INHEIRITAGE ACCOUNT OF 1ST ALLMERICA FINANCIAL LIFE INS CO, 485BPOS, 1999-04-23

INHEIRITAGE ACCOUNT OF 1ST ALLMERICA FINANCIAL LIFE INS CO
485BPOS, 1999-04-23

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Registration No. 33-74184

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-6

FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM
N-8B-2

Post-Effective Amendment No. 9

INHEIRITAGE ACCOUNT
OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Exact Name of Registrant)

FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
440 Lincoln Street
Worcester, MA 01653
(Address of Principal Executive Office)

Abigail M. Armstrong, Esq.
440 Lincoln Street
Worcester, Massachusetts 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)
-----
X on May 1, 1999 pursuant to paragraph (b)
-----
60 days after filing pursuant to paragraph (a) (1)
-----
this post-effective amendment designates a new effective date
----- for a previously filed post-effective amendment.

FLEXIBLE PREMIUM VARIABLE LIFE

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"). The Rule 24f-2
Notice for the issuer's fiscal year ended December 31, 1998 was filed on or
before March 30, 1999.

<PAGE>

RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS

THIS REGISTRATION STATEMENT CONTAINS TWO PROSPECTUSES: PROSPECTUS A AND
PROSPECTUS B.

ITEM NO. OF
FORM N-8B-2 CAPTION IN PROSPECTUS

1..............Cover Page
2..............Cover Page
3..............Not Applicable
4..............Distribution
5..............The Company, The Separate Account
6..............The Separate Account
7..............Not Applicable
8..............Not Applicable
9..............Legal Proceedings
10.............Prospectus A: Summary; Description of the Company, the
Separate Account and the Underlying Funds; The Policy; Policy
Termination and Reinstatement; Other Policy Provisions
Prospectus B: Summary; Description of the Company, The
Separate Account and the Underlying Funds; The Policy; Policy
Termination and Reinstatement; Other Policy Provisions
11.............Prospectus A: Summary; Description of the Company, the
Separate Account, Allmerica Investment Trust, Variable
Insurance Products Fund, Variable Insurance Products Fund II, T.
Rowe Price International Series, Inc., and Delaware Group
Premium Fund, Inc.; Investment Objectives and Policies
Prospectus B: Summary; Allmerica Investment Trust; Variable
Insurance Products Fund; and T. Rowe Price International Series,
Inc.; Investment Objectives and Policies
12.............Prospectus A: Summary; Allmerica Investment Trust, Variable
Insurance Products Fund, Variable Insurance Products Fund II, T.
Rowe Price International Series, Inc., and Delaware Group
Premium Fund, Inc.
Prospectus B: Summary; Allmerica Investment Trust; Variable
Insurance Products Fund; and T. Rowe Price International Series
13.............Prospectus A: Summary; Allmerica Investment Trust, Variable
Insurance Products Fund, Variable Insurance Products Fund II, T.
Rowe Price International Series, Inc., and Delaware Group Premium
Fund, Inc.; Investment Advisory Services to Allmerica Investment
Trust, Investment Advisory Services to Variable Insurance
Products Fund and Variable Insurance Products Fund II, Investment
Advisory Services to T. Rowe Price International Series, Inc.;
Investment Advisory Services to Delaware Group Premium Fund,
Inc. ; Charges and Deductions
Prospectus B: Summary; Allmerica Investment Trust; Variable
Insurance Products Fund; T. Rowe Price International Series,
Inc.; Investment Advisory Services to the Trust; Investment
Advisory Services to Variable Insurance Products Fund;
Investment Advisory Services to T. Rowe Price International
Series, Inc.; Charges and Deductions
14.............Summary; Application for a Policy
15.............Summary; Application for a Policy; Premium Payments; Allocation
of Net Premiums
16.............Prospectus A: The Inheiritage Account: Allmerica Investment
Trust, Variable Insurance Products Fund and Variable Insurance
Products Fund II, T. Rowe Price International Series, Inc., and
Delaware Group Premium Fund, Inc.; International Series, Inc.;
Premium Payments; Allocation of Net Premiums
Prospectus B: The Inheiritage Account; Allmerica Investment
Trust; Variable Insurance Products Fund; and T. Rowe Price
International Series, Inc.; Premium Payments; Allocation of Net
Premiums

<PAGE>

17.............Summary; Surrender; Partial Withdrawal; Charges and Deductions;
Policy Termination and Reinstatement
18.............Prospectus A: The Inheiritage Account: Allmerica Investment
Trust, Variable Insurance Products Fund and Variable Insurance
Products Fund II, T. Rowe Price International Series, Inc., and
Delaware Group Premium Fund, Inc.; International Series, Inc.;
Premium Payments
Prospectus B: The Inheiritage Account; Allmerica Investment
Trust; Variable Insurance Products Fund; and T. Rowe Price
International Series, Inc.; Premium Payments
19.............Reports; Voting Rights
20.............Not Applicable
21.............Summary; Policy Loans; Other Policy Provisions
22.............Other Policy Provisions
23.............Not Required
24.............Other Policy Provisions
25.............The Company
26.............Not Applicable
27.............The Company
28.............Directors and Principal Officers of the Company
29.............The Company
30.............Not Applicable
31.............Not Applicable
32.............Not Applicable
33.............Not Applicable
34.............Not Applicable
35.............Distribution
36.............Not Applicable
37.............Not Applicable
38.............Summary; Distribution
39.............Summary; Distribution
40.............Not Applicable
41.............The Company, Distribution
42.............Not Applicable
43.............Not Applicable
44.............Premium Payments; Policy Value and Cash Surrender Value
45.............Not Applicable
46.............Policy Value and Cash Surrender Value; Federal Tax Considerations
47.............The Company
48.............Not Applicable
49.............Not Applicable
50.............The Inheiritage Account
51.............Cover Page; Summary; Charges and Deductions; The Policy; Policy
Termination and Reinstatement; Other Policy Provisions
52.............Addition, Deletion or Substitution of Investments
53.............Federal Tax Considerations
54.............Not Applicable
55.............Not Applicable
56.............Not Applicable
57.............Not Applicable
58.............Not Applicable
59.............Not Applicable

<PAGE>

FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
WORCESTER, MASSACHUSETTS
INDIVIDUAL JOINT SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICIES
ALLMERICA SELECT INHEIRITAGE

This Prospectus provides important information about
Allmerica Select Inheiritage, an individual joint
survivorship flexible premium variable life insurance
policy issued by First Allmerica Financial Life
Insurance Company. The policies are funded through
the Inheiritage Account, a separate investment
account of the Company that is referred to as the
Separate Account. Life insurance coverage is provided
for two Insureds, with Death Proceeds payable at
death of the last surviving Insured. Applicants must
be Age 80 or under with respect to the younger
Insured, and Age 85 or under with respect to the
older Insured.
The Separate Account is subdivided into Sub-Accounts.
Each Sub-Account invests exclusively in shares of one
of the following Funds of Allmerica Investment Trust,
Variable Insurance Products Fund and T. Rowe Price
PLEASE READ THIS International Series, Inc.:
PROSPECTUS CAREFULLY
BEFORE INVESTING AND
KEEP IT FOR FUTURE
REFERENCE.
VARIABLE LIFE
POLICIES INVOLVE
RISKS
INCLUDING POSSIBLE
LOSS OF PRINCIPAL.

<TABLE>
<CAPTION>
FUND MANAGER
-------------------------------------------------- --------------------------------------------------
<C> <S> <C>
THIS PROSPECTUS MUST Select Emerging Markets Fund Schroder Capital Management International Inc.
BE ACCOMPANIED BY Select International Equity Fund Bank of Ireland Asset Management (U.S.) Limited
PROSPECTUSES OF THE T. Rowe Price International Stock Portfolio Rowe Price-Fleming International, Inc.
FUNDS. Select Aggressive Growth Fund Nicholas-Applegate Capital Management, L.P.
Select Capital Appreciation Fund T. Rowe Price Associates, Inc.
Select Value Opportunity Fund Cramer Rosenthal McGlynn, LLC
Select Growth Fund Putnam Investment Management, Inc.
Select Strategic Growth Fund Cambiar Investors, Inc.
Fidelity VIP Growth Portfolio Fidelity Management & Research Company
Select Growth and Income Fund J. P. Morgan Investment Management Inc.
Fidelity VIP Equity-Income Portfolio Fidelity Management & Research Company
Fidelity VIP High Income Portfolio Fidelity Management & Research Company
Select Income Fund Standish, Ayer & Wood, Inc.
Money Market Fund Allmerica Asset Management, Inc.
</TABLE>

Policyowners may, within limits, choose the amount
of initial payment and vary the frequency and
amount of future payments. The Policy allows
partial withdrawals and full surrender of the
Policy's surrender value, within limits. The
Policies are not suitable for short-term
investment because of the substantial nature of
the surrender charge. If the Policyowner thinks
about surrendering the Policy, the lower deferred
sales charges that apply during the first two
years from the Date of Issue or an increase in the
Face Amount should be considered.
This Prospectus can also be obtained from the
Securities and Exchange Commission's website
(http://www.sec.gov).
IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING
THIS LIFE POLICY IS INSURANCE WITH THE POLICY.
NOT:
- A BANK DEPOSIT OR
OBLIGATION;
- FEDERALLY INSURED;
- ENDORSED BY ANY
BANK OR
GOVERNMENTAL
AGENCY.

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

<TABLE>
<C> <S> <C>
CORRESPONDENCE MAY BE MAILED TO DATED MAY 1, 1999
ALLMERICA SELECT INHEIRITAGE 440 LINCOLN STREET
P.O. BOX 8179 WORCESTER, MASSACHUSETTS 01653
BOSTON, MA 02266-8179 (508) 855-1000
</TABLE>

<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
SPECIAL TERMS......................................................................... 4
SUMMARY............................................................................... 7
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, AND THE UNDERLYING FUNDS............ 17
INVESTMENT OBJECTIVES AND POLICIES.................................................... 19
INVESTMENT ADVISORY SERVICES.......................................................... 20
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS..................................... 23
VOTING RIGHTS......................................................................... 24
THE POLICY............................................................................ 24
Applying for the Policy............................................................. 24
Free-Look Period.................................................................... 25
Conversion Privileges............................................................... 26
Premium Payments.................................................................... 26
Incentive Funding Discount.......................................................... 27
Guaranteed Death Benefit Rider...................................................... 27
Paid-Up Insurance Option............................................................ 28
Allocation of Net Premiums.......................................................... 29
Transfer Privilege.................................................................. 30
Death Proceeds...................................................................... 31
Sum Insured Options................................................................. 31
Change in Sum Insured Option........................................................ 33
Change in Face Amount............................................................... 34
Policy Value and Surrender Value.................................................... 35
Death Proceeds Payment Options...................................................... 37
Optional Insurance Benefits......................................................... 37
Policy Surrender.................................................................... 37
Partial Withdrawals................................................................. 37
CHARGES AND DEDUCTIONS................................................................ 38
Tax Expense Charge.................................................................. 38
Premium Expense Charge.............................................................. 38
Monthly Deduction from Policy Value................................................. 38
Charges Against Assets of the Separate Account...................................... 40
Surrender Charge.................................................................... 41
Charges on Partial Withdrawals...................................................... 43
Transfer Charges.................................................................... 43
Charge for Increase in Face Amount.................................................. 44
Other Administrative Charges........................................................ 44
POLICY LOANS.......................................................................... 44
Repayment of Loans.................................................................. 45
Effect of Policy Loans.............................................................. 45
POLICY TERMINATION AND REINSTATEMENT.................................................. 46
Termination......................................................................... 46
Reinstatement....................................................................... 46
OTHER POLICY PROVISIONS............................................................... 47
Policyowner......................................................................... 47
Beneficiary......................................................................... 47
Incontestability.................................................................... 48
Suicide............................................................................. 48
Notice of First Insured to Die...................................................... 48
Age................................................................................. 48
Assignment.......................................................................... 48
Postponement of Payments............................................................ 48
</TABLE>

2
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<TABLE>
<S> <C>
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY....................................... 49
DISTRIBUTION.......................................................................... 50
SERVICES.............................................................................. 51
REPORTS............................................................................... 51
LEGAL PROCEEDINGS..................................................................... 51
FURTHER INFORMATION................................................................... 51
INDEPENDENT ACCOUNTANTS............................................................... 51
FEDERAL TAX CONSIDERATIONS............................................................ 52
The Company and The Separate Account................................................ 52
Taxation of the Policies............................................................ 52
Modified Endowment Contracts........................................................ 53
Estate and Generation-Skipping Taxes................................................ 54
MORE INFORMATION ABOUT THE GENERAL ACCOUNT............................................ 54
General Description................................................................. 55
General Account Value............................................................... 55
The Policy.......................................................................... 55
Transfers, Surrenders, Partial Withdrawals and Policy Loans......................... 55
YEAR 2000 DISCLOSURE.................................................................. 56
FINANCIAL STATEMENTS.................................................................. 56
APPENDIX A -- OPTIONAL BENEFITS....................................................... A-1
APPENDIX B -- PAYMENT OPTIONS......................................................... B-1
APPENDIX C -- ILLUSTRATIONS........................................................... C-1
APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES................................ D-1
APPENDIX E -- PERFORMANCE INFORMATION................................................. E-1
FINANCIAL STATEMENTS.................................................................. F-1
</TABLE>

3
<PAGE>
SPECIAL TERMS

ACCUMULATION UNIT: A measure of the Policyowner's interest in a Sub-Account.

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

BENEFICIARY: The person(s) designated by the owner of the Policy to receive the
insurance proceeds upon the death of the last surviving Insured.

COMPANY: First Allmerica Financial Life Insurance Company. "We," "our," "us,"
and "the Company" refer to First Allmerica Financial Life Insurance Company in
this Prospectus.

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

DEATH PROCEEDS: Prior to the Final Premium Payment Date, the Death Proceeds
equal the amount calculated under the applicable Sum Insured Option (Option 1 or
Option 2), less Debt outstanding at death of the last surviving Insured, partial
withdrawals, if any, partial withdrawal charges, and any due and unpaid Monthly
Deductions. After the Final Premium Payment Date, the Death Proceeds equal the
Surrender Value of the Policy, unless the Guaranteed Death Benefit Rider is in
effect. If the Rider is in effect, the Death Proceeds will be the greater of (a)
the Face Amount as of the Final Premium Payment Date, or (b) the Policy Value as
of the date due proof of death is received by the Company. This Rider may not be
available in all states.

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

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

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

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

FINAL PREMIUM PAYMENT DATE: The Policy anniversary nearest the younger Insured's
95th birthday. The Final Premium Payment Date is the latest date on which a
premium payment may be made. After this date, the Death Proceeds equal the
Surrender Value of the Policy, unless the optional Guaranteed Death Benefit
Rider is in effect. This Rider may not be available in all states.

GENERAL ACCOUNT: All the assets of the Company other than those held in a
Separate Account.

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

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

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

4
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INSUREDS: The two persons covered under the Policy.

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

MINIMUM MONTHLY FACTOR: The Minimum Monthly Factor is a monthly premium amount
calculated by the Company and specified in the Policy. If, in the first 48
Policy months following Date of Issue or the effective date of an increase in
the Face Amount or of a Policy Change which causes a change in the Minimum
Monthly Factor:

- You make premium payments (less debt, partial withdrawals and partial
withdrawal charges) at least equal to the sum of the Minimum Monthly
Factors for the number of months the Policy, increase in Face Amount or
Policy Change has been in force, and

- Debt does not exceed Policy Value less surrender charges, then

- the Policy is guaranteed not to lapse during that period.

EXCEPT FOR THE 48 POLICY MONTH PERIODS, MAKING MONTHLY PAYMENTS AT LEAST EQUAL
TO THE MINIMUM MONTHLY FACTOR DOES NOT GUARANTEE THAT THE POLICY WILL REMAIN IN
FORCE.

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

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

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

PAID-UP INSURANCE: Joint survivorship insurance coverage for the lifetime of the
Insureds, with no further premiums due.

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

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

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

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

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

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

5
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SEPARATE ACCOUNT: A separate account consists of assets segregated from the
Company's other assets. The investment performance of the assets of a separate
account is determined separately from the other assets of the Company. The
assets of a separate account which are equal to the reserves and other policy
liabilities are not chargeable with liabilities arising out of any other
business which the Company may conduct.

SUB-ACCOUNT: A division of the Separate Account. Each Sub-Account invests
exclusively in the shares of a corresponding Fund of the Allmerica Investment
Trust, a corresponding Portfolio of the Variable Insurance Products Fund, or the
T. Rowe Price International Series, Inc.

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

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

UNDERLYING FUNDS ("FUNDS"): The Funds of Allmerica Investment Trust ("Trust"),
the Portfolios of the Variable Insurance Products Fund ("Fidelity VIP"), and T.
Rowe Price International Series ("T. Rowe Price").

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

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

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

6
<PAGE>
SUMMARY

The following is a summary of the individual joint survivorship flexible premium
variable life insurance policy sold by First Allmerica Financial Life Insurance
Company ("Company"). It highlights key points from the Prospectus which follows.
If you are considering the purchase of this product, you should read the
Prospectus carefully before making a decision. It offers a more complete
presentation of the topics presented here, and will help you better understand
the product. However, the Policy, together with its attached application,
constitutes the entire agreement between you and the Company.

In certain circumstances, the Policy may be considered a "modified endowment
contract." Under the Internal Revenue Code of 1986 ("Code"), any Policy loan,
partial withdrawal or surrender from a modified endowment contract may be
subject to tax and tax penalties. See FEDERAL TAX CONSIDERATIONS -- "Modified
Endowment Contracts."

There is no guaranteed minimum Policy Value. The value of a Policy will vary up
or down to reflect the investment experience of allocations to the Sub-Accounts
and the fixed rates of interest earned by allocations to the General Account.
The Policy Value will also be adjusted for other factors, including the amount
of charges imposed. The Policy will remain in effect so long as the Policy
Value, less any surrender charges and less any outstanding Debt, is sufficient
to pay certain monthly charges imposed in connection with the Policy. The Policy
Value may decrease to the point where the Policy will lapse and provide no
further death benefit without additional premium payments, unless the optional
Guaranteed Death Benefit Rider is in effect. This Rider may not be available in
all states.

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

No claim is made that the Policy is in any way similar or comparable to a
systematic investment plan of a mutual fund.

7
<PAGE>
FREE-LOOK PERIOD -- The Policy provides for an initial free-look period. You
may cancel the Policy by mailing or delivering it to the Principal Office or
to an agent of the Company on or before the latest of:

- 45 days after the applications for the Policy are signed,

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

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

- 60 days after you receive the Policy, if the Policy was purchased in New
York as a replacement for an existing Policy.

When you return the Policy, the Company will mail a refund to you within seven
days. The refund of any premium paid by check may be delayed until the check
has cleared your bank.

Where required by state law, the refund will equal the premiums paid. In other
states or if the Policy was issued in New York as a replacement, the refund
will equal the sum of:

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

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

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

The amount refunded in (1) above includes any premiums allocated to the
General Account. A free-look privilege also applies after a requested increase
in the Face Amount. See THE POLICY -- "Free-Look Period."

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

ABOUT THE POLICY

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

- life insurance coverage on the named Insureds,

- Policy Value,

- surrender rights and partial withdrawal rights,

- loan privileges, and

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

8
<PAGE>
LIFE INSURANCE

The Policy is a life insurance contract with death benefits, Policy Value, and
other features traditionally associated with life insurance. The Policy is a
"joint survivorship" policy because Death Proceeds are payable, not on the death
of the first Insured to die, but on the death of the last surviving Insured. The
Policy is "variable" because the Policy Value will increase or decrease
depending on the investment experience of the Sub-Accounts of the Separate
Account. Under some circumstances, the death benefit may vary with the
investment experience of the Sub-Accounts.

FLEXIBLE PREMIUM

The Policy is a "flexible premium" policy because, unlike traditional insurance
policies, there is no fixed schedule for premium payments. You may vary the
frequency and amount of future premium payments, subject to certain limits,
restrictions and conditions set by Company standards and federal tax laws.
Although you may establish a schedule of premium payments ("planned premium
payments"), failure to make the planned premium payments will not necessarily
cause the Policy to lapse. Because of the variable nature of the Policy, making
planned premium payments does not guarantee that the Policy will remain in
force. Thus, you may, but are not required to, pay additional premiums. If the
Guaranteed Death Benefit Rider is in effect, however, certain minimum premium
payment tests must be met. (This Rider may not be available in all states.)

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

CONDITIONAL INSURANCE AGREEMENT

If at the time of application you make a payment equal to at least one Minimum
Monthly Factor for the Policy as applied for, the Company will provide
conditional insurance equal to the amount of insurance applied for, subject to
the terms of the Conditional Insurance Agreement. If you do not wish to make any
payment at the time of application, insurance coverage will not be in force
until delivery of the Policy and payment of sufficient premium to place the
insurance in force.

If any premiums are paid prior to the issuance of the Policy, such premiums will
be held in the General Account. If your application is approved and the Policy
is issued and accepted, the initial premiums held in the General Account will be
credited with interest at a specified rate beginning not later than the date of
receipt of the premiums at the Principal Office. IF THE POLICY IS NOT ISSUED AND
ACCEPTED, THE INITIAL PREMIUMS WILL BE RETURNED TO YOU WITHOUT INTEREST.

GUARANTEED DEATH BENEFIT RIDER (MAY NOT BE AVAILABLE IN ALL STATES)

This Rider, WHICH IS AVAILABLE ONLY AT DATE OF ISSUE:

- guarantees that the Policy will not lapse regardless of the investment
performance of the Separate Account; and

- provides a guaranteed death benefit.

In order to maintain the Rider, certain minimum premium payment tests must be
met on each Policy anniversary and within 48 months following the Date of Issue
and/or the date of any increase in the Face Amount. In addition, a one-time
administrative charge of $25 will be deducted from the Policy Value when the

9
<PAGE>
Rider is elected. Certain transactions, including Policy loans, partial
withdrawals, and changes in the Death Benefit Options, can result in the
termination of the Rider. If this Rider is terminated, it cannot be reinstated.

MINIMUM MONTHLY FACTOR

The Minimum Monthly Factor is a monthly premium amount calculated by the Company
and specified in the Policy. If, in the first 48 Policy months following Date of
Issue or the effective date of an increase in the Face Amount or of a Policy
Change which causes a change in the Minimum Monthly Factor:

- Debt does not exceed Policy Value less surrender charges, then

- the Policy is guaranteed not to lapse during that period.

EXCEPT FOR THE 48 POLICY MONTH PERIODS, MAKING MONTHLY PAYMENTS AT LEAST EQUAL
TO THE MINIMUM MONTHLY FACTOR DOES NOT GUARANTEE THAT THE POLICY WILL REMAIN IN
FORCE.

ALLOCATION OF INITIAL PREMIUMS

Net premiums may be allocated to one or more Sub-Accounts of the Separate
Account, to the General Account, or to any combination of Accounts. You bear the
investment risks of amounts allocated to the Sub-Accounts. Allocations may be
made to no more than 20 Sub-Accounts at any one time. The minimum allocation is
1% of Net Premium. All allocations must be in whole numbers and must total 100%.
See THE POLICY -- "Allocation of Net Premiums." Premiums allocated to the
General Account will earn a fixed rate of interest. Net premiums and minimum
interest are guaranteed by the Company. For more information, see MORE
INFORMATION ABOUT THE GENERAL ACCOUNT.

PARTIAL WITHDRAWALS

After the first Policy year, you may make partial withdrawals from the Policy
Value in a minimum amount of $500. Under Option 1, the Face Amount is reduced by
the amount of the partial withdrawal. A partial withdrawal will not be allowed
under Option 1 if it would reduce the Face Amount below $100,000.

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

LOAN PRIVILEGE

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

Policy loans will be allocated among the General Account and the Sub-Accounts in
accordance with your instructions. If no allocation is made by you, the Company
will make a Pro-Rata Allocation among the Accounts. In either case, Policy Value
equal to the Policy loan will be transferred from the appropriate Sub-Account(s)
to the General Account, and will earn monthly interest at an effective annual
rate of at least 6%.

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<PAGE>
Therefore, a Policy loan may have a permanent impact on the Policy Value even
though it eventually is repaid. Although the loan amount is a part of the Policy
Value, the Death Proceeds will be reduced by the amount of outstanding Debt at
the time of death.

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

PREFERRED LOAN OPTION

A preferred loan option is available under the Policy. The preferred loan option
will be available upon Written Request. It may be revoked by you at any time. If
this option has been selected, after the tenth Policy anniversary the Policy
Value in the General Account equal to the loan amount will be credited with
interest at an effective annual yield of at least 7.5%. The Company's current
practice is to credit a rate of interest equal to the rate being charged for the
preferred loan. There is some uncertainty as to the tax treatment of preferred
loans. Consult a qualified tax adviser (and see FEDERAL TAX CONSIDERATIONS). THE
PREFERRED LOAN OPTION MAY NOT BE AVAILABLE IN ALL STATES.

POLICY LAPSE AND REINSTATEMENT

Except as otherwise provided in the optional Guaranteed Death Benefit Rider, the
failure to make premium payments will not cause the Policy to lapse unless:

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

(b) Debt exceeds Policy Value less surrender charges.

A 62-day grace period applies to each situation.

Even if the situation described in (a) above exists, the Policy will not lapse
if you meet the so-called "Minimum Monthly Factor" test. The Minimum Monthly
Factor test is only used to determine whether the Policy will enter the grace
period during the first 48 months or within 48 months following an increase in
the Face Amount. Under the Minimum Monthly Factor test, the Company determines
two amounts:

- the sum of the payments you have made, minus any Debt, withdrawals and
withdrawal charges, and

- the amount of the Minimum Monthly Factor (the amount is shown on page 5 of
the Policy) multiplied by the number of months the Policy has been in
force, or the number of months which have elapsed since the last increase
in the Face Amount.

The Company then compares the first amount to the second amount. The Policy will
not enter the grace period if the first amount is greater than the second
amount. If the Policy lapses, it may be reinstated within three years of the
date of default (but not later than the Final Premium Payment Date). In order to
reinstate, you must pay the reinstatement premium and provide satisfactory
Evidence of Insurability. The Company reserves the right to increase the Minimum
Monthly Factor upon reinstatement. See POLICY TERMINATION AND REINSTATEMENT.

In addition, if the Guaranteed Death Benefit Rider is in effect, the Company
guarantees that the Policy will not lapse, regardless of the investment
performance of the Separate Account. The Policy may lapse, however, under
certain circumstances. See THE POLICY -- "Guaranteed Death Benefit Rider." (This
Rider may not be available in all states.)

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<PAGE>
POLICY VALUE AND SURRENDER VALUE

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

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

DEATH PROCEEDS

The Policy provides for the payment of certain Death Proceeds to the named
Beneficiary upon the death of the last surviving Insured. There are no Death
Proceeds payable on the death of the first Insured to die. Prior to the Final
Premium Payment Date, the Death Proceeds will be equal to the Sum Insured,
reduced by any outstanding Debt, partial withdrawals, partial withdrawal
charges, and any Monthly Deductions due and not yet deducted through the Policy
month in which the last surviving Insured dies.

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

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

FLEXIBILITY TO ADJUST SUM INSURED

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

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

ADDITIONAL INSURANCE BENEFITS

You have the flexibility to add additional insurance benefits by rider. These
include the Split Option Rider, Other Insured Rider, Guaranteed Death Benefit
Rider, and Four-Year Term Rider. See APPENDIX A -- OPTIONAL BENEFITS. (All
riders may not be available in all states.)

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

PAID-UP INSURANCE OPTION

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<PAGE>
Insured. The Policyowner who has elected the Paid-Up Insurance option may not
pay additional premiums, select Sum Insured Option 2, increase or decrease the
Face Amount, or make partial withdrawals. Policy Value in the Separate Account
will be transferred to the General Account on the date the Company receives
Written Request to exercise the option, and transfers of Policy Value back to
the Separate Account will not be permitted. Riders will continue only with the
consent of the Company. Surrender Value and Loan Value are calculated
differently. See THE POLICY -- "Paid-Up Insurance Option." This option may not
be available in all states.

POLICY FEES AND CHARGES

There are costs related to the insurance and investment features of the Policy.
Fees and charges to cover these costs are deducted in several ways.

TAX EXPENSE CHARGE

A charge will be deducted from each premium payment for state and local premium
taxes paid by the Company for the Policy and to compensate the Company for
federal taxes imposed for deferred acquisition cost ("DAC") taxes. The total
charge is the actual state and local premium taxes paid by the Company, varying
according to jurisdiction, and a DAC tax deduction of 1% of premiums. See
CHARGES AND DEDUCTIONS -- "Tax Expense Charge."

PREMIUM EXPENSE CHARGE

A charge of 1% of premiums will be deducted from each premium payment to
partially compensate the Company for sales expenses related to the Policies. See
CHARGES AND DEDUCTIONS -- "Premium Expense Charge."

MONTHLY DEDUCTIONS FROM POLICY VALUE

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

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

A MONTHLY ADMINISTRATIVE CHARGE of $6 per month is made for administrative
expenses. The charge is designed to reimburse the Company for the costs
associated with issuing and administering the Policies, such as processing
premium payments, Policy loans and loan repayments, changes in Sum Insured
Option, and death claims. These charges also help cover the cost of providing
annual statements and responding to Policyowner inquiries.

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

DEDUCTIONS FROM THE SEPARATE ACCOUNT

A daily charge, currently equivalent to an effective annual rate of 1.15% of the
average daily net asset value of each Sub-Account of the Separate Account, is
imposed to compensate the Company for its assumption of certain mortality and
expense risks and for administrative costs associated with the Separate Account.
The rate is 0.90% for the mortality and expense risk and 0.25% for the Separate
Account administrative charge.

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<PAGE>
The administrative charge is eliminated after the 15th Policy year. See CHARGES
AND DEDUCTIONS -- "Charges Against Assets of the Separate Account."

CHARGES OF THE UNDERLYING INVESTMENT COMPANIES

In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Underlying Funds. The levels of fees and
expenses vary among the Underlying Funds. The following table shows the expenses
of the Underlying Funds for 1998. For more information concerning fees and
expenses, see the prospectuses of the Underlying Funds.

<TABLE>
<CAPTION>
MANAGEMENT TOTAL FUND
FEE (AFTER ANY OTHER EXPENSES (AFTER ANY
VOLUNTARY FUND APPLICABLE
UNDERLYING FUND WAIVER) EXPENSES REIMBURSEMENTS)
- --------------------------------------------- ------------------- ------------ ----------------------
<S> <C> <C> <C>
Select Emerging Markets Fund(@).............. 1.00%* 1.19% 2.19%(1)(2)*
Select International Equity Fund............. 0.90% 0.12% 1.02%(1)(2)
T. Rowe Price International Stock
Portfolio................................... 1.05% 0.00% 1.05%
Select Aggressive Growth Fund................ 0.88% 0.07% 0.95%(1)(2)
Select Capital Appreciation Fund............. 0.94% 0.10% 1.04%(1)(2)
Select Value Opportunity Fund................ 0.90%(1)* 0.08% 0.98%(1)(2)*
Select Growth Fund........................... 0.81%** 0.05% 0.86%(1)(2)**
Select Strategic Growth Fund(@).............. 0.39%* 0.81% 1.20%(1)(2)*
Fidelity VIP Growth Portfolio................ 0.59% 0.09% 0.68%(3)
Select Growth and Income Fund................ 0.68% 0.05% 0.73%(1)(2)
Fidelity VIP Equity-Income Portfolio......... 0.49% 0.09% 0.58%(3)
Fidelity VIP High Income Portfolio........... 0.58% 0.12% 0.70%
Select Income Fund........................... 0.54% 0.10% 0.64%(1)
Money Market Fund............................ 0.26% 0.06% 0.32%(1)
</TABLE>

(@) Select Emerging Markets Fund and Select Strategic Growth Fund commenced
operations on February 20, 1998. Expenses shown are annualized.

* Amount has been adjusted to reflect a voluntary expense limitation currently
in effect for Select Emerging Markets Fund, Select Value Opportunity Fund, and
Select Strategic Growth Fund. Without these adjustments, the Management Fees and
Total Fund Expenses would have been 1.35% and 2.54%, respectively for Select
Emerging Markets Fund, 0.91% and 0.99%, respectively, for Select Value
Opportunity Fund, and 0.85% and 1.66%, respectively for the Select Strategic
Growth Fund.

** Effective June 1, 1998, the management fee for the Select Growth Fund was
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,
1998.

(1) Until further notice, Allmerica Financial Investment Management Services,
Inc. ("AFIMS") has declared a voluntary expense limitation of 1.35% of average
net assets for Select Aggressive Growth Fund and Select Capital Appreciation
Fund, 1.25% for Select Value Opportunity Fund, 1.50% for Select International
Equity Fund, 1.20% for Select Growth Fund, 1.10% for Select Growth and Income
Fund , 1.00% for Select Income Fund, and 0.60% for Money Market Fund. The total
operating expenses of these Funds of the Trust were less than their respective
expense limitations throughout 1998.

Until further notice, the 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 the AFIMS to a sub-adviser.

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.

14
<PAGE>

The declaration of a voluntary expense management fee or expense limitation in
any year does not bind the Manager 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 brokers rebate
a portion of commissions. Had these amounts been treated as reductions of
expenses, the total annual fund operating expense ratios would have been 2.19%
for Select Emerging Market Fund, 0.92% for Select Aggressive Growth Fund, 1.02%
for Select Capital Appreciation Fund, 0.94% for Select Value Opportunity Fund,
1.01% for Select International Equity Fund, 0.84% for Select Growth Fund, 1.14%
for Select Strategic Growth Fund, and 0.70% for Select Growth and Income Fund.

(3) A portion of the brokerage commissions that certain funds paid were used to
reduce Fund expenses. In addition, certain funds, or Fidelity Management &
Research Company on behalf of certain funds, have entered into arrangements with
their custodian whereby credits realized as a result of uninvested cash balances
were used to reduce custodian expenses. Including these reductions, the total
operating expenses presented in the table would have been 0.57% for Fidelity VIP
Equity-Income Portfolio, and 0.66% for Fidelity VIP Growth Portfolio.

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

OTHER CHARGES (NON-PERIODIC)

TRANSACTION CHARGE ON PARTIAL WITHDRAWALS

A transaction charge is assessed at the time of each partial withdrawal to
reimburse the Company for the cost of processing the withdrawal. The transaction
charge is the smaller of 2% of the amount withdrawn, or $25. In addition to the
transaction charge, a partial withdrawal charge also may be made under certain
circumstances. See CHARGES AND DEDUCTIONS -- "Charges on Partial Withdrawals."
The transaction fee applies to all partial withdrawals, including a Withdrawal
without a surrender charge.

CHARGE FOR INCREASE IN FACE AMOUNT

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

TRANSFER CHARGE

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

SURRENDER CHARGES

At any time that the Policy is in effect, a Policyowner may elect to surrender
the Policy and receive its Surrender Value. A surrender charge is calculated
upon issuance of the Policy and upon each increase in the Face Amount. The
duration of the surrender charge is 15 years. The surrender charge is imposed
only if, during its duration, you request a full surrender of the Policy or a
decrease in the Face Amount.

SURRENDER CHARGE ON THE INITIAL FACE AMOUNT

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<PAGE>
issue Age from 1.95 (for average issue Ages 5 through 75) to 1.31 (for average
issue Age 82). In accordance with limitations under state insurance regulations,
the amount of the maximum surrender charge will not exceed a specified amount
per $1,000 of the initial Face Amount, as indicated in APPENDIX D -- CALCULATION
OF MAXIMUM SURRENDER CHARGES.

The maximum surrender charge remains level for the first 40 Policy months, and
reduces by 0.5% or more per month thereafter, as described in APPENDIX D --
CALCULATION OF MAXIMUM SURRENDER CHARGES. If you surrender the Policy during the
first two Policy years following the Date of Issue, before making premium
payments associated with the initial Face Amount which are at least equal to one
Guideline Annual Premium, the deferred administrative charge will be $8.50 per
thousand dollars of the initial Face Amount, but the deferred sales charge will
not exceed 25% of premiums received. See THE POLICY -- "Policy Surrender," and
CHARGES AND DEDUCTIONS -- "Surrender Charge."

SURRENDER CHARGES FOR INCREASES IN FACE AMOUNT

A separate surrender charge will apply to, and is calculated for, each increase
in the Face Amount. The maximum surrender charge for the increase is equal to
the sum of (a) plus (b) where (a) is equal to $8.50 per thousand dollars of
increase, and (b) is a deferred sales charge of 48% of premiums associated with
the increase, up to a maximum number of Guideline Annual Premiums (for the
increase) subject to the deferred sales charge. Such deferred sales charge
varies by average Age (at the time of increase) from 1.95 (for average Ages 5
through 75) to 1.31 (for average Age 82). In accordance with limitations under
state insurance regulations, the amount of the surrender charge will not exceed
a specified amount per $1,000 of increase, as indicated in APPENDIX D --
CALCULATION OF MAXIMUM SURRENDER CHARGES.

As is true for the initial Face Amount, (a) is a deferred administrative charge,
and (b) is a deferred sales charge. This maximum surrender charge remains level
for the first 40 Policy months following the increase, and reduces by 0.5% or
more per month thereafter, as described in APPENDIX D -- CALCULATION OF MAXIMUM
SURRENDER CHARGES. If you surrender the Policy during the first two Policy years
following an increase in the Face Amount before making premium payments
associated with the increase in the Face Amount which are at least equal to one
Guideline Annual Premium, the deferred administrative charge will be $8.50 per
thousand dollars of the Face Amount increase, but the deferred sales charge will
not exceed 25% of premiums associated with the increase.

SURRENDER CHARGES ON DECREASES IN FACE AMOUNT

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

TAX TREATMENT

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

16
<PAGE>
the sum of the net level premiums that would have been paid had the Policy
provided for paid-up future benefits after the payment of seven level premiums.
If the Policy is considered a modified endowment contract, all distributions
(including Policy loans, partial withdrawals, surrenders or assignments) will be
taxed on an "income-first" basis. In addition, with certain exceptions, an
additional 10% penalty will be imposed on the portion of any distribution that
is includible in income. For more information, see FEDERAL TAX CONSIDERATIONS --
"Modified Endowment Contracts."

DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT,
AND THE UNDERLYING FUNDS

THE COMPANY

The Company, organized under the laws of Massachusetts in 1844, is the fifth
oldest life insurance company in America. 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. As of December 31, 1998, the Company and its subsidiaries had
over $27 billion in combined assets and over $48 billion of life insurance in
force. The Company is a wholly owned subsidiary of Allmerica Financial
Corporation ("AFC"). The Company's principal office is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, telephone 508-855-1000 (Principal
Office).

The Company 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, the Company is subject to the insurance laws and
regulations of other states and jurisdictions in which it is licensed to
operate.

The Company is a charter member 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 SEPARATE ACCOUNT

The Separate Account was authorized by vote of the Board of Directors of the
Company on August 20, 1991. The Separate Account is registered with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act"). Such registration does not involve
the supervision of its management or investment practices or policies of the
Separate Account or the Company by the SEC.

The assets used to fund the variable portion of the Policies are set aside in
the Separate Account and are kept separate from the general assets of the
Company. Under Delaware law, assets equal to the reserves and other liabilities
of the Separate Account may not be charged with any liabilities arising out of
any other business of the Company. Fourteen Sub-Accounts of the Separate Account
are currently offered under the Policy. Each Sub-Account is administered and
accounted for as part of the general business of the Company, but the income,
capital gains, or capital losses of each Sub-Account are allocated to such
Sub-Account, without regard to other income, capital gains, or capital losses of
the Company or the other Sub-Accounts. Each Sub-Account invests exclusively in a
corresponding investment portfolio of the Allmerica Investment Trust, the
Variable Insurance Products Fund, or the T. Rowe Price International Series,
Inc. ("Underlying Funds").

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

17
<PAGE>
Each Sub-Account has two sub-divisions. One sub-division applies to Policies
during their first 15 Policy years, which are subject to a Separate Account
administrative charge. See CHARGES AND DEDUCTIONS -- "Charges Against Assets of
the Separate Account." Thereafter, such Policies are automatically allocated to
the second sub-division to account for the elimination of the Separate Account
administrative charge.

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

ALLMERICA INVESTMENT TRUST

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

The Trust was established by the Company as a Massachusetts business trust on
October 11, 1984, for the purpose of providing a vehicle for the investment of
assets of various separate accounts established by the Company, or other
insurance companies. Ten investment portfolios ("Funds") of the Trust are
available under the Policies, each issuing a series of shares: Select Emerging
Markets Fund, Select International Equity Fund, Select Aggressive Growth Fund,
Select Capital Appreciation Fund, Select Value Opportunity Fund, Select Growth
Fund, Select Strategic Growth Fund, Select Growth and Income Fund, Select Income
Fund and Money Market Fund.

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

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 is registered with the SEC under the 1940 Act. Three of its investment
portfolios are available under the Policies: the Fidelity VIP High Income
Portfolio, Fidelity VIP Equity-Income Portfolio, and Fidelity VIP Growth
Portfolio.

Various Fidelity companies perform certain activities required to operate 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. The Portfolios of Fidelity VIP, as part of their
operating expenses, pay an investment management fee to FMR. See "Investment
Advisory Services to Fidelity VIP Funds."

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 in 1994 as a Maryland corporation, and
is registered with the SEC under the 1940 Act. One of its investment portfolios
is available under the Policies: the T. Rowe Price International Stock
Portfolio. (See "Investment Advisory Services to T. Rowe Price"). An affiliate
of Price-Fleming, T. Rowe Price Associates, Inc. serves as Sub-Adviser to the
Select Capital Appreciation Fund of the Trust.

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INVESTMENT OBJECTIVES AND POLICIES

A summary of investment objectives of the Funds is set forth below. BEFORE
INVESTING, READ CAREFULLY THE PROSPECTUSES OF THE TRUST, FIDELITY VIP, AND T.
ROWE PRICE THAT ACCOMPANY THIS PROSPECTUS. THE PROSPECTUSES OF THE TRUST,
FIDELITY VIP AND T. ROWE PRICE CONTAIN MORE DETAILED INFORMATION ON THE FUNDS'
INVESTMENT OBJECTIVES, RESTRICTIONS, RISKS AND EXPENSES. Statements of
Additional Information for the Funds are available on request. The investment
objectives of the Funds may not be achieved. Policy Value may be less than the
aggregate payments made under the Policy.

SELECT EMERGING MARKETS FUND -- seeks long-term growth of capital by investing
in the world's emerging markets. The Sub-Adviser for the Select Emerging Markets
Fund is Schroder Capital Management International Inc.

SELECT INTERNATIONAL EQUITY FUND -- seeks maximum long-term total return
(capital appreciation and income) primarily by investing in common stocks of
established non-U.S. companies. The Sub-Adviser for the Select International
Equity Fund is Bank of Ireland Asset Management (U.S.) Limited.

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

SELECT AGGRESSIVE GROWTH FUND -- seeks above-average capital appreciation by
investing primarily in common stocks of companies that are believed to have
significant potential for capital appreciation. The Sub-Adviser for the Select
Aggressive Growth Fund is Nicholas-Applegate Capital Management, L.P.

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. The Sub-Adviser for the Select Capital Appreciation Fund is
T. Rowe Price Associates, Inc.

SELECT VALUE OPPORTUNITY FUND -- seeks long-term growth of capital by investing
primarily in a diversified portfolio of common stocks of small and mid-size
companies whose securities at the time of purchase are considered by the
Sub-Adviser to be undervalued. The Sub-Adviser for the Select Value Opportunity
Fund is Cramer Rosenthal McGlynn, LLC.

SELECT GROWTH FUND -- seeks to achieve growth of capital by investing in a
diversified portfolio consisting primarily of common stocks selected for their
long-term growth potential. The Sub-Adviser for the Select Growth Fund is Putnam
Investment Management, Inc.

SELECT STRATEGIC GROWTH FUND -- seeks long-term growth of capital by investing
primarily in common stocks of established companies. The Sub-Adviser for the
Select Strategic Growth Fund is Cambiar Investors, Inc.

FIDELITY VIP GROWTH PORTFOLIO -- 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.

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. The Sub-Adviser for
the Select Growth and Income Fund is J.P. Morgan Investment Management Inc.

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<PAGE>
FIDELITY VIP EQUITY-INCOME PORTFOLIO -- 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. The Portfolio may invest in high-yielding,
lower-rated securities (commonly referred to as "junk bonds") which are subject
to greater risk than investments in higher-rated securities. For a further
discussion of lower-rated securities, see "Risks of Lower-Rated Debt Securities"
in the Fidelity VIP prospectus.

FIDELITY VIP HIGH INCOME PORTFOLIO -- 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 "Risks of
Lower-Rated Debt Securities" in the Fidelity VIP prospectus.

SELECT INCOME FUND -- seeks a high level of current income. The Fund will invest
primarily in investment-grade, fixed-income securities. The Sub-Adviser for the
Select Income Fund is Standish, Ayer & Wood, Inc.

MONEY MARKET FUND -- seeks to obtain maximum current income consistent with the
preservation of capital and liquidity. Allmerica Asset Management, Inc. is the
Sub-Adviser of the Money Market Fund.

If there is a material change in the investment policy of a Fund, we will notify
you of the change. If you have Policy Value allocated to that Fund, you may,
without charge, reallocate the Policy Value to another Fund or to the General
Account. We must receive your Written Request within 60 days of the latest of
the:

- Effective date of the change in the investment policy, or

- Receipt of the notice of your right to transfer.

INVESTMENT ADVISORY SERVICES

BARRA RogersCasey, Inc. ("BARRA RogersCasey"), a pension consulting firm,
assists the Company in the selection of the Policy's Funds. In addition, BARRA
RogersCasey assists the Trust in the selection of investment advisers for the
Funds of the Trust. BARRA RogersCasey provides consulting services to pension
plans representing hundreds of billions of dollars in total assets. In its
consulting capacity, BARRA RogersCasey monitors the investment performance of
over 1000 investment advisers. BARRA RogersCasey is wholly-controlled by BARRA,
Inc. As a consultant, BARRA RogersCasey has no decision-making authority with
respect to the Funds, and is not responsible for advice provided to the Funds by
AFIMS or the other investment advisers.

Each investment adviser is selected by using strict objective, quantitative, and
qualitative criteria, with special emphasis on the investment adviser's record
in managing similar portfolios. In consultation with BARRA RogersCasey, a
committee monitors and evaluates the ongoing performance of all of the Funds.
The committee may recommend the replacement of an investment adviser of one of
the Funds of the Trust, or the addition or deletion of Funds. The committee
includes members who may be affiliated or unaffiliated with the Company and the
Trust.

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The following are the investment advisers of the Funds:

<TABLE>
<CAPTION>
FUND MANAGER
- -------------------------------------------- --------------------------------------------
<S> <C>
Schroder Capital Management International
Select Emerging Markets Fund Inc.
Bank of Ireland Asset Management (U.S.)
Select International Equity Fund Limited
T. Rowe Price International Stock Portfolio Rowe Price-Fleming International, Inc.
Select Aggressive Growth Fund Nicholas-Applegate Capital Management, L.P.
Select Capital Appreciation Fund T. Rowe Price Associates, Inc.
Select Value Opportunity Fund Cramer Rosenthal McGlynn, LLC
Select Growth Fund Putnam Investment Management, Inc.
Select Strategic Growth Fund Cambiar Investors, Inc.
Fidelity VIP Growth Portfolio Fidelity Management and Research Company
Select Growth and Income Fund J.P. Morgan Investment Management Inc.
Fidelity VIP Equity-Income Portfolio Fidelity Management and Research Company
Fidelity VIP High Income Portfolio Fidelity Management and Research Company
Select Income Fund Standish, Ayer & Wood, Inc.
Money Market Fund Allmerica Asset Management, Inc.
</TABLE>

INVESTMENT ADVISORY SERVICES TO THE TRUST

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

The Trust bears all expenses incurred in its operation, other than the expenses
AFIMS assumes under the management agreement. Trust expenses include:

- Costs to register and qualify the Trust's shares under the Securities Act
of 1933 ("1933 Act"),

- Other fees payable to the SEC,

- Independent public accountant, legal and custodian fees,

- Association membership dues, taxes, interest, insurance payments and
brokerage commissions,

- Fees and expenses of the Trustees who are not affiliated with AFIMS,

- Expenses for proxies, prospectuses, reports to shareholders and other
expenses.

Under the Management Agreement with the Trust, AFIMS has entered into agreements
with investment advisers ("Sub-Advisers") selected by AFIMS and Trustees in
consultation with BARRA RogersCasey, Inc. Under each Sub-Adviser Agreement, the
Sub-Adviser is authorized to engage in portfolio transactions on behalf of the
Fund, subject to the Trustee's instructions. The Sub-Advisers (other than
Allmerica Asset Management, Inc.) are not affiliated with the Company or the
Trust.

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For providing its services under the management agreement, AFIMS receives a fee,
computed daily at an annual rate based on the average daily net asset value of
each Fund as follows:

<TABLE>
<S> <C> <C>
Select Emerging Markets Fund * 1.35%

Select International Equity First $100
Fund million 1.00%
Next $150
million 0.90%
Over $250
million 0.85%

Select Aggressive Growth Fund First $100
million 1.00%
Next $150
million 0.90%
Over $250
million 0.85%

Select Capital Appreciation First $100
Fund million 1.00%
Next $150
million 0.90%
Over $250
million 0.85%

Select Value Opportunity Fund First $100
million 1.00%
Next $150
million 0.85%
Next $250
million 0.80%
Next $250
million 0.75%
Over $750
million 0.70%

Select Growth Fund First $250
million 0.85%
Next $250
million 0.80%
Next $250
million 0.75%
Over $750
million 0.70%

Select Strategic Growth Fund * 0.85%

Select Growth and Income Fund First $100
million 0.75%
Next $150
million 0.70%
Over $250
million 0.65%

Select Income Fund First $50
million 0.60%
Next $50 million 0.55%
Over $100
million 0.45%

Money Market Fund First $50
million 0.35%
Next $200
million 0.25%
Over $250
million 0.20%
</TABLE>

* For the Select Emerging Markets Fund and the Select Strategic Growth Fund, the
investment management fee does not vary according to the level of assets in the
Fund.

AFIMS is solely responsible for the payment of all fees to Sub-Advisers for
their investment management services. Sub-Adviser fees, described in the Trust's
prospectus, in no way increase the costs that the Funds, the Separate Account
and Policyowners bear.

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

INVESTMENT ADVISORY SERVICES TO FIDELITY VIP FUNDS

The fee for each fund is calculated by adding a group fee rate to an individual
fund fee rate, multiplying the result by the fund's monthly average net assets,
and dividing by twelve.

The Fidelity VIP High Income Portfolio annual fee rate is made up of the sum of
two components:

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

(2) An individual Fund fee rate of 0.45% the Fidelity VIP High Income Portfolio.

The Fidelity VIP Growth and the Fidelity VIP Equity-Income Portfolios' annual
fee rates are each made up of two components:

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

(2) An individual fund fee rate of 0.30% for the Fidelity VIP Growth Portfolio,
and 0.20% for the Fidelity VIP Equity-Income Portfolio.

Thus, the Fidelity VIP High Income Portfolio may have a fee as high as 0.82%.
The Fidelity VIP Growth Portfolio may have a fee as high as 0.82% of its average
net assets. The Fidelity VIP Equity-Income Portfolio may have a fee as high as
0.72% of its average net assets.

INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE

The Investment Adviser for the T. Rowe Price International Stock Portfolio is
Rowe Price-Fleming International, Inc. ("Price-Fleming"). Price-Fleming, founded
in 1979 as a joint venture between T. Rowe Price Associates, Inc. and Robert
Fleming Holdings, Limited, is one of the largest no-load international mutual
fund asset managers, with approximately $32 billion (as of December
31,1998)under management in its offices in Baltimore, London, Tokyo, Hong Kong,
Singapore and Buenos Aires.

To cover investment management and operating expenses, the T. Rowe Price
International Stock Portfolio pays Price-Fleming a single, all-inclusive fee of
1.05% of its average daily net assets.

ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS

The Company reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Underlying Fund are no longer available for investment or if, in the Company's
judgment, further investment in any Underlying Fund should become inappropriate
in view of the purposes of the Separate Account or the affected Sub-Account, the
Company may redeem the shares of that Underlying Fund and substitute shares of
another registered open-end management company. The Company will not substitute
any shares attributable to the Policy interest in a Sub-Account without notice
to you and prior approval of the SEC and state insurance authorities, to the
extent required by the 1940 Act or other applicable law. The Separate Account
may, to the extent permitted by law, purchase other securities for other
policies or permit a conversion between policies upon request by a Policyowner.

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

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<PAGE>
variable annuity Policyowners. Although the Company and the Underlying Funds do
not currently foresee any such disadvantages, the Company and the respective
Trustees intend to monitor events in order to identify any material conflicts
and to determine what action, if any, should be taken. If the Trustees were to
conclude that separate funds should be established for variable life and
variable annuity separate accounts, the Company will bear the expenses.

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

VOTING RIGHTS

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

Each person having a voting interest will be provided with proxy materials of
the respective Underlying Fund together with an appropriate form with which to
give voting instructions to the Company. Shares held in each Sub-Account for
which no timely instructions are received will be voted in proportion to the
instructions received from all persons with an interest in such Sub-Account who
furnish instructions to the Company. The Company will also vote shares that it
owns and which are not attributable to Policies in the same proportion. The
number of votes which a Policyowner has the right to instruct will be determined
by the Company as of the record date established for the Underlying Fund. This
number is determined by dividing each Policyowner's Policy Value in the
Sub-Account, if any, by the net asset value of one share in the corresponding
Underlying Fund in which the assets of the Sub-Account are invested.

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

THE POLICY

APPLYING FOR THE POLICY

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

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<PAGE>
CONDITIONAL INSURANCE AGREEMENT

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

PREMIUMS HELD IN THE GENERAL ACCOUNT PENDING UNDERWRITING APPROVAL

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

FREE-LOOK PERIOD

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

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

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

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

- 60 days after you receive the Policy, if the Policy was purchased in New
York as a replacement for an exsisting Policy.

When you return the Policy, the Company will mail a refund to you within seven
days. The refund of any premium paid by check may be delayed until the check has
cleared your bank.

Where required by state law, the refund will equal the premiums paid. In all
other states or if the Policy was issued in New York as a replacement, the
refund will equal the sum of:

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

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

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

The amount refunded in (1) above includes any premiums allocated to the General
Account.

FREE LOOK WITH FACE AMOUNT INCREASES

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

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

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

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

25
<PAGE>
Upon cancelling the increase, you will receive a credit to your Policy Value of
charges which would not have been deducted but for the increase. The amount to
be credited will be refunded if you so request. The Company also will waive any
surrender charge calculated for the increase.

CONVERSION PRIVILEGES

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

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

PREMIUM PAYMENTS

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

PREMIUM FLEXIBILITY

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

You also may make unscheduled premium payments at any time prior to the Final
Premium Payment Date or skip planned premium payments, subject to the maximum
and minimum premium limitations described below.

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

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

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<PAGE>
MINIMUM MONTHLY FACTOR

- Debt does not exceed Policy Value less surrender charges, then

- the Policy is guaranteed not to lapse during that period.

EXCEPT FOR THE 48 POLICY MONTH PERIODS, MAKING MONTHLY PAYMENTS AT LEAST EQUAL
TO THE MINIMUM MONTHLY FACTOR DOES NOT GUARANTEE THAT THE POLICY WILL REMAIN IN
FORCE.

In no event may the total of all premiums paid exceed the current maximum
premium limitations set forth in the Policy which are required by federal tax
laws. These maximum premium limitations will change whenever there is any change
in the Face Amount, the addition or deletion of a rider, or a change in the Sum
Insured Option. If a premium is paid which would result in total premiums
exceeding the current maximum premium limitations, the Company will accept only
that portion of the premiums which shall make total premiums equal the maximum.
Any part of the premiums in excess of that amount will be returned, and no
further premiums will be accepted until allowed by the current maximum premium
limitation prescribed by Internal Revenue Service ("IRS") rules. Notwithstanding
the current maximum premium limitations, however, the Company will accept a
premium which is needed in order to prevent a lapse of the Policy during a
Policy year. See POLICY TERMINATION AND REINSTATEMENT.

INCENTIVE FUNDING DISCOUNT

The Company will lower the cost of insurance charges by 5% during any Policy
year for which you qualify for an incentive funding discount. To qualify, total
premiums paid under the Policy, less any Debt, withdrawals and withdrawal
charges, and transfers from other policies issued by the Company, must exceed
90% of the guideline level premiums (as defined in Section 7702 of the Code)
accumulated from the Date of Issue to the date of qualification. The incentive
funding discount may not be available in all states.

The amount needed to qualify for the incentive funding discount is determined on
the Date of Issue for the first Policy year and on each Policy anniversary for
each subsequent Policy year. If, however, the Company receives the proceeds from
a Policy issued by an unaffiliated company to be exchanged for the Policy, the
qualification for the incentive funding discount for the first Policy year will
be determined on the date the proceeds are received by the Company, and only
insurance charges becoming due after the date such proceeds are received will be
eligible for the incentive funding discount.

GUARANTEED DEATH BENEFIT RIDER (MAY NOT BE AVAILABLE IN ALL STATES)

An optional Guaranteed Death Benefit Rider is available only at issue of the
Policy. If this Rider is in effect, the Company:

- guarantees that the Policy will not lapse, regardless of the investment
performance of the Separate Account, and

- provides a guaranteed death benefit.

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<PAGE>
In order to maintain the Guaranteed Death Benefit Rider, certain minimum premium
payment tests must be met on each Policy anniversary and within 48 months
following the Date of Issue and/or the date of any increase in the Face Amount,
as described below. In addition, a one-time administrative charge of $25 will be
deducted from the Policy Value when the Rider is elected. Certain transactions,
including Policy loans, partial withdrawals, and changes in Sum Insured Options,
can result in the termination of the Rider. If this Rider is terminated, it
cannot be reinstated.

GUARANTEED DEATH BENEFIT TESTS

While the Guaranteed Death Benefit Rider is in effect, the Policy will not lapse
if the following two tests are met:

(1) Within 48 months following the Date of Issue of the Policy or of any
increase in the Face Amount, the sum of the premiums paid, less any Debt,
partial withdrawals and withdrawal charges, must be greater than the Minimum
Monthly Factors (if any) multiplied by the number of months which have
elapsed since the Date of Issue or the effective date of increase; and

(2) On each Policy anniversary, (a) must exceed (b) where, since the Date of
Issue:

(a) is the sum of your premiums, less any withdrawals, partial withdrawal
charges and Debt which is classified as a preferred loan; and

(b) is the sum of the minimum Guaranteed Death Benefit premiums, as shown on
the specifications page of the Policy.

GUARANTEED DEATH BENEFIT

If the Guaranteed Death Benefit Rider is in effect on the Final Premium Payment
Date, guaranteed Death Proceeds will be provided as long as the Rider is in
force. The Death Proceeds will be the greater of:

- the Face Amount as of the Final Premium Payment Date; or

- the Policy Value as of the date due proof of death is received by the
Company.

TERMINATION OF THE GUARANTEED DEATH BENEFIT RIDER

The Guaranteed Death Benefit Rider will end and may not be reinstated on the
first to occur of the following:

- foreclosure of a Policy loan, or

- the date on which the sum of your payments does not meet or exceed the
applicable Guaranteed Death Benefit test (above), or

- any Policy change that results in a negative guideline level premium, or

- the effective date of a change from Sum Insured Option 2 to Sum Insured
Option 1, if such change occurs within five Policy years of the Final
Premium Payment Date, or

- a request for a partial withdrawal or preferred loan is made after the
Final Premium Payment Date.

It is possible that the Policy Value will not be sufficient to keep the Policy
in force on the first Monthly Payment Date following the date the Rider
terminates. The net amount payable to keep the Policy in force will never exceed
the surrender charge plus three Monthly Deductions.

PAID-UP INSURANCE OPTION

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

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The paid-up fixed insurance will be in the amount, up to the Face Amount of the
Policy, that the Surrender Value of the Policy can purchase for a net single
premium at the Insureds' Ages and Premium Class on the date this option is
elected. The Company will transfer any Policy Value in the Separate Account to
the General Account on the date it receives the Written Request to elect the
option. If the Surrender Value exceeds the net single premium necessary for the
fixed insurance, the Company will pay the excess to the Policyowner. The net
single premium is based on the Commissioners 1980 Standard Ordinary Mortality
Table D, Smoker or Non-Smoker with increases in the tables for non-standard
risks. Interest will not be less than 4.5%.

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

- As described above, the Paid-Up Insurance benefit is computed differently
from the net death benefit, and the death benefit options will not apply.

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

- The Policyowner may not make further premium payments.

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

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

After electing paid-up fixed insurance, the Policyowner may surrender the Policy
for its net cash value. The cash value is equal to the net single premium for
Paid-Up Insurance at the Insureds' attained Ages. The net cash value is the cash
value less any outstanding loans.

ALLOCATION OF NET PREMIUMS

The Net Premium equals the premium paid less the tax expense charge and the
premium expense charge. In the application for the Policy, you may indicate the
initial allocation of Net Premiums among the General Account and the
Sub-Accounts of the Separate Account. You may allocate premiums to one or more
Sub-Accounts, but may not have Policy Value in more than 20 Sub-Accounts at any
one time. The minimum amount which may be allocated to a Sub-Account is 1% of
Net Premium paid. Allocation percentages must be in whole numbers (for example,
33 1/3% may not be chosen) and must total 100%.

FUTURE CHANGES ALLOWED

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

If allocation changes by telephone are elected by the Policyowner, a properly
completed authorization form must be on file before telephone requests will be
honored. The policy of the Company and its agents and affiliates is that they
will not be responsible for losses resulting from acting upon telephone requests
reasonably believed to be genuine. The Company will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine; otherwise,
the Company may be liable for any losses due to unauthorized or fraudulent
instructions.

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

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<PAGE>
INVESTMENT RISK

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

TRANSFER PRIVILEGE

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

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

Currently, transfers to and from the General Account are permitted only if:

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

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

These rules are subject to change by the Company.

DOLLAR-COST AVERAGING OPTION AND AUTOMATIC REBALANCING OPTION

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

- from the Sub-Account which invests in the Money Market Fund of the Trust
to one or more of the other Sub-Accounts ("Dollar-Cost Averaging Option"),
or

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

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

TRANSFER PRIVILEGE SUBJECT TO POSSIBLE LIMITS

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

- the minimum amount that may be transferred,

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

- the minimum period of time between transfers involving the General
Account, and

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

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

DEATH PROCEEDS

The Policy provides for the payment of the Death Proceeds to the named
Beneficiary on the death of the last surviving Insured. There are no Death
Proceeds payable on the death of the first Insured to die. Within 90 days of the
death of the first Insured to die, or as soon thereafter as is reasonably
possible, due proof of such death must be received at the Principal Office. As
long as the Policy remains in force (see POLICY TERMINATION AND REINSTATEMENT),
the Company will pay the Death Proceeds of the Policy to the named Beneficiary
upon due proof of the death of the last surviving Insured.

Normally, the Company will pay the Death Proceeds within seven days of receiving
due proof of the death of the last surviving Insured, but the Company may delay
payments under certain circumstances. See OTHER POLICY PROVISIONS --
"Postponement of Payments." The Death Proceeds may be received by the
Beneficiary in cash or under one or more of the payment options set forth in the
Policy. See APPENDIX B -- PAYMENT OPTIONS.

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

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

- any additional insurance on the Insureds' lives that is provided by rider;
minus

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

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

SUM INSURED OPTIONS

The Policy provides two Sum Insured Options: Option 1 and Option 2, as described
below. You designate the desired Sum Insured Option in the application. You may
change the option once per Policy year by Written Request. There is no charge
for a change in option.

Under Option 1, the Sum Insured is equal to the greater of the Face Amount of
insurance or the Guideline Minimum Sum Insured. Under Option 2, the Sum Insured
is equal to the greater of the Face Amount of insurance plus the Policy Value or
the Guideline Minimum Sum Insured.

GUIDELINE MINIMUM SUM INSURED

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

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GUIDELINE MINIMUM SUM INSURED TABLE
(Age of Younger Insured on Death of Last Surviving Insured)

<TABLE>
<CAPTION>
Age Percentage Age Percentage
- ----------------------------- ---------- ----------------------------- ----------
<S> <C> <C> <C> <C>
thru 40...................... 250% 61........................... 128%
41........................... 243% 62........................... 126%
42........................... 236% 63........................... 124%
43........................... 229% 64........................... 122%
44........................... 222% 65........................... 120%
45........................... 215% 66........................... 119%
46........................... 209% 67........................... 118%
47........................... 203% 68........................... 117%
48........................... 197% 69........................... 116%
49........................... 191% 70........................... 115%
50........................... 185% 71........................... 113%
51........................... 178% 72........................... 111%
52........................... 171% 73........................... 109%
53........................... 164% 74........................... 107%
54........................... 157% 75 thru 90................... 105%
55........................... 150% 91........................... 104%
56........................... 146% 92........................... 103%
57........................... 142% 93........................... 102%
58........................... 138% 94........................... 101%
59........................... 134% 95........................... 100%
60........................... 130%
</TABLE>

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

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

If the Policyowner desires to have premium payments and investment performance
reflected in the amount of the Sum Insured, the Policyowner should choose Option
2. If the Policyowner desires premium payments and investment performance
reflected to the maximum extent in the Policy Value, Option 1 should be
selected.

ILLUSTRATIONS

For purposes of this illustration, assume that the younger Insured is under the
Age of 40, and that there is no outstanding Debt.

ILLUSTRATION OF OPTION 1

Under Option 1, a Policy with a $250,000 Face Amount generally will have a Sum
Insured equal to $250,000. However, because the Sum Insured must be equal to or
greater than 250% of the Policy Value, if at any time the Policy Value exceeds
$100,000, the Sum Insured will exceed the $300,000 Face Amount. In this example,
each additional dollar of Policy Value above $100,000 will increase the Sum
Insured by $2.50. For example, a Policy with a Policy Value of $125,000 will
have a Guideline Minimum Sum Insured of $312,000 ($125,000

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<PAGE>
X 2.50); Policy Value of $150,000 will produce a Guideline Minimum Sum Insured
of $375,000 ($150,000 X 2.50); and Policy Value of $200,000 will produce a
Guideline Minimum Sum Insured of $500,000 ($200,000 X 2.50).

Similarly, so long as the Policy Value exceeds $100,000, each dollar taken out
of the Policy Value will reduce the Sum Insured by $2.50. If, for example, the
Policy Value is reduced from $125,000 to $100,000 because of partial
withdrawals, charges or negative investment performance, the Sum Insured will be
reduced from $312,500 to $250,000. If at any time, however, the Policy Value
multiplied by the applicable percentage is less than the Face Amount, the Sum
Insured will equal the Face Amount of the Policy.

The applicable percentage becomes lower as the younger Insured's Age increases.
If the younger Insured's Age in the above example were, for example, 70 (rather
than between 0 and 40), the applicable percentage would be 115%. The Sum Insured
would not exceed the $250,000 Face Amount unless the Policy Value exceeded
$217,391 (rather than $100,000), and each dollar then added to or taken from the
Policy Value would change the Sum Insured by $1.15.

ILLUSTRATION OF OPTION 2

For purposes of this illustration, assume that the younger Insured is under the
Age of 40 and that there is no outstanding Debt.

Under Option 2, a Policy with a Face Amount of $250,000 will generally produce a
Sum Insured of $250,000 plus Policy Value. For example, a Policy with a Policy
Value of $50,000 will produce a Sum Insured of $300,000 ($250,000 + $50,000); a
Policy Value of $80,000 will produce a Sum Insured of $330,000 ($250,000 +
$80,000); a Policy Value of $100,000 will produce a Sum Insured of $350,000
($250,000 + $100,000). However, the Sum Insured must be at least 250% of the
Policy Value. Therefore, if the Policy Value is greater than $100,000, 250% of
that amount will be the Sum Insured, which will be greater than the Face Amount
plus Policy Value. In this example, each additional dollar of Policy Value above
$100,000 will increase the Sum Insured by $2.50. For example, if the Policy
Value is $200,000, the Guideline Minimum Sum Insured will be $500,000 ($200,000
X 2.50); a Policy Value of $250,000 will produce a Guideline Minimum Sum Insured
of $625,000 ($250,000 X 2.50); and a Policy Value of $300,000 will produce a
Guideline Minimum Sum Insured of $750,000 ($300,000 X 2.50).

Similarly, if the Policy Value exceeds $100,000, each dollar taken out of the
Policy Value will reduce the Sum Insured by $2.50. If, for example, the Policy
Value is reduced from $200,000 to $150,000 because of partial withdrawals,
charges or negative investment performance, the Sum Insured will be reduced from
$500,000 to $375,000. If at any time, however, the Policy Value multiplied by
the applicable percentage is less than the Face Amount plus the Policy Value,
then the Sum Insured will be the current Face Amount plus the Policy Value.

The applicable percentage becomes lower as the younger Insured's Age increases.
If the Insured's Age in the above example were 70, the applicable percentage
would be 115%, so that the Sum Insured must be at least 1.15 times the Policy
Value. The amount of the Sum Insured would be the sum of the Policy Value plus
$250,000 unless the Policy Value exceeded $217,391 (rather than $100,000). Each
dollar added to or subtracted from the Policy would change the Sum Insured by
$1.15.

The Sum Insured under Option 2 will always be the greater of the Face Amount
plus the Policy Value or the Policy Value multiplied by the applicable
percentage.

CHANGE IN SUM INSURED OPTION

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<PAGE>
Insurability. The effective date of any such change will be the Monthly Payment
Date on or following the date of receipt of the request. No charges will be
imposed on changes in Sum Insured Options.

CHANGE FROM OPTION 1 TO OPTION 2

If the Sum Insured Option is changed from Option 1 to Option 2, the Face Amount
will be decreased to equal the Sum Insured less the Policy Value on the
effective date of the change. This change may not be made if it would result in
a Face Amount less than $100,000. A change from Option 1 to Option 2 will not
alter the amount of the Sum Insured at the time of the change, but will affect
the determination of the Sum Insured from that point on. Because the Policy
Value will be added to the new specified Face Amount, the Sum Insured will vary
with the Policy Value. Thus, under Option 2, the Insurance Amount at Risk will
always equal the Face Amount unless the Guideline Minimum Sum Insured is in
effect. The cost of insurance may also be higher or lower than it otherwise
would have been without the change in Sum Insured Option. See CHARGES AND
DEDUCTIONS -- "Monthly Deduction from Policy Value."

CHANGE FROM OPTION 2 TO OPTION 1

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

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

CHANGE IN FACE AMOUNT

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

INCREASES IN FACE AMOUNT

Along with the Written Request for an increase, you must submit satisfactory
Evidence of Insurability. The consent of the Insureds is also required whenever
the Face Amount is increased. A request for an increase in the Face Amount may
not be for less than $100,000. You may not increase the Face Amount after the
younger Insured reaches Age 80 or the older Insured reaches Age 85. An increase
must be accompanied by an additional premium if the Surrender Value is less than
$50, plus an amount equal to the sum of two Minimum Monthly Factors.

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

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

After increasing the Face Amount, you will have the right (a) during a Free-Look
Period, to have the increase cancelled, and the charges which would not have
been deducted but for the increase will be credited to the Policy, and (b)
during the first 24 months following the increase, to transfer any or all Policy
Value to the General Account free of charge. See THE POLICY -- "Free-Look
Period" and "Conversion Privileges." A refund of charges which would not have
been deducted but for the increase will be made at your request.

DECREASES IN FACE AMOUNT

The minimum amount for a decrease in the Face Amount is $100,000. The Face
Amount in force after any decrease may not be less than $100,000. If, following
a decrease in the Face Amount, the Policy would not comply with the maximum
premium limitation applicable under the IRS rules, the decrease may be limited
or Policy Value may be returned to you (at your election) to the extent
necessary to meet the requirements. A return of Policy Value may result in a tax
liability to you.

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

- the Face Amount provided by the most recent increase;

- the next most recent increases successively; and

- the initial Face Amount.

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

POLICY VALUE AND SURRENDER VALUE

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

- your accumulation in the General Account, plus

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

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

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

35
<PAGE>
CALCULATION OF POLICY VALUE

The Policy Value is determined first on the Date of Issue and thereafter on each
Valuation Date. On the Date of Issue, the Policy Value will be the Net Premiums
received, plus any interest earned during the underwriting period when premiums
are held in the General Account (before being transferred to the Separate
Account; see THE POLICY -- "Applying for a Policy") less any Monthly Deductions
due. On each Valuation Date after the Date of Issue the Policy Value will be:

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

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

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

THE ACCUMULATION UNIT

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

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

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

NET INVESTMENT FACTOR

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

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

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

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

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<PAGE>
(d) is the Separate Account administrative charge for each day in the
Valuation Period equal on an annual basis to 0.25% of the daily net asset
value of that Sub-Account. This charge is applicable only during the
first 15 Policy years.

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

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

DEATH PROCEEDS PAYMENT OPTIONS

During the Insureds' lifetimes, you may arrange for the Death Proceeds to be
paid in a single sum or under one or more of the available payment options. The
payment options currently available are described in APPENDIX B - PAYMENT
OPTIONS. These choices are also available at the Final Premium Payment Date and
if the Policy is surrendered. The Company may make more payment options
available in the future. If no election is made, the Company will pay the Death
Proceeds in a single sum. When the Death Proceeds are payable in a single sum,
the Beneficiary may, within one year of the death of the last surviving Insured,
select one or more of the payment options if no payments have yet been made.

OPTIONAL INSURANCE BENEFITS

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

POLICY SURRENDER

You may at any time surrender the Policy and receive its Surrender Value. The
Surrender Value is the Policy Value less any Debt and applicable surrender
charges. The Surrender Value will be calculated as of the Valuation Date on
which a Written Request for surrender and the Policy are received at the
Principal Office. A surrender charge will be deducted when a Policy is
surrendered if less than 15 full Policy years have elapsed from the Date of
Issue of the Policy or from the effective date of any increase in the Face
Amount. See CHARGES AND DEDUCTIONS -- "Surrender Charge."

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

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

PARTIAL WITHDRAWALS

Any time after the first Policy year, you may withdraw a portion of the
Surrender Value of the Policy, subject to the limits stated below, upon Written
Request filed at the Principal Office. The Written Request must indicate the
dollar amount you wish to receive and the Accounts from which such amount is to
be withdrawn. You may allocate the amount withdrawn among the Sub-Accounts and
the General Account. If you do not provide allocation instructions, the Company
will make a Pro-Rata Allocation. Each partial withdrawal must be in a minimum
amount of $500. Under Option 1, the Face Amount is reduced by the amount of the
partial withdrawal, and a partial withdrawal will not be allowed if it would
reduce the Face Amount below $100,000.

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

For important tax consequences which may result from partial withdrawals, see
FEDERAL TAX CONSIDERATIONS

CHARGES AND DEDUCTIONS

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

Certain of the charges and deductions described below may be reduced for
Policies issued to employees of the Company and its affiliates located at the
Company's home office (or at off-site locations if such employees are on the
Company's home office payroll); directors of the Company and its affiliates and
subsidiaries; employees and registered representatives of any broker-dealer that
has entered into a sales agreement with the Company or Allmerica Investments,
Inc. to sell the Policies, and any spouses or children of the above persons. The
cost of insurance charges may be reduced, and no surrender charges, partial
withdrawal charges or front-end sales loads will be imposed (and no commissions
will be paid), where the Policyowner as of the date of application is within
these categories.

TAX EXPENSE CHARGE

A charge will be deducted from each premium payment for the actual state and
local premium taxes paid by the Company and a charge of 1% of premiums to
compensate the Company for federal taxes imposed for deferred acquisition costs
("DAC") taxes. The premium tax deduction will change if there is a change in tax
rates or if the applicable jurisdiction changes (the Company should be notified
of any change in address as soon as possible). The Company reserves the right to
increase or decrease the 1% DAC tax deduction to reflect changes in the
Company's expenses for DAC taxes.

PREMIUM EXPENSE CHARGE

A charge of 1% of premiums will be deducted from each premium payment to
partially compensate the Company for the cost of selling the Policies. The
premium expense charge is a factor the Company must use when calculating the
maximum sales load it can charge under SEC rules during the first two Policy
years.

MONTHLY DEDUCTION FROM POLICY VALUE

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

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the Sub-Account you specify does not have sufficient funds to cover the Monthly
Deduction, the Company will deduct the charge for that month as if no
specification were made. If on subsequent Monthly Payment Dates there is
sufficient Policy Value in the Sub-Account you specified, however, the Monthly
Deduction will be deducted from that Sub-Account. No Monthly Deductions will be
made on or after the Final Premium Payment Date.

COST OF INSURANCE

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

CALCULATION OF THE CHARGE

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

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

EFFECT OF THE GUIDELINE MINIMUM SUM INSURED

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

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

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

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

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

COST OF INSURANCE RATES

Cost of insurance rates are based on a blended unisex rate table, Age and
Premium Class of the Insureds at the Date of Issue, the effective date of an
increase or date of rider, as applicable, the amount of premiums paid less Debt,
any partial withdrawals and withdrawal charges, and risk classification.
Sex-distinct rates do not apply, except in those states that do not permit
unisex rates.

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

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

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

MONTHLY ADMINISTRATIVE CHARGES

Prior to the Final Premium Payment Date, a monthly administrative charge of $6
per month will be deducted from the Policy Value. This charge will be used to
compensate the Company for expenses incurred in the administration of the
Policy, and will compensate the Company for first-year underwriting and other
start-up expenses incurred in connection with the Policy. These expenses include
the cost of processing applications, conducting medical examinations,
determining insurability and the Insureds' Premium Class, and establishing
Policy records. The Company does not expect to derive a profit from these
charges.

CHARGES AGAINST ASSETS OF THE SEPARATE ACCOUNT

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

MORTALITY AND EXPENSE RISK CHARGE

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

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amounts realized from the administrative charges provided in the Policies. If
the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If costs
are less than the amounts provided, the difference will be a profit to the
Company. To the extent this charge results in a current profit to the Company,
such profit will be available for use by the Company for, among other things,
the payment of distribution, sales and other expenses. Since mortality and
expense risks involve future contingencies which are not subject to precise
determination in advance, it is not feasible to identify specifically the
portion of the charge which is applicable to each.

SEPARATE ACCOUNT ADMINISTRATIVE CHARGE

During the first 15 Policy years, the Company assesses a charge on an annual
basis of 0.25% of the daily net asset value in each Sub-Account. The charge is
assessed to help defray administrative expenses actually incurred in the
administration of the Separate Account and the Sub-Accounts, and is not expected
to be a source of profit. The administrative functions and expenses assumed by
the Company in connection with the Separate Account and the Sub-Accounts
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, expenses of preparing and
typesetting prospectuses, and the cost of printing prospectuses not allocable to
sales expense, filing and other fees. No Separate Account administrative charge
is imposed after the 15th Policy year.

OTHER CHARGES AND EXPENSES

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

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

SURRENDER CHARGE

The Policy provides for a contingent surrender charge. A surrender charge may be
deducted if you request a full surrender of the Policy or a decrease in the Face
Amount. The duration of the surrender charge is 15 years from Date of Issue or
from the effective date of any increase in the Face Amount. A separate surrender
charge, described in more detail below, is calculated upon the issuance of the
Policy and for each increase in the Face Amount.

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

The maximum surrender charge calculated upon issuance of the Policy is equal to
the sum of (a) plus (b) where:

(a) is a deferred administrative charge equal to $8.50 per thousand dollars
of the initial Face Amount, and

(b) is a deferred sales charge of 48% of premiums received up to a maximum
number of Guideline Annual Premiums subject to the deferred sales charge
that varies by average issue Age from 1.95 (for average issue Ages 5
through 75) to 1.31 (for average issue Age 82).

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In accordance with limitations under state insurance regulations, the amount of
the maximum surrender charge will not exceed a specified amount per $1,000
initial Face Amount, as indicated in APPENDIX D -- CALCULATION OF MAXIMUM
SURRENDER CHARGES. The maximum surrender charge continues in a level amount for
40 Policy months and reduces by 0.5% or more per month thereafter, as described
in APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES. This reduction in the
maximum surrender charge will reduce the deferred sales charge and the deferred
administrative charge proportionately.

If you surrender the Policy during the first two Policy years following the Date
of Issue, before making premium payments associated with the initial Face Amount
which are at least equal to one Guideline Annual Premium, the deferred
administrative charge will be $8.50 per thousand dollars of initial Face Amount,
as described above, but the deferred sales charge will not exceed 25% of
premiums received. See APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES.

SEPARATE SURRENDER CHARGE FOR EACH FACE AMOUNT INCREASE

A separate surrender charge will apply to and is calculated for each increase in
the Face Amount. The surrender charge for the increase is in addition to that
for the initial Face Amount. The maximum surrender charge for the increase is
equal to the sum of (a) plus (b), where (a) is equal to $8.50 per thousand
dollars of increase, and (b) is a deferred sales charge of 48% of premiums
associated with the increase, up to a maximum number of Guideline Annual
Premiums (for the increase) subject to the deferred sales charge. Such deferred
sales charge varies by average Age (at the time of increase) from 1.95 (for
average Ages 5 through 75) to 1.31 (for average Age 82). In accordance with
limitations under state insurance regulations, the amount of the surrender
charge will not exceed a specified amount per $1,000 of increase, as indicated
in APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES. As is true for the
initial Face Amount, (a) is a deferred administrative charge, and (b) is a
deferred sales charge. The maximum surrender charge for the increase continues
in a level amount for 40 Policy months, and reduces by 0.5% or more per month
thereafter, as provided in APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER
CHARGES.

If you surrender the Policy during the first two Policy years following an
increase in the Face Amount before making premium payments associated with the
increase in Face Amount which are at least equal to one Guideline Annual
Premium, the deferred administrative charge will be $8.50 per thousand dollars
of the Face Amount increase, as described above, but the deferred sales charge
will not exceed 25% of premiums associated with the increase. See APPENDIX D --
CALCULATION OF MAXIMUM SURRENDER CHARGES. The premiums associated with the
increase are determined as described below.

ALLOCATION OF POLICY VALUE AND PREMIUMS UPON AN INCREASE IN FACE AMOUNT

Additional premium payments may not be required to fund a requested increase in
Face Amount. Therefore, a special rule, which is based on relative Guideline
Annual Premium payments, applies whereby the Policy Value will be allocated
between the initial Face Amount and the increase. Subsequent premium payments
are allocated between the initial Face Amount and the increase.

For example, suppose the Guideline Annual Premium is equal to $1,500 before an
increase and is equal to $2,000 as a result of the increase. The Policy Value on
the effective date of the increase would be allocated 75% ($1,500/$2,000) to the
initial Face Amount and 25% to the increase. All future premiums also would be
allocated 75% to the initial Face Amount and 25% to the increase. Thus, existing
Policy Value associated with the increase will equal the portion of the Policy
Value allocated to the increase on the effective date of the increase before any
deductions are made. Premiums associated with the increase will equal the
portion of the premium payments actually made on or after the effective date of
the increase which are allocated to the increase.

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

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POSSIBLE SURRENDER CHARGE ON A DECREASE IN THE FACE AMOUNT

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

CHARGES ON PARTIAL WITHDRAWALS

After the first Policy year, partial withdrawals of Surrender Value may be made.
The minimum withdrawal is $500. Under Option 1, the Face Amount is reduced by
the amount of the partial withdrawal, and a partial withdrawal will not be
allowed if it would reduce the Face Amount below $100,000. A transaction charge,
which is the smaller of 2% of the amount withdrawn, or $25, will be assessed on
each partial withdrawal to reimburse the Company for the cost of processing the
withdrawal. The transaction fee applies to all partial withdrawals, including a
Withdrawal without a surrender charge. The Company does not expect to make a
profit on this charge.

A partial withdrawal charge also may be deducted from the Policy Value. For each
partial withdrawal you may withdraw an amount equal to 10% of the Policy Value
on the date the written withdrawal request is received by the Company, less the
total of any prior withdrawals in that Policy year which were not subject to the
partial withdrawal charge, without incurring a partial withdrawal charge. Any
partial withdrawal in excess of this amount ("excess withdrawal") will be
subject to the partial withdrawal charge. The partial withdrawal charge is equal
to 5% of the excess withdrawal up to the amount of the surrender charge(s) on
the date of withdrawal.

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

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

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

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

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

TRANSFER CHARGES

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

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

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- from the Sub-Account which invests in the Money Market Fund of the Trust
to one or more of the other Sub-Accounts; or

- to reallocate Policy Value among the Sub-Accounts.

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

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

CHARGE FOR INCREASE IN FACE AMOUNT

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

OTHER ADMINISTRATIVE CHARGES

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

POLICY LOANS

You may borrow against the Policy Value. Policy loans may be obtained by request
to the Company on the sole security of the Policy. The total amount which may be
borrowed is the Loan Value. In the first Policy year, the Loan Value is 75% of
the Policy Value reduced by applicable surrender charges, as well as Monthly
Deductions and interest on Policy loans to the end of the Policy year. The Loan
Value in the second Policy year and thereafter is 90% of an amount equal to the
Policy Value reduced by applicable surrender charges. There is no minimum limit
on the amount of the loan.

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

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

LOAN AMOUNT EARNS INTEREST IN GENERAL ACCOUNT

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

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PREFERRED LOAN OPTION

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

There is some uncertainty as to the tax treatment of preferred loans. Consult a
qualified tax adviser (and see FEDERAL TAX CONSIDERATIONS). The preferred loan
option may not be available in all states.

LOAN INTEREST CHARGED

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

REPAYMENT OF LOANS

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

If the Debt exceeds the Policy Value less the surrender charge, the Policy will
terminate. A notice of such pending termination will be mailed to the last known
address of you and any assignee. If you do not make sufficient payment within 62
days after this notice is mailed, the Policy will terminate with no value.

EFFECT OF POLICY LOANS

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

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POLICY TERMINATION AND REINSTATEMENT

TERMINATION

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

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

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

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

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

LIMITED 48-MONTH GUARANTEE

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

Except for the first 48 months after the Date of Issue or the effective date of
an increase, payments equal to the Minimum Monthly Factor do not guarantee that
the Policy will remain in force.

REINSTATEMENT

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

- a written application for reinstatement,

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

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

MINIMUM AMOUNT PAYABLE

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or (2). Under (1), the minimum amount payable is the Minimum Monthly Factor for
the three-month period beginning on the date of reinstatement. Under (2), the
minimum amount payable is the sum of:

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

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

If reinstatement is requested after 48 Monthly Deductions have been made since
the Date of Issue or any increase in the Face Amount, you must pay the amount
shown in (2) above. The Company reserves the right to increase the Minimum
Monthly Factor upon reinstatement.

SURRENDER CHARGE

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

POLICY VALUE ON REINSTATEMENT

The Policy Value on the date of reinstatement is:

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

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

- the Monthly Deduction due on the date of reinstatement.

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

OTHER POLICY PROVISIONS

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

POLICYOWNER

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

BENEFICIARY

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

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<PAGE>
INCONTESTABILITY

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

SUICIDE

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

NOTICE OF FIRST INSURED TO DIE

Within 90 days of the death of the first Insured to die, or as soon thereafter
as is reasonably possible, you must mail to the Principal Office due proof of
such death.

AGE

If the Age of either Insured as stated in the application for the Policy is not
correct, benefits under a Policy will be adjusted to reflect the correct Age, if
death of the last surviving Insured occurs prior to the Final Premium Payment
Date. The adjusted benefit will be that which the most recent cost of insurance
charge would have purchased for the correct Age. In no event will the Sum
Insured be reduced to less than the Guideline Minimum Sum Insured.

ASSIGNMENT

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

POSTPONEMENT OF PAYMENTS

Payments of any amount due from the Separate Account upon surrender, partial
withdrawals, or death of the last surviving Insured, as well as payments of a
Policy loan and transfers, may be postponed whenever (a) the New York Stock
Exchange is closed for other than customary weekend and holiday closings, or
trading on the New York Stock Exchange is restricted as determined by the SEC,
or (b) an emergency exists, as determined by the SEC, as a result of which
disposal of securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the Separate Account's net assets.
Payments under the Policy of any amounts derived from the premiums paid by check
may be delayed until such time as the check has cleared your bank.

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

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<PAGE>

DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY

<TABLE>
<CAPTION>
NAME AND POSITION
WITH COMPANY PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ----------------------------------- ------------------------------------------------------
<S> <C>
Bruce C. Anderson Director (since 1996), Vice President (since 1984) and
Director, Vice President and Assistant Secretary (since 1992) of First Allmerica
Assistant Secretary

Abigail M. Armstrong Secretary (since 1996) and Counsel (since 1991) of
Secretary and Counsel First Allmerica; Secretary (since 1988) and Counsel
(since 1994) of Allmerica Investments, Inc.; and
Secretary (since 1990) of Allmerica Financial
Investment Management Services, Inc.

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

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

John P. Kavanaugh Director and Chief Investment Officer (since 1996) and
Director, Vice President and Vice President (since 1991) of First Allmerica; and
Chief Investment Officer Vice President (since 1998) of Allmerica Financial
Investment Management Services, Inc.

John F. Kelly Director (since 1996), Senior Vice President (since
Director, Senior Vice President, 1986), General Counsel (since 1981) and Assistant
General Counsel and Assistant Secretary (since 1991) of First Allmerica; Director
Secretary (since 1985) of Allmerica Investments, Inc.; and
Director (since 1990) of Allmerica Financial
Investment Management Services, Inc.

J. Barry May Director (since 1996) of First Allmerica; Director and
Director President (since 1996) of The Hanover Insurance
Compnay; and Vice President (1993 to 1996) of The
Hanover Insurance Company

James R. McAuliffe Director (since 1996) of First Allmerica; Director
Director (since 1992), President (since 1994) and Chief
Executive Officer (since 1996) of Citizens Insurance
Company of America

John F. O'Brien Director, President and Chief Executive Officer (since
Director, President and Chief 1989) of First Allmerica; Director (since 1989) of
Executive Officer Allmerica Investments, Inc.; and Director and Chairman
of the Board (since 1990) of Allmerica Financial
Investment Management Services, Inc.

Edward J. Parry, III Director and Chief Financial Officer (since 1996) and
Director, Vice President, Chief Vice President and Treasurer (since 1993) of First
Financial Officer and Treasurer Allmerica; Treasurer (since 1993) of Allmerica
Investments, Inc.; and Treasurer (since 1993) of
Allmerica Financial Investment Management Services,
Inc.

Richard M. Reilly Director (since 1996) and Vice President (since 1990)
Director and Vice President of First Allmerica; Director (since 1990) of Allmerica
Investments, Inc.; and Director and President (since
1998) of Allmerica Financial Investment Management
Services, Inc.
</TABLE>

49
<PAGE>

<TABLE>
<CAPTION>
NAME AND POSITION
WITH COMPANY PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ----------------------------------- ------------------------------------------------------
<S> <C>
Robert P. Restrepo, Jr. Director and Vice President (since 1998) of First
Director and Vice President Allmerica; 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)
Director and Vice President of First Allmerica; Director (since 1991) of Allmerica
Investments, Inc.; and Director (since 1991) of
Allmerica Financial Investment Management Services,
Inc.

Phillip E. Soule Director (since 1996) and Vice President (since 1987)
Director and Vice President of First Allmerica
</TABLE>

DISTRIBUTION

Allmerica Investments, Inc. ("Allmerica Investments"), an indirect subsidiary of
First Allmerica, acts as the principal underwriter of the Policies pursuant to a
Sales and Administrative Services Agreement with the Company and the Separate
Account. Allmerica Investments is registered with the SEC as a broker-dealer and
is a member of the National Association of Securities Dealers, Inc. ("NASD").
The Policies are sold by agents of the Company who are registered
representatives of Allmerica Investments or of broker-dealers which have selling
agreements with Allmerica Investments.

The Company pays commissions based on a commission schedule. After issue of the
Policy or an increase in the Face Amount, commissions paid to agents who are
registered representatives of Allmerica Investments generally will be up to 50%
of the first-year premiums up to a basic premium amount established by the
Company. Thereafter, commissions will generally equal up to 3.5% of any
additional premiums. Certain registered representatives, including registered
representatives enrolled in the Company's training program for new agents, may
receive additional first-year and renewal commissions and training
reimbursements. General Agents of the Company and certain registered
representatives may also be eligible to receive expense reimbursements based on
the amount of earned commissions. General Agents may also receive overriding
commissions, which will not exceed 10% of first-year or 14% of renewal premiums.

Commissions and expense allowances paid to broker-dealers, after issue of the
Policy or an increase in the Face Amount, generally will equal 90% of the
first-year premiums up to a basic premium amount established by the Company.
Thereafter, commissions will generally equal up to 4% of any additional
premiums. To the extent permitted by NASD rules, overrides and promotional
incentives or payments may also be provided to General Agents, independent
marketing organizations, and broker-dealers based on sales volumes, the
assumption of wholesaling functions or other sales-related criteria. Other
payments may be made for other services that do not directly involve the sale of
the Policies. These services may include the recruitment and training of
personnel, production of promotional literature, and similar services.

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

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<PAGE>
SERVICES

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

REPORTS

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

In addition, you will be sent periodic reports containing financial statements
and other information for the Separate Account and the Underlying Funds as
required by the 1940 act.

LEGAL PROCEEDINGS

There are no legal proceedings pending to which the Separate Account is a party,
or to which the assets of the Separate Account are subject. The Company and
Allmerica Investments, Inc. are not involved in any litigation that is of
material importance in relation to their 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 from this Prospectus pursuant to the rules and
regulations of the SEC. Statements contained in this Prospectus concerning the
Policy and other legal documents are summaries. The complete documents and
omitted information may be obtained from the SEC's principal office in
Washington, DC, upon payment of the SEC's prescribed fees.

INDEPENDENT ACCOUNTANTS

The financial statements of the Company as of December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998, and the financial
statements of Inheiritage Account of the Company as of December 31, 1998 and for
the periods indicated, included in this Prospectus constituting part of this
Registration Statement, have been so included in reliance on the report 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
Policy.

51
<PAGE>
FEDERAL TAX CONSIDERATIONS

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

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

THE COMPANY AND THE SEPARATE ACCOUNT

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

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

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

TAXATION OF THE POLICIES

The Company believes that the Policies described in this Prospectus will be
considered life insurance contracts under Section 7702 of the Code, which
generally provides for the taxation of life insurance contracts and places
limitations on the relationship of the Policy Value to the Insurance Amount at
Risk. As a result, the Death Proceeds payable are excludable from the gross
income of the Beneficiary. Moreover, any increase in the Policy Value is not
taxable until received by the Policyowner or the Policyowner's designee (but see
"Modified Endowment Contracts"). Although the Company believes that the Policies
are in compliance with Section 7702 of the Code, the manner in which Section
7702 should be applied to certain features of a joint survivorship life
insurance contract is not directly addressed by Section 7702. In the absence of
final regulations or other guidance issued under Section 7702, there is
necessarily some uncertainty whether a Policy will meet the Section 7702
definition of a life insurance contract. This is true particularly if the
Policyowner pays the full amount of premiums permitted under the Policy. A
Policyowner contemplating the payment of such premiums should do so only after
consulting a tax adviser. If a Policy were determined not to be a life insurance
contract under Section 7702, it would not have most of the tax advantages
normally provided by a life insurance contract.

The Code requires that the investment of each Sub-Account be adequately
diversified in accordance with Treasury Department regulations in order to be
treated as a life insurance policy for tax purposes. Although

52
<PAGE>
the Company does not have control over the investments of the Underlying Funds,
the Company believes that the Underlying Funds currently meet the Treasury's
diversification requirements, and the Company will monitor continued compliance
with these requirements. In connection with the issuance of previous regulations
relating to diversification requirements, the Treasury Department announced that
such regulations do not provide guidance concerning the extent to which
Policyowners may direct their investments to particular divisions of a separate
account. Regulations in this regard may be issued in the future. It is possible
that if and when regulations are issued, the Policies may need to be modified to
comply with such regulations. For these reasons, the Policies or the Company's
administrative rules may be modified as necessary to prevent a Policyowner from
being considered the owner of the assets of the Separate Account.

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

SPLIT OPTION RIDER/EXCHANGE OPTION RIDER

The Split Option Rider permits a Policy to be split into two other life
insurance policies, one covering each Insured singly. A Policy split may have
adverse tax consequences. It is not clear whether a Policy split will be treated
as a non-taxable exchange under Section 1035 of the Code. Unless a Policy split
is so treated, it could result in recognition of taxable income on the gain in
the Policy. In addition, it is not clear whether, in all circumstances, the
individual policies that result from a Policy split would be treated as life
insurance policies under Section 7702 of the Code or would be classified as
modified endowment contracts. The Policyowner should consult a competent tax
adviser regarding the possible adverse tax consequences of a Policy split.

POLICY LOANS

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

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

MODIFIED ENDOWMENT CONTRACTS

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

53
<PAGE>
If a policy is considered a modified endowment contract, all distributions under
the policy will be taxed on an "income-first" basis. Most distributions received
by a policyowner directly or indirectly (including loans, withdrawals, partial
surrenders, or the assignment or pledge of any portion of the value of the
policy) will be includible in gross income to the extent that the cash surrender
value of the policy exceeds the policyowner's investment in the contract. Any
additional amounts will be treated as a return of capital to the extent of the
policyowner's basis in the policy. In addition, with certain exceptions, an
additional 10% tax will be imposed on the portion of any distribution that is
includible in income. All modified endowment contracts issued by the same
insurance company to the same policyowner during any 12-month period will be
treated as a single modified endowment contract in determining taxable
distributions.

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

ESTATE AND GENERATION-SKIPPING TAXES

When the last surviving Insured dies, the Death Proceeds will generally be
includible in the Policyowner's estate for purposes of federal estate tax if the
last surviving Insured owned the Policy. If the Policyowner was not the last
surviving Insured, the fair market value of the Policy would be included in the
Policyowner's estate upon the Policyowner's death. Nothing would be includible
in the last surviving Insured's estate if he or she neither retained incidents
of ownership at death nor had given up ownership within three years before
death.

Federal estate tax is integrated with federal gift tax under a unified rate
schedule. In general, estates less than $625,000 will not incur a federal estate
tax liability. In addition, an unlimited marital deduction may be available for
federal estate and gift tax purposes. The unlimited marital deduction permits
the deferral of taxes until the death of the surviving spouse, when the death
proceeds would be available to pay taxes due and other expenses incurred.

As a general rule, if an insured is the policyowner, and death proceeds are
payable to a person two or more generations younger than the policyowner, a
generation-skipping tax may be payable on the death proceeds at rates similar to
the maximum estate tax rate in effect at the time. If the policyowner (whether
or not he or she is an insured) transfers ownership of the policy to someone two
or more generations younger, the transfer may be subject to the
generation-skipping tax, the taxable amount being the value of the policy. (Such
a transfer is unlikely but not impossible.) If the death proceeds are not
includible in the insured's estate (because the insured retained no incidents of
ownership and did not relinquish ownership within three years before death), the
payment of the death proceeds to the beneficiary is not subject to the
generation-skipping tax regardless of the beneficiary's generation. The
generation-skipping tax provisions generally apply to transfers which would be
subject to the gift and estate tax rules. Individuals are generally allowed an
aggregate generation-skipping tax exemption of $1 million. Because these rules
are complex, the Policyowner should consult with a tax adviser for specific
information where benefits are passing to younger generations.

MORE INFORMATION ABOUT THE GENERAL ACCOUNT

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

54
<PAGE>
GENERAL DESCRIPTION

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

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

GENERAL ACCOUNT VALUE

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

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

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

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

THE POLICY

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

TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND POLICY LOANS

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

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

55
<PAGE>
Policy loans also may be made from the Policy Value in the General Account.

Transfers, surrenders, partial withdrawals, Death Proceeds and Policy loans
payable from the General Account may be delayed up to six months. If payment is
delayed for 30 days or more, however, the Company will pay interest at least
equal to an effective annual yield of 3.5% for the period of deferment. Amounts
from the General Account used to pay premiums on policies with the Company will
not be delayed.

YEAR 2000 COMPLIANCE

The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.

Based on a third party assessment, the Company determined that significant
portions of its software required modification or replacement to enable its
computer systems to properly process dates beyond December 31, 1999. The Company
is presently completing the process of modifying or replacing existing software
and believes that this action will resolve the Year 2000 issue. However, if such
modifications and conversions are not made, or are not completed timely, or
should there be serious unanticipated interruptions from unknown sources, the
Year 2000 issue could have a material adverse impact on the operations of the
Company. Specifically, the Company could experience, among other things, an
interruption in its ability to collect and process premiums, process claim
payments, safeguard and manage its invested assets, accurately maintain
policyholder information, accurately maintain accounting records, and perform
customer service. Any of these specific events, depending on duration, could
have a material adverse impact on the results of operations and the financial
position of the Company.

The Company has initiated formal communications with all of its suppliers to
determine the extent to which the Company is vulnerable to those third parties'
failure to remediate their own Year 2000 issue. The Company's total Year 2000
project cost and estimates to complete the project include the estimated costs
and time associated with the Company's involvement on a third party's Year 2000
issue, and are based on presently available information. However, there can be
no guarantee that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems, would not have
material adverse effect on the Company. The Company does not believe that it has
material exposure to contingencies related to the Year 2000 issue for the
products it has sold. Although the Company does not believe that there is a
material contingency associated with the Year 2000 project, there can be no
assurance that exposure for material contingencies will not arise.

The cost of the Year 2000 project will be expensed as incurred and is being
funded primarily through a reallocation of resources from discretionary projects
and a reduction in systems maintenance and support costs. Therefore, the Year
2000 project is not expected to result in any significant incremental technology
cost and is not expected to have a material effect on the results of operations.
The Company and its affiliates have incurred and expensed approximately $54
million related to the assessment, plan development and substantial completion
of the Year 2000 project, through December 31, 1998. The total remaining cost of
the project is estimated between $20-30 million.

FINANCIAL STATEMENTS

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

56
<PAGE>
APPENDIX A
OPTIONAL BENEFITS

This Appendix is intended to provide only a very brief overview of additional
insurance benefits available by rider. For more information, your Representative
should be contacted.

The following supplemental benefits are available for issue under the Policies
for an additional charge. CERTAIN OF THESE RIDERS MAY NOT BE AVAILABLE IN ALL
STATES.

SPLIT OPTION RIDER/EXCHANGE OPTION RIDER

This Rider, WHICH IS AVAILABLE ONLY AT DATE OF ISSUE, permits you to split
the Policy into two life insurance policies, one covering each Insured
singly, subject to Company guidelines.

OTHER INSURED RIDER

This Rider provides a term insurance benefit for up to five Insureds. At
present this benefit is only available for the spouse and minor children of
either primary Insured. The Rider includes a feature that allows you to
convert the other-insured coverage to any permanent life insurance policy
acceptable to the Company.

FOUR-YEAR TERM RIDER

This Rider provides a term insurance benefit during the first four Policy
years, payable upon the death of the last surviving Insured during the
coverage period.

GUARANTEED DEATH BENEFIT RIDER

This Rider, WHICH IS AVAILABLE ONLY AT DATE OF ISSUE, (a) guarantees that
the Policy will not lapse regardless of the performance of the Separate
Account, and (b) provides a guaranteed net death benefit.

A-1
<PAGE>
APPENDIX B
PAYMENT OPTIONS

Upon Written Request, the Surrender Value or all or part of the Death Proceeds
may be placed under one or more of the payment options below or any other option
offered by the Company. If you do not make an election, the Company will pay the
benefits in a single sum. A certificate will be provided to the payee describing
the payment option selected. If a payment option is selected, the Beneficiary
may pay to the Company any amount that would otherwise be deducted from the Sum
Insured.

The amounts payable under a payment option for each $1,000 value applied will be
the greater of (a) the rate per $1,000 of value applied based on the Company's
non-guaranteed current payment option rates for the Policies; or (b) the rate in
the Policy for the applicable payment option.

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

<TABLE>
<C> <S>
Option A: PAYMENTS FOR A SPECIFIED NUMBER OF YEARS. The Company will make equal
payments for any selected number of years (not greater than 30). Payments
may be made annually, semi-annually, quarterly or monthly.

Option B: LIFETIME MONTHLY PAYMENTS. Payments are based on the payee's Age on the
date the first payment will be made. One of three variations may be
chosen. Depending upon this choice, payments will end:

(a) upon the death of the payee, with no further payments due (Life Annuity);

(b) upon the death of the payee, but not before the sum of the payments made
first equals or exceeds the amount applied under this option (Life Annuity
with Installment Refund); or

(c) upon the death of the payee, but not before a selected period (5, 10 or 20
years) has elapsed (Life Annuity with Period Certain).

Option C: INTEREST PAYMENTS. The Company will pay interest at a rate determined by
the Company each year but which will not be less than 3.5%. Payments may
be made annually, semi-annually, quarterly or monthly. Payments will end
when the amount left with the Company has been withdrawn. However,
payments will not continue after the death of the payee. Any unpaid
balance plus accrued interest will be paid in a lump sum.

Option D: PAYMENTS FOR A SPECIFIED AMOUNT. Payments will be made until the unpaid
balance is exhausted. Interest will be credited to the unpaid balance. The
rate of interest will be determined by the Company each year but will not
be less than 3.5%. Payments may be made annually, semi-annually, quarterly
or monthly. The payment level selected must provide for the payment each
year of at least 8% of the amount applied.

Option E: LIFETIME MONTHLY PAYMENTS FOR TWO PAYEES. One of three variations may be
chosen. After the death of one payee, payments will continue to the
survivor:

(a) in the same amount as the original amount;

(b) in an amount equal to 2/3 of the original amount; or

Payments are based on the payees' ages on the date the first payment is due.
Payments will end upon the death of the surviving payee.

B-1
<PAGE>
SELECTION OF PAYMENT OPTIONS

The amount applied under any one option for any one payee must be at least
$5,000. The periodic payment for any one payee must be at least $50. Subject to
the Policyowner's and/or the Beneficiary's provision, any option selection may
be changed before the Death Proceeds become payable. If the Policyowner makes no
selection, the Beneficiary may select an option when the Death Proceeds become
payable.

If the amount of monthly income payments under Option B, choice (c) for the
attained Age of the payee are the same for different periods certain, the
Company will deem an election to have been made for the longest period certain
which could have been elected for such Age and amount.

The Policyowner may give the Beneficiary the right to change from Option C or D
to any other option at any time. If the payee selects Option C or D when this
Policy becomes a claim, the right may be reserved to change to any other option.
The payee who elects to change options must be a payee under the option
selected.

ADDITIONAL DEPOSITS

An additional deposit may be made to any proceeds when they are applied under
Option B or E. A charge not to exceed 3% will be made. The Company may limit the
amount of this deposit.

RIGHTS AND LIMITATIONS

A payee does not have the right to assign any amount payable under any option. A
payee does not have the right to commute any amount payable under Option B or E.
A payee will have the right to commute any amount payable under Option A only if
the right is reserved in the Written Request selecting the option. If the right
to commute is exercised, the commuted values will be computed at the interest
rates used to calculate the benefits. The amount left under Option C, and any
unpaid balance under Option D, may be withdrawn by the payee only as set forth
in the Written Request selecting the option.

A corporation or fiduciary payee may select only Option A, C or D. Such
selection will be subject to the consent of the Company.

PAYMENT DATES

The first payment under any option, except Option C, will be due on the date the
Policy matures by death or otherwise, unless another date is designated.
Payments under Option C begin at the end of the first payment period.

The last payment under any option will be made as stated in the description of
that option. However, should a payee under Option B or E die prior to the due
date of the second monthly payment, the amount applied less the first monthly
payment will be paid in a lump sum or under any option other than Option E. A
lump sum payment will be made to the surviving payee under Option E or the
succeeding payee under Option B.

B-2
<PAGE>
APPENDIX C
ILLUSTRATIONS
SURRENDER VALUE, POLICY VALUES AND DEATH BENEFITS

The following tables illustrate the way in which the Sum Insured and the Policy
Value could vary over an extended period of time.

ASSUMPTIONS

The tables illustrate a Policy issued on the lives of both Insureds, each Age
55, under a Standard Premium Class and qualifying for the non-smoker discount.
The tables also illustrate the guaranteed cost of insurance rates and the
current cost of insurance rates.

The tables illustrate the Policy Values that would result based upon the
assumptions that no Policy loans have been made, that you have not requested an
increase or decrease in the initial Face Amount, that no partial withdrawals
have been made, and that no transfers above 12 have been made in any Policy year
(so that no transaction or transfer charges have been incurred).

The tables assume that all premiums are allocated to and remain in the Separate
Account for the entire period shown, and are based on hypothetical gross
investment rates of return for the Underlying Fund (i.e., investment income and
capital gains and losses, realized or unrealized) equivalent to constant gross
(after tax) annual rates of 0%, 6%, and 12%. The second column of the tables
shows the amount which would accumulate if an amount equal to the Guideline
Annual Premium were invested each year to earn interest (after taxes) at 5%
compounded annually.

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

DEDUCTIONS FOR CHARGES

The amounts shown for the Death Proceeds and Policy Values take into account the
deduction from premium for the tax expense charge, the Monthly Deduction from
Policy Value. The amounts shown also take into account the daily charge against
the Separate Account for mortality and expense risks and for the Separate
Account administrative charge. In both the Current Cost of Insurance Charges
illustrations and the Guaranteed Cost of Insurance Charges illustrations, the
Separate Account charges currently are equivalent to an effective annual rate of
1.15% of the average daily value of the assets in the Separate Account in the
first fifteen Policy Years, and 0.90% thereafter.

The amounts shown in the tables also take into account the Underlying Fund
advisory fees and operating expenses, which are assumed to be at an annual rate
of 0.95% of the average daily net assets of the Underlying Funds. The actual
fees and expenses of each Underlying Fund vary, and in 1998 ranged from an
annual rate of 0.32% to an annual rate of 2.19% of average daily net assets. The
fees and expenses associated with your Policy may be more or less than 0.95% in
the aggregate, depending upon how you make allocations of Policy Value among the
Sub-Accounts.

Until further notice, AFIMS has declared a voluntary expense limitation of 1.35%
of average net assets for Select Aggressive Growth Fund and Select Capital
Appreciation Fund, 1.25% for Select Value Opportunity Fund, 1.50% for Select
International Equity Fund, 1.20% for Select Growth Fund, 1.10% for Select Growth

C-1
<PAGE>

and Income Fund , 1.00% for Select Income Fund, and 0.60% for Money Market Fund.
The total operating expenses of these Funds of the Trust were less than their
respective expense limitations throughout 1998.

The declaration of a expense 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.

NET ANNUAL RATES OF INVESTMENT

Taking into account the Separate Account mortality and expense risk charge of
0.90%, the Separate Account administrative charge of 0.25% (for the first 15
Policy years only), and the assumed 0.95% charge for Underlying Fund advisory
fees and operating expenses, the gross annual rates of investment return of 0%,
6% and 12% correspond to net annual rates of -2.10%, 3.90% and 9.90%,
respectively, during the first 15 Policy years and -1.85%, 4.15% and 10.15%,
respectively, thereafter.

The hypothetical returns shown in the table do not reflect any charges for
income taxes against the Separate Account since no charges are currently made.
However, if in the future such charges are made, in order to produce illustrated
death benefits and Policy Values, the gross annual investment rate of return
would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax
charges.

UPON REQUEST, THE COMPANY WILL PROVIDE A COMPARABLE ILLUSTRATION BASED UPON THE
PROPOSED INSURED'S AGES AND UNDERWRITING CLASSIFICATIONS, AND THE REQUESTED FACE
AMOUNT, SUM INSURED OPTION, AND RIDERS.

C-2
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
ALLMERICA SELECT INHEIRITAGE

INSURED #1: UNISEX NON-SMOKER ISSUE AGE 55

INSURED #2: UNISEX NON-SMOKER ISSUE AGE 55

SPECIFIED FACE AMOUNT $1,000,000

SUM INSURED OPTION 1

CURRENT INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ---------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ ------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 0 9,357 1,000,000 0 9,934 1,000,000 0 10,511 1,000,000
2 21,525 5,763 18,424 1,000,000 7,498 20,158 1,000,000 9,301 21,962 1,000,000
3 33,101 8,695 27,195 1,000,000 12,174 30,674 1,000,000 15,937 34,437 1,000,000
4 45,256 17,908 35,668 1,000,000 23,722 41,482 1,000,000 30,267 48,027 1,000,000
5 58,019 27,188 43,838 1,000,000 35,935 52,585 1,000,000 46,184 62,834 1,000,000
6 71,420 36,164 51,704 1,000,000 48,448 63,988 1,000,000 63,433 78,973 1,000,000
7 85,491 44,832 59,262 1,000,000 61,261 75,691 1,000,000 82,139 96,569 1,000,000
8 100,266 53,183 66,503 1,000,000 74,376 87,696 1,000,000 102,437 115,757 1,000,000
9 115,779 61,207 73,417 1,000,000 87,788 99,998 1,000,000 124,472 136,682 1,000,000
10 132,068 68,893 79,993 1,000,000 101,494 112,594 1,000,000 148,410 159,510 1,000,000
11 149,171 77,233 86,113 1,000,000 116,496 125,376 1,000,000 175,438 184,318 1,000,000
12 167,130 85,067 91,727 1,000,000 131,637 138,297 1,000,000 204,606 211,266 1,000,000
13 185,986 92,349 96,789 1,000,000 146,877 151,317 1,000,000 236,101 240,541 1,000,000
14 205,786 99,029 101,249 1,000,000 162,170 164,390 1,000,000 270,134 272,354 1,000,000
15 226,575 105,047 105,047 1,000,000 177,460 177,460 1,000,000 306,938 306,938 1,000,000
16 248,404 108,411 108,411 1,000,000 190,945 190,945 1,000,000 345,363 345,363 1,000,000
17 271,324 110,917 110,917 1,000,000 204,300 204,300 1,000,000 387,271 387,271 1,000,000
18 295,390 112,518 112,518 1,000,000 217,486 217,486 1,000,000 433,074 433,074 1,000,000
19 320,660 112,997 112,997 1,000,000 230,315 230,315 1,000,000 483,142 483,142 1,000,000
20 347,193 112,167 112,167 1,000,000 242,624 242,624 1,000,000 537,960 537,960 1,000,000
Age 60 58,019 27,188 43,838 1,000,000 35,935 52,585 1,000,000 46,184 62,834 1,000,000
Age 65 132,068 68,893 79,993 1,000,000 101,494 112,594 1,000,000 148,410 159,510 1,000,000
Age 70 226,575 105,047 105,047 1,000,000 177,460 177,460 1,000,000 306,938 306,938 1,000,000
Age 75 347,193 112,167 112,167 1,000,000 242,624 242,624 1,000,000 537,960 537,960 1,000,000
</TABLE>

(1) Assumes a $10,000 premium is paid at the beginning of each Policy year and
earns interest at 5% per year. Values will be different if premiums are paid
with a different frequency or in different amounts.

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

THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE VALUE
OF UNITS, POLICY VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGED 0%, 6% AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR POLICY VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.

C-3
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
ALLMERICA SELECT INHEIRITAGE

INSURED #1: UNISEX NON-SMOKER ISSUE AGE 55

INSURED #2: UNISEX NON-SMOKER ISSUE AGE 55

SPECIFIED FACE AMOUNT $1,000,000

SUM INSURED OPTION 1

GUARANTEED COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ---------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ ------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 0 9,353 1,000,000 0 9,930 1,000,000 0 10,506 1,000,000
2 21,525 5,739 18,400 1,000,000 7,473 20,133 1,000,000 9,276 21,936 1,000,000
3 33,101 8,623 27,123 1,000,000 12,098 30,598 1,000,000 15,857 34,357 1,000,000
4 45,256 17,743 35,503 1,000,000 23,546 41,306 1,000,000 30,080 47,840 1,000,000
5 58,019 26,867 43,517 1,000,000 35,588 52,238 1,000,000 45,810 62,460 1,000,000
6 71,420 35,592 51,132 1,000,000 47,824 63,364 1,000,000 62,755 78,295 1,000,000
7 85,491 43,878 58,308 1,000,000 60,213 74,643 1,000,000 80,988 95,418 1,000,000
8 100,266 51,671 64,991 1,000,000 72,702 86,022 1,000,000 100,584 113,904 1,000,000
9 115,779 58,896 71,106 1,000,000 85,212 97,422 1,000,000 121,603 133,813 1,000,000
10 132,068 65,463 76,563 1,000,000 97,649 108,749 1,000,000 144,106 155,206 1,000,000
11 149,171 72,388 81,268 1,000,000 111,022 119,902 1,000,000 169,271 178,151 1,000,000
12 167,130 78,448 85,108 1,000,000 124,100 130,760 1,000,000 196,059 202,719 1,000,000
13 185,986 83,535 87,975 1,000,000 136,761 141,201 1,000,000 224,563 229,003 1,000,000
14 205,786 87,522 89,742 1,000,000 148,866 151,086 1,000,000 254,888 257,108 1,000,000
15 226,575 90,259 90,259 1,000,000 160,251 160,251 1,000,000 287,153 287,153 1,000,000
16 248,404 89,549 89,549 1,000,000 168,881 168,881 1,000,000 319,977 319,977 1,000,000
17 271,324 86,993 86,993 1,000,000 176,217 176,217 1,000,000 355,041 355,041 1,000,000
18 295,390 82,386 82,386 1,000,000 182,031 182,031 1,000,000 392,602 392,602 1,000,000
19 320,660 75,139 75,139 1,000,000 185,734 185,734 1,000,000 432,740 432,740 1,000,000
20 347,193 64,655 64,655 1,000,000 186,719 186,719 1,000,000 475,663 475,663 1,000,000
Age 60 58,019 26,867 43,517 1,000,000 35,588 52,238 1,000,000 45,810 62,460 1,000,000
Age 65 132,068 65,463 76,563 1,000,000 97,649 108,749 1,000,000 144,106 155,206 1,000,000
Age 70 226,575 90,259 90,259 1,000,000 160,251 160,251 1,000,000 287,153 287,153 1,000,000
Age 75 347,193 64,655 64,655 1,000,000 186,719 186,719 1,000,000 475,663 475,663 1,000,000
</TABLE>

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

C-4
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
ALLMERICA SELECT INHEIRITAGE

INSURED #1: UNISEX NON-SMOKER ISSUE AGE 55

INSURED #2: UNISEX NON-SMOKER ISSUE AGE 55

SPECIFIED FACE AMOUNT $1,000,000

SUM INSURED OPTION 2

CURRENT COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ---------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ ------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 0 9,357 1,009,357 0 9,933 1,009,933 0 10,510 1,010,510
2 21,525 5,760 18,421 1,018,421 7,494 20,155 1,020,155 9,298 21,959 1,021,959
3 33,101 8,685 27,185 1,027,185 12,162 30,662 1,030,662 15,924 34,424 1,034,424
4 45,256 17,885 35,645 1,035,645 23,695 41,455 1,041,455 30,235 47,995 1,047,995
5 58,019 27,143 43,793 1,043,793 35,879 52,529 1,052,529 46,116 62,766 1,062,766
6 71,420 36,086 51,626 1,051,626 48,348 63,888 1,063,888 63,307 78,847 1,078,847
7 85,491 44,706 59,136 1,059,136 61,096 75,526 1,075,526 81,922 96,352 1,096,352
8 100,266 52,994 66,314 1,066,314 74,117 87,437 1,087,437 102,082 115,402 1,115,402
9 115,779 60,933 73,143 1,073,143 87,398 99,608 1,099,608 123,919 136,129 1,136,129
10 132,068 68,511 79,611 1,079,611 100,929 112,029 1,112,029 147,575 158,675 1,158,675
11 149,171 76,705 85,585 1,085,585 115,684 124,564 1,124,564 174,192 183,072 1,183,072
12 167,130 84,345 91,005 1,091,005 130,486 137,146 1,137,146 202,767 209,427 1,209,427
13 185,986 91,376 95,816 1,095,816 145,268 149,708 1,149,708 233,426 237,866 1,237,866
14 205,786 97,739 99,959 1,099,959 159,953 162,173 1,162,173 266,295 268,515 1,268,515
15 226,575 103,362 103,362 1,103,362 174,450 174,450 1,174,450 301,503 301,503 1,301,503
16 248,404 106,239 106,239 1,106,239 186,905 186,905 1,186,905 337,750 337,750 1,337,750
17 271,324 108,149 108,149 1,108,149 198,934 198,934 1,198,934 376,703 376,703 1,376,703
18 295,390 109,036 109,036 1,109,036 210,442 210,442 1,210,442 418,559 418,559 1,418,559
19 320,660 108,662 108,662 1,108,662 221,143 221,143 1,221,143 463,338 463,338 1,463,338
20 347,193 106,822 106,822 1,106,822 230,765 230,765 1,230,765 511,093 511,093 1,511,093
Age 60 58,019 27,143 43,793 1,043,793 35,879 52,529 1,052,529 46,116 62,766 1,062,766
Age 65 132,068 68,511 79,611 1,079,611 100,929 112,029 1,112,029 147,575 158,675 1,158,675
Age 70 226,575 103,362 103,362 1,103,362 174,450 174,450 1,174,450 301,503 301,503 1,301,503
Age 75 347,193 106,822 106,822 1,106,822 230,765 230,765 1,230,765 511,093 511,093 1,511,093
</TABLE>

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

C-5
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
ALLMERICA SELECT INHEIRITAGE

INSURED #1: UNISEX NON-SMOKER ISSUE AGE 55

INSURED #2: UNISEX NON-SMOKER ISSUE AGE 55

SPECIFIED FACE AMOUNT $1,000,000

SUM INSURED OPTION 2

GUARANTEED COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ---------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
------ ------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 0 9,353 1,009,353 0 9,929 1,009,929 0 10,506 1,010,506
2 21,525 5,736 18,397 1,018,397 7,469 20,130 1,020,130 9,271 21,932 1,021,932
3 33,101 8,612 27,112 1,027,112 12,084 30,584 1,030,584 15,842 34,342 1,034,342
4 45,256 17,715 35,475 1,035,475 23,513 41,273 1,041,273 30,040 47,800 1,047,800
5 58,019 26,809 43,459 1,043,459 35,518 52,168 1,052,168 45,724 62,374 1,062,374
6 71,420 35,488 51,028 1,051,028 47,691 63,231 1,063,231 62,587 78,127 1,078,127
7 85,491 43,703 58,133 1,058,133 59,982 74,412 1,074,412 80,685 95,115 1,095,115
8 100,266 51,393 64,713 1,064,713 72,321 85,641 1,085,641 100,065 113,385 1,113,385
9 115,779 58,472 70,682 1,070,682 84,610 96,820 1,096,820 120,750 132,960 1,132,960
10 132,068 64,839 75,939 1,075,939 96,727 107,827 1,107,827 142,748 153,848 1,153,848
11 149,171 71,494 80,374 1,080,374 109,650 118,530 1,118,530 167,165 176,045 1,176,045
12 167,130 77,200 83,860 1,083,860 122,106 128,766 1,128,766 192,870 199,530 1,199,530
13 185,986 81,834 86,274 1,086,274 133,930 138,370 1,138,370 219,835 224,275 1,224,275
14 205,786 85,256 87,476 1,087,476 144,929 147,149 1,147,149 248,013 250,233 1,250,233
15 226,575 87,304 87,304 1,087,304 154,877 154,877 1,154,877 277,325 277,325 1,277,325
16 248,404 85,760 85,760 1,085,760 161,648 161,648 1,161,648 306,094 306,094 1,306,094
17 271,324 82,208 82,208 1,082,208 166,596 166,596 1,166,596 335,614 335,614 1,335,614
18 295,390 76,460 76,460 1,076,460 169,414 169,414 1,169,414 365,722 365,722 1,365,722
19 320,660 67,928 67,928 1,067,928 169,364 169,364 1,169,364 395,809 395,809 1,395,809
20 347,193 56,064 56,064 1,056,064 165,708 165,708 1,165,708 425,233 425,233 1,425,233
Age 60 58,019 26,809 43,459 1,043,459 35,518 52,168 1,052,168 45,724 62,374 1,062,374
Age 65 132,068 64,839 75,939 1,075,939 96,727 107,827 1,107,827 142,748 153,848 1,153,848
Age 70 226,575 87,304 87,304 1,087,304 154,877 154,877 1,154,877 277,325 277,325 1,277,325
Age 75 347,193 56,064 56,064 1,056,064 165,708 165,708 1,165,708 425,233 425,233 1,425,233
</TABLE>

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

C-6
<PAGE>
APPENDIX D
CALCULATION OF MAXIMUM SURRENDER CHARGES

A separate surrender charge is calculated upon issuance of the Policy and upon
each increase in the Face Amount. The maximum surrender charge is equal to the
sum of (a) plus (b), where (a) is a deferred administrative charge equal to
$8.50 per $1,000 of initial Face Amount (or Face Amount increase), and (b) is a
deferred sales charge of 48% of premiums received up to a maximum number of
Guideline Annual Premiums (GAPs), based on the joint life expectancy of both
Insureds, subject to the deferred sales charge that varies as shown below by
average issue Age or average Age at time of increase, as applicable:

<TABLE>
<CAPTION>
APPLICABLE AGE MAXIMUM GAPS
- ------------------ ---------------
<S> <C>
5-75 1.95
76 1.92
77 1.81
78 1.69
79 1.60
80 1.50
81 1.40
82 1.31
</TABLE>

A further limitation is imposed based on the Standard Nonforfeiture Law of each
state. The maximum surrender charges upon issuance of the Policy and upon each
increase in the Face Amount are shown in the table below. During the first two
Policy years following issue or an increase in the Face Amount, the actual
surrender charge may be less than the maximum. See CHARGES AND DEDUCTIONS --
"Surrender Charge."

The maximum surrender charge initially remains level for 40 months, declines by
one-half of one percent of the initial amount for 80 months, and then declines
by one percent each month thereafter, reaching zero at the end of the 180 Policy
months (15 Policy years). The factors used in calculating the maximum surrender
charges vary with the issue Age of the younger Insured as indicated in the table
that follows.

INITIAL MAXIMUM SURRENDER CHARGE PER $1,000 FACE AMOUNT

<TABLE>
<CAPTION>
Younger Initial Younger Initial Younger Initial
Issue Surrender Issue Surrender Issue Surrender
Age Charge Age Charge Age Charge
- --------- ------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>

5 5.00 31 9.40 57 21.00
6 5.00 32 9.80 58 22.00
7 5.00 33 10.20 59 23.00
8 5.00 34 10.60 60 24.00
9 5.00 35 11.00 61 25.00
10 5.00 36 11.40 62 26.00
11 5.00 37 11.80 63 27.00
12 5.00 38 12.20 64 28.00
13 5.00 39 12.60 65 29.00
14 5.00 40 13.00 66 30.00
15 5.00 41 13.40 67 31.00
16 5.00 42 13.80 68 32.00
17 5.00 43 14.20 69 33.00
18 5.00 44 14.60 70 34.00
19 5.00 45 15.00 71 35.00
20 5.00 46 15.40 72 35.00
</TABLE>

D-1
<PAGE>
<TABLE>
<CAPTION>
Younger Initial Younger Initial Younger Initial
Issue Surrender Issue Surrender Issue Surrender
Age Charge Age Charge Age Charge
- --------- ------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
21 5.40 47 15.80 73 35.00
22 5.80 48 16.20 74 35.00
23 6.20 49 16.60 75 35.00
24 6.60 50 17.00 76 35.00
25 7.00 51 17.40 77 35.00
26 7.40 52 17.80 78 35.00
27 7.80 53 18.20 79 35.00
28 8.20 54 18.60 80 35.00
29 8.60 55 19.00
30 9.00 56 20.00
</TABLE>

EXAMPLES

For the purposes of these examples, assume that two non-smokers, each Age 55,
are covered as the Insureds under a $1,000,000 Policy. In this example the
Guideline Annual Premium ("GAP") equals $16,861.10. The maximum surrender charge
for the Policy is calculated as follows:

(a) Deferred Administrative Charge $8,500.00
($8.50/$1,000 of Face Amount)

(b) Deferred Sales Charge (48% X 1.95 GAPs) $15,781.99

-----------

TOTAL $24,281.99

Maximum Surrender Charge per Table (19.00 X 1,000) $19,000.00

During the first two Policy years after the Date of Issue, the actual surrender
charge is the smaller of the maximum surrender charge and the following sum:

(a) Deferred Administrative Charge $8,500.00
($8.50/$1,000 of Face Amount)

(b) Deferred Sales Charge (not to exceed 25% of Premiums received, up to one
GAP, Varies
but less than the maximum number of GAPs subject to the deferred sales
charge)

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

Sum of (a) and (b)

The maximum surrender charge is $19,000. All premiums are associated with the
initial Face Amount unless the Face Amount is increased.

Example 1:

Assume the Policyowner surrenders the Policy in the 10th Policy month, having
paid total premiums of $7,500. The actual surrender charge would be $10,375.

Example 2:

Assume the Policyowner surrenders the Policy in the 120th month. After the 40th
Policy month, the maximum surrender charge decreases by 0.5% per month during
this period ($95 per month in this example). In this example, the maximum
surrender charge would be $11,400.

D-2
<PAGE>

APPENDIX E
PERFORMANCE INFORMATION

The Policies were first offered to the public in 1994. The Company, however, may
advertise "Total Return" and "Average Annual Total Return" performance
information based on the periods that the Sub-Accounts have been in existence
(Tables 1(A) and 1(B)), and based on the periods that the Underlying Funds have
been in existence (Tables II(A) and II(B)). The results for any period prior to
the Policies being offered will be calculated as if the Policies had been
offered during that period of time, with all charges assumed to be those
applicable to the Sub-Accounts, the Underlying Funds, and (in Tables I(A) and
II(A)) under a "representative" Policy that is surrendered at the end of the
applicable period. For more information on charges under the Policy, see CHARGES
AND DEDUCTIONS.

Performance information may be compared, in reports and promotional literature,
to: (1) the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"), Dow
Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond Index, or
other unmanaged indices so that investors may compare results with those of a
group of unmanaged securities widely regarded by investors as representative of
the securities markets in general; (2) other groups of variable life separate
accounts or other investment products tracked by Lipper Inc., a widely used
independent research firm which ranks mutual funds and other investment products
by overall performance, investment objectives, and assets, or tracked by other
services, companies, publications, or persons, such as Morningstar, Inc., who
rank such investment products on overall performance or other criteria; or (3)
the Consumer Price Index (a measure for inflation) to assess the real rate of
return from an investment. Unmanaged indices may assume the reinvestment of
dividends, but generally do not reflect deductions for administrative and
management costs and expenses.

At times, the Company also may 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 Services ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P"), and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinions 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.

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

In each Table below, "One-Year Total Return" refers to the total of the income
generated by a Sub-Account, based on certain charges and assumptions as
described in the respective Tables, for the one-year period ended December 31,
1998. "Average Annual Total Return" is based on the same charges and
assumptions, but reflects the hypothetical annually compounded return that would
have produced the same cumulative return if the Sub-Account's performance had
been constant over the entire period. Because average annual total returns tend
to smooth out variations in annual performance return, they are not the same as
actual year-by-year results.

E-1
<PAGE>

TABLE I(A)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF THE SUB-ACCOUNTS
NET OF ALL CHARGES AND ASSUMING SURRENDER OF THE POLICY

The following performance information is based on the periods that the
Sub-Accounts have been in existence. The data is net of expenses of the
Underlying Funds, all Sub-Account charges, and all Policy charges (including
surrender charges) for a representative Policy. It is assumed that the Insureds
are male, Age 45, standard (nonsmoker) Premium Class, and female, Age 43,
standard (nonsmoker) Premium Class, that the Face Amount of the Policy is
$500,000, that an annual premium payment of $5,500 (approximately one Guideline
Annual Premium) was made at the beginning of each Policy year, that ALL premiums
were allocated to EACH Sub-Account individually, and that there was a full
surrender of the Policy at the end of the applicable period.

<TABLE>
<CAPTION>
10 YEARS
OR LIFE
ONE-YEAR OF
TOTAL 5 SUB-ACCOUNT
UNDERLYING FUND RETURN YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund N/A N/A -100.00%
Select International Equity Fund -85.99% N/A 1.06%
T. Rowe Price International Stock Portfolio -86.58% N/A -11.19%
Select Aggressive Growth Fund -91.61% N/A -5.41%
Select Capital Appreciation Fund -88.46% N/A 3.97%
Select Value Opportunity Fund -97.01% N/A -3.49%
Select Growth Fund -67.99% N/A 8.51%
Select Strategic Growth Fund N/A N/A -100.00%
Fidelity VIP Growth Portfolio -64.14% N/A 3.06%
Select Growth and Income Fund -86.05% N/A -0.51%
Fidelity VIP Equity-Income Portfolio -90.60% N/A -0.81%
Fidelity VIP High Income Portfolio -100.00% N/A -17.08%
Select Income Fund N/A N/A -100.00%
Money Market Fund -96.41% N/A -21.16%
</TABLE>

The inception dates for the Sub-Accounts are: 5/3/94 for Select International
Equity; 4/30/95 for the Select Capital Appreciation; 8/28/95 for the Fidelity
VIP Equity-Income, Fidelity VIP Growth, T. Rowe Price International Stock,
Select Aggressive Growth, and Select Growth; 9/10/95 for Select Growth and
Income; 9/17/95 for Select Value Opportunity; 11/20/95 for Money Market; 12/4/95
for Fidelity VIP High Income; 2/20/98 for Select Emerging Markets and Select
Strategic Growth; and 9/11/98 for the Select Income Fund.

PERFORMANCE INFORMATION REFLECTS ONLY THE PERFORMANCE OF A HYPOTHETICAL
INVESTMENT DURING THE PARTICULAR TIME PERIOD ON WHICH THE CALCULATIONS ARE
BASED. ONE-YEAR TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN FIGURES ARE BASED
ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF THE INVESTMENT
OBJECTIVES AND POLICIES, CHARACTERISTICS AND QUALITY OF THE PORTFOLIO OF THE
UNDERLYING FUND IN WHICH A SUB-ACCOUNT INVESTS AND THE MARKET CONDITIONS DURING
THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED AS A REPRESENTATION OF WHAT
MAY BE ACHIEVED IN THE FUTURE.

E-2
<PAGE>

TABLE I(B)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF THE SUB-ACCOUNTS
EXCLUDING MONTHLY POLICY CHARGES AND SURRENDER CHARGES

The following performance information is based on the periods that the
Sub-Accounts have been in existence. The performance information is net of total
Underlying Fund expenses and all Sub-Account charges. THE DATA DOES NOT REFLECT
MONTHLY CHARGES UNDER THE POLICY OR SURRENDER CHARGES. It is assumed that an
annual premium payment of $5,500 (approximately one Guideline Annual Premium)
was made at the beginning of each Policy year, and that ALL premiums were
allocated to EACH Sub-Account individually.

<TABLE>
<CAPTION>
10 YEARS
OR LIFE
ONE-YEAR OF
TOTAL 5 SUB-ACCOUNT
UNDERLYING FUND RETURN YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund N/A N/A -22.23%
Select International Equity Fund 15.16% N/A 11.01%
T. Rowe Price International Stock Portfolio 14.54% N/A 9.75%
Select Aggressive Growth Fund 9.31% N/A 14.23%
Select Capital Appreciation Fund 12.59% N/A 19.02%
Select Value Opportunity Fund 3.68% N/A 16.20%
Select Growth Fund 33.90% N/A 25.49%
Select Strategic Growth Fund N/A N/A -3.39%
Fidelity VIP Growth Portfolio 37.91% N/A 21.01%
Select Growth and Income Fund 15.10% N/A 18.42%
Fidelity VIP Equity-Income Portfolio 10.36% N/A 17.88%
Fidelity VIP High Income Portfolio -5.42% N/A 7.55%
Select Income Fund N/A N/A 0.55%
Money Market Fund 4.31% N/A 4.25%
</TABLE>

The inception dates for the Sub-Accounts are: 5/3/94 for Select International
Equity; 4/30/95 for the Select Capital Appreciation; 8/28/95 for the Fidelity
VIP Equity-Income, Fidelity VIP Growth, T. Rowe Price International Stock,
Select Aggressive Growth, and Select Growth; 9/10/95 for Select Growth and
Income; 9/17/95 for Select Value Opportunity; 11/20/95 for Money Market; 12/4/95
for Fidelity VIP High Income; 2/20/98 for Select Emerging Markets and the Select
Strategic Growth; and 9/11/98 for the Select Income Fund.

PERFORMANCE INFORMATION REFLECTS ONLY THE PERFORMANCE OF A HYPOTHETICAL
INVESTMENT DURING THE PARTICULAR TIME PERIOD ON WHICH THE CALCULATIONS ARE
BASED. ONE-YEAR TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN FIGURES ARE BASED
ON HISTORICAL EARNINGS, AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF THE INVESTMENT
OBJECTIVES AND POLICIES, CHARACTERISTICS AND QUALITY OF THE PORTFOLIO OF THE
UNDERLYING FUND IN WHICH A SUB-ACCOUNT INVESTS AND THE MARKET CONDITIONS DURING
THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED AS A REPRESENTATION OF WHAT
MAY BE ACHIEVED IN THE FUTURE.

E-3
<PAGE>

TABLE II(A)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF THE UNDERLYING FUNDS
NET OF ALL CHARGES AND ASSUMING SURRENDER OF THE POLICY

The following performance information is based on the periods that the
Underlying Funds have been in existence. The data is net of expenses of the
Underlying Funds, all Sub-Account charges, and all Policy charges (including
surrender charges) for a representative Policy. It is assumed that the Insureds
are male, Age 45, standard (nonsmoker) Premium Class, and female, Age 43,
standard (nonsmoker) Premium Class, that the Face Amount of the Policy is
$500,000, that an annual premium payment of $5,500 (approximately one Guideline
Annual Premium) was made at the beginning of each Policy year, that ALL premiums
were allocated to EACH Sub-Account individually, and that there was a full
surrender of the Policy at the end of the applicable period.

<TABLE>
<CAPTION>
10 YEARS
OR
ONE-YEAR LIFE OF
TOTAL 5 FUND
UNDERLYING FUND RETURN YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund N/A N/A -100.00%
Select International Equity Fund -85.99% N/A 1.06%
T. Rowe Price International Stock Portfolio -86.58% N/A -1.59%
Select Aggressive Growth Fund -91.61% 5.94% 12.53%
Select Capital Appreciation Fund -88.46% N/A 4.00%
Select Value Opportunity Fund -97.01% 3.75% 7.42%
Select Growth Fund -67.99% 14.04% 13.70%
Select Strategic Growth Fund N/A N/A -100.00%
Fidelity VIP Growth Portfolio -64.14% 13.59% 16.61%
Select Growth and Income Fund -86.05% 9.17% 9.72%
Fidelity VIP Equity-Income Portfolio -90.60% 10.26% 12.81%
Fidelity VIP High Income Portfolio -100.00% -1.31% 7.99%
Select Income Fund -95.15% -4.53% -0.28%
Money Market Fund -96.41% -5.62% 2.20%
</TABLE>

The inception dates for the Underlying Funds are: 4/29/85 for Money Market;
8/21/92 for Select Aggressive Growth, Select Growth, Select Growth and Income,
and Select Income; 4/30/93 for Select Value Opportunity; 5/02/94 for Select
International Equity; 4/28/95 for the Select Capital Appreciation; 10/09/86 for
Fidelity VIP Equity-Income and Fidelity VIP Growth; 9/19/85 for Fidelity VIP
High Income and 3/31/94 for T. Rowe Price International Stock; and 2/20/98 for
Select Emerging Markets and Select Strategic Growth Fund.

E-4
<PAGE>

TABLE II(B)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF THE UNDERLYING FUNDS
EXCLUDING MONTHLY POLICY CHARGES AND SURRENDER CHARGES

The following performance information is based on the periods that the
Underlying Funds have been in existence. The performance information is net of
total Underlying Fund expenses and all Sub-Account charges. THE DATA DOES NOT
REFLECT MONTHLY CHARGES UNDER THE POLICY OR SURRENDER CHARGES. It is assumed
that an annual premium payment of $5,500 (approximately one Guideline Annual
Premium) was made at the beginning of each Policy year and that ALL premiums
were allocated to EACH Sub-Account individually.

<TABLE>
<CAPTION>
10 YEARS OR
ONE-YEAR LIFE OF
TOTAL 5 FUND
UNDERLYING FUND RETURN YEARS (IF LESS)
<S> <C> <C> <C>
Select Emerging Markets Fund N/A N/A -22.23%
Select International Equity Fund 15.16% N/A 11.00%
T. Rowe Price International Stock Portfolio 14.54% N/A 8.42%
Select Aggressive Growth Fund 9.31% 13.68% 16.75%
Select Capital Appreciation Fund 12.59% N/A 19.00%
Select Value Opportunity Fund 3.68% 11.81% 13.41%
Select Growth Fund 33.90% 20.76% 17.81%
Select Strategic Growth Fund N/A N/A -3.39%
Fidelity VIP Growth Portfolio 37.91% 20.36% 18.05%
Select Growth and Income Fund 15.10% 16.48% 14.20%
Fidelity VIP Equity-Income Portfolio 10.36% 17.43% 14.40%
Fidelity VIP High Income Portfolio -5.42% 7.56% 9.82%
Select Income Fund 5.62% 4.91% 5.34%
Money Market Fund 4.31% 4.02% 4.42%
</TABLE>

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

CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<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 and its subsidiaries (the
"Company") at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 1999, except for paragraph 2 of Note 18 and Note 20,
which are as of March 19, 1999 and April 1, 1999, respectively
<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) 1998 1997 1996
----------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums................................... $2,303.9 $2,311.0 $2,236.3
Universal life and investment product
policy fees.............................. 296.6 237.3 197.2
Net investment income...................... 613.7 641.8 670.8
Net realized investment gains.............. 62.6 76.5 66.8
Other income............................... 142.6 117.6 108.4
-------- -------- --------
Total revenues......................... 3,419.4 3,384.2 3,279.5
-------- -------- --------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 2,050.2 2,004.6 1,957.0
Policy acquisition expenses................ 452.8 425.1 470.1
Sales practice litigation.................. 31.0 -- --
Loss from exiting reinsurance pools........ 25.3 -- --
Loss from cession of disability income
business................................. -- 53.9 --
Restructuring costs........................ 13.0 -- --
Other operating expenses................... 559.0 523.7 503.2
-------- -------- --------
Total benefits, losses and expenses.... 3,131.3 3,007.3 2,930.3
-------- -------- --------
Income before federal income taxes............. 288.1 376.9 349.2
-------- -------- --------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 67.6 83.3 96.8
Deferred................................... (15.4) 14.2 (15.7)
-------- -------- --------
Total federal income tax expense....... 52.2 97.5 81.1
-------- -------- --------
Income before minority interest................ 235.9 279.4 268.1
Minority interest.......................... (55.0) (79.4) (74.6)
-------- -------- --------
Net income..................................... $ 180.9 $ 200.0 $ 193.5
-------- -------- --------
-------- -------- --------
</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) 1998 1997
-------------------------------------------------------- --------- ---------

<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$7,520.8 and $6,992.8)............................. $ 7,683.9 $ 7,253.5
Equity securities at fair value (cost of $253.1 and
$341.1)............................................ 397.1 479.0
Mortgage loans...................................... 562.3 567.5
Real estate......................................... 20.4 50.3
Policy loans........................................ 154.3 141.9
Other long-term investments......................... 142.7 148.3
--------- ---------
Total investments............................... 8,960.7 8,640.5
--------- ---------
Cash and cash equivalents............................. 504.0 213.9
Accrued investment income............................. 141.0 141.8
Deferred policy acquisition costs..................... 1,161.2 965.5
--------- ---------
Reinsurance receivables:
Future policy benefits.............................. 322.6 307.1
Outstanding claims, losses and loss adjustment
expenses........................................... 652.2 626.7
Other............................................... 161.6 106.4
--------- ---------
Total reinsurance receivables................... 1,136.4 1,040.2
--------- ---------
Deferred federal income taxes......................... 19.4 --
Premiums, accounts and notes receivable............... 510.5 554.4
Other assets.......................................... 530.6 373.0
Closed Block assets................................... 803.1 806.7
Separate account assets............................... 13,697.7 9,755.4
--------- ---------
Total assets.................................... $27,464.6 $22,491.4
--------- ---------
--------- ---------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,802.2 $ 2,598.5
Outstanding claims, losses and loss adjustment
expenses........................................... 2,815.9 2,825.0
Unearned premiums................................... 843.2 846.8
Contractholder deposit funds and other policy
liabilities........................................ 2,637.0 1,852.7
--------- ---------
Total policy liabilities and accruals........... 9,098.3 8,123.0
--------- ---------
Expenses and taxes payable............................ 681.9 662.6
Reinsurance premiums payable.......................... 50.2 37.7
Short-term debt....................................... 221.3 33.0
Deferred federal income taxes......................... -- 12.9
Long-term debt........................................ -- 2.6
Closed Block liabilities.............................. 872.0 885.6
Separate account liabilities.......................... 13,691.5 9,749.7
--------- ---------
Total liabilities............................... 24,615.2 19,507.1
--------- ---------
Minority interest..................................... 532.9 748.9
Commitments and contingencies (Notes 13 and 18)
SHAREHOLDER'S EQUITY
Common stock, $10 par value, 1 million shares
authorized, 500,000 shares issued and outstanding... 5.0 5.0
Additional paid-in capital............................ 444.0 453.7
Accumulated other comprehensive income................ 169.2 209.3
Retained earnings..................................... 1,698.3 1,567.4
--------- ---------
Total shareholder's equity...................... 2,316.5 2,235.4
--------- ---------
Total liabilities and shareholder's equity...... $27,464.6 $22,491.4
--------- ---------
--------- ---------
</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) 1998 1997 1996
----------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
COMMON STOCK................................... $ 5.0 $ 5.0 $ 5.0
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............. 453.7 392.4 392.4
Contributed from parent.................... -- 61.3 --
Loss on change of interest -- Allmerica
P&C...................................... (9.7) -- --
-------- -------- --------
Balance at end of period................... 444.0 453.7 392.4
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Net unrealized appreciation on investments:
Balance at beginning of period............. 209.3 131.4 153.0
Appreciation (depreciation) during the
period:
Net (depreciation) appreciation on
available-for-sale securities............ (82.4) 170.9 (35.1)
Benefit (provision) for deferred federal
income taxes............................. 28.9 (59.8) 11.8
Minority interest.......................... 13.4 (33.2) 1.7
-------- -------- --------
(40.1) 77.9 (21.6)
-------- -------- --------
Balance at end of period................... 169.2 209.3 131.4
-------- -------- --------
RETAINED EARNINGS
Balance at beginning of period............. 1,567.4 1,367.4 1,173.9
Net income................................. 180.9 200.0 193.5
Dividend to shareholder.................... (50.0) -- --
-------- -------- --------
Balance at end of period................... 1,698.3 1,567.4 1,367.4
-------- -------- --------
Total shareholder's equity............. $2,316.5 $2,235.4 $1,896.2
-------- -------- --------
-------- -------- --------
</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) 1998 1997 1996
-------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Net income.................................. $180.9 $200.0 $193.5
------ ------ ------
Other comprehensive income:
Net (depreciation) appreciation on
available-for-sale securities........... (82.4) 170.9 (35.1)
Benefit (provision) for deferred federal
income taxes............................ 28.9 (59.8) 11.8
Minority interest......................... 13.4 (33.2) 1.7
------ ------ ------
Other comprehensive income.............. (40.1) 77.9 (21.6)
------ ------ ------
Comprehensive income...................... $140.8 $277.9 $171.9
------ ------ ------
------ ------ ------
</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) 1998 1997 1996
-------------------------------------------- -------- -------- --------

<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 180.9 $ 200.0 $ 193.5
Adjustments to reconcile net income to
net cash provided by operating
activities:
Minority interest................... 55.0 79.4 74.6
Net realized gains.................. (62.7) (77.8) (66.8)
Net amortization and depreciation... 20.7 31.6 44.7
Deferred federal income taxes....... (15.4) 14.2 (15.7)
Loss from exiting reinsurance
pools............................... 25.3 -- --
Sales practice litigation expense... 31.0 -- --
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) --
Change in deferred acquisition
costs............................... (185.8) (189.7) (73.9)
Change in premiums and notes
receivable, net of reinsurance
payable............................. 56.7 (15.1) (16.8)
Change in accrued investment
income.............................. 0.8 7.1 16.7
Change in policy liabilities and
accruals, net....................... 168.1 (134.9) (184.3)
Change in reinsurance receivable.... (115.4) 27.2 123.8
Change in expenses and taxes
payable............................. (3.3) 49.4 26.0
Separate account activity, net...... (48.5) -- 5.2
Other, net.......................... (63.8) 20.4 38.5
-------- -------- --------
Net cash provided by (used in)
operating activities................ 13.3 (141.3) 165.5
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................. 1,929.1 2,892.9 3,985.8
Proceeds from disposals of equity
securities............................. 285.3 162.7 228.7
Proceeds from disposals of other
investments............................ 120.8 116.3 99.3
Proceeds from mortgages matured or
collected.............................. 171.2 204.7 176.9
Purchase of available-for-sale fixed
maturities............................. (2,588.4) (2,596.0) (3,771.1)
Purchase of equity securities........... (119.9) (67.0) (90.9)
Purchase of other investments........... (274.4) (175.0) (168.0)
Capital expenditures.................... (0.7) (15.3) (12.8)
Purchase of minority interest in
Citizens Corporation................... (195.9) -- --
Other investing activities, net......... 5.1 1.3 4.3
-------- -------- --------
Net cash (used in) provided by
investing activities................ (667.8) 524.6 452.2
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to
contractholder deposit funds........... 1,419.2 457.6 268.7
Withdrawals from contractholder deposit
funds.................................. (625.0) (647.1) (905.0)
Change in short-term debt............... 188.3 (5.4) 10.4
Change in long-term debt................ (2.6) (0.1) (0.1)
Dividend paid to parent................. (50.0) -- --
Dividends paid to minority
shareholders........................... -- (9.4) (3.9)
Additional paid-in capital.............. -- 0.1 --
Subsidiary treasury stock purchased, at
cost................................... (1.0) (140.0) (42.0)
-------- -------- --------
Net cash provided by (used in)
financing activities................ 928.9 (344.3) (671.9)
-------- -------- --------
Net change in cash and cash equivalents..... 274.4 39.0 (54.2)
Net change in cash held in the Closed
Block...................................... 15.7 (1.0) (6.5)
Cash and cash equivalents, beginning of
period..................................... 213.9 175.9 236.6
-------- -------- --------
Cash and cash equivalents, end of period.... $ 504.0 $ 213.9 $ 175.9
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid............................... $ 7.3 $ 3.6 $ 18.6
Income taxes paid........................... $ 133.5 $ 66.3 $ 72.0
</TABLE>

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

F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of First Allmerica Financial Life
Insurance Company ("FAFLIC", or the "Company"), a wholly owned subsidiary of
Allmerica Financial Corporation ("AFC"), include 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 subsidiaries), and Allmerica Property and Casualty
Companies, Inc. ("Allmerica P&C") (a 70.06%-owned non-insurance holding
company). The Closed Block (Note 1B) assets and liabilities at December 31, 1998
and 1997, and its results of operations subsequent to demutualization are
presented in the consolidated financial statements as single line items. Unless
specifically stated, all disclosures contained herein supporting the
consolidated financial statements at December 31, 1998 and 1997, and the years
then ended exclude the Closed Block related amounts. All significant
intercompany accounts and transactions have been eliminated.

On December 3, 1998, the Company acquired all of the outstanding common stock of
Citizens Corporation (formerly an 82.5% owned non-insurance subsidiary of
Hanover, a wholly owned subsidiary of Allmerica P&C) that it did not already own
in exchange for cash of $195.9 million (Note 3). 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.

Allmerica P&C and a wholly owned subsidiary of AFC merged on July 16, 1997.
Through the merger, AFC acquired all of the outstanding common stock of
Allmerica P&C that it did not already own in exchange for cash and stock. The
merger has been accounted for as a purchase. 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. Additional information pertaining to the
merger agreement is included in Note 2, significant transactions.

Minority interest relates to the Company's investment in Allmerica P&C and its
only significant subsidiary, The Hanover Insurance Company ("Hanover").
Hanover's wholly owned subsidiary is Citizens Corporation, the holding company
for Citizens Insurance Company of America ("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, 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 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

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

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.

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

Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by the Company to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which the Company believes may not be collectible in
full. In establishing reserves, the Company considers, among other things, the
estimated fair value of the underlying collateral.

Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.

Policy loans are carried principally at unpaid principal balances.

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

During 1997, the Company adopted a plan to dispose of all real estate assets by
the end of 1998. As of December 31, 1998, there were 7 properties remaining in
the Company's real estate portfolio, all of which are being actively marketed.
As a result of the plan, real estate held by the Company and real estate joint
ventures were written down to 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 foreign
currency exchange 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.
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 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

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

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.

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 7 1/4%
for life insurance and 2 1/2% 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 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 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.

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

Premiums for property and casualty, group life, and accident and health
insurance are reported as earned on a pro-rata basis over the contract period.
The unexpired portion of these premiums is recorded as unearned premiums.

Contractholder deposit funds and other policy liabilities include investment
related products such as guaranteed investment contracts, 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 and group life, accident and
health insurance premiums are recognized as revenue over the related contract
periods. Benefits, losses and related expenses are matched with premiums,
resulting in their recognition over the lives of the contracts. This matching is
accomplished through the provision for future benefits, estimated and unpaid
losses and amortization of deferred policy acquisition costs. Revenues for
investment-related products consist of net investment income and contract
charges assessed against the fund values. Related benefit expenses primarily
consist of net investment income credited to the fund values after deduction for
investment and risk charges. Revenues for universal life products consist of net
investment income, and mortality, administration and surrender charges assessed
against the fund values. Related benefit expenses include universal life benefit
claims in excess of fund values and net investment income credited to universal
life fund values. Certain policy charges that represent compensation for
services to be provided in future periods are deferred and amortized over the
period benefited using the same assumptions used to amortize capitalized
acquisition costs.

K. FEDERAL INCOME TAXES

AFC and its domestic subsidiaries 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.

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

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, 1999. 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, 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 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 Company believes that the adoption of this statement will
not have a material effect on the results of operations or financial position.

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. (Note 12)

In June 1997, the FASB also issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("Statement No. 130"). Statement No.
130 which 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

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

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.

2. SIGNIFICANT TRANSACTIONS

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 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................................................................................... $ 3,405.1 $ 3,366.3
---------- ----------
---------- ----------
Net realized capital gains included in revenue............................................ $ 59.8 $ 71.8
---------- ----------
---------- ----------
Income before taxes and minority interest................................................. 272.9 358.0
Income taxes.............................................................................. (47.2) (91.3)
Minority Interest:
Equity in earnings.................................................................... (42.6) (64.1)
---------- ----------
Net income................................................................................ $ 183.1 $ 202.6
---------- ----------
---------- ----------
</TABLE>

On October 29, 1998, the Company announced that had adopted a formal
restructuring plan for its Risk Management business. As part of this initiative,
the Company, in its Corporate Risk Management Services segment, has exited its
accident and health assumed reinsurance pool business, as well as its
administrative services only business. Additionally, it has commenced the
closing of nearly half of its nationwide Corporate Risk Management Services'
sales offices, eliminated certain staff and discontinued certain automation
initiatives. In addition to the aforementioned initiatives in the Corporate Risk
Management Services segment, the Property and Casualty segment is consolidating
its 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 $13.0 million, in the fourth quarter of 1998. Approximately
$5.5 million of this loss relates to severance and other employee related costs
resulting from the elimination of 339 positions, of which 129 employees had

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

been terminated as of December 31, 1998. In addition, contract terminations and
lease cancellations resulted in losses of approximately $4.1 million and $3.4
million, respectively. During 1998, the Company made payments of approximately
$1.6 million 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, of which $19.7 million relating to the Company's accident and health
assumed reinsurance pool business has been utilized as of December 31, 1998.
These pools consist primarily of the Corporate Risk Management Services
segment'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.

Effective January 1, 1998, the Company entered into an agreement with a highly
rated reinsurer to reinsure the mortality risk on the universal life and
variable universal life blocks of business. The agreement did not have a
material effect on its results of operations or financial position.

In 1998 and 1997, Allmerica P&C redeemed 3,289.5 and 5,735.3 shares,
respectively, of its issued and outstanding common stock owned by AFC for $125.0
million and $195.0 million, respectively, thereby increasing FAFLIC's ownership
of Allmerica P&C by 4.3% and 6.3%, respectively. 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 accounted for as a purchase. Total consideration of
approximately $798.1 million 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 February 3, 1997, AFC Capital Trust (the "Trust"), a subsidiary business
trust of AFC, issued $300 million Series A Capital Securities, which pay
cumulative dividends at a rate of 8.207% semiannually commencing August 15,
1997. The Trust exists for the sole purpose of issuing the Capital Securities
and investing the proceeds thereof in an equivalent amount of 8.207% Junior
Subordinated Deferrable Interest Debentures due 2027 of AFC (the "Subordinated
Debentures"). Through certain guarantees, the Subordinated Debentures and the
terms of related agreements, AFC has irrevocably and unconditionally guaranteed
the obligations of the Trust under the Capital Securities. Net proceeds from the
offering of approximately $296.3 million funded a portion of the acquisition of
the 24.2 million publicly-held shares of Allmerica P&C pursuant to the merger on
July 16, 1997.

The Company's consolidated results of operations include minority interest in
Allmerica P&C prior to July 16, 1997. The unaudited pro forma information below
presents consolidated results of operations as if the merger and issuance of
Capital Securities had occurred at the beginning of 1996 and reflects
adjustments which include interest expense related to the assumed financing of a
portion of the cash consideration paid and amortization of goodwill.

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

The following unaudited pro forma information is not necessarily indicative of
the consolidated results of operations of the combined Company had the merger
and issuance of Capital Securities occurred at the beginning of 1996, nor is it
necessarily indicative of future results.

<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
Revenue................................................................................... $ 3,362.7 $ 3,246.4
---------- ----------
---------- ----------
Net realized capital gains included in revenue............................................ $ 63.0 $ 46.7
---------- ----------
---------- ----------
Income before taxes and minority interest................................................. 353.0 311.6
Income taxes.............................................................................. (89.6) (68.7)
Minority Interest:
Equity in earnings.................................................................... (75.5) (67.3)
---------- ----------
Net income................................................................................ $ 187.9 $ 175.6
---------- ----------
---------- ----------
</TABLE>

On April 14, 1997, the Company entered into an agreement in principle to cede
substantially all of the Company's individual disability income line of business
under a 100% coinsurance agreement with a highly rated reinsurer. The
coinsurance agreement became effective October 1, 1997. The transaction has
resulted in the recognition of a $53.9 million pre-tax loss in the first quarter
of 1997.

3. INVESTMENTS

A. SUMMARY OF INVESTMENTS

The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with Statement No. 115.

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

<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>

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

<TABLE>
<CAPTION>
1997
--------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- -------- ---------- ---------- --------
U.S. Treasury securities and U.S.
government and agency securities....... $ 265.3 $ 9.5 $ 0.9 $ 273.9
<S> <C> <C> <C> <C>
States and political subdivisions....... 2,200.6 78.3 3.1 2,275.8
Foreign governments..................... 110.8 8.5 2.2 117.1
Corporate fixed maturities.............. 4,041.6 175.1 12.2 4,204.5
Mortgage-backed securities.............. 374.5 9.7 2.0 382.2
-------- ---------- ---------- --------
Total fixed maturities.................. $6,992.8 $ 281.1 $ 20.4 $7,253.5
-------- ---------- ---------- --------
-------- ---------- ---------- --------
Equity securities....................... $ 341.1 $ 141.9 $ 4.0 $ 479.0
-------- ---------- ---------- --------
-------- ---------- ---------- --------
</TABLE>

(1) Amortized cost for fixed maturities and cost for equity securities.

In connection with AFLIAC's voluntary withdrawal of its license in New York,
AFLIAC agreed with the New York Department of Insurance to maintain, through a
custodial account in New York, a security deposit, the market value of which
will at all times equal 102% of all outstanding general account liabilities of
AFLIAC for New York policyholders, claimants and creditors. At December 31,
1998, the amortized cost and market value of assets on deposit in New York were
$268.5 million and $284.1 million, respectively. At December 31, 1997, the
amortized cost and market value of assets on deposit were $276.8 million and
$291.7 million, respectively.

In addition, fixed maturities, excluding those securities on deposit in New
York, with an amortized cost of $105.4 million and $105.1 million were on
deposit with various state and governmental authorities at December 31, 1998 and
1997, respectively.

There were no contractual fixed maturity investment commitments at December 31,
1998 and 1997, respectively.

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>
1998
--------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------------------------------------------------------ --------- --------
<S> <C> <C>
Due in one year or less..................................... $ 384.7 $ 391.5
Due after one year through five years....................... 2,309.4 2,341.2
Due after five years through ten years...................... 2,173.3 2,199.6
Due after ten years......................................... 2,653.4 2,751.6
--------- --------
Total....................................................... $ 7,520.8 $7,683.9
--------- --------
--------- --------
</TABLE>

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

The proceeds from voluntary sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, PROCEEDS FROM GROSS GROSS
(IN MILLIONS) VOLUNTARY SALES GAINS LOSSES
- ------------------------------------------------------------ --------------- ------ ------
<S> <C> <C> <C>
1998
Fixed maturities............................................ $ 993.3 $ 18.2 $ 11.9
Equity securities........................................... $ 276.4 $ 76.3 $ 9.6

1997
Fixed maturities............................................ $1,894.8 $ 27.6 $ 16.2
Equity securities........................................... $ 145.5 $ 55.8 $ 1.3

1996
Fixed maturities............................................ $2,432.8 $ 19.3 $ 30.5
Equity securities........................................... $ 228.1 $ 56.1 $ 1.3
</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>
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>

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

<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- ------
1996
<S> <C> <C> <C>
Net appreciation, beginning of year......................... $108.7 $ 44.3 $153.0
---------- ------ ------
Net (depreciation) appreciation on available-for-sale
securities................................................. (94.1) 35.9 (58.2)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 23.1 -- 23.1
Provision for deferred federal income taxes and minority
interest................................................... 33.6 (20.1) 13.5
---------- ------ ------
(37.4) 15.8 (21.6)
---------- ------ ------
Net appreciation, end of year............................... $ 71.3 $ 60.1 $131.4
---------- ------ ------
---------- ------ ------
</TABLE>

(1) Includes net appreciation on other investments of $0.8 million, $1.8
million, and $0.6 million in 1998, 1997, and 1996, respectively.

B. MORTGAGE LOANS AND REAL ESTATE

FAFLIC's mortgage loans and real estate are diversified by property type and
location. Real estate investments have been obtained primarily through
foreclosure. Mortgage loans are collateralized by the related properties and
generally are no more than 75% of the property's value at the time the original
loan is made.

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

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
Mortgage loans.............................................. $562.3 $567.5
Real estate held for sale................................... 20.4 50.3
------ ------
Total mortgage loans and real estate........................ $582.7 $617.8
------ ------
------ ------
</TABLE>

Reserves for mortgage loans were $11.5 million and $20.7 million at December 31,
1998 and 1997, respectively.

During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. At December 31, 1998, there were 7 properties
remaining in the Company's portfolio, which are being actively marketed. As a
result of the plan, during 1997 real estate assets with a carrying amount of
$54.7 million were written down to the estimated fair value less cost of
disposal of $50.3 million, and a net realized investment loss of $4.4 million
was recognized. Depreciation is not recorded on these assets while they are held
for disposal. There were no non-cash investing activities, including real estate
acquired through foreclosure of mortgage loans, in 1998 and 1997. During 1996,
non-cash investing activities included real estate acquired through foreclosure
of mortgage loans, which had a fair value of $0.9 million.

There were no contractual commitments to extend credit under commercial mortgage
loan agreements at December 31, 1998. These commitments generally expire within
one year.

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

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

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ -------- ------
<S> <C> <C>
Property type:
Office building........................................... $304.4 $265.1
Residential............................................... 52.8 66.6
Retail.................................................... 108.5 132.8
Industrial/warehouse...................................... 110.0 107.2
Other..................................................... 18.5 66.8
Valuation allowances...................................... (11.5) (20.7)
-------- ------
Total....................................................... $582.7 $617.8
-------- ------
-------- ------

Geographic region:
South Atlantic............................................ $136.1 $173.4
Pacific................................................... 155.1 152.8
East North Central........................................ 80.5 102.0
Middle Atlantic........................................... 61.2 73.8
West South Central........................................ 54.7 34.9
New England............................................... 60.7 46.9
Other..................................................... 45.9 54.7
Valuation allowances...................................... (11.5) (20.7)
-------- ------
Total....................................................... $582.7 $617.8
-------- ------
-------- ------
</TABLE>

At December 31, 1998, scheduled mortgage loan maturities were as follows: 1999
- -- $84.7 million; 2000 -- $131.6 million; 2001 -- $33.9 million; 2002 -- $28.4
million; 2003 -- $42.5 million; and $241.2 million thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties and loans may be
refinanced. During 1998, 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>
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
----- ----- ----- -----
----- ----- ----- -----
1996
Mortgage loans.............................................. $33.8 $ 5.5 $19.7 $19.6
Real estate................................................. 19.6 -- 4.7 14.9
----- ----- ----- -----
Total................................................... $53.4 $ 5.5 $24.4 $34.5
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

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

Provisions on mortgages during 1998 reflect the release of redundant 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 $22.0 million and $30.5 million, with
related reserves of $6.0 million and $13.8 million as of December 31, 1998 and
1997, respectively. All impaired loans were reserved as of December 31, 1998 and
1997.

The average carrying value of impaired loans was $26.1 million, $30.8 million
and $50.4 million, with related interest income while such loans were impaired
of $3.2 million, $3.2 million and $5.8 million as of December 31, 1998, 1997 and
1996, 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"). 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. Futures contract
activity increased significantly in 1998 due to the increase in sale of GICs.
The Company's exposure to credit risk under futures contracts is limited to the
margin deposited with the broker. 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 at December 31, 1998 was
$92.7 million. There were no futures contracts outstanding at December 31, 1997.
The notional amounts of the contracts represent the extent of the Company's
investment but not the 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 $92.5 million at December 31, 1998.

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 gains (losses) were $(1.8) million in 1998. There were no deferred
hedging gains or losses in 1997. Gains and losses on hedge contracts that are
deemed ineffective by the Company are realized immediately. There were $0.1
million of gains realized on ineffective hedges in 1998. There was no gain or
loss in 1997 or 1996.

A reconciliation of the notional amount of futures contracts is as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- --------------------------------------------------------------------------------- ----------- --------- ---------
<S> <C> <C> <C>
Contracts outstanding, beginning of year......................................... $ -- $ (33.0) $ 74.7
New contracts.................................................................... 1,117.5 (0.2) (1.1)
Contracts terminated............................................................. (1,024.8) 33.2 (106.6)
----------- --------- ---------
Contracts outstanding, end of year............................................... $ 92.7 $ -- $ (33.0)
----------- --------- ---------
----------- --------- ---------
</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. Interest
and principal related to foreign fixed income securities 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

F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 $1.2 million and $1.3
million at December 31, 1998 and 1997, respectively. Changes in the fair value
of contracts are reported as an unrealized gain or loss, consistent with the
underlying hedged security. 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 1998, 1997 and 1996. 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 1998 or 1997.

A reconciliation of the notional amount of foreign currency swap contracts is as
follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.............................................. $ 42.6 $ 47.6 $ 69.4
New contracts......................................................................... -- 5.0 --
Contracts expired..................................................................... -- (10.0) (21.8)
--------- --------- ---------
Contracts outstanding, end of year.................................................... $ 42.6 $ 42.6 $ 47.6
--------- --------- ---------
--------- --------- ---------
</TABLE>

Expected maturities of foreign currency swap contracts outstanding at December
31, 1998 are $24.0 million in 1999, $8.3 million in 2000 and $10.3 million
thereafter. There are no expected maturities of such foreign currency swap
contracts in 2001, 2002 and 2003.

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. The use of interest rate swap contracts increased during 1998
due to the increase in floating rate GIC liabilities. 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, 1998 was a net
payable of $3.9 million. The Company does not require collateral or other
security to support financial instruments with credit risk.

The net amount receivable or payable is recognized over the life of the swap
contract as an adjustment to net investment income. The (decrease) or increase
in net investment income related to interest rate swap contracts was $(2.8)
million, $(0.4) million and $0.6 million for the years ended December 31, 1998,
1997, and 1996, respectively. The fair value of interest rate swap contracts
outstanding were $(28.3) million and $(2.3) million at December 31, 1998 and
1997, 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

F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

hedged transaction. The Company had no deferred gain or loss on interest rate
swap contracts in 1998 or 1997. A reconciliation of the notional amount of
interest rate swap contracts is as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ---------------------------------------------------------------------------------- ---------- --------- ---------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.......................................... $ 244.1 $ 5.0 $ 17.5
New contracts..................................................................... 873.5 244.7 5.0
Contracts expired................................................................. (5.0) (5.6) (17.5)
---------- --------- ---------
Contracts outstanding, end of year................................................ $ 1,112.6 $ 244.1 $ 5.0
---------- --------- ---------
---------- --------- ---------
</TABLE>

Expected maturities of interest rate swap contracts outstanding at December 31,
1998 is $44.0 million in 2000, $234.5 million in 2002, $810.5 million in 2003
and $23.6 million thereafter. There are no expected maturities of interest rate
contracts in 1999 or 2001.

G. OTHER SWAP CONTRACTS

The Company enters into security return-linked and insurance portfolio-linked
swap contracts for investment purposes. Under the security return-linked
contracts, the Company agrees to exchange cash flows according to the
performance of a specified security or portfolio of securities. 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 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, 1998, was not material to the Company.
The Company does not require collateral or other security to support financial
instruments with credit risk.

In 1998, the Company also entered into credit default swap agreements. Under the
terms of these agreements, 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 the underlying companies and generally enters into default
swap agreements for companies rated "A" or better by nationally recognized
rating agencies.

The swap contracts are marked to market with any gain or loss recognized
currently. The fair values of swap contracts outstanding were $(0.1) million at
December 31, 1998 and 1997. The net amount receivable or payable under
security-returned-linked and insurance portfolio-linked swap contracts is
recognized when the contracts are marked to market. The net increase (decrease)
in realized investment gains related to these contracts was $1.1 million in 1998
and $(1.6) million in 1997. There were no realized investment gains or losses on
other swap contracts recognized in 1996.

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 $0.2 million in 1998. There was no
investment income recognized in 1997 and 1996.

F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A reconciliation of the notional amount of other swap contracts is as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Contracts outstanding, beginning of year............................................ $ 15.0 $ 58.6 $ --
New contracts....................................................................... 266.3 192.1 58.6
Contracts expired................................................................... (26.3) (211.6) --
Contracts terminated................................................................ -- (24.1) --
--------- --------- ---------
Contracts outstanding, end of year.................................................. $ 255.0 $ 15.0 $ 58.6
--------- --------- ---------
--------- --------- ---------
</TABLE>

Expected maturities of other swap contracts outstanding at December 31, 1998 are
as follows: $115.0 million in 1999, $115.0 million in 2000 and $25.0 million in
2001. There are no expected maturities of such other swap contracts in 2002 or
2003.

H. OTHER

At December 31, 1998, FAFLIC had no concentration of investments in a single
investee exceeding 10% of shareholders' equity. At December 31, 1997, FAFLIC had
no concentration of investments in a single investee exceeding 10% of
shareholder's equity, except for investments with the U.S. Treasury with a
carrying value of $262.4 million.

4. INVESTMENT INCOME AND GAINS AND LOSSES

A. NET INVESTMENT INCOME

The components of net investment income were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $530.8 $541.9 $553.8
Mortgage loans.............................................. 58.3 57.5 69.5
Equity securities........................................... 7.4 10.6 11.1
Policy loans................................................ 11.9 10.9 10.3
Real estate................................................. 7.2 20.1 40.8
Other long-term investments................................. (0.5) 12.4 19.9
Short-term investments...................................... 14.3 12.8 10.6
------ ------ ------
Gross investment income..................................... 629.4 666.2 716.0
Less investment expenses.................................... (15.7) (24.4) (45.2)
------ ------ ------
Net investment income....................................... $613.7 $641.8 $670.8
------ ------ ------
------ ------ ------
</TABLE>

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 which were on non-accrual
status at December 31, 1998. The effect of non-accruals, compared with amounts
that would have been recognized in accordance with the original terms of the
investments, had no impact in 1998 and 1997, and reduced net income by $0.5
million in 1996.

The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $28.7 million, $40.3 million and $51.3 million at December 31,
1998, 1997 and 1996, respectively. Interest income on restructured mortgage
loans that would have been recorded in accordance with the original terms of
such loans amounted to $3.3 million, $3.9 million and $7.7 million in 1998, 1997
and 1996, respectively. Actual interest income on

F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

these loans included in net investment income aggregated $3.3 million, $4.2
million and $4.5 million in 1998, 1997 and 1996, respectively.

There were no fixed maturities which were non-income producing for the year
ended December 31, 1998. There was one mortgage loan which was non-income
producing for the year ended December 31, 1998, which had an outstanding
principal balance of $4.3 million and was fully impaired.

Included in other long-term investments is a loss from limited partnerships of
$7.5 million in 1998, and income of $7.8 million and $13.7 million in 1997 and
1996, respectively.

B. REALIZED INVESTMENT GAINS AND LOSSES

Realized gains (losses) on investments were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Fixed maturities............................................ $ (11.8) $ 14.7 $ (9.7)
Mortgage loans.............................................. 8.8 (1.2) (2.4)
Equity securities........................................... 66.6 53.6 54.8
Real estate................................................. 13.7 12.8 21.1
Other....................................................... (14.7) (3.4) 3.0
--------- --------- ---------
Net realized investment gains............................... $ 62.6 $ 76.5 $ 66.8
--------- --------- ---------
--------- --------- ---------
</TABLE>

C. OTHER COMPREHENSIVE INCOME RECONCILIATION

The following table provides a reconciliation of gross unrealized gains to the
net balance shown in the Statement of Comprehensive Income:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period, (net of
taxes and minority interest of $(20.8) million, $123.7
million and $10.7 million in 1998, 1997 and 1996,
respectively).............................................. $ (6.8) $ 115.5 $ (0.7)
Less: reclassification adjustment for gains included in net
income (net of taxes and minority interest of $21.5
million, $30.7 million and $24.2 million in 1998, 1997 and
1996, respectively)........................................ 33.3 37.6 20.9
--------- --------- ---------
Other comprehensive income.................................. $ (40.1) $ 77.9 $ (21.6)
--------- --------- ---------
--------- --------- ---------
</TABLE>

5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS

Statement No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about certain financial
instruments (insurance contracts, real estate, goodwill and taxes are excluded)
for which it is practicable to estimate such values, whether or not these
instruments are included in the balance sheet. The fair values presented for
certain financial instruments are estimates which, in many cases, may differ
significantly from the amounts which could be realized upon immediate
liquidation. In cases where market prices are not available, estimates of fair
value are based on discounted cash flow analyses, which utilize current interest
rates for similar financial instruments which have comparable terms and credit
quality. Included in the fair value of fixed maturities are swap contracts used
to hedge fixed maturities with a fair value of $(27.1) million at December 31,
1998. Fair values of interest rate futures were not material at December 31,
1997.

F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:

CASH AND CASH EQUIVALENTS

For these short-term investments, the carrying amount approximates fair value.

FIXED MATURITIES

Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.

EQUITY SECURITIES

MORTGAGE LOANS

Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans are
limited to the lesser of the present value of the cash flows or book value.

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. Other liabilities are based on
surrender values.

DEBT

The carrying value of short-term debt reported in the balance sheet approximates
fair value. The fair value of long-term debt was estimated using market quotes,
when available, and, when not available, discounted cash flow analyses.

F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------------------------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 504.0 $ 504.0 $ 213.9 $ 213.9
Fixed maturities.......................................... 7,683.9 7,683.9 7,253.5 7,253.5
Equity securities......................................... 397.1 397.1 479.0 479.0
Mortgage loans............................................ 562.3 587.1 567.5 597.0
Policy loans.............................................. 154.3 154.3 141.9 141.9
-------- -------- -------- --------
$9,301.6 $9,326.4 $8,655.8 $8,685.3
-------- -------- -------- --------
-------- -------- -------- --------
FINANCIAL LIABILITIES
Guaranteed investment contracts........................... $1,791.8 $1,830.8 $ 985.2 $1,004.7
Supplemental contracts without life contingencies......... 37.3 37.3 22.4 22.4
Dividend accumulations.................................... 88.4 88.4 87.8 87.8
Other individual contract deposit funds................... 61.6 61.1 57.9 55.7
Other group contract deposit funds........................ 700.4 704.0 714.8 715.5
Individual annuity contracts.............................. 1,110.6 1,073.6 907.4 882.2
Short-term debt........................................... 221.3 221.3 33.0 33.0
Long-term debt............................................ -- -- 2.6 2.6
-------- -------- -------- --------
$4,011.4 $4,016.5 $2,811.1 $2,803.9
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

6. CLOSED BLOCK

Included in other income in the Consolidated Statement of Income in 1998, 1997
and 1996 is a net pre-tax contribution from the Closed Block of $10.4 million,
$9.1 million and $8.6 million, respectively. Summarized financial information of
the Closed Block as of December 31, 1998 and 1997 and for the period ended
December 31, 1998, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
Assets
Fixed maturities, at fair value (amortized cost of $399.1
and $400.1, respectively)............................... $414.2 $412.9
Mortgage loans............................................ 136.0 112.0
Policy loans.............................................. 210.9 218.8
Cash and cash equivalents................................. 9.4 25.1
Accrued investment income................................. 14.1 14.1
Deferred policy acquisition costs......................... 15.6 18.2
Other assets.............................................. 2.9 5.6
------ ------
Total assets................................................ $803.1 $806.7
------ ------
------ ------
Liabilities
Policy liabilities and accruals........................... $862.9 $875.1
Other liabilities......................................... 9.1 10.4
------ ------
Total liabilities........................................... $872.0 $885.5
------ ------
------ ------
</TABLE>

F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Revenues
Premiums................................................ $ 55.4 $ 58.3 $ 61.7
Net investment income................................... 53.3 53.4 52.6
Realized investment loss................................ 0.1 1.3 (0.7)
-------- -------- --------
Total revenues.............................................. 108.8 113.0 113.6
Benefits and expenses
Policy benefits......................................... 95.0 100.5 101.2
Policy acquisition expenses............................. 2.7 3.0 3.2
Other operating expenses................................ 0.7 0.4 0.6
-------- -------- --------
Total benefits and expenses................................. 98.4 103.9 105.0
-------- -------- --------
Contribution from the Closed Block.......................... $ 10.4 $ 9.1 $ 8.6
-------- -------- --------
-------- -------- --------
Cash flows
Cash flows from operating activities:
Contribution from the Closed Block...................... $ 10.4 $ 9.1 $ 8.6
Change in deferred policy acquisition costs, net........ 2.6 2.9 3.4
Change in premiums and other receivables................ 0.3 -- 0.2
Change in policy liabilities and accruals............... (13.5) (11.6) (13.9)
Change in accrued investment income..................... -- 0.2 2.3
Deferred Taxes.......................................... 0.1 (5.1) 1.0
Change in other assets.................................. 2.4 (2.9) (1.6)
Change in expenses and taxes payable.................... (2.9) (2.0) 1.7
Other, net.............................................. (0.1) (1.2) 1.4
-------- -------- --------
Net cash (used in) provided by operating activities....... (0.7) (10.6) 3.1
Cash flows from investing activities:
Sales, maturities and repayments of investments......... 83.6 161.6 188.1
Purchases of investments................................ (106.5) (161.4) (196.9)
Other, net.............................................. 7.9 11.4 12.2
-------- -------- --------
Net cash provided by (used in) investing activities....... (15.0) 11.6 3.4
-------- -------- --------
Net increase in cash and cash equivalents................... (15.7) 1.0 6.5
Cash and cash equivalents, beginning of year................ 25.1 24.1 17.6
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 9.4 $ 25.1 $ 24.1
-------- -------- --------
-------- -------- --------
</TABLE>

There are no valuation allowances on mortgage loans in the Closed Block at
December 31, 1998, 1997 or 1996, 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.

F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. DEBT

Short and long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ -----
<S> <C> <C>
Short-Term
Commercial paper........................................ $ 41.3 $32.6
Borrowings under bank credit facility................... 150.0 --
Repurchase agreements................................... 30.0 --
Other................................................... -- 0.4
------ -----
Total short-term debt....................................... $ 221.3 $33.0
------ -----
------ -----
Long-term debt.............................................. $ -- $ 2.6
------ -----
------ -----
</TABLE>

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, 1998, the weighted average
interest rate for outstanding commercial paper was approximately 5.34%.

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.

During 1998 and 1996, the Company utilized repurchase agreements to finance
certain investments. The 1996 repurchase agreements were settled by the end of
1996.

In October, 1995, AFC issued $200.0 million face amount of Senior Debentures for
proceeds of $197.2 million net of discounts and issuance costs. These securities
have an effective interest rate of 7.65%, and mature on October 16, 2025.
Interest is payable semiannually on October 15 and April 15 of each year. The
Senior Debentures are subject to certain restrictive covenants, including
limitations on issuance of or disposition of stock of restricted subsidiaries
and limitations on liens. AFC is in compliance with all covenants. The primary
source of cash for repayment of the debt by AFC is dividends from FAFLIC and
APY. Interest expense was $7.3 million, $3.6 million and $16.8 million in 1998,
1997 and 1996, respectively. Interest paid on the credit agreement was
approximately $0.7 million in 1998 and $2.8 million in 1997. Interest expense
during 1996 also included $11.0 million related to interest payments on
repurchase agreements. All interest expense is recorded in other operating
expenses.

8. FEDERAL INCOME TAXES

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

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------- ----- -------
<S> <C> <C> <C>
Federal income tax expense (benefit)
Current................................................. $ 67.6 $83.3 $ 96.8
Deferred................................................ (15.4) 14.2 (15.7)
------- ----- -------
Total....................................................... $ 52.2 $97.5 $ 81.1
------- ----- -------
------- ----- -------
</TABLE>

F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The federal income taxes attributable to the consolidated results of operations
are different from the amounts determined by multiplying income before federal
income taxes by the expected 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) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Expected federal income tax expense......................... $100.9 $131.8 $122.3
Tax-exempt interest..................................... (38.9) (37.9) (35.3)
Differential earnings amount............................ -- -- (10.2)
Dividend received deduction............................. (5.1) (3.2) (1.6)
Changes in tax reserve estimates........................ 2.3 7.8 4.7
Tax credits............................................. (8.5) (2.7)
Other, net.............................................. 1.5 1.7 1.2
------ ------ ------
Federal income tax expense.................................. $ 52.2 $ 97.5 $ 81.1
------ ------ ------
------ ------ ------
</TABLE>

Until conversion to a stock life insurance company, FAFLIC, as a mutual company,
reduced its deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying the average
equity base of the FAFLIC/AFLIAC consolidated group, as determined for tax
purposes, by the estimate of an excess of an imputed earnings rate over the
average mutual life insurance companies' earnings rate. The differential
earnings amount for each tax year was subsequently recomputed when actual
earnings rates were published by the Internal Revenue Service (IRS). The
differential earnings amount included in 1996 related to an adjustment for the
1994 tax year based on the actual mutual life insurance companies' earnings rate
issued by the IRS in 1996. As a stock life company, FAFLIC is no longer required
to reduce its policyholder dividend deduction by the differential earnings
amount.

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) 1998 1997
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
Deferred tax (assets) liabilities
AMT carryforwards....................................... $ (16.8) $ (15.6)
Loss reserve discounting................................ (406.6) (391.6)
Deferred acquisition costs.............................. 345.8 291.8
Employee benefit plans.................................. (45.3) (48.0)
Investments, net........................................ 121.7 175.4
Bad debt reserve........................................ (1.8) (14.3)
Litigation reserve...................................... (10.9) --
Other, net.............................................. (5.5) 15.2
-------- --------
Deferred tax (asset) liability, net......................... $ (19.4) $ 12.9
-------- --------
-------- --------
</TABLE>

Gross deferred income tax assets totaled $486.9 million and $469.5 million at
December 31, 1998 and 1997, respectively. Gross deferred income tax liabilities
totaled $467.5 million and $482.4 million at December 31, 1998 and 1997,
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, 1998, there are available alternative
minimum tax credit carryforwards of $16.8 million.

F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company's federal income tax returns are routinely audited by the IRS, and
provisions are routinely made in the financial statements in anticipation of the
results of these audits. The IRS has examined the 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
1991. 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.

9. PENSION PLANS

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 1998, 1997 and 1996 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) 1998 1997 1996
- ------------------------------------------------------------ ------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $ 19.0 $ 19.9 $ 19.0
Interest cost............................................... 25.5 23.5 21.9
Expected return on plan assets.............................. (34.9) (31.2) (28.3)
Recognized net actuarial loss (gain)........................ 0.4 0.1 (0.4)
Amortization of transition asset............................ (1.8) (1.9) (1.9)
Amortization of prior service cost.......................... (1.7) (2.0) (2.3)
------- ------- -------
Net periodic pension cost................................... $ 6.5 $ 8.4 $ 8.0
------- ------- -------
------- ------- -------
</TABLE>

F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes the status of the pension plan. At December 31,
1998 and 1997 the plan's assets exceeded its projected benefit obligations.

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
Change in benefit obligations:
Projected benefit obligation at beginning of year....... $370.4 $344.2
Service cost -- benefits earned during the year......... 19.0 19.9
Interest cost........................................... 25.5 23.5
Actuarial losses........................................ 20.4 0.3
Benefits paid........................................... (21.1) (17.5)
------ ------
Projected benefit obligation at end of year............. $414.2 $370.4
------ ------
------ ------
Change in plan assets:
Fair value of plan assets at beginning of year.......... $395.5 $347.8
Actual return on plan assets............................ 67.2 65.2
Benefits paid........................................... (21.1) (17.5)
------ ------
Fair value of plan assets at end of year................ 441.6 395.5
------ ------
Funded status of the plan............................... 27.4 25.1
Unrecognized transition obligation...................... (23.9) (26.2)
Unamortized prior service cost.......................... (11.0) (13.9)
Unrecognized net actuarial gains........................ (54.9) (44.9)
------ ------
Net pension liability............................... $(62.4) $(59.9)
------ ------
------ ------
</TABLE>

As a result of AFC's merger with APY, certain pension liabilities were reduced
by $11.7 million in 1997, to reflect their fair value as of the purchase date.
These pension liabilities were reduced by $10.3 million in 1998, which reflects
fair value, net of applicable amortization. Determination of the projected
benefit obligations was based on a weighted average discount rate of 6.5% and
7.0% in 1998 and 1997, respectively, and the assumed long-term rate of return on
plan assets was 9.0% in both 1998 and 1997. 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 973,262 shares of AFC Common Stock at both December 31, 1998
and 1997, with a market value of $56.3 million and $48.6 million at December 31,
1998 and 1997, 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 1998, 1997 and
1996, the Company matched 50% of employees' contributions up to 6.0% of eligible
compensation. The total expenses related to this plan was $5.6 million, $3.3
million and $5.5 million, in 1998, 1997 and 1996, respectively. In addition to
this plan, the Company has a defined contribution plan for substantially all of
its agents. The Plan expense in 1998, 1997 and 1996 was $3.0 million, $2.8
million and $2.0 million, respectively.

On January 1, 1998, substantially all of the aforementioned defined benefit and
defined contribution 401k plans 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.

F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. OTHER POSTRETIREMENT BENEFIT PLANS

In addition to the Company's pension plans, the Company currently provides
postretirement medical and death benefits to certain full-time employees and
dependents, under several plans sponsored by FAFLIC. 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 plan changes, effective January 1, 1996, resulted in a negative plan
amendment (change in eligibility and medical benefits) of $26.8 million and
curtailment (no future increases in life insurance) of $5.3 million. The
negative plan amendment will be amortized as prior service cost over the average
number of years to full eligibility (approximately 9 years or $3.0 million per
year). Of the $5.3 million curtailment gain, $3.3 million has been deducted from
unrecognized loss and $2.0 million has been recorded as a reduction of the net
periodic postretirement benefit expense.

The plans' funded status reconciled with amounts recognized in the Company's
consolidated balance sheet were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
Change in benefit obligation:
Accumulated postretirement benefit obligation at
beginning of year..................................... $ 71.8 $ 72.3
Service cost............................................ 3.1 3.0
Interest cost........................................... 5.1 4.6
Actuarial losses........................................ 7.6 (4.7)
Benefits paid........................................... (3.6) (3.4)
------ ------
Accumulated postretirement benefit obligation at end of
year.................................................. 84.0 71.8
Fair value of plan assets at end of year................ -- --
------ ------
Funded status of the plan............................... (84.0) (71.8)
Unamortized prior service cost.......................... (12.9) (15.3)
Unrecognized net actuarial losses....................... 7.5 0.8
------ ------
Accumulated postretirement benefit costs................ $(89.4) $(86.3)
------ ------
------ ------
</TABLE>

The components of net periodic postretirement benefit expense were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Service cost................................................ $ 3.1 $ 3.0 $ 3.2
Interest cost............................................... 5.1 4.6 4.6
Recognized net actuarial loss (gain)........................ 0.1 (0.1) 0.2
Amortization of prior service cost.......................... (2.4) (2.7) (3.0)
------ ------ ------
Net periodic postretirement benefit cost.................... $ 5.9 $ 4.8 $ 5.0
------ ------ ------
------ ------ ------
</TABLE>

As a result of AFC's merger with APY in 1997, certain postretirement liabilities
were reduced by $6.1 million to reflect their fair value as of the purchase
date. These postretirement liabilities were reduced by $5.4 million in 1998,
which reflects fair value, net of applicable amortization.

F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For purposes of measuring the accumulated postretirement benefit obligation at
December 31, 1998, health care costs were assumed to increase 7.0% in 1999,
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 one percentage point in each year would
increase the accumulated postretirement benefit obligation at December 31, 1998
by $5.7 million, and the aggregate of the service and interest cost components
of net periodic postretirement benefit expense for 1998 by $0.7 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, 1998 by $5.2 million, and the aggregate of
the service and interest cost components of net periodic postretirement benefit
expense for 1998 by $0.6 million.

The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 6.5% and 7.0% at December 31, 1998 and
1997. 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 aforementioned postretirement
medical and death benefits plans 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.

11. DIVIDEND RESTRICTIONS

Massachusetts, Delaware, New Hampshire and Michigan have enacted laws governing
the payment of dividends to stockholders by insurers. These laws affect the
dividend paying ability of FAFLIC, AFLIAC, Hanover and Citizens, respectively.

Dividends from FAFLIC and Allmerica P&C (Hanover) are the primary source of cash
flow for AFC.

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 1998, FAFLIC paid dividends of
$50.0 million to AFC. No dividends were declared by FAFLIC to AFC during 1997 or
1996 During 1999, FAFLIC could pay dividends of $116.4 million to AFC without
prior approval of the Commissioner.

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
1998, 1997 or 1996. During 1999, AFLIAC could pay dividends of $26.1 million to
FAFLIC without prior approval.

F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Pursuant to New Hampshire's statute, the maximum dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the New Hampshire Insurance Commissioner, is limited to 10% of
such insurer's statutory policyholder surplus as of the preceding December 31.
Hanover declared dividends to Allmerica P&C totaling, $125.0 million, $120.0
million and $105.0 million during 1998, 1997 and 1996, respectively. During
1999, the maximum dividend and other distributions that could be paid to
Allmerica P&C by Hanover, without prior approval of the Insurance Commissioner,
is approximately $1.6 million, which considers an extraordinary dividend of
$125.0 million declared on March 12, 1998. The allowable dividend without prior
approval will increase to $126.6 million on March 12, 1999.

Pursuant to Michigan's statute, the maximum dividends and other distributions
that an insurer may pay in any twelve month period, without prior approval of
the Michigan Insurance Commissioner, is limited to the greater of 10% of
policyholders' surplus as of December 31 of the immediately preceding year or
the statutory net income less realized gains, for the immediately preceding
calendar year. Citizens Insurance paid dividends to Citizens Corporation
totaling $200.0 million and $6.3 million during 1998 and 1996, respectively. A
$180.0 million extraordinary dividend was approved by the Commissioner in 1998.
No dividends were declared by Citizens Insurance during 1997. During 1999,
Citizens Insurance can declare no dividends to Citizens Corporation without
prior approval of the Michigan Insurance Commissioner as a result of the $180.0
million extraordinary dividend declared on December 21, 1998.

12. SEGMENT INFORMATION

The Company offers financial products and services in two major areas: Risk
Management and Retirement and Asset Accumulation. Within these broad areas, the
Company conducts business principally in four operating segments.

Effective January 1, 1998, the Company adopted Statement No. 131. Upon adoption,
the separate financial information of each segment was re-defined 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 significant changes in reportable segments is included below.

The Risk Management group includes two segments: Property and Casualty and
Corporate Risk Management Services. The Property and Casualty segment includes
property and casualty insurance products, such as automobile insurance,
homeowners insurance, commercial multiple peril insurance, and workers'
compensation insurance. These products are offered by Allmerica P&C through its
operating subsidiaries, Hanover and Citizens. Substantially all of the Property
and Casualty segment's earnings are generated in Michigan and the Northeast
(Connecticut, Massachusetts, New York, New Jersey, New Hampshire, Rhode Island,
Vermont and Maine). The Corporate Risk Management Services segment includes
group life and health insurance products and services which assist employers in
administering employee benefit programs and in managing the related risks.

The Retirement and 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
three types of GICs; the traditional GIC, the synthetic GIC and the floating
rate GIC. 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. In addition to the
four operating segments, the Company has a Corporate segment, which consists
primarily of cash, investments, corporate debt, Capital Securities and corporate
overhead expenses. Corporate overhead expenses reflect costs not attributable to
a

F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

particular segment, such as those generated by certain officers and directors,
Corporate Technology, Corporate Finance, Human Resources and the legal
department.

Significant changes to the Company's segmentation include a reclassification of
corporate overhead expenses from each operating segment into the Corporate
segment. Additionally, certain products (group retirement products, such as
401(k) plans and tax-sheltered annuities, group variable universal life) and
certain other non-insurance operations (telemarketing and trust services)
previously reported in the Allmerica Financial Institutional Services segment
were combined with the Allmerica Financial Services segment. Also, the Company
reclassified the GIC product line previously reported in the Allmerica Financial
Institutional Services segment into the Allmerica Asset Management segment.

Management evaluates the results of the aforementioned segments based on pre-tax
segment income. Pre-tax segment income is determined by adjusting net income for
net realized investment gains and losses, net gains and losses on disposals of
businesses, 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 pre-tax segment income enhances its
understanding of the Company's results of operations by highlighting net income
attributable to the normal, recurring operations of the business. However,
pre-tax 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) 1998 1997 1996
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Segment revenues:
Risk Management
Property and Casualty................................... $2,204.8 $2,211.0 $2,145.8
Corporate Risk Management Services...................... 412.9 405.4 370.7
-------- -------- --------
Subtotal............................................ 2,617.7 2,616.4 2,516.5
-------- -------- --------
Retirement and Asset Accumulation
Allmerica Financial Services............................ 721.2 709.7 700.0
Allmerica Asset Management.............................. 121.7 91.1 110.5
-------- -------- --------
Subtotal............................................ 842.9 800.8 810.5
-------- -------- --------
Corporate................................................. 2.3 5.5 5.2
Intersegment revenues..................................... (7.6) (11.6) (13.8)
-------- -------- --------
Total segment revenues including Closed Block........... 3,455.2 3,411.1 3,318.4
-------- -------- --------
Adjustment to segment revenues:
Adjustment for Closed Block............................. (98.4) (102.6) (105.7)
Net realized gains...................................... 62.6 75.6 66.8
-------- -------- --------
Total revenues...................................... $3,419.4 $3,384.2 $3,279.5
-------- -------- --------
-------- -------- --------
</TABLE>

F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Segment income (loss) before income taxes and minority
interest:
Risk Management
Property and Casualty................................... $151.4 $172.9 $170.7
Corporate Risk Management Services...................... 7.8 27.0 28.3
------ ------ ------
Subtotal............................................ 159.2 199.9 199.0
------ ------ ------
Retirement and Asset Accumulation
Allmerica Financial Services............................ 166.6 134.6 106.8
Allmerica Asset Management.............................. 23.7 18.4 11.5
------ ------ ------
Subtotal............................................ 190.3 153.0 118.3
------ ------ ------
Corporate................................................. (45.3) (44.6) (36.6)
------ ------ ------
Segment income before income taxes and minority
interest.............................................. 304.2 308.3 280.7
------ ------ ------
Adjustments to segment income:
Net realized investment gains, net of amortization...... 53.9 78.7 69.6
Sales practice litigation expense....................... (31.0) -- --
Loss on exiting reinsurance pools....................... (25.3)
Gain from change in mortality assumptions............... -- 47.0 --
Loss on cession of disability income business........... -- (53.9) --
Restructuring costs..................................... (13.0) -- --
Other items............................................. (.7) (3.2) (1.1)
------ ------ ------
Income before taxes and minority interest................. $288.1 $376.9 $349.2
------ ------ ------
------ ------ ------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997 1998 1997
- ------------------------------------------------------------ --------- --------- -------- ------
DEFERRED
ACQUISITION
IDENTIFIABLE ASSETS COSTS
<S> <C> <C> <C> <C>
Risk Management
Property and Casualty................................... $ 5,649.0 $ 5,650.4 $ 164.9 $167.2
Corporate Risk Management Services...................... 567.8 619.8 2.6 2.9
--------- --------- -------- ------
Subtotal............................................ 6,216.8 6,270.2 167.5 170.1
Retirement and Asset Accumulation
Allmerica Financial Services............................ 19,407.3 15,159.2 993.1 794.5
Allmerica Asset Management.............................. 1,810.9 1,035.1 0.6 0.9
--------- --------- -------- ------
Subtotal............................................ 21,218.2 16,194.3 993.7 795.4
Corporate............................................... 29.6 26.9 -- --
--------- --------- -------- ------
Total............................................... $27,464.6 $22,491.4 $1,161.2 $965.5
--------- --------- -------- ------
--------- --------- -------- ------
</TABLE>

13. LEASE COMMITMENTS

Rental expenses for operating leases, principally with respect to buildings,
amounted to $34.9 million, $33.6 million and $34.9 million in 1998, 1997 and
1996, respectively. At December 31, 1998, future minimum rental payments under
non-cancelable operating leases were approximately $73.5 million, payable as
follows: 1999 -- $28.6 million; 2000 -- $21.0 million; 2001 -- $13.8 million;
2002 -- $6.9 million; and $3.2 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 1999.

F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. REINSURANCE

In the normal course of business, the Company seeks to reduce the loss 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 SFAS 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.

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"). At December 31, 1998, CAR was the only reinsurer which
represented 10% or more of the Company's reinsurance business. As a servicing
carrier in Massachusetts, the Company cedes 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 1998, 1997 and 1996 were
$34.3 million and $38.1 million, $32.3 million and $28.2 million, and $38.0
million and $21.8 million, respectively. The Company ceded to MCCA premiums
earned and losses and loss adjustment expenses in 1998, 1997 and 1996 of $3.7
million and $18.0 million, $9.8 million and $(0.8) million, and $50.5 million
and $(52.9) 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-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The effects of reinsurance were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ---------- -------- --------
<S> <C> <C> <C>
Life and accident and health insurance premiums:
Direct.................................................. $ 416.6 $ 417.4 $ 389.1
Assumed................................................. 111.9 110.7 87.8
Ceded................................................... (189.8) (170.1) (138.9)
---------- -------- --------
Net premiums................................................ $ 338.7 $ 358.0 $ 338.0
---------- -------- --------
---------- -------- --------
Property and casualty premiums written:
Direct.................................................. $1,969.3 $2,068.5 $2,039.7
Assumed................................................. 58.8 103.1 108.7
Ceded................................................... (74.1) (179.8) (234.0)
---------- -------- --------
Net premiums................................................ $1,954.0 $1,991.8 $1,914.4
---------- -------- --------
---------- -------- --------
Property and casualty premiums earned:
Direct.................................................. $1,966.8 $2,046.2 $2,018.5
Assumed................................................. 64.5 102.0 112.4
Ceded................................................... (66.1) (195.1) (232.6)
---------- -------- --------
Net premiums................................................ $1,965.2 $1,953.1 $1,898.3
---------- -------- --------
---------- -------- --------
Life insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
Direct.................................................. $ 653.6 $ 656.4 $ 606.5
Assumed................................................. 67.9 61.6 44.9
Ceded................................................... (164.0) (158.8) (77.8)
---------- -------- --------
Net policy benefits, claims, losses and loss adjustment
expenses................................................... $ 557.5 $ 559.2 $ 573.6
---------- -------- --------
---------- -------- --------
Property and casualty benefits, claims, losses and loss
adjustment expenses:
Direct.................................................. $1,588.3 $1,464.9 $1,299.8
Assumed................................................. 62.7 101.2 85.8
Ceded................................................... (158.2) (120.6) (2.2)
---------- -------- --------
Net policy benefits, claims, losses, and loss adjustment
expenses................................................... $1,492.8 $1,445.5 $1,383.4
---------- -------- --------
---------- -------- --------
</TABLE>

15. DEFERRED POLICY ACQUISITION COSTS

The following reflects changes to the deferred policy acquisition asset:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year................................ $ 965.5 $ 822.7 $ 735.7
Acquisition expenses deferred........................... 641.2 617.7 547.4
Amortized to expense during the year.................... (452.8) (476.0) (470.1)
Adjustment to equity during the year.................... 7.3 (11.1) 9.7
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...................................... $1,161.2 $ 965.5 $ 822.7
-------- -------- --------
-------- -------- --------
</TABLE>

F-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

16. 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
$568.0 million, $533.6 million and $471.7 million at December 31, 1998, 1997 and
1996, respectively. Accident and health claim liabilities were re-estimated for
all prior years and were increased by $14.6 million in 1998, and decreased by
$0.2 million and $0.6 million in 1997 and 1996, respectively. The increase in
1998 resulted from the Company's reserve strengthening primarily in the assumed
reinsurance and stop loss only business.

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) 1998 1997 1996
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Reserve for losses and LAE, beginning of the year........... $2,615.4 $2,744.1 $2,896.0
Incurred losses and LAE, net of reinsurance recoverable:
Provision for insured events of the current year........ 1,609.0 1,564.1 1,513.3
Decrease in provision for insured events of prior
years................................................. (127.2) (127.9) (141.4)
-------- -------- --------
Total incurred losses and LAE............................... 1,481.8 1,436.2 1,371.9
-------- -------- --------
Payments, net of reinsurance recoverable:
Losses and LAE attributable to insured events of current
year.................................................. 871.9 775.1 759.6
Losses and LAE attributable to insured events of prior
years................................................. 643.0 732.1 627.6
-------- -------- --------
Total payments.............................................. 1,514.9 1,507.2 1,387.2
-------- -------- --------
Change in reinsurance recoverable on unpaid losses.......... 15.0 (50.2) (136.6)
-------- -------- --------
Other (1)................................................... -- (7.5) --
-------- -------- --------
Reserve for losses and LAE, end of year..................... $2,597.3 $2,615.4 $2,744.1
-------- -------- --------
-------- -------- --------
</TABLE>

(1) Includes purchase accounting adjustments.

As part of an ongoing process, the property and casualty reserves have been
re-estimated for all prior accident years and were decreased by $127.2 million,
$127.9 million and $141.1 million in 1998, 1997, and 1996, respectively.

The decrease in favorable development on prior years' reserves of $0.7 million
in 1998 results from a $20.7 million decrease in favorable development at
Citizens, significantly offset by a $20.0 million increase in favorable
development at Hanover. The decrease in favorable development on prior year
reserves at Citizens in 1998, reflects a $13.8 million decrease in favorable
development, to $21.9 million, in the workers' compensation line. In addition,
favorable development in the commercial multiple peril line decreased $4.0
million, to

F-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

$0.3 million. These declines in favorable development are partially offset by
continued favorable development on prior year reserves in the personal
automobile line due to tort reform in Michigan, which became effective July 26,
1996. The new legislation requires judges rather than juries to determine if the
minimum threshold to allow pain and suffering damage settlements has been met.

The increase in favorable development at Hanover during 1998 reflects a $20.6
million increase in favorable development on prior year reserves, to $38.0
million, in the personal automobile line, as well as a $14.9 million increase to
$12.1 million in the commercial multiple peril line. These increases are
primarily attributable to the initiatives taken by the Company over the past two
years which are expected to reduce ultimate settlement costs. These increases
are partially offset by less favorable development in the workers' compensation
line where favorable development on prior year reserves decreased $19.2 million,
to $9.6 million.

The decrease in favorable development on prior years' reserves of $13.5 million
in 1997 results primarily from a $24.6 million decrease in favorable development
at Hanover to $58.4 million, partially offset by an $11.1 million increase in
favorable development at Citizens to $69.5 million. The decrease in Hanover's
favorable development of $24.6 million in 1997 reflects a decrease in favorable
development of $25.0 million, to $17.4 million, in the personal automobile line
as well as a decrease in favorable development of $8.5 million, to unfavorable
development of $2.8 million, in the commercial multiple peril line. These
decreases were partially offset by an increase in favorable development in the
workers' compensation line of $11.5 million, to $28.8 million. The increase in
favorable development at Citizens in 1997, reflects improved severity in the
workers' compensation line where favorable development increased $13.9 million,
to $35.7 million, and in the commercial multiple peril line where favorable
development increased $7.0 million, to $4.3 million. These increases are
partially offset by less favorable development in the personal automobile line,
where favorable development decreased $10.5 million, to $22.5 million in 1997.

This favorable development reflects the Regional Property and Casualty
subsidiaries' 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 Regional Property and Casualty
subsidiaries, the exposure to environmental liabilities is relatively small and
therefore their reserves are relatively small compared to other types of
liabilities. Loss and LAE reserves related to environmental damage and toxic
tort liability, included in the total reserve for losses and LAE were $49.9
million, $53.1 million and $50.8 million, net of reinsurance of $14.2 million,
$15.7 million and $20.2 million in 1998, 1997 and 1996, respectively. The
Regional Property and Casualty subsidiaries do not specifically underwrite
policies that include this coverage, but as case law expands policy provisions
and insurers' liability beyond the intended coverage, the Regional Property and
Casualty subsidiaries 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, current law and
methodologies currently available. Although these claims are not material, their
existence gives rise to uncertainty and is discussed because of the possibility,
however remote, that they may become material. 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.

17. MINORITY INTEREST

The Company's interest in Allmerica P&C is represented by ownership of 70.0%,
65.8% and 59.5% of the outstanding shares of common stock at December 31, 1998,
1997 and 1996, respectively. Earnings and

F-39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

shareholder's equity attributable to minority shareholders are included in
minority interest in the consolidated financial statements.

18. 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, to which the court granted preliminary
approval on December 4, 1998. A hearing was held on March 19, 1999 to consider
final approval of the settlement agreement. A decision by the court is expected
to be rendered in the near future. Accordingly, 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, if any, 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, liabilities related to these proceedings could be established in the
near term if estimates of the ultimate resolution of these proceedings are
revised.

RESIDUAL MARKETS

The Company is required to participate in residual markets in various states.
The results of the residual markets are not subject to the predictability
associated with the Company's own managed business, and are significant to the
workers' compensation line of business and both the private passenger and
commercial automobile lines of business.

YEAR 2000

F-40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Although the Company does not believe that there is a material contingency
associated with the Year 2000 project, there can be no assurance that exposure
for material contingencies will not arise.

19. STATUTORY FINANCIAL INFORMATION

The Company and its insurance subsidiaries are 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. Statutory net income and surplus are as follows:

<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Statutory Net Income (Combined)
Property and Casualty Companies......................... $ 180.7 $ 190.3 $ 155.5
Life and Health Companies............................... 86.4 191.2 133.3
Statutory Shareholder's Surplus (Combined)
Property and Casualty Companies......................... $1,269.3 $1,279.6 $1,201.6
Life and Health Companies............................... 1,164.1 1,221.3 1,120.1
</TABLE>

20. SUBSEQUENT EVENT

On April 1, 1999, Allmerica P&C redeemed an additional 3,246.8 shares of its
issued and outstanding common stock owned by AFC for $125.0 million, thereby
increasing FAFLIC's ownership of Allmerica P&C by 4.8%. The 1999 transaction
consisted of $75.4 million of securities and $49.6 million of cash.

F-41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of First Allmerica Financial Life Insurance Company
and the Policyowners of the Inheiritage Account of First Allmerica Financial
Life Insurance Company

In our opinion, the accompanying statements of assets and liabilities, and the
related statements of operations and changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts
constituting the Inheiritage Account of First Allmerica Financial Life Insurance
Company at December 31, 1998, the results of each of their operations and the
changes in each of their net assets for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of First Allmerica Financial Life Insurance
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
Funds, provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 26, 1999
<PAGE>
INHEIRITAGE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<CAPTION>
INVESTMENT SELECT
GRADE MONEY EQUITY GOVERNMENT AGGRESSIVE SELECT
GROWTH INCOME MARKET INDEX BOND GROWTH GROWTH
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust........................... $ 445,722 $ 31,125 $ 688,802 $ 519,538 $ -- $530,495 $ 679,284
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.......................... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total assets.............................. 445,722 31,125 688,802 519,538 -- 530,495 679,284
LIABILITIES: -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net assets................................ $ 445,722 $ 31,125 $ 688,802 $ 519,538 $ -- $530,495 $ 679,284
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net asset distribution by category:
Variable life policies.................... 445,722 31,125 688,802 519,538 -- 530,495 679,284
Value of investment by
First Allmerica Financial Life Insurance
Company (Sponsor).......................... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
$ 445,722 $ 31,125 $ 688,802 $ 519,538 $ -- $530,495 $ 679,284
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------

Units outstanding, December 31, 1998........ 245,758 26,945 605,069 248,380 -- 340,067 318,058
Net asset value per unit, December 31,
1998....................................... $1.813662 $1.155113 $1.138386 $2.091706 $1.107280 $1.559972 $2.135723
</TABLE>

* Name changed. See Note 1.

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

SA-1
<PAGE>
INHEIRITAGE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SELECT
GROWTH SELECT SELECT SELECT SELECT SELECT
AND VALUE SELECT INTERNATIONAL CAPITAL EMERGING STRATEGIC
INCOME OPPORTUNITY* INCOME EQUITY APPRECIATION MARKETS GROWTH
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust........................... $217,699 $350,624 $ 12,112 $290,880 $248,151 $ 16 $ 19
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.......................... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total assets.............................. 217,699 350,624 12,112 290,880 248,151 16 19
LIABILITIES: -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net assets.................................. $217,699 $350,624 $ 12,112 $290,880 $248,151 $ 16 $ 19
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net asset distribution by category:
Variable life policies.................... 217,699 350,624 12,112 290,880 248,151 -- --
Value of investment by
First Allmerica Financial Life Insurance
Company (Sponsor).......................... -- -- -- -- -- 16 19
--------- --------- --------- --------- --------- --------- ---------
$217,699 $350,624 $ 12,112 $290,880 $248,151 $ 16 $ 19
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------

Units outstanding, December 31, 1998........ 124,461 214,021 12,046 178,713 130,905 21 20
Net asset value per unit, December 31,
1998....................................... $1.749128 $1.638272 $1.005461 $1.627639 $1.895656 $0.777681 $0.966076
</TABLE>

* Name changed. See Note 1.

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

SA-2
<PAGE>
INHEIRITAGE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998

<TABLE>
<CAPTION>
FIDELITY FIDELITY T. ROWE
VIP FIDELITY FIDELITY FIDELITY VIP II PRICE DGPF
HIGH VIP VIP VIP ASSET INTERNATIONAL INTERNATIONAL
INCOME EQUITY-INCOME GROWTH OVERSEAS MANAGER STOCK EQUITY
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust........................... $ - $ - $ - $ - $ - $ - $ -
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............. 195,184 672,137 719,508 22,531 47,208 - -
Investment in shares of T. Rowe Price
International Series, Inc.................. - - - - - 183,436 -
Investment in shares of Delaware Group
Premium Fund, Inc.......................... - - - - - - 153,252
--------- --------- --------- --------- --------- --------- ---------
Total assets.............................. 195,184 672,137 719,508 22,531 47,208 183,436 153,252
LIABILITIES: - - - - - - -
--------- --------- --------- --------- --------- --------- ---------
Net assets.................................. $195,184 $672,137 $719,508 $ 22,531 $47,208 $183,436 $153,252
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net asset distribution by category:
Variable life policies.................... 195,184 672,137 719,508 22,531 47,208 183,436 153,252
Value of investment by
First Allmerica Financial Life Insurance
Company (Sponsor).......................... - - - - - - -
--------- --------- --------- --------- --------- --------- ---------
$195,184 $672,137 $719,508 $ 22,531 $47,208 $183,436 $153,252
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------

Units outstanding, December 31, 1998........ 156,058 387,830 380,416 16,028 26,867 134,424 108,626
Net asset value per unit, December 31,
1998....................................... $1.250716 $1.733072 $1.891372 $1.405689 $1.757086 $1.364605 $1.410820
</TABLE>

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

SA-3
<PAGE>
INHEIRITAGE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INVESTMENT GRADE INCOME
GROWTH ----------------------------------
---------------------------
YEAR ENDED PERIOD FROM
YEAR ENDED DECEMBER 31, DECEMBER 31, 12/13/96** TO
1998 1997 1996 1998 1997 12/31/96
-------- -------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 3,863 $ 2,362 $ 813 $ 1,685 $ 119 $ 1
Mortality and expense risk fees............ (3,256) (1,221) (338) (246) (14) (1)
Administrative expense fees................ (918) (344) (94) (70) (4) --
-------- -------- ------- -------- ------- ---
Net investment income (loss)............. (311) 797 381 1,369 101 --
-------- -------- ------- -------- ------- ---
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 3,565 38,579 5,093 -- -- --
Net realized gain (loss) from sales of
investments.............................. (3,875) 8,712 (915) 4 1 --
-------- -------- ------- -------- ------- ---
Net realized gain (loss)................... (310) 47,291 4,178 4 1 --
Net unrealized gain (loss)................. 57,199 (29,295) 1,497 182 60 (1)
-------- -------- ------- -------- ------- ---
Net realized and unrealized gain
(loss).................................. 56,889 17,996 5,675 186 61 (1)
-------- -------- ------- -------- ------- ---

Net increase (decrease) in net assets from
operations............................... 56,578 18,793 6,056 1,555 162 (1)
-------- -------- ------- -------- ------- ---

POLICY TRANSACTIONS:
Net premiums............................... 50,688 35,548 22,047 2,438 2,479 84
Terminations............................... -- -- -- -- -- --
Insurance and other charges................ (2,974) (783) (147) (185) (70) (3)
Transfers between sub-accounts (including
fixed account), net...................... 79,703 147,416 23,407 24,317 -- --
Other transfers from (to) the General
Account.................................. 210 (134) 353 344 5 --
Net increase (decrease) in investment by
Sponsor.................................. -- -- -- -- -- --
-------- -------- ------- -------- ------- ---
Net increase (decrease) in net assets from
policy transactions...................... 127,627 182,047 45,660 26,914 2,414 81
-------- -------- ------- -------- ------- ---

Net increase (decrease) in net assets...... 184,205 200,840 51,716 28,469 2,576 80

NET ASSETS:
Beginning of year.......................... 261,517 60,677 8,961 2,656 80 --
-------- -------- ------- -------- ------- ---
End of year................................ $445,722 $261,517 $60,677 $ 31,125 $ 2,656 $80
-------- -------- ------- -------- ------- ---
-------- -------- ------- -------- ------- ---

MONEY MARKET
------------------------------

YEAR ENDED DECEMBER 31,
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 22,564 $ 16,784 $ 4,621
Mortality and expense risk fees............ (3,752) (2,785) (808)
Administrative expense fees................ (1,058) (786) (224)
--------- --------- --------
Net investment income (loss)............. 17,754 13,213 3,589
--------- --------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- -- --
Net realized gain (loss) from sales of
investments.............................. -- -- --
--------- --------- --------
Net realized gain (loss)................... -- -- --
Net unrealized gain (loss)................. -- -- --
--------- --------- --------
Net realized and unrealized gain
(loss).................................. -- -- --
--------- --------- --------
Net increase (decrease) in net assets from
operations............................... 17,754 13,213 3,589
--------- --------- --------
POLICY TRANSACTIONS:
Net premiums............................... 416,713 392,241 71,860
Terminations............................... -- -- --
Insurance and other charges................ (11,059) (7,672) (975)
Transfers between sub-accounts (including
fixed account), net...................... (299,357) (113,165) 204,574
Other transfers from (to) the General
Account.................................. (78) 181 21
Net increase (decrease) in investment by
Sponsor.................................. -- -- --
--------- --------- --------
Net increase (decrease) in net assets from
policy transactions...................... 106,219 271,585 275,480
--------- --------- --------
Net increase (decrease) in net assets...... 123,973 284,798 279,069
NET ASSETS:
Beginning of year.......................... 564,829 280,031 962
--------- --------- --------
End of year................................ $ 688,802 $ 564,829 $280,031
--------- --------- --------
--------- --------- --------
</TABLE>

** Date of initial investment.

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

SA-4
<PAGE>
INHEIRITAGE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
EQUITY INDEX GOVERNMENT BOND
--------------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
-------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 4,716 $ 2,248 $ 884 $ -- $ 566 $ 307
Mortality and expense risk fees............ (3,531) (1,391) (363) (4) (53) (49)
Administrative expense fees................ (996) (393) (101) (2) (15) (14)
-------- -------- ------- -------- ------- -------
Net investment income (loss)............. 189 464 420 (6) 498 244
-------- -------- ------- -------- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 12,481 7,681 1,414 -- -- --
Net realized gain (loss) from sales of
investments.............................. 1,893 18,875 5,463 77 -- (36)
-------- -------- ------- -------- ------- -------
Net realized gain (loss)................... 14,374 26,556 6,877 77 -- (36)
Net unrealized gain (loss)................. 81,814 10,769 (927) 186 (128) (65)
-------- -------- ------- -------- ------- -------
Net realized and unrealized gain
(loss).................................. 96,188 37,325 5,950 263 (128) (101)
-------- -------- ------- -------- ------- -------

Net increase (decrease) in net assets from
operations............................... 96,377 37,789 6,370 257 370 143
-------- -------- ------- -------- ------- -------

POLICY TRANSACTIONS:
Net premiums............................... 126,974 72,231 8,653 -- 492 3,490
Terminations............................... -- -- -- -- -- --
Insurance and other charges................ (18,572) (15,253) (9,327) -- (6) (36)
Transfers between sub-accounts (including
fixed account), net...................... 24,344 137,074 37,727 (21,895) 15,339 (2,893)
Other transfers from (to) the General
Account.................................. 156 40 1,118 (300) -- (10)
Net increase (decrease) in investment by
Sponsor.................................. -- -- -- -- -- --
-------- -------- ------- -------- ------- -------
Net increase (decrease) in net assets from
policy transactions...................... 132,902 194,092 38,171 (22,195) 15,825 551
-------- -------- ------- -------- ------- -------

Net increase (decrease) in net assets...... 229,279 231,881 44,541 (21,938) 16,195 694

NET ASSETS:
Beginning of year.......................... 290,259 58,378 13,837 21,938 5,743 5,049
-------- -------- ------- -------- ------- -------
End of year................................ $519,538 $290,259 $58,378 $ -- $21,938 $ 5,743
-------- -------- ------- -------- ------- -------
-------- -------- ------- -------- ------- -------

<CAPTION>
SELECT AGGRESSIVE GROWTH
----------------------------

YEAR ENDED DECEMBER 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ -- $ -- $ --
Mortality and expense risk fees............ (3,499) (2,003) (681)
Administrative expense fees................ (987) (565) (189)
-------- -------- --------
Net investment income (loss)............. (4,486) (2,568) (870)
-------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- 24,088 7,614
Net realized gain (loss) from sales of
investments.............................. (10,294) 27,548 15,832
-------- -------- --------
Net realized gain (loss)................... (10,294) 51,636 23,446
Net unrealized gain (loss)................. 57,544 (6,950) (5,567)
-------- -------- --------
Net realized and unrealized gain
(loss).................................. 47,250 44,686 17,879
-------- -------- --------
Net increase (decrease) in net assets from
operations............................... 42,764 42,118 17,009
-------- -------- --------
POLICY TRANSACTIONS:
Net premiums............................... 70,390 53,541 45,627
Terminations............................... (1,522) (3,454) --
Insurance and other charges................ (2,135) (1,033) (458)
Transfers between sub-accounts (including
fixed account), net...................... 109,886 99,397 39,396
Other transfers from (to) the General
Account.................................. (3,148) 3,298 2,010
Net increase (decrease) in investment by
Sponsor.................................. -- -- --
-------- -------- --------
Net increase (decrease) in net assets from
policy transactions...................... 173,471 151,749 86,575
-------- -------- --------
Net increase (decrease) in net assets...... 216,235 193,867 103,584
NET ASSETS:
Beginning of year.......................... 314,260 120,393 16,809
-------- -------- --------
End of year................................ $530,495 $314,260 $120,393
-------- -------- --------
-------- -------- --------
</TABLE>

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

SA-5
<PAGE>
INHEIRITAGE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT
SELECT GROWTH GROWTH AND INCOME
--------------------------- ---------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 416 $ 812 $ 77 $ 2,243 $ 1,377 $ 503
Mortality and expense risk fees............ (3,949) (1,169) (139) (1,551) (904) (284)
Administrative expense fees................ (1,113) (330) (38) (437) (255) (79)
-------- -------- ------- -------- -------- -------
Net investment income (loss)............. (4,646) (687) (100) 255 218 140
-------- -------- ------- -------- -------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 4,267 13,732 3,679 628 11,213 4,275
Net realized gain (loss) from sales of
investments.............................. 39,785 12,531 3,602 714 549 (255)
-------- -------- ------- -------- -------- -------
Net realized gain (loss)................... 44,052 26,263 7,281 1,342 11,762 4,020
Net unrealized gain (loss)................. 81,796 9,365 (2,989) 23,841 6,825 1,076
-------- -------- ------- -------- -------- -------
Net realized and unrealized gain
(loss).................................. 125,848 35,628 4,292 25,183 18,587 5,096
-------- -------- ------- -------- -------- -------

Net increase (decrease) in net assets from
operations............................... 121,202 34,941 4,192 25,438 18,805 5,236
-------- -------- ------- -------- -------- -------

POLICY TRANSACTIONS:
Net premiums............................... 110,162 53,947 12,649 42,234 29,588 37,896
Terminations............................... -- -- -- -- (2,515) --
Insurance and other charges................ (2,919) (757) (82) (2,251) (828) (266)
Transfers between sub-accounts (including
fixed account), net...................... 171,632 165,506 (275) 24,346 22,388 (6,285)
Other transfers from (to) the General
Account.................................. (2,077) 1,569 379 (3,674) (1,136) 794
Net increase (decrease) in investment by
Sponsor.................................. -- -- -- -- -- --
-------- -------- ------- -------- -------- -------
Net increase (decrease) in net assets from
policy transactions...................... 276,798 220,265 12,671 60,655 47,497 32,139
-------- -------- ------- -------- -------- -------

Net increase (decrease) in net assets...... 398,000 255,206 16,863 86,093 66,302 37,375

NET ASSETS:
Beginning of year.......................... 281,284 26,078 9,215 131,606 65,304 27,929
-------- -------- ------- -------- -------- -------
End of year................................ $679,284 $281,284 $26,078 $217,699 $131,606 $65,304
-------- -------- ------- -------- -------- -------
-------- -------- ------- -------- -------- -------

<CAPTION>
SELECT VALUE
OPPORTUNITY*
---------------------------

YEAR ENDED DECEMBER 31,
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 2,923 $ 1,402 $ 227
Mortality and expense risk fees............ (2,653) (1,190) (189)
Administrative expense fees................ (748) (335) (53)
-------- -------- -------
Net investment income (loss)............. (478) (123) (15)
-------- -------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 1,102 33,367 1,440
Net realized gain (loss) from sales of
investments.............................. 210 14,580 3,045
-------- -------- -------
Net realized gain (loss)................... 1,312 47,947 4,485
Net unrealized gain (loss)................. 11,599 (16,439) (26)
-------- -------- -------
Net realized and unrealized gain
(loss).................................. 12,911 31,508 4,459
-------- -------- -------
Net increase (decrease) in net assets from
operations............................... 12,433 31,385 4,444
-------- -------- -------
POLICY TRANSACTIONS:
Net premiums............................... 42,107 45,084 10,199
Terminations............................... -- -- --
Insurance and other charges................ (2,372) (822) (138)
Transfers between sub-accounts (including
fixed account), net...................... 43,016 145,593 11,442
Other transfers from (to) the General
Account.................................. (43) 109 (515)
Net increase (decrease) in investment by
Sponsor.................................. -- -- --
-------- -------- -------
Net increase (decrease) in net assets from
policy transactions...................... 82,708 189,964 20,988
-------- -------- -------
Net increase (decrease) in net assets...... 95,141 221,349 25,432
NET ASSETS:
Beginning of year.......................... 255,483 34,134 8,702
-------- -------- -------
End of year................................ $350,624 $255,483 $34,134
-------- -------- -------
-------- -------- -------
</TABLE>

* Name changed. See Note 1.

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

SA-6
<PAGE>
INHEIRITAGE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT
INCOME SELECT SELECT CAPITAL
------------ INTERNATIONAL EQUITY APPRECIATION
--------------------------- ---------------------------
PERIOD FROM
9/11/98** TO YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
12/31/98 1998 1997 1996 1998 1997 1996
------------ -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 198 $ 5,861 $ 6,590 $ 1,058 $ -- $ -- $ --
Mortality and expense risk fees............ (18) (2,853) (1,146) (214) (1,793) (898) (165)
Administrative expense fees................ (5) (805) (323) (59) (497) (248) (46)
------------ -------- -------- ------- -------- -------- -------
Net investment income (loss)............. 175 2,203 5,121 785 (2,290) (1,146) (211)
------------ -------- -------- ------- -------- -------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- -- 9,317 126 37,120 -- 28
Net realized gain (loss) from sales of
investments.............................. (99) 91,619 (1,218) 685 1,243 10,252 (724)
------------ -------- -------- ------- -------- -------- -------
Net realized gain (loss)................... (99) 91,619 8,099 811 38,363 10,252 (696)
Net unrealized gain (loss)................. (74) 5,108 (8,910) 3,572 (8,993) 12,967 (814)
------------ -------- -------- ------- -------- -------- -------
Net realized and unrealized gain
(loss)................................. (173) 96,727 (811) 4,383 29,370 23,219 (1,510)
------------ -------- -------- ------- -------- -------- -------

Net increase (decrease) in net assets from
operations............................... 2 98,930 4,310 5,168 27,080 22,073 (1,721)
------------ -------- -------- ------- -------- -------- -------

POLICY TRANSACTIONS:
Net premiums............................... 3,071 37,489 26,346 32,320 36,396 44,247 17,225
Terminations............................... -- -- (1,344) -- (1,123) -- --
Insurance and other charges................ (45) (1,979) (498) (122) (1,483) (846) (278)
Transfers between sub-accounts (including
fixed account), net...................... 9,085 (30,708) 102,791 20,481 16,279 65,081 20,724
Other transfers from (to) the General
Account.................................. (1) (1,945) (1,269) 929 (288) 12 571
Net increase (decrease) in investment by
Sponsor.................................. -- -- -- (132) -- -- (293)
------------ -------- -------- ------- -------- -------- -------
Net increase (decrease) in net assets from
policy transactions...................... 12,110 2,857 126,026 53,476 49,781 108,494 37,949
------------ -------- -------- ------- -------- -------- -------

Net increase (decrease) in net assets...... 12,112 101,787 130,336 58,644 76,861 130,567 36,228

NET ASSETS:
Beginning of year.......................... -- 189,093 58,757 113 171,290 40,723 4,495
------------ -------- -------- ------- -------- -------- -------
End of year................................ $12,112 $290,880 $189,093 $58,757 $248,151 $171,290 $40,723
------------ -------- -------- ------- -------- -------- -------
------------ -------- -------- ------- -------- -------- -------

<CAPTION>
SELECT SELECT
EMERGING STRATEGIC
MARKETS GROWTH
------------ ------------

PERIOD FROM PERIOD FROM
5/11/98** TO 5/11/98** TO
12/31/98 12/31/98
------------ ------------
<S> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $-- $--
Mortality and expense risk fees............ -- --
Administrative expense fees................ -- --
--- ---
Net investment income (loss)............. -- --
--- ---
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- --
Net realized gain (loss) from sales of
investments.............................. -- --
--- ---
Net realized gain (loss)................... -- --
Net unrealized gain (loss)................. (4) (1)
--- ---
Net realized and unrealized gain
(loss)................................. (4) (1)
--- ---
Net increase (decrease) in net assets from
operations............................... (4) (1)
--- ---
POLICY TRANSACTIONS:
Net premiums............................... -- --
Terminations............................... -- --
Insurance and other charges................ -- --
Transfers between sub-accounts (including
fixed account), net...................... -- --
Other transfers from (to) the General
Account.................................. -- --
Net increase (decrease) in investment by
Sponsor.................................. 20 20
--- ---
Net increase (decrease) in net assets from
policy transactions...................... 20 20
--- ---
Net increase (decrease) in net assets...... 16 19
NET ASSETS:
Beginning of year.......................... -- --
--- ---
End of year................................ $16 $19
--- ---
--- ---
</TABLE>

** Date of initial investment.

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

SA-7
<PAGE>
INHEIRITAGE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
HIGH INCOME EQUITY-INCOME
--------------------------- ----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
-------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 10,236 $ 5,394 $ 1,230 $ 5,066 $ 2,557 $ 90
Mortality and expense risk fees............ (1,769) (1,080) (506) (4,172) (1,988) (815)
Administrative expense fees................ (498) (305) (141) (1,176) (561) (227)
-------- -------- ------- -------- -------- --------
Net investment income (loss)............. 7,969 4,009 583 (282) 8 (952)
-------- -------- ------- -------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 6,504 667 240 18,029 12,855 2,564
Net realized gain (loss) from sales of
investments.............................. (2,623) 15,572 5,531 502 329 (844)
-------- -------- ------- -------- -------- --------
Net realized gain (loss)................... 3,881 16,239 5,771 18,531 13,184 1,720
Net unrealized gain (loss)................. (792) 587 625 33,657 37,086 9,822
-------- -------- ------- -------- -------- --------
Net realized and unrealized gain
(loss).................................. 3,089 16,826 6,396 52,188 50,270 11,542
-------- -------- ------- -------- -------- --------

Net increase (decrease) in net assets from
operations............................... 11,058 20,835 6,979 51,906 50,278 10,590
-------- -------- ------- -------- -------- --------

POLICY TRANSACTIONS:
Net premiums............................... 46,483 37,579 39,315 109,086 91,656 58,682
Terminations............................... (1,138) -- -- (2,345) -- --
Insurance and other charges................ (1,658) (1,001) (471) (3,472) (1,977) (869)
Transfers between sub-accounts (including
fixed account), net...................... 9,522 625 12,179 163,685 71,066 16,780
Other transfers from (to) the General
Account.................................. (1,121) (20) 197 (1,680) (1,043) 929
Net increase (decrease) in investment by
Sponsor.................................. -- -- -- -- -- --
-------- -------- ------- -------- -------- --------
Net increase (decrease) in net assets from
policy transactions...................... 52,088 37,183 51,220 265,274 159,702 75,522
-------- -------- ------- -------- -------- --------

Net increase (decrease) in net assets...... 63,146 58,018 58,199 317,180 209,980 86,112

NET ASSETS:
Beginning of year.......................... 132,038 74,020 15,821 354,957 144,977 58,865
-------- -------- ------- -------- -------- --------
End of year................................ $195,184 $132,038 $74,020 $672,137 $354,957 $144,977
-------- -------- ------- -------- -------- --------
-------- -------- ------- -------- -------- --------

<CAPTION>
FIDELITY VIP
GROWTH
----------------------------

YEAR ENDED DECEMBER 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 1,975 $ 1,211 $ 212
Mortality and expense risk fees............ (4,337) (2,263) (1,017)
Administrative expense fees................ (1,223) (638) (282)
-------- -------- --------
Net investment income (loss)............. (3,585) (1,690) (1,087)
-------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 51,661 5,419 5,366
Net realized gain (loss) from sales of
investments.............................. 39,829 1,306 (57)
-------- -------- --------
Net realized gain (loss)................... 91,490 6,725 5,309
Net unrealized gain (loss)................. 81,513 38,619 11,462
-------- -------- --------
Net realized and unrealized gain
(loss).................................. 173,003 45,344 16,771
-------- -------- --------
Net increase (decrease) in net assets from
operations............................... 169,418 43,654 15,684
-------- -------- --------
POLICY TRANSACTIONS:
Net premiums............................... 96,389 64,784 60,044
Terminations............................... (2,456) (3,119) --
Insurance and other charges................ (4,799) (2,303) (888)
Transfers between sub-accounts (including
fixed account), net...................... 88,746 99,562 70,525
Other transfers from (to) the General
Account.................................. (1,642) (692) (1,198)
Net increase (decrease) in investment by
Sponsor.................................. -- -- --
-------- -------- --------
Net increase (decrease) in net assets from
policy transactions...................... 176,238 158,232 128,483
-------- -------- --------
Net increase (decrease) in net assets...... 345,656 201,886 144,167
NET ASSETS:
Beginning of year.......................... 373,852 171,966 27,799
-------- -------- --------
End of year................................ $719,508 $373,852 $171,966
-------- -------- --------
-------- -------- --------
</TABLE>

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

SA-8
<PAGE>
INHEIRITAGE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP II
OVERSEAS ASSET MANAGER
--------------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
-------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 240 $ 86 $ 15 $ 1,182 $ 404 $ 98
Mortality and expense risk fees............ (211) (120) (27) (387) (228) (58)
Administrative expense fees................ (59) (34) (7) (109) (65) (16)
-------- -------- ------- ------- -------- -------
Net investment income (loss)............. (30) (68) (19) 686 111 24
-------- -------- ------- ------- -------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 709 340 17 3,547 1,014 80
Net realized gain (loss) from sales of
investments.............................. 16,693 9,680 338 1,341 32 17
-------- -------- ------- ------- -------- -------
Net realized gain (loss)................... 17,402 10,020 355 4,888 1,046 97
Net unrealized gain (loss)................. 1,956 (557) 267 396 3,696 750
-------- -------- ------- ------- -------- -------
Net realized and unrealized gain
(loss).................................. 19,358 9,463 622 5,284 4,742 847
-------- -------- ------- ------- -------- -------

Net increase (decrease) in net assets from
operations............................... 19,328 9,395 603 5,970 4,853 871
-------- -------- ------- ------- -------- -------

POLICY TRANSACTIONS:
Net premiums............................... 6,874 3,393 3,103 7,297 7,867 7,875
Terminations............................... -- -- -- (1,415) -- --
Insurance and other charges................ (313) (267) (83) (533) (453) (214)
Transfers between sub-accounts (including
fixed account), net...................... (15,057) (6,551) (272) (570) 13,549 --
Other transfers from (to) the General
Account.................................. 1 1,335 -- 1 -- 28
Net increase (decrease) in investment by
Sponsor.................................. -- -- -- -- -- (129)
-------- -------- ------- ------- -------- -------
Net increase (decrease) in net assets from
policy transactions...................... (8,495) (2,090) 2,748 4,780 20,963 7,560
-------- -------- ------- ------- -------- -------

Net increase (decrease) in net assets...... 10,833 7,305 3,351 10,750 25,816 8,431

NET ASSETS:
Beginning of year.......................... 11,698 4,393 1,042 36,458 10,642 2,211
-------- -------- ------- ------- -------- -------
End of year................................ $ 22,531 $ 11,698 $ 4,393 $47,208 $ 36,458 $10,642
-------- -------- ------- ------- -------- -------
-------- -------- ------- ------- -------- -------
</TABLE>

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

SA-9
<PAGE>
INHEIRITAGE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
T. ROWE PRICE DGPF
INTERNATIONAL STOCK INTERNATIONAL EQUITY
--------------------------- ----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
-------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 2,242 $ 989 $ 170 $ 4,001 $ 1,076 $ 585
Mortality and expense risk fees............ (1,382) (625) (102) (1,217) (613) (180)
Administrative expense fees................ (390) (177) (28) (343) (173) (50)
-------- -------- ------- -------- -------- --------
Net investment income (loss)............. 470 187 40 2,441 290 355
-------- -------- ------- -------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 791 1,401 101 -- -- 157
Net realized gain (loss) from sales of
investments.............................. 7,871 6,413 3,240 14,098 9,879 12
-------- -------- ------- -------- -------- --------
Net realized gain (loss)................... 8,662 7,814 3,341 14,098 9,879 169
Net unrealized gain (loss)................. 12,711 (2,178) (74) 6,737 (1,771) 2,667
-------- -------- ------- -------- -------- --------
Net realized and unrealized gain
(loss).................................. 21,373 5,636 3,267 20,835 8,108 2,836
-------- -------- ------- -------- -------- --------

Net increase (decrease) in net assets from
operations............................... 21,843 5,823 3,307 23,276 8,398 3,191
-------- -------- ------- -------- -------- --------

POLICY TRANSACTIONS:
Net premiums............................... 17,411 20,514 15,072 16,142 10,520 1,484
Terminations............................... -- -- -- -- -- --
Insurance and other charges................ (947) (457) (189) (887) (284) (32)
Transfers between sub-accounts (including
fixed account), net...................... 37,460 60,565 2,324 14,560 55,900 15,871
Other transfers from (to) the General
Account.................................. 117 (96) 1 164 (184) (1)
Net increase (decrease) in investment by
Sponsor.................................. -- -- -- -- -- --
-------- -------- ------- -------- -------- --------
Net increase (decrease) in net assets from
policy transactions...................... 54,041 80,526 17,208 29,979 65,952 17,322
-------- -------- ------- -------- -------- --------

Net increase (decrease) in net assets...... 75,884 86,349 20,515 53,255 74,350 20,513

NET ASSETS:
Beginning of year.......................... 107,552 21,203 688 99,997 25,647 5,134
-------- -------- ------- -------- -------- --------
End of year................................ $183,436 $107,552 $21,203 $153,252 $ 99,997 $ 25,647
-------- -------- ------- -------- -------- --------
-------- -------- ------- -------- -------- --------
</TABLE>

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

SA-10
<PAGE>
INHEIRITAGE ACCOUNT

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION

The Inheiritage Account (Inheiritage) is a separate investment account of
First Allmerica Financial Life Insurance Company (the Company), established on
May 1, 1995, for the purpose of separating from the general assets of the
Company those assets used to fund the variable portion of certain flexible
premium variable life policies issued by the Company. The Company is a
wholly-owned subsidiary of Allmerica Financial Corporation (AFC). Under
applicable insurance law, the assets and liabilities of Inheiritage are clearly
identified and distinguished from the other assets and liabilities of the
Company. Inheiritage cannot be charged with liabilities arising out of any other
business of the Company.

Inheiritage is registered as a unit investment trust under the Investment
Company Act of 1940, as amended (the 1940 Act). Inheiritage currently offers
twenty-one Sub-Accounts under the policies. Each Sub-Account invests exclusively
in a corresponding investment portfolio of the Allmerica Investment Trust (the
Trust) managed by Allmerica Financial Investment Management Services, Inc.
(AFIMS) (successor to Allmerica Investment Management Company, Inc.), a
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 T. Rowe Price
International Series, Inc. (T. Rowe Price) managed by Rowe Price-Fleming
International, Inc.; or of the Delaware Group Premium Fund, Inc. (DGPF) managed
by Delaware International Advisers, Ltd. The Trust, Fidelity VIP, Fidelity VIP
II, T. Rowe Price, and DGPF (the Funds) are open-end, diversified management
investment companies registered under the 1940 Act.

Effective January 9, 1998, Small-Mid Cap Value Fund was renamed Select Value
Opportunity Fund.

Certain prior year balances have been reclassified to conform with current
year presentation.

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. Net realized gains and
losses on securities sold are determined using the average cost method.
Dividends and capital gain distributions are recorded on the ex-dividend date
and are reinvested in additional shares of the respective investment portfolio
of the 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 Inheiritage. Therefore, no provision for income
taxes has been charged against Inheiritage.

SA-11
<PAGE>
INHEIRITAGE ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 -- INVESTMENTS

The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Funds at December 31, 1998 were as follows:

<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
-------------------------------
NET
ASSET
VALUE
NUMBER OF AGGREGATE PER
INVESTMENT PORTFOLIO SHARES COST SHARE
- ---------------------------------------- --------- --------- -------
<S> <C> <C> <C>
Growth................................ 157,778 $416,544 $2.825
Investment Grade Income............... 27,495 30,884 1.132
Money Market.......................... 688,802 688,802 1.000
Equity Index.......................... 152,446 427,908 3.408
Government Bond....................... -- -- 1.068
Select Aggressive Growth.............. 215,648 485,542 2.460
Select Growth......................... 279,771 591,428 2.428
Select Growth and Income.............. 122,372 186,793 1.779
Select Value Opportunity*............. 208,085 355,610 1.685
Select Income......................... 11,736 12,186 1.032
Select International Equity........... 188,638 291,097 1.542
Select Capital Appreciation........... 151,312 244,669 1.640
Select Emerging Markets............... 20 20 0.784
Select Strategic Growth............... 20 20 0.973
Fidelity VIP High Income.............. 16,928 194,627 11.530
Fidelity VIP Equity-Income............ 26,441 590,898 25.420
Fidelity VIP Growth................... 16,035 588,862 44.870
Fidelity VIP Overseas................. 1,124 20,900 20.050
Fidelity VIP II Asset Manager......... 2,600 42,280 18.160
T. Rowe Price International Stock..... 12,633 172,954 14.520
DGPF International Equity............. 9,299 145,450 16.480
</TABLE>

* Name changed. See Note 1.

NOTE 4 -- RELATED PARTY TRANSACTIONS

On the date of issue and each monthly payment date thereafter, a monthly
charge is deducted from the policy value to compensate the Company for the cost
of insurance, which varies by policy, the cost of any additional benefits
provided by rider, and a monthly administrative charge. The policyowner may
instruct the Company to deduct this monthly charge from a specific Sub-Account,
but if not so specified, it will be deducted on a pro-rata basis of allocation
which is the same proportion that the policy value in the General Account of the
Company and in each Sub-Account bear to the total policy value.

The Company makes a charge of 0.90% per annum based on the average daily net
assets of each Sub-Account at each valuation date for mortality and expense
risks. The mortality and expense risk charge may be increased or decreased by
the Board of Directors of the Company once each year, subject to compliance with
applicable state and federal requirements, but the total charge may not exceed
0.90% per annum. During the first 15 policy years, the Company also charges each
Sub-Account 0.25% per annum based on the average

SA-12
<PAGE>
INHEIRITAGE ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 -- RELATED PARTY TRANSACTIONS (CONTINUED)

daily net assets of each Sub-Account for administrative expenses. These charges
are deducted in the daily computation of unit values and paid to the Company on
a daily basis.

Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned
subsidiary of the Company, is the principal underwriter and general distributor
of Inheiritage, and does not receive any compensation for sales of Inheiritage
policies. Commissions are paid to registered representatives of Allmerica
Investments and to certain independent broker-dealers by the Company. As the
current series of policies have a surrender charge, no deduction is made for
sales charges at the time of the sale. For the year ended December 31, 1998 the
Company received $9,950 for surrender charges, and for the years ended December
31, 1997 and 1996, there were no surrender charges applicable to Inheiritage.

NOTE 5 -- DIVERSIFICATION REQUIREMENTS

Under the provisions of Section 817(h) of the Code, a variable life
insurance policy, other than a policy issued in connection with certain types of
employee benefit plans, will not be treated as a variable life insurance policy
for federal income tax purposes for any period for which the investments of the
segregated asset account on which the policy 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 Inheiritage satisfies the current
requirements of the regulations, and it intends that Inheiritage will continue
to meet such requirements.

SA-13
<PAGE>
INHEIRITAGE ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 6 -- PURCHASES AND SALES OF SECURITIES

Cost of purchases and proceeds from sales of shares of the Funds by
Inheiritage during the year ended December 31, 1998 were as follows:

<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
- ------------------------------------------------------- ----------- -----------
<S> <C> <C>
Growth............................................... $ 729,725 $ 598,844
Investment Grade Income.............................. 28,754 471
Money Market......................................... 13,662,973 13,539,000
Equity Index......................................... 167,318 21,746
Government Bond...................................... 25,513 47,714
Select Aggressive Growth............................. 315,350 146,365
Select Growth........................................ 1,171,774 895,355
Select Growth and Income............................. 70,962 9,424
Select Value Opportunity*............................ 356,138 272,806
Select Income........................................ 21,898 9,613
Select International Equity.......................... 10,055,477 10,050,417
Select Capital Appreciation.......................... 106,675 22,064
Select Emerging Markets.............................. 20 --
Select Strategic Growth.............................. 20 --
Fidelity VIP High Income............................. 2,905,809 2,839,248
Fidelity VIP Equity-Income........................... 301,547 18,526
Fidelity VIP Growth.................................. 640,054 415,740
Fidelity VIP Overseas................................ 1,672,717 1,680,533
Fidelity VIP II Asset Manager........................ 27,279 18,266
T. Rowe Price International Stock.................... 336,166 280,864
DGPF International Equity............................ 969,544 937,124
----------- -----------
Totals............................................. $33,565,713 $31,804,120
----------- -----------
----------- -----------
</TABLE>

* Name changed. See Note 1.

SA-14
<PAGE>

FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
WORCESTER, MASSACHUSETTS
INDIVIDUAL JOINT SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICIES
VARIABLE INHEIRITAGE

This Prospectus provides important information about
Allmerica Variable Inheiritage, an individual joint
survivorship flexible premium variable life insurance
policy issued by First Allmerica Financial Life
Insurance Company. The Policies are funded through
the Inheiritage Account, a separate investment
account of the Company that is referred to as the
Separate Account, and a fixed-interest account also
referred to as the General Account. Life insurance
coverage is provided for two Insureds, with Death
Proceeds payable at death of the last surviving
Insured. Applicants must be Age 80 or under with
respect to the younger Insured, and Age 85 or under
PLEASE READ THIS with respect to the older Insured.
PROSPECTUS CAREFULLY
BEFORE INVESTING AND
KEEP IT FOR FUTURE
REFERENCE.

The Separate Account is subdivided into Sub-Accounts.
VARIABLE LIFE Each Sub-Account invests exclusively in shares of one
POLICIES INVOLVE of the following Funds of Allmerica Investment Trust,
RISKS INCLUDING Variable Insurance Products Fund, Variable Insurance
POSSIBLE LOSS OF Products Fund II, T. Rowe Price International Series,
PRINCIPAL. Inc., and Delaware Group Premium Fund, Inc.:

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<CAPTION>
ALLMERICA INVESTMENT TRUST VARIABLE INSURANCE PRODUCTS FUND
-------------------------------------------------- --------------------------------------------------
<C> <S> <C>
THIS PROSPECTUS MUST Select Aggressive Growth Fund Fidelity VIP Overseas Portfolio
BE ACCOMPANIED BY Select Capital Appreciation Fund Fidelity VIP Growth Portfolio
PROSPECTUSES OF THE Select Value Opportunity Fund Fidelity VIP Equity-Income Portfolio
FUNDS. Select Emerging Markets Fund Fidelity VIP High Income Portfolio
Select International Equity Fund
Select Growth Fund VARIABLE INSURANCE PRODUCTS FUND II
Select Strategic Growth Fund --------------------------------
Growth Fund Fidelity VIP II Asset Manager Portfolio
Equity Index Fund
Select Growth and Income Fund T. ROWE PRICE INTERNATIONAL SERIES, INC.
Investment Grade Income Fund ----------------------------------
Government Bond Fund T. Rowe Price International Stock Portfolio
Select Income Fund
Money Market Fund DELAWARE GROUP PREMIUM FUND, INC.
--------------------------------
DGPF International Equity Series
</TABLE>

THIS LIFE POLICY IS This Prospectus can also be obtained from the
NOT: Securities and Exchange Commission's website
- A BANK DEPOSIT OR (http://www.sec.gov).
OBLIGATION; IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING
- FEDERALLY INSURED; INSURANCE WITH THE POLICY.
- ENDORSED BY ANY THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
BANK OR APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED THAT THE INFORMATION IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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<C> <S> <C>
GOVERNMENTAL CORRESPONDENCE MAY BE MAILED TO DATED MAY 1, 1999
AGENCY. AGENCY INHEIRITAGE 440 LINCOLN STREET
P.O. BOX 8014 WORCESTER, MASSACHUSETTS 01653
BOSTON, MA 02266-8014 (508) 855-1000
</TABLE>

<PAGE>
TABLE OF CONTENTS

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SPECIAL TERMS......................................................................... 4
SUMMARY............................................................................... 7
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, AND THE UNDERLYING FUNDS............ 17
INVESTMENT OBJECTIVES AND POLICIES.................................................... 19
INVESTMENT ADVISORY SERVICES.......................................................... 21
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS..................................... 24
VOTING RIGHTS......................................................................... 25
THE POLICY............................................................................ 25
Applying for the Policy............................................................. 25
Free-Look Period.................................................................... 26
Conversion Privileges............................................................... 27
Premium Payments.................................................................... 27
Incentive Funding Discount.......................................................... 28
Guaranteed Death Benefit Rider...................................................... 29
Paid-Up Insurance Option............................................................ 30
Allocation of Net Premiums.......................................................... 30
Transfer Privilege.................................................................. 31
Death Proceeds...................................................................... 32
Sum Insured Options................................................................. 33
Change in Sum Insured Option........................................................ 35
Change in Face Amount............................................................... 35
Policy Value and Surrender Value.................................................... 37
Death Proceeds Payment Options...................................................... 38
Optional Insurance Benefits......................................................... 38
Policy Surrender.................................................................... 38
Partial Withdrawals................................................................. 39
CHARGES AND DEDUCTIONS................................................................ 39
Tax Expense Charge.................................................................. 39
Premium Expense Charge.............................................................. 40
Monthly Deduction from Policy Value................................................. 40
Charges Against Assets of The Separate Account...................................... 42
Surrender Charge.................................................................... 43
Charges on Partial Withdrawals...................................................... 44
Transfer Charges.................................................................... 45
Charge for Increase in Face Amount.................................................. 45
Other Administrative Charges........................................................ 45
POLICY LOANS.......................................................................... 46
Repayment of Loans.................................................................. 46
Effect of Policy Loans.............................................................. 47
POLICY TERMINATION AND REINSTATEMENT.................................................. 47
Termination......................................................................... 47
Reinstatement....................................................................... 48
OTHER POLICY PROVISIONS............................................................... 49
Policyowner......................................................................... 49
Beneficiary......................................................................... 49
Incontestability.................................................................... 49
Suicide............................................................................. 49
Notice of First Insured to Die...................................................... 49
Age................................................................................. 49
Assignment.......................................................................... 50
Postponement of Payments............................................................ 50
</TABLE>

2
<PAGE>

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DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY....................................... 51
DISTRIBUTION.......................................................................... 52
SERVICES.............................................................................. 53
REPORTS............................................................................... 53
LEGAL PROCEEDINGS..................................................................... 53
FURTHER INFORMATION................................................................... 53
INDEPENDENT ACCOUNTANTS............................................................... 53
FEDERAL TAX CONSIDERATIONS............................................................ 54
The Company and The Separate Account................................................ 54
Taxation of the Policies............................................................ 54
Modified Endowment Contracts........................................................ 55
Estate and Generation-Skipping Taxes................................................ 56
MORE INFORMATION ABOUT THE GENERAL ACCOUNT............................................ 56
General Description................................................................. 57
General Account Value............................................................... 57
The Policy.......................................................................... 57
Transfers, Surrenders, Partial Withdrawals and Policy Loans......................... 57
YEAR 2000 DISCLOSURE.................................................................. 58
FINANCIAL STATEMENTS.................................................................. 59
APPENDIX A -- OPTIONAL BENEFITS....................................................... A-1
APPENDIX B -- PAYMENT OPTIONS......................................................... B-1
APPENDIX C -- ILLUSTRATIONS........................................................... C-1
APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES................................ D-1
APPENDIX E -- PERFORMANCE INFORMATION................................................. E-1
FINANCIAL STATEMENTS.................................................................. F-1
</TABLE>

3
<PAGE>
SPECIAL TERMS

ACCUMULATION UNIT: A measure of the Policyowner's interest in a Sub-Account.

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

BENEFICIARY: The person(s) designated by the owner of the Policy to receive the
insurance proceeds upon the death of the last surviving Insured.

COMPANY: First Allmerica Financial Life Insurance Company. "We," "our," "us,"
"the Company" refer to First Allmerica Financial Life Insurance Company in this
Prospectus.