<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
GROUP VEL ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT
GROWTH GRADE INCOME MONEY MARKET EQUITY INDEX
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
1 2 3 4
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust $ 239 $ 222 $ 207 $ 242
---------- ---------- ---------- ----------
Net assets.................................... $ 239 $ 222 $ 207 $ 242
========== ========== ========== ==========
Net asset distribution by category:
Value of investment by Allmerica Financial
Life Insurance and Annuity Company (Sponsor) $ 239 $ 222 $ 207 $ 242
========== ========== ========== ==========
Units outstanding, December 31, 1995............. 200 200 200 200
Net asset value per unit, December 31, 1995...... $ 1.195745 $ 1.108603 $ 1.037351 $ 1.210955
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SELECT SELECT CAPITAL VIPF VIPF
INTERNATIONAL EQUITY APPRECIATION HIGH INCOME EQUITY INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
11 12 102 103
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust $ 226 $ 279 -- --
Investments in shares of Fidelity Variable
Insurance Products Fund........................ -- -- $ 221 $ 240
---------- ---------- ---------- ----------
Total assets.................................. $ 226 $ 279 $ 221 $ 240
========== ========== ========== ==========
Net asset distribution by category:
Value of investment by Allmerica Financial
Life Insurance and Annuity Company (Sponsor) $ 226 $ 279 $ 221 $ 240
========== ========== ========== ==========
Units outstanding, December 31, 1995............. 200 200 200 200
Net asset value per unit, December 31, 1995...... $ 1.130496 $ 1.392805 $ 1.106506 $ 1.201949
The accompanying notes are an integral part of these financial statements.
<PAGE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
GROUP VEL ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
SELECT SELECT GROWTH SMALL CAP
GOVERNMENT BOND AGGRESSIVE GROWTH SELECT GROWTH AND INCOME VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
5 6 7 8 9
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 216 $ 249 $ 236 $ 241 $ 221
---------- ---------- ---------- ---------- ----------
$ 216 $ 249 $ 236 $ 241 $ 221
========== ========== ========== ========== ==========
$ 216 $ 249 $ 236 $ 241 $ 221
========== ========== ========== ========== ==========
200 200 200 200 200
$ 1.080550 $ 1.246093 $ 1.179299 $ 1.206910 $ 1.105951
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VIPF VIPF VIPF II T. ROWE DGPF
GROWTH OVERSEAS ASSET MANAGER INTERNATIONAL STOCK INTERNATIONAL EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
104 105 106 150 207
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
-- -- -- -- --
$ 249 $ 215 $ 225 -- --
---------- ---------- ---------- ---------- ----------
$ 249 $ 215 $ 225 -- --
========== ========== ========== ========== ==========
$ 249 $ 215 $ 225 -- --
========== ========== ========== ========== ==========
200 200 200 -- --
$ 1.246243 $ 1.075002 $ 1.124654 -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
GROUP VEL ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT
GROWTH GRADE INCOME MONEY MARKET EQUITY INDEX
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
1 2 3 4
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................... $ 22 $ 11 $ 7 $ 17
----- ----- ----- -----
UNREALIZED GAIN
ON INVESTMENTS:
Net unrealized gain.......................... 17 11 -- 25
----- ----- ----- -----
Net increase in net assets from operations... $ 39 $ 22 $ 7 $ 42
===== ===== ===== =====
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT SELECT VIPF VIPF
NTERNATIONAL CAPITAL APPRECIATION HIGH INCOME EQUITY INCOME
EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
11 12 102 103
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................... $ 3 $ 5 -- $ 4
----- ----- ----- -----
UNREALIZED GAIN
ON INVESTMENTS:
Net unrealized gain.......................... 23 74 $ 21 36
----- ----- ----- -----
Net increase in net assets from operations.. . $ 26 $ 79 $ 21 $ 40
===== ===== ===== =====
* Date of initial investment
(a) As of December 31, 1995, there have been no transactions for Sub-Accounts 150 and 207.
The accompanying notes are an integral part of these financial statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GROUP VEL ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT SELECT GROWTH SMALL
GOVERNMENT BOND AGGRESSIVE GROWTH SELECT GROWTH AND INCOME CAP VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
5 6 7 8 9
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 9 -- -- $ 11 $ 7
---- ---- ---- ---- ----
7 $ 49 $ 37 30 14
---- ---- ---- ---- ----
$ 16 $ 49 $ 37 $ 41 $ 21
==== ==== ==== ==== ====
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VIPF VIPF II
GROWTH VIPF OVERSEAS ASSET MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT T. ROWE DGPF
104 105 106 INTERNATIONAL STOCK INTERNATIONAL EQUITY
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD SUB-ACCOUNT SUB-ACCOUNT
5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/10/95* TO 12/31/95 150 (a) 207 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
-- -- -- -- --
---- ---- ---- ---- ----
$ 48 $ 15 $ 25 -- --
---- ---- ---- ---- ----
$ 48 $ 15 $ 25 -- --
==== ==== ==== ==== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GROUP VEL ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT
GROWTH GRADE INCOME MONEY MARKET EQUITY INDEX
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
1 2 3 4
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income............................... $ 22 $ 11 $ 7 $ 17
Net unrealized gain on investments.................. 17 11 -- 25
----- ----- ----- -----
Net increase in net assets from operations.......... 39 22 7 42
----- ----- ----- -----
FROM CAPITAL TRANSACTIONS:
Other transfers to the General Account of
Allmerica Financial Life Insurance and Annuity
Company (Sponsor)............................... -- -- -- --
Net increase in investment by Allmerica Financial
Life Insurance and Annuity Company (Sponsor).... 200 200 200 200
----- ----- ----- -----
Net increase in net assets from capital transactions 200 200 200 200
----- ----- ----- -----
Net increase in net assets.......................... 239 222 207 242
NET ASSETS:
Beginning of period................................. -- -- -- --
----- ----- ----- -----
End of period....................................... $ 239 $ 222 $ 207 $ 242
===== ===== ===== =====
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SELECT INTERNATIONAL SELECT VIPF VIPF
EQUITY CAPITAL APPRECIATION HIGH INCOME EQUITY INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
11 12 102 103
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income............................... $ 3 $ 5 -- $ 4
Net unrealized gain on investments.................. 23 74 $ 21 36
----- ----- ----- -----
Net increase in net assets from operations.......... 26 79 21 40
----- ----- ----- -----
FROM CAPITAL TRANSACTIONS:
Other transfers from the General Account of
Allmerica Financial Life Insurance and Annuity
Company (Sponsor)............................... -- -- -- --
Net increase in investment by Allmerica Financial
Life Insurance and Annuity Company (Sponsor).... 200 200 200 200
----- ----- ----- -----
Net increase in net assets from capital transactions 200 200 200 200
----- ----- ----- -----
Net increase in net assets.......................... 226 279 221 240
NET ASSETS:
Beginning of period................................. -- -- -- --
----- ----- ----- ------
End of period....................................... $ 226 $ 279 $ 221 $ 240
===== ===== ===== ======
* Date of initial investment
(a) As of December 31, 1995, there have been no transactions for Sub-Accounts 150 and 207.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GROUP VEL ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT SELECT GROWTH SMALL
GOVERNMENT BOND AGGRESSIVE GROWTH SELECT GROWTH AND INCOME CAP VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
5 6 7 8 9
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 9 -- -- $ 11 $ 7
7 $ 49 $ 37 30 14
----- ----- ----- ----- -----
16 49 37 41 21
----- ----- ----- ----- -----
-- -- (1) -- --
200 200 200 200 200
----- ----- ----- ----- -----
200 200 199 200 200
----- ----- ----- ----- -----
216 249 236 241 221
-- -- -- -- --
----- ----- ----- ----- -----
$ 216 $ 249 $ 236 $ 241 $ 221
===== ===== ===== ===== =====
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VIPF II
VIPF GROWTH VIPF OVERSEAS ASSET MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT T. ROWE DGPF
104 105 106 INTERNATIONAL STOCK INTERNATIONAL EQUITY
PERIOD FROM PERIOD FROM PERIOD FROM SUB-ACCOUNT SUB-ACCOUNT
5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/10/95* TO 12/31/95 150 (a) 207 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
-- -- -- -- --
$ 48 $ 15 $ 25 -- --
----- ----- ----- ----- -----
48 15 25 -- --
----- ----- ----- ----- -----
1 -- -- -- --
200 200 200 -- --
----- ----- ----- ----- -----
201 200 200 -- --
----- ----- ----- ----- -----
249 215 225 -- --
-- -- -- -- --
----- ----- ----- ----- -----
$ 249 $ 215 $ 225 -- --
===== ===== ===== ===== =====
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
GROUP VEL ACCOUNT
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - December 31, 1995
NOTE 1 - ORGANIZATION
The Group VELAccount (Group VEL) is a separate investment account of Allmerica
Financial Life Insurance and Annuity Company (formerly named SMA Life Assurance
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 flexible premium variable life policies issued by the Company.
Effective October 16, 1995, concurrent with the demutualization, State Mutual
Life Assurance Company of America changed their name to First Allmerica
Financial Life Insurance Company (First Allmerica). The Company is a
wholly-owned subsidiary of First Allmerica. Under applicable insurance law, the
assets and liabilities of Group VEL are clearly identified and distinguished
from the other assets and liabilities of the Company. Group VEL cannot be
charged with liabilities arising out of any other business of the Company.
Group VEL is registered as a unit investment trust under the Investment
Company Act of 1940, as amended (the 1940 Act). Group VEL currently offers
eighteen Sub-Accounts. Each Sub-Account invests exclusively in a corresponding
investment portfolio of the Allmerica Investment Trust (the Trust) managed by
Allmerica Investment Management Company, Inc., a wholly-owned subsidiary of
First Allmerica, or of the Variable Insurance Products Fund (VIPF) or the
Variable Insurance Products Fund II (VIPF II) managed by Fidelity Management &
Research Company (Fidelity Management), or of the T. Rowe Price International
Series, Inc. (T. Rowe) managed by Price-Fleming, or of the Delaware Group
Premium Fund, Inc. (DGPF) managed by Delaware International Advisors, Ltd. The
Trust, VIPF, VIPFII, T. Rowe and DGPF (the Funds) are open-end, diversified
series management investment companies registered under the 1940 Act.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Investments - Security transactions are recorded on the trade date.
Investments held by the Sub-Accounts are stated at the net asset value per share
of the respective investment portfolio of the Trust, VIPF, VIPF II, T. Rowe,or
DGPF. Net realized gains and losses on securities sold are determined on the
average cost method. Dividends and capital gain distributions are recorded on
the ex-dividend date and are reinvested in additional shares of the respective
investment portfolio of the Trust, VIPF, VIPFII, T. Rowe, or DGPF at net asset
value.
Federal Income Taxes - The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code and files a consolidated federal
income tax return with First Allmerica. The Company anticipates no tax liability
resulting from the operations of Group VEL. Therefore, no provision for income
taxes has been charged against Group VEL.
<PAGE>
NOTE 3 - INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Trust, VIPF, VIPFII, T. Rowe and DGPF at
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO INFORMATION
SUB - INVESTMENT NUMBER AGGREGATE NET ASSET VALUE
ACCOUNT PORTFOLIO OF SHARES COST PER SHARE
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Allmerica Investment Trust:
1 Growth......................................... 110 $ 222 $ 2.176
2 Investment Grade Income........................ 198 210 1.117
3 Money Market................................... 207 207 1.000
4 Equity Index................................... 133 217 1.827
5 Government Bond................................ 203 209 1.062
6 Select Aggressive Growth....................... 135 200 1.848
7 Select Growth.................................. 172 200 1.369
8 Select Growth and Income....................... 190 212 1.268
9 Small Cap Value................................ 179 207 1.238
11 Select International Equity.................... 199 203 1.136
12 Select Capital Appreciation.................... 203 205 1.369
Fidelity Variable Insurance Products Fund:
102 High Income.................................... 18 200 12.050
103 Equity Income.................................. 12 204 19.270
104 Growth......................................... 9 200 29.200
105 Overseas....................................... 13 200 17.050
Fidelity Variable Insurance Products Fund II:
106 Asset Manager.................................. 14 200 15.790
T. Rowe Price International Series, Inc.:
150 International Stock............................ --- --- 11.260
Delaware Group Premium Fund:
207 International Equity........................... --- --- 13.110
</TABLE>
<PAGE>
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 of $6. The policyowner
may instruct the Company to deduct this monthly charge from a specific
Sub-Account, but if not so specified, it will be deducted on a pro-rata basis of
allocation which is the same proportion that the policy value in the General
Account of the Company and in each Sub-Account bear to the total policy value.
For the year ended December 31, 1995, there were no monthly deductions from
sub-account policy values.
The Company makes a charge of .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 risks annual charge may be increased or
decreased by the Board of Directors of the Company once each year, subject to
compliance with applicable state and federal requirements, but the total charge
may not exceed 1.275% per annum. During the first 15 policy years, the Company
also charges each Sub-Account .25% per annum based on the average daily net
assets of each Sub-Account for administrative expenses. These charges are
deducted in the daily computation of unit values but paid to the Company on a
monthly basis. For the year ended December 31, 1995, there were no mortality and
expense risk charges made.
Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned
subsidiary of First Allmerica, is principal underwriter and general distributor
of Group VEL, and does not receive any compensation for sales of Group VEL
policies. Commissions are paid to registered representatives of Allmerica
Investments by the Company. As the current series of policies have a contingent
deferred sales charge, no deduction is made for sales charges at the time of the
sale. For the year ended December 31, 1995, there were no contingent deferred
sales charges applicable to Group VEL policies.
NOTE 5 - DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a
variable life insurance contract, other than a contract issued in connection
with certain types of employee benefit plans, will not be treated as a variable
life insurance contract for federal income tax purposes for any period for which
the investments of the segregated asset account on which the contract is based
are not adequately diversified. The Code provides that the "adequately
diversified" requirement may be met if the underlying investments satisfy either
a statutory safe harbor test or diversification requirements set forth in
regulations issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that Inheiritage satisfies the current
requirements of the regulations, and it intends that Group VEL will continue to
meet such requirements.
<PAGE>
NOTE 6 - PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the Trust, VIPF, VIPFII, T. Rowe,
and DGPF shares by Group VEL during the period ended December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUB-
ACCOUNT INVESTMENT PORTFOLIO PURCHASES SALES
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Allmerica Investment Trust:
1 Growth.......................................... $ 222 --
2 Investment Grade Income......................... 211 --
3 Money Market.................................... 208 --
4 Equity Index.................................... 217 --
5 Government Bond................................. 209 --
6 Select Aggressive Growth........................ 200 --
7 Select Growth................................... 200 --
8 Select Growth and Income........................ 212 --
9 Small Cap Value................................. 207 --
11 Select International Equity..................... 203 --
12 Select Capital Appreciation..................... 205 --
Fidelity Variable Insurance Products Fund:
102 High Income..................................... 200 --
103 Equity Income................................... 204 --
104 Growth.......................................... 200 --
105 Overseas........................................ 200 --
Fidelity Variable Insurance Products Fund II:
106 Asset Manager................................... 200 --
T. Rowe Price International Series, Inc.:
150 International Stock............................. -- --
Delaware Group Premium Fund:
207 International Equity............................ -- --
------- ------
Totals $ 3,298 --
======= ======
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors Allmerica Financial Life Insurance
and Annuity Company and Policyowners of Group VEL Account
of Allmerica Financial Life Insurance and Annuity Company
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts (1, 2,
3, 4, 5, 6, 7, 8, 9, 11, 12, 102, 103, 104, 105, 106, 150, and 207) constituting
the Group VEL Account of Allmerica Financial Life Insurance and Annuity Company
at December 31, 1995, the results of each of their operations and the changes in
each of their net assets for the period then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Allmerica Financial Life Insurance and Annuity Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments owned at December 31, 1995 by correspondence with
the Funds, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 23, 1996
<PAGE>
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<PAGE>
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