GROUP VEL ACCOUNT OF ALLMERICA FINANCIAL LIFE INS & ANN CO, 485BPOS, 1999-12-03

GROUP VEL ACCOUNT OF ALLMERICA FINANCIAL LIFE INS & ANN CO
485BPOS, 1999-12-03

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<PAGE>

Registration No. 33-82658
811-8704

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. 12

GROUP VEL ACCOUNT
OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(Exact Name of Registrant)

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

Mary Eldridge, Secretary
440 Lincoln Street
Worcester, MA 01653
(Name and Address of Agent for Service of Process)

It is proposed that this filing will become effective:

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

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 about March 30, 1999.

<PAGE>

This Post-Effective Amendment No. 12 under the Securities Act of 1933 is
being filed for the purposes of adding a supplement to the Prospectus C of
the Group VEL Separate Account of Allmerica Financial Life Insurance and
Annuity Company dated May 1, 1999 and to generally update corporate
information for the Company and the Registrant in Part C. All other pertinent
information regarding this Registration Statement, including the Prospectuses
previously filed in Registrant's Post-Effective Amendment No. 11 on April 26,
1999 and are incorporated by reference herein.

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

<TABLE>
<CAPTION>
ITEM NO. OF
FORM N-8B-2 CAPTION IN PROSPECTUS A
- ----------- ------------------------
<S> <C>
1...................................Cover Page
2...................................Cover Page
3...................................Not Applicable
4...................................Distribution
5...................................The Company, The Group VEL Account
6...................................The Group VEL Account
7...................................Not Applicable
8...................................Not Applicable
9...................................Legal Proceedings
10..................................Summary; Description of the Company, The Group VEL Account and the
Underlying Funds; The Certificate; Certificate Termination and
Reinstatement; Other Certificate Provisions
11..................................Summary; The Trust, Investment Objectives and Policies
12..................................Summary; The Trust
13..................................Summary; The Trust; Fidelity VIP; Fidelity VIP II; T. Rowe Price; DGPF;
INVESCO VIF; and Morgan Stanley; Investment Advisory Services to the Trust;
Investment Advisory Services to VIP; Investment Advisory Services to VIP
II; Investment Advisory Services to T. Rowe Price; Investment Advisory
Services to DGPF; Investment Advisory Services to INVESCO VIF; and
Investment Advisory Services to Morgan Stanley: Charges and Deductions
14..................................Summary; Enrollment Form for a Certificate
15..................................Summary; Enrollment Form for a Certificate; Premium Payments; Allocation of
Net Premiums
16..................................The Group VEL Account; The Trust; Fidelity VIP; Fidelity VIP II; T. Rowe
Price; DGPF; INVESCO VIF; and Morgan Stanley; Premium Payments; Allocation
of Net Premiums
17..................................Summary; Surrender; Partial Withdrawal; Charges and Deductions;
Certificate Termination and Reinstatement
18..................................The Group VEL Account; The Trust; Fidelity VIP; Fidelity VIP II; T. Rowe
Price; DGPF; INVESCO VIF; and Morgan Stanley; Premium Payments
19..................................Reports; Voting Rights
20..................................Not Applicable
21..................................Summary; Certificate Loans; Other Certificate Provisions
22..................................Other Certificate Provisions
23..................................Not Required
24..................................Other Certificate Provisions
25..................................The Company
</TABLE>

<PAGE>

<TABLE>
<S> <C>
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; Certificate Value and Surrender Value
45..................................Not Applicable
46..................................Certificate Value and Surrender Value; Federal Tax Considerations
47..................................The Company
48..................................Not Applicable
49..................................Not Applicable
50..................................The Group VEL Account
51..................................Cover Page; Summary; Charges and Deductions; The Certificate;
Certificate Termination and Reinstatement; Other Certificate 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
</TABLE>

<PAGE>

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

<TABLE>
<CAPTION>
ITEM NO. OF
FORM N-8B-2 CAPTION IN PROSPECTUS B
- ----------- -----------------------
<S> <C>
1...................................Cover Page
2...................................Cover Page
3...................................Not Applicable
4...................................Distribution
5...................................The Company, The Group VEL Account
6...................................The Group VEL Account
7...................................Not Applicable
8...................................Not Applicable
9...................................Legal Proceedings
10..................................Summary; Description of the Company, The Group VEL Account and the
Underlying Funds; The Certificate; Certificate Termination and
Reinstatement; Other Certificate Provisions
11..................................Summary; The Trust, Investment Objectives and Policies
12..................................Summary; The Trust
13..................................Summary; The Trust; MFVAT; DGPF; and T. Rowe Price; Investment Advisory
Services to the Trust; Investment Advisory Services to MFVAT; Investment
Advisory Services to DGPF; and Investment Advisory Services to T. Rowe
Price; Charges and Deductions
14..................................Summary; Enrollment Form for a Certificate
15..................................Summary; Enrollment Form for a Certificate; Premium Payments; Allocation of
Net Premiums
16..................................The Group VEL Account; The Trust; MFVAT; DGPF; and T. Rowe Price; Premium
Payments; Allocation of Net Premiums
17..................................Summary; Surrender; Partial Withdrawal; Charges and Deductions;
Certificate Termination and Reinstatement
18..................................The Group VEL Account; The Trust; MFVAT; DGPF; and T. Rowe Price; Premium
Payments
19..................................Reports; Voting Rights
20..................................Not Applicable
21..................................Summary; Certificate Loans; Other Certificate Provisions
22..................................Other Certificate Provisions
23..................................Not Required
24..................................Other Certificate 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
</TABLE>

<PAGE>

<TABLE>
<S> <C>
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; Certificate Value and Surrender Value
45..................................Not Applicable
46..................................Certificate Value and Surrender Value; Federal Tax Considerations
47..................................The Company
48..................................Not Applicable
49..................................Not Applicable
50..................................The Group VEL Account
51..................................Cover Page; Summary; Charges and Deductions; The Certificate;
Certificate Termination and Reinstatement; Other Certificate 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
</TABLE>

<PAGE>

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

<TABLE>
<CAPTION>
ITEM NO. OF
FORM N-8B-2 CAPTION IN PROSPECTUS C
- ----------- -----------------------
<S> <C>
1...................................Cover Page
2...................................Cover Page
3...................................Not Applicable
4...................................Distribution
5...................................The Company, The Group VEL Account
6...................................The Group VEL Account
7...................................Not Applicable
8...................................Not Applicable
9...................................Legal Proceedings
10..................................Summary; Description of the Company, The Group VEL Account and the
Underlying Funds; The Certificate; Certificate Termination and
Reinstatement; Other Certificate Provisions
11..................................Summary; DGPF; Investment Objectives and Policies
12..................................Summary; DGPF
13..................................Summary; DGPF and the Trust; Investment Advisory Services; Charges and
Deductions
14..................................Summary; Enrollment Form for a Certificate
15..................................Summary; Enrollment Form for a Certificate; Premium Payments; Allocation
of Net Premiums
16..................................The Group VEL Account; DGPF and the Trust; Premium Payments; Allocation of
Net Premiums
17..................................Summary; Surrender; Partial Withdrawal; Charges and Deductions;
Certificate Termination and Reinstatement
18..................................The Group VEL Account; DGPF and the Trust; Premium Payments
19..................................Reports; Voting Rights
20..................................Not Applicable
21..................................Summary; Certificate Loans; Other Certificate Provisions
22..................................Other Certificate Provisions
23..................................Not Required
24..................................Other Certificate 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
</TABLE>

<PAGE>

<TABLE>
<S> <C>
39..................................Summary; Distribution
40..................................Not Applicable
41..................................The Company, Distribution
42..................................Not Applicable
43..................................Not Applicable
44..................................Premium Payments; Certificate Value and Surrender Value
45..................................Not Applicable
46..................................Certificate Value and Surrender Value; Federal Tax Considerations
47..................................The Company
48..................................Not Applicable
49..................................Not Applicable
50..................................The Group VEL Account
51..................................Cover Page; Summary; Charges and Deductions; The Certificate;
Certificate Termination and Reinstatement; Other Certificate 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
</TABLE>

<PAGE>

GROUP VEL ACCOUNT
(EXECUTIVESOLUTIONS)

ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

SUPPLEMENT TO PROSPECTUS DATED MAY 1, 1999

THIS SUPPLEMENT SUPPLANTS THE SUPPLEMENT DATED JUNE 21, 1999

***

A new Sub-Account is available under the Certificate. The Sub-Account will
invest exclusively in shares of the U.S. Growth Series of the Delaware Group
Premium Fund, Inc. As such, the following information supplements the
corresponding sections of the Prospectus. Please consult the Prospectus for
the full text of each supplemented section.

U.S. Growth Series is added after DelCap Series in the listing of Funds on
page 1 of the Prospectus.

Under UNDERLYING FUNDS ("FUNDS") on page 6 of the Prospectus, U.S. Growth
Series is inserted after DelCap Series.

Under INVESTMENT OPTIONS on page 12 of the Prospectus, the second and third
sentences are amended to read as follows:

The Separate Account is currently comprised of 47 Sub-Accounts. Of these 47
Sub-Accounts, 17 are available to the Certificates.

The following information on the U.S. Growth Series is added to the Annual
Fund Expenses table and footnotes on page 13 of the Prospectus under CHARGES
OF THE UNDERLYING FUNDS:

<TABLE>
<CAPTION>
MANAGEMENT FEE OTHER EXPENSES TOTAL FUND EXPENSES
(AFTER VOLUNTARY (AFTER APPLICABLE (AFTER ANY WAIVERS/
UNDERLYING FUND WAIVERS) REIMBURSEMENTS) REIMBURSEMENTS)
<S> <C> <C> <C>
U.S. Growth Series @.............. 0.58% 0.17% 0.75%(1)(2)
</TABLE>

@ The Aggressive Growth Series and U.S. Growth Series had not commenced
operations as of December 31, 1998. Expenses shown are based on estimated and
annualized amounts. Actual expenses may be greater or less than shown. The
REIT Series commenced operations on May 1, 1998. Expenses shown are based on
annualized amounts.

(1) For the fiscal year ended December 31, 1998, before waiver and/or
reimbursement by the investment adviser, total Series expenses as a
percentage of average daily net assets were 0.86% for DelCap Series, 0.89%
for Social Awareness Series, 1.02% for REIT Series, 1.67% for Emerging
Markets Series, 0.81% for Strategic Income Series, and 0.88% for
International Equity Series. Total expenses are anticipated to be 0.92% for
Aggressive Growth Series and 0.82% for U.S. Growth Series.

(2) The investment adviser for the Growth & Income Series (formerly known as
"Decatur Total Return Series"), Devon Series, DelCap Series, U.S. Growth
Series, Aggressive Growth Series, Social Awareness Series, REIT Series, Small
Cap Value Series, Trend Series, Delaware Balanced Series (formerly known as
"Delaware Series"), Delchester Series, Capital Reserves Series, Strategic
Income Series, and Cash Reserve Series is Delaware Management Company, a
series of Delaware Management Business Trust ("Delaware Management"). The
investment adviser for the International Equity Series, Emerging Markets
Series is Delaware International Advisers Ltd. ("Delaware International").
The investment advisers for the Series of DGPF have agreed from November 1,
1999 through April 30, 2000 to maintain the voluntary management fee waivers
and expense reimbursements that expired on October 31, 1999. As a result,
expenses will not exceed 1.50% for the Emerging Markets Series; 0.95% for the
International Equity Series; 0.85% for DelCap Series, Aggressive Growth

<PAGE>

Series, Social Awareness Series, REIT Series, Small Cap Value Series, Trend
Series, 0.75% for U.S. Growth Series, and 0.80% for all other Series. In
addition, effective May 1, 1999, Delaware Management voluntarily elected to
cap its management fee for the Growth and Income Series at 0.60%
indefinitely. The fee ratios shown above have been restated, if necessary, to
reflect the new voluntary limitations which took effect on November 1, 1999.
The declaration of a voluntary expense limitation does not bind the
investment advisers to declare future expense limitations with respect to
these Funds. Pursuant to a vote of the Fund's shareholders on March 17, 1999,
a new management fee structure based on average daily net assets was
approved. The above ratios have been restated to reflect the new management
fee structure which took effect on May 1, 1999.

Under THE SEPARATE ACCOUNT on page 16 of the Prospectus, the third sentence
of the second paragraph is amended as follows:

The Separate Account currently has 47 Sub-Accounts, of which 17 are available
to the Certificates.

Under DELAWARE GROUP PREMIUM FUND, INC. on page 17 of the Prospectus, the
following is amended as follows:

Delaware Group Premium Fund, Inc. ("DGPF") is an open-end, diversified,
management investment company registered with the SEC under the 1940 Act.
DGPF was established to provide a vehicle for the investment of assets of
various separate accounts supporting variable insurance policies. Sixteen
investment portfolios are available under the Certificates: Growth & Income,
Devon Series, DelCap Series, U.S. Growth Series, Aggressive Growth Series,
Social Awareness Series, REIT Series, Small Cap Value Series, Trend Series,
International Equity Series, Emerging Markets Series, Delaware Balanced
Series, Delchester Series, Capital Reserves Series, Strategic Income Series,
and Cash Reserve Series (collectively, the "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 have no effect on
the investment performance of another Underlying Fund. Shares of the
Underlying Funds are not offered to the general public but solely to separate
accounts of life insurance companies.

The investment adviser for the Growth & Income Series, Devon Series, DelCap
Series, U.S. Growth Series, Aggressive Growth Series, Social Awareness
Series, REIT Series, Small Cap Value Series, Trend Series, Delaware Balanced
Series, Delchester Series, Capital Reserves Series, Strategic Income Series,
and Cash Reserve Series is Delaware Management Company, a series of Delaware
Management Business Trust ("Delaware Management"). The investment adviser for
the International Equity Series, and the Emerging Markets Series is Delaware
International Advisers Ltd. ("Delaware International").

The following summary of the investment objective of the U.S. Growth Series
is inserted as the fourth Fund summary under INVESTMENT OBJECTIVES AND
POLICIES on page 17 of the Prospectus:

U.S. Growth Series -- seeks to achieve maximum capital appreciation.

Under INVESTMENT ADVISORY SERVICES on page 19 of the Prospectus, the
following is amended as follows:

Investment advisers are paid an annual fee based on the average daily net
assets of their respective Underlying Funds for management services. The Cash
Reserve Series management fee rate is as follows: 0.45% on the first $500
million, 0.40% on the next $500 million, 0.35% on the next $1,500 million and
0.30% on assets in excess of $2,500 million; the Capital Reserves Series
management fee rate is as follows: 0.50% on the first $500 million, 0.475% on
the next $500 million, 0.45% on the next $1,500 million and 0.425% on assets
in excess of $2,500 million; the Growth & Income Series, U.S. Growth Series,
Delchester Series, Delaware Balanced Series, Devon Series and Strategic
Income Series management fee rate is as follows: 0.65% on the first $500
million, 0.60% on the next $500 million, 0.55% on the next $1,500 million and
0.50% on assets in excess of $2,500 million; the DelCap Series, Aggressive
Growth Series, Small Cap Value Series, Trend Series, Social Awareness Series,
and REIT Series, management fee rate is as follows: 0.75% on the first $500
million, 0.70% on the next $500 million, 0.65% on the next $1,500 million and
0.60% on assets in excess of $2,500 million; the International Equity Series
management fee rate is as follows: 0.85% on the first $500 million,

<PAGE>

0.80% on the next $500 million, 0.75% on the next $1,500 million and 0.70% on
assets in excess of $2,500 million; and the Emerging Markets Series
management fee rate is as follows: 1.25% on the first $500 million, 1.20% on
the next $500 million, 1.15% on the next $1,500 million and 1.10% on assets
in excess of $2,500 million; all per year. Regarding the Growth and Income
Series, the investment adviser has voluntarily elected to cap the management
fee at 0.60%, indefinitely.

***

The following is added as the second paragraph under CHARGES AND DEDUCTIONS:

Upon full surrender of the Policy within the first three policy years, in
certain situations the Company will, upon written request, refund a
percentage of that portion of the previously paid Premium Expense Charge that
exceeded our local, state and federal tax expenses. In the first Policy
year, the amount of the refund is 100% of the portion of the previously paid
Premium Expense Charge that exceeded our local, state, and federal tax
expenses, 70% in the second Policy year, and 35% in the third Policy year.
The following conditions apply:

- The original owner of the Policy and certificates thereunder is a
corporation, a corporate grantor trust, or an individual or trust
under a corporate sponsored collateral assignment split dollar
agreement, and the ownership has not been changed;
- The request to surrender the Policy and all certificates thereunder must
be received prior to the end of the third Policy year; and
- The Policy and certificates have not been exchanged to another carrier.

SUPPLEMENT DATED DECEMBER 1, 1999

<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
(IN MILLIONS) 1999 1998 1999 1998
- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Premiums............................................ $ 0.1 $-- $ 0.3 $ 0.4
Universal life and investment product policy fees... 83.6 67.7 240.3 195.7
Net investment income............................... 38.5 38.7 112.7 113.5
Net realized investment (losses) gains.............. (2.5) (2.7) (7.1) 19.5
Other income........................................ 18.0 0.4 17.6 0.3
------ ------ ------ ------
Total revenues.................................. 137.7 104.1 363.8 329.4
------ ------ ------ ------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss adjustment
expenses.......................................... 39.7 32.7 130.0 114.5
Policy acquisition expenses......................... 15.0 13.3 33.5 45.0
Sales practice litigation expense................... -- 21.0 -- 21.0
Other operating expenses............................ 40.9 22.6 96.2 72.5
------ ------ ------ ------
Total benefits, losses and expenses............. 95.6 89.6 259.7 253.0
------ ------ ------ ------
Income from continuing operations before federal income
taxes.................................................. 42.1 14.5 104.1 76.4
------ ------ ------ ------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current............................................. (3.7) 1.5 0.6 19.0
Deferred............................................ 18.5 1.7 35.9 5.9
------ ------ ------ ------
Total federal income tax expense................ 14.8 3.2 36.5 24.9
------ ------ ------ ------
Net income.............................................. $ 27.3 $ 11.3 $ 67.6 $ 51.5
====== ====== ====== ======
</TABLE>

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

F-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998
- ------------------------------------ ------------- ------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,283.2 and $1,284.6)................................ $ 1,272.3 $ 1,330.4
Equity securities at fair value (cost of $35.2 and
$27.4)................................................ 35.0 31.8
Mortgage loans.......................................... 220.3 230.0
Real estate............................................. 14.7 14.5
Policy loans............................................ 161.4 151.5
Other long term investments............................. 9.2 9.1
--------- ---------
Total investments................................... 1,712.9 1,767.3
--------- ---------
Cash and cash equivalents................................. 231.1 217.9
Accrued investment income................................. 31.7 33.5
Premiums, accounts and notes receivable................... (0.9) --
Reinsurance receivables on paid and unpaid losses,
benefits and unearned premiums.......................... 285.5 308.0
Deferred policy acquisition costs......................... 1,104.6 950.5
Premiums, accounts and notes receivable................... 3.8 4.8
Other assets.............................................. 75.9 46.9
Separate account assets................................... 12,464.3 11,020.4
--------- ---------
Total assets........................................ $15,909.8 $14,349.3
========= =========
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.................................. $ 2,327.1 $ 2,284.8
Outstanding claims, losses.............................. 17.2 17.9
Unearned premiums....................................... 2.7 2.7
Contractholder deposit funds and other policy
liabilities........................................... 45.8 38.1
--------- ---------
Total policy liabilities and accruals............... 2,392.8 2,343.5
--------- ---------
Expenses and taxes payable................................ 168.8 146.2
Reinsurance premiums payable.............................. 13.3 50.5
Deferred federal income taxes............................. 101.7 78.8
Separate account liabilities.............................. 12,463.7 11,020.4
--------- ---------
Total liabilities................................... 15,140.3 13,639.4
--------- ---------
Commitments and contingencies (Note 5)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares authorized,
2,526 and 2,525 shares issued........................... 2.5 2.5
Additional paid-in capital................................ 423.7 407.9
Accumulated other comprehensive income.................... 0.1 24.1
Retained earnings......................................... 343.0 275.4
--------- ---------
Total shareholder's equity.......................... 769.3 709.9
--------- ---------
Total liabilities and shareholder's equity.......... $15,909.8 $14,349.3
========= =========
</TABLE>

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

F-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY

<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
(IN MILLIONS) 1999 1998
- ------------- -------- --------
<S> <C> <C>
COMMON STOCK................................................ $ 2.5 $ 2.5
------ ------

ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period.......................... 407.9 386.9
Issuance of common stock................................ 15.8 8.0
------ ------
Balance at end of period................................ 423.7 394.9
------ ------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Net Unrealized Appreciation on Investments..............
Balance at beginning of period.......................... 24.1 38.5
Net depreciation on available-for-sale securities....... (36.9) (18.9)
Benefit for deferred federal income taxes............... 12.9 6.6
------ ------
Other comprehensive loss................................ (24.0) (12.3)
------ ------
Balance at end of period................................ 0.1 26.2
------ ------
RETAINED EARNINGS
Balance at beginning of period.......................... 275.5 213.1
Net income.............................................. 67.6 51.5
------ ------
Balance at end of period................................ 343.0 264.6
------ ------
Total shareholder's equity.......................... $769.3 $688.2
====== ======
</TABLE>

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

F-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

F-4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
(IN MILLIONS) 1999 1998
- ------------- -------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 67.6 $ 51.5
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Net realized gains (losses)......................... 7.1 (19.5)
Net amortization and depreciation................... (1.6) (5.9)
Sales practice litigation expense................... -- 21.0
Deferred federal income taxes....................... 35.9 5.9
Change in deferred acquisition costs................ (126.1) (140.1)
Change in premiums and notes receivable, net of
reinsurance....................................... (36.2) 31.3
Change in accrued investment income................. 1.7 2.9
Change in policy liabilities and accruals, net...... 48.3 154.2
Change in reinsurance receivable.................... 22.5 (61.3)
Change in expenses and taxes payable................ 9.7 (3.5)
Separate account activity, net...................... (0.6) 1.6
Other, net.......................................... (28.5) (25.4)
------- -------
Net cash provided by (used in) operating
activities.................................... 9.6 12.7
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities of
available-for-sale fixed maturities................... 241.1 145.9
Proceeds from disposals of equity securities............ 18.0 42.1
Proceeds from disposals of other investments............ 0.4 12.5
Proceeds from mortgages matured or collected............ 22.7 55.3
Purchase of available-for-sale fixed maturities......... (253.2) (77.6)
Purchase of equity securities........................... (6.4) (29.4)
Purchase of other investments........................... (23.2) (62.7)
Other investing activities (net)........................ 0.2 (0.7)
------- -------
Net cash provided by investing activities........... (.4) 85.4
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and capital paid in..... 4.0 8.0
------- -------
Net cash provided by financing activities........... 4.0 8.0
------- -------
Net change in cash and cash equivalents..................... 13.2 106.0
Cash and cash equivalents, beginning of period.............. 217.9 31.1
------- -------
Cash and cash equivalents, end of period.................... $ 231.1 $ 137.1
======= =======
</TABLE>

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

F-5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Allmerica
Financial Life Insurance and Annuity Company ("AFLIAC" or the "Company") have
been prepared in accordance with generally accepted accounting principles for
interim financial information.

The interim consolidated financial statements of AFLIAC, a wholly-owned
subsidiary of First Allmerica Financial Life Insurance Company ("FAFLIC"),
include the accounts of its non-insurance subsidiaries (principally brokerage
and investment advisory subsidiaries). FAFLIC is a wholly-owned subsidiary of
Allmerica Financial Corporation ("AFC"). AFLIAC was a wholly-owned subsidiary of
SMA Financial Corporation ("SMAFCO") until SMAFCO contributed AFLIAC to FAFLIC
on July 1, 1999. All significant intercompany accounts and transactions have
been eliminated.

The interim consolidated financial statements of AFLIAC include the accounts of
Allmerica Investments, Inc., Allmerica Investment Management Company, Inc.,
Allmerica Financial Investment Management Services, Inc., and Allmerica
Financial Services Insurance Agency, Inc. These wholly-owned non-insurance
subsidiaries were transferred to AFLIAC on July 1, 1999 from SMAFCO. The results
of operations for the subsidiaries are included in the three months ended
September 30, 1999. The financial statements of AFLIAC also include the accounts
of Somerset Square, Inc., a wholly-owned non-insurance company, which was
transferred from SMAFCO effective November 30, 1997 and dissolved as a
subsidiary, effective November 30, 1998. Its results of operations are included
for 11 months of 1998.

The accompanying interim consolidated financial statements reflect, in the
opinion of the Company's management, all adjustments necessary for a fair
presentation of the financial position and results of operations. The results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of the results to be expected for the full year. These financial
statements should be read in conjunction with the Company's 1998 Annual Audited
Financial Statements.

2. NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board 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. This statement is effective for fiscal
years beginning after June 15, 2000. The Company is currently assessing the
impact of adoption of Statement No. 133.

In December 1997, the AICPA issued Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SoP No.
97-3"). SoP No. 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 adoption of SoP No. 97-3 had no effect on
the results of operations or financial position of the Company.

F-6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. SIGNIFICANT TRANSACTIONS

AFC has made certain changes to its corporate structure effective July 1, 1999.
These changes include the transfer of FAFLIC's ownership of Allmerica Property &
Casualty Companies, Inc., as well as several non-insurance subsidiaries, from
FAFLIC to AFC. In addition, certain changes affected AFLIAC. SMAFCO transferred
its ownership in AFLIAC to FAFLIC. Hence, AFLIAC became a wholly-owned
subsidiary of FAFLIC. Further, four non-insurance subsidiaries previously held
by SMAFCO were contributed to AFLIAC. Under an agreement with the Commonwealth
of Massachusetts Insurance Commissioner ("the Commissioner"), AFC has
contributed to FAFLIC capital of $125.0 million and agreed to maintain FAFLIC's
statutory surplus at specified levels during the following six years. In
addition, any dividend from FAFLIC to AFC during 2000 and 2001 would require the
prior approval of the Commissioner. This transaction was approved by the
Commissioner on May 24, 1999.

The equity of the four subsidiaries transferred from SMAFCO to AFLIAC on
July 1, 1999 was $11.8 million. SMAFCO received one share of common stock in
return for transferring the subsidiaries to AFLIAC. For the three months ended
September 30, 1999, the subsidiaries of AFLIAC had total revenue of $16.6
million and total benefits, losses and expenses of $11.5 million.

During 1998, SMAFCO contributed $21.0 million of additional paid-in capital to
the Company. SMAFCO contributed $4.0 million of additional paid-in capital to
the Company in the second quarter of 1999.

4. FEDERAL INCOME TAXES

Federal income tax expense for the nine months ended September 30, 1999 and
1998, has been computed using estimated effective tax rates. These rates are
revised, if necessary, at the end of each successive interim period to reflect
the current estimates of the annual effective tax rates.

5. COMMITMENTS AND 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

F-7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 an amount of reimbursement actually tendered by
AFLIAC's insurance carriers and based on changes in the Company's estimate of
the ultimate cost of the benefits to be provided to members of the class.

The Company has been named a defendant in various 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 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.

YEAR 2000

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.

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.

F-8
<PAGE>

GROUP VEL ACCOUNT

STATEMENTS OF ASSETS AND LIABILITIES

September 30, 1999 (Unaudited)

<TABLE>
<CAPTION>
Investment
Growth Grade Income
------------- --------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ 4,410,458 $ 22,193,376
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. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - -
------------- --------------
Total assets ............................................................... 4,410,458 22,193,376

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... 317,480 -
------------- --------------
Net assets ................................................................. $ 4,092,978 $ 22,193,376
------------- --------------
------------- --------------

Net asset distribution by category:
Variable life policies ....................................................... $ 4,092,978 $ 22,193,376
------------- --------------
------------- --------------

Units outstanding, September 30, 1999 ..................................... 1,772,136 16,502,285
Net asset value per unit, September 30, 1999 .............................. $ 2.309616 $ 1.344870

Money Market Equity Index
-------------- --------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ 3,289,604 $ 2,021,363
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. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ........... - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ 618 -
-------------- --------------
Total assets ............................................................... 3,290,222 2,021,363

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - -
-------------- --------------
Net assets ................................................................. $ 3,290,222 $ 2,021,363
-------------- --------------
-------------- --------------

Net asset distribution by category:
Variable life policies ....................................................... $ 3,290,222 $ 2,021,363
-------------- --------------
-------------- --------------

Units outstanding, September 30, 1999 ..................................... 2,619,005 766,131
Net asset value per unit, September 30, 1999 .............................. $ 1.255868 $ 2.638167

Select
Government Bond Aggressive Growth
----------------- -------------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ 20,979 $ 1,061,561
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. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - -
Receivable from Allmerica Financial Life Insurance and Annuity -
Company (Sponsor) ............................................................ 247 -
----------------- -------------------
Total assets ............................................................... 21,226 1,061,561

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - -
----------------- -------------------
Net assets ................................................................. $ 21,226 $ 1,061,561
----------------- -------------------
----------------- -------------------

Net asset distribution by category:
Variable life policies ....................................................... $ 21,226 $ 1,061,561
----------------- -------------------
----------------- -------------------

Units outstanding, September 30, 1999 ..................................... 16,031 496,099
Net asset value per unit, September 30, 1999 .............................. $ 1.293057 $ 2.139811

Select Growth
---------------
<S> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ 15,904,576
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. ...................... -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ -
---------------
Total assets ............................................................... 15,904,576

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... -
---------------
Net assets ................................................................. $ 15,904,576
---------------
---------------

Net asset distribution by category:
Variable life policies ....................................................... $ 15,904,576
---------------
---------------

Units outstanding, September 30, 1999 ..................................... 5,838,486
Net asset value per unit, September 30, 1999 .............................. $ 2.724051
</TABLE>

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

SA-1
<PAGE>

GROUP VEL ACCOUNT

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)

September 30, 1999 (Unaudited)

Select Select Value
Growth and Income Opportunity
------------------- --------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ 302,834 $ 18,293,834
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. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - -
------------------- --------------
Total assets ............................................................... 302,834 18,293,834

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - -
------------------- --------------
Net assets ................................................................. $ 302,834 $ 18,293,834
------------------- --------------
------------------- --------------

Net asset distribution by category:
Variable life policies ....................................................... $ 302,834 $ 18,293,834
------------------- --------------
------------------- --------------

Units outstanding, September 30, 1999 ..................................... 137,121 111,205,587
Net asset value per unit, September 30, 1999 .............................. $ 2.208525 $ 1.632562

Select Select Select
International Capital Emerging
Equity Appreciation Markets
--------------- -------------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ 5,326,650 $ 315,129 $ 12,232
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. ...................... - - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - - -
--------------- -------------- -----------
Total assets ............................................................... 5,326,650 315,129 12,232

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... 4,045 - -
--------------- -------------- -----------
Net assets ................................................................. $ 5,322,605 $ 315,129 $ 12,232
--------------- -------------- -----------
--------------- -------------- -----------

Net asset distribution by category:
Variable life policies ....................................................... $ 5,322,605 $ 315,129 $ 12,232
--------------- -------------- -----------
--------------- -------------- -----------

Units outstanding, September 30, 1999 ..................................... 2,907,219 154,205 9,409
Net asset value per unit, September 30, 1999 .............................. $ 1.830828 $ 2.043577 $1.300110

Select
Strategic Fidelity Vip
Growth High Income
----------- --------------
<S> <C> <C>
ASSETS: $ 6,704 $ -
Investments in shares of Allmerica Investment Trust ............................ - 166,763
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. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - -
----------- --------------
Total assets ............................................................... 6,704 166,763

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - -
----------- --------------
Net assets ................................................................. $ 6,704 $ 166,763
----------- --------------
----------- --------------

Net asset distribution by category:
Variable life policies ....................................................... $ 6,704 $ 166,763
----------- --------------
----------- --------------

Units outstanding, September 30, 1999 ..................................... - 112,921
Net asset value per unit, September 30, 1999 .............................. $1.009280 $ 1.476800
</TABLE>

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

SA-2
<PAGE>

GROUP VEL ACCOUNT

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)

September 30, 1999 (Unaudited)

<TABLE>
<CAPTION>
Fidelity VIP Fidelity VIP
Equity-Income Growth
--------------- --------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ - $ -
Investments in shares of Fidelity Variable Insurance Products Funds (VIP) ...... 313,306 971,830
Investment in shares of T. Rowe Price International Series, Inc. ............... - -
Investment in shares of Delaware Group Premium Fund, Inc. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - -
--------------- --------------
Total assets ............................................................... 313,306 971,830

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - 22,129
--------------- --------------
Net assets ................................................................. $ 313,306 $ 949,701
--------------- --------------
--------------- --------------

Net asset distribution by category:
Variable life policies ....................................................... $ 313,306 $ 949,701
--------------- --------------
--------------- --------------

Units outstanding, September 30, 1999 ..................................... 155,291 346,954
Net asset value per unit, September 30, 1999 .............................. $ 2.017547 $ 2.737253

Fidelity VIP Fidelity VIP II
Overseas Asset Manager
-------------- ----------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ - $ -
Investments in shares of Fidelity Variable Insurance Products Funds (VIP) ...... 93,758 854,589
Investment in shares of T. Rowe Price International Series, Inc. ............... - -
Investment in shares of Delaware Group Premium Fund, Inc. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - -
-------------- ----------------
Total assets ............................................................... 93,758 854,589

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - 61,048
-------------- ----------------
Net assets ................................................................. $ 93,758 $ 793,541
-------------- ----------------
-------------- ----------------

Net asset distribution by category:
Variable life policies ....................................................... $ 93,758 $ 793,541
-------------- ----------------
-------------- ----------------

Units outstanding, September 30, 1999 ..................................... 53,578 407,012
Net asset value per unit, September 30, 1999 .............................. $ 1.749956 $ 1.825796

Fidelity VIP II T. Rowe Price
Index 500 International Stock
----------------- ---------------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ - $ -
Investments in shares of Fidelity Variable Insurance Products Funds (VIP) ...... 30,762,275 -
Investment in shares of T. Rowe Price International Series, Inc. ............... - 512,885
Investment in shares of Delaware Group Premium Fund, Inc. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - -
----------------- ---------------------
Total assets ............................................................... 30,762,275 512,885

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - -
----------------- ---------------------
Net assets ................................................................. $ 30,762,275 $ 512,885
----------------- ---------------------
----------------- ---------------------

Net asset distribution by category:
Variable life policies ....................................................... $ 30,762,275 $ 512,885
----------------- ---------------------
----------------- ---------------------

Units outstanding, September 30, 1999 ..................................... 30,689,211 358,170
Net asset value per unit, September 30, 1999 .............................. $ 1.002378 $ 1.431947

DGPF INVESCO
International Equity Industrial Income
---------------------- -------------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ - $ -
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. ...................... 8,937,836 -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - 9,814
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - -
---------------------- -------------------
Total assets ............................................................... 8,937,836 9,814

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - -
---------------------- -------------------
Net assets ................................................................. $ 8,937,836 $ 9,814
---------------------- -------------------
---------------------- -------------------

Net asset distribution by category:
Variable life policies ........................................................ $ 8,937,836 $ 9,814
---------------------- -------------------
---------------------- -------------------

Units outstanding, September 30, 1999 ...................................... 6,523,904 5,737
Net asset value per unit, September 30, 1999 ............................... $ 1.370010 $ 1.710669
</TABLE>

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

SA-3
<PAGE>

GROUP VEL ACCOUNT

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)

September 30, 1999 (Unaudited)

INVESCO Morgan Stanley
Total Return Fixed Income
-------------- ----------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ - $ -
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. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... 27,612 -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - 22,428,692
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - -
-------------- ----------------
Total assets ............................................................... 27,612 22,428,692

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - -
-------------- ----------------
Net assets ................................................................. $ 27,612 $ 22,428,692
-------------- ----------------
-------------- ----------------

Net asset distribution by category:
Variable life policies ....................................................... $ 27,612 $ 22,428,692
-------------- ----------------
-------------- ----------------

Units outstanding, September 30, 1999 ..................................... 20,032 21,055,170
Net asset value per unit, September 30, 1999 .............................. $ 1.378410 $ 1.065231

MFVAT MFVAT
U.S. Government Asset
Bond(a) Allocation(a)
----------------- ---------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ - $ -
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. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - -
----------------- ---------------
Total assets ............................................................... - -

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - -
----------------- ---------------
Net assets ................................................................. $ - $ -
----------------- ---------------
----------------- ---------------

Net asset distribution by category:
Variable life policies ....................................................... $ - $ -
----------------- ---------------
----------------- ---------------

Units outstanding, September 30, 1999 ..................................... - -
Net asset value per unit, September 30, 1999 .............................. $ 1.000000 $ 1.000000

MFVAT MFVAT MFVAT
Growth Capital International
& Income(a) Growth(a) Equity(a)
------------- ----------- ---------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ - $ - $ -
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. ...................... - - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - - -
------------- ----------- ---------------
Total assets ............................................................... - - -

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - - -
------------- ----------- ---------------
Net assets ................................................................. $ - $ - $ -
------------- ----------- ---------------
------------- ----------- ---------------

Net asset distribution by category:
Variable life policies ....................................................... $ - $ - $ -
------------- ----------- ---------------
------------- ----------- ---------------

Units outstanding, September 30, 1999 ..................................... - - -
Net asset value per unit, September 30, 1999 .............................. $ 1.000000 $1.000000 $ 1.000000
</TABLE>

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

SA-4
<PAGE>

GROUP VEL ACCOUNT

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)

September 30, 1999 (Unaudited)

<TABLE>
<CAPTION>
DGPF
Decatur DGPF
Total Return(a) Delchester(a)
----------------- ---------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ - $ -
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. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - -
----------------- ---------------
Total assets ............................................................... - -

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - -
----------------- ---------------
Net assets ................................................................. $ - $ -
----------------- ---------------
----------------- ---------------

Net asset distribution by category:
Variable life policies ....................................................... $ - $ -
----------------- ---------------
----------------- ---------------

Units outstanding, September 30, 1999 ..................................... - -
Net asset value per unit, September 30, 1999 .............................. $ 1.000000 $ 1.000000

DGPF DGPF
Capital Cash DGPF
Reserves(a) Reserve(a) DelCap(a)
-------------- --------------- -------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ - $ - $ -
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. ...................... - - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - - -
-------------- --------------- -------------
Total assets ............................................................... - - -

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - - -
-------------- --------------- -------------
Net assets ................................................................. $ - $ - $ -
-------------- --------------- -------------
-------------- --------------- -------------

Net asset distribution by category:
Variable life policies ....................................................... $ - $ - $ -
-------------- --------------- -------------
-------------- --------------- -------------

Units outstanding, September 30, 1999 ..................................... - - -
Net asset value per unit, September 30, 1999 .............................. $ 1.000000 $ 1.000000 $ 1.000000

DGPF
DGPF Small Cap
Delaware(a) Value(a)
--------------- -------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ - $ -
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. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - -
--------------- -------------
Total assets ............................................................... - -

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - -
--------------- -------------
Net assets ................................................................. $ - $ -
--------------- -------------
--------------- -------------

Net asset distribution by category:
Variable life policies ....................................................... $ - $ -
--------------- -------------
--------------- -------------

Units outstanding, September 30, 1999 ..................................... - -
Net asset value per unit, September 30, 1999 .............................. $ 1.000000 $ 1.000000
</TABLE>

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

SA-5
<PAGE>

GROUP VEL ACCOUNT

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)

September 30, 1999 (Unaudited)

<TABLE>
<CAPTION>
DGPF
DGPF Strategic DGPF
Trend(a) Income(a) Devon(a)
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ - $ - $ -
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. ...................... - - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - - -
------------- ------------- -------------
Total assets ............................................................... - - -

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - - -
------------- ------------- -------------
Net assets ................................................................. $ - $ - $ -
------------- ------------- -------------
------------- ------------- -------------

Net asset distribution by category:
Variable life policies ....................................................... $ - $ - $ -
------------- ------------- -------------
------------- ------------- -------------

Units outstanding, September 30, 1999 ..................................... - - -
Net asset value per unit, September 30, 1999 .............................. $ 1.000000 $ 1.000000 $ 1.000000

DGPF DGPF
Emerging Social
Markets(a) Awareness(a)
------------- -------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ - $ -
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. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - -
------------- -------------
Total assets ............................................................... - -

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - -
------------- -------------
Net assets ................................................................. $ - $ -
------------- -------------
------------- -------------

Net asset distribution by category:
Variable life policies ....................................................... $ - $ -
------------- -------------
------------- -------------

Units outstanding, September 30, 1999 ..................................... - -
Net asset value per unit, September 30, 1999 .............................. $ 1.000000 $ 1.000000

DGPF
DGPF Aggressive
REIT(a) Growth(a)
------------- ------------
<S> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust ............................ $ - $ -
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. ...................... - -
Investments in shares of INVESCO Variable Investment Funds, Inc. ............... - -
Investment in shares of Morgan Stanley Universal Funds, Inc. ................... - -
Investments in shares of Mutual Fund Variable Annuity Trust (MFVAT) ............ - -
Receivable from Allmerica Financial Life Insurance and Annuity
Company (Sponsor) ............................................................ - -
------------- ------------
Total assets ............................................................... - -

LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) .................................................... - -
------------- ------------
Net assets ................................................................. $ - $ -
------------- ------------
------------- ------------

Net asset distribution by category:
Variable life policies ....................................................... $ - $ -
------------- ------------
------------- ------------

Units outstanding, September 30, 1999 ..................................... - -
Net asset value per unit, September 30, 1999 .............................. $ 1.000000 $ 1.000000
</TABLE>

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

SA-6
<PAGE>

GROUP VEL ACCOUNT

STATEMENTS OF OPERATIONS (Unaudited)
For the Period Ended September 30, 1999
<TABLE>
<CAPTION>
Growth Investment Grade Income Money Market
------------- --------------------------- ------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................................. $ 20,768 $ 974,256 $ 17,809

EXPENSES:
Mortality and expense risk fees ........................... 4,516 87,408 2,973
------------- --------------------------- ------------------
Net investment income (loss) .............................. 16,252 886,848 14,836
------------- --------------------------- ------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ....... 286,696 18,099 -
Net realized gain (loss) from sales of investments ........ 54,966 (36,332) -
------------- --------------------------- ------------------
Net realized gain (loss) ............................... 341,662 (18,233) -
Net unrealized gain (loss) ................................ (331,196) (1,181,724) -
------------- --------------------------- ------------------

Net realized and unrealized gain (loss) ............... 10,466 (1,199,957) -
------------- --------------------------- ------------------
Net increase (decrease) in net assets from operations .. $ 26,718 $ (313,109) $ 14,836
------------- --------------------------- ------------------
------------- --------------------------- ------------------
<CAPTION>

Select
Equity Index Government Bond Aggressive Growth
---------------- ---------------------- --------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................................. $ 126,637 $ 1,014 $ -

EXPENSES:
Mortality and expense risk fees ........................... 94,777 60 3,988
---------------- ---------------------- --------------------
Net investment income (loss) .............................. 31,860 954 (3,988)
---------------- ---------------------- --------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ....... 3,576 - -
Net realized gain (loss) from sales of investments ........ 11,655,899 (152) 13,864
---------------- ---------------------- --------------------
Net realized gain (loss) ............................... 11,659,475 (152) 13,864
Net unrealized gain (loss) ................................ (7,466,515) (199) 82,290
---------------- ---------------------- --------------------

Net realized and unrealized gain (loss) ............... 4,192,960 (351) 96,154
---------------- ---------------------- --------------------
Net increase (decrease) in net assets from operations .. $ 4,224,820 $ 603 $ 92,166
---------------- ---------------------- --------------------
---------------- ---------------------- --------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.

SA-7
<PAGE>

<TABLE>
<CAPTION>
GROUP VEL ACCOUNT

STATEMENTS OF OPERATIONS (Continued)(Unaudited)
For the Period Ended September 30, 1999

Select Growth
Select Growth and Income Select Value Opportunity
----------------- ----------------- --------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................................. $ 8,328 $ 3,041 $ 118

EXPENSES:
Mortality and expense risk fees ........................... 60,672 1,346 39,308
----------------- ----------------- --------------------------
Net investment income (loss) .............................. (52,344) 1,695 (39,190)
----------------- ----------------- --------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ....... 529,243 23,247 1,173,968
Net realized gain (loss) from sales of investments ........ 470,486 1,794 (20,408)
----------------- ----------------- --------------------------
Net realized gain (loss) ............................... 999,729 25,041 1,153,560
Net unrealized gain (loss) ................................ (603,329) (14,005) (3,956,357)
----------------- ----------------- --------------------------

Net realized and unrealized gain (loss) ............... 396,400 11,036 (2,802,797)
----------------- ----------------- --------------------------
Net increase (decrease) in net assets from operations .. $ 344,056 $ 12,731 $ (2,841,987)
----------------- ----------------- --------------------------
----------------- ----------------- --------------------------
<CAPTION>

Select Select Capital Select
International Equity Appreciation Emerging Markets
---------------------------- ------------------- ------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................................. $ - $ - $ 46

EXPENSES:
Mortality and expense risk fees ........................... 34,849 1,188 18
---------------------------- ------------------- ------------------
Net investment income (loss) .............................. (34,849) (1,188) 28
---------------------------- ------------------- ------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ....... - 412 -
Net realized gain (loss) from sales of investments ........ 790,863 (728) 13
---------------------------- ------------------- ------------------
Net realized gain (loss) ............................... 790,863 (316) 13
Net unrealized gain (loss) ................................ (196,401) 5,369 (10)
---------------------------- ------------------- ------------------

Net realized and unrealized gain (loss) ............... 594,462 5,053 3
---------------------------- ------------------- ------------------
Net increase (decrease) in net assets from operations .. $ 559,613 $ 3,865 $ 31
---------------------------- ------------------- ------------------
---------------------------- ------------------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.

SA-8
<PAGE>

<TABLE>
<CAPTION>
GROUP VEL ACCOUNT

STATEMENTS OF OPERATIONS (Continued)(Unaudited)
For the Period Ended September 30, 1999

Select
Strategic Growth Fidelity VIP High Income
------------------------ ----------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ................................................. $ - $ 8,271

EXPENSES:
Mortality and expense risk fees ........................... 9 540
------------------------ ----------------------------
Net investment income (loss) .............................. (9) 7,731
------------------------ ----------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ....... - 309
Net realized gain (loss) from sales of investments ........ (9) (2,467)
------------------------ ----------------------------
Net realized gain (loss) ............................... (9) (2,158)
Net unrealized gain (loss) ................................ (753) (5,441)
------------------------ ----------------------------

Net realized and unrealized gain (loss) ............... (762) (7,599)
------------------------ ----------------------------
Net increase (decrease) in net assets from operations .. $ (771) $ 132
------------------------ ----------------------------
------------------------ ----------------------------
<CAPTION>

Fidelity VIP Equity-Income Fidelity VIP Growth
------------------------------- ------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ................................................. $ 2,402 $ 2,233

EXPENSES:
Mortality and expense risk fees ........................... 1,006 4,547
------------------------------- ------------------------
Net investment income (loss) .............................. 1,396 (2,314)
------------------------------- ------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ....... 5,309 140,400
Net realized gain (loss) from sales of investments ........ 2,830 113,260
------------------------------- ------------------------
Net realized gain (loss) ............................... 8,139 253,660
Net unrealized gain (loss) ................................ (12,369) (121,324)
------------------------------- ------------------------

Net realized and unrealized gain (loss) ............... (4,230) 132,336
------------------------------- ------------------------
Net increase (decrease) in net assets from operations .. $ (2,834) $ 130,022
------------------------------- ------------------------
------------------------------- ------------------------
<CAPTION>

Fidelity VIP Overseas Fidelity VIP II Asset Manager
------------------------- --------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ................................................. $ 1,054 $ 20,569

EXPENSES:
Mortality and expense risk fees ........................... 359 1,028
------------------------- --------------------------------
Net investment income (loss) .............................. 695 19,541
------------------------- --------------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ....... 1,699 26,054
Net realized gain (loss) from sales of investments ........ 669 163
------------------------- --------------------------------
Net realized gain (loss) ............................... 2,368 26,217
Net unrealized gain (loss) ................................ 7,490 (61,892)
------------------------- --------------------------------

Net realized and unrealized gain (loss) ............... 9,858 (35,675)
------------------------- --------------------------------
Net increase (decrease) in net assets from operations .. $ 10,553 $ 16,134)
------------------------- --------------------------------
------------------------- --------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.

SA-9
<PAGE>

<TABLE>
<CAPTION>
GROUP VEL ACCOUNT

STATEMENTS OF OPERATIONS (Continued)(Unaudited)
For the Period Ended September 30, 1999

Fidelity VIP II Index 500 T. Rowe Price International Stock
-------------------------- -------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ................................................. $ - $ -

EXPENSES:
Mortality and expense risk fees ........................... 24,146 1,724
-------------------------- -------------------------------------
Net investment income (loss) .............................. (24,146) (1,724)
-------------------------- -------------------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ....... - -
Net realized gain (loss) from sales of investments ........ 1,291 1,179
-------------------------- -------------------------------------
Net realized gain (loss) ............................... 1,291 1,179
Net unrealized gain (loss) ................................ (1,286,562) 27,808
-------------------------- -------------------------------------

Net realized and unrealized gain (loss) ............... (1,285,271) 28,987
-------------------------- -------------------------------------
Net increase (decrease) in net assets from operations .. $ (1,309,417) $ 27,263
-------------------------- -------------------------------------
-------------------------- -------------------------------------
<CAPTION>

INVESCO
DGPF International Equity Industrial Income
----------------------------- -----------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ................................................. $ 183,862 $ -

EXPENSES:
Mortality and expense risk fees ........................... 24,449 29
----------------------------- -----------------------
Net investment income (loss) .............................. 159,413 (29)
----------------------------- -----------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ....... 13,428 -
Net realized gain (loss) from sales of investments ........ 14,835 176
----------------------------- -----------------------
Net realized gain (loss) ............................... 28,263 176
Net unrealized gain (loss) ................................ 334,658 409
----------------------------- -----------------------

Net realized and unrealized gain (loss) ............... 362,921 585
----------------------------- -----------------------
Net increase (decrease) in net assets from operations .. $ 522,334 $ 556
----------------------------- -----------------------
----------------------------- -----------------------

INVESCO Morgan Stanley
Total Return Fixed Income
------------------------ ------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends .................................................. $ - $ -

EXPENSES:
Mortality and expense risk fees ............................ 122 56,595
------------------------ ------------------------
Net investment income (loss) ............................... (122) (56,595)
------------------------ ------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ........ - 3,424
Net realized gain (loss) from sales of investments ......... 3,981 (9,012)
------------------------ ------------------------
Net realized gain (loss) ................................ 3,981 (5,588)
Net unrealized gain (loss) ................................. (5,259) (266,941)
------------------------ ------------------------

Net realized and unrealized gain (loss) ................ (1,278) (272,529)
------------------------ ------------------------
Net increase (decrease) in net assets from operations ... $ (1,400) $ (329,124)
------------------------ ------------------------
------------------------ ------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.

SA-10
<PAGE>

GROUP VEL ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
<CAPTION>
Growth Investment Grade Income
Period Ended Period Ended
September 30, 1999 September 30, 1999
------------------ ------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS: ...................................................
Net investment income (loss) ..................................... $ 16,252 $ 886,848
Net realized gain (loss) ......................................... 341,662 (18,233)
Net unrealized gain (loss) ....................................... (331,196) (1,181,724)
------------------ ------------------------
Net increase (decrease) in net assets from operations ............ 26,718 (313,109)
------------------ ------------------------

FROM POLICY TRANSACTIONS:
Net premiums ....................................................... 835,634 5,520,062
Terminations ....................................................... (337,478) (13,957)
Insurance and other charges ........................................ (8,817) (459,475)
Transfers between sub-accounts (including fixed account), net ...... 1,092,670 2,113,615
Other transfers from (to) the General Account ...................... (196,475) (6,832)
Net increase (decrease) in investment by Sponsor ................... - -
------------------ ------------------------
Net increase (decrease) in net assets from policy transactions ... 1,385,534 7,153,413
------------------ ------------------------

Net increase (decrease) in net assets ............................ 1,412,252 6,840,304

NET ASSETS:
Beginning of period ................................................ 2,680,726 15,353,072
------------------ ------------------------
End of period ...................................................... $ 4,092,978 $ 22,193,376
------------------ ------------------------
------------------ ------------------------

Money Market Growth
Period Ended Period Ended
September 30, 1999 September 30, 1999
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS: <C> <C>
FROM OPERATIONS:
Net investment income (loss) ..................................... $ 14,836 $ 31,860
Net realized gain (loss) ......................................... - 11,659,475
Net unrealized gain (loss) ....................................... - (7,466,515)
------------------ ------------------
Net increase (decrease) in net assets from operations ............ 14,836 4,224,820
------------------ ------------------

FROM POLICY TRANSACTIONS:
Net premiums ....................................................... 3,961,349 2,238,441
Terminations ....................................................... (65,511) (171,194)
Insurance and other charges ........................................ (509,244) (570,211)
Transfers between sub-accounts (including fixed account), net ...... (339,714) (49,824,132)
Other transfers from (to) the General Account ...................... (11,120) (7,028)
Net increase (decrease) in investment by Sponsor ................... - -
------------------ ------------------
Net increase (decrease) in net assets from policy transactions ... 3,035,760 (48,334,124)
------------------ ------------------

Net increase (decrease) in net assets ............................ 3,050,596 (44,109,304)

NET ASSETS:
Beginning of period ................................................ 239,626 46,130,667
------------------ ------------------
End of period ...................................................... $ 3,290,222 $ 2,021,363
------------------ ------------------
------------------ ------------------
</TABLE>

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

SA-11
<PAGE>

GROUP VEL ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS (Continued) (Unaudited)

<TABLE>
<CAPTION>
Government Bond Select Aggressive Growth
Period Ended Period Period Ended
September 30, 1999 September 30, 1999
------------------ ------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) .................................... $ 954 $ (3,988)
Net realized gain (loss) ........................................ (152) 13,864
Net unrealized gain (loss) ...................................... (199) 82,290
------------------ ------------------------
Net increase (decrease) in net assets from operations ........... 603 92,166
------------------ ------------------------

FROM POLICY TRANSACTIONS:
Net premiums ...................................................... 8,566 250,713
Terminations ...................................................... (12,517) (28,621)
Insurance and other charges ....................................... (298) (20,402)
Transfers between sub-accounts (including fixed account), net ..... 1,866 (19,630)
Other transfers from (to) the General Account ..................... (332) (17,864)
Net increase (decrease) in investment by Sponsor .................. - -

------------------ ------------------------
Net increase (decrease) in net assets from policy transactions .. (2,715) 164,196
------------------ ------------------------

Net increase (decrease) in net assets ........................... (2,112) 256,362

NET ASSETS:
Beginning of period ............................................... 23,338 805,199
------------------ ------------------------
End of period ..................................................... $ 21,226 $ 1,061,561
------------------ ------------------------
------------------ ------------------------

<CAPTION>
Select Growth Select Growth and Income
Period Ended Period Ended
September 30, 1999 September 30, 1999
------------------ ------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ..................................... $ (52,344) $ 1,695
Net realized gain (loss) ......................................... 999,729 25,041
Net unrealized gain (loss) ....................................... (603,329) (14,005)
------------------ ------------------------
Net increase (decrease) in net assets from operations ............ 344,056 12,731
------------------ ------------------------

FROM POLICY TRANSACTIONS:
Net premiums ....................................................... 2,949,045 66,608
Terminations ....................................................... (16,270) (7,617)
Insurance and other charges ........................................ (254,932) (3,992)
Transfers between sub-accounts (including fixed account), net ...... 2,165,723 3,125
Other transfers from (to) the General Account ...................... (8,806) (649)
Net increase (decrease) in investment by Sponsor ................... - -

------------------ ------------------------
Net increase (decrease) in net assets from policy transactions ... 4,834,760 57,475
------------------ ------------------------

Net increase (decrease) in net assets ............................ 5,178,816 70,206

NET ASSETS:
Beginning of period ................................................ 10,725,760 232,628
------------------ ------------------------
End of period ...................................................... $ 15,904,576 $ 302,834
------------------ ------------------------
------------------ ------------------------
</TABLE>

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

SA-12
<PAGE>

GROUP VEL ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS (Continued) (Unaudited)
<TABLE>
<CAPTION>

Select Value Select Capital
Opportunity Select International Appreciation
Period Ended Equity Period Ended Period Ended
September 30, 1999 September 30, 1999 September 30, 1999
--------------------- ---------------------- -----------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ........................... $ (39,190) $ (34,849) $ (1,188)
Net realized gain (loss) ............................... 1,153,560 790,863 (316)
Net unrealized gain (loss) ............................. (3,956,357) (196,401) 5,369
--------------------- ---------------------- ------------------------
Net increase (decrease) in net assets from operations .. (2,841,987) 559,613 3,865
--------------------- ---------------------- -----------------------

FROM POLICY TRANSACTIONS:
Net premiums ............................................. 6,111,591 1,367,703 94,805
Terminations ............................................. (10,000) (30,493) (5,191)
Insurance and other charges .............................. (328,440) (107,792) (6,866)
Transfers between sub-accounts (including fixed
account), net ........................................... 14,725,532 (5,541,612) (15,273)
Other transfers from (to) the General Account ............ 3,536 (3,356) (4,299)
Net increase (decrease) in investment by Sponsor ......... - - -
--------------------- ----------------------- ------------------------
Net increase (decrease) in net assets from policy
transactions .......................................... 20,502,219 (4,315,550) 63,176
--------------------- ----------------------- ------------------------

Net increase (decrease) in net assets .................. 17,660,232 (3,755,937) 67,041

NET ASSETS:
Beginning of period ...................................... 633,602 9,078,542 248,088
--------------------- ----------------------- ------------------------
End of period ............................................ $ 18,293,834 $ 5,322,605 $ 315,129
--------------------- ----------------------- ------------------------
--------------------- ----------------------- ------------------------

<CAPTION>
Select Select
Emerging Markets Strategic Growth
Period Ended Period Ended
September 30, 1999 September 30, 1999
---------------------- -----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ...................................... $ 28 $ (9)
Net realized gain (loss) .......................................... 13 (9)
Net unrealized gain (loss) ........................................ (10) (753)
---------------------- -----------------------
Net increase (decrease) in net assets from operations ............. 31 (771)
---------------------- -----------------------

FROM POLICY TRANSACTIONS:
Net premiums ........................................................ 12,188 8,308
Terminations ........................................................ - -
Insurance and other charges ......................................... (229) (864)
Transfers between sub-accounts (including fixed account), net ....... - -
Other transfers from (to) the General Account ....................... 231 31
Net increase (decrease) in investment by Sponsor .................... - -

---------------------- -----------------------
Net increase (decrease) in net assets from policy transactions .... 12,190 7,475
---------------------- -----------------------

Net increase (decrease) in net assets ............................. 12,221 6,704

NET ASSETS:
Beginning of period ................................................. 11 -
---------------------- -----------------------
End of period ....................................................... $ 12,232 $ 6,704
---------------------- -----------------------
---------------------- -----------------------
</TABLE>

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

SA-13
<PAGE>

GROUP VEL ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS (Continued) (Unaudited)

<TABLE>
<CAPTION>
Fidelity Vip High Income Fidelity Vip Equity-income
Period Ended Period Ended
September 30, 1999 September 30, 1999
--------------------------- -----------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) .................................... $ 7,731 $ 1,396
Net realized gain (loss) ........................................ (2,158) 8,139
Net unrealized gain (loss) ...................................... (5,441) (12,369)
--------------------------- -----------------------------
Net increase (decrease) in net assets from operations ........... 132 (2,834)
--------------------------- -----------------------------

FROM POLICY TRANSACTIONS:
Net premiums ...................................................... 121,353 126,094
Terminations ...................................................... (16,729) (25,145)
Insurance and other charges ....................................... (10,163) (10,218)
Transfers between sub-accounts (including fixed account), net ..... (15,034) 69,880
Other transfers from (to) the General Account ..................... (1,890) (3,794)
Net increase (decrease) in investment by Sponsor .................. - -

--------------------------- -----------------------------
Net increase (decrease) in net assets from policy transactions .. 77,537 156,817
--------------------------- -----------------------------
....................................................................
Net increase (decrease) in net assets 77,669 153,983

NET ASSETS:
Beginning of period ............................................... 89,094 159,323
--------------------------- -----------------------------
End of period ..................................................... $ 166,763 $ 313,306
--------------------------- -----------------------------
--------------------------- -----------------------------

<CAPTION>
Fidelity Vip Growth Fidelity Vip Overseas
Period Ended Period Ended
September 30, 1999 September 30, 1999
---------------------- ------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ...................................... $ (2,314) $ 695
Net realized gain (loss) .......................................... 253,660 2,368
Net unrealized gain (loss) ........................................ (121,324) 7,490
---------------------- ------------------------
Net increase (decrease) in net assets from operations ............. 130,022 10,553
---------------------- ------------------------

FROM POLICY TRANSACTIONS:
Net premiums ........................................................ 348,790 24,814
Terminations ........................................................ (335,822) (2,207)
Insurance and other charges ......................................... (25,304) (3,689)
Transfers between sub-accounts (including fixed account), net ....... (327,694) 156
Other transfers from (to) the General Account ....................... 8,246 (3,450)
Net increase (decrease) in investment by Sponsor .................... - -

---------------------- ------------------------
Net increase (decrease) in net assets from policy transactions .... (331,784) 15,624
---------------------- ------------------------

Net increase (decrease) in net assets ............................. (201,762) 26,177

NET ASSETS:
Beginning of period ................................................. 1,151,463 67,581
---------------------- ------------------------
End of period ....................................................... $ 949,701 $ 93,758
---------------------- ------------------------
---------------------- ------------------------
</TABLE>

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

SA-14
<PAGE>

GROUP VEL ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS (Continued) (Unaudited)

<TABLE>
<CAPTION>
Fidelity Vip II Asset Fidelity Vip II
Manager Period Ended Index 500 Period From
September 30, 1999 5/4/99* to 9/30/99
------------------------- -----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ............................. $ 19,541 $ (24,146)
Net realized gain (loss) ................................. 26,217 1,291
Net unrealized gain (loss) ............................... (61,892) (1,286,562)
------------------------- -----------------------
Net increase (decrease) in net assets from operations .... (16,134) (1,309,417)
------------------------- -----------------------

FROM POLICY TRANSACTIONS:
Net premiums ............................................... 286,167 2,571
Terminations ............................................... (82,865) -
Insurance and other charges ................................ (2,526) (199,052)
Transfers between sub-accounts (including fixed account),
net ....................................................... (1,720) 32,268,173
Other transfers from (to) the General Account .............. (37,754) -
Net increase (decrease) in investment by Sponsor - -

------------------------- -----------------------
Net increase (decrease) in net assets from policy
transactions ............................................ 161,302 32,071,692
------------------------- -----------------------

Net increase (decrease) in net assets .................... 145,168 30,762,275

NET ASSETS:
Beginning of period ........................................ 648,373 -
------------------------- -----------------------
End of period .............................................. $ 793,541 $ 30,762,275
------------------------- -----------------------
------------------------- -----------------------

<CAPTION>
T. Rowe Price International Dgpf International Equity
Stock Period Ended Period Ended
September 30, 1999 September 30, 1999
---------------------------- ----------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ............................. $ (1,724) $ 159,413
Net realized gain (loss) ................................. 1,179 28,263
Net unrealized gain (loss) ............................... 27,808 334,658
---------------------------- ----------------------------
Net increase (decrease) in net assets from operations .... 27,263 522,334
---------------------------- ----------------------------

FROM POLICY TRANSACTIONS:
Net premiums ............................................... 126,300 32,837
Terminations ............................................... (4,722) -
Insurance and other charges ................................ (7,994) (165,914)
Transfers between sub-accounts (including fixed account),
net........................................................ 260 (2,442)
Other transfers from (to) the General Account .............. (365) (39)
Net increase (decrease) in investment by Sponsor ........... - -

---------------------------- ----------------------------
Net increase (decrease) in net assets from policy
transactions ............................................ 113,479 (135,558)
---------------------------- ----------------------------

Net increase (decrease) in net assets .................... 140,742 386,776

NET ASSETS:
Beginning of period ........................................ 372,143 8,551,060
---------------------------- ----------------------------
End of period .............................................. $ 512,885 $ 8,937,836
---------------------------- ----------------------------
---------------------------- ----------------------------

</TABLE>

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

SA-15
<PAGE>

GROUP VEL ACCOUNT

STATEMENTS OF CHANGES IN NET ASSETS (Continued) (Unaudited)
<TABLE>
<CAPTION>
Morgan Stanley
Invesco Industrial Invesco Total Return Fixed Income
Income Period Ended Period Ended Period Ended
September 30, 1999 September 30, 1999 September 30, 1999
----------------------- ---------------------- --------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ............................ $ (29) $ (122) $ (56,595)
Net realized gain (loss) ................................ 176 3,981 (5,588)
Net unrealized gain (loss) .............................. 409 (5,259) (266,941)
----------------------- ---------------------- --------------------
Net increase (decrease) in net assets from operations ... 556 (1,400) (329,124)
----------------------- ---------------------- --------------------

FROM POLICY TRANSACTIONS:
Net premiums .............................................. 1,663 1,236 -
Terminations .............................................. (149) (32,859) -
Insurance and other charges ............................... (1,485) (1,272) (384,044)
Transfers between sub-accounts (including fixed
account), net ............................................ - - 3,300,001
Other transfers from (to) the General Account ............. - - 8
Net increase (decrease) in investment by Sponsor .......... - - -

----------------------- ---------------------- --------------------
Net increase (decrease) in net assets from policy
transactions ........................................... 29 (32,895) 2,915,965
----------------------- ---------------------- --------------------

Net increase (decrease) in net assets ................... 585 (34,295) 2,586,841

NET ASSETS:
Beginning of period ....................................... 9,229 61,907 19,841,851
----------------------- ---------------------- --------------------
End of period ............................................. $ 9,814 $ 27,612 $ 22,428,692
----------------------- ---------------------- --------------------
----------------------- ---------------------- --------------------
</TABLE>

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

SA-16

<PAGE>

GROUP VEL ACCOUNT

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION

The Group VEL Account (Group VEL) is a separate investment account of
Allmerica Financial Life Insurance and Annuity Company (the Company) established
on May 1, 1995 for the purpose of separating from the general assets of the
Company, those assets used to fund the variable portion of certain flexible
premium variable life policies issued by the Company. The Company is a
wholly-owned subsidiary of First Allmerica Financial Life Insurance Company
(First Allmerica). First Allmerica is a wholly-owned subsidiary of Allmerica
Financial Corporation (AFC). Under applicable insurance law, the assets and
liabilities of 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
forty-three Sub-Accounts. 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), 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 the 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 Management Company or Delaware International Advisers Ltd.; or of
the INVESCO Variable Investment Funds, Inc. (INVESCO) managed by INVESCO Funds
Group, Inc.; or of the Morgan Stanley Universal Funds, Inc. (Morgan Stanley)
managed by Miller Anderson & Sherrerd, LLP; or of the Mutual Fund Variable
Annuity Trust (MFVAT) managed by Chase Manhattan Bank, N.A.. The Trust, Fidelity
VIP, Fidelity VIP II, T. Rowe Price, DGPF, INVESCO, Morgan Stanley and MFVAT
(the Funds) are open-end, management investment companies registered under the
1940 Act. INVESCO is available only to employees of INVESCO and its affiliates.
Morgan Stanley is available only to employees of Duke Energy Corporation and its
affiliates.

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 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.

SA-17

<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY

CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying 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 Allmerica Financial Life Insurance and Annuity Company (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 12,
which is as of March 19, 1999
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

(AN INDIRECT 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................................................ $ 0.5 $ 22.8 $ 32.7
Universal life and investment product policy fees....... 267.4 212.2 176.2
Net investment income................................... 151.3 164.2 171.7
Net realized investment gains (losses).................. 20.0 2.9 (3.6)
Other income............................................ 0.6 1.4 0.9
------ ------ ------
Total revenues...................................... 439.8 403.5 377.9
------ ------ ------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss adjustment
expenses.............................................. 153.9 187.8 192.6
Policy acquisition expenses............................. 64.6 2.8 49.9
Sales practice litigation............................... 21.0 -- --
Loss from cession of disability income business......... -- 53.9 --
Other operating expenses................................ 104.1 101.3 86.6
------ ------ ------
Total benefits, losses and expenses................. 343.6 345.8 329.1
------ ------ ------
Income before federal income taxes.......................... 96.2 57.7 48.8
------ ------ ------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current................................................. 22.1 13.9 26.9
Deferred................................................ 11.8 7.1 (9.8)
------ ------ ------
Total federal income tax expense.................... 33.9 21.0 17.1
------ ------ ------
Net income.................................................. $ 62.3 $ 36.7 $ 31.7
====== ====== ======
</TABLE>

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

F-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------- --------- ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,284.6 and $1,340.5)................................ $ 1,330.4 $ 1,402.5
Equity securities at fair value (cost of $27.4 and
$34.4)................................................ 31.8 54.0
Mortgage loans.......................................... 230.0 228.2
Real estate............................................. 14.5 12.0
Policy loans............................................ 151.5 140.1
Other long-term investments............................. 9.1 20.3
--------- ---------
Total investments................................... 1,767.3 1,857.1
--------- ---------
Cash and cash equivalents................................. 217.9 31.1
Accrued investment income................................. 33.5 34.2
Deferred policy acquisition costs......................... 950.5 765.3
Reinsurance receivables on paid and unpaid losses, future
policy benefits and unearned premiums................... 308.0 251.1
Other assets.............................................. 46.9 10.7
Separate account assets................................... 11,020.4 7,567.3
--------- ---------
Total assets........................................ $14,344.5 $10,516.8
========= =========
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.................................. $ 2,284.8 $ 2,097.3
Outstanding claims, losses and loss adjustment
expenses.............................................. 17.9 18.5
Unearned premiums....................................... 2.7 1.8
Contractholder deposit funds and other policy
liabilities........................................... 38.1 32.5
--------- ---------
Total policy liabilities and accruals............... 2,343.5 2,150.1
--------- ---------
Expenses and taxes payable................................ 146.2 77.6
Reinsurance premiums payable.............................. 45.7 4.9
Deferred federal income taxes............................. 78.8 75.9
Separate account liabilities.............................. 11,020.4 7,567.3
--------- ---------
Total liabilities................................... 13,634.6 9,875.8
--------- ---------
Commitments and contingencies (Note 12)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares authorized,
2,524 and 2,521 shares issued and outstanding........... 2.5 2.5
Additional paid-in capital................................ 407.9 386.9
Accumulated other comprehensive income.................... 24.1 38.5
Retained earnings......................................... 275.4 213.1
--------- ---------
Total shareholder's equity.......................... 709.9 641.0
--------- ---------
Total liabilities and shareholder's equity.......... $14,344.5 $10,516.8
========= =========
</TABLE>

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

F-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

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................................................ $ 2.5 $ 2.5 $ 2.5
------- ------- -------

ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period.......................... 386.9 346.3 324.3
Issuance of common stock................................ 21.0 40.6 22.0
------- ------- -------
Balance at end of period................................ 407.9 386.9 346.3
------- ------- -------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Net unrealized appreciation on investments:
Balance at beginning of period.......................... 38.5 20.5 23.8
Appreciation (depreciation) during the period:
Net (depreciation) appreciation on
available-for-sale securities..................... (23.4) 27.0 (5.1)
Benefit (provision) for deferred federal income
taxes............................................. 9.0 (9.0) 1.8
------- ------- -------
(14.4) 18.0 (3.3)
------- ------- -------
Balance at end of period................................ 24.1 38.5 20.5
------- ------- -------
RETAINED EARNINGS
Balance at beginning of period.......................... 213.1 176.4 144.7
Net income.............................................. 62.3 36.7 31.7
------- ------- -------
Balance at end of period................................ 275.4 213.1 176.4
------- ------- -------
Total shareholder's equity.......................... $ 709.9 $ 641.0 $ 545.7
======= ======= =======
</TABLE>

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

F-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------- -------- -------- --------
<S> <C> <C> <C>
Net income.................................................. $ 62.3 $ 36.7 $ 31.7
Other comprehensive income:
Net (depreciation) appreciation on available-for-sale
securities............................................ (23.4) 27.0 (5.1)
Benefit (provision) for deferred federal income taxes... 9.0 (9.0) 1.8
------ ------ ------
Other comprehensive income.......................... (14.4) 18.0 (3.3)
------ ------ ------
Comprehensive income.................................... 47.9 $ 54.7 $ 28.4
====== ====== ======
</TABLE>

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

F-4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

(AN INDIRECT 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.............................................. $ 62.3 $ 36.7 $ 31.7
Adjustments to reconcile net income to net cash used in
operating activities:
Net realized gains.................................. (20.0) (2.9) 3.6
Net amortization and depreciation................... (7.1) -- 3.5
Sales practice litigation expense................... 21.0
Loss from cession of disability income business..... -- 53.9 --
Deferred federal income taxes....................... 11.8 7.1 (9.8)
Payment related to cession of disability income
business.......................................... -- (207.0) --
Change in deferred acquisition costs................ (177.8) (181.3) (66.8)
Change in reinsurance premiums payable.............. 40.8 3.9 (0.2)
Change in accrued investment income................. 0.7 3.5 1.2
Change in policy liabilities and accruals, net...... 193.1 (72.4) (39.9)
Change in reinsurance receivable.................... (56.9) 22.1 (1.5)
Change in expenses and taxes payable................ 55.4 0.2 32.3
Separate account activity, net...................... (0.5) 1.6 8.0
Other, net.......................................... (28.0) (8.7) 2.3
------- ------- -------
Net cash provided by (used in) operating
activities.................................... 94.8 (343.3) (35.6)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities of
available-for-sale fixed maturities................... 187.0 909.7 809.4
Proceeds from disposals of equity securities............ 53.3 2.4 1.5
Proceeds from disposals of other investments............ 22.7 23.7 17.4
Proceeds from mortgages matured or collected............ 60.1 62.9 34.0
Purchase of available-for-sale fixed maturities......... (136.0) (579.7) (795.8)
Purchase of equity securities........................... (30.6) (3.2) (13.2)
Purchase of other investments........................... (22.7) (9.0) (13.9)
Purchase of mortgages................................... (58.9) (70.4) (22.3)
Other investing activities, net......................... (3.9) -- (2.0)
------- ------- -------
Net cash provided by investing activities........... 71.0 336.4 15.1
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and capital paid in..... 21.0 19.2 22.0
------- ------- -------
Net cash provided by financing activities........... 21.0 19.2 22.0
------- ------- -------
Net change in cash and cash equivalents..................... 186.8 12.3 1.5
Cash and cash equivalents, beginning of period.............. 31.1 18.8 17.3
------- ------- -------
Cash and cash equivalents, end of period.................... $ 217.9 $ 31.1 $ 18.8
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................................... $ 0.6 $ -- $ 3.4
Income taxes paid....................................... $ 36.2 $ 5.4 $ 16.5
</TABLE>

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

F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

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

The consolidated financial statements of AFLIAC include the accounts of Somerset
Square, Inc., a wholly-owned non-insurance company, which was transferred from
SMAFCO effective November 30, 1997 and dissolved as a subsidiary, effective
November 30, 1998. Its results of operations are included for 11 months of 1998
and for the month of December, 1997.

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

The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

B. VALUATION OF INVESTMENTS

In accordance with the provisions of Statement of Financial Accounting Standards
No. 115 ("Statement No. 115"), "Accounting for Certain Investments in Debt and
Equity Securities", 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 re-evaluates 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.

During 1997, the Company adopted to a plan to dispose of all real estate assets
by the end of 1998. As of December 31, 1998, there was 1 property remaining in
the Company's real estate portfolio, which is 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 cost of disposal.
Depreciation is not recorded on this asset while it is held for disposal.

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

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.

C. FINANCIAL INSTRUMENTS

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

D. CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.

E. DEFERRED POLICY ACQUISITION COSTS

Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Acquisition costs related to universal life products, variable annuities and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits from investment yields, mortality, surrender charges and
expense margins over the expected life of the contracts. This amortization is
reviewed annually and adjusted retrospectively when the Company revises its
estimate of current or future gross profits to be realized from this group of
products, including realized and unrealized gains and losses from investments.
Acquisition costs related to fixed annuities and other life insurance products
are deferred and amortized, generally in proportion to the ratio of annual
revenue to the estimated total revenues over the contract periods based upon the
same assumptions used in estimating the liability for future policy benefits.

Deferred acquisition costs for each product are reviewed to determine if they
are recoverable from future income, including investment income. If such costs
are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, 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.

F. SEPARATE ACCOUNTS

Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of certain pension, variable annuity
and variable life insurance contractholders. Assets consist principally of
bonds, common stocks, mutual funds, and short-term obligations at market value.
The investment income, gains and losses of these accounts generally accrue to
the contractholders and, therefore, are not included in the Company's net
income. Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholder's equity or net investment income.

G. POLICY LIABILITIES AND ACCRUALS

Future policy benefits are liabilities for life, disability income 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

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

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 3% to 6% for life
insurance and 3 1/2% to 9 1/2% for annuities. Mortality, morbidity and
withdrawal assumptions for all policies are based on the Company's own
experience and industry standards. Liabilities for universal life include
deposits received from customers and investment earnings on their fund balances,
less administrative charges. Universal life fund balances are also assessed
mortality and surrender charges.

Individual disability income benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future morbidity,
withdrawals and interest which provide a margin for adverse deviation. Benefit
liabilities for disabled lives are estimated using the present value of benefits
method and experience assumptions as to claim terminations, expenses and
interest.

Liabilities for outstanding claims, losses and loss adjustment expenses are
estimates of payments to be made for reported claims and estimates of claims
incurred but not reported for individual life and disability income policies.
These estimates are continually reviewed and adjusted as necessary; such
adjustments are reflected in current operations.

Contractholder deposit funds and other policy liabilities include
investment-related products and consist of deposits received from customers and
investment earnings on their fund balances.

All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, 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.

H. PREMIUM AND FEE REVENUE AND RELATED EXPENSES

Premiums for individual life and individual annuity products, excluding
universal life and investment-related products, are considered revenue when due.
Individual disability income insurance premiums are recognized as revenue over
the related contract periods. The unexpired portion of these premiums is
recorded as unearned premiums. Benefits, losses and related expenses are matched
with premiums, resulting in their recognition over the lives of the contracts.
This matching is accomplished through the provision for future benefits,
estimated and unpaid losses and amortization of deferred policy acquisition
costs. Revenues for investment-related products consist of net investment income
and contract charges assessed against the fund values. Related benefit expenses
primarily consist of net investment income credited to the fund values after
deduction for investment and risk charges. Revenues for universal life and group
variable universal life products consist of net investment income, with
mortality, administration and surrender charges assessed against the fund
values. Related benefit expenses include universal life benefit claims in excess
of fund values and net investment income credited to universal life fund values.
Certain policy charges that represent compensation for services to be provided
in future periods are deferred and amortized over the period benefited using the
same assumptions used to amortize capitalized acquisition costs.

I. 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 insurance company taxable income.

The Board of Directors has delegated to AFC management, the development and
maintenance of appropriate federal income tax allocation policies and
procedures, which are subject to written agreement between the

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

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 policy reserves, policy
acquisition expenses, and unrealized appreciation or depreciation on
investments.

J. 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
investment in foreign operations. This statement is effective for fiscal years
beginning after June 15, 1999. The Company is currently assessing the impact of
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 $9.8 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 American Institute of Certified Public Accountants
("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 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

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

beginning after December 15, 1997. AFLIAC consists of one segment, Allmerica
Financial Services, which underwrites and distributes variable annuities and
variable universal life via retail channels.

In June 1997, the FASB also issued Statement No. 130, "Reporting Comprehensive
Income" ("Statement No. 130"), which established standards for the reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. All items that are required to be
recognized under accounting standards as components of comprehensive income are
to be reported in a financial statement that is displayed with the same
prominence as other financial statements. This statement stipulates that
comprehensive income reflect the change in equity of an enterprise during a
period from transactions and other events and circumstances from non-owner
sources. This statement is effective for fiscal years beginning after
December 15, 1997. The Company adopted Statement No. 130 for the first quarter
of 1998, which resulted primarily in reporting unrealized gains and losses on
investments in debt and equity securities in comprehensive income.

2. SIGNIFICANT TRANSACTIONS

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 does not have a
material effect on the results of operations or financial position of the
Company.

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.

During 1998, 1997 and 1996 , SMAFCO contributed $21.0 million, $40.6 million and
$22.0 million, respectively, of additional paid-in capital to the Company. The
nature of the 1997 contribution was $19.2 million in cash and $21.4 million in
other assets including Somerset Square, Inc.

3. INVESTMENTS

A. SUMMARY OF INVESTMENTS

The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with the provisions of 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................................ $ 5.8 $ 0.8 $-- $ 6.6
States and political subdivisions................. 2.7 0.2 -- 2.9
Foreign governments............................... 48.8 1.6 1.5 48.9
Corporate fixed maturities........................ 1,096.0 58.0 17.7 1,136.3
Mortgage-backed securities........................ 131.3 5.8 1.4 135.7
-------- ----- ----- --------
Total fixed maturities............................ $1,284.6 $66.4 $20.6 $1,330.4
======== ===== ===== ========
Equity securities................................. $ 27.4 $ 8.9 $ 4.5 $ 31.8
======== ===== ===== ========
</TABLE>

F-10
<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
<S> <C> <C> <C> <C>
securities......................................... $ 6.3 $ 0.5 $-- $ 6.8
States and political subdivisions................... 2.8 0.2 -- 3.0
Foreign governments................................. 50.1 2.0 -- 52.1
Corporate fixed maturities.......................... 1,147.5 58.7 3.3 1,202.9
Mortgage-backed securities.......................... 133.8 5.2 1.3 137.7
-------- ----- ----- --------
Total fixed maturities.............................. $1,340.5 $66.6 $ 4.6 $1,402.5
======== ===== ===== ========
Equity securities................................... $ 34.4 $19.9 $ 0.3 $ 54.0
======== ===== ===== ========
</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 liabilities of AFLIAC for New
York policyholders, claimants and creditors. At December 31, 1998, the amortized
cost and market value of these 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 $4.2 million were
on deposit with various state and governmental authorities at December 31, 1998
and 1997.

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..................................... $ 97.7 $ 98.9
Due after one year through five years....................... 269.1 278.3
Due after five years through ten years...................... 638.2 658.5
Due after ten years......................................... 279.6 294.7
-------- --------
Total....................................................... $1,284.6 $1,330.4
======== ========
</TABLE>

F-11
<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............................................ $ 60.0 $ 2.0 $ 2.0
Equity securities........................................... $ 52.6 $17.5 $ 0.9

1997
Fixed maturities............................................ $702.9 $11.4 $ 5.0
Equity securities........................................... $ 1.3 $ 0.5 $--

1996
Fixed maturities............................................ $496.6 $ 4.3 $ 8.3
Equity securities........................................... $ 1.5 $ 0.4 $ 0.1
</TABLE>

Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:

<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------- ---------- ------------- --------
<S> <C> <C> <C>
1998
Net appreciation, beginning of year........................ $ 22.1 $ 16.4 $ 38.5
------ ------ ------
Net depreciation on available-for-sale securities.......... (16.2) (14.3) (30.5)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities............... 7.1 -- 7.1
Benefit from deferred federal income taxes................. 3.2 5.8 9.0
------ ------ ------
(5.9) (8.5) (14.4)
------ ------ ------
Net appreciation, end of year.............................. $ 16.2 $ 7.9 $ 24.1
====== ====== ======

1997
Net appreciation, beginning of year........................ $ 12.7 $ 7.8 $ 20.5
------ ------ ------
Net appreciation on available-for-sale securities.......... 24.3 12.5 36.8
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities............... (9.8) -- (9.8)
Provision for deferred federal income taxes................ (5.1) (3.9) (9.0)
------ ------ ------
9.4 8.6 18.0
------ ------ ------
Net appreciation, end of year.............................. $ 22.1 $ 16.4 $ 38.5
====== ====== ======

1996
Net appreciation, beginning of year........................ $ 20.4 $ 3.4 $ 23.8
------ ------ ------
Net (depreciation) appreciation on available-for-sale
securities................................................ (20.8) 6.7 (14.1)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities............... 9.0 -- 9.0
Benefit (provision) for deferred federal income taxes...... 4.1 (2.3) 1.8
------ ------ ------
(7.7) 4.4 (3.3)
------ ------ ------
Net appreciation, end of year.............................. $ 12.7 $ 7.8 $ 20.5
====== ====== ======
</TABLE>

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

(1) Includes net appreciation on other investments of $.9 million, $1.3 million,
and $2.2 million in 1998, 1997, and 1996, respectively.

B. MORTGAGE LOANS AND REAL ESTATE

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

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.............................................. $230.0 $228.2
Real estate held for sale................................... 14.5 12.0
------ ------
Total mortgage loans and real estate........................ $244.5 $240.2
====== ======
</TABLE>

Reserves for mortgage loans were $3.3 million and $9.4 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 was 1 property remaining
in the Company's real estate portfolio, which is being actively marketed. As a
result of the Plan, during 1997, real estate assets with a carrying amount of
$15.7 million were written down to the estimated fair value less cost to sell of
$12.0 million, and a net realized investment loss of $3.7 million was
recognized. Depreciation was not recorded on these assets while they were 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.

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........................................... $129.2 $101.7
Residential............................................... 18.9 19.3
Retail.................................................... 37.4 42.2
Industrial/warehouse...................................... 59.2 61.9
Other..................................................... 3.1 24.5
Valuation allowances...................................... (3.3) (9.4)
------ ------
Total....................................................... $244.5 $240.2
====== ======
</TABLE>

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

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------- -------- --------
<S> <C> <C>
Geographic region:
South Atlantic............................................ $ 55.5 $ 68.7
Pacific................................................... 80.0 56.6
East North Central........................................ 41.4 61.4
Middle Atlantic........................................... 22.5 29.8
West South Central........................................ 6.7 6.9
New England............................................... 26.9 12.4
Other..................................................... 14.8 13.8
Valuation allowances...................................... (3.3) (9.4)
------ ------
Total....................................................... $244.5 $240.2
====== ======
</TABLE>

At December 31, 1998, scheduled mortgage loan maturities were as follows:
1999 -- $24.8 million; 2000 -- $43.5 million; 2001 -- $6.6 million; 2002 --
$11.5 million; 2003 -- $0.6 million; and $143.0 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 balance sheet 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................................... $ 9.4 $(4.5) $1.6 $ 3.3
===== ===== ==== =====
1997
Mortgage loans................................... $ 9.5 $ 1.1 $1.2 $ 9.4
Real estate...................................... 1.7 3.7 5.4 --
----- ----- ---- -----
Total........................................ $11.2 $ 4.8 $6.6 $ 9.4
===== ===== ==== =====
1996
Mortgage loans................................... $12.5 $ 4.5 $7.5 $ 9.5
Real estate...................................... 2.1 -- 0.4 1.7
----- ----- ---- -----
Total........................................ $14.6 $ 4.5 $7.9 $11.2
===== ===== ==== =====
</TABLE>

Provisions on mortgages during 1998 reflect the release of redundant reserves.
Write-offs of $5.4 million to the investment valuation allowance related to real
estate in 1997 primarily reflect write downs to the estimated fair value less
cost to sell pursuant to the aforementioned 1997 plan of disposal.

The carrying value of impaired loans was $15.3 million and $20.6 million, with
related reserves of $1.5 million and $7.1 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 $17.0 million, $19.8 million
and $26.3 million, with related interest income while such loans were impaired
of $2.0 million, $2.2 million and $3.4 million as of December 31, 1998, 1997 and
1996, respectively.

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

D. OTHER

At December 31, 1998, AFLIAC had no concentration of investments in a single
investee exceeding 10% of shareholder's equity.

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............................................ $107.7 $130.0 $137.2
Mortgage loans.............................................. 25.5 20.4 22.0
Equity securities........................................... 0.3 1.3 0.7
Policy loans................................................ 11.7 10.8 10.2
Real estate................................................. 3.3 3.9 6.2
Other long-term investments................................. 1.5 1.0 0.8
Short-term investments...................................... 4.2 1.4 1.4
------ ------ ------
Gross investment income..................................... 154.2 168.8 178.5
Less investment expenses.................................... (2.9) (4.6) (6.8)
------ ------ ------
Net investment income....................................... $151.3 $164.2 $171.7
====== ====== ======
</TABLE>

There were no mortgage loans or fixed maturities 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 investment,
had no impact in 1998 and 1997, and reduced net income by $0.1 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 $12.6 million, $21.1 million and $25.4 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 $1.4 million, $1.9 million and $3.6 million in
1998, 1997, and 1996, respectively. Actual interest income on these loans
included in net investment income aggregated $1.8 million, $2.1 million and
$2.2 million in 1998, 1997, and 1996, respectively.

There were no fixed maturities or mortgage loans which, were non-income
producing for the twelve months ended December 31, 1998.

B. REALIZED INVESTMENT GAINS AND LOSSES

Realized gains (losses) on investments were as follows:

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

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
of $(5.6) million, $10.2 million and $(2.9) million in
1998, 1997 and 1996 respectively).......................... $ (8.2) $ 20.3 $(5.3)
Less: reclassification adjustment for gains included in net
income (net of taxes of $3.4 million, $1.2 million and
$(1.0) million in 1998, 1997 and 1996 respectively)........ 6.2 2.3 (2.0)
------ ------ -----
Other comprehensive income.................................. $(14.4) $ 18.0 $(3.3)
====== ====== =====
</TABLE>

5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS

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

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

CASH AND CASH EQUIVALENTS

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

FIXED MATURITIES

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

EQUITY SECURITIES

MORTGAGE LOANS

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

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

POLICY LOANS

The carrying amount reported in the balance sheet approximates fair value since
policy loans have no defined maturity dates and are inseparable from the
insurance contracts.

INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)

Fair values for the Company's liabilities under investment type contracts are
estimated based on current surrender values.

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

<TABLE>
<CAPTION>
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....................... $ 217.9 $ 217.9 $ 31.1 $ 31.1
Fixed maturities................................ 1,330.4 1,330.4 1,402.5 1,402.5
Equity securities............................... 31.8 31.8 54.0 54.0
Mortgage loans.................................. 230.0 241.9 228.2 239.8
Policy loans.................................... 151.5 151.5 140.1 140.1
-------- -------- -------- --------
$1,961.6 $1,973.5 $1,855.9 $1,867.5
======== ======== ======== ========
FINANCIAL LIABILITIES
Individual fixed annuity contracts.............. $1,069.4 $1,034.6 $ 876.0 $ 850.6
Supplemental contracts without life
Contingencies................................. 16.6 16.6 15.3 15.3
-------- -------- -------- --------
$1,086.0 $1,051.2 $ 891.3 $ 865.9
======== ======== ======== ========
</TABLE>

6. FEDERAL INCOME TAXES

Provisions for federal income taxes have been calculated in accordance with the
provisions of Statement No. 109. A summary of the federal income tax expense
(benefit) in the statement 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................................................... $22.1 $13.9 $26.9
Deferred.................................................. 11.8 7.1 (9.8)
----- ----- -----
Total....................................................... $33.9 $21.0 $17.1
===== ===== =====
</TABLE>

The provision for federal income taxes does not materially differ from the
amount of federal income tax determined by applying the appropriate U.S.
statutory income tax rate to income before federal income taxes.

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

The deferred tax liabilities are comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------- -------- --------
<S> <C> <C>
Deferred tax (assets) liabilities
Policy reserves........................................... $(205.1) $(175.8)
Deferred acquisition costs................................ 278.8 226.4
Investments, net.......................................... 12.5 27.0
Sales practice litigation................................. (7.4) --
Bad debt reserve.......................................... (0.4) (2.0)
Other, net................................................ 0.4 0.3
------- -------
Deferred tax liability, net................................. $ 78.8 $ 75.9
======= =======
</TABLE>

Gross deferred income tax liabilities totaled $291.7 million and $253.7 million
at December 31, 1998 and 1997, respectively. Gross deferred income tax assets
totaled $212.9 million and $177.8 at December 31, 1998 and 1997, respectively.

The Company believes, based on 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.

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 consolidated group's federal
income tax returns through 1994. The Company has appealed certain adjustments
proposed by the IRS with respect to the consolidated group's federal income tax
returns for 1992, 1993, and 1994. 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.

7. RELATED PARTY TRANSACTIONS

The Company has no employees of its own, but has agreements under which FAFLIC
provides management, space and other services, including accounting, electronic
data processing, human resources, legal and other staff functions. Charges for
these services are based on full cost including all direct and indirect overhead
costs, and amounted to $145.4 million and $124.1 million in 1998 and 1997. The
net amounts payable to FAFLIC and affiliates for accrued expenses and various
other liabilities and receivables were $16.4 million and $15.0 million at
December 31, 1998 and 1997, respectively.

8. DIVIDEND RESTRICTIONS

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

Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding
December 31 or (ii) the individual company's statutory net gain from operations
for the preceding calendar year (if such insurer is a

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

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

9. REINSURANCE

In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Reinsurance transactions are accounted for in
accordance with the provisions of Statement No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts" ("Statement No.
113").

The Company reinsures 100% of its traditional individual life and certain blocks
of its universal life business, substantially all of its disability income
business, and effective January 1, 1998, the mortality risk on the variable
universal life and remaining universal life blocks of business in-force at
December 31, 1997.

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.

Amounts recoverable from reinsurers at December 31, 1998 and 1997 for the
disability income business were $230.8 million and $216.1 million, respectively,
traditional life were $11.4 million and $15.2 million, respectively, and
universal and variable universal life were $65.8 million and $19.8 million,
respectively.

The effects of reinsurance were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------- -------- -------- --------
<S> <C> <C> <C>
Insurance premiums:
Direct.................................................... $ 45.5 $ 48.8 $ 53.3
Assumed................................................... -- 2.6 3.1
Ceded..................................................... (45.0) (28.6) (23.7)
------ ------ ------
Net premiums................................................ $ 0.5 $ 22.8 $ 32.7
====== ====== ======
</TABLE>

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

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------- -------- -------- --------
<S> <C> <C> <C>
Insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
Direct.................................................... $204.0 $226.0 $206.4
Assumed................................................... -- 4.2 4.5
Ceded..................................................... (50.1) (42.4) (18.3)
------ ------ ------
Net policy benefits, claims, losses and loss adjustment
expenses................................................... $153.9 $187.8 $192.6
====== ====== ======
</TABLE>

10. DEFERRED POLICY ACQUISITION COSTS

The following reflects the changes to the deferred policy acquisition asset:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------- -------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year................................ $765.3 $632.7 $555.7
Acquisition expenses deferred............................. 242.4 184.2 116.6
Amortized to expense during the year...................... (64.6) (53.1) (49.9)
Adjustment to equity during the year...................... 7.4 (10.2) 10.3
Adjustment for cession of disability income insurance..... -- (38.6) --
Adjustment for revision of universal life and variable
universal life insurance mortality assumptions.......... -- 50.3 --
------ ------ ------
Balance at end of year...................................... $950.5 $765.3 $632.7
====== ====== ======
</TABLE>

On October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.3 million recapitalization of deferred policy acquisition costs.

11. LIABILITIES FOR INDIVIDUAL DISABILITY INCOME BENEFITS

The Company regularly updates its estimates of liabilities for future policy
benefits and outstanding claims, losses and loss adjustment expenses as new
information becomes available and further events occur which may impact the
resolution of unsettled claims. Changes in prior estimates are 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 disability income business was
$233.3 million and $219.9 million at December 31, 1998 and 1997. Due to the
reinsurance agreement whereby the Company has ceded substantially all of its
disability income business to a highly rated reinsurer, the Company believes
that no material adverse development of losses will occur. However, the amount
of the liabilities could be revised in the near term if the estimates are
revised.

12. CONTINGENCIES

REGULATORY AND INDUSTRY DEVELOPMENTS

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

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 AFLIAC, 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, plaintiffs voluntarily dismissed the Louisiana suit
and filed a substantially similar action in Federal District Court in Worcester,
Massachusetts. In early November 1998, AFC 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, AFLIAC recognized a $21.0 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 legal proceedings arising in
the normal course of business. In the Company's opinion of, based on the advice
of legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's financial statements. However, liabilities
related to these proceedings could be established in the near term if estimates
of the ultimate resolution of these proceedings are revised.

YEAR 2000

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.

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.

13. STATUTORY FINANCIAL INFORMATION

The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles
primarily because policy acquisition costs are expensed when incurred,
investment reserves are based on different assumptions, life insurance reserves
are based on different assumptions and income tax expense reflects only taxes
paid or currently payable. Statutory net income and surplus are as follows:

<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
- ------------- -------- -------- --------
<S> <C> <C> <C>
Statutory net income........................................ $ (8.2) $ 31.5 $ 5.4
Statutory shareholder's surplus............................. $309.7 $307.1 $234.0
</TABLE>

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

14. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT ACCOUNTANTS' REPORT (UNAUDITED)

AFC has made certain changes to its corporate structure effective July 1, 1999.
These changes include the transfer of FAFLIC's ownership of Allmerica Property &
Casualty Companies, Inc., as well as several non-insurance subsidiaries, from
FAFLIC to AFC. In addition, certain changes affected AFLIAC. SMAFCO transferred
its ownership in AFLIAC to FAFLIC. Hence, AFLIAC became a wholly owned
subsidiary of FAFLIC. Further, four non-insurance subsidiaries previously held
by SMAFCO were contributed to AFLIAC. Under an agreement with the Commonwealth
of Massachusetts Insurance Commissioner ("the Commissioner"), AFC has
contributed to FAFLIC capital of $125.0 million and agreed to maintain FAFLIC's
statutory surplus at specified levels during the following six years. In
addition, any dividend from FAFLIC to AFC during 2000 and 2001 would require the
prior approval of the Commissioner. This transaction was approved by the
Commissioner on May 24, 1999.

In 1998, the net income of the subsidiaries, which was reported in SMAFCO's
results of operations, to be transferred to AFLIAC from SMAFCO pursuant to the
aforementioned change in corporate structure was $18.8 million. As of
December 31, 1998, the total assets and total shareholders' equity of these
subsidiaries were $16.8 million and $9.2 million, respectively.

On May 19, 1999, the Federal District Court in Worcester, Massachusetts issued
an order relating to the litigation mentioned in Note 12, above, certifying the
class for settlement purposes and granting final approval of the settlement
agreement.

F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Allmerica Financial Life Insurance and Annuity
Company and the Policyowners of the 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 changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts
constituting the Group VEL Account of Allmerica Financial Life Insurance and
Annuity 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 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 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>
GROUP VEL ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

<TABLE>
<CAPTION>
SELECT
INVESTMENT SELECT GROWTH
GRADE MONEY EQUITY GOVERNMENT AGGRESSIVE SELECT AND
GROWTH INCOME MARKET INDEX BOND GROWTH GROWTH INCOME
---------- ----------- --------- ----------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of
Allmerica Investment Trust... $2,680,734 $15,353,008 $ 239,493 $46,130,996 $ 23,338 $805,199 $10,725,821 $232,628
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.......................... -- -- -- -- -- -- -- --
Investments in shares of
INVESCO Variable Investment
Funds, Inc................... -- -- -- -- -- -- -- --
Investment in shares of Morgan
Stanley Universal Funds,
Inc.......................... -- -- -- -- -- -- -- --
Receivable from Allmerica
Financial Life Insurance and
Annuity Company (Sponsor).... -- 72 133 -- -- -- -- --
---------- ----------- --------- ----------- ---------- --------- ----------- ---------
Total assets................ 2,680,734 15,353,080 239,626 46,130,996 23,338 805,199 10,725,821 232,628

LIABILITIES:
Payable to Allmerica Financial
Life Insurance and Annuity
Company (Sponsor)............ 8 -- -- 329 -- -- 61 --
---------- ----------- --------- ----------- ---------- --------- ----------- ---------
Net assets.................. $2,680,726 $15,353,080 $ 239,626 $46,130,667 $ 23,338 $805,199 $10,725,760 $232,628
---------- ----------- --------- ----------- ---------- --------- ----------- ---------
---------- ----------- --------- ----------- ---------- --------- ----------- ---------

Net asset distribution by
category:
Variable life policies...... $2,680,726 $15,353,080 $ 239,626 $46,130,667 $ 23,338 $805,199 $10,725,760 $232,628
---------- ----------- --------- ----------- ---------- --------- ----------- ---------
---------- ----------- --------- ----------- ---------- --------- ----------- ---------

Units outstanding, December
31, 1998.................. 1,249,203 11,317,314 197,949 18,332,380 18,091 415,299 4,105,152 111,435
Net asset value per unit,
December 31, 1998......... $ 2.145949 $ 1.356601 $1.210540 $ 2.516349 $1.289894 $1.938842 $ 2.612756 $2.087564
</TABLE>

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

SA-1
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SELECT SELECT SELECT SELECT SELECT
VALUE INTERNATIONAL CAPITAL EMERGING STRATEGIC FIDELITY VIP FIDELITY VIP
OPPORTUNITY* EQUITY APPRECIATION MARKETS GROWTH(a) HIGH INCOME EQUITY-INCOME
----------- ------------- ------------ ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of
Allmerica Investment Trust... $ 633,602 $9,078,542 $ 248,088 $ 11 $ -- $ -- $ --
Investments in shares of
Fidelity Variable Insurance
Products Funds (VIP)......... -- -- -- -- -- 89,094 159,323
Investment in shares of T.
Rowe Price International
Series, Inc.................. -- -- -- -- -- -- --
Investment in shares of
Delaware Group Premium Fund,
Inc.......................... -- -- -- -- -- -- --
Investments in shares of
INVESCO Variable Investment
Funds, Inc................... -- -- -- -- -- -- --
Investment in shares of Morgan
Stanley Universal Funds,
Inc.......................... -- -- -- -- -- -- --
Receivable from Allmerica
Financial Life Insurance and
Annuity Company (Sponsor).... -- -- -- -- -- -- --
----------- ------------- ------------ ---------- ---------- ------------ -------------
Total assets................ 633,602 9,078,542 248,088 11 -- 89,094 159,323

LIABILITIES:
Payable to Allmerica Financial
Life Insurance and Annuity
Company (Sponsor)............ -- -- -- -- -- -- --
----------- ------------- ------------ ---------- ---------- ------------ -------------
Net assets.................. $ 633,602 $9,078,542 $ 248,088 $ 11 $ -- $ 89,094 $ 159,323
----------- ------------- ------------ ---------- ---------- ------------ -------------
----------- ------------- ------------ ---------- ---------- ------------ -------------

Net asset distribution by
category:
Variable life policies...... $ 633,602 $9,078,542 $ 248,088 $ 11 $ -- $ 89,094 $ 159,323
----------- ------------- ------------ ---------- ---------- ------------ -------------
----------- ------------- ------------ ---------- ---------- ------------ -------------

Units outstanding, December
31, 1998.................. 340,442 5,402,498 125,801 11 -- 62,767 81,257
Net asset value per unit,
December 31, 1998......... $1.861103 $ 1.680435 $1.972072 $ 1.016052 $1.000000 $1.419419 $1.960736

<CAPTION>
FIDELITY
VIP
GROWTH
-----------
<S> <C>
ASSETS:
Investments in shares of
Allmerica Investment Trust... $ --
Investments in shares of
Fidelity Variable Insurance
Products Funds (VIP)......... 1,151,463
Investment in shares of T.
Rowe Price International
Series, Inc.................. --
Investment in shares of
Delaware Group Premium Fund,
Inc.......................... --
Investments in shares of
INVESCO Variable Investment
Funds, Inc................... --
Investment in shares of Morgan
Stanley Universal Funds,
Inc.......................... --
Receivable from Allmerica
Financial Life Insurance and
Annuity Company (Sponsor).... --
-----------
Total assets................ 1,151,463
LIABILITIES:
Payable to Allmerica Financial
Life Insurance and Annuity
Company (Sponsor)............ --
-----------
Net assets.................. $1,151,463
-----------
-----------
Net asset distribution by
category:
Variable life policies...... $1,151,463
-----------
-----------
Units outstanding, December
31, 1998.................. 468,052
Net asset value per unit,
December 31, 1998......... $ 2.460125
</TABLE>

* Name changed. See Note 1.
(a) For the period ended 12/31/98, there were no transactions.

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

SA-2
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998

<TABLE>
<CAPTION>
FIDELITY VIP T. ROWE PRICE DGPF INVESCO
FIDELITY VIP II INTERNATIONAL INTERNATIONAL INDUSTRIAL INVESCO MORGAN STANLEY
OVERSEAS ASSET MANAGER STOCK EQUITY INCOME TOTAL RETURN FIXED INCOME
------------ ------------- ------------- ------------- ---------- ------------ --------------
<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)......... 67,581 648,373 -- -- -- -- --
Investment in shares of T.
Rowe Price International
Series, Inc.................. -- -- 372,143 -- -- -- --
Investment in shares of
Delaware Group Premium Fund,
Inc.......................... -- -- -- 8,551,074 -- -- --
Investments in shares of
INVESCO Variable Investment
Funds, Inc................... -- -- -- -- 9,229 61,907 --
Investment in shares of Morgan
Stanley Universal Funds,
Inc.......................... -- -- -- -- -- -- 19,841,859
Receivable from Allmerica
Financial Life Insurance and
Annuity Company (Sponsor).... -- -- -- -- -- -- --
------------ ------------- ------------- ------------- ---------- ------------ --------------
Total assets................ 67,581 648,373 372,143 8,551,074 9,229 61,907 19,841,859

LIABILITIES:
Payable to Allmerica Financial
Life Insurance and Annuity
Company (Sponsor)............ -- -- -- 14 -- -- 8
------------ ------------- ------------- ------------- ---------- ------------ --------------
Net assets.................. $ 67,581 $ 648,373 $ 372,143 $8,551,060 $ 9,229 $ 61,907 $19,841,851
------------ ------------- ------------- ------------- ---------- ------------ --------------
------------ ------------- ------------- ------------- ---------- ------------ --------------
Net asset distribution by
category:
Variable life policies...... $ 67,581 $ 648,373 $ 372,143 $8,551,060 $ 9,229 $ 61,907 $19,841,851
------------ ------------- ------------- ------------- ---------- ------------ --------------
------------ ------------- ------------- ------------- ---------- ------------ --------------

Units outstanding, December
31, 1998.................. 44,140 362,598 279,392 6,643,452 5,737 43,070 18,333,601
Net asset value per unit,
December 31, 1998......... $1.531045 $1.788131 $1.331963 $ 1.287141 $1.608670 $1.437355 $ 1.082267
</TABLE>

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

SA-3
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH INVESTMENT GRADE 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................... $ 24,155 $ 19,495 $ 2,650 $ 882,578 $ 611,287 $ 14
Mortality and expense risk
fees...................... (12,008) (6,270) (1,681) (92,564) (61,160) --
---------- ---------- -------- ----------- ---------- -----
Net investment income
(loss).................. 12,147 13,225 969 790,014 550,127 14
---------- ---------- -------- ----------- ---------- -----
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Realized gain distributions
from portfolio sponsors... 21,129 282,628 51,596 -- -- --
Net realized gain (loss)
from sales of
investments............... (4,698) 22,096 35 20,005 7,069 --
---------- ---------- -------- ----------- ---------- -----
Net realized gain (loss).... 16,431 304,724 51,631 20,005 7,069 --
Net unrealized gain
(loss).................... 330,418 (57,127) (33,389) 166,355 282,868 (6)
---------- ---------- -------- ----------- ---------- -----
Net realized and
unrealized gain
(loss).................. 346,849 247,597 18,242 186,360 289,937 (6)
---------- ---------- -------- ----------- ---------- -----

Net increase (decrease) in
net assets from
operations................ 358,996 260,822 19,211 976,374 840,064 8
---------- ---------- -------- ----------- ---------- -----
POLICY TRANSACTIONS:
Net premiums................ 675,094 793,195 638,444 2,981,137 9,313,499 --
Terminations................ (48,810) (2,053) -- (53,707) -- --
Insurance and other
charges................... (7,692) (3,267) (2) (451,085) (447,871) --
Transfers between
sub-accounts (including
fixed account), net....... (72,668) 75,006 30 2,055,119 138,291 --
Other transfers from (to)
the General Account....... 492 (6,615) 587 892 402 --
Net increase (decrease) in
investment by Sponsor..... -- -- (283) (265) -- --
---------- ---------- -------- ----------- ---------- -----
Net increase (decrease) in
net assets from policy
transactions.............. 546,416 856,266 638,776 4,532,091 9,004,321 --
---------- ---------- -------- ----------- ---------- -----

Net increase (decrease) in
net assets................ 905,412 1,117,088 657,987 5,508,465 9,844,385 8

NET ASSETS:
Beginning of year........... 1,775,314 658,226 239 9,844,615 230 222
---------- ---------- -------- ----------- ---------- -----
End of year................. $2,680,726 $1,775,314 $658,226 $15,353,080 $9,844,615 $ 230
---------- ---------- -------- ----------- ---------- -----
---------- ---------- -------- ----------- ---------- -----

<CAPTION>
MONEY MARKET
-------------------------------------

YEAR ENDED DECEMBER 31,
1998 1997 1996
------------ ----------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends................... $ 222,239 $ 168,681 $ 2,028
Mortality and expense risk
fees...................... (21,736) (24,667) (683)
------------ ----------- ----------
Net investment income
(loss).................. 200,503 144,014 1,345
------------ ----------- ----------
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................ 200,503 144,014 1,345
------------ ----------- ----------
POLICY TRANSACTIONS:
Net premiums................ 1,928,083 30,656,799 924,390
Terminations................ (47,901) (31) (13)
Insurance and other
charges................... (830,359) (704,864) (110,367)
Transfers between
sub-accounts (including
fixed account), net....... (29,510,393) (1,673,588) (737,370)
Other transfers from (to)
the General Account....... (771) 35 124
Net increase (decrease) in
investment by Sponsor..... -- -- (217)
------------ ----------- ----------
Net increase (decrease) in
net assets from policy
transactions.............. (28,461,341) 28,278,351 76,547
------------ ----------- ----------
Net increase (decrease) in
net assets................ (28,260,838) 28,422,365 77,892
NET ASSETS:
Beginning of year........... 28,500,464 78,099 207
------------ ----------- ----------
End of year................. $ 239,626 $28,500,464 $ 78,099
------------ ----------- ----------
------------ ----------- ----------
</TABLE>

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

SA-4
<PAGE>
GROUP VEL 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.................................. $ 340,554 $ 99,982 $ 29 $ 911 $ 837 $ 57
Mortality and expense risk fees............ (122,802) (49,283) (7) (103) (19) (8)
----------- ---------- ------ --------- -------- -------
Net investment income (loss)............. 217,752 50,699 22 808 818 49
----------- ---------- ------ --------- -------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 1,091,932 231,984 94 -- -- --
Net realized gain (loss) from sales of
investments.............................. 313,038 57,606 128 926 1 5
----------- ---------- ------ --------- -------- -------
Net realized gain (loss)................... 1,404,970 289,590 222 926 1 5
Net unrealized gain (loss)................. 5,974,791 1,759,333 (123) 83 (88) (2)
----------- ---------- ------ --------- -------- -------
Net realized and unrealized gain
(loss).................................. 7,379,761 2,048,923 99 1,009 (87) 3
----------- ---------- ------ --------- -------- -------

Net increase (decrease) in net assets from
operations............................... 7,597,513 2,099,622 121 1,817 731 52
----------- ---------- ------ --------- -------- -------
POLICY TRANSACTIONS:
Net premiums............................... 17,533,507 6,793,979 6,564 13,471 5,649 2,983
Terminations............................... (86,149) (198) -- (81) (713) --
Insurance and other charges................ (998,917) (364,580) 2 (216) (163) (53)
Transfers between sub-accounts (including
fixed account), net...................... 13,535,625 8,426 -- (30,874) 31,189 --
Other transfers from (to) the General
Account.................................. 5,188 (34) 12 (389) -- (58)
Net increase (decrease) in investment by
Sponsor.................................. -- -- (256) -- -- (223)
----------- ---------- ------ --------- -------- -------
Net increase (decrease) in net assets from
policy transactions...................... 29,989,254 6,437,593 6,322 (18,089) 35,962 2,649
----------- ---------- ------ --------- -------- -------

Net increase (decrease) in net assets...... 37,586,767 8,537,215 6,443 (16,272) 36,693 2,701

NET ASSETS:
Beginning of year.......................... 8,543,900 6,685 242 39,610 2,917 216
----------- ---------- ------ --------- -------- -------
End of year................................ $46,130,667 $8,543,900 $6,685 $ 23,338 $ 39,610 $ 2,917
----------- ---------- ------ --------- -------- -------
----------- ---------- ------ --------- -------- -------

<CAPTION>
SELECT AGGRESSIVE GROWTH
-------------------------------

YEAR ENDED DECEMBER 31,
1998 1997 1996
--------- --------- -------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ -- $ -- $ --
Mortality and expense risk fees............ (3,950) (706) (10)
--------- --------- -------
Net investment income (loss)............. (3,950) (706) (10)
--------- --------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- 17,916 464
Net realized gain (loss) from sales of
investments.............................. (3,058) 748 182
--------- --------- -------
Net realized gain (loss)................... (3,058) 18,664 646
Net unrealized gain (loss)................. 42,784 3,863 (425)
--------- --------- -------
Net realized and unrealized gain
(loss).................................. 39,726 22,527 221
--------- --------- -------
Net increase (decrease) in net assets from
operations............................... 35,776 21,821 211
--------- --------- -------
POLICY TRANSACTIONS:
Net premiums............................... 448,702 98,882 8,375
Terminations............................... (76,946) (3,662) --
Insurance and other charges................ (18,498) (3,465) (70)
Transfers between sub-accounts (including
fixed account), net...................... 181,020 115,907 --
Other transfers from (to) the General
Account.................................. (3,910) 1,120 (17)
Net increase (decrease) in investment by
Sponsor.................................. -- -- (296)
--------- --------- -------
Net increase (decrease) in net assets from
policy transactions...................... 530,368 208,782 7,992
--------- --------- -------
Net increase (decrease) in net assets...... 566,144 230,603 8,203
NET ASSETS:
Beginning of year.......................... 239,055 8,452 249
--------- --------- -------
End of year................................ $ 805,199 $ 239,055 $ 8,452
--------- --------- -------
--------- --------- -------
</TABLE>

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

SA-5
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT GROWTH
SELECT 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.................................. $ 7,079 $ 20,160 $ 5 $ 2,753 $ 1,134 $ 10
Mortality and expense risk fees............ (58,229) (39,740) (2) (1,576) (365) (2)
----------- ---------- ------- --------- --------- -------
Net investment income (loss)............. (51,150) (19,580) 3 1,177 769 8
----------- ---------- ------- --------- --------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 93,491 363,902 233 922 13,936 143
Net realized gain (loss) from sales of
investments.............................. 576,009 51,101 92 1,778 296 63
----------- ---------- ------- --------- --------- -------
Net realized gain (loss)................... 669,500 415,003 325 2,700 14,232 206
Net unrealized gain (loss)................. 2,339,939 1,431,596 (229) 25,056 (5,403) (126)
----------- ---------- ------- --------- --------- -------
Net realized and unrealized gain
(loss).................................. 3,009,439 1,846,599 96 27,756 8,829 80
----------- ---------- ------- --------- --------- -------

Net increase (decrease) in net assets from
operations............................... 2,958,289 1,827,019 99 28,933 9,598 88
----------- ---------- ------- --------- --------- -------
POLICY TRANSACTIONS:
Net premiums............................... 2,111,416 5,368,817 1,756 155,220 65,720 2,352
Terminations............................... (97,238) (18) -- (44,778) (4,379) --
Insurance and other charges................ (281,352) (292,989) (4) (7,462) (3,633) (4)
Transfers between sub-accounts (including
fixed account), net...................... (952,256) 76,402 -- (70,127) 101,691 --
Other transfers from (to) the General
Account.................................. 4,794 1,070 4 (1,320) 800 (26)
Net increase (decrease) in investment by
Sponsor.................................. -- -- (285) -- -- (286)
----------- ---------- ------- --------- --------- -------
Net increase (decrease) in net assets from
policy transactions...................... 785,364 5,153,282 1,471 31,533 160,199 2,036
----------- ---------- ------- --------- --------- -------

Net increase (decrease) in net assets...... 3,743,653 6,980,301 1,570 60,466 169,797 2,124

NET ASSETS:
Beginning of year.......................... 6,982,107 1,806 236 172,162 2,365 241
----------- ---------- ------- --------- --------- -------
End of year................................ $10,725,760 $6,982,107 $ 1,806 $ 232,628 $ 172,162 $ 2,365
----------- ---------- ------- --------- --------- -------
----------- ---------- ------- --------- --------- -------

<CAPTION>
SELECT VALUE
OPPORTUNITY*
-------------------------------

YEAR ENDED DECEMBER 31,
1998 1997 1996
--------- --------- -------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 5,317 $ 1,289 $ 40
Mortality and expense risk fees............ (2,543) (633) (19)
--------- --------- -------
Net investment income (loss)............. 2,774 656 21
--------- --------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 1,651 30,900 252
Net realized gain (loss) from sales of
investments.............................. (3,746) 700 142
--------- --------- -------
Net realized gain (loss)................... (2,095) 31,600 394
Net unrealized gain (loss)................. 16,497 (5,610) 195
--------- --------- -------
Net realized and unrealized gain
(loss).................................. 14,402 25,990 589
--------- --------- -------
Net increase (decrease) in net assets from
operations............................... 17,176 26,646 610
--------- --------- -------
POLICY TRANSACTIONS:
Net premiums............................... 245,642 151,059 5,482
Terminations............................... (32,190) (3,904) --
Insurance and other charges................ (12,119) (4,266) 7
Transfers between sub-accounts (including
fixed account), net...................... 182,286 59,070 --
Other transfers from (to) the General
Account.................................. (2,227) 432 (48)
Net increase (decrease) in investment by
Sponsor.................................. -- -- (275)
--------- --------- -------
Net increase (decrease) in net assets from
policy transactions...................... 381,392 202,391 5,166
--------- --------- -------
Net increase (decrease) in net assets...... 398,568 229,037 5,776
NET ASSETS:
Beginning of year.......................... 235,034 5,997 221
--------- --------- -------
End of year................................ $ 633,602 $ 235,034 $ 5,997
--------- --------- -------
--------- --------- -------
</TABLE>

*Name changed. See Note 1.

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

SA-6
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
SELECT SELECT CAPITAL SELECT
INTERNATIONAL EQUITY APPRECIATION EMERGING MARKETS
--------------------------------- ------------------------------- ----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, PERIOD FROM
1998 1997 1996 1998 1997 1996 11/9/98** TO 12/31/98
---------- ---------- --------- --------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends................... $ 117,829 $ 131,715 $ 1,124 $ -- $ -- $ -- $ --
Mortality and expense risk
fees...................... (53,990) (35,909) (119) (914) (204) (58) --
---------- ---------- --------- --------- -------- -------- -----
Net investment income
(loss)................... 63,839 95,806 1,005 (914) (204) (58) --
---------- ---------- --------- --------- -------- -------- -----
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Realized gain distributions
from portfolio sponsors... -- 182,156 136 37,550 -- 28 --
Net realized gain (loss)
from sales of
investments............... 77,352 11,256 70 (803) 544 53 --
---------- ---------- --------- --------- -------- -------- -----
Net realized gain (loss).... 77,352 193,412 206 36,747 544 81 --
Net unrealized gain
(loss).................... 1,085,145 (15,069) 3,759 (13,375) 6,529 (147) --
---------- ---------- --------- --------- -------- -------- -----
Net realized and
unrealized gain (loss)... 1,162,497 178,343 3,965 23,372 7,073 (66) --
---------- ---------- --------- --------- -------- -------- -----

Net increase (decrease) in
net assets from
operations................ 1,226,336 274,149 4,970 22,458 6,869 (124) --
---------- ---------- --------- --------- -------- -------- -----
POLICY TRANSACTIONS:
Net premiums................ 1,910,773 5,449,561 57,697 105,063 53,911 15,400 11
Terminations................ (85,614) (8) -- (8,341) (3,829) -- --
Insurance and other
charges................... (257,943) (259,243) (59) (5,861) (1,570) (213) --
Transfers between
sub-accounts (including
fixed account), net....... 655,125 108,744 -- 69,728 (4,978) -- --
Other transfers from (to)
the General Account....... (6,961) 947 108 (344) (16) (45) --
Net increase (decrease) in
investment by Sponsor..... -- -- (266) -- -- (299) --
---------- ---------- --------- --------- -------- -------- -----
Net increase (decrease) in
net assets from policy
transactions.............. 2,215,380 5,300,001 57,480 160,245 43,518 14,843 11
---------- ---------- --------- --------- -------- -------- -----

Net increase (decrease) in
net assets................ 3,441,716 5,574,150 62,450 182,703 50,387 14,719 11

NET ASSETS:
Beginning of year........... 5,636,826 62,676 226 65,385 14,998 279 --
---------- ---------- --------- --------- -------- -------- -----
End of year................. $9,078,542 $5,636,826 $ 62,676 $ 248,088 $ 65,385 $ 14,998 $ 11
---------- ---------- --------- --------- -------- -------- -----
---------- ---------- --------- --------- -------- -------- -----
</TABLE>

**Date of initial investment.

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

SA-7
<PAGE>
GROUP VEL 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................... $ 3,501 $ 351 $ 19 $ 898 $ 91 $ 1
Mortality and expense risk
fees...................... (354) (119) (5) (569) (177) (7)
-------- -------- ------- --------- -------- -------
Net investment income
(loss)................... 3,147 232 14 329 (86) (6)
-------- -------- ------- --------- -------- -------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Realized gain distributions
from portfolio sponsors... 2,225 43 4 3,197 457 16
Net realized gain (loss)
from sales of
investments............... (683) 94 42 802 242 68
-------- -------- ------- --------- -------- -------
Net realized gain (loss).... 1,542 137 46 3,999 699 84
Net unrealized gain
(loss).................... (8,346) 2,892 66 5,752 5,483 87
-------- -------- ------- --------- -------- -------
Net realized and
unrealized gain (loss)... (6,804) 3,029 112 9,751 6,182 171
-------- -------- ------- --------- -------- -------

Net increase (decrease) in
net assets from
operations................ (3,657) 3,261 126 10,080 6,096 165
-------- -------- ------- --------- -------- -------
POLICY TRANSACTIONS:
Net premiums................ 36,812 37,542 3,933 116,536 49,237 4,266
Terminations................ (4,930) (1,972) -- (23,881) (817) --
Insurance and Other
Charges................... (3,521) (1,317) (16) (6,484) (1,985) 1
Transfers between
sub-accounts (including
fixed account), net....... 21,213 1,849 36 4,066 1,915 131
Other transfers from (to)
the General Account....... (252) 15 1 25 89 (86)
Net increase (decrease) in
investment by Sponsor..... -- -- (250) -- -- (271)
-------- -------- ------- --------- -------- -------
Net increase (decrease) in
net assets from policy
transactions.............. 49,322 36,117 3,704 90,262 48,439 4,041
-------- -------- ------- --------- -------- -------

Net increase (decrease) in
net assets................ 45,665 39,378 3,830 100,342 54,535 4,206

NET ASSETS:
Beginning of year........... 43,429 4,051 221 58,981 4,446 240
-------- -------- ------- --------- -------- -------
End of year................. $ 89,094 $ 43,429 $ 4,051 $ 159,323 $ 58,981 $ 4,446
-------- -------- ------- --------- -------- -------
-------- -------- ------- --------- -------- -------

<CAPTION>
FIDELITY VIP
GROWTH
---------------------------------

YEAR ENDED DECEMBER 31,
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends................... $ 1,819 $ 2,224 $ 1
Mortality and expense risk
fees...................... (2,312) (1,311) (832)
---------- --------- ---------
Net investment income
(loss)................... (493) 913 (831)
---------- --------- ---------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Realized gain distributions
from portfolio sponsors... 47,583 9,956 21
Net realized gain (loss)
from sales of
investments............... 37,911 16,498 151
---------- --------- ---------
Net realized gain (loss).... 85,494 26,454 172
Net unrealized gain
(loss).................... 115,549 43,944 2,233
---------- --------- ---------
Net realized and
unrealized gain (loss)... 201,043 70,398 2,405
---------- --------- ---------
Net increase (decrease) in
net assets from
operations................ 200,550 71,311 1,574
---------- --------- ---------
POLICY TRANSACTIONS:
Net premiums................ 267,715 137,061 326,955
Terminations................ (25,480) (17,376) (2)
Insurance and Other
Charges................... (8,916) (4,065) (261)
Transfers between
sub-accounts (including
fixed account), net....... 375,715 (169,900) 65
Other transfers from (to)
the General Account....... (3,680) 199 34
Net increase (decrease) in
investment by Sponsor..... -- -- (285)
---------- --------- ---------
Net increase (decrease) in
net assets from policy
transactions.............. 605,354 (54,081) 326,506
---------- --------- ---------
Net increase (decrease) in
net assets................ 805,904 17,230 328,080
NET ASSETS:
Beginning of year........... 345,559 328,329 249
---------- --------- ---------
End of year................. $1,151,463 $ 345,559 $ 328,329
---------- --------- ---------
---------- --------- ---------
</TABLE>

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

SA-8
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP II T. ROWE PRICE
OVERSEAS ASSET MANAGER INTERNATIONAL STOCK
------------------------------- ---------------------------- ----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996 1998 1997 1996
--------- -------- -------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends................... $ 1,056 $ 344 $ 3 $ 11,971 $ 6,739 $ 10 $ 4,272 $ 898 $ 468
Mortality and expense risk
fees...................... (338) (205) (76) (2,662) (994) (501) (1,337) (560) (352)
--------- -------- -------- -------- -------- -------- -------- ------- --------
Net investment income
(loss)................... 718 139 (73) 9,309 5,745 (491) 2,935 338 116
--------- -------- -------- -------- -------- -------- -------- ------- --------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Realized gain distributions
from portfolio sponsors... 3,112 1,365 3 35,913 16,905 8 1,508 1,272 281
Net realized gain (loss)
from sales of
investments............... 165 201 138 5,268 499 130 318 183 921
--------- -------- -------- -------- -------- -------- -------- ------- --------
Net realized gain (loss).... 3,277 1,566 141 41,181 17,404 138 1,826 1,455 1,202
Net unrealized gain
(loss).................... 1,086 285 1,222 15,917 28,899 7,451 23,676 (326) 3,447
--------- -------- -------- -------- -------- -------- -------- ------- --------
Net realized and
unrealized gain (loss)... 4,363 1,851 1,363 57,098 46,303 7,589 25,502 1,129 4,649
--------- -------- -------- -------- -------- -------- -------- ------- --------

Net increase (decrease) in
net assets from
operations................ 5,081 1,990 1,290 66,407 52,048 7,098 28,437 1,467 4,765
--------- -------- -------- -------- -------- -------- -------- ------- --------
POLICY TRANSACTIONS:
Net premiums................ 38,586 31,760 17,544 216,035 142,926 184,389 104,206 36,785 55,319
Terminations................ (1,996) (184) (1) (219) (172) (1) (2,000) -- --
Insurance and other
charges................... (3,619) (1,796) (460) (759) (455) (13) (5,246) (1,021) 115
Transfers between
sub-accounts (including
fixed account), net....... (20,410) 685 36 (2,565) (14,401) 47 148,557 533 --
Other transfers from (to)
the General Account....... (832) 2 (72) (1,965) (194) 199 360 (1) (133)
Net increase (decrease) in
investment by Sponsor..... -- -- (238) -- -- (257) -- -- --
--------- -------- -------- -------- -------- -------- -------- ------- --------
Net increase (decrease) in
net assets from policy
transactions.............. 11,729 30,467 16,809 210,527 127,704 184,364 245,877 36,296 55,301
--------- -------- -------- -------- -------- -------- -------- ------- --------

Net increase (decrease) in
net assets................ 16,810 32,457 18,099 276,934 179,752 191,462 274,314 37,763 60,066

NET ASSETS:
Beginning of year........... 50,771 18,314 215 371,439 191,687 225 97,829 60,066 --
--------- -------- -------- -------- -------- -------- -------- ------- --------
End of year................. $ 67,581 $ 50,771 $ 18,314 $648,373 $371,439 $191,687 $372,143 $97,829 $ 60,066
--------- -------- -------- -------- -------- -------- -------- ------- --------
--------- -------- -------- -------- -------- -------- -------- ------- --------
</TABLE>

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

SA-9
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
DGPF INVESCO
INTERNATIONAL EQUITY INDUSTRIAL INCOME
------------------------------ -------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED PERIOD FROM
1998 1997 1996 12/31/98 12/31/97 7/2/96** TO 12/31/96
---------- -------- ------- -------- ------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 11,680 $ 118 $ -- $ 150 $ 112 $ 56
Mortality and expense risk fees............ (16,877) (251) (2) (38) (23) (2)
---------- -------- ------- -------- ------- ------
Net investment income (loss)............. (5,197) (133) (2) 112 89 54
---------- -------- ------- -------- ------- ------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- -- -- 311 398 154
Net realized gain (loss) from sales of
investments.............................. 7,893 164 18 401 25 25
---------- -------- ------- -------- ------- ------
Net realized gain (loss)................... 7,893 164 18 712 423 179
Net unrealized gain (loss)................. 442,761 (695) 68 312 752 (141)
---------- -------- ------- -------- ------- ------
Net realized and unrealized gain
(loss).................................. 450,654 (531) 86 1,024 1,175 38
---------- -------- ------- -------- ------- ------

Net increase (decrease) in net assets from
operations............................... 445,457 (664) 84 1,136 1,264 92
---------- -------- ------- -------- ------- ------
POLICY TRANSACTIONS:
Net premiums............................... 3,720,116 82,362 2,639 6,284 2,869 3,229
Terminations............................... (370) (1,381) -- (916) -- --
Insurance and other charges................ (204,104) (1,510) -- (4,494) (242) (9)
Transfers between sub-accounts (including
fixed account), net...................... 4,507,084 1,085 -- -- -- --
Other transfers from (to) the General
Account.................................. 244 11 7 8 3 5
Net increase (decrease) in investment by
Sponsor.................................. -- -- -- -- -- --
---------- -------- ------- -------- ------- ------
Net increase (decrease) in net assets from
policy transactions...................... 8,022,970 80,567 2,646 882 2,630 3,225
---------- -------- ------- -------- ------- ------

Net increase (decrease) in net assets...... 8,468,427 79,903 2,730 2,018 3,894 3,317

NET ASSETS:
Beginning of year.......................... 82,633 2,730 -- 7,211 3,317 --
---------- -------- ------- -------- ------- ------
End of year................................ $8,551,060 $ 82,633 $ 2,730 $ 9,229 $7,211 $3,317
---------- -------- ------- -------- ------- ------
---------- -------- ------- -------- ------- ------
</TABLE>

**Date of initial investment.

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

SA-10
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)

<TABLE>
<CAPTION>
MORGAN STANLEY
INVESCO TOTAL RETURN FIXED INCOME
-------------------------------------------- ----------------------
YEAR ENDED PERIOD FROM PERIOD FROM
12/31/98 12/31/97 7/2/96** TO 12/31/96 2/17/98** TO 12/31/98
-------- -------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 1,276 $ 1,045 $ 458 $ 648,460
Mortality and expense risk fees............ (257) (137) (22) (35,898)
-------- -------- ------- ------------
Net investment income (loss)............. 1,019 908 436 612,562
-------- -------- ------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 1,325 245 1 256,451
Net realized gain (loss) from sales of
investments.............................. 553 31 247 8,635
-------- -------- ------- ------------
Net realized gain (loss)................... 1,878 276 248 265,086
Net unrealized gain (loss)................. 2,122 5,287 (38) (179,067)
-------- -------- ------- ------------
Net realized and unrealized gain
(loss).................................. 4,000 5,563 210 86,019
-------- -------- ------- ------------

Net increase (decrease) in net assets from
operations............................... 5,019 6,471 646 698,581
-------- -------- ------- ------------
POLICY TRANSACTIONS:
Net premiums............................... 7,489 26,884 17,026 9,708,358
Terminations............................... (8) -- -- --
Insurance and other charges................ (860) (764) (117) (446,219)
Transfers between sub-accounts (including
fixed account), net...................... -- -- -- 9,881,316
Other transfers from (to) the General
Account.................................. 42 32 47 (185)
Net increase (decrease) in investment by
Sponsor.................................. -- -- -- --
-------- -------- ------- ------------
Net increase (decrease) in net assets from
policy transactions...................... 6,663 26,152 16,956 19,143,270
-------- -------- ------- ------------

Net increase (decrease) in net assets...... 11,682 32,623 17,602 19,841,851

NET ASSETS:
Beginning of year.......................... 50,225 17,602 -- --
-------- -------- ------- ------------
End of year................................ $61,907 $50,225 $17,602 $19,841,851
-------- -------- ------- ------------
-------- -------- ------- ------------
</TABLE>

**Date of initial investment.

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

SA-11
<PAGE>
GROUP VEL ACCOUNT
NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION

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
forty-two Sub-Accounts. In addition to the Sub-Accounts disclosed on the
Statements of Assets and Liabilities, Group VEL established nineteen additional
Sub-Accounts effective December 15, 1998. The initial public offering of these
Sub-Accounts did not occur in 1998, therefore, these Sub-Accounts are not
included in the financial statements. 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 First Allmerica; or of the Variable Insurance
Products Fund (Fidelity VIP) or the Variable Insurance Products Fund II
(Fidelity VIP II), managed by Fidelity Management & Research Company (FMR); or
of the 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 Management Company or Delaware International Advisers
Ltd.; or of the INVESCO Variable Investment Funds, Inc. (INVESCO) managed by
INVESCO Funds Group, Inc.; or of the Morgan Stanley Universal Funds, Inc.
(Morgan Stanley) managed by Miller Anderson & Sherrerd, LLP; or of the Mutual
Fund Variable Annuity Trust (MFVAT) managed by Chase Manhattan Bank, N.A. The
Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price, DGPF, INVESCO, Morgan
Stanley and MFVAT (the Funds) are open-end, management investment companies
registered under the 1940 Act. INVESCO is available only to employees of INVESCO
and its affiliates. Morgan Stanley is available only to employees of Duke Energy
Corporation and its affiliates.

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 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.

SA-12
<PAGE>
GROUP VEL 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
NUMBER OF AGGREGATE VALUE
INVESTMENT PORTFOLIO SHARES COST PER SHARE
- ---------------------------------------- ----------- ----------- ---------
<S> <C> <C> <C>
Growth.................................. 948,932 $ 2,440,814 $ 2.825
Investment Grade Income................. 13,562,728 14,903,780 1.132
Money Market............................ 239,493 239,493 1.000
Equity Index............................ 13,536,090 38,396,970 3.408
Government Bond......................... 21,852 23,339 1.068
Select Aggressive Growth................ 327,317 758,928 2.460
Select Growth........................... 4,417,554 6,954,480 2.428
Select Growth and Income................ 130,763 213,071 1.779
Select Value Opportunity*............... 376,025 622,506 1.685
Select International Equity............. 5,887,511 8,004,685 1.542
Select Capital Appreciation............. 151,273 255,007 1.640
Select Emerging Markets................. 14 11 0.784
Select Strategic Growth................. -- -- 0.973
Fidelity VIP High Income................ 7,727 94,460 11.530
Fidelity VIP Equity-Income.............. 6,268 147,964 25.420
Fidelity VIP Growth..................... 25,662 989,688 44.870
Fidelity VIP Overseas................... 3,371 64,973 20.050
Fidelity VIP II Asset Manager........... 35,703 596,082 18.160
T. Rowe Price International Stock....... 25,630 345,346 14.520
DGPF International Equity............... 518,876 8,108,940 16.480
INVESCO Industrial Income............... 496 8,306 18.610
INVESCO Total Return Fund............... 3,734 54,535 16.580
Morgan Stanley Fixed Income............. 1,854,379 20,020,925 10.700
</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 up to 0.90% per annum based on the average
daily net asset value of each certificate (certificate value) in each
Sub-Account for mortality and expense risks. This charge may be different
between groups and increased or decreased within a group, subject to compliance
with applicable state and federal requirements, but the total charge may not
exceed 0.90% per annum. During the first 10

SA-13
<PAGE>
GROUP VEL ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 -- RELATED PARTY TRANSACTIONS (CONTINUED)

policy years, the Company may charge up to 0.25% per annum of the certificate
value in each Sub-Account for administrative expenses. These expenses are
included in insurance and other charges on the statements of operations and
changes in net assets.

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 and to independent broker-dealers by the Company. The current series
of policies have a surrender charge and no deduction is made for sales charges
at the time of the sale. For the years ended December 31, 1998, 1997 and 1996,
there were no surrender charges applicable to Group VEL.

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 Group VEL satisfies the current requirements
of the regulations, and it intends that Group VEL will continue to meet such
requirements.

SA-14
<PAGE>
GROUP VEL 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 Group
VEL during the year ended December 31, 1998 were as follows:

<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
- ------------------------------------------------------- ----------- -----------
<S> <C> <C>
Growth................................................. $ 2,052,447 $ 1,472,739
Investment Grade Income................................ 5,969,134 647,046
Money Market........................................... 2,114,103 30,375,103
Equity Index........................................... 33,572,328 2,273,111
Government Bond........................................ 255,140 272,421
Select Aggressive Growth............................... 885,682 359,264
Select Growth.......................................... 2,934,986 2,107,270
Select Growth and Income............................... 178,977 145,345
Select Value Opportunity*.............................. 474,714 88,897
Select International Equity............................ 3,195,622 916,403
Select Capital Appreciation............................ 277,803 80,922
Select Emerging Markets................................ 11 --
Select Strategic Growth................................ -- --
Fidelity VIP High Income............................... 70,465 15,771
Fidelity VIP Equity-Income............................. 142,165 48,377
Fidelity VIP Growth.................................... 1,365,432 712,988
Fidelity VIP Overseas.................................. 44,455 28,896
Fidelity VIP II Asset Manager.......................... 1,146,029 890,280
T. Rowe Price International Stock...................... 258,653 8,333
DGPF International Equity.............................. 8,257,164 239,377
INVESCO Industrial Income.............................. 5,344 4,039
INVESCO Total Return Fund.............................. 13,238 4,231
Morgan Stanley Fixed Income............................ 20,494,409 482,118
----------- -----------
Totals............................................... $83,708,301 $41,172,931
----------- -----------
----------- -----------
</TABLE>

* Name changed. See Note 1.

SA-15
<PAGE>

PART II

UNDERTAKING TO FILE REPORTS
- ---------------------------

Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file
with the Securities and Exchange Commission ("SEC") such supplementary and
periodic information, documents, and reports as may be prescribed by any rule
or regulation of the SEC heretofore or hereafter duly adopted pursuant to
authority conferred in that section.

RULE 484 UNDERTAKING
- --------------------

Article VIII of Registrant's Bylaws provides: Each Director and each officer
of the Corporation, whether or not in office, (and his executors or
administrators), shall be indemnified or reimbursed by the Corporation
against all expenses actually and necessarily incurred by him in the defense
or reasonable settlement of any action, suit, or proceeding in which he is
made a party by reason of his being or having been a Director or officer of
the Corporation, including any sums paid in settlement or to discharge
judgment, except in relation to matters as to which he shall be finally
adjudged in such action, suit, or proceeding to be liable for negligence or
misconduct in the performance of his duties as such Director or officer; and
the foregoing right of indemnification or reimbursement shall not affect any
other rights to which he may be entitled under the Articles of Incorporation,
any statute, bylaw, agreement, vote of stockholders, or otherwise.

Insofar as indemnification for liability arising under the 1933 Act may be
permitted to Directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a Director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such Director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.

REPRESENTATIONS PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF 1940
- -------------------------------------------------------------------------------

The Company hereby represents that the aggregate fees and charges under the
Policy are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the Company.

<PAGE>

CONTENTS OF THE REGISTRATION STATEMENT

This registration statement comprises the following papers and documents:

The facing sheet.
Cross-references for Prospectuses A, B and C to items required by Form N-8B-2.
The prospectus A consisting of _____ pages.
The prospectus B consisting of _____ pages.
The prospectus C consisting of _____ pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484 under the 1933 Act.
Representations pursuant to Section 26(e) of the 1940 Act.
The signatures.

Written consents of the following persons:

1. Actuarial Consent
2. Opinion of Counsel
3. Consent of Independent Accountants

The following exhibits:

1. Exhibit 1 (Exhibits required by paragraph A of the instructions to
Form N-8B-2)

(1) Certified copy of Resolutions of the Board of Directors of the
Company of November 22, 1993 establishing the Group VEL Account
was previously filed in Post-Effective Amendment No. 9 on April
16, 1998, and is incorporated by reference herein.

(2) Not Applicable.

(3) (a) Underwriting and Administrative Services Agreement between
the Company and Allmerica Investments, Inc. was previously
filed in Post-Effective Amendment No. 9 on April 16, 1998,
and is incorporated by reference herein.

(b) Registered Representatives/Agents Agreement was previously
filed in Post-Effective Amendment No. 9 on April 16, 1998,
and is incorporated by reference herein.

(c) Sales Agreements were previously filed in Post-Effective
Amendment No. 9 on April 16, 1998, and are incorporated by
reference herein.

(d) Sales Agreement with Chase was previously filed in
Post-Effective Amendment No. 9 on April 16, 1998, and is
incorporated by reference herein.

(e) Commission Schedule was previously filed in Post-Effective
Amendment No. 9 on April 16, 1998, and is incorporated by
reference herein.

(f) General Agent's Agreement was previously filed in
Post-Effective Amendment No. 9 on April 16, 1998, and is
incorporated by reference herein.

(g) Career Agent Agreement was previously filed in
Post-Effective Amendment No. 9 on

<PAGE>

April 16, 1998, and is incorporated by reference herein.

(h) Form of Delaware Wholesaling Agreement was previously
filed in Post-Effective Amendment No. 10 on December 15,
1998, and is incorporated by reference herein.

(4) Not Applicable.

(5) Policy and initial Riders were previously filed in
Post-Effective Amendment No. 9 on April 16, 1998 and are
incorporated by reference herein. The Preferred Loan Endorsement
and Exchange to Term Rider were previously filed in
Post-Effective Amendment No. 5 on April 30, 1997, and are
incorporated by reference herein.

(6) Articles of Incorporation and Bylaws, as amended, of the Company
were previously filed in Post-Effective Amendment No. 1 on
October 1, 1995, and are incorporated by reference herein.

(7) Not Applicable.

(8) (a) Participation Agreement with Allmerica Investment Trust
was previously filed in Post-Effective Amendment No. 9 on
April 16, 1998, and is incorporated by reference herein.

(b) Participation Agreement, as amended, with Variable
Insurance Products Fund was previously filed in
Post-Effective Amendment No. 9 on April 16, 1998, and is
incorporated by reference herein.

(c) Participation Agreement, as amended, with Variable
Insurance Products Fund II was previously filed in
Post-Effective Amendment No. 9 on April 16, 1998, and is
incorporated by reference herein.

(d) Form of Amendment to Participation Agreement with
Delaware Group Premium Fund, Inc. was previously filed in
Post-Effective Amendment No. 10 on December 15, 1998, and
is incorporated by reference herein. Participation
Agreement with Delaware Group Premium Fund, Inc. was
previously filed in Post-Effective Amendment No. 9 on
April 16, 1998, and is incorporated by reference herein.

(e) Participation Agreement with T. Rowe Price International
Series, Inc. was previously filed in Post-Effective
Amendment No. 9 on April 16, 1998, and is incorporated by
reference herein.

(f) Participation Agreement with Invesco Funds Group, Inc.
was previously filed in Post-Effective Amendment No. 9 on
April 16, 1998, and is incorporated by reference herein.

(g) Fidelity Service Agreement, effective as of November 1,
1995, was previously filed on April 30, 1996 in
Post-Effective Amendment No. 3, and is incorporated by
reference herein.

(h) An Amendment to the Fidelity Services Agreement,
effective as of January 1, 1997, was previously filed on
April 30, 1997 in Post-Effective Amendment No. 3, and is
incorporated by reference herein.

(i) Fidelity Service Contract, effective as of January 1,
1997, was previously filed on April 30, 1997 in
Post-Effective Amendment No. 3, and is incorporated by
reference herein.
<PAGE>
(j) Service Agreement with Rowe Price-Fleming International,
Inc. was previously filed in Post-Effective Amendment No.
9 on April 16, 1998, and is incorporated by reference
herein.

(k) Service Fee Agreement Letter with Morgan Stanley Asset
Management, Inc., was previously filed in Post-Effective
Amendment No. 9 on April 16, 1998, and is incorporated by
reference herein.

(l) Participation Agreement with Morgan Stanley was
previously filed in Post-Effective Amendment No. 9 on
April 16, 1998, and is incorporated by reference herein.

(m) Participation Agreement with Mutual Fund Variable
Annuity Trust was previously filed in Post-Effective
Amendment No. 10 on December 15, 1998, and is incorporated
by reference herein.

(9) Directors' Power of Attorney is filed herewith.

(10) Amended Application was previously filed in Post-Effective
Amendment No. 10 on December 15, 1998, and is incorporated by
reference herein. Application was previously filed in
Post-Effective Amendment No. 9 on April 16, 1998, and is
incorporated by reference herein.

2. Policy and Policy riders are as set forth in Item 1(5) above.

3. Opinion of Counsel is filed herewith.

4. Not Applicable.

5. Not Applicable.

6. Actuarial Consent is filed herewith.

7. Procedures Memorandum dated August, 1994 pursuant to
Rule 6e-3(T)(b)(12)(iii) under the 1940 Act which includes conversion
procedures pursuant to Rule 6e-3(T)(b)(13)(v)(B) was previously filed
in Post-Effective Amendment No. 9 on April 16, 1998, and is
incorporated by reference herein.

8. Consent of Independent Accountants is filed herewith.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Worcester, and Commonwealth of Massachusetts, on
the 1st day of November, 1999.

GROUP VEL ACCOUNT OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY

By: /s/ Mary Eldridge
-----------------------------
Mary Eldridge, Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/S/ Warren E. Barnes Vice President and Corporate Controller November 1, 1999
- ------------------------------
Warren E. Barnes

Edward J. Parry III* Director, Vice President, Chief Financial Officer
- ------------------------------ and Treasurer

Richard M. Reilly* Director, President and Chief Executive Officer
- ------------------------------

John F. O'Brien* Director and Chairman of the Board
- ------------------------------

Bruce C. Anderson* Director
- ------------------------------

Robert E. Bruce* Director and Chief Information Officer
- ------------------------------

John P. Kavanaugh* Director, Vice President and
- ------------------------------ Chief Investment Officer

John F. Kelly* Director, Vice President and General Counsel
- ------------------------------

J. Barry May* Director
- ------------------------------

James R. McAuliffe* Director
- ------------------------------

Robert P. Restrepo, Jr.* Director
- ------------------------------

Eric A. Simonsen* Director and Vice President
- ------------------------------

Phillip E. Soule Director
- ------------------------------
</TABLE>

*Sheila B. St. Hilaire, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named Directors and Officers of the
Registrant pursuant to the Power of Attorney dated July 1, 1999 duly executed
by such persons.

/s/ Sheila B. St. Hilaire
- ---------------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact

<PAGE>

FORM S-6 EXHIBIT TABLE

Exhibit 1(9) Directors' Power of Attorney

Exhibit 3 Opinion of Counsel

Exhibit 6 Actuarial Consent

Exhibit 8 Consent of Independent Accountants

<PAGE>

POWER OF ATTORNEY

We, the undersigned, hereby severally constitute and appoint Richard M. Reilly,
John F. Kelly, Joseph W. MacDougall, Jr., and Sheila B. St. Hilaire, and each of
them singly, our true and lawful attorneys, with full power to them and each of
them, to sign for us, and in our names and in any and all capacities, any and
all Registration Statements and all amendments thereto, including post-effective
amendments, with respect to the Separate Accounts supporting variable life and
variable annuity contracts issued by Allmerica Financial Life Insurance and
Annuity Company, and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and with any other regulatory agency or state authority that may so require,
granting unto said attorneys and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys or any of them may lawfully do or cause to be done by virtue hereof.
Witness our hands on the date set forth below.

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----

<S> <C> <C>
/s/ John F. O'Brien Director and Chairman of the Board 7/1/99
- -------------------------- ------
John F. O'Brien

/s/ Bruce C. Anderson Director 7/1/99
- -------------------------- ------
Bruce C. Anderson

/s/ Robert E. Bruce Director and Chief Information Officer 7/1/99
- -------------------------- ------
Robert E. Bruce

/s/ John P. Kavanaugh Director, Vice President and 7/1/99
- -------------------------- Chief Investment Officer ------
John P. Kavanaugh

/s/ John F. Kelly Director, Vice President and 7/1/99
- -------------------------- General Counsel ------
John F. Kelly

/s/ J. Barry May Director 7/1/99
- -------------------------- ------
J. Barry May

/s/ James R. McAuliffe Director 7/1/99
- -------------------------- ------
James R. McAuliffe

/s/ Edward J. Parry, III Director, Vice President, Chief Financial 7/1/99
- -------------------------- Officer and Treasurer ------
Edward J. Parry, III

/s/ Richard M. Reilly Director, President and 7/1/99
- -------------------------- Chief Executive Officer ------
Richard M. Reilly

/s/ Robert P. Restrepo, Jr. Director 7/1/99
- -------------------------- ------
Robert P. Restrepo, Jr.

/s/ Eric A. Simonsen Director and Vice President 7/1/99
- -------------------------- ------
Eric A. Simonsen

/s/ Phillip E. Soule Director 7/1/99
- -------------------------- ------
Phillip E. Soule
</TABLE>

<PAGE>

December 1, 1999

Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653

RE: GROUP VEL ACCOUNT OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FILE NO.'S: 33-82658 AND 811-8704

Gentlemen:

In my capacity as Assistant Vice President and Counsel of Allmerica Financial
Life Insurance and Annuity Company (the "Company"), I have participated in
the preparation of this Post-Effective Amendment to the Registration
Statement for the Group VEL Account on Form S-6 under the Securities Act of
1933 with respect to the Company's group flexible premium variable life
insurance policies.

I am of the following opinion:

1. The Group VEL Account is a separate account of the Company validly
existing pursuant to the Delaware Insurance Code and the regulations
issued thereunder.

2. The assets held in the Group VEL Account equal to the reserves and other
Policy liabilities of the Policies which are supported by the Group VEL
Account are not chargeable with liabilities arising out of any other
business the Company may conduct.

3. The group flexible premium variable life insurance policies, when issued
in accordance with the Prospectuses contained in the Post-Effective
Amendment to the Registration Statement and upon compliance with
applicable local law, will be legal and binding obligations of the
Company in accordance with their terms and when sold will be legally
issued, fully paid and non-assessable.

In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.

I hereby consent to the filing of this opinion as an exhibit to this
Post-Effective Amendment to the Registration Statement of the Group VEL
Account on Form S-6 filed under the Securities Act of 1933.

Very truly yours,

/s/ Sheila St. Hilaire

Sheila B. St. Hilaire
Assistant Vice President and Counsel

<PAGE>

December 1, 1999

Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653

RE: GROUP VEL ACCOUNT OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FILE NO.'S: 33-82658 AND 811-8704

Gentlemen:

This opinion is furnished in connection with the filing by Allmerica
Financial Life Insurance and Annuity Company of the Post-Effective Amendment
to the Registration Statement on Form S-6 of its group flexible premium
variable life insurance policies ("Policies") allocated to the Group VEL
Account under the Securities Act of 1933. The Prospectuses included in this
Post-Effective Amendment to the Registration Statement describe the Policies.
I am familiar with and have provided actuarial advice concerning the
preparation of the Post-Effective Amendment to the Registration Statement,
including exhibits.

In my professional opinion, the illustrations of death benefits and cash
values included in Appendix C of the Prospectuses, based on the assumptions
stated in the illustrations, are consistent with the provisions of the
Policy. The rate structure of the Policies has not been designed so as to
make the relationship between premiums and benefits, as shown in the
illustrations, appear more favorable to a prospective purchaser of a Policy
for a person age 30 or a person age 45 than to prospective purchasers of
Policies for people at other ages or underwriting classes.

I am also of the opinion that the aggregate fees and charges under the Policy
are reasonable in relation to the services rendered, the expenses expected to
be incurred, and the risks assumed by the Company.

I hereby consent to the use of this opinion as an exhibit to this
Post-Effective Amendment of the Registration Statement.

Sincerely,

/s/ William H. Mawdsley

William H. Mawdsley, FSA, MAAA
Vice President and Actuary

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 12 to the Registration Statement of the Group
VEL Account of Allmerica Financial Life Insurance and Annuity Company on Form
S-6 of our report dated February 2, 1999, except for paragraph 2 of Note 12,
which is as of March 19, 1999, relating to the financial statements of
Allmerica Financial Life Insurance and Annuity Company, and our report dated
March 26, 1999, relating to the financial statements of the Group VEL Account
of Allmerica Financial Life Insurance and Annuity Company, both of which
appear in such Prospectus. We also consent to the reference to us under the
heading "Independent Accountants" in such Prospectus.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Boston, Massachusetts
December 3, 1999