Post-Effective Amendment No. 4 of Registration Statement
No. 33-71052/811-8114, and are incorporated by reference herein.
The Depositor's Revised Bylaws were previously filed on April 30,
1996 in Post-Effective Amendment No. 5 of Registration Statement
No. 33-71052/811-8114, and are incorporated by reference herein.

EXHIBIT 7 Not Applicable.

Exhibit 8 (a) BFDS Agreements for lockbox and mailroom services were
previously filed on April 24, 1998 in Post-Effective
Amendment No. 9 of Registration Statement No.
33-71052/811-8114, and are incorporated by reference herein.

(b) Directors' Power of Attorney is filed herewith.

EXHIBIT 9 Opinion of Counsel is filed herewith.

EXHIBIT 10 Consent of Independent Accountants is filed herewith.

EXHIBIT 11 None.

EXHIBIT 12 None.

EXHIBIT 13 Schedule for Computation of Performance Quotations was previously
filed on December 20, 1999 in Pre-Effective Amendment No. 1 of
Registration Statement No. 333-87105/811-8114 and is incorporated
by reference herein.

EXHIBIT 14 Not Applicable.

EXHIBIT 15

(a) Participation Agreement between the Company and Allmerica
Investment Trust dated March 22, 2000 was previously filed
on April 28, 2000 in Registrant's Post-Effective Amendment
No. 11, and is incorporated by reference herein.

(b) Amendment dated March 29, 2000 and Amendment dated November
13, 1998 to the Variable Insurance Products Fund
Participation Agreement was previously filed on April 28,
2000 in Registrant's Post-Effective Amendment No. 11, and is
incorporated by reference herein. Participation Agreement,
as amended, with Variable Insurance Products Fund was
previously filed on April 24, 1998 in Post-Effective
Amendment No. 9, and is incorporated by reference herein.

(c) Amendment dated March 29, 2000 and Amendment dated October 4,
1999 to the Variable Insurance Products Fund II Participation
Agreement was previously filed on April 28, 2000 in Registrant's
Post-Effective Amendment No. 11, and is incorporated by reference
herein. Participation Agreement, as amended, with Variable
Insurance Products Fund II was previously filed on April 24, 1998
in Post-Effective Amendment No. 9, and is incorporated by
reference herein.

(d) Participation Agreement with Variable Insurance Products Fund III
was previously filed on April 26,

<PAGE>

2000 in Post-Effective Amendment No. 1 of Registration Statement
No. 333-87105/811-8114, and is incorporated by reference herein.

(e) Form of Amendment to the Delaware Group Premium Fund
Participation Agreement was previously filed in April 2000 in
Post-Effective Amendment No. 12 of Registration Statement No.
33-71054/811-8114, and is incorporated by reference herein. Form
of Participation Agreement with Delaware Group Premium Fund, Inc.
was previously filed on April 24, 1998 in Post-Effective
Amendment No. 9, and is incorporated by reference herein.

(f) Participation Agreement with T. Rowe Price International Series,
Inc. was previously filed on April 24, 1998 in Post-Effective
Amendment No. 9, and is incorporated by reference herein.

(g) Form of Amendment was previously filed in April 2000 in
Post-Effective Amendment No. 12 of Registration Statement No.
33-71054/811-8114 and is incorporated by reference herein.
Participation Agreement with AIM Variable Insurance Funds, Inc.
was previously filed on August 27, 1998 in Post-Effective
Amendment No. 2 in Registration Statement No. 333-16929/811-7747,
and is incorporated by reference herein.

(h) Form of Participation Agreement with Alliance was previously
filed on April 26, 2000 in Post-Effective Amendment No. 1 of
Registration Statement No. 333-87105/811-8114, and is
incorporated by reference herein.

(i) Form of Participation Agreement with Franklin Templeton was
previously filed in April 2000 in Post-Effective Amendment No. 12
of Registration Statement No. 33-71054/811-8114 and is
incorporated by reference herein.

(j) Participation Agreement with INVESCO was previously filed on
April 26, 2000 in Post-Effective Amendment No. 1 of Registration
Statement No. 333-87105/811-8114, and is incorporated by
reference herein.

(k) Participation Agreement with Janus was previously filed on April
26, 2000 in Post-Effective Amendment No. 1 of Registration
Statement No. 333-87105/811-8114, and is incorporated by
reference herein.

(l) Amendment to Kemper Participation Agreement was previously filed
in April 2000 in Post-Effective Amendment No. 6 of Registration
Statement No. 333-10285/811-7769 and is incorporated by reference
herein. Participation Agreement with Kemper was previously filed
on November 6, 1996 in Pre-Effective Amendment No. 1 in
Registration Statement No. 333-10285/811-7769, and is
incorporated by reference herein.

(m) Form of Amendment to Pioneer Participation Agreement was
previously filed in April 2000 in Post-Effective Amendment No. 12
of Registration Statement No. 33-86664/811-8872, and is
incorporated by reference herein. Participation Agreement with
Pioneer was previously filed on April 24, 1998 in Post-Effective
Amendment No. 8 of Registration Statement No. 33-86664/811-8872,
and is incorporated by reference herein.

ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR

The principal business address of all the following Directors and Officers is:
440 Lincoln Street
Worcester, Massachusetts 01553

<PAGE>

NAME AND POSITION WITH COMPANY PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
------------------------------ ----------------------------------------------
<S> <C>
Bruce C. Anderson Director (since 1996), Vice President (since 1984) and Assistant
Director Secretary (since 1992) of First Allmerica

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

Mark R. Colborn Director (since 2000) and Vice President (since 1992) of First
Director and Vice President Allmerica

Charles F. Cronin Secretary (since 2000) and Counsel (since 1996) of First Allmerica;
Secretary Secretary and Counsel (since 1998) of Allmerica Financial Corporation;
Attorney (1991-1996) of Nutter, McClennen & Fish

J. Kendall Huber Director, Vice President and General Counsel of First Allmerica (since
Director, Vice President and 2000); Vice President (1999) of Promos Hotel Corporation; Vice
General Counsel President & Deputy General Counsel (1998-1999) of Legg Mason, Inc.;
Vice President and Deputy General Counsel (1995-1998) of USF&G
Corporation

John P. Kavanaugh Director and Chief Investment Officer (since 1996) and Vice President
Director, Vice President and (since 1991) of First Allmerica; Vice President (since 1998) of
Chief Investment Officer Allmerica Financial Investment Management Services, Inc.; and
President (since 1995) and Director (since 1996) of Allmerica Asset
Management, Inc.

J. Barry May Director (since 1996) of First Allmerica; Director and President
Director (since 1996) of The Hanover Insurance Company; and Vice President
(1993 to 1996) of The Hanover Insurance Company

James R. McAuliffe Director (since 1996) of First Allmerica; Director (since 1992),
Director President (since 1994) and Chief Executive Officer (since 1996) of
Citizens Insurance Company of America

Mark C. McGivney Vice President (since 1997) and Treasurer (since 2000) of First
Vice President and Treasurer Allmerica; Associate, Investment Banking (1996 -1997) of Merrill Lynch
& Co.; Associate, Investment Banking (1995) of Salomon Brothers, Inc.;
Treasurer (since 2000) of Allmerica Investments, Inc., Allmerica Asset
Management, Inc. and Allmerica Financial Investment Management
Services, Inc.

John F. O'Brien Director, President and Chief Executive Officer (since 1989) of First
Director and Chairman Allmerica
of the Board
</TABLE>

<PAGE>

<TABLE>
<S> <C>
Edward J. Parry, III Director and Chief Financial Officer (since 1996), Vice President
Director, Vice President (since 1993), and Treasurer (1993-2000) of First Allmerica
Chief Financial Officer

Richard M. Reilly Director (since 1996) and Vice President (since 1990) of First
Director, President and Allmerica; President (since 1995) of Allmerica Financial Life
Chief Executive Officer Insurance and Annuity Company; Director (since 1990) of Allmerica
Investments, Inc.; and Director and
President (since 1998) of Allmerica
Financial Investment Management
Services, Inc.

Robert P. Restrepo, Jr. Director and Vice President (since 1998) of First Allmerica; Director
Director (since 1998) of The Hanover Insurance Company; Chief Executive Officer
(1996 to 1998) of Travelers Property & Casualty; Senior Vice President
(1993 to 1996) of Aetna Life & Casualty Company

Eric A. Simonsen Director (since 1996) and Vice President (since 1990) of First
Director and Vice President Allmerica; Director (since 1991) of Allmerica Investments, Inc.; and
Director (since 1991) of Allmerica Financial Investment Management
Services, Inc.

Edward J. Parry, III Director and Chief Financial Officer (since 1996), Vice President
Director, Vice President, (since 1993), and Treasurer (1993 - 2000) of First Allmerica
Chief Financial Officer

Richard M. Reilly Director (since 1996) and Vice President (since 1990) of First
Director and Vice President Allmerica; President (since 1995) of Allmerica Financial Life
Insurance and Annuity Company; Director
(since 1990) of Allmerica Investments,
Inc.; and Director and President (since
1998) of Allmerica Financial Investment
Management Services, Inc.

Robert P. Restrepo, Jr. Director and Vice President (since 1998) of First Allmerica; Director
Director and Vice President (since 1998) of The Hanover Insurance Company; Chief Executive Officer
(1996 to 1998) of Travelers Property & Casualty; Senior Vice President
(1993 to 1996) of Aetna Life & Casualty Company

<PAGE>

ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT

<TABLE>
<S><C>
Allmerica Financial Corporation

Delaware

| | | | | | | |
________________________________________________________________________________________________________________________________
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Financial Allmerica, Allmerica First Allmerica AFC Capital Allmerica First Sterling
Asset Profiles, Inc. Inc. Funding Financial Life Trust I Services Limited
Management, Inc. Corp. Insurance Corporation
Company

Massachusetts California Massachusetts Massachusetts Massachusetts Delaware Massachusetts Bermuda
| | |
| ___________________________________________________________ ________________
| | | | |
| 100% 99.2% 100% 100%
| Advantage Allmerica Allmerica First Sterling
| Insurance Trust Financial Life Reinsurance
| Network, Inc. Company, N.A. Insurance and Company
| Annuity Company Limited
|
| Delaware Federally Chartered Delaware Bermuda
| |
|_________________________________________________________________________________________________________________________
| | | | | | | | | |
| 100% 100% 100% 100% 100% 100% 100% 100% 100%
| Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica
| Investments, Investment Financial Financial Investments Investments Investments Investments Investments
| Inc. Management Investment Services Insurance Insurance Insurance Insurance Insurance
| Company, Inc. Management Insurance Agency Inc. Agency of Agency Inc. Agency Inc. Agency Inc.
| Services, Inc. Agency, Inc. of Alabama Florida Inc. of Georgia of Kentucky of Mississippi
|
|Massachusetts Massachusetts Massachusetts Massachusetts Alabama Florida Georgia Kentucky Mississippi
|
________________________________________________________________
| | | |
100% 100% 100% 100%
Allmerica Sterling Risk Allmerica Allmerica
Property Management Benefits, Inc. Asset
& Casualty Services, Inc. Management,
Companies, Inc. Limited

Delaware Delaware Florida Bermuda
|
________________________________________________
| | |
100% 100% 100%
The Hanover Allmerica Citizens
Insurance Financial Insurance
Company Insurance Company
Brokers, Inc. of Illinois

New Hampshire Massachusetts Illinois
|
________________________________________________________________________________________________________________________________
| | | | | | | |
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Allmerica The Hanover Hanover Texas Citizens Massachusetts Allmerica AMGRO
Financial Plus American Insurance Corporation Bay Insurance Financial Inc.
Benefit Insurance Insurance Management Company Alliance
Insurance Agency, Inc. Company Company, Inc. Insurance
Company Company

Pennsylvania Massachusetts New Hampshire Texas Delaware New Hampshire New Hampshire Massachusetts
| |
________________________________________________ ________________
| | | |
100% 100% 100% 100%
Citizens Citizens Citizens Lloyds Credit
Insurance Insurance Insurance Corporation
Company Company Company
of Ohio of America of the
Midwest

Ohio Michigan Indiana Massachusetts
|
_________________
|
100%
Citizens
Management
Inc.

Michigan

----------------- ----------------- -----------------
Allmerica Greendale AAM
Equity Special Equity Fund
Index Pool Placements
Fund

Massachusetts Massachusetts Massachusetts

-------- Grantor Trusts established for the benefit of First Allmerica,
Allmerica Financial Life, Hanover and Citizens

--------------- ----------------
Allmerica Allmerica
Investment Trust Securities
Trust

Massachusetts Massachusetts

-------- Affiliated Management Investment Companies

...............
Hanover Lloyd's
Insurance
Company

Texas

-------- Affiliated Lloyd's plan company, controlled by Underwriters
for the benefit of The Hanover Insurance Company

----------------- -----------------
AAM Growth AAM High Yield
& Income Fund, L.L.C.
Fund L.P.

Delaware Massachusetts

________ L.P. or L.L.C. established for the benefit of First Allmerica,
Allmerica Financial Life, Hanover and Citizens
</TABLE>

<PAGE>

NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653

AAM Growth & Income Fund, L.P. 440 Lincoln Street Limited Partnership
Worcester MA 01653

Advantage Insurance Network, Inc. 440 Lincoln Street Insurance Agency
Worcester MA 01653

AFC Capital Trust I 440 Lincoln Street Statutory Business Trust
Worcester MA 01653

Allmerica Asset Management Limited 440 Lincoln Street Investment advisory services
Worcester MA 01653

Allmerica Asset Management, Inc. 440 Lincoln Street Investment advisory services
Worcester MA 01653

Allmerica Benefits, Inc. 440 Lincoln Street Non-insurance medical services
Worcester MA 01653

Allmerica Equity Index Pool 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653

Allmerica Financial Alliance Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance

Allmerica Financial Benefit Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance

Allmerica Financial Corporation 440 Lincoln Street Holding Company
Worcester MA 01653

Allmerica Financial Insurance Brokers, Inc. 440 Lincoln Street Insurance Broker
Worcester MA 01653

Allmerica Financial Life Insurance and 440 Lincoln Street Life insurance, accident and health
Annuity Company (formerly known as Worcester MA 01653 insurance, annuities, variable annuities
SMA Life Assurance Company) and variable life insurance

Allmerica Financial Services Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653

Allmerica Funding Corp. 440 Lincoln Street Special purpose funding vehicle for
Worcester MA 01653 commercial paper

Allmerica, Inc. 440 Lincoln Street Common employer for Allmerica Financial
Worcester MA 01653 Corporation entities

Allmerica Financial Investment 440 Lincoln Street Investment advisory services
Management Services, Inc. Worcester MA 01653
(formerly known as Allmerica
Institutional Services, Inc. and 440
Financial Group of Worcester, Inc.)
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
Allmerica Investment Management 440 Lincoln Street Investment advisory services
Company, Inc. Worcester MA 01653

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

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

Allmerica Investments Insurance Agency of 14211 Commerce Way Insurance Agency
Florida, Inc. Miami Lakes, FL 33016

Allmerica Investment Insurance Agency 1455 Lincoln Parkway Insurance Agency
Inc.of Georgia Suite 300
Atlanta, GA 30346

Allmerica Investment Insurance Agency Barkley Bldg-Suite 105 Insurance Agency
Inc. of Kentucky 12700 Shelbyville Road
Louisiana, KY 40423

Allmerica Investments Insurance Agency 631 Lakeland East Drive Insurance Agency
Inc. of Mississippi Flowood, MS 39208

Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653

Allmerica Plus Insurance Agency, 440 Lincoln Street Insurance Agency
Inc. Worcester MA 01653

Allmerica Property & Casualty Companies, 440 Lincoln Street Holding Company
Inc. Worcester MA 01653

Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653

Allmerica Services Corporation 440 Lincoln Street Internal administrative services
Worcester MA 01653 provider to Allmerica Financial
Corporation entities

Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national trust company
Worcester MA 01653

AMGRO, Inc. 100 North Parkway Premium financing
Worcester MA 01605

Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653

Citizens Insurance Company of America 645 West Grand River Multi-line property and casualty
Howell MI 48843 insurance

Citizens Insurance Company of Illinois 333 Pierce Road Multi-line property and casualty
Itasca IL 60143 insurance
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
Citizens Insurance Company of the 3950 Priority Way South Multi-line property and casualty
Midwest Drive, Suite 200 insurance
Indianapolis IN 46280

Citizens Insurance Company of Ohio 8101 N. High Street Multi-line property and casualty
P.O. Box 342250 insurance
Columbus OH 43234

Citizens Management, Inc. 645 West Grand River Services management company
Howell MI 48843

Financial Profiles 5421 Avenida Encinas Computer software company
Carlsbad, CA 92008

First Allmerica Financial Life Insurance 440 Lincoln Street Life, pension, annuity, accident and
Company (formerly State Mutual Life Worcester MA 01653 health insurance company
Assurance Company of America)

First Sterling Limited 440 Lincoln Street Holding Company
Worcester MA 01653

First Sterling Reinsurance Company 440 Lincoln Street Reinsurance Company
Limited Worcester MA 01653

Greendale Special Placements Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653

The Hanover American Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance

The Hanover Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance

Hanover Texas Insurance Management Company, 801 East Campbell Road Attorney-in-fact for Hanover Lloyd's
Inc. Richardson TX 75081 Insurance Company

Hanover Lloyd's Insurance Company 801 East Campbell Road Multi-line property and casualty
Richardson TX 75081 insurance

Lloyds Credit Corporation 440 Lincoln Street Premium financing service franchises
Worcester MA 01653

Massachusetts Bay Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance

SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653

Sterling Risk Management Services, Inc. 440 Lincoln Street Risk management services
Worcester MA 01653
</TABLE>

ITEM 27. NUMBER OF CONTRACT OWNERS

As of July 31, 2000, there were 6,902 Contract holders of qualified Contracts
and 1,980 Contract holders of non-qualified Contracts.

<PAGE>

ITEM 28. INDEMNIFICATION

To the fullest extent permissible under Massachusetts General Laws, no director
shall be personally liable to the Company or any policyholder for monetary
damages for any breach of fiduciary duty as a director, notwithstanding any
provision of law to the contrary; provided, however, that this provision shall
not eliminate or limit the liability of a director:

1. for and breach of the director's duty of loyalty to the Company or its
policyholders;

2. for acts or omissions not in good faith, or which involve intentional
misconduct or a knowing violation of law;

3. for liability, if any, imposed on directors of mutual insurance
companies pursuant to M.G.L.A. c. 156B Section 61 or M.G.L.A. c.156B
Section 62;

4. for any transactions from which the director derived an improper
personal benefit.

ITEM 29. PRINCIPAL UNDERWRITERS

(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:

- VEL Account, VEL II Account, VEL Account III, Select Account III,
Separate Account IMO, Separate Account SPL-D, Inheiritage Account,
Separate Accounts VA-A, VA-B, VA-C, VA-G, VA-H, VA-K, VA-P, Allmerica
Select Separate Account II, Group VEL Account, Separate Account KG,
Separate Account KGC, Fulcrum Separate Account, Fulcrum Variable Life
Separate Account, Separate Account FUVUL, Separate Account IMO, and
Allmerica Select Separate Account of Allmerica Financial Life
Insurance and Annuity Company

- Inheiritage Account, VEL II Account, Separate Account I, Separate
Account VA-K, Separate Account VA-P, Allmerica Select Separate Account
II, Group VEL Account, Separate Account KG, Separate Account KGC,
Fulcrum Separate Account, and Allmerica Select Separate Account of
First Allmerica Financial Life Insurance Company.

- Allmerica Investment Trust

(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:

440 Lincoln Street
Worcester, Massachusetts 01653
<TABLE>
<CAPTION>

NAME POSITION OR OFFICE WITH UNDERWRITER
---- ------------------------------------
<S> <C>
Margaret L. Abbott Vice President

Emil J. Aberizk, Jr Vice President

Edward T. Berger Vice President and Chief Compliance Officer

Michael J. Brodeur Vice President Operations

Charles F. Cronin Secretary/Clerk
</TABLE>

<PAGE>

<TABLE>
<S> <C>
Mark R. Colborn Vice President

Claudia J. Eckels Vice President

Philip L. Heffernan Vice President

J. Kendall Huber Director

Mark C. McGivney Treasurer

William F. Monroe, Jr. President, Director and Chief Executive Officer

David J. Mueller Vice President, Chief Financial Officer, Financial
Operations Principal and Controller

Stephen Parker Vice President and Director

Richard M. Reilly Director and Chairman of the Board

Eric A. Simonsen Director
</TABLE>

(c) As indicated in Part B (Statement of Additional Information) in
response to Item 20(c), there were no commissions retained by
Allmerica Investments, Inc., the principal underwriter of the
Contracts for sales of variable contracts funded by the Registrant in
1999. No other commissions or compensation was received by the
principal underwriter, directly or indirectly, from the Registrant
during the Registrant's last fiscal year.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

Each account, book or other document required to be maintained by Section
31(a) of the 1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained by
the Company at 440 Lincoln Street, Worcester, Massachusetts.

ITEM 31. MANAGEMENT SERVICES

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

ITEM 32. UNDERTAKINGS

(a) The Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure
that the audited financial statements in the registration statement
are never more than 16 months old for so long as payments under the
variable annuity contracts may be accepted.

(b) The Registrant hereby undertakes to include in the prospectus a
postcard that the applicant can remove to send for a Statement of
Additional Information.

(c) The Registrant hereby undertakes to deliver a Statement of Additional
Information and any financial statements promptly upon written or oral
request, according to the requirements of Form N-4.

(d) Insofar as indemnification for liability arising under the 1933 Act
may be permitted to Directors, Officers and

<PAGE>

Controlling Persons of Registrant under any registration statement,
underwriting agreement or otherwise, Registrant has been advised that,
in the opinion of the SEC, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by
a Director, Officer or Controlling Person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such Director, Officer or Controlling Person in connection with the
securities being registered, Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the 1933 Act and will be governed by the final adjudication of such
issue.

(e) The Company hereby represents that the aggregate fees and charges
under the Policies are reasonable in relation to the services
rendered, expenses expected to be incurred, and risks assumed by the
Company.

ITEM 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(B)
PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM

Registrant, a separate account of First Allmerica Financial Life Insurance
Company ("Company"), states that it is (a) relying on Rule 6c-7 under the 1940
Act with respect to withdrawal restrictions under the Texas Optional Retirement
Program ("Program") and (b) relying on the "no-action" letter (Ref. No. IP-6-88)
issued on November 28, 1988 to the American Council of Life Insurance, in
applying the withdrawal restrictions of Internal Revenue Code Section
403(b)(11). Registrant has taken the following steps in reliance on the letter:

1. Appropriate disclosures regarding the redemption/withdrawal
restrictions imposed by the Program and by Section 403(b)(11) have
been included in the prospectus of each registration statement used in
connection with the offer of the Company's variable contracts.

2. Appropriate disclosures regarding the redemption/withdrawal
restrictions imposed by the Program and by Section 403(b)(11) have
been included in sales literature used in connection with the offer of
the Company's variable contracts.

3. Sales Representatives who solicit participants to purchase the
variable contracts have been instructed to specifically bring the
redemption/withdrawal restrictions imposed by the Program and by
Section 403(b)(11) to the attention of potential participants.

4. A signed statement acknowledging the participant's understanding of
(i) the restrictions on redemption/withdrawal imposed by the Program
and by Section 403(b)(11) and (ii) the investment alternatives
available under the employer's arrangement will be obtained from each
participant who purchases a variable annuity contract prior to or at
the time of purchase.

Registrant hereby represents that it will not act to deny or limit a transfer
request except to the extent that a Service-Ruling or written opinion of
counsel, specifically addressing the fact pattern involved and taking into
account the terms of the applicable employer plan, determines that denial or
limitation is necessary for the variable annuity contracts to meet the
requirements of the Program or of Section 403(b). Any transfer request not so
denied or limited will be effected as expeditiously as possible.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant has duly caused this Pre-Effective Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Worcester, and Commonwealth
of Massachusetts, on the 16th day of August, 2000.

SEPARATE ACCOUNT VA-K OF
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY

By: /s/ Sheila B. St. Hilaire
------------------------------------------
Sheila B. St. Hilaire
Assistant Vice President and Counsel

Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Warren E. Barnes Vice President and Corporate Controller August 16, 2000
-------------------------
Warren E. Barnes

Edward J. Parry* Director, Vice President and Chief Financial Officer
-------------------------
Richard M. Reilly* Director and Vice President
-------------------------
John F. O' Brien* Director, President and Chief Executive Officer
-------------------------
Bruce C. Anderson* Director and Vice President
-------------------------
Mark R. Colborn* Director and Vice President
-------------------------
John P. Kavanaugh* Director, Vice President and Chief Investment Officer
-------------------------
J. Kendall Huber* Director, Vice President and General Counsel
-------------------------
J. Barry May* Director
-------------------------
James R. McAuliffe* Director
-------------------------
Robert P. Restrepo, Jr.* Director and Vice President
-------------------------
Eric A. Simonsen* Director and Vice President
-------------------------
</TABLE>

*Sheila B. St. Hilaire, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named Directors and Officers of the
Registrant pursuant to the Power of Attorney dated April 2, 2000 duly executed
by such persons.

/s/ Sheila B. St. Hilaire
---------------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact
333-38276

<PAGE>

EXHIBIT TABLE

Exhibit 3(d) Commission Schedule

Exhibit 4(b) Enhanced Death Benefit Rider with Ratchet (Form 3286-00)

Exhibit 8(b) Directors' Power of Attorney

Exhibit 9 Opinion of Counsel

Exhibit 10 Consent of Independent Accountants