GROUP VEL ACCT OF 1ST ALLMERICA FINANCIAL LIFE INS CO, 497, 1997-05-09

GROUP VEL ACCT OF 1ST ALLMERICA FINANCIAL LIFE INS CO
497, 1997-05-09

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This prospectus describes certificates issued under group flexible premium
variable life insurance policies ("Certificates") offered by First Allmerica
Financial Life Insurance Company ("Company") to eligible applicants
("Certificate Owners") who are members of a non-qualified benefit plan having a
minimum of five or more members, depending on the group, and are age 80 years
old and under. Within limits, you may choose the amount of initial premium
desired and the initial Death Benefit. You have the flexibility to vary the
frequency and amount of premium payments, subject to certain restrictions and
conditions. You may withdraw a portion of the Certificate's surrender value, or
the Certificate may be fully surrendered at any time, subject to certain
limitations.

The Certificates permit you to allocate Net Premiums among up to seven of twenty
sub-accounts ("Sub-Accounts") of the Group VEL Account, a separate account of
the Company, and a fixed interest account ("General Account") of the Company
(together "Accounts"). Each Sub-Account invests its assets in a corresponding
investment portfolio of Allmerica Investment Trust ("Trust"), Variable Insurance
Products Fund ("Fidelity VIP"), Variable Insurance Products Fund II ("Fidelity
VIP II"), T. Rowe Price International Series, Inc. ("T. Rowe Price"), Delaware
Group Premium Fund, Inc. ("DGPF") or INVESCO Variable Investment Funds, Inc.
("INVESCO VIF"). The following underlying funds are available under the
Certificates:

<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VIP
- ---------------------------------- --------------
Select International Equity Fund Overseas Portfolio
Select Aggressive Growth Fund Equity-Income Portfolio
Select Capital Appreciation Fund Growth Portfolio
Small-Mid Cap Value Fund High Income Portfolio
Select Growth Fund FIDELITY VIP II
Growth Fund ----------------
Equity Index Fund Asset Manager Portfolio
Select Growth and Income Fund T. ROWE PRICE
Investment Grade Income Fund ---------------
Government Bond Fund T. Rowe Price
Money Market Fund International Stock
DGPF Portfolio
- ----- INVESCO*
International Equity Series ---------
Total Return Fund*
Industrial Income Fund*
</TABLE>

*The Total Return Fund and the Industrial Income Fund of INVESCO VIF are
available only to employees of INVESCO and its affiliates.

THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF THE
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE
PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL SERIES, INC. AND DELAWARE GROUP
PREMIUM FUND, INC., AND INVESCO VARIABLE INVESTMENT FUNDS INC. INVESTORS SHOULD
RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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

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

There is no guaranteed minimum Certificate value. The value of a Certificate
will vary up or down to reflect the investment experience of allocations to the
Sub-Accounts and the fixed rates of interest earned by allocations to the
General Account. The Certificate value will also be adjusted for other factors,
including the amount of charges imposed. The Certificate will remain in effect
so long as the Certificate value less any outstanding debt is sufficient to pay
certain monthly charges imposed in connection with the Certificate. The
Certificate value may decrease to the point where the Certificate will lapse and
provide no further death benefit without additional premium payments.

If the Certificate is in effect at the death of the Insured, the Company will
pay a death benefit (the "Death Proceeds") to the beneficiary. Prior to the
Final Premium Payment Date, the Death Proceeds equal the Death Benefit, less any
debt, partial withdrawals, and any due and unpaid charges. After the Final
Premium Payment Date, the Death Proceeds equal the Surrender Value of the
Certificate. If the Guideline Premium Test is in effect (See "ELECTION OF DEATH
BENEFIT OPTIONS"), you may choose either Death Benefit Option 1 (the Death
Benefit is fixed in amount) or Death Benefit Option 2 (the Death Benefit
includes the Certificate value in addition to a fixed insurance amount) and may
change between Death Benefit Option 1 and Option 2, subject to certain
conditions. If the Cash Value Accumulation Test is in effect, Death Benefit
Option 3 (the Death Benefit is fixed in amount) will apply. A Minimum Death
Benefit, equivalent to a percentage of the Certificate value, will apply if
greater than the Death Benefit otherwise payable under Option 1, Option 2 or
Option 3.

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

IT MAY NOT BE ADVANTAGEOUS TO PURCHASE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
AS A REPLACEMENT FOR YOUR CURRENT LIFE INSURANCE OR IF YOU ALREADY OWN A
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY OR CERTIFICATE.

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TABLE OF CONTENTS

<TABLE>
<S> <C>
SPECIAL TERMS........................................................................ 5
SUMMARY.............................................................................. 8
PERFORMANCE INFORMATION.............................................................. 17
DESCRIPTION OF THE COMPANY, THE GROUP VEL ACCOUNT, ALLMERICA INVESTMENT TRUST,
VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II, T. ROWE PRICE
INTERNATIONAL SERIES, DELAWARE GROUP PREMIUM FUND, INC., AND INVESCO VARIABLE
INVESTMENT FUNDS, INC............................................................... 20
INVESTMENT OBJECTIVES AND POLICIES................................................... 22
INVESTMENT ADVISORY SERVICES......................................................... 24
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS.................................... 28
VOTING RIGHTS........................................................................ 29
THE CERTIFICATE...................................................................... 29
Enrollment Form for a Certificate.................................................. 29
Free Look Period................................................................... 30
Conversion Privileges.............................................................. 30
Premium Payments................................................................... 31
Allocation of Net Premiums......................................................... 31
Transfer Privilege................................................................. 32
Dollar Cost Averaging and Automatic Rebalancing Options............................ 32
Election of Death Benefit Options.................................................. 33
Guideline Premium Test and Cash Value Accumulation Test............................ 33
Death Proceeds..................................................................... 34
Change in Death Benefit Option..................................................... 36
Change in Face Amount.............................................................. 36
Certificate Value and Surrender Value.............................................. 38
Payment Options.................................................................... 39
Optional Insurance Benefits........................................................ 39
Surrender.......................................................................... 39
Paid-Up Insurance Option........................................................... 39
Partial Withdrawal................................................................. 40
CHARGES AND DEDUCTIONS............................................................... 40
Premium Expense Charge............................................................. 41
Monthly Deduction from Certificate Value........................................... 41
Charges Reflected in the Assets of the Group VEL Account........................... 44
Surrender Charge................................................................... 44
Charges on Partial Withdrawal...................................................... 46
Transfer Charges................................................................... 46
Charge for Change in Face Amount................................................... 47
Other Administrative Charges....................................................... 47
CERTIFICATE LOANS.................................................................... 47
CERTIFICATE TERMINATION AND REINSTATEMENT............................................ 48
OTHER CERTIFICATE PROVISIONS......................................................... 50
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY...................................... 52
DISTRIBUTION......................................................................... 52
SERVICES............................................................................. 53
REPORTS.............................................................................. 53
LEGAL PROCEEDINGS.................................................................... 53
FURTHER INFORMATION.................................................................. 54
INDEPENDENT ACCOUNTANTS.............................................................. 54
</TABLE>

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<TABLE>
<S> <C>
FEDERAL TAX CONSIDERATIONS........................................................... 54
Taxation of the Certificates....................................................... 55
Policy Loans....................................................................... 55
Modified Endowment Contracts....................................................... 56
MORE INFORMATION ABOUT THE GENERAL ACCOUNT........................................... 56
FINANCIAL STATEMENTS................................................................. F-1
APPENDIX A -- OPTIONAL BENEFITS...................................................... A-1
APPENDIX B -- PAYMENT OPTIONS........................................................ A-2
APPENDIX C -- ILLUSTRATIONS OF SUM INSURED, CERTIFICATE VALUES AND ACCUMULATED
PREMIUMS............................................................................ A-3
APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES............................... A-11
</TABLE>

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SPECIAL TERMS

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

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

CERTIFICATE CHANGE: Any change in the Face Amount, the addition or deletion of
a rider, or a change in the Death Benefit Option.

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

COMPANY: First Allmerica Financial Life Insurance Company.

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

DEATH BENEFIT: The amount payable upon the death of the Insured, before the
Final Premium Payment Date, prior to deductions for Debt outstanding at the time
of the Insured's death, partial withdrawals and partial withdrawal charges, if
any, and any due and unpaid Monthly Deductions. The amount of the Death Benefit
will depend on the Death Benefit Option chosen, but will always be at least
equal to the Face Amount.

DEATH PROCEEDS: Prior to the Final Premium Payment Date, the Death Proceeds
equal the amount calculated under the applicable Death Benefit Option, less Debt
outstanding at the time of the Insured's death, partial withdrawals, if any,
partial withdrawal charges, and any due and unpaid Monthly Deductions. After the
Final Premium Payment Date, the Death Proceeds equal the Surrender Value of the
Certificate.

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

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

EVIDENCE OF INSURABILITY: Information, satisfactory to the Company, that is
used to determine the Insured's Underwriting Class.

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

FINAL PREMIUM PAYMENT DATE: The Certificate anniversary nearest the Insured's
95th birthday. The Final Premium Payment Date is the latest date on which a
premium payment may be made. After this date, the Death Proceeds equal the
Surrender Value of the Certificate.

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

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

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

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INSURANCE AMOUNT AT RISK: The Death Benefit less the Certificate Value.

ISSUANCE AND ACCEPTANCE: The date the Company mails the Certificate if the
enrollment form is approved with no changes requiring your consent; otherwise,
the date the Company receives your written consent to any changes.

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

MINIMUM DEATH BENEFIT: The minimum Death Benefit required to qualify the
Certificate as "life insurance" under Federal tax laws. The Minimum Death
Benefit varies by Age. It is calculated by multiplying the Certificate Value by
a percentage determined by the Insured's Age.

MONTHLY PROCESSING DATE: The date on which the Monthly Deduction is deducted
from Certificate Value.

MONTHLY DEDUCTION: Charges deducted monthly from the Certificate Value of a
Certificate prior to the Final Premium Payment Date. The charges include the
monthly cost of insurance, the monthly cost of any benefits provided by rider,
the monthly Certificate administrative charge, the monthly Group VEL Account
administrative charge and the monthly mortality and expense risk charge.

MONTHLY DEDUCTION SUB-ACCOUNT: A Sub-Account of the Separate Account to which
the payor that you name under the Payor Option may allocate Net Premiums to pay
all or a portion of the insurance charges and administrative charges. The
Monthly Deduction Sub-Account is currently the Sub-Account which invests in the
Money Market Fund of Allmerica Investment Trust.

NET PREMIUM: An amount equal to the premium less any premium expense charge.

PAID-UP INSURANCE: Life insurance coverage for the life of the Insured, with no
further premiums due.

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

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

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

SUB-ACCOUNT: A subdivision of the Group VEL Account. Each Sub-Account invests
exclusively in the shares of a corresponding Fund of the Allmerica Investment
Trust, a corresponding Portfolio of the Variable Insurance Products Fund or the
Variable Insurance Products Fund II, the T. Rowe Price International Stock
Portfolio of T. Rowe Price International Series, Inc. or the International
Equity Series of the Delaware Group Premium Fund, Inc. The Total Return Fund and
the Industrial Income Fund of INVESCO VIF are available to employees of INVESCO
Inc., and its affiliates.

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

UNDERLYING FUNDS: The Funds of Allmerica Investment Trust, the Portfolios of
Variable Insurance Products Fund and Variable Insurance Products Fund II, the
Portfolio of T. Rowe Price International Series, Inc., the Series of Delaware
Group Premium Fund, Inc., and the Funds of INVESCO Variable Investment Funds,
Inc., which are available under the Certificates.

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UNDERLYING INVESTMENT COMPANIES: Allmerica Investment Trust, Variable Insurance
Products Fund, Variable Insurance Products Fund II, T. Rowe Price International
Series, Inc., Delaware Group Premium Fund, Inc., and INVESCO Variable Investment
Funds, Inc.

UNDERWRITING CLASS: The risk classification that the Company assigns the
Insured based on the information in the enrollment form and any other Evidence
of Insurability considered by the Company. The Insured's Underwriting Class will
affect the cost of insurance charge and the amount of premium required to keep
the Certificate in force.

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

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

VALUATION PERIOD: The interval between two consecutive Valuation Dates.

WRITTEN REQUEST: A Request by the Certificate Owner in writing, satisfactory to
the Company.

YOU OR YOUR: The Certificate Owner, as shown in the enrollment form or the
latest change filed with the Company.

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SUMMARY

THE CERTIFICATE

The Certificate issued under a group flexible premium variable life policy
offered by this prospectus allows you, subject to certain limitations, to make
premium payments in any amount and frequency. As long as the Certificate remains
in force, it will provide for:

- - life insurance coverage on the named Insured;

- - Certificate Value;

- - surrender rights and partial withdrawal rights;

- - loan privileges; and

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

The Certificates provide death benefits, Certificate Value, and other features
traditionally associated with life insurance policies. The Certificates are
"variable" because, unlike the fixed benefits of ordinary whole life insurance,
the Certificate Value will, and under certain circumstances the Death Proceeds
may, increase or decrease depending on the investment experience of the
Sub-Accounts of the Group VEL Account. They are "flexible premium" Certificates,
because, unlike traditional insurance policies, there is no fixed schedule for
premium payments. Although you may establish a schedule of premium payments
("planned premium payments"), failure to make the planned premium payments will
not necessarily cause a Certificate to lapse nor will making the planned premium
payments guarantee that a Certificate will remain in force. Thus, you may, but
are not required to, pay additional premiums.

The Certificate will remain in force until the Surrender Value is insufficient
to cover the next Monthly Deduction and loan interest accrued, if any, and a
grace period of 62 days has expired without adequate payment being made by you.

SURRENDER CHARGES

At any time that a Certificate is in effect, a Certificate Owner may elect to
surrender the Certificate and receive its Surrender Value. A surrender charge
may be calculated upon issuance of the Certificate and upon each increase in
Face Amount. The surrender charge may be imposed, depending on the group to
which the Certificate is issued, for up to 15 years from the Date of Issue or
any increase in the Face Amount and you request a full surrender or a decrease
in Face Amount.

SURRENDER CHARGES FOR THE INITIAL FACE AMOUNT

The maximum surrender charge calculated upon issuance of the Certificate is
equal to the sum of (a) plus (b) where (a) is a deferred administrative charge
of up to $8.50 per thousand dollars of the initial Face Amount and (b) is a
deferred sales charge of up to 50% (less any premium expense charge not
associated with state and local premium taxes) of premiums received up to the
Guideline Annual Premium, depending on the group to which the Certificate is
issued. In accordance with limitations under state insurance regulations, the
amount of the maximum surrender charge will not exceed a specified amount per
thousand dollars of initial Face Amount, as indicated in "APPENDIX C --
CALCULATION OF MAXIMUM SURRENDER CHARGES." The maximum surrender charge remains
level for up to 24 Certificate months, reduces uniformly each month for the
balance of the surrender charge period, and is zero thereafter. If you surrender
the Certificate during the first two years following the Date of Issue before
making premium payments associated with the initial Face Amount which are at
least equal to one Guideline Annual Premium, the actual surrender charge imposed
may be less than the maximum. See "THE CERTIFICATE -- Surrender" and "CHARGES
AND DEDUCTIONS -- Surrender Charge."

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SURRENDER CHARGES FOR AN INCREASE IN FACE AMOUNT

A separate surrender charge may apply to and be calculated for each increase in
Face Amount. The maximum surrender charge for the increase is equal to the sum
of (a) plus (b) where (a) is a deferred administrative charge of up to $8.50 per
thousand dollars of increase, and (b) is a deferred sales charge of up to 50%
(less any premium expense charge not associated with state and local premium
taxes) of premiums associated with the increase, up to the Guideline Annual
Premium for the increase. In accordance with limitations under state insurance
regulations, the amount of the surrender charge will not exceed a specified
amount per thousand dollars of increase, as indicated in "APPENDIX C --
CALCULATION OF MAXIMUM SURRENDER CHARGES."

This maximum surrender charge with respect to an increase remains level for up
to 24 Certificate months following the increase, reduces uniformly each month
for the balance of the surrender charge period, and is zero thereafter. During
the first two Certificate years following an increase in Face Amount, before
making premium payments associated with the increase in Face Amount which are at
least equal to one Guideline Annual Premium, the actual surrender charge with
respect to the increase may be less than the maximum. See "THE CERTIFICATE --
Surrender" and "CHARGES AND DEDUCTIONS -- Surrender Charge."

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

PREMIUM EXPENSE CHARGE

A charge may be deducted from each premium payment for state and local premium
taxes paid by the Company for the Policy and to compensate the Company for
federal taxes imposed for deferred acquisition costs ("DAC taxes") and for sales
expenses related to the Certificates. State premium taxes generally range from
0.75% to 5%, while local premium taxes (if any) vary by jurisdiction within a
state. The DAC tax deduction may range from zero to 1% of premiums, depending on
the group to which the Policy is issued. The charge for sales expenses may range
from zero to 5%, depending on the characteristics of the group to which the
Policy is issued and the actual sales expense incurred by the Company. See
"CHARGES AND DEDUCTIONS -- Premium Expense Charge."

MONTHLY DEDUCTIONS FROM CERTIFICATE VALUE

On the Date of Issue and each Monthly Processing Date thereafter prior to the
Final Premium Payment Date, certain charges ("Monthly Deductions") will be
deducted from the Certificate Value. The Monthly Deduction includes a charge for
cost of insurance, a charge for the cost of any additional benefits provided by
rider, and a charge for administrative expenses that may be up to $10, depending
on the group to which the Policy is issued. The Monthly Deduction may also
include a charge for Group VEL administrative expenses and a charge for
mortality and expense risks. The Group VEL administrative charge may continue
for up to 10 Certificate years and may be up to 0.25% of Certificate Value in
each Sub-Account, depending on the group to which the Certificate was issued.
The mortality and expense risk charge may be up to 0.90% of Certificate Value in
each Sub-Account.

You may specify from which Sub-Account the cost of insurance charge, the charge
for Certificate administrative expenses and the charge for the cost of
additional benefits provided by rider will be deducted. If the Payor Provision
is in force, all cost of insurance charges and administrative charges will be
deducted from the Monthly Deduction Sub-Account. If no allocation is specified,
the Company will make a Pro-Rata Allocation.

The Group VEL administrative charge and the mortality and expense risk charge
are assessed against each Sub-Account that generates a charge. In the event that
a charge is greater than the value of the Sub-Account to which it relates on a
Monthly Processing Date, the unpaid balance will be totaled and the Company will
make a Pro-Rata Allocation.

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Monthly Deductions are made on the Date of Issue and on each Monthly Processing
Date until the Final Premium Payment Date. No Monthly Deductions will be made on
or after the Final Premium Payment Date. See "CHARGES AND DEDUCTIONS -- Monthly
Deductions from Certificate Value."

TRANSACTION CHARGES

Each of the charges listed below is designed to reimburse the Company for
administrative costs incurred in the applicable transaction.

TRANSACTION CHARGE ON PARTIAL WITHDRAWALS

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

CHARGE FOR CHANGE IN FACE AMOUNT

For each increase or decrease in Face Amount, a charge of $2.50 per $1,000 of
increase or decrease up to $40, will be deducted from Certificate Value. This
charge is designed to reimburse the Company for underwriting and administrative
costs associated with the change. See "THE CERTIFICATE -- Change In Face Amount"
and "CHARGES AND DEDUCTIONS -- Charge For Change In Face Amount."

TRANSFER CHARGE

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

OTHER ADMINISTRATIVE CHARGES

The Company reserves the right to impose a charge for the administrative costs
associated with changing the Net Premium allocation instructions, for changing
the allocation of any Monthly Deductions among the various Sub-Accounts, or for
a projection of values. See "CHARGES AND DEDUCTIONS -- Other Administrative
Charges."

CHARGES OF THE UNDERLYING INVESTMENT COMPANIES

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

CERTIFICATE VALUE AND SURRENDER VALUE

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

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

DEATH PROCEEDS

The Certificate provides for the payment of certain Death Proceeds to the named
Beneficiary upon the death of the Insured. Prior to the Final Premium Payment
Date, the Death Proceeds will be equal to the Death Benefit, reduced by any
outstanding Debt, partial withdrawals, partial withdrawal charges, and any
Monthly Deductions due and not yet deducted through the Certificate month in
which the Insured dies. Three Death Benefit Options are available. Under Option
1 and Option 3, the Death Benefit is the greater of the Face Amount of the
Certificate or the applicable Minimum Death Benefit. Under Option 2, the Death
Benefit is the greater of the Face Amount of the Certificate plus the
Certificate Value or the Minimum Death Benefit. The Minimum Death Benefit is
equivalent to a percentage (determined each month based on the Insured's Age) of
the Certificate Value. On or after the Final Premium Payment Date, the Death
Proceeds will equal the Surrender Value. See "THE CERTIFICATE -- Death
Proceeds."

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

FLEXIBILITY TO ADJUST DEATH BENEFIT

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

The minimum increase in Face Amount will vary by group, but will in no event
exceed $10,000. Any increase may also require additional Evidence of
Insurability satisfactory to the Company. The increase is subject to a "free
look period" and, during the first 24 months after the increase, to a conversion
privilege. See "THE CERTIFICATE -- Free Look Period -- Conversion Privileges."

You may, depending on the group to which the Policy is issued, have the
flexibility to add additional insurance benefits by rider. These may include the
Waiver of Premium Rider, Other Insured Rider, Children's Insurance Rider,
Accidental Death Benefit Rider, Option to Accelerate Benefits Rider and Exchange
Option Rider. See "APPENDIX A -- OPTIONAL BENEFITS."

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

CERTIFICATE ISSUANCE

At the time of enrollment, the proposed insured will complete an enrollment
form, which lists the proposed amount of insurance and indicates how much of
that insurance is considered eligible for simplified underwriting. If the
eligibility questions on the enrollment form are answered "No," the Company will
provide immediate coverage equal to the simplified underwriting amount. If the
proposed insured is in a standard premium class, any insurance in excess of the
simplified underwriting amount will begin on the date the enrollment form and
medical examinations, if any, are completed. If the proposed insured cannot
answer the eligibility questions "No" and if the proposed insured is not a
standard risk, insurance coverage will begin only after the Company (1) approves
the enrollment form, (2) the Certificate is delivered and accepted, and (3) the
first premium is paid.

11
<PAGE>
If any premiums are paid prior to the issuance of the Certificate, such premiums
will be held in the Company's General Account. If your enrollment form is
approved and the Certificate is issued and accepted, the initial premiums held
in the General Account will be credited with interest at a specified rate
beginning not later than the date of receipt of the premiums at the Company's
Principal Office. IF A CERTIFICATE IS NOT ISSUED AND ACCEPTED, THE INITIAL
PREMIUMS WILL BE RETURNED TO YOU WITHOUT INTEREST.

ALLOCATION OF NET PREMIUMS

Net Premiums are the premiums paid less any premium expense charge. The
Certificate together with its attached enrollment form constitutes the entire
agreement between the Company and you. Net Premiums may be allocated to one or
more Sub-Accounts of the Group VEL Account, to the General Account, or to any
combination of Accounts. You bear the investment risk of Net Premiums allocated
to the Sub-Accounts. Allocations may be made to no more than seven Sub-Accounts
at any one time. The minimum allocation is 1% of Net Premium. All allocations
must be in whole numbers and must total 100%. See "THE CERTIFICATE -- Allocation
of Net Premiums."

Premiums allocated to the Company's General Account will earn a fixed rate of
interest. Net Premiums and minimum interest are guaranteed by the Company. For
more information, see "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."

INVESTMENT OPTIONS

The Certificates permit Net Premiums to be allocated either to the Company's
General Account or to the Group VEL Account. The Group VEL Account is currently
comprised of twenty Sub-Accounts. Each Sub-Account invests exclusively in a
corresponding Underlying Fund of the Allmerica Investment Trust ("Trust")
managed by Allmerica Investment, of the Variable Insurance Products Fund
("Fidelity VIP") or the Variable Insurance Products Fund II ("Fidelity VIP II")
managed by Fidelity Management, of T. Rowe Price International Series, Inc. ("T.
Rowe Price") managed by Rowe Price-Fleming International, Inc., of the Delaware
Group Premium Fund, Inc. ("DGPF") managed by Delaware International, or of the
INVESCO Variable Investment Funds, Inc., (available only to employees of INVESCO
and its affiliates) managed by INVESCO. In some states, insurance regulations
may restrict the availability of particular Underlying Funds. The Certificates
permit you to transfer Certificate Value among the available Sub-Accounts and
between the Sub-Accounts and the General Account of the Company, subject to
certain limitations described under "THE CERTIFICATE -- Transfer Privilege."

12
<PAGE>
CHARGES OF THE UNDERLYING INVESTMENT COMPANIES

In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Underlying Funds. The levels of fees and
expenses vary among the Underlying Funds. The following table shows the expenses
of the Underlying Funds for 1996. For more information concerning fees and
expenses, see the prospectuses of the Underlying Funds.

<TABLE>
<CAPTION>
OTHER FUND EXPENSES
(AFTER ANY
MANAGEMENT APPLICABLE TOTAL FUND
UNDERLYING FUND FEE REIMBURSEMENTS) EXPENSES
- ------------------------------------------------ --------------- ------------------- ---------------
<S> <C> <C> <C>
Select International Equity Fund 1.00% 0.23%* 1.23%***
DGPF International Equity Series 0.64% 0.16%** 0.80%
Fidelity VIP Overseas Portfolio 0.76% 0.17% 0.93%****
T. Rowe Price International Stock Portfolio 1.05% 0.00% 1.05%
Select Aggressive Growth Fund 1.00% 0.08%* 1.08%
Select Capital Appreciation Fund 1.00% 0.13%* 1.13%
Small-Mid Cap Value Fund 0.85% 0.12%* 0.97%
Select Growth Fund 0.85% 0.08%* 0.93%***
Growth Fund 0.44% 0.07%* 0.51%
Fidelity VIP Growth Portfolio 0.61% 0.08% 0.69%****
Equity Index Fund 0.32% 0.14%* 0.46%
Select Growth and Income Fund 0.75% 0.08%* 0.83%***
Fidelity VIP Equity-Income Portfolio 0.51% 0.07% 0.58%****
Fidelity VIP II Asset Manager Portfolio 0.64% 0.10% 0.74%****
Fidelity VIP High Income Portfolio 0.59% 0.12% 0.71%
Investment Grade Income Fund 0.40% 0.14%* 0.54%
Government Bond Fund 0.50% 0.16%* 0.66%
Money Market Fund 0.28% 0.06%* 0.34%

INVESCO VIF Industrial Income 0.75% 0.20% 0.95%#
INVESCO VIF Total Return 0.75% 0.19% 0.94%#
</TABLE>

* Under the Management Agreement with Allmerica Investment Trust, Allmerica
Investment Management Company, Inc. ("Manager") has declared a voluntary expense
limitation of 1.50% of average net assets for the Select International Equity
Fund, 1.35% for the Select Aggressive Growth Fund and Select Capital
Appreciation Fund, 1.25% for the Small-Mid Cap Value Fund, 1.20% for the Growth
Fund and Select Growth Fund, 1.10% for the Select Growth and Income Fund, 1.00%
for the Investment Grade Income Fund and Government Bond Fund, and 0.60% for the
Money Market Fund and Equity Index Fund. The total operating expenses of the
funds of the Trust were less than their respective expense limitations
throughout 1996. The declaration of a voluntary expense limitation in any year
does not bind the Manager to declare future expense limitations with respect to
these funds.

** Delaware International Advisers Ltd., the investment adviser for the
International Equity Series, has agreed to waive its management fee and
reimburse the International Equity Series to limit certain expenses to 8/10 of
1% of the corresponding net assets. This waiver has been in effect from the
commencement of the public offering for the Series and has been extended through
June 30, 1997. Without the expense limitation, in 1996 the total annual expenses
of the International Equity Series would have been 1.04%.

*** These funds have entered into agreements with brokers whereby brokers rebate
a portion of commissions. Had these amounts been treated as reductions of
expenses the total operating expenses would have been 1.20% for the Select
International Equity Fund, 0.92% for the Select Growth Fund and 0.80% for the
Select Growth and Income Fund.

**** A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into arrangements
with their custodian and transfer agent whereby interest earned on uninvested
cash balances was used to reduce custodian and transfer agent expenses.
Including these reductions, the total operating expenses presented in the table
would have been 0.56% for Fidelity VIP Equity Income Portfolio, 0.67% for
Fidelity VIP Growth Portfolio, 0.92% for Fidelity VIP Overseas Portfolio and
0.73% for Fidelity VIP II Asset Manager Portfolio.

# Various expenses of the Industrial Income Portfolio and Total Return Portfolio
were voluntarily absorbed by INVESCO in 1996. If such expenses had not been
voluntarily absorbed, the total operating expenses would have been 1.19% and
1.30%, respectively.

13
<PAGE>
The value of each Sub-Account will vary daily depending upon the performance of
the Underlying Fund in which it invests. Each Sub-Account reinvests dividends or
capital gains distributions received from an Underlying Fund in additional
shares of that Underlying Fund. There can be no assurance that the investment
objectives of the Underlying Funds can be achieved. For more information, see
"DESCRIPTION OF THE COMPANY, THE GROUP VEL ACCOUNT, ALLMERICA INVESTMENT TRUST,
VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II, T. ROWE
PRICE INTERNATIONAL SERIES, INC., DELAWARE GROUP PREMIUM FUND, INC. AND INVESCO
VARIABLE INVESTMENT FUNDS, INC."

FREE LOOK PERIOD

The Certificate provides for an initial Free Look Period. You may cancel the
Certificate by mailing or delivering it to the Principal Office or to an agent
of the Company on or before the latest of (a) 45 days after the enrollment form
for the Certificate is signed, (b) 10 days after you receive the Certificate, or
(c) 10 days (20 or 30 days if required in your state) after the Company mails or
personally delivers a Notice of Withdrawal Rights to you.

If your Certificate provides for a full refund of the initial premium under its
"Right to Examine Certificate" provision as required in your state, your refund
will be the greater of (a) your entire premium or (b) the Certificate Value plus
deductions under the Certificate or by the Underlying Funds for taxes, charges
or fees. If your Certificate does not provide for a full refund of the initial
premium, you will receive the Certificate Value in the Group VEL Account, plus
premiums paid, including fees and charges, minus the amounts allocated to the
Group VEL Account, plus the fees and charges imposed on amounts in the Group VEL
Account. After an increase in Face Amount, a right to cancel the increase also
applies. See "THE CERTIFICATE -- Free Look Period."

CONVERSION PRIVILEGES

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

PARTIAL WITHDRAWAL

After the first Certificate year, you may make partial withdrawals in a minimum
amount of $500 from the Certificate Value. Under Option 1 or Option 3, the Face
Amount is reduced by the amount of the partial withdrawal, and a partial
withdrawal will not be allowed if it would reduce the Face Amount below $40,000.

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

14
<PAGE>
LOAN PRIVILEGE

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

Certificate loans will be allocated among the General Account and the
Sub-Accounts in accordance with your instructions. If no allocation is made by
you, the Company will make a Pro-Rata Allocation among the Accounts. In either
case, Certificate Value equal to the Certificate loan will be transferred from
the appropriate Sub-Account(s) to the General Account, and will earn monthly
interest at an effective annual rate of at least 6%. Therefore, a Certificate
loan may have a permanent impact on the Certificate Value even though it is
eventually repaid. Although the loan amount is a part of the Certificate Value,
the Death Proceeds will be reduced by the amount of outstanding Debt at the time
of death.

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

PREFERRED LOAN OPTION

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

There is some uncertainty as to the tax treatment of preferred loans. Consult a
qualified tax adviser (and see "FEDERAL TAX CONSIDERATIONS"). THE PREFERRED LOAN
OPTION IS NOT AVAILABLE IN ALL STATES.

CERTIFICATE LAPSE AND REINSTATEMENT

The failure to make premium payments will not cause a Certificate to lapse
unless: (a) the Surrender Value is insufficient to cover the next Monthly
Deduction plus loan interest accrued, if any, or (b) Debt exceeds Certificate
Value. A 62-day grace period applies to each situation. Subject to certain
conditions (including Evidence of Insurability showing that the Insured is
insurable according to the Company's underwriting rules and the payment of
sufficient premium), a Certificate may be reinstated at any time within 3 years
after the expiration of the grace period and prior to the Final Premium Payment
Date. See "CERTIFICATE TERMINATION AND REINSTATEMENT."

TAX TREATMENT

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

15
<PAGE>
A Certificate offered by this prospectus may be considered a "modified endowment
contract" if it fails a "seven- pay" test. A Certificate fails to satisfy the
seven-pay test if the cumulative premiums paid under the Certificate at any time
during the first seven Certificate years exceeds the sum of the net level
premiums that would have been paid, had the Certificate provided for paid-up
future benefits after the payment of seven level premiums. If the Certificate is
considered a modified endowment contract, all distributions (including
Certificate loans, partial withdrawals, surrenders or assignments) will be taxed
on an "income-first" basis. With certain exceptions, an additional 10% penalty
will be imposed on the portion of any distribution that is includible in income.
For more information, see "FEDERAL TAX CONSIDERATIONS -- Modified Endowment
Contracts."

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

The Certificate summarizes the provisions of the group policy under which it is
issued, which has the purpose of providing insurance protection for the
Beneficiary named therein. References to Certificate rights and features are
intended to represent a Certificate Owner's rights and benefits under the group
policy. This Summary is intended to provide only a very brief overview of the
more significant aspects of the Certificate. Further detail is provided in this
prospectus, the Certificate and the group policy. No claim
is made that the Certificate is in any way similar or comparable to a systematic
investment plan of a mutual fund.

16
<PAGE>
PERFORMANCE INFORMATION

The Certificates were first offered to the public in 1996. However, the Company
may advertise "Total Return" and "Average Annual Total Return" performance
information based on the periods that the Underlying Funds have been in
existence. The results for any period prior to the Certificates being offered
will be calculated as if the Certificates had been offered during that period of
time, with all charges assumed to be those applicable to the Sub-Accounts, the
Underlying Funds, and (in Table I) under a "representative" Certificate that is
surrendered at the end of the applicable period. For more information on charges
under the Certificates, see "CHARGES AND DEDUCTIONS."

In each Table below, "One-Year Total Return" refers to the total of the income
generated by a Sub-Account, based on certain charges and assumptions as
described in the respective tables, for the one-year period ended December 31,
1996. "Average Annual Total Return" is based on the same charges and
assumptions, but reflects the hypothetical annually compounded return that would
have produced the same cumulative return if the Sub-Account's performance had
been constant over the entire period. Because average annual total returns tend
to smooth out variations in annual performance return, they are not the same as
actual year-by-year results.

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

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

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

17
<PAGE>
TABLE I: SUB-ACCOUNT PERFORMANCE
NET OF ALL CHARGES AND ASSUMING SURRENDER OF THE CERTIFICATE

The following performance information is based on the periods that the
Underlying Funds have been in existence. The data is net of expenses of the
Underlying Funds, all Sub-Account charges, and all Certificate charges
(including surrender charges) for a representative Certificate. It is assumed
that the Insured is male, Age 36, standard (nonsmoker) Premium Class, that the
Face Amount of the Certificate is $250,000, that an annual premium payment of
$3,000 (approximately one Guideline Annual Premium) was made at the beginning of
each Certificate year, that ALL premiums were allocated to EACH Sub-Account
individually, and that there was a full surrender of the Certificate at the end
of the applicable period.

AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/96

Years
10 Years Since
One-Year or Life Inception*
Total 5 of Fund (if less
Underlying Fund Return Years (if less) than 10)
<S> <C> <C> <C> <C>
Select International Equity Fund - 100.00% N/A - 71.72% 2.67
DGPF International Equity Series - 100.00% N/A - 15.73% 4.17
Fidelity VIP Overseas Portfolio - 100.00% - 13.33% - 2.18% 9.92
T. Rowe Price International Stock Portfolio - 100.00% N/A - 46.42% 2.58
Select Aggressive Growth Fund - 100.00% N/A - 5.56% 4.36
Select Capital Appreciation Fund - 100.00% N/A - 59.92% 1.67
Small-Mid Cap Value Fund - 100.00% N/A - 18.87% 3.67
Select Growth Fund - 100.00% N/A - 14.02% 4.36
Growth Fund - 100.00% - 8.92% 5.64% 10.00
Fidelity VIP Growth Portfolio - 100.00% - 6.15% 6.04% 10.00
Equity Index Fund - 100.00% - 6.79% 2.08% 6.26
Select Growth and Income Fund - 100.00% N/A - 12.66% 4.36
Fidelity VIP Equity-Income Portfolio - 100.00% - 2.87% 4.49% 10.00
Fidelity VIP II Asset Manager Portfolio - 100.00% - 10.77% - 1.93% 7.32
Fidelity VIP High Income Portfolio - 100.00% - 6.38% 1.58% 10.00
Investment Grade Income Fund - 100.00% - 15.62% - 1.60% 10.00
Government Bond Fund - 100.00% - 17.40% - 14.43% 5.35
Money Market Fund - 100.00% - 19.27% - 4.41% 10.00

INVESCO VIF Industrial Income - 100.00% N/A - 35.55% 2.42
INVESCO VIF Total Return - 100.00% N/A - 40.21% 2.59
</TABLE>

* The inception dates for the Underlying Funds are: 4/29/85 for Growth,
Investment Grade and Money Market; 9/28/90 for Equity Index; 8/26/91 for
Government Bond; 8/21/92 for Select Aggressive Growth, Select Growth, and Select
Growth and Income; 4/30/93 for Small-Mid Cap Value; 5/01/94 for Select
International Equity; 4/28/95 for Select Capital Appreciation; 10/09/86 for
Fidelity VIP Equity-Income and Fidelity VIP Growth; 9/19/85 for Fidelity VIP
High Income; 1/28/87 for Fidelity VIP Overseas; 9/06/89 for Fidelity VIP II
Asset Manager; 10/29/92 for DGPF International Equity; and 3/31/94 for the T.
Rowe Price International Stock; 8/10/94 for the INVESCO VIF Industrial Income
and 6/2/94 for the INVESCO VIF Total Return.

18
<PAGE>
TABLE II: SUB-ACCOUNT PERFORMANCE
EXCLUDING MONTHLY CERTIFICATE CHARGES AND SURRENDER CHARGES

The following performance information is based on the periods that the
Underlying Funds have been in existence. The performance information is net of
total Underlying Fund expenses, all Sub-Account charges, and premium tax and
expense charges. THE DATA DOES NOT REFLECT MONTHLY CHARGES UNDER THE
CERTIFICATES OR SURRENDER CHARGES. It is assumed that an annual premium payment
of $3,000 (approximately one Guideline Annual Premium) was made at the beginning
of each Certificate year and that ALL premiums were allocated to EACH
Sub-Account individually.

AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/96
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Years
10 Years Since
One-Year or Life Inception*
Total 5 of Fund (if less
Underlying Fund Return Years (if less) than 10)

<CAPTION>
<S> <C> <C> <C> <C>
Select International Equity Fund 21.15% N/A 12.94% 2.67
DGPF International Equity Series 19.25% N/A 11.72% 4.17
Fidelity VIP Overseas Portfolio 12.41% 8.44% 7.18% 9.92
T. Rowe Price International Stock Portfolio 13.95% N/A 9.22% 2.58
Select Aggressive Growth Fund 17.78% N/A 18.99% 4.36
Select Capital Appreciation Fund 8.09% N/A 27.50% 1.67
Small-Mid Cap Value Fund 27.69% N/A 14.11% 3.67
Select Growth Fund 21.23% N/A 11.92% 4.36
Growth Fund 19.41% 12.07% 14.04% 10.00
Fidelity VIP Growth Portfolio 13.96% 14.41% 14.06% 10.00
Equity Index Fund 21.50% 13.86% 16.99% 6.26
Select Growth and Income Fund 20.47% N/A 13.04% 4.36
Fidelity VIP Equity-Income Portfolio 13.54% 17.21% 13.00% 10.00
Fidelity VIP II Asset Manager Portfolio 13.85% 10.54% 10.96% 7.32
Fidelity VIP High Income Portfolio 13.29% 14.21% 10.40% 10.00
Investment Grade Income Fund 2.89% 6.59% 7.60% 10.00
Government Bond Fund 2.84% 5.17% 6.21% 5.35
Money Market Fund 4.67% 3.70% 5.18% 10.00

INVESCO VIF Industrial Income 21.48% N/A 20.67% 2.42
INVESCO VIF Total Return 11.45% N/A 13.22% 2.59
</TABLE>

19
<PAGE>
DESCRIPTION OF THE COMPANY, THE GROUP VEL ACCOUNT, ALLMERICA
INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS
FUND II, T. ROWE PRICE INTERNATIONAL SERIES, DELAWARE GROUP PREMIUM FUND, INC.,
AND INVESCO VARIABLE INVESTMENT FUNDS, INC.

THE COMPANY

The Company, organized under the laws of Massachusetts in 1844, is the fifth
oldest life insurance company in America. Effective October 16, 1995, the
Company converted from a mutual life insurance company known as State Mutual
Life Assurance Company of America to a stock life insurance company and adopted
its present name. The Company is a wholly-owned subsidiary of Allmerica
Financial Corporation ("AFC"). The Company's principal office is located at 440
Lincoln Street, Worcester, Massachusetts 01653, telephone 508-855-1000
("Principal Office").

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

THE GROUP VEL ACCOUNT

The Group VEL Account was authorized by vote of the Board of Directors of the
Company on June 13, 1996. The Group VEL Account is registered with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). Such registration does
not involve the supervision of its management or investment practices or
policies of the Group VEL Account or the Company by the Commission.

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

ALLMERICA INVESTMENT TRUST

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

The Trust was established as a Massachusetts business trust on October 11, 1984,
for the purpose of providing a vehicle for the investment of assets of various
separate accounts established by First Allmerica, the Company, or other
affiliated insurance companies. Eleven investment portfolios of the Trust
("Funds") are available under the Certificates, each issuing a series of shares:
the Growth Fund, Investment Grade Income Fund, Money Market Fund, Equity Index
Fund, Government Bond Fund, Select International Equity Fund, Select Aggressive
Growth Fund, Select Capital Appreciation Fund, Select Growth Fund, Select Growth
and Income Fund and Small-Mid Cap Value Fund. The assets of each Fund are held
separate from the assets of the other Funds. Each Fund operates as a separate
investment vehicle and the income or losses of one Fund generally have no effect
on the investment performance of another Fund. Shares of the Trust are not
offered to the general public but solely to such separate accounts.

20
<PAGE>
Allmerica Investment serves as investment adviser of the Trust and has entered
into sub-advisory agreements with other investment managers ("Sub-Advisers") who
manage the investments of the Funds. See "INVESTMENT ADVISORY SERVICES TO THE
TRUST."

VARIABLE INSURANCE PRODUCTS FUND

Variable Insurance Products Fund ("Fidelity VIP"), managed by Fidelity
Management & Research Company ("FMR"), is an open-end, diversified, management
investment company organized as a Massachusetts business trust on November 13,
1981 and registered with the Commission under the 1940 Act. Four of its
investment portfolios are available under the Certificates: the Fidelity VIP
High Income Portfolio, Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth
Portfolio and Fidelity VIP Overseas Portfolio.

Various Fidelity companies perform certain activities required to operate
Fidelity VIP. FMR is one of America's largest investment management
organizations and has its principal business address at 82 Devonshire Street,
Boston MA. It is composed of a number of different companies, which provide a
variety of financial services and products. FMR is the original Fidelity
company, founded in 1946. It provides a number of mutual funds and other clients
with investment research and portfolio management services. The Portfolios of
Fidelity VIP as part of their operating expenses pay an investment management
fee to FMR. See "INVESTMENT ADVISORY SERVICES TO FIDELITY VIP AND FIDELITY VIP
II."

VARIABLE INSURANCE PRODUCTS FUND II

Variable Insurance Products Fund II ("Fidelity VIP II"), managed by FMR (see
"INVESTMENT ADVISORY SERVICES TO FIDELITY VIP AND FIDELITY VIP II"), is an
open-end, diversified, management investment company organized as a
Massachusetts business trust on March 21, 1988 and registered with the
Commission under the 1940 Act. One of its investment portfolios is available
under the
Certificates: the Fidelity VIP II Asset Manager Portfolio.

T. ROWE PRICE INTERNATIONAL SERIES, INC.

T. Rowe Price International Series, Inc. ("T. Rowe Price"), managed by Rowe
Price-Fleming International, Inc. ("Price-Fleming") (See "INVESTMENT ADVISORY
SERVICES TO T. ROWE PRICE"), is an open-end, diversified, management investment
company organized as a Maryland corporation in 1994 and registered with the
Commission under the 1940 Act. One of its investment portfolios is available
under the Certificates: the T. Rowe Price International Stock Portfolio.

DELAWARE GROUP PREMIUM FUND, INC.

Delaware Group Premium Fund, Inc. ("DGPF") is an open-end, diversified,
management investment company registered with the Commission under the 1940 Act.
DGPF was established to provide a vehicle for the investment of assets of
various separate accounts supporting variable insurance policies. One investment
portfolio ("Series") is available under the Certificates, the International
Equity Series. The investment adviser for the International Equity Series is
Delaware International Advisers Ltd. ("Delaware International"). See "INVESTMENT
ADVISORY SERVICES TO DGPF."

INVESCO VARIABLE INVESTMENT FUNDS, INC.

INVESCO Variable Investment Funds, Inc. ("INVESCO VIF") is an open-end,
diversified, management investment company that was organized as a Maryland
Corporation on August 19, 1993 and is registered with the Commission under the
1940 Act. INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser of the
Industrial Income Fund and the Total Return Fund, the only Funds of INVESCO VIF
that are available under the Certificates. These two Funds are available only to
employees of INVESCO and its affiliates.

21
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

A summary of investment objectives of each of the Underlying Funds is set forth
below. The Underlying Funds are listed by general investment risk
characteristics. MORE DETAILED INFORMATION REGARDING THE INVESTMENT OBJECTIVES,
RESTRICTIONS AND RISKS, EXPENSES PAID BY THE UNDERLYING FUNDS AND OTHER RELEVANT
INFORMATION REGARDING THE UNDERLYING INVESTMENT COMPANIES MAY BE FOUND IN THEIR
RESPECTIVE PROSPECTUSES, WHICH ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING. The statements of additional information of the
Underlying Funds are available upon request. There can be no assurance that the
investment objectives of the Underlying Funds can be achieved.

SELECT INTERNATIONAL EQUITY FUND -- The Select International Equity Fund of the
Trust seeks maximum long-term total return (capital appreciation and income)
primarily by investing in common stocks of established non-U.S. companies.

DGPF INTERNATIONAL EQUITY SERIES -- The International Equity Series of DGPF
seeks long-term growth without undue risk to principal by investing primarily in
equity securities of foreign issuers providing the potential for capital
appreciation and income.

FIDELITY VIP OVERSEAS PORTFOLIO -- The Overseas Portfolio of Fidelity VIP seeks
long-term growth of capital primarily through investments in foreign securities
and provides a means for aggressive investors to diversify their own portfolios
by participating in companies and economies outside of the United States.

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

SELECT AGGRESSIVE GROWTH FUND -- The Select Aggressive Growth Fund of the Trust
seeks above-average capital appreciation by investing primarily in common stocks
of companies which are believed to have significant potential for capital
appreciation.

SELECT CAPITAL APPRECIATION FUND -- The Select Capital Appreciation Fund of the
Trust seeks long-term growth of capital in a manner consistent with the
preservation of capital. Realization of income is not a significant investment
consideration and any income realized on the Fund's investments will be
incidental to its primary objective. The Fund invests primarily in common stock
of industries and companies which are believed to be experiencing favorable
demand for their products and services, and which operate in a favorable
competitive environment and regulatory climate.

SMALL-MID CAP VALUE FUND -- The Small-Mid Cap Value Fund of the Trust seeks
long-term growth by investing principally in a diversified portfolio of common
stocks of small and mid-size companies whose securities at the time of purchase
are considered by the Sub-Adviser to be undervalued.

SELECT GROWTH FUND -- The Select Growth Fund of the Trust seeks to achieve
long-term growth of capital by investing in a diversified portfolio consisting
primarily of common stocks selected on the basis of their long-term growth
potential.

GROWTH FUND -- The Growth Fund of the Trust is invested in common stocks and
securities convertible into common stocks that are believed to represent
significant underlying value in relation to current market prices. The objective
of the Growth Fund is to achieve long-term growth of capital. Realization of
current investment income, if any, is incidental to this objective.

FIDELITY VIP GROWTH PORTFOLIO -- The Growth Portfolio of Fidelity VIP seeks to
achieve capital appreciation. The Portfolio normally purchases common stocks,
although its investments are not restricted to any one type of security. Capital
appreciation also may be found in other types of securities, including bonds and
preferred stocks.

EQUITY INDEX FUND -- The Equity Index Fund of the Trust seeks to provide
investment results that correspond to the aggregate price and yield performance
of a representative selection of United States

22
<PAGE>
publicly traded common stocks. The Equity Index Fund seeks to achieve its
objective by attempting to replicate the aggregate price and yield performance
of the Standard & Poor's Composite Index of 500 Stocks. Select Growth and Income
Fund -- The Select Growth and Income Fund seeks a combination of long-term
growth of capital and current income. The Fund will invest primarily in
dividend-paying common stocks and securities convertible into common stocks.

FIDELITY VIP EQUITY-INCOME PORTFOLIO -- The Equity-Income Portfolio of Fidelity
VIP seeks reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Portfolio also will consider the
potential for capital appreciation. The Portfolio's goal is to achieve a yield
which exceeds the composite yield on the securities comprising the S&P 500.

FIDELITY VIP II ASSET MANAGER PORTFOLIO -- The Asset Manager Portfolio of
Fidelity VIP II seeks high total return with reduced risk over the long term by
allocating its assets among domestic and foreign stocks, bonds and short-term
fixed-income instruments.

FIDELITY VIP HIGH INCOME PORTFOLIO -- The High Income Portfolio of Fidelity VIP
seeks to obtain a high level of current income by investing primarily in
high-yielding, lower-rated fixed-income securities (commonly referred to as
"junk bonds"), while also considering growth of capital. These securities often
are considered to be speculative, and involve greater risk of default or price
changes than securities assigned a high quality rating. See the Fidelity VIP
prospectus.

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

GOVERNMENT BOND FUND -- The Government Bond Fund of the Trust has the investment
objectives of seeking high income, preservation of capital and maintenance of
liquidity, primarily through investments in debt instruments issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, and in
related options, futures and repurchase agreements.

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

THE FOLLOWING FUNDS ARE AVAILABLE ONLY TO EMPLOYEES OF INVESCO AND ITS
AFFILIATES:

INDUSTRIAL INCOME FUND OF INVESCO VIF -- The Industrial Income Fund VIF seeks
the best possible current income while following sound investment practices.
Capital growth potential is an additional but secondary consideration in the
selection of portfolio securities. The Industrial Income Fund Seeks to achieve
its objective by investing in securities which will provide a relatively high
yield and stable return and which, over a period of years, may also provide
capital appreciation.

TOTAL RETURN FUND OF INVESCO VIF -- The Total Return Fund of INVESCO VIF seeks a
high total return on investment through capital appreciation and current income
by investing in a combination of equity securities (consisting of common stocks
and, to a lesser degree, securities convertible into common stock) and fixed
income securities.

CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR TO
THOSE OF CERTAIN OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE SUB-ACCOUNTS
WHICH WILL BEST MEET YOUR NEEDS AND OBJECTIVES, CAREFULLY READ THE PROSPECTUSES
OF THE TRUST, FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE, DGPF, AND INVESCO
VIF ALONG WITH THIS PROSPECTUS. IN SOME STATES, INSURANCE REGULATIONS MAY
RESTRICT THE AVAILABILITY OF PARTICULAR SUB-ACCOUNTS.

23
<PAGE>
If required in your state, in the event of a material change in the investment
policy of a Sub-Account or the Underlying Fund in which it invests, you will be
notified of the change. If you have Certificate Value in that Sub-Account, the
Company will transfer it without charge on written request by you to another
Sub-Account or to the General Account. The Company must receive your written
request within sixty (60) days of the later of (1) the effective date of such
change in the investment policy or (2) the receipt of the notice of your right
to transfer. You may then change your premium and deduction allocation
percentages.

INVESTMENT ADVISORY SERVICES

INVESTMENT ADVISORY SERVICES TO THE TRUST

The overall responsibility for the supervision of the affairs of the Trust vests
in the Trustees. The Trust has entered into a Management Agreement with
Allmerica Investment Management Company Inc. ("Allmerica Investment"), an
indirect wholly-owned subsidiary of First Allmerica, to handle the day-to-day
affairs of the Trust. Allmerica Investment, subject to review by the Trustees,
is responsible for the general management of the Funds. Allmerica Investment
also performs certain administrative and management services for the Trust,
furnishes to the Trust all necessary office space, facilities, and equipment,
and pays the compensation, if any, of officers and Trustees who are affiliated
with Allmerica Investment.

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

Pursuant to the Management Agreement with the Trust, Allmerica Investment has
entered into agreements ("Sub-Adviser Agreements") with other investment
advisers ("Sub-Advisers") under which each Sub-Adviser manages the investments
of one or more of the Funds. Under the Sub-Adviser Agreement, the Sub-Adviser is
authorized to engage in portfolio transactions on behalf of the applicable Fund,
subject to such general or specific instructions as may be given by the
Trustees. The terms of a Sub-Adviser Agreement cannot be materially changed
without the approval of a majority in interest of the shareholders of the
affected Fund.

24
<PAGE>
For providing its services under the Management Agreement, Allmerica Investment
will receive a fee, computed daily at an annual rate based on the average daily
net asset value of each Fund as follows:

<TABLE>
<S> <C> <C>
Select International Equity Fund * 1.00%

Select Aggressive Growth Fund * 1.00%

Select Capital Appreciation Fund * 1.00%

Small-Mid Cap Value Fund First $100 million 1.00%
$100 - 250 million 0.85%
$250 - $500 million 0.80%
$500 - $750 million 0.75%
Over $750 million 0.70%

Select Growth Fund * 0.85%

Growth Fund First $50 million 0.60%
$50 - 250 million 0.50%
Over $250 million 0.35%

Equity Index Fund First $50 million 0.35%
$50 - 250 million 0.30%
Over $250 million 0.25%

Select Growth and Income Fund * 0.75%

Investment Grade Income Fund First $50 million 0.50%
$50 - 250 million 0.35%
Over $250 million 0.25%

Government Bond Fund * 0.50%

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

*For the Government Bond Fund, Select International Equity Fund, Select
Aggressive Growth Fund, Select Capital Appreciation Fund, Select Growth Fund,
and Select Growth and Income Fund, each rate applicable to Allmerica Investment
does not vary according to the level of assets in the Fund.

Allmerica Investment's fee computed for each Fund will be paid from the assets
of such Fund. Allmerica Investment is solely responsible for the payment of all
fees for investment management services to the Sub-Advisers, who will receive
from Allmerica Investment a fee, computed daily at an annual rate based on the
average daily net asset value of each Fund as follows:

25
<PAGE>

<TABLE>
<CAPTION>
Sub-Adviser Fund Net Asset Value Rate
- -------------------------------------------------- --------------------------------- -------------------- ------

<S> <C> <C> <C>
Bank of Ireland Asset Management (U.S.) Limited Select International Equity Fund First $50 million 0.45%
Next $50 million 0.40%
Over $100 million 0.30%

Nicholas-Applegate Capital Management, L.P. Select Aggressive Growth Fund ** 0.60%

Janus Capital Corporation Select Capital Appreciation Fund First $100 million 0.60%
Over $100 million 0.55%

CRM Advisors, LLC Small-Mid Cap Value Fund First $100 million 0.60%
$100 - 250 million 0.50%
$250 - $500 million 0.40%
$500 - $750 million 0.375%
Over $750 million 0.35%

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

Miller, Anderson & Sherrerd, LLP Growth Fund * *

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

John A. Levin & Co., Inc. Select Growth and Income Fund First $100 million 0.40%
Next $200 million 0.25%
Over $300 million 0.30%

Allmerica Asset Management, Inc. Investment Grade Income Fund ** 0.20%

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

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

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

*Allmerica Investment will pay a fee to Miller, Anderson & Sherrerd, LLP based
on the aggregate assets of the Growth Fund and certain other accounts of First
Allmerica and its affiliates (collectively, the "Affiliated Accounts") which
are managed by Miller, Anderson & Sherrerd LLP, under the following schedule:

<TABLE>
<CAPTION>
Aggregate Average Net
Assets Rate
- --------------------------- ---------
<S> <C>
First $50 million 0.500%
$50 - 100 million 0.375%
$100 - 500 million 0.250%
$500 - 850 million 0.200%
Over $850 million 0.150%
</TABLE>

**For the Investment Grade Income Fund, Money Market Fund, Equity Index Fund,
Government Bond Fund, and Select Aggressive Growth Fund, each rate applicable
to the Sub-Advisers does not vary according to the level of assets in the
Fund.

26
<PAGE>
The Prospectus of the Trust contains additional information concerning the
Funds, including information concerning additional expenses paid by the Funds,
and should be read in conjunction with this Prospectus.

INVESTMENT ADVISORY SERVICES TO FIDELITY VIP AND FIDELITY VIP II

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

The Fidelity VIP High Income Portfolio pays a monthly fee to FMR at an annual
fee rate made up of the sum of two components:

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

2. An individual fund fee rate of 0.45% of the Fidelity VIP High Income
Portfolio's average net assets throughout the month. One-twelfth of the
annual management fee rate is applied to net assets averaged over the most
recent month, resulting in a dollar amount which is the management fee for
that month.

The Fidelity VIP Equity-Income, Fidelity VIP Growth, Fidelity VIP Overseas and
the Fidelity VIP II Asset Manager Portfolios' fee rates are each made of two
components:

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

2. An individual Portfolio fee rate of 0.20% for the Fidelity VIP Equity-Income
Portfolio, 0.30% for the Fidelity VIP Growth Portfolio, 0.45% for the
Fidelity VIP Overseas Portfolio and 0.25% for the Fidelity VIP II Asset
Manager Portfolio.

One-twelfth of the sum of these two rates is applied to the respective
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month.

Thus, the Fidelity VIP High Income Portfolio may have a fee of as high as 0.82%
of its average net assets. The Fidelity VIP Equity-Income Portfolio may have a
fee of as high as 0.72% of its average net assets. The Fidelity VIP Growth
Portfolio may have a fee of as high as 0.82% of its average net assets. The
Fidelity VIP Overseas Portfolio may have a fee of as high as 0.97% of its
average net assets. The Fidelity VIP II Asset Manager Portfolio may have a fee
of as high as 0.77% of its average net assets. The actual fee rate may be less
depending on the total assets in the funds advised by FMR.

INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE

The Investment Adviser for the T. Rowe Price International Stock Portfolio is
Rowe Price-Fleming International, Inc. ("Price-Fleming"). Price-Fleming, founded
in 1979 as a joint venture between T. Rowe Price Associates, Inc. and Robert
Fleming Holdings, Limited, is one of America's largest international mutual fund
asset managers with approximately $25 billion under management in its offices in
Baltimore, London, Tokyo and Hong Kong. To cover investment management and
operating expenses, the T. Rowe Price International Stock Portfolio pays
Price-Fleming a single, all-inclusive fee of 1.05% of its average daily net
assets.

INVESTMENT ADVISORY SERVICES TO DGPF

Each Series of DGPF pays an investment adviser an annual fee for managing the
portfolios and making the investment decisions for the Series. The investment
adviser for the International Equity Series is Delaware International Advisers
Ltd. ("Delaware International"). The annual fee paid by the International Equity
Series to Delaware International is equal to 0.75% of the average daily net
assets of the Series.

27
<PAGE>
INVESTMENT ADVISORY SERVICES TO INVESCO VIF

INVESCO FUNDS GROUP, INC. ("INVESCO") is the investment adviser for INVESCO VIF,
and is primarily responsible for providing various administration services and
supervising daily business affairs. INVESCO Trust Company serves as sub-adviser
to the Industrial Income Fund. INVESCO Capital Management, Inc. serves as
sub-adviser to the Total Return Fund.

The Industrial Income Fund and the Total Return Fund each pay INVESCO a monthly
fee equal to 0.75% annually of the first $500 million of the Fund's average
daily net assets; 0.65% of the next $500 million of the Fund's average net
assets and 0.55% of the Fund's average net assets in excess of $1 billion. The
Prospectus of INVESCO VIF contains additional information concerning other
expenses paid by the Funds.

ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS

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

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

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

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

28
<PAGE>
VOTING RIGHTS

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

Each person having a voting interest will be provided with proxy materials of
the respective Underlying Fund together with an appropriate form with which to
give voting instructions to the Company. Shares held in each Sub-Account for
which no timely instructions are received will be voted in proportion to the
instructions received from all persons with an interest in such Sub-Account
furnishing instructions to the Company. The Company will also vote shares held
in the Group VEL Account that it owns and which are not attributable to
Certificates in the same proportion.

The number of votes which a Certificate Owner has the right to instruct will be
determined by the Company as of the record date established for the Underlying
Fund. This number is determined by dividing each Certificate Owner's Certificate
Value in the Sub-Account, if any, by the net asset value of one share in the
corresponding Underlying Fund in which the assets of the Sub-Account are
invested.

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

THE CERTIFICATE

ENROLLMENT FORM FOR A CERTIFICATE

Upon receipt at its Principal Office of a completed enrollment form from a
prospective Certificate Owner, the Company will follow certain insurance
underwriting procedures designed to determine whether the proposed Insured is
insurable. This process may involve such verification procedures as medical
examinations and may require that further information be provided by the
proposed Certificate Owner before a determination of insurability can be made. A
Certificate cannot be issued until this underwriting procedure has been
completed. The Company reserves the right to reject an enrollment form which
does not meet the Company's underwriting guidelines, but in underwriting
insurance, the Company shall comply with all applicable federal and state
prohibitions concerning unfair discrimination.

29
<PAGE>
Pending completion of insurance underwriting and Certificate issuance
procedures, any initial premiums will be held in the Company's General Account.
If the enrollment form is approved and the Certificate is issued and accepted,
the initial premium held in the General Account will be credited with interest
not later than the date of receipt of the premium at the Company's Principal
Office. IF A CERTIFICATE IS NOT ISSUED, THE PREMIUMS WILL BE RETURNED TO YOU
WITHOUT INTEREST.

If your Certificate provides for a full refund of the initial payment under its
"Right to Examine Certificate" provision as required in your state, all
Certificate Value in the General Account that you initially designated to go to
the Sub-Accounts will be transferred to the Sub-Account investing in the Money
Market Fund of the Trust upon Issuance and Acceptance of the Certificate. All
Certificate Value will be allocated as you have chosen not later than the
expiration of the period during which you may exercise the "Right to Examine
Certificate" provision. If the "Payor Provision" is in effect, (see "CERTIFICATE
TERMINATION AND REINSTATEMENT -- Payor Provisions") Payor premiums which are not
"excess premiums" will be transferred to the Monthly Deduction Sub-Account not
later than 3 days after underwriting approval of the Certificate.

FREE LOOK PERIOD

The Certificate provides for an initial Free Look Period. You may cancel the
Certificate by mailing or delivering it to the Principal Office or to an agent
of the Company on or before the latest of (a) 45 days after the enrollment form
for the Certificate is signed, (b) 10 days (20 or 30 days if required in your
state) after you receive the Certificate, or (c) 10 days after the Company mails
or personally delivers a Notice of Withdrawal Rights to you.

When you return the Certificate, the Company will mail within seven days a
refund. (The refund of any premium paid by check may be delayed until the check
has cleared your bank.) If your Certificate provides for a full refund of the
initial premium under its "Right to Examine Certificate" provision as required
in your state, your refund will be the greater of (a) your entire premium or (b)
the Certificate Value plus deductions under the Certificate or by the Underlying
Funds for taxes, charges or fees. If your Certificate does not provide for a
full refund of the initial premium, you will receive the Certificate Value in
the Group VEL Account, plus premiums paid, including fees and charges, minus the
amounts allocated to the Group VEL Account, plus the fees and charges imposed on
amounts in the Group VEL Account.

After an increase in Face Amount, a right to cancel the increase also applies.
The Company will mail or personally deliver a notice of a "Free Look" with
respect to the increase. You will have the right to cancel the increase before
the latest of (a) 45 days after the enrollment form for the increase is signed,
(b) 10 days after you receive the new specification pages issued for the
increase, or (c) 10 days (20 or 30 days if required in your state) after the
Company mails or delivers a notice of withdrawal rights to you. Upon canceling
the increase, you will receive a credit to your Certificate Value of charges
which would not have been deducted but for the increase. The amount to be
credited will be refunded if you so request. The Company will also waive any
surrender charge calculated for the increase.

CONVERSION PRIVILEGES

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

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<PAGE>
Where required by state law, and at your request, the Company will issue a
flexible premium adjustable life insurance policy to you. The new policy will
have the same face amount, issue ages, dates of issue, and risk classifications
as the original Certificate.

PREMIUM PAYMENTS

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

You may establish a schedule of planned premiums which will be billed by the
Company at regular intervals. Failure to pay planned premiums, however, will not
itself cause the Certificate to lapse. You may also make unscheduled premium
payments at any time prior to the Final Premium Payment Date or skip planned
premium payments, subject to the maximum and minimum premium limitations
described below. Therefore, unlike conventional insurance policies, a
Certificate does not obligate you to pay premiums in accordance with a rigid and
inflexible premium schedule.

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

Premiums are not limited as to frequency and number. However, no premium payment
may be less than $100 without the Company's consent. Moreover, premium payments
must be sufficient to cover the next Monthly Deduction plus loan interest
accrued, or the Certificate may lapse. See "CERTIFICATE TERMINATION AND
REINSTATEMENT."

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

ALLOCATION OF NET PREMIUMS

The Net Premium equals the premium paid less any premium expense charge. In the
enrollment form for a Certificate, you indicate the initial allocation of Net
Premiums among the General Account and the Sub-Accounts of the Group VEL
Account. You may allocate premiums to one or more Sub-Accounts, but may not have
Certificate Value in more than seven Sub-Accounts at any one time. The minimum
amount which may be allocated to a Sub-Account is 1% of Net Premium paid.
Allocation percentages must be in whole numbers (for example, 33 1/3% may not be
chosen) and must total 100%. You may change the allocation of future Net
Premiums at any time pursuant to written or telephone request. If allocation
changes by telephone are elected by the Certificate Owner, a properly completed
authorization form must be on file before telephone requests will be honored.
The policy of the Company and its agents and affiliates is that they will not be
responsible for losses resulting from acting upon telephone requests reasonably
believed to be genuine. The Company will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine; otherwise, the Company
may be liable for any losses due to unauthorized or fraudulent instructions. The
procedures the Company follows for transactions initiated by telephone include
requirements that callers on behalf of a Certificate Owner identify themselves
by name and identify the Certificate Owner by name, date of birth and social
security number. All transfer instructions

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<PAGE>
by telephone are tape recorded. An allocation change will be effective as of the
date of receipt of the notice at the Principal Office. No charge is currently
imposed for changing premium allocation instructions. The Company reserves the
right to impose such a charge in the future, but guarantees that the charge will
not exceed $25.

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

TRANSFER PRIVILEGE

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

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

Transfers involving the General Account are currently permitted only if:

(a) There has been at least a ninety (90) day period since the last transfer
from the General Account; and

(b) The amount transferred from the General Account in each transfer does not
exceed the lesser of 100,000 or 25% of the Accumulated Value under the
Certificate.

These rules are subject to change by the Company.

DOLLAR COST AVERAGING AND AUTOMATIC REBALANCING OPTIONS

You may have automatic transfers of at least $100 each made on a periodic basis
(a) from the Sub-Accounts which invests in the Money Market Fund and Government
Bond Fund of the Trust to one or more of the other Sub-Accounts ("Dollar Cost
Averaging Option") or (b) to automatically reallocate Certificate value among
the Sub-Accounts ("Automatic Rebalancing Option"). Automatic transfers may be
made on a monthly, bimonthly, quarterly, semiannual or annual schedule.
Generally, all transfers will be processed on the 15th of each scheduled month.
However, if the 15th is not a business day or is the Monthly Processing Date,
the automatic transfer will be processed on the next business day. The Dollar
Cost Averaging Option and the Automatic Rebalancing Option may not be in effect
at the same time.

The transfer privilege is subject to the consent of the Company. The Company
reserves the right to impose limitations on transfers including, but not limited
to: (1) the minimum amount that may be transferred, (2) the minimum amount that
may remain in a Sub-Account following a transfer from that Sub-Account, (3) the
minimum period of time between transfers involving the General Account, and (4)
the maximum amount that may be transferred each time from the General Account.

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

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<PAGE>
ELECTION OF DEATH BENEFIT OPTIONS

Federal tax law requires a minimum death benefit in relation to cash value for a
Certificate to qualify as life insurance. Under current Federal tax law, either
the Guideline Premium test or the Cash Value Accumulation test can be used to
determine if a Certificate complies with the definition of "life insurance" in
Section 7702 of the Code. At the time of application, the Employer may elect
either of the tests.

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

GUIDELINE PREMIUM TEST AND CASH VALUE ACCUMULATION TEST

There are two main differences between the Guideline Premium test and the Cash
Value Accumulation test. First, the Guideline Premium test limits the amount of
premium that may be paid into a Certificate, while no such limits apply under
the Cash Value Accumulation test. Second, the factors that determine the minimum
Death Benefit relative to the Certificate Value are different. Required
increases in the minimum Death Benefit due to growth in Certificate Value will
generally be greater under the Cash Value Accumulation test than under the
Guideline Premium test. APPLICANTS FOR A POLICY SHOULD CONSULT A QUALIFIED TAX
ADVISER IN CHOOSING A DEATH BENEFIT ELECTION.

OPTION 1 -- LEVEL DEATH BENEFIT

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

OPTION 2 -- ADJUSTABLE DEATH BENEFIT

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

OPTION 3 -- LEVEL DEATH BENEFIT WITH CASH VALUE ACCUMULATION TEST

Under Option 3, the Death Benefit will equal the Face Amount, unless the
Certificate Value, multiplied by the applicable Option 3 Death Benefit Factor,
gives a higher Death Benefit. A complete list of Option 3 Death Benefit Factors
is set forth in the Certificate. The applicable Death Benefit Factor depends
upon the sex, risk classification, and then-attained age of the insured. The
Death Benefit Factor decreases slightly from year to year as the attained age of
the insured increases. Option 3 will offer the best opportunity for the
Certificate Owner who is looking for an increasing death benefit in later
Certificate years and/or would like to fund the Certificate at the "7-pay" limit
for the full seven years. When the Certificate Value multiplied by the
applicable Death Benefit Factor exceeds the Face Amount, the death benefit will
increase whenever there is an increase in the Certificate Value and will
decrease whenever

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<PAGE>
there is a decrease in the Certificate Level, but will never go below the Face
Amount. OPTION 3 MAY NOT BE AVAILABLE IN ALL STATES.

DEATH PROCEEDS

As long as the Certificate remains in force (see "CERTIFICATE TERMINATION AND
REINSTATEMENT"), the Company will, upon due proof of the Insured's death, pay
the Death Proceeds of the Certificate to the named Beneficiary. The Company will
normally pay the Death Proceeds within seven days of receiving due proof of the
Insured's death, but the Company may delay payments under certain circumstances.
See "OTHER CERTIFICATE PROVISIONS -- Postponement of Payments." The Death
Proceeds may be received by the Beneficiary in a lump sum or under one or more
of the payment options the Company offers. See "APPENDIX B -- PAYMENT OPTIONS."
The Death Proceeds payable depends on the current Face Amount and the Death
Benefit Option that is in effect on the date of death. Prior to the Final
Premium Payment Date, the Death Proceeds are: (a) The Death Benefit provided
under Option 1, Option 2, or Option 3, whichever is in effect on the date of
death; plus (b) any additional insurance on the Insured's life that is provided
by rider; minus (c) any outstanding Debt, any partial withdrawals and partial
withdrawal charges, and any Monthly Deductions due and unpaid through the
Certificate month in which the Insured dies. After the Final Premium Payment
Date, the Death Proceeds equal the surrender Value of the Certificate. The
amount of Death Proceeds payable will be determined as of the date of the
Company's receipt of due proof of the Insured's death.

MORE INFORMATION ABOUT DEATH BENEFIT OPTIONS 1 AND 2

If the Guideline Premium Test is chosen by the Employer, the Certificate Owner
may choose between Death Benefit Option 1 or Option 2. The Certificate Owner may
designate the desired Death Benefit Option in the enrollment form, and may
change the option once per Certificate year by written request. There is no
charge for a change in option.

MINIMUM DEATH BENEFIT UNDER OPTION 1 AND OPTION 2

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

MINIMUM DEATH BENEFIT TABLE
(OPTION 1 AND OPTION 2)

<TABLE>
<CAPTION>
Age of Insured Percentage of
on Date of Death Certificate Value
- ---------------------------------------------- -----------------
<S> <C>
40 and under.............................. 250%
45........................................ 215%
50........................................ 185%
55........................................ 150%
60........................................ 130%
65........................................ 120%
70........................................ 115%
75........................................ 105%
80........................................ 105%
85........................................ 105%
90........................................ 105%
95 and above.............................. 100%
</TABLE>

For the Ages not listed, the progression between the listed Ages is linear.

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<PAGE>
For any Face Amount, the amount of the Death Benefit and thus the Death Proceeds
will be greater under Option 2 than under Option 1, since the Certificate Value
is added to the specified Face Amount and included in the Death Proceeds only
under Option 2. However, the cost of insurance included in the Monthly Deduction
will be greater, and thus the rate at which Certificate Value will accumulate
will be slower, under Option 2 than under Option 1. See "CHARGES AND DEDUCTIONS
- -- Monthly Deduction From Certificate Value."

If you desire to have premium payments and investment performance reflected in
the amount of the Death Benefit, you should choose Option 2. If you desire
premium payments and investment performance reflected to the maximum extent in
the Certificate Value, you should select Option 1.

ILLUSTRATION OF OPTION 1 -- For purposes of this illustration, assume that the
Insured is under the Age of 40, and that there is no outstanding Debt. Under
Option 1, a Certificate with a $50,000 Face Amount will generally have a Death
Benefit equal to $50,000. However, because the Death Benefit must be equal to or
greater than 250% of Certificate Value, if at any time the Certificate Value
exceeds $20,000, the Death Benefit will exceed the $50,000 Face Amount. In this
example, each additional dollar of Certificate Value above $20,000 will increase
the Death Benefit by $2.50. For example, a Certificate with a Certificate Value
of $35,000 will have a Minimum Death Benefit of $87,500 ($35,000 x 2.50);
Certificate Value of $40,000 will produce a Minimum Death Benefit of $100,000
($40,000 x 2.50); and Certificate Value of $50,000 will produce a Minimum Death
Benefit of $125,000 ($50,000 x 2.50).

Similarly, so long as Certificate Value exceeds $20,000, each dollar taken out
of Certificate Value will reduce the Death Benefit by $2.50. If, for example,
the Certificate Value is reduced from $25,000 to $20,000 because of partial
withdrawals, charges or negative investment performance, the Death Benefit will
be reduced from $62,500 to $50,000. If at any time, however, the Certificate
Value multiplied by the applicable percentage is less than the Face Amount, the
Death Benefit will equal the Face Amount of the Certificate.

The applicable percentage becomes lower as the Insured's Age increases. If the
Insured's Age in the above example were, for example, 50 (rather than between 0
and 40), the applicable percentage would be 185%. The Death Benefit would not
exceed the $50,000 Face Amount unless the Certificate Value exceeded $27,027
(rather than $20,000), and each dollar then added to or taken from Certificate
Value would change the Death Benefit by $1.85.

ILLUSTRATION OF OPTION 2 -- For purposes of this illustration, assume that the
Insured is under the Age of 40 and that there is no outstanding Debt.

Under Option 2, a Certificate with a Face Amount of $50,000 will generally
produce a Death Benefit of $50,000 plus Certificate Value. For example, a
Certificate with Certificate Value of $5,000 will produce a Death Benefit of
$55,000 ($50,000 + $5,000); Certificate Value of $10,000 will produce a Death
Benefit of $60,000 ($50,000 + $10,000); Certificate Value of $25,000 will
produce a Death Benefit of $75,000 ($50,000 + $25,000). However, the Death
Benefit must be at least 250% of the Certificate Value. Therefore, if the
Certificate Value is greater than $33,333, 250% of that amount will be the Death
Benefit, which will be greater than the Face Amount plus Certificate Value. In
this example, each additional dollar of Certificate Value above $33,333 will
increase the Death Benefit by $2.50. For example, if the Certificate Value is
$35,000, the Minimum Death Benefit will be $87,500 ($35,000 x 2.50); Certificate
Value of $40,000 will produce a Minimum Death Benefit of $100,000 ($40,000 x
2.50); and Certificate Value of $50,000 will produce a Minimum Death Benefit of
$125,000 ($50,000 x 2.50).

Similarly, if Certificate Value exceeds $33,333, each dollar taken out of
Certificate Value will reduce the Death Benefit by $2.50. If, for example, the
Certificate Value is reduced from $45,000 to $40,000 because of partial
withdrawals, charges or negative investment performance, the Death Benefit will
be reduced from $112,500 to $100,000. If at any time, however, Certificate Value
multiplied by the applicable percentage is less than the Face Amount plus
Certificate Value, then the Death Benefit will be the current Face Amount plus
Certificate Value.

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<PAGE>
The applicable percentage becomes lower as the Insured's Age increases. If the
Insured's Age in the above example were 50, the Death Benefit must be at least
1.85 times the Certificate Value. The amount of the Death Benefit would be the
sum of the Certificate Value plus $50,000 unless the Certificate Value exceeded
$58,824 (rather than $33,333). Each dollar added to or subtracted from the
Certificate would change the Death Benefit by $1.85.

The Death Benefit under Option 2 will always be the greater of the Face Amount
plus Certificate Value or the Certificate Value multiplied by the applicable
percentage.

CHANGE IN DEATH BENEFIT OPTION

Generally, if Death Benefit Option 1 or Option 2 is in effect, the Death Benefit
Option in effect may be changed once each Certificate year by sending a written
request for change to the Principal Office. Changing Death Benefit Options will
not require Evidence of Insurability. The effective date of any such change will
be the Monthly Processing Date on or following the date of receipt of the
request. No charges will be imposed on changes in Death Benefit Options. IF
OPTION 3 IS IN EFFECT, YOU MAY NOT CHANGE TO EITHER OPTION 1 OR OPTION 2.

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

If the Death Benefit Option is changed from Option 1 to Option 2, the Face
Amount will be decreased to equal the Death Benefit less the Certificate Value
on the effective date of the change. This change may not be made if it would
result in a Face Amount less than $40,000. A change from Option 1 to Option 2
will not alter the amount of the Death Benefit at the time of the change, but
will affect the determination of the Death Benefit from that point on. Because
the Certificate Value will be added to the new specified Face Amount, the Death
Benefit will vary with the Certificate Value. Thus, under Option 2, the
Insurance Amount at Risk will always equal the Face Amount unless the Minimum
Death Benefit is in effect. The cost of insurance may also be higher or lower
than it otherwise would have been without the change in Death Benefit Option.
See "CHARGES AND DEDUCTIONS -- Monthly Deduction From Certificate Value."

A change in Death Benefit Option may result in total premiums paid exceeding the
then current maximum premium limitation determined by Internal Revenue Service
Rules. In such event, the Company will pay the excess to the Certificate Owner.
See "THE CERTIFICATE -- Premium Payments."

CHANGE IN FACE AMOUNT

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

36
<PAGE>
INCREASES

Along with the written request for an increase, you must submit satisfactory
Evidence of Insurability. The consent of the Insured is also required whenever
the Face Amount is increased. A request for an increase in Face Amount may not
be less than an amount determined by the Company. This amount varies by group
but in no event will this amount exceed $10,000. You may not increase the Face
Amount after the Insured reaches Age 80. An increase must be accompanied by an
additional premium if the Certificate Value is less than $50 plus an amount
equal to the sum of two Monthly Deductions. On the effective date of each
increase in Face Amount, a transaction charge of $2.50 per $1,000 of increase up
to $40, will be deducted from Certificate Value for administrative costs. The
effective date of the increase will be the first Monthly Processing Date on or
following the date all of the conditions for the increase are met.

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

After increasing the Face Amount, you will have the right (1) during a Free Look
Period, to have the increase canceled and the charges which would not have been
deducted but for the increase will be credited to the Certificate and (2) during
the first 24 months following the increase, to transfer any or all Certificate
Value to the General Account free of charge. See "THE CERTIFICATE -- Free Look
Period -- Conversion Privileges." A refund of charges which would not have been
deducted but for the increase will be made at your request.

DECREASES

The minimum amount for a decrease in Face Amount is $10,000. By current Company
practice, the Face Amount in force after any decrease may not be less than
$50,000. If, following a decrease in Face Amount, the Certificate would not
comply with the maximum premium limitation applicable under the Internal Revenue
Service Rules, the decrease may be limited or Certificate Value may be returned
to the Certificate Owner (at your election) to the extent necessary to meet the
requirements. A return of Certificate Value may result in tax liability to you.

A decrease in the Face Amount will affect the total Insurance Amount at Risk and
the portion of the Insurance Amount at Risk covered by various Underwriting
Classes, both of which may affect a Certificate Owner's monthly cost of
insurance charges. See "CHARGES AND DEDUCTIONS -- Monthly Deduction From
Certificate Value."

For purposes of determining the cost of insurance charge, any decrease in the
Face Amount will reduce the Face Amount in the following order: (a) the Face
Amount provided by the most recent increase; (b) the next most recent increases
successively; and (c) the initial Face Amount. This order will also be used to
determine whether a surrender charge will be deducted and in what amount. If the
Face Amount is decreased while the "Payor Provisions" apply (see "CERTIFICATE
TERMINATION AND REINSTATEMENT -- Termination"), the above order may be modified
to determine the cost of insurance charge. You may then reduce or eliminate any
Face Amount for which you are paying the insurance charges, on a last-in,
first-out basis, before you reduce or eliminate amounts of insurance which are
paid by the Payor.

If you request a decrease in the Face Amount, the amount of any surrender charge
deducted will reduce the current Certificate Value. On the effective date of
each decrease in Face Amount, a transaction charge of $2.50 per $1,000 of
decrease, up to a maximum of $40, will be deducted from Certificate Value for
administrative costs. You may specify one Sub-Account from which the transaction
charge and, if applicable, any surrender charge will be deducted. If you do not
specify a Sub-Account, the Company will make a Pro-Rata Allocation. The current
surrender charge will be reduced by the amount of any surrender charge deducted.
See "CHARGES AND DEDUCTIONS -- Surrender Charge."

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<PAGE>
CERTIFICATE VALUE AND SURRENDER VALUE

The Certificate Value is the total amount available for investment and is equal
to the sum of the accumulation in the General Account and the value of the Units
in the Sub-Accounts. The Certificate Value is used in determining the Surrender
Value (the Certificate Value less any Debt and any surrender charge). See "THE
CERTIFICATE -- Surrender." There is no guaranteed minimum Certificate Value.
Because Certificate Value on any date depends upon a number of variables, it
cannot be predetermined.

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

CALCULATION OF CERTIFICATE VALUE

The Certificate Value is determined on the Date of Issue and on each Valuation
Date. On the Date of Issue, the Certificate Value will be the Net Premiums
received, plus any interest earned during the period when premiums are held in
the General Account (before being transferred to the Group VEL Account; see "THE
CERTIFICATE -- Enrollment Form For a Certificate") less any Monthly Deductions
due. On each Valuation Date after the Date of Issue the Certificate Value will
be:

(1) the sum of the values in each of the Sub-Accounts on the Valuation Date,
determined for each Sub-Account by multiplying the value of a Unit in that
Sub-Account on that date by the number of such Units allocated to the
Certificate; PLUS

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

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

THE UNIT

You allocate the Net Premiums among the Sub-Account(s). Allocations to the
Sub-Accounts are credited to the Certificate in the form of Units. Units are
credited separately for each Sub-Account.

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

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

NET INVESTMENT FACTOR

The net investment factor measures the investment performance of a Sub-Account
of the Group VEL Account during the Valuation Period just ended. The net
investment factor for each Sub-Account is equal to 1.0000 plus the number
arrived at by dividing (a) by (b), where

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

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

The net investment factor may be greater or less than one. Therefore, the value
of a Unit may increase or decrease. You bear the investment risk. Subject to
applicable state and federal laws, the Company reserves the right to change the
methodology used to determine the net investment factor.

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

PAYMENT OPTIONS

During the Insured's lifetime, you may arrange for the Death Proceeds to be paid
in a single sum or under one or more of the payment options then offered by the
Company. These payment options are also available at the Final Premium Payment
Date and if the Certificate is surrendered. If no election is made, the Company
will pay the Death Proceeds in a single sum. See "APPENDIX B -- PAYMENT
OPTIONS."

OPTIONAL INSURANCE BENEFITS

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

SURRENDER

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

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

For important tax considerations which may result from surrender see "FEDERAL
TAX CONSIDERATIONS."

PAID-UP INSURANCE OPTION

On written request, you may elect life insurance coverage, usually for a reduced
amount, for the life of the Insured with no further premiums due. The Paid-Up
Insurance will be the amount, up to the face amount of the Policy, that the
Surrender Value can purchase for a net single premium at the Insured's age and
underwriting class on the date this option is elected. If the surrender value
exceeds the net single premium, we will pay the excess to you. The net single
premium is based on the Commissioners 1980 Standard Ordinary Mortality Tables,
Smoker or Non-Smoker (Table B for unisex policies) with increases in the tables
for non-standard risks. Interest will not be less than 4.5%.

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

- - As described above, the paid-up insurance benefit will be computed differently
from the net death benefit and the death benefit options will not apply

- - We will not allow transfers of Certificate Value from the fixed account back
to the Group VEL Account

- - You may not make further payments

- - You may not increase or decrease the Face Amount or make partial withdrawals

- - Riders will continue only with our consent

You may, after electing Paid-Up Insurance, surrender the Certificate for its net
cash value. The guaranteed cash value is the net single premium for the Paid-Up
Insurance at the Insured's attained age. The net cash value is the cash
valueless any outstanding loan. We will transfer the Certificate Value in the
Group VEL Account to the fixed account on the date we receive written request to
elect the option.

On election of Paid-Up Insurance, the Certificate often will become a modified
endowment contract. If a Certificate becomes a modified endowment contract,
Certificate loans, partial withdrawals or surrender will receive unfavorable
federal tax treatment. See "FEDERAL TAX CONSIDERATIONS -- Modified Endowment
Contracts."

PARTIAL WITHDRAWAL

Any time after the first Certificate year, you may withdraw a portion of the
Surrender Value of your Certificate, subject to the limits stated below, upon
written request filed at the Principal Office. The written request must indicate
the dollar amount you wish to receive and the Accounts from which such amount is
to be withdrawn. You may allocate the amount withdrawn among the Sub-Accounts
and the General Account. If you do not provide allocation instructions the
Company will make a Pro-Rata Allocation. Each partial withdrawal must be in a
minimum amount of $500. Under Option 1 or Option 3, the Face Amount is reduced
by the amount of the partial withdrawal, and a partial withdrawal will not be
allowed if it would reduce the Face Amount below $40,000.

A partial withdrawal from a Sub-Account will result in the cancellation of the
number of Units equivalent in value to the amount withdrawn. The amount
withdrawn equals the amount requested by you plus the transaction charge and any
applicable partial withdrawal charge as described under "CHARGES AND DEDUCTIONS
- -- Charges on Partial Withdrawal." The Company will normally pay the amount of
the partial withdrawal within seven days following the Company's receipt of the
partial withdrawal request, but the Company may delay payment under certain
circumstances described in "OTHER CERTIFICATE PROVISIONS -- Postponement of
Payments." For important tax consequences which may result from partial
withdrawals, see "FEDERAL TAX CONSIDERATIONS."

CHARGES AND DEDUCTIONS

Charges will be deducted in connection with the Certificate to compensate the
Company for providing the insurance benefits set forth in the Certificate and
any additional benefits added by rider, administering the Certificate, incurring
distribution expenses, and assuming certain risks in connection with the
Certificates. Each of the charges identified as an administrative charge is
intended to reimburse the Company for actual administrative costs incurred, and
is not intended to result in a profit to the Company.

Certain of the charges and deductions described below may be reduced for
Certificates issued in connection with a specific group in accordance with the
Company's rules in effect as of the date an enrollment form for a Certificate is
approved. To qualify for such a reduction, a group must satisfy certain criteria
as to, for example, size of the group, expected number of participants and
anticipated premium payments from the group. Generally, the sales contacts and
effort, administrative costs and mortality cost per Certificate vary based on
such factors as the size of the group, the purposes for which Certificates are

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purchased and certain characteristics of the group's members. The amount of
reduction and the criteria for qualification will reflect in the reduced sales
effort and administrative costs resulting from, and the different mortality
experience expected as a result of, sales to qualifying groups. The Company may
modify from time to time on a uniform basis both the amounts of reductions and
the criteria for qualification. Reductions in these charges will not be unfairly
discriminatory against any person, including the affected Certificate Owners and
all other Certificate Owners funded by the Group VEL Account.

PREMIUM EXPENSE CHARGE

A charge may be deducted from each premium payment for state and local premium
taxes paid by the Company. State premium taxes generally range from 0.75% to 5%,
while local premium taxes (if any) vary by jurisdiction within a state. The
Company guarantees that the charge for premium taxes will not exceed 10%. The
premium tax charge may change when either the applicable jurisdiction changes or
the tax rate within the applicable jurisdiction changes. The Company should be
notified of any change in address of the Insured as soon as possible.

Additional charges are made to compensate the Company for federal taxes imposed
for deferred acquisition costs ("DAC taxes") and for sales expenses related to
the Certificates. The DAC tax deduction may range from zero to 1% of premiums,
depending on the group to which the Certificate is issued. The charge for sales
expenses may range from zero to 5%. The sales charge may vary depending on the
group to which the Certificates are issued, including average number of
participants, average Face Amount of the Certificates, anticipated average
annual premiums and the actual sales expense incurred by the Company.

MONTHLY DEDUCTION FROM CERTIFICATE VALUE

On the Date of Issue and each Monthly Processing Date thereafter prior to the
Final Premium Payment Date, certain charges ("Monthly Deduction") will be
deducted from the Certificate Value. The Monthly Deduction includes a charge for
cost of insurance, a charge for the cost of any additional benefits provided by
rider and a charge for Certificate administrative expenses that may be up to
$10, depending on the group to which the Certificate is issued. The Monthly
Deduction may also include a charge for Group VEL administrative expenses and a
charge for mortality and expense risks. The Group VEL administrative charge may
continue for up to 10 Certificate years and may be up to 0.25% of Certificate
Value in each Sub-Account, depending on the group to which the Certificate was
issued. The mortality and expense risk charge may be up to 0.90% of Certificate
Value in each Sub-Account. The Monthly Deduction on or following the effective
date of a requested change in the Face Amount will also include a charge of
$2.50 per $1,000 of increase or decrease, to a maximum of $40, for
administrative costs associated with the change. See "THE CERTIFICATE -- Change
In Face Amount."

The Group VEL administrative charge and the mortality and expense risk charge
are assessed against each Sub-Account that generates a charge. In the event that
a charge is greater than the value of the Sub-Account to which it relates on a
Monthly Processing Date, the Company will make a Pro-Rata Allocation of the
unpaid balance.

Monthly Deductions are made on the Date of Issue and on each Monthly Processing
Date until the Final Premium Payment Date. No Monthly Deductions will be made on
or after the Final Premium Payment Date.

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COST OF INSURANCE

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

CALCULATION OF THE CHARGE

If Death Benefit Option 2 is in effect, the monthly cost of insurance charge for
the initial Face Amount will equal the applicable cost of insurance rate
multiplied by the initial Face Amount. If Death Benefit Option 1 or Option 3 is
in effect, however, the applicable cost of insurance rate will be multiplied by
the initial Face Amount less the Certificate Value (minus charges for rider
benefits) at the beginning of the Certificate month. Thus, the cost of insurance
charge may be greater if Death Benefit Option 2 is in effect than if Death
Benefit Option 1 or Option 3 is in effect, assuming the same Face Amount in each
case and assuming that the Minimum Death Benefit is not in effect.

In other words, since the Death Benefit under Option 1 or Option 3 remains
constant while the Death Benefit under Option 2 varies with the Certificate
Value, any Certificate Value increases will reduce the insurance charge under
Option 1 or Option 3, but not under Option 2.

If Death Benefit Option 2 is in effect, the monthly insurance charge for each
increase in Face Amount (other than an increase caused by a change in Death
Benefit Option) will be equal to the cost of insurance rate applicable to that
increase multiplied by the increase in Face Amount. If Death Benefit Option 1 or
Option 3 is in effect, the applicable cost of insurance rate will be multiplied
by the increase in the Face Amount reduced by any Certificate Value (minus rider
charges) in excess of the initial Face Amount at the beginning of the
Certificate month.

If the Minimum Death Benefit is in effect under any Option, a monthly cost of
insurance charge will also be calculated for that portion of the Death Benefit
which exceeds the current Face Amount. This charge will be calculated by:

- - multiplying the cost of insurance rate applicable to the initial Face Amount
times the Minimum Death Benefit (Certificate Value times the applicable
percentage), MINUS

- the greater of the Face Amount or the Certificate Value under Death Benefit
Option 1 or Option 3, or

- the Face Amount plus the Certificate Value under Death Benefit Option 2.

When the Minimum Death Benefit is in effect, the cost under insurance charge for
the initial Face Amount and for any increases will be calculated as set forth in
the preceding two paragraphs.

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

COST OF INSURANCE RATES

This Certificate is sold to eligible individuals who are members of a
non-qualified benefit plan having a minimum, depending on the group, of five or
more members. A portion of the initial face amount may be issued on a guaranteed
or simplified underwriting basis. The amount of this portion will be determined
for each group, and may vary based on characteristics within the group.

The determination of the underwriting class for the guaranteed or simplified
issue portion will, in part, be based on the type of group; the number of
persons eligible to participate in the plan; expected percentage of eligible
persons participating in the plan; and the amount of guaranteed or simplified
underwriting insurance to be issued. Larger groups, higher participation rates
and occupations with historically

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favorable mortality rates will generally result in the individuals within that
group being placed in a more favorable underwriting class.

Cost of insurance rates are based on a blended unisex rate table, Age and
Underwriting Class of the Insured at the Date of Issue, the effective date of an
increase or date of rider, as applicable, the amount of premiums paid less any
debt and any partial withdrawals and withdrawal charges. For those Certificates
issued on a unisex basis, sex-distinct rates do not apply. The cost of insurance
rates are determined at the beginning of each Certificate year for the initial
Face Amount. The cost of insurance rates for an increase in Face Amount or rider
are determined annually on the anniversary of the effective date of each
increase or rider. The cost of insurance rates generally increase as the
Insured's Age increases. The actual monthly cost of insurance rates will be
based on the Company's expectations as to future mortality experience. They will
not, however, be greater than the guaranteed cost of insurance rates set forth
in the Certificate. These guaranteed rates are based on the 1980 Commissioners
Standard Ordinary Mortality Tables (Mortality Table B, Smoker or Non-smoker, for
unisex Certificates) and the Insured's Age. The Tables used for this purpose may
set forth different mortality estimates for smokers and non-smokers. Any change
in the cost of insurance rates will apply to all persons of the same insuring
Age and Underwriting Class whose Certificates have been in force for the same
length of time.

The Underwriting Class of an Insured will affect the cost of insurance rates.
The Company currently places Insureds into preferred Underwriting Classes,
standard Underwriting Classes and substandard Underwriting Classes. In an
otherwise identical Contract, an Insured in the preferred Underwriting Class
will have a lower cost of insurance than an Insured in a standard Underwriting
Class who, in turn, will have a lower cost of insurance than an Insured in a
substandard Underwriting Class with a higher mortality risk. The Underwriting
Classes may be divided into two categories or aggregated: smokers and
nonsmokers. Nonsmoking Insureds will incur lower cost of insurance rates than
Insureds who are classified as smokers but who are otherwise in the same
Underwriting Class. Any Insured with an Age at issuance under 18 will be
classified initially as regular, unless substandard. The Insured then will be
classified as a smoker at Age 18 unless the Insured provides satisfactory
evidence that the Insured is a nonsmoker. The Company will provide notice to you
of the opportunity for the Insured to be classified as a nonsmoker when the
Insured reaches Age 18.

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

MONTHLY CERTIFICATE ADMINISTRATIVE CHARGE

Prior to the Final Premium Payment Date a monthly Certificate administrative
charge of up to $10 per month, depending on the group to which the Certificate
was issued, will be deducted from the Certificate Value. This charge will be
used to compensate the Company for expenses incurred in the administration of
the Certificate and will compensate the Company for first year underwriting and
other start-up expenses incurred in connection with the Certificate. These
expenses include the cost of processing enrollment forms, conducting medical
examinations, determining insurability and the Insured's Underwriting Class, and
establishing Certificate records. The Company does not expect to derive a profit
from these charges.

MONTHLY GROUP VEL ACCOUNT ADMINISTRATIVE CHARGE

The Company can make an administrative charge on an annual basis of up to 0.25%
of the Certificate Value in each Sub-Account. The duration of this charge can be
for up to 10 years. This charge is designed to reimburse the Company for the
costs of administering the Group VEL Account and Sub-Accounts. The charge is not
expected to be a source of profit. The administrative expenses assumed by the
Company in

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connection with the Group VEL Account and Sub-Accounts include, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and supplies, expenses of preparing and printing
registration statements, expenses of preparing and typesetting prospectuses and
the cost of printing prospectuses not allocable to sales expense, filing and
other fees.

MONTHLY MORTALITY AND EXPENSE RISK CHARGE

The Company can make a mortality and expense risk charge on an annual basis of
up to 0.90% of the Certificate Value in each Sub-Account. This charge is for the
mortality risk and expense risk which the Company assumes in relation to the
variable portion of the Certificates. The total charges may be different between
groups and increased or decreased within a group, subject to compliance with
applicable state and federal requirements, but may not exceed 0.90% on an annual
basis.

The mortality risk assumed by the Company is that Insureds may live for a
shorter time than anticipated, and that the Company will therefore pay an
aggregate amount of Death Proceeds greater than anticipated. The expense risk
assumed is that the expenses incurred in issuing and administering the
Certificates will exceed the amounts realized from the administrative charges
provided in the Certificates. If the charge for mortality and expense risks is
not sufficient to cover actual mortality experience and expenses, the Company
will absorb the losses. If costs are less than the amounts provided, the
difference will be a profit to the Company. To the extent this charge results in
a current profit to the Company, such profit will be available for use by the
Company for, among other things, the payment of distribution, sales and other
expenses. Since mortality and expense risks involve future contingencies which
are not subject to precise determination in advance, it is not feasible to
identify specifically the portion of the charge which is applicable to each.

CHARGES REFLECTED IN THE ASSETS OF THE GROUP VEL ACCOUNT

Because the Sub-Accounts purchase shares of the Underlying Investment Companies,
the value of the Units of the Sub-Accounts will reflect the investment advisory
fee and other expenses incurred by the Underlying Investment Companies. The
prospectuses and Statements of Additional Information of the Trust, Fidelity
VIP, Fidelity VIP II, T. Rowe Price, DGPF and INVESCO VIF contain additional
information concerning such fees and expenses.

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

SURRENDER CHARGE

The Certificate may provide for a contingent surrender charge. A separate
surrender charge, described in more detail below, may be calculated upon the
issuance of the Certificate and for each increase in the Face Amount. The
surrender charge is comprised of a contingent deferred administrative charge and
a contingent deferred sales charge. The contingent deferred administrative
charge compensates the Company for expenses incurred in administering the
Certificate. The contingent deferred sales charge compensates the Company for
expenses relating to the distribution of the Certificate, including agents'
commissions, advertising and the printing of the prospectus and sales
literature.

A surrender charge may be deducted if you request a full surrender of the
Certificate or a decrease in Face Amount. The duration of the surrender charge
may be up to 15 years from the Date of Issue or from the effective date of any
increase in the Face Amount. The maximum surrender charge calculated upon
issuance of the Certificate is an amount up to the sum of (a) plus (b) where (a)
is a deferred administrative charge equal to $8.50 per thousand dollars of the
initial Face Amount and (b) is a deferred sales charge of up to 50% (less any
premium expense charge not associated with state and local premium taxes) of
premiums received up to the Guideline Annual Premium. In accordance with
limitations under state insurance regulations, the amount of the maximum
surrender charge will not exceed a specified amount

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per thousand dollars of initial Face Amount, as indicated in "APPENDIX C --
CALCULATION OF MAXIMUM SURRENDER CHARGES." The maximum surrender charge remains
level for up to 24 Certificate months, reduces uniformly each month for the
balance of the surrender charge period, and is zero thereafter. This reduction
in the maximum surrender charge will reduce the deferred sales charge and the
deferred administrative charge proportionately.

If you surrender the Certificate during the first two years following the Date
of Issue before making premium payments associated with the initial Face Amount
which are at least equal to one Guideline Annual Premium, the deferred
administrative charge will be $8.50 per thousand dollars of initial Face Amount,
as described above, but the deferred sales charge will not exceed 30% (less any
premium expense charge not associated with state and local premium taxes) of
premiums received, up to one Guideline Annual Premium, plus 9% of premiums
received in excess of one Guideline Annual Premium. See "APPENDIX C --
CALCULATION OF MAXIMUM SURRENDER CHARGES."

A separate surrender charge may apply to and is calculated for each increase in
Face Amount. The surrender charge for the increase is in addition to that for
the initial Face Amount. The maximum surrender charge for the increase is up to
the sum of (a) plus (b), where (a) is up to $8.50 per thousand dollars of
increase, and (b) is a deferred sales charge of up to 50% (less any premium
expense charge not associated with state and local premium taxes) of premiums
associated with the increase, up to the Guideline Annual Premium for the
increase. In accordance with limitations under state insurance regulations, the
amount of the surrender charge will not exceed a specified amount per thousand
dollars of increase, as indicated in "APPENDIX C -- CALCULATION OF MAXIMUM
SURRENDER CHARGES." As is true for the initial Face Amount, (a) is a deferred
administrative charge and (b) is a deferred sales charge.

The maximum surrender charge for the increase remains level for up to 24
Certificate months, reduces uniformly each month for the balance of the
surrender charge period, and is zero thereafter. During the first two
Certificate years following an increase in Face Amount before making premium
payments associated with the increase in Face Amount which are at least equal to
one Guideline Annual Premium, the deferred administrative charge will be $8.50
per thousand dollars of increase in Face Amount, as described above, but the
deferred sales charge imposed will be less than the maximum described above.
Upon such a surrender, the deferred sales charge will not exceed 30% (less any
premium expense charge not associated with state and local premium taxes) of
premiums associated with the increase, up to one Guideline Annual Premium (for
the increase), plus 9% of premiums associated with the increase in excess of one
Guideline Annual Premium. See "APPENDIX C -- CALCULATION OF MAXIMUM SURRENDER
CHARGES." The premiums associated with the increase are determined as described
below. Additional premium payments may not be required to fund a requested
increase in Face Amount.

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

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

A surrender charge may be deducted on a decrease in the Face Amount. In the
event of a decrease, the surrender charge deducted is a fraction of the charge
that would apply to a full surrender of the Certificate.

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

CHARGES ON PARTIAL WITHDRAWAL

After the first Certificate year, partial withdrawals of Surrender Value may be
made. The minimum withdrawal is $500. Under Option 1 or Option 3, the Face
Amount is reduced by the amount of the partial withdrawal, and a partial
withdrawal will not be allowed if it would reduce the Face Amount below $40,000.
A transaction charge which is the smaller of 2% of the amount withdrawn or $25
will be assessed on each partial withdrawal to reimburse the Company for the
cost of processing the withdrawal. The Company does not expect to make a profit
on this charge.

A partial withdrawal charge may also be deducted from Certificate Value. For
each partial withdrawal you may withdraw an amount equal to 10% of the
Certificate Value on the date the written withdrawal request is received by the
Company less the total of any prior withdrawals in that Certificate year which
were not subject to the Partial Withdrawal charge, without incurring a partial
withdrawal charge. Any partial withdrawal in excess of this amount ("excess
withdrawal") will be subject to the partial withdrawal charge. The partial
withdrawal charge is equal to 5% of the excess withdrawal up to the amount of
the surrender charge(s) on the date of withdrawal. There will be no partial
withdrawal charge if there is no surrender charge on the date of withdrawal
(i.e., 15 years have passed from the Date of Issue and from the effective date
of any increase in the Face Amount).

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

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

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

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

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

See "APPENDIX C -- CALCULATION OF MAXIMUM SURRENDER CHARGES" for an example
illustrating the calculation of the charges on partial withdrawal and their
impact on the surrender charge(s).

TRANSFER CHARGES

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

You may have automatic transfers of at least $100 made on a periodic basis,
every 1, 2 or 3 months (a) from the Sub-Accounts which invest in the Money
Market Fund and Government Bond Fund of the Trust, respectively, to one or more
of the other Sub-Accounts or (b) to reallocate Certificate Value among the
Sub-Accounts. The first automatic transfer counts as one transfer towards the
twelve free transfers allowed

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in each Certificate year. Each subsequent automatic transfer is without charge
and does not reduce the remaining number of transfers which may be made without
charge.

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

CHARGE FOR CHANGE IN FACE AMOUNT

For each increase or decrease in Face Amount you request, a transaction charge
of $2.50 per $1,000 of increase or decrease, to a maximum of $40, will be
deducted from Certificate Value to reimburse the Company for administrative
costs associated with the change. This charge is guaranteed not to increase and
the Company does not expect to make a profit on this charge.

OTHER ADMINISTRATIVE CHARGES

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

CERTIFICATE LOANS

Loans may be obtained by request to the Company on the sole security of this
Certificate. The total amount which may be borrowed is the Loan Value. In the
first Certificate year, the Loan Value is 75% of Certificate Value reduced by
applicable surrender charges as well as Monthly Deductions and interest on Debt
to the end of the Certificate year. The Loan Value in the second Certificate
year and thereafter is 90% of an amount equal to Certificate Value reduced by
applicable surrender charges. There is no minimum limit on the amount of the
loan. The loan amount will normally be paid within seven days after the Company
receives the loan request at its Principal Office, but the Company may delay
payments under certain circumstances. See "OTHER CERTIFICATE PROVISIONS --
Postponement of Payments."

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

As long as the Certificate is in force, Certificate Value in the General Account
equal to the loan amount will be credited with interest at an effective annual
yield of at least 6.00% per year (7.5% for preferred loans). NO ADDITIONAL
INTEREST WILL BE CREDITED TO SUCH CERTIFICATE VALUE.

PREFERRED LOAN OPTION

There is some uncertainty as to the tax treatment of preferred loans. Consult a
qualified tax adviser (and see "FEDERAL TAX CONSIDERATIONS"). THE PREFERRED LOAN
OPTION IS NOT AVAILABLE IN ALL STATES.

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<PAGE>
LOAN INTEREST CHARGED

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

REPAYMENT OF DEBT

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

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

EFFECT OF CERTIFICATE LOANS

Although Certificate loans may be repaid at any time prior to the lapse of the
Certificate, Certificate loans will permanently affect the Certificate Value and
Surrender Value, and may permanently affect the Death Proceeds. The effect could
be favorable or unfavorable, depending upon whether the investment performance
of the Sub-Account(s) is less than or greater than the interest credited to the
Certificate Value in the General Account attributable to the loan.

Moreover, outstanding Certificate loans and the accrued interest will be
deducted from the proceeds payable upon the death of the Insured or surrender.

CERTIFICATE TERMINATION AND REINSTATEMENT

TERMINATION

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

- - the Surrender Value is insufficient to cover the next Monthly Deduction plus
loan interest accrued; or

- - if Debt exceeds the Certificate Value.

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

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

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<PAGE>
PAYOR PROVISIONS

Subject to approval in the state in which your Certificate was issued, if you
name a "Payor" in your enrollment form supplement, the following "Payor
Provisions" will apply:

The Payor may designate what portion, if any, of each payment of a premium is
"excess premium." You may allocate the excess premium among General Account and
Sub-Accounts. The remaining Payor's premium which is not excess premium
("Payor's premium") will automatically be allocated to the Monthly Deduction
Sub-Account, from which the Monthly Deduction charges will be made. Payor
premiums are initially held in the General Account, and will be transferred to
the Monthly Deduction Sub-Account not later than 3 days after underwriting
approval of the Certificate. No Certificate loans, partial withdrawals or
transfers may be made from the amount in the Monthly Deduction Sub-Account
attributable to Payor's premiums.

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

If the amount in Monthly Deduction Sub-Account attributable to Payor premiums is
insufficient to cover the Monthly Deductions due at the end of the grace period,
the balance of such Monthly Deductions will be withdrawn on a Pro-Rata
Allocation from the Certificate Value, if any, in the General Account and the
Sub-Accounts.

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

The above Payor Provisions, if applicable, are in lieu of the grace-period
notice and default provisions applicable when the Surrender Value is
insufficient to cover the next Monthly Deduction plus loan interest accrued.
However, they do not apply if Debt exceeds the Certificate Value. See the
discussion under "Termination," above. You or the Payor may upon written request
discontinue the above Payor Provisions. If the Payor makes a written request to
discontinue the Payor Provisions, we will send you a notice of the
discontinuance to your last known address.

REINSTATEMENT

If the Certificate has not been surrendered and the Insured is alive, the
terminated Certificate may be reinstated anytime within 3 years after the date
of default and before the Final Premium Payment Date. The reinstatement will be
effective on the Monthly Processing Date following the date you submit the
following to the Company:

- - a written enrollment form for reinstatement,

- - Evidence of Insurability; and

- - a premium that, after the deduction of the premium expense charge, is large
enough to cover the Monthly Deductions for the three-month period beginning on
the date of reinstatement.

SURRENDER CHARGE

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

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<PAGE>
CERTIFICATE VALUE ON REINSTATEMENT

The Certificate Value on the date of reinstatement is:

- - the Net Premium paid to reinstate the Certificate increased by interest from
the date the payment was received at the Company's Principal Office; PLUS

- - an amount equal to the Certificate Value less Debt on the date of default;
MINUS

- - the Monthly Deduction due on the date of reinstatement. You may reinstate any
Debt outstanding on the date of default or foreclosure.

OTHER CERTIFICATE PROVISIONS

CERTIFICATE OWNER

The Certificate Owner is the Insured unless another Certificate Owner has been
named in the enrollment form for the Certificate. The Certificate Owner is
generally entitled to exercise all rights under a Certificate while the Insured
is alive, subject to the consent of any irrevocable Beneficiary (the consent of
a revocable Beneficiary is not required). The consent of the Insured is required
whenever the Face Amount of insurance is increased.

BENEFICIARY

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

ASSIGNMENT

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

THE FOLLOWING CERTIFICATE PROVISIONS MAY VARY BY STATE:

INCONTESTABILITY

The Company will not contest the validity of a Certificate after it has been in
force during the Insured's lifetime for two years from the Date of Issue. The
Company will not contest the validity of any rider or any increase in the Face
Amount after such rider or increase has been in force during the Insured's
lifetime for two years from its effective date.

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<PAGE>
SUICIDE

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

AGE

If the Insured's Age as stated in the enrollment form for a Certificate is not
correct, benefits under a Certificate will be adjusted to reflect the correct
Age, if death occurs prior to the Final Premium Payment Date. The adjusted
benefit will be that which the most recent cost of insurance charge would have
purchased for the correct Age. In no event will the Death Benefit be reduced to
less than the Minimum Death Benefit.

POSTPONEMENT OF PAYMENTS

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

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

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<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS

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

Abigail M. Armstrong Secretary of First Allmerica since 1996; Counsel,
Secretary and Counsel First Allmerica

John P. Kavanaugh Director and Chief Investment Officer of First
Director, Vice President and Chief Allmerica since 1996; Vice President, First
Investment Officer Allmerica since 1991

John F. Kelly Director of First Allmerica since 1996; Senior
Director Vice President, General Counsel and Assistant
Secretary, First Allmerica

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

James R. McAuliffe Director of First Allmerica since 1996; President
Director and CEO, Citizens Insurance Company of America
since 1994; Vice President 1982 to 1994 and
Chief Investment Officer, First Allmerica 1986
to 1994

John F. O'Brien Director, Chairman of the Board, President and
Director, Chairman of the Board, Chief Executive Officer, First Allmerica since
President and Chief Executive Officer 1989

Edward J. Parry, III Director and Chief Financial Officer of First
Director, Vice President, Chief Allmerica since 1996; Vice President and
Financial Officer and Treasurer Treasurer, First Allmerica since 1993

Richard M. Reilly Director of First Allmerica since 1996; Vice
Director and Vice President President, First Allmerica since 1990; Director,
Allmerica Investments, Inc. since 1990; Director
and President, Allmerica Investment Management
Company, Inc. since 1990

Larry C. Renfro Director of First Allmerica since 1996; Vice
Director and Vice President President, First Allmerica since 1990

Eric A. Simonsen Director of First Allmerica since 1996; Vice
Director and Vice President President, First Allmerica since 1990; Chief
Financial Officer, First Allmerica 1990 to 1996

Phillip E. Soule Director of First Allmerica since 1996; Vice
Director President, First Allmerica
</TABLE>

DISTRIBUTION

Allmerica Investments, Inc., an indirect subsidiary of First Allmerica, acts as
the principal underwriter of the Certificates pursuant to a Sales and
Administrative Services Agreement with the Company and the Group VEL Account.
Allmerica Investments, Inc. is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers. The Certificates are sold by agents of the Company who are
registered representatives of Allmerica Investments, Inc. or of independent
broker-dealers.

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<PAGE>

The Company pays commissions to broker-dealers which sell the Certificates based
on a commission schedule. After issue of the Certificate or an increase in Face
Amount, commissions may be up to 25% of the first year premiums up to a basic
premium amount established by the Company. Thereafter, commissions may be up to
10% of any additional premiums. Certain registered representatives, including
registered representatives enrolled in the Company's training program for new
agents, may receive additional first year and renewal commissions and training
reimbursements. General Agents of the Company and certain registered
representatives may also be eligible to receive expense reimbursements based on
the amount of earned commissions. General Agents may also receive overriding
commissions, which will not exceed 2.5% of first year or 4% of renewal premiums.
To the extent permitted by NASD rules, promotional incentives or payments may
also be provided to broker-dealers based on sales volumes, the assumption of
wholesaling functions or other sales-related criteria. Other payments may be
made for other services that do not directly involve the sale of the
Certificates. These services may include the recruitment and training of
personnel, production of promotional literature, and similar services.

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

SERVICES

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

REPORTS

The Company will maintain the records relating to the Group VEL Account. You
will be promptly sent statements of significant transactions such as premium
payments (other than payments made pursuant to the MAP procedure), changes in
specified Face Amount, changes in Death Benefit Option, transfers among
Sub-Accounts and the General Account, partial withdrawals, increases in loan
amount by you, loan repayments, lapse, termination for any reason, and
reinstatement. An annual statement will also be sent to you. The annual
statement will summarize all of the above transactions and deductions of charges
during the Certificate year. It will also set forth the status of the Death
Proceeds, Certificate Value, Surrender Value, amounts in the Sub-Accounts and
General Account, and any Certificate loan(s).

In addition, you will be sent periodic reports containing financial statements
and other information for the Group VEL Account and the Underlying Investment
Companies as required by the 1940 Act.

LEGAL PROCEEDINGS

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

53
<PAGE>
FURTHER INFORMATION

A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Commission. Certain portions of the
Registration Statement and amendments have been omitted from this prospectus
pursuant to the rules and regulations of the Commission. Statements contained in
this prospectus concerning the Certificate and other legal documents are
summaries. The complete documents and omitted information may be obtained from
the Commission's principal office in Washington, D.C., upon payment of the
Commission's prescribed fees.

INDEPENDENT ACCOUNTANTS

The financial statements of the Company as of December 31, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996 and the financial
statements of the Group VEL Account of the Company at December 31, 1996 and for
the periods indicated included in this Prospectus constituting part of the
Registration Statement, have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.

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

FEDERAL TAX CONSIDERATIONS

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

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

THE COMPANY AND THE GROUP VEL ACCOUNT

The Company is taxed as a life insurance company under Subchapter L of the Code
of 1986 and files a consolidated tax return with its parent and affiliates. The
Company does not expect to incur any income tax upon the earnings or realized
capital gains attributable to the Group VEL Account. Based on these
expectations, no charge is made for federal income taxes which may be
attributable to the Group VEL Account.

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

Under current laws the Company may also incur state and local taxes (in addition
to premium taxes) in several states. At present these taxes are not significant.
If there is a material change in applicable state or

54
<PAGE>
local tax laws, charges may be made for such taxes paid, or reserves for such
taxes, attributable to the Group VEL Account.

TAXATION OF THE CERTIFICATES

The Company believes that the Certificates described in this prospectus will be
considered life insurance contracts under Section 7702 of the Code, which
generally provides for the taxation of life insurance policies and places
limitations on the relationship of the Certificate Value to the Insurance Amount
at Risk. As a result, the Death Proceeds payable are excludable from the gross
income of the Beneficiary. Moreover, any increase in Certificate Value is not
taxable until received by the Certificate Owner or the Certificate Owner's
designee. See "MODIFIED ENDOWMENT CONTRACTS."

The Code also requires that the investment of each Sub-Account be adequately
diversified in accordance with Treasury regulations in order to be treated as a
life insurance Certificate for tax purposes. Although the Company does not have
control over the investments of the Underlying Funds, the Company believes that
the Underlying Funds currently meet the Treasury's diversification requirements,
and the Company will monitor continued compliance with these requirements. In
connection with the issuance of previous regulations relating to diversification
requirements, the Treasury Department announced that such regulations do not
provide guidance concerning the extent to which Certificate Owners may direct
their investments to particular divisions of a separate account. Regulations in
this regard may be issued in the future. It is possible that if and when
regulations are issued, the Certificates may need to be modified to comply with
such regulations. For these reasons, the Certificates or the Company's
administrative rules may be modified as necessary to prevent a Certificate Owner
from being considered the owner of the assets of the Group VEL Account.

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

POLICY LOANS

The Company believes that non-preferred loans received under a Certificate will
be treated as indebtedness of the Certificate Owner for federal income tax
purposes. Under current law, these loans will not constitute income for the
Certificate Owner while the Certificate is in force. See "MODIFIED ENDOWMENT
CONTRACTS." However, there is a risk that a preferred loan may be characterized
by the IRS as a withdrawal and taxed accordingly. At the present time, the IRS
has not issued any guidance on whether loans with the attributes of a preferred
loan should be treated differently than a non-preferred loan. This lack of
specific guidance makes the tax treatment of preferred loans uncertain. In the
event IRS guidelines are issued in the future, you may revoke your request for a
preferred loan.

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

55
<PAGE>
MODIFIED ENDOWMENT CONTRACTS

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

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

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

MORE INFORMATION ABOUT THE GENERAL ACCOUNT

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

GENERAL DESCRIPTION

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

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

GENERAL ACCOUNT VALUE

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

56
<PAGE>
The Company may, AT ITS SOLE DISCRETION, credit a higher rate of interest
("excess interest"), although it is not obligated to credit interest in excess
of the Guaranteed Minimum Rate, and might not do so. However, the excess
interest rate, if any, in effect on the date a premium is received at the
Principal Office is guaranteed on that premium for one year, unless the
Certificate Value associated with the premium becomes security for a Certificate
loan. AFTER SUCH INITIAL ONE YEAR GUARANTEE OF INTEREST ON NET PREMIUM, ANY
INTEREST CREDITED ON THE CERTIFICATE VALUE IN THE GENERAL ACCOUNT IN EXCESS OF
THE GUARANTEED MINIMUM RATE PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION
OF THE COMPANY. THE CERTIFICATE OWNER ASSUMES THE RISK THAT INTEREST CREDITED
MAY NOT EXCEED THE GUARANTEED MINIMUM RATE.

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

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

THE CERTIFICATE

This prospectus describes certificates issued under a flexible premium variable
life insurance Certificate and is generally intended to serve as a disclosure
document only for the aspects of the Certificate relating to the Group VEL
Account. For complete details regarding the General Account, see the Certificate
itself.

TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND CERTIFICATE LOANS

If a Certificate is surrendered or if a partial withdrawal is made, a surrender
charge or partial withdrawal charge, as applicable, is imposed if such event
occurs before the Certificate, or an increase in Face Amount, has been in force
for 15 Certificate years. In the event of a decrease in Face Amount, the
surrender charge deducted is a fraction of the charge that would apply to a full
surrender of the Certificate. Partial withdrawals are made on a
last-in/first-out basis from Certificate Value allocated to the General Account.

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

Certificate loans may also be made from the Certificate Value in the General
Account.

Transfers, surrenders, partial withdrawals, Death Proceeds and Certificate loans
payable from the General Account may be delayed up to six months. However, if
payment is delayed for 30 days or more, the Company will pay interest at least
equal to an effective annual yield of 3% per year for the period of deferment.
Amounts from the General Account used to pay premiums on policies with the
Company will not be delayed.

FINANCIAL STATEMENTS

Financial Statements for the Company and the Group VEL Account are included in
this prospectus beginning immediately after this section. The financial
statements of the Company and the Group VEL Account should be considered only as
bearing on the ability of the Company to meet its obligations under the
Certificate. They should not be considered as bearing on the investment
performance of the assets held in the Group VEL Account.

57
<PAGE>
FIRST ALLMERICA
FINANCIAL LIFE
INSURANCE COMPANY

CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholder's equity, and of cash flows
present fairly, in all material respects, the financial position of First
Allmerica Financial Life Insurance Company and its subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, 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.

As discussed in the accompanying notes to the consolidated financial statements,
the Company changed its method of accounting for investments
(Note 1) and postemployment benefits (Note 11) in 1994.
/s/ Price Waterhouse LLP

Price Waterhouse LLP
Boston, Massachusetts
February 3, 1997, except as to Notes 1 and 2,
which are as of February 19, 1997
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
----------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
REVENUES
Premiums................................... $2,236.3 $2,222.8 $2,181.8
Universal life and investment product
policy fees.............................. 197.2 172.4 156.8
Net investment income...................... 669.9 710.1 743.1
Net realized investment gains.............. 66.8 19.1 1.1
Realized gain on sale of mutual fund
processing business...................... -- 20.7 --
Other income............................... 102.7 95.4 112.3
--------- --------- ---------
Total revenues......................... 3,272.9 3,240.5 3,195.1
--------- --------- ---------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 1,957.0 2,010.3 2,047.0
Policy acquisition expenses................ 483.5 470.3 475.7
Other operating expenses................... 483.2 455.0 518.9
--------- --------- ---------
Total benefits, losses and expenses.... 2,923.7 2,935.6 3,041.6
--------- --------- ---------
Income before federal income taxes............. 349.2 304.9 153.5
--------- --------- ---------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 96.8 119.7 45.4
Deferred................................... (15.7) (37.0) 8.0
--------- --------- ---------
Total federal income tax expense....... 81.1 82.7 53.4
--------- --------- ---------
Income before minority interest, extraordinary
item, and cumulative effect of accounting
change........................................ 268.1 222.2 100.1
Minority interest.............................. (74.6) (73.1) (51.0)
--------- --------- ---------
Income before extraordinary item and cumulative
effect of accounting changes.................. 193.5 149.1 49.1
Extraordinary item -- demutualization
expenses...................................... -- (12.1) (9.2)
Cumulative effect of changes in accounting
principles.................................... -- -- (1.9)
--------- --------- ---------
Net income..................................... $ 193.5 $ 137.0 $ 38.0
--------- --------- ---------
--------- --------- ---------
</TABLE>

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

F-1
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1996 1995
-------------------------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities--at fair value (amortized cost of
$7,279.1 and $7,467.9)............................. $ 7,461.5 $ 7,739.3
Equity securities--at fair value (cost of $327.9 and
$410.6)............................................ 473.1 517.2
Mortgage loans...................................... 650.1 799.5
Real estate......................................... 120.7 179.6
Policy loans........................................ 132.4 123.2
Other long-term investments......................... 128.8 71.9
---------- ----------
Total investments............................... 8,966.6 9,430.7
---------- ----------
Cash and cash equivalents............................. 175.9 236.6
Accrued investment income............................. 148.6 163.0
Deferred policy acquisition costs..................... 822.7 735.7
---------- ----------
Reinsurance receivables:
Future policy benefits.............................. 102.8 97.1
Outstanding claims, losses and loss adjustment
expenses........................................... 663.8 799.6
Unearned premiums................................... 46.2 43.8
Other............................................... 62.8 58.9
---------- ----------
Total reinsurance receivables................... 875.6 999.4
---------- ----------
Deferred federal income taxes......................... 93.2 81.2
Premiums, accounts and notes receivable............... 533.0 526.7
Other assets.......................................... 302.2 361.4
Closed Block assets................................... 811.8 818.9
Separate account assets............................... 6,233.0 4,348.8
---------- ----------
Total assets.................................... $18,962.6 $17,702.4
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,613.7 $ 2,639.3
Outstanding claims, losses and loss adjustment
expenses........................................... 2,944.1 3,081.3
Unearned premiums................................... 822.5 800.9
Contractholder deposit funds and other policy
liabilities........................................ 2,060.4 2,737.4
---------- ----------
Total policy liabilities and accruals........... 8,440.7 9,258.9
---------- ----------
Expenses and taxes payable............................ 615.3 600.3
Reinsurance premiums payable.......................... 31.4 42.0
Short-term debt....................................... 38.4 28.0
Deferred federal income taxes......................... 34.6 47.8
Long-term debt........................................ 2.7 2.8
Closed Block liabilities.............................. 892.1 902.0
Separate account liabilities.......................... 6,227.2 4,337.8
---------- ----------
Total liabilities............................... 16,282.4 15,219.6
---------- ----------
Minority interest..................................... 784.0 758.5
Commitments and contingencies (Notes 14 and 19)
SHAREHOLDER'S EQUITY
Common stock, $10 par value, 1 million shares
authorized, 500,000 shares issued and outstanding... 5.0 5.0
Additional paid-in-capital............................ 392.4 392.4
Unrealized appreciation on investments, net........... 131.4 153.0
Retained earnings..................................... 1,367.4 1,173.9
---------- ----------
Total shareholder's equity...................... 1,896.2 1,724.3
---------- ----------
Total liabilities and shareholder's equity...... $18,962.6 $17,702.4
---------- ----------
---------- ----------
</TABLE>

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

F-2
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
----------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year............... $ 5.0 $ -- $ --
Demutualization transaction................ -- 5.0 --
--------- --------- ---------
Balance at end of year..................... 5.0 5.0 --
--------- --------- ---------
ADDITIONAL PAID-IN-CAPITAL
Balance at beginning of year............... 392.4 -- --
Contributed from parent.................... -- 392.4 --
--------- --------- ---------
Balance at end of year..................... 392.4 392.4 --
--------- --------- ---------
RETAINED EARNINGS
Balance at beginning of year............... 1,173.9 1,071.4 1,033.4
Net income prior to demutualization........ -- 93.2 38.0
--------- --------- ---------
1,173.9 1,164.6 1,071.4
Demutualization transaction................ -- (34.5) --
Net income subsequent to demutualization... 193.5 43.8 --
--------- --------- ---------
Balance at end of year..................... 1,367.4 1,173.9 1,071.4
--------- --------- ---------
NET UNREALIZED APPRECIATION (DEPRECIATION) ON
INVESTMENTS
Balance at beginning of year............... 153.0 (79.0) 17.5
--------- --------- ---------
Cumulative effect of accounting change:
Net appreciation on available-for-sale
debt securities...................... -- -- 296.1
Provision for deferred federal income
taxes and minority interest.......... -- -- (149.1)
--------- --------- ---------
-- -- 147.0
--------- --------- ---------
Effect of transfer of securities from
held-to-maturity to available-for-sale:
Net appreciation on available-for-sale
debt securities...................... -- 22.4 --
Provision for deferred federal income
taxes and minority interest.......... -- (9.6) --
--------- --------- ---------
-- 12.8 --
--------- --------- ---------
Appreciation (depreciation) during the
period:
Net appreciation (depreciation) on
available-for-sale securities........ (35.1) 466.0 (492.1)
(Provision) benefit for deferred
federal income taxes................. 11.8 (163.1) 171.9
Minority interest...................... 1.7 (83.7) 76.7
--------- --------- ---------
(21.6) 219.2 (243.5)
--------- --------- ---------
Balance at end of year................. 131.4 153.0 (79.0)
--------- --------- ---------
Total shareholder's equity......... $1,896.2 $1,724.3 $ 992.4
--------- --------- ---------
--------- --------- ---------
</TABLE>

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

F-3
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
-------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 193.5 $ 137.0 $ 38.0
Adjustments to reconcile net income to
net cash provided by operating
activities:
Minority interest................... 74.6 73.1 50.1
Net realized gains.................. (66.8) (39.8) (1.1)
Net amortization and depreciation... 44.7 57.7 45.9
Deferred federal income taxes....... (15.7) (37.0) 8.0
Change in deferred acquisition
costs............................... (73.9) (38.4) (34.6)
Change in premiums and notes
receivable, net of reinsurance
payable............................. (16.8) (42.0) (25.6)
Change in accrued investment
income.............................. 16.7 7.0 4.6
Change in policy liabilities and
accruals, net....................... (184.3) 116.2 175.9
Change in reinsurance receivable.... 123.8 (75.6) (31.9)
Change in expenses and taxes
payable............................. 26.0 7.5 88.0
Separate account activity, net...... 5.2 (0.1) 0.4
Other, net.......................... 38.5 (33.8) 14.0
---------- ---------- ----------
Net cash provided by operating
activities................... 165.5 131.8 331.7
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................. 3,985.8 2,738.4 2,097.8
Proceeds from disposals of
held-to-maturity fixed maturities...... -- 271.3 304.4
Proceeds from disposals of equity
securities............................. 228.7 120.0 143.9
Proceeds from disposals of other
investments............................ 99.3 40.5 25.9
Proceeds from mortgages matured or
collected.............................. 176.9 230.3 256.4
Purchase of available-for-sale fixed
maturities............................. (3,771.1) (3,273.3) (2,150.1)
Purchase of held-to-maturity fixed
maturities............................. -- -- (111.6)
Purchase of equity securities........... (90.9) (254.0) (172.2)
Purchase of other investments........... (168.0) (24.8) (26.6)
Proceeds from sale of mutual fund
processing business.................... -- 32.9 --
Capital expenditures.................... (12.8) (14.1) (43.1)
Other investing activities, net......... 4.3 4.7 2.4
---------- ---------- ----------
Net cash provided by (used in)
provided by investing
activities................... 452.2 (128.1) 327.2
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to
contractholder deposit funds........... 268.7 445.8 786.3
Withdrawals from contractholder deposit
funds.................................. (905.0) (1,069.9) (1,187.0)
Change in short-term debt............... 10.4 (4.8) (6.0)
Change in long-term debt................ (0.1) 0.2 0.3
Dividends paid to minority
shareholders........................... (3.9) (4.1) (4.2)
Capital contributed from parent......... -- 392.4 --
Payments for policyholders' membership
interests.............................. -- (27.9) --
Subsidiary treasury stock purchased, at
cost................................... (42.0) (20.9) --
---------- ---------- ----------
Net cash used in financing
activities................... (671.9) (289.2) (410.6)
---------- ---------- ----------
Net change in cash and cash equivalents..... (54.2) (285.5) 248.3
Net change in cash held in the Closed
Block...................................... (6.5) (17.6) --
Cash and cash equivalents, beginning of
year....................................... 236.6 539.7 291.4
---------- ---------- ----------
Cash and cash equivalents, end of year...... $ 175.9 $ 236.6 $ 539.7
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ 18.6 $ 4.1 $ 4.3
Income taxes paid....................... $ 72.0 $ 90.6 $ 46.1
</TABLE>

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

F-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

First Allmerica Financial Life Insurance Company ("FAFLIC", or the
"Company", formerly State Mutual Life Assurance Company of America ["State
Mutual"]) was organized as a mutual life insurance company until October 16,
1995. FAFLIC converted to a stock life insurance company pursuant to a plan of
reorganization effective October 16, 1995 and became a wholly owned subsidiary
of Allmerica Financial Corporation ("AFC"). The consolidated financial
statements have been prepared as if FAFLIC were organized as a stock life
insurance company for all periods presented. Thus, generally accepted accounting
principles for stock life insurance companies have been applied retroactively
for all periods presented.

The consolidated financial statements of FAFLIC include the accounts of
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC", formerly SMA
Life Assurance Company), its wholly owned life insurance subsidiary,
non-insurance subsidiaries (principally brokerage and investment advisory
subsidiaries), and Allmerica Property and Casualty Companies, Inc. ("Allmerica
P&C", a 59.5%-owned non-insurance holding company). The Closed Block assets and
liabilities at December 31, 1996 and 1995, and its results of operations
subsequent to demutualization are presented in the consolidated financial
statements as single line items. Prior to demutualization such amounts are
presented line by line in the consolidated financial statements (see Note 6).
Unless specifically stated, all disclosures contained herein supporting the
consolidated financial statements at December 31, 1996 and 1995, and the years
then ended exclude the Closed Block related amounts. All significant
intercompany accounts and transactions have been eliminated.

Minority interest relates to the Company's investment in Allmerica P&C and
its only significant subsidiary, The Hanover Insurance Company ("Hanover").
Hanover's 82.5%-owned subsidiary is Citizens Corporation, the holding company
for Citizens Insurance Company of America ("Citizens"). Minority interest also
includes an amount related to the minority interest in Citizens Corporation.

On February 19, 1997, AFC announced a definitive merger agreement under
which it would acquire, at consideration of $33.00 per share, all of the shares
of Allmerica P&C currently held by the minority stockholders. Additional
information pertaining to the merger agreement is included in Note 2,
significant transactions.

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

B. CLOSED BLOCK

As of October 16, 1995, the Company established and began operating a closed
block (the "Closed Block") for the benefit of the participating policies
included therein, consisting of certain individual life insurance participating
policies, individual deferred annuity contracts and supplementary contracts not
involving life contingencies which were in force on October 16, 1995; such
policies constitute the "Closed Block Business". The purpose of the Closed Block
is to protect the policy dividend expectations of such FAFLIC dividend paying
policies and contracts after the demutualization. Unless the Commissioner
consents to an earlier termination, the Closed Block will continue to be in
effect until the date none of the Closed Block policies are in force. On October
16, 1995, FAFLIC allocated to the Closed Block assets in an amount that is
expected to produce cash flows which, together with future revenues from the
Closed Block Business, are reasonably sufficient to support the Closed Block
Business, including provision for payment of policy benefits, certain future
expenses and taxes and for continuation of policyholder dividend scales

F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

payable in 1994 so long as the experience underlying such dividend scales
continues. The Company expects that the factors underlying such experience will
fluctuate in the future and policyholder dividend scales for Closed Block
Business will be set accordingly.

Although the assets and income allocated to the Closed Block inure solely to
the benefit of the holders of policies included in the Closed Block, the excess
of Closed Block liabilities over Closed Block assets at October 16, 1995
measured on a GAAP basis represent the expected future post-tax income from the
Closed Block which may be recognized in income over the period the policies and
contracts in the Closed Block remain in force.

If the actual income from the Closed Block in any given period equals or
exceeds the expected income for such period as determined at October 16, 1995,
the expected income would be recognized in income for that period. Further, any
excess of the actual income over the expected income would also be recognized in
income to the extent that the aggregate expected income for all prior periods
exceeded the aggregate actual income. Any remaining excess of actual income over
expected income would be accrued as a liability for policyholder dividends in
the Closed Block to be paid to the Closed Block policyholders. This accrual for
future dividends effectively limits the actual Closed Block income recognized in
income to the Closed Block income expected to emerge from operation of the
Closed Block as determined as of October 16, 1995.

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

C. VALUATION OF INVESTMENTS

Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (SFAS No. 115). SFAS No. 115 requires that
investments be classified into one of three categories; held-to-maturity,
available-for-sale, or trading.

The effect of implementing SFAS No. 115, as of January 1, 1994, was an
increase in the carrying value of fixed maturity investments of $335.3 million,
a decrease in deferred policy acquisition costs of $20.8 million, an increase in
policyholder liabilities of $18.4 million, a net increase in deferred income tax
liabilities of $103.7 million, an increase in minority interest of $45.4 million
and an increase in shareholder's equity of $147.0 million, which resulted from
changing the carrying value of certain fixed maturities from amortized cost to
fair value and related adjustments. The implementation had no effect on net
income.

In November 1995, the Financial Accounting Standards Board issued a Special
Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES, which permitted companies to
reclassify securities, where appropriate, based on the new guidance. As a
result, the Company transferred securities with amortized cost and fair value of
$696.4 million and $725.6 million, respectively, from the held-to-maturity
category to the available-for-sale category, which resulted in a net increase in
shareholder's equity of $12.8 million.

Realized gains and losses on sales of fixed maturities and equity securities
are determined on the specific-identification basis using amortized cost for
fixed maturities and cost for equity securities. Fixed maturities and equity
securities with other than temporary declines in fair value are written down to
estimated fair value resulting in the recognition of realized losses.

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

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

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

Policy loans are carried principally at unpaid principal balances.

Real estate that has been acquired through the foreclosure of mortgage loans
is valued at the estimated fair value at the time of foreclosure. The Company
considers several methods in determining fair value at foreclosure, using
primarily third-party appraisals and discounted cash flow analyses. After
foreclosure, the Company makes a determination as to whether the asset should be
held for production of income or held for sale.

Real estate investments held for the production of income and held for sale
are carried at depreciated cost less valuation allowances, if necessary, to
reduce the carrying value to fair value. Depreciation is generally calculated
using the straight-line method.

Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other-than-temporary impairment of the value of a specific
investment or a group of investments is determined, a realized investment loss
is recorded. Changes in the valuation allowance for mortgage loans and real
estate are included in realized investment gains or losses.

D. FINANCIAL INSTRUMENTS

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

E. CASH AND CASH EQUIVALENTS

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

F. DEFERRED POLICY ACQUISITION COSTS

Acquisition costs consist of commissions, underwriting costs and other
costs, which vary with, and are primarily related to, the production of
revenues. Property and casualty, group life and group health insurance business
acquisition costs are deferred and amortized over the terms of the insurance
policies. Acquisition costs related to universal life products and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits over the expected life of the contracts using a revised
interest rate applied to the remaining benefit period. Acquisition costs related
to annuity and other life insurance businesses are deferred and amortized,
generally in proportion to the ratio of annual revenue to the estimated total
revenues over the contract periods based upon the same assumptions used in
estimating the liability for future policy benefits. Deferred acquisition costs
for each product are reviewed to determine if they are recoverable from future
income, including investment income. If such costs are determined to be
unrecoverable, they are expensed at the time of determination.

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

Although realization of deferred policy acquisition costs is not assured,
management believes it is more likely than not that all of these costs will be
realized. The amount of deferred policy acquisition costs considered realizable,
however, could be reduced in the near term if the estimates of gross profits or
total revenues discussed above are reduced. The amount of amortization of
deferred policy acquisition costs could be revised in the near term if any of
the estimates discussed above are revised.

G. PROPERTY AND EQUIPMENT

Property, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is provided using the
straight-line or accelerated method over the estimated useful lives of the
related assets which generally range from 3 to 30 years. Amortization of
leasehold improvements is provided using the straight-line method over the
lesser of the term of the leases or the estimated useful life of the
improvements.

H. SEPARATE ACCOUNTS

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

I. POLICY LIABILITIES AND ACCRUALS

Future policy benefits are liabilities for life, health and annuity
products. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. The liabilities associated
with traditional life insurance products are computed using the net level
premium method for individual life and annuity policies, and are based upon
estimates as to future investment yield, mortality and withdrawals that include
provisions for adverse deviation. Future policy benefits for individual life
insurance and annuity policies are computed using interest rates ranging from
2 1/2% to 6% for life insurance and 2% to 9 1/2% for annuities. Estimated
liabilities are established for group life and health policies that contain
experience rating provisions. Mortality, morbidity and withdrawal assumptions
for all policies are based on the Company's own experience and industry
standards. Liabilities for universal life include deposits received from
customers and investment earnings on their fund balances, less administrative
charges. Universal life fund balances are also assessed mortality and surrender
charges.

Liabilities for outstanding claims, losses and loss adjustment expenses are
estimates of payments to be made on property and casualty and health insurance
for reported losses and estimates of losses incurred but not reported. These
liabilities are determined using case basis evaluations and statistical analyses
and represent estimates of the ultimate cost of all losses incurred but not
paid. These estimates are continually reviewed and adjusted as necessary; such
adjustments are reflected in current operations. Estimated amounts of salvage
and subrogation on unpaid property and casualty losses are deducted from the
liability for unpaid claims.

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

Contractholder deposit funds and other policy liabilities include
investment-related products such as guaranteed investment contracts, deposit
administration funds and immediate participation guarantee funds and consist of
deposits received from customers and investment earnings on their fund balances.

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

All policy liabilities and accruals are based on the various estimates
discussed above. Although the adequacy of these amounts cannot be assured,
management believes that it is more likely than not that policy liabilities and
accruals will be sufficient to meet future obligations of policies in force. The
amount of liabilities and accruals, however, could be revised in the near term
if the estimates discussed above are revised.

J. PREMIUM AND FEE REVENUE AND RELATED EXPENSES

Premiums for individual life and health insurance and individual and group
annuity products, excluding universal life and investment-related products, are
considered revenue when due. Property and casualty and group life, accident and
health insurance premiums are recognized as revenue over the related contract
periods. Benefits, losses and related expenses are matched with premiums,
resulting in their recognition over the lives of the contracts. This matching is
accomplished through the provision for future benefits, estimated and unpaid
losses and amortization of deferred policy acquisition costs. Revenues for
investment-related products consist of net investment income and contract
charges assessed against the fund values. Related benefit expenses primarily
consist of net investment income credited to the fund values after deduction for
investment and risk charges. Revenues for universal life products consist of net
investment income, and mortality, administration and surrender charges assessed
against the fund values. Related benefit expenses include universal life benefit
claims in excess of fund values and net investment income credited to universal
life fund values.

K. POLICYHOLDER DIVIDENDS

Prior to demutualization, certain life, health and annuity insurance
policies contained dividend payment provisions that enabled the policyholder to
participate in the earnings of the Company. The amount of policyholders'
dividends was determined annually by the Board of Directors. The aggregate
amount of policyholders' dividends was related to the actual interest,
mortality, morbidity and expense experience for the year and the Company's
judgment as to the appropriate level of statutory surplus to be retained. Upon
demutualization, certain participating individual life insurance policies and
individual annuity and supplemental contracts were transferred to the Closed
Block. The Closed Block was funded to protect the dividend expectations of such
policies and contracts. Accordingly, these policies no longer participate in the
earnings and surplus of the Open Block. Subsequent to demutualization, the
Company ceased issuance of participating policies.

Prior to demutualization, the participating life insurance in force was
16.2% of the face value of total life insurance in force at December 31, 1994.
The premiums on participating life, health and annuity policies were 11.3% and
6.4% of total life, health and annuity statutory premiums prior to
demutualization in 1995 and 1994, respectively. Total policyholders' dividends
were $23.3 million and $32.8 million prior to demutualization in 1995 and 1994,
respectively.

L. FEDERAL INCOME TAXES

AFC, FAFLIC, AFLIAC and FAFLIC's non-insurance domestic subsidiaries file a
consolidated United States federal income tax return. Entities included within
the consolidated group are segregated into either a life insurance or non-life
insurance company subgroup. The consolidation of these subgroups is subject to
certain statutory restrictions on the percentage of eligible non-life tax losses
that can be applied to offset life company taxable income. Allmerica P&C and its
subsidiaries file a separate United States federal income tax return.

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

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

as defined by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (SFAS No. 109). These differences result primarily from loss
reserves, policy acquisition expenses, and unrealized appreciation/depreciation
on investments.

M. NEW ACCOUNTING PRONOUNCEMENTS

In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" was issued. This statement
requires companies to write down to fair value long-lived assets whose carrying
value is greater than the undiscounted cash flows of those assets. The statement
also requires that long-lived assets of which management is committed to
dispose, either by sale or abandonment, be valued at the lower of their carrying
amount or fair value less costs to sell. This statement is effective for fiscal
years beginning after December 15, 1995. The adoption of this statement has not
had a material effect on the financial statements.

N. RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current
year presentation.

2. SIGNIFICANT TRANSACTIONS

On February 19, 1997, AFC and Allmerica P&C entered into an Agreement and Plan
of Merger (the "Merger Agreement") pursuant to which AFC will acquire all of the
outstanding Common Stock, $1.00 par value per share, of Allmerica P&C that it
does not already own for consideration consisting of $33.00 per share of Common
Stock, subject to adjustment, payable in cash and shares of common stock, par
value $0.01 per share, AFC (the "AFC Common Stock"). In addition, a shareholder
of Allmerica P&C may elect to receive the consideration in cash, without
interest, or in shares of AFC Common Stock, subject to proration as set forth in
the Merger Agreement. The maximum number of shares of AFC Common Stock to be
issued in the Merger is approximately 9.67 million shares. The acquisition will
be accomplished by merging a newly-created, wholly-owned subsidiary of AFC with
and into Allmerica P&C (the "Merger"), resulting in Allmerica P&C becoming a
wholly-owned subsidiary of AFC. Also, immediately prior to the Merger, Allmerica
P&C's Certificate of Incorporation will be amended to authorize a new class of
Common Stock, one share of which will be exchanged for each share of Common
Stock currently held by SMA Financial Corp., a wholly-owned subsidiary of AFC.
The consummation of the Merger is subject to the satisfaction of various
conditions, including the approval of regulatory authorities.

On February 3, 1997, AFC Capital Trust (the "Trust"), a subsidiary business
trust of AFC, issued $300 million Series A Capital Securities, which pay
cumulative dividends at a rate of 8.207% semiannually commencing August 15,
1997. The Trust exists for the sole purpose of issuing the Capital Securities
and investing the proceeds thereof in an equivalent amount of 8.207% Junior
Subordinated Deferrable Interest Debentures due 2027 of AFC (the "Subordinated
Debentures"). Through certain guarantees, the Subordinated Debentures and the
terms of related agreements, AFC has irrevocably and unconditionally guaranteed
the obligations of the Trust under the Capital Securities. Net proceeds from the
offering of approximately $296.3 million are intended to fund a portion of the
acquisition of the 24.2 million publicly-held shares of Allmerica P&C pursuant
to an Agreement and Plan of Merger dated February 19, 1997.

Pursuant to the plan of reorganization effective October 16, 1995, AFC
issued 37.5 million shares of its common stock to eligible policyholders. AFC
also issued 12.6 million shares of its common stock at a price of $21.00 per
share in a public offering, resulting in net proceeds of $248.0 million, and
issued Senior Debentures in the principal amount of $200.0 million which
resulted in net proceeds of $197.2 million. AFC contributed $392.4 million of
these proceeds to FAFLIC.

Effective March 31, 1995, the Company entered into an agreement with TSSG, a
division of First Data Corporation, pursuant to which the Company sold its
mutual fund processing business and agreed not to engage in this business for
four years after that date. In accordance with this agreement, the Company

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

received proceeds of $32.1 million. A gain of $13.5 million, net of taxes of
$7.2 million, was recorded in March 1995. Additionally, the Company received a
non-recurring $3.1 million contingent payment, net of taxes of $1.7 million, in
1996, related to the aforementioned sale.

3. INVESTMENTS

A. SUMMARY OF INVESTMENTS

The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with SFAS No. 115. The amortized cost and fair
value of available-for-sale fixed maturities and equity securities were as
follows:
<TABLE>
<CAPTION>
1996
-----------------------------------------------
GROSS GROSS
DECEMBER 31 AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- --------- ---------- ----------- --------

<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 273.6 $ 9.3 $ 1.6 $ 281.3
States and political subdivisions....... 2,236.9 48.5 7.7 2,277.7
Foreign governments..................... 108.0 7.3 -- 115.3
Corporate fixed maturities.............. 4,277.5 140.3 15.7 4,402.1
Mortgage-backed securities.............. 383.1 4.7 2.7 385.1
--------- ---------- ----------- --------
Total fixed maturities.................. $7,279.1 $210.1 $ 27.7 $7,461.5
--------- ---------- ----------- --------
--------- ---------- ----------- --------
Equity securities....................... $ 327.9 $148.9 $ 3.7 $ 473.1
--------- ---------- ----------- --------
--------- ---------- ----------- --------

1995
-----------------------------------------------
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....... $ 377.0 $ 21.0 -- $ 398.0
States and political subdivisions....... 2,110.6 60.7 4.0 2,167.3
Foreign governments..................... 60.6 3.4 0.6 63.4
Corporate fixed maturities.............. 4,582.1 200.8 16.4 4,766.5
Mortgage-backed securities.............. 337.6 8.6 2.1 344.1
--------- ---------- ----------- --------
Total fixed maturities.................. $7,467.9 $294.5 $ 23.1 $7,739.3
--------- ---------- ----------- --------
--------- ---------- ----------- --------
Equity securities....................... $ 410.6 $111.7 $ 5.1 $ 517.2
--------- ---------- ----------- --------
--------- ---------- ----------- --------
</TABLE>

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

In March 1994, AFLIAC voluntarily withdrew its license in New York in order
to provide for certain commission arrangements prohibited by New York comparable
to AFLIAC's competitors. In connection with the withdrawal, FAFLIC, which is
licensed in New York, became qualified to sell the products previously sold by
AFLIAC in New York. AFLIAC agreed with the New York Department of Insurance to
maintain, through a custodial account in New York, a security deposit, the
market value of which will at all times equal 102% of all outstanding general
account liabilities of AFLIAC for New York policyholders, claimants and
creditors. At December 31, 1996, the amortized cost and market value of assets
on deposit were $284.9 million and $292.2 million, respectively. At December 31,
1995, the amortized cost and market value of assets on deposit were $295.0
million and $303.6 million, respectively. In addition, fixed maturities,
excluding those securities on deposit in New York, with an amortized cost of
$98.0 million and $82.2 million were on deposit with various state and
governmental authorities at December 31, 1996 and 1995, respectively.

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

There were no contractual fixed maturity investment commitments at December
31, 1996 and 1995, 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>
1996
--------------------
DECEMBER 31 AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ---------------------------------------- --------- --------

<S> <C> <C>
Due in one year or less................. $ 567.1 $ 570.7
Due after one year through five years... 2,216.4 2,297.2
Due after five years through ten
years.................................. 2,373.1 2,432.0
Due after ten years..................... 2,122.5 2,161.6
--------- --------
Total............................... $7,279.1 $7,461.5
--------- --------
--------- --------
</TABLE>

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

<TABLE>
<CAPTION>
PROCEEDS FROM
FOR THE YEARS ENDED DECEMBER 31 VOLUNTARY GROSS GROSS
(IN MILLIONS) SALES GAINS LOSSES
- --------------------------------------------- ------------------ ----- ------

<S> <C> <C> <C>
1996

Fixed maturities............................. $2,432.8 $19.3 $30.5
-------- ----- ------
Equity securities............................ $ 228.1 $56.1 $ 1.3
-------- ----- ------
1995

Fixed maturities............................. $1,612.3 $23.7 $33.0
-------- ----- ------
Equity securities............................ $ 122.2 $23.1 $ 6.9
-------- ----- ------
1994

Fixed maturities............................. $1,026.2 $12.6 $21.6
-------- ----- ------
Equity securities............................ $ 124.3 $17.4 $ 4.5
-------- ----- ------
</TABLE>

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

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

<TABLE>
<CAPTION>
EQUITY
SECURITIES
FOR THE YEARS ENDED DECEMBER 31 FIXED AND OTHER
(IN MILLIONS) MATURITIES (1) TOTAL
- ------------------------------------------------------------ ---------- ----------- -------

<S> <C> <C> <C>
1996

Net appreciation, beginning of year......................... $108.7 $ 44.3 $ 153.0
---------- ----------- -------
Net (depreciation) appreciation on available-for-sale
fixed maturities......................................... (94.1) 35.9 (58.2)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities.............. 23.1 -- 23.1
Provision for deferred federal income taxes and minority
interest................................................. 33.6 (20.1) 13.5
---------- ----------- -------
(37.4) 15.8 (21.6)
---------- ----------- -------
Net appreciation, end of year............................... $ 71.3 $ 60.1 $ 131.4
---------- ----------- -------
---------- ----------- -------

1995

Net appreciation (depreciation), beginning of year.......... $(89.4) $ 10.4 $ (79.0)
---------- ----------- -------
Effect of transfer of securities between classifications:
Net appreciation on available-for-sale fixed maturities... 29.2 -- 29.2
Effect of transfer on deferred policy acquisition costs
and on policy liabilities................................ (6.8) -- (6.8)
Provision for deferred federal income taxes and minority
interest................................................. (9.6) -- (9.6)
---------- ----------- -------
12.8 -- 12.8
---------- ----------- -------
Net appreciation on available-for-sale securities........... 465.4 87.5 552.9
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (86.9) (86.9)
Provision for deferred federal income taxes and minority
interest................................................... (193.2) (53.6) (246.8)
---------- ----------- -------
185.3 33.9 219.2
---------- ----------- -------
Net appreciation, end of year............................... $108.7 $ 44.3 $ 153.0
---------- ----------- -------
---------- ----------- -------

1994

Net appreciation, beginning of year......................... $-- $ 17.5 $ 17.5
---------- ----------- -------
Cumulative effect of accounting change:
Net appreciation on available-for-sale fixed maturities... 335.3 -- 335.3
Net depreciation from the effect of accounting change on
deferred policy acquisition costs and on policy
liabilities.............................................. (39.2) -- (39.2)
Provision for deferred federal income taxes and minority
interest................................................. (149.1) -- (149.1)
---------- ----------- -------
147.0 -- 147.0
---------- ----------- -------
Net depreciation on available-for-sale securities........... (547.9) (17.4) (565.3)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 73.2 -- 73.2
Provision for deferred federal income taxes and minority
interest................................................... 238.3 10.3 248.6
---------- ----------- -------
(236.4) (7.1) (243.5)
---------- ----------- -------
Net (depreciation) appreciation, end of year................ $(89.4) $ 10.4 $ (79.0)
---------- ----------- -------
---------- ----------- -------
</TABLE>

(1) Includes net appreciation on other investments of $0.6 million, 2.2
million, and $0.6 million in 1996, 1995, and 1994, respectively.

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

B. MORTGAGE LOANS AND REAL ESTATE

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

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

<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1996 1995
- ---------------------------------------- ------ --------

<S> <C> <C>
Mortgage loans.......................... $650.1 $ 799.5
------ --------
Real estate:
Held for sale......................... 110.4 168.9
Held for production of income......... 10.3 10.7
------ --------
Total real estate................... 120.7 179.6
------ --------
Total mortgage loans and real estate.... $770.8 $ 979.1
------ --------
------ --------
</TABLE>

Reserves for mortgage loans were $19.6 million and $33.8 million at December
31, 1996 and 1995, respectively.

During 1996, 1995 and 1994, non-cash investing activities included real
estate acquired through foreclosure of mortgage loans, which had a fair value of
$0.9 million, $26.1 million and $39.2 million, respectively.

At December 31, 1996, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $22.1 million, of
which $3.1 million related to the Closed Block. These commitments generally
expire within one year.

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

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

<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1996 1995
- ---------------------------------------- ------ --------

<S> <C> <C>
Property type:
Office building....................... $317.1 $ 435.9
Residential........................... 95.4 145.3
Retail................................ 177.0 205.6
Industrial / warehouse................ 124.8 93.8
Other................................. 91.0 151.9
Valuation allowances.................. (34.5) (53.4)
------ --------
Total................................... $770.8 $ 979.1
------ --------
------ --------
Geographic region:
South Atlantic........................ 227.0 $ 281.4
Pacific............................... 154.4 191.9
East North Central.................... 119.2 118.2
Middle Atlantic....................... 112.6 148.9
West South Central.................... 41.6 79.7
New England........................... 50.9 94.9
Other................................. 99.6 117.5
Valuation allowances.................. (34.5) (53.4)
------ --------
Total................................... $770.8 $ 979.1
------ --------
------ --------
</TABLE>

At December 31, 1996, scheduled mortgage loan maturities were as follows:
1997 -- $131.9 million; 1998 -- $161.7 million; 1999 -- $99.9 million; 2000 --
$138.0 million; 2001 -- $34.4 million; and $84.2 million thereafter. Actual
maturities could differ from contractual maturities because borrowers may have
the right to prepay obligations with or without prepayment penalties and loans
may be refinanced. During 1996, the Company refinanced $7.8 million of mortgage
loans based on terms which differed from those granted to new borrowers.

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

C. INVESTMENT VALUATION ALLOWANCES

Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets and
changes thereto are shown below.

<TABLE>
<CAPTION>
FOR THE YEARS ENDED BALANCE AT
DECEMBER 31 BALANCE AT DECEMBER
(IN MILLIONS) JANUARY 1 ADDITIONS DEDUCTIONS 31
- ------------------------- ---------- --------- ---------- ----------

<S> <C> <C> <C> <C>
1996

Mortgage loans........... $33.8 $ 5.5 $19.7 $19.6
Real estate.............. 19.6 -- 4.7 14.9
----- --------- ----- -----
Total................ $53.4 $ 5.5 $24.4 $34.5
----- --------- ----- -----
----- --------- ----- -----

1995

Mortgage loans........... $47.2 $ 1.5 $14.9 $33.8
Real estate.............. 22.9 (0.6) 2.7 19.6
----- --------- ----- -----
Total................ $70.1 $ 0.9 $17.6 $53.4
----- --------- ----- -----
----- --------- ----- -----

1994

Mortgage loans........... $73.8 $14.6 $41.2 $47.2
Real estate.............. 21.0 3.2 1.3 22.9
----- --------- ----- -----
Total................ $94.8 $17.8 $42.5 $70.1
----- --------- ----- -----
----- --------- ----- -----
</TABLE>

The carrying value of impaired loans was $33.6 million and $55.7 million,
with related reserves of $11.9 million and $22.3 million as of December 31, 1996
and 1995, respectively. All impaired loans were reserved as of December 31, 1996
and 1995.

The average carrying value of impaired loans was $50.4 million, $117.9
million and $155.5 million, with related interest income while such loans were
impaired of $5.8 million, $9.3 million and $12.4 million as of December 31,
1996, 1995 and 1994 respectively.

D. FUTURES CONTRACTS

FAFLIC purchases long futures contracts and sells short futures contracts on
margin to hedge against interest rate fluctuations and their effect on the net
cash flows from the sales of guaranteed investment contracts. The notional
amount of such futures contracts outstanding were $(33.0) million net short and
$74.7 million long contracts at December 31, 1996 and 1995, respectively.
Because the Company purchases and sells futures contracts through brokers who
assume the risk of loss, the Company's exposure to credit risk under futures
contracts is limited to the margin deposited with the broker. The maturity of
all futures contracts outstanding are less than one year. The fair value of
futures contracts outstanding were $(32.4) million and $75.7 million at December
31, 1996 and 1995, respectively.

Gains and losses on hedge contracts related to interest rate fluctuations
are deferred and recognized in income over the period being hedged corresponding
to related guaranteed investment contracts. Deferred hedging gains (losses) were
$0.5 million, $5.6 million, and $(7.7) million in 1996, 1995 and 1994,
respectively. Gains and losses on hedge contracts that are deemed ineffective by
management are realized immediately.

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

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

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
- --------------------------------------------- ------ ------ ------

<S> <C> <C> <C>
Contracts outstanding, beginning of year..... $ 74.7 $126.6 $141.7
New contracts................................ (1.1) 349.2 816.0
Contracts terminated......................... (106.6) (401.1) (831.1)
------ ------ ------
Contracts outstanding, end of year........... $(33.0) $ 74.7 $126.6
------ ------ ------
------ ------ ------
</TABLE>

E. FOREIGN CURRENCY SWAP CONTRACTS

The Company enters into foreign currency swap contracts to hedge exposure to
currency risk on foreign fixed maturity investments. Interest and principal
related to foreign fixed maturity investments payable in foreign currencies, at
current exchange rates, are exchanged for the equivalent payment translated at a
specific currency exchange rate. The Company's maximum exposure to counterparty
credit risk is the difference between the foreign currency exchange rate, as
agreed upon in the swap contract, and the foreign currency spot rate on the date
of the exchange. The fair values of the foreign currency swap contracts
outstanding were $(9.2) million and $(1.8) million at December 31, 1996 and
1995, respectively.

The difference between amounts paid and received on foreign currency swap
contracts is reflected in the net investment income related to the underlying
assets and is not material in 1996, 1995 and 1994. The Company had no deferred
gains or losses on foreign currency swap contracts.

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

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
- --------------------------------------------- ------ ------ ------

<S> <C> <C> <C>
Contracts outstanding, beginning of year..... $104.6 $118.7 $128.8
New contracts................................ -- -- 10.1
Contracts expired............................ (36.0) -- (15.1)
Contracts terminated......................... -- (14.1) (5.1)
------ ------ ------
Contracts outstanding, end of year........... $ 68.6 $104.6 $118.7
------ ------ ------
------ ------ ------
</TABLE>

Expected maturities of foreign currency swap contracts are $18.2 million in
1997 and $50.4 million in 1999 and thereafter. There are no expected maturities
of foreign currency swap contracts in 1998.

F. INTEREST RATE AND OTHER SWAP CONTRACTS

The Company enters into interest rate swap contracts to hedge exposure to
interest rate fluctuations. Under these swap contracts, the Company agrees to
exchange, at specified intervals, the difference between fixed and floating
interest amounts calculated on an agreed-upon notional principal amount. In
addition, the Company has entered into two new types of swap contracts in 1996:
security return-linked swap contracts and insurance portfolio-linked swap
contracts for investment purposes. Under the security return-linked contracts,
the Company agrees to exchange cash flows according to the performance of a
specified security or portfolio of securities. Under the insurance
portfolio-linked swap contracts, the Company agrees to exchange cash flows
according to the performance of a specified underwriter's portfolio of insurance
business. Because the underlying principal of swap contracts is not exchanged,
the Company's maximum exposure to counterparty credit risk is the difference in
payments exchanged.

The net amount receivable or payable is recognized over the life of the swap
contract as an adjustment to net investment income. The increase or (decrease)
in net investment income related to interest rate and other swap contracts was
$0.6 million, $0.7 million and $(1.3) million for the years ended December 31,
1996,

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

1995 and 1994, respectively. The Company had no deferred gains or losses
relating to interest rate and other swap contracts. The fair values of interest
rate and other swap contracts outstanding were $0.1 million, $0.4 million and
$0.6 million for the years ended December 31, 1996, 1995 and 1994, respectively.

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

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
- --------------------------------------------- ------ ------ ------

<S> <C> <C> <C>
Contracts outstanding, beginning of year..... $ 17.5 $ 22.8 $ 22.8
New contracts................................ 63.6 -- --
Contracts expired............................ (17.5) (5.3) --
------ ------ ------
Contracts outstanding, end of year........... $ 63.6 $ 17.5 $ 22.8
------ ------ ------
------ ------ ------
</TABLE>

Expected maturities of interest rate and other swap contracts outstanding at
December 31 are as follows: $43.6 million in 1997, $5.0 million in 1998, and
$15.0 million in 1999 and thereafter.

G. OTHER

At December 31, 1996, FAFLIC had no concentration of investments in a single
investee exceeding 10% of shareholder's equity, except for investments with the
U.S. Treasury with a carrying value of $262.8 million.

4. INVESTMENT INCOME AND GAINS AND LOSSES

A. NET INVESTMENT INCOME

The components of net investment income were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
- --------------------------------------------- ------ ------ ------

<S> <C> <C> <C>
Fixed maturities............................. $553.8 $555.1 $578.3
Mortgage loans............................... 69.5 97.0 119.9
Equity securities............................ 11.1 13.2 9.9
Policy loans................................. 10.3 20.3 23.3
Real estate.................................. 40.8 48.7 44.6
Other long-term investments.................. 19.0 7.1 5.7
Short-term investments....................... 10.6 21.2 10.3
------ ------ ------
Gross investment income...................... 715.1 762.6 792.0
Less investment expenses..................... (45.2) (52.5) (48.9)
------ ------ ------
Net investment income........................ $669.9 $710.1 $743.1
------ ------ ------
------ ------ ------
</TABLE>

At December 31, 1996, fixed maturities and mortgage loans on non-accrual
status were $2.0 million and $6.8 million, including restructured loans of $4.4
million. The effect of non-accruals, compared with amounts that would have been
recognized in accordance with the original terms of the investments, was to
reduce net income by $0.5 million, $0.6 million and $5.1 million in 1996, 1995
and 1994, respectively.

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 $51.3 million, $98.9 million and $126.8 million at December
31, 1996, 1995 and 1994, respectively. Interest income on restructured mortgage
loans that would have been recorded in accordance with the original terms of
such loans amounted to $7.7 million, $11.1 million and $14.4 million in 1996,
1995 and 1994, respectively. Actual interest income on these loans included in
net investment income aggregated $4.5 million, $7.1 million and $8.2 million in
1996, 1995 and 1994, respectively.

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

At December 31, 1996, fixed maturities with a carrying value of $2.0 million
were non-income producing for the twelve months ended December 31, 1996. There
were no mortgage loans which were non-income producing for the twelve months
ended December 31, 1996.

Included in long-term investments is income from limited partnerships of
$13.7 million, $0.1 million and $0.6 million in 1996, 1995 and 1994,
respectively.

B. REALIZED INVESTMENT GAINS AND LOSSES

Realized gains (losses) on investments were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
- --------------------------------------------- ------ ------ ------

<S> <C> <C> <C>
Fixed maturities............................. $ (9.7) $ (7.0) $ 2.4
Mortgage loans............................... (2.4) 1.4 (12.1)
Equity securities............................ 54.8 16.2 12.4
Real estate.................................. 21.1 5.3 1.4
Other........................................ 3.0 3.2 (3.0)
------ ------ ------
Net realized investment gains................ $ 66.8 $ 19.1 $ 1.1
------ ------ ------
------ ------ ------
</TABLE>

Proceeds from voluntary sales of investments in fixed maturities were
$2,432.8 million, $1,612.3 million and $1,036.5 million in 1996, 1995 and 1994,
respectively. Realized gains on such sales were $19.3 million, $23.7 million and
$12.9 million; and realized losses were $30.5 million, $33.0 million and $21.6
million for 1996, 1995 and 1994, respectively.

5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of fair value information about certain financial instruments
(insurance contracts, real estate, goodwill and taxes are excluded) for which it
is practicable to estimate such values, whether or not these instruments are
included in the balance sheet. The fair values presented for certain financial
instruments are estimates which, in many cases, may differ significantly from
the amounts which could be realized upon immediate liquidation. In cases where
market prices are not available, estimates of fair value are based on discounted
cash flow analyses which utilize current interest rates for similar financial
instruments which have comparable terms and credit quality. Fair values of
interest rate futures were not material at December 31, 1996 and 1995.

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

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

MORTGAGE LOANS

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

POLICY LOANS

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

REINSURANCE RECEIVABLES

The carrying amount reported in the consolidated balance sheets approximates
fair value.

INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)

Fair values for the Company's liabilities under guaranteed investment type
contracts are estimated using discounted cash flow calculations using current
interest rates for similar contracts with maturities consistent with those
remaining for the contracts being valued. Other liabilities are based on
surrender values.

DEBT

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

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

<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
DECEMBER 31 CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- --------------------------------------------- --------- -------- --------- --------

<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents.................. $ 175.9 $ 175.9 $ 236.6 $ 236.6
Fixed maturities........................... 7,461.5 7,461.5 7,739.3 7,739.3
Equity securities.......................... 473.1 473.1 517.2 517.2
Mortgage loans............................. 650.1 675.7 799.5 845.4
Policy loans............................... 132.4 132.4 123.2 123.2
--------- -------- --------- --------
$ 8,893.0 $8,918.6 $ 9,415.8 $9,461.7
--------- -------- --------- --------
--------- -------- --------- --------

FINANCIAL LIABILITIES
Guaranteed investment contracts............ $ 1,101.3 $1,119.2 $ 1,632.8 $1,677.0
Supplemental contracts without life
contingencies............................. 23.1 23.1 24.4 24.4
Dividend accumulations..................... 87.3 87.3 86.2 86.2
Other individual contract deposit funds.... 76.9 74.3 95.7 92.8
Other group contract deposit funds......... 789.1 788.3 894.0 902.8
Individual annuity contracts............... 935.6 719.0 966.3 810.0
Short-term debt............................ 38.4 38.4 28.0 28.0
Long-term debt............................. 2.7 2.7 2.8 2.9
--------- -------- --------- --------
$ 3,054.4 $2,852.3 $ 3,730.2 $3,624.1
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>

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

6. CLOSED BLOCK

Included in other income in the Consolidated Statement of Income in 1996 and
1995 is a net pre-tax contribution from the Closed Block of $8.6 million and
$2.9 million, respectively. Summarized financial information of the Closed Block
as of December 31, 1996 and 1995 and for the period ended December 31, 1996, and
the period from October 1, 1995 through December 31, 1995, is as follows:

<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1996 1995
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Assets
Fixed maturities, at fair value (amortized cost of $397.2 and $447.4, respectively).......... $ 403.9 $ 458.0
Mortgage loans............................................................................... 114.5 57.1
Policy loans................................................................................. 230.2 242.4
Cash and cash equivalents.................................................................... 24.1 17.6
Accrued investment income.................................................................... 14.3 16.6
Deferred policy acquisition costs............................................................ 21.1 24.5
Other assets................................................................................. 3.7 2.7
--------- ---------
Total assets................................................................................... $ 811.8 $ 818.9
--------- ---------
--------- ---------
Liabilities
Policy liabilities and accruals.............................................................. $ 883.4 $ 899.2
Other liabilities............................................................................ 8.7 2.8
--------- ---------
Total liabilities.............................................................................. $ 892.1 $ 902.0
--------- ---------
--------- ---------
</TABLE>

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

<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 31, DECEMBER 31, OCTOBER 1 THROUGH
(IN MILLIONS) 1996 DECEMBER 31, 1995
- -------------------------------------------------------------------------------- ------------ -----------------
<S> <C> <C>
Revenues
Premiums...................................................................... $ 61.7 $ 11.5
Net investment income......................................................... 52.6 12.8
Realized investment loss...................................................... (0.7) --
------------ -------
Total revenues.................................................................. 113.6 24.3
------------ -------
Benefits and expenses
Policy benefits............................................................... 101.2 20.6
Policy acquisition expenses................................................... 3.2 0.8
Other operating expenses...................................................... 0.6 --
------------ -------
Total benefits and expenses..................................................... 105.0 21.4
------------ -------
Contribution from the Closed Block.............................................. $ 8.6 $ 2.9
------------ -------
------------ -------
Cash flows
Cash flows from operating activities:
Contribution from the Closed Block.......................................... $ 8.6 $ 2.9
Initial cash transferred to the Closed Block................................ -- 139.7
Change in deferred policy acquisition costs, net............................ 3.4 0.4
Change in premiums and other receivables.................................... 0.2 (0.1)
Change in policy liabilities and accruals................................... (13.9) 2.0
Change in accrued investment income......................................... 2.3 (1.3)
Other, net.................................................................. 2.5 0.8
------------ -------
Net cash provided by operating activities....................................... 3.1 144.4
------------ -------
Cash flows from investing activities:
Sales, maturities and repayments of investments............................. 188.1 29.0
Purchases of investments.................................................... (196.9) (158.8)
Other, net.................................................................. 12.2 3.0
------------ -------
Net cash provided by (used in) investing activities............................. 3.4 (126.8)
------------ -------
Net increase in cash and cash equivalents....................................... 6.5 17.6
Cash and cash equivalents, beginning of year.................................... 17.6 --
------------ -------
Cash and cash equivalents, end of year.......................................... $ 24.1 $ 17.6
------------ -------
------------ -------
</TABLE>

On October 16, 1995, there were no valuation allowances transferred to the
Closed Block on mortgage loans. There are no valuation allowances on mortgage
loans in the Closed Block at December 31, 1996 or 1995, respectively.

Many expenses related to Closed Block operations are charged to operations
outside the Closed Block; accordingly, the contribution from the Closed Block
does not represent the actual profitability of the Closed Block operations.
Operating costs and expenses outside of the Closed Block are, therefore,
disproportionate to the business outside the Closed Block.

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

7. DEBT

Short- and long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1996 1995
- ------------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Short-Term
Commercial paper............................................................................... $ 37.8 $ 27.7
Other.......................................................................................... 0.6 0.3
--------- ---------
Total short-term debt............................................................................ $ 38.4 $ 28.0
--------- ---------
--------- ---------
Long-term debt................................................................................... $ 2.7 $ 2.8
--------- ---------
--------- ---------
</TABLE>

FAFLIC issues commercial paper primarily to manage imbalances between
operating cash flows and existing commitments. Commercial paper borrowing
arrangements are supported by various lines of credit. At December 31, 1996, the
weighted average interest rate for outstanding commercial paper was
approximately 5.5%.

At December 31, 1996, FAFLIC had approximately $140.0 million in committed
lines of credit provided by U.S. banks, of which $102.2 million was available
for borrowing. These lines of credit generally have terms of less than one year,
and require the Company to pay annual commitment fees of 0.07% of the available
credit. Interest that would be charged for usage of these lines of credit is
based upon negotiated arrangements.

During 1996, the Company utilized repurchase agreements to finance certain
investments. Although the repurchase agreements were entirely settled by year
end, management may utilize this policy again in future periods.

In October, 1995, AFC issued $200.0 million face amount of Senior Debentures
for proceeds of $197.2 million net of discounts and issuance costs. These
securities have an effective interest rate of 7.65%, and mature on October 16,
2025. Interest is payable semiannually on October 15 and April 15 of each year.
The Senior Debentures are subject to certain restrictive covenants, including
limitations on issuance of or disposition of stock of restricted subsidiaries
and limitations on liens. AFC is in compliance with all covenants. The primary
source of cash for repayment of the debt by AFC is dividends from FAFLIC.

Interest expense was $16.8 million, $4.1 million and $4.3 million in 1996,
1995 and 1994, respectively. Interest expense included $11.0 million related to
interest payments on repurchase agreements. All interest expense is recorded in
other operating expenses.

8. FEDERAL INCOME TAXES

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

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

The federal income taxes attributable to the consolidated results of
operations are different from the amounts determined by multiplying income
before federal income taxes by the expected federal income tax rate. The sources
of the difference and the tax effects of each were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
- ------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Expected federal income tax expense.................................................. $ 122.3 $ 105.6 $ 53.7
Tax-exempt interest................................................................ (35.3) (32.2) (35.9)
Differential earnings amount....................................................... (10.2) (7.6) 35.0
Dividend received deduction........................................................ (1.6) (4.0) (2.5)
Changes in tax reserve estimates................................................... 4.7 19.3 4.0
Other, net......................................................................... 1.2 1.6 (0.9)
--------- --------- ---------
Federal income tax expense........................................................... $ 81.1 $ 82.7 $ 53.4
--------- --------- ---------
--------- --------- ---------
</TABLE>

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

The deferred income tax asset represents the tax effects of temporary
differences attributable to Allmerica P&C, a separate consolidated group for
federal tax return purposes. Its components were as follows:

<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1996 1995
- --------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Deferred tax (assets) liabilities
AMT carryforwards.......................................................................... $ (16.3) $ (9.8)
Loss reserve discounting................................................................... (182.1) (178.3)
Deferred acquisition costs................................................................. 57.5 55.1
Employee benefit plans..................................................................... (25.1) (25.5)
Investments, net........................................................................... 73.4 77.4
Bad debt reserve........................................................................... (1.7) (1.8)
Other, net................................................................................. 1.1 1.7
--------- ---------
Deferred tax asset, net...................................................................... $ (93.2) $ (81.2)
--------- ---------
--------- ---------
</TABLE>

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

The deferred income tax liability represents the tax effects of temporary
differences attributable to the FAFLIC/AFLIAC consolidated federal tax return
group. Its components were as follows:

<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1996 1995
- --------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Deferred tax (assets) liabilities
Loss reserve discounting................................................................... $ (153.7) $ (129.1)
Deferred acquisition costs................................................................. 189.6 169.7
Employee benefit plans..................................................................... (16.3) (14.6)
Investments, net........................................................................... 55.1 67.0
Bad debt reserve........................................................................... (24.5) (26.3)
Other, net................................................................................. (15.6) (18.9)
--------- ---------
Deferred tax liability, net.................................................................. $ 34.6 $ 47.8
--------- ---------
--------- ---------
</TABLE>

Gross deferred income tax assets totaled $435.3 million and $405.1 million
at December 31, 1996 and 1995, respectively. Gross deferred income tax
liabilities totaled $376.7 million and $371.7 million at December 31, 1996 and
1995, respectively.

Management believes, based on the Company's recent earnings history and its
future expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, management considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary.

At December 31, 1996, there are available non-life net operating loss
carryforwards of $0.8 million, and alternative minimum tax credit carryforwards
of $16.3 million.

The Company's federal income tax returns are routinely audited by the IRS,
and provisions are routinely made in the financial statements in anticipation of
the results of these audits. The IRS has examined the FAFLIC/AFLIAC consolidated
group's federal income tax returns through 1991. The IRS has also examined the
Allmerica P&C consolidated group's federal income tax returns through 1991. The
Company is currently considering its response to certain adjustments proposed by
the IRS with respect to the federal income tax returns for 1989, 1990 and 1991
for both the FAFLIC/AFLIAC consolidated group, as well as the Allmerica P&C
consolidated group. Also, certain adjustments proposed by the IRS with respect
to FAFLIC/AFLIAC's federal income tax returns for 1982 and 1983 remain
unresolved. If upheld, these adjustments would result in additional payments;
however, the Company will vigorously defend its position with respect to these
adjustments. In management's opinion, adequate tax liabilities have been
established for all years. However, the amount of these tax liabilities could be
revised in the near term if estimates of the Company's ultimate liability are
revised.

9. PENSION PLANS

FAFLIC provides retirement benefits to substantially all of its employees under
three separate defined benefit pension plans. Through December 31, 1994,
retirement benefits were based primarily on employees' years of service and
compensation during the highest five consecutive plan years of employment.
Benefits under this defined benefit formula were frozen for most employees (but
not for eligible agents) effective December 31, 1994. In their place, the
Company adopted a defined benefit cash balance formula, under which the Company
annually provides an allocation to each eligible employee as a percentage of
that employee's salary, similar to a defined contribution plan arrangement. The
1996 and 1995 allocations were based on 7.0% of each eligible employee's salary.
The Company's policy for the plans is to fund at least the minimum amount
required by the Employee Retirement Income Security Act of 1974.

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

Components of net pension expense were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the year....................................... $ 19.0 $ 19.7 $ 13.0
Interest accrued on projected benefit obligations..................................... 21.9 21.1 20.0
Actual return on assets............................................................... (42.2) (89.3) (2.6)
Net amortization and deferral......................................................... 9.3 66.1 (16.3)
--------- --------- ---------
Net pension expense................................................................... $ 8.0 $ 17.6 $ 14.1
--------- --------- ---------
--------- --------- ---------
</TABLE>

The following table summarizes the combined status of the three pension
plans. At December 31, 1996 the plans' assets exceeded their projected benefit
obligations and in 1995 the plans' projected benefit obligations exceeded their
assets.

<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1996 1995
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................................................................... $ 308.9 $ 325.6
Unvested benefit obligation.................................................................. 6.6 5.0
--------- ---------
Accumulated benefit obligation................................................................. $ 315.5 $ 330.6
--------- ---------
--------- ---------

Pension liability included in Consolidated Balance Sheets:
Projected benefit obligation................................................................. $ 344.2 $ 367.1
Plan assets at fair value.................................................................... 347.8 321.2
--------- ---------
Plan assets greater (less) than projected benefit obligation............................... 3.6 (45.9)
Unrecognized net (gain) loss from past experience............................................ (9.1) 48.8
Unrecognized prior service benefit........................................................... (11.5) (13.8)
Unamortized transition asset................................................................. (24.7) (26.5)
--------- ---------
Net pension liability.......................................................................... $ (41.7) $ (37.4)
--------- ---------
--------- ---------
</TABLE>

Determination of the projected benefit obligations was based on a weighted
average discount rate of 7.0% in 1996 and 1995, and the assumed long-term rate
of return on plan assets was 9%. The actuarial present value of the projected
benefit obligations was determined using assumed rates of increase in future
compensation levels ranging from 5.5% to 6.5%. Plan assets are invested
primarily in various separate accounts and the general account of FAFLIC. The
plans also hold stock of AFC.

The Company has a profit sharing and 401(k) plan for its employees.
Effective for plan years beginning after 1994, the profit sharing formula for
employees has been discontinued and a 401(k) match feature has been added to the
continuing 401(k) plan for the employees. Total plan expense in 1996, 1995 and
1994 was $5.5 million, $5.2 million and $12.6 million, respectively. In addition
to this Plan, the Company has a defined contribution plan for substantially all
of its agents. The Plan expense in 1996, 1995 and 1994 was $2.0 million, $3.5
million and $2.7 million, respectively.

10. OTHER POSTRETIREMENT BENEFIT PLANS

In addition to the Company's pension plans, the Company currently provides
postretirement medical and death benefits to certain full-time employees and
dependents, under several plans sponsored by FAFLIC, Hanover and Citizens.
Generally, employees become eligible at age 55 with at least 15 years of
service. Spousal coverage is generally provided for up to two years after death
of the retiree. Benefits include hospital, major medical and a payment at death
equal to retirees' final compensation up to certain limits.

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

Effective January 1, 1996, the Company revised these benefits so as to establish
limits on future benefit payments and to restrict eligibility to current
employees. The medical plans have varying copayments and deductibles, depending
on the plan. These plans are unfunded.

The plan changes effective January 1, 1996 resulted in a negative plan
amendment (change in eligibility and medical benefits) of $26.8 million and
curtailment (no future increases in life insurance) of $5.3 million. The
negative plan amendment will be amortized as prior service cost over the average
number of years to full eligibility (approximately 9 years or $3.0 million per
year). Of the $5.3 million curtailment gain, $3.3 million has been deducted from
unrecognized loss and $2.0 million has been recorded as a reduction of the net
periodic postretirement benefit expense.

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

<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1996 1995
- ---------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................................................... $ 40.4 $ 44.9
Fully eligible active plan participants..................................................... 7.5 14.0
Other active plan participants.............................................................. 24.4 45.9
--------- ---------
72.3 104.8
Plan assets at fair value..................................................................... -- --
--------- ---------
Accumulated postretirement benefit obligation in excess of plan assets........................ 72.3 104.8
Unrecognized prior service benefit............................................................ 23.8 --
Unrecognized loss............................................................................. (5.0) (13.4)
--------- ---------
Accrued postretirement benefit costs.......................................................... $ 91.1 $ 91.4
--------- ---------
--------- ---------
</TABLE>

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

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
- ---------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service cost............................................................................ $ 3.2 $ 4.2 $ 6.6
Interest cost........................................................................... 4.6 6.9 6.9
Amortization of (gain) loss............................................................. (2.8) (0.5) 1.4
--------- --------- ---------
Net periodic postretirement benefit expense............................................. $ 5.0 $ 10.6 $ 14.9
--------- --------- ---------
--------- --------- ---------
</TABLE>

For purposes of measuring the accumulated postretirement benefit obligation
at December 31, 1996, health care costs were assumed to increase 9.0% in 1997,
declining thereafter until the ultimate rate of 5.5% is reached in 2001 and
remains at that level thereafter. The health care cost trend rate assumption has
a significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation at December 31, 1996
by $5.3 million, and the aggregate of the service and interest cost components
of net periodic postretirement benefit expense for 1996 by $0.7 million.

The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% at December 31, 1996 and 1995.

F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued

11. POSTEMPLOYMENT BENEFITS

Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, (SFAS No. 112), "Employers' Accounting
for Postemployment Benefits", which requires employers to recognize the costs
and obligations of severance, disability and related life insurance and health
care benefits to be paid to inactive or former employees after employment but
before retirement. Prior to adoption, the Company had recognized the cost of
these benefits on an accrual or paid basis, depending on the plan.
Implementation of SFAS No. 112 resulted in a transition obligation of $1.9
million, net of federal income taxes and minority interest, and is reported as a
cumulative effect of a change in accounting principle in the consolidated
statement of income. The impact of this accounting change, after recognition of
the cumulative effect, was not significant.

12. STOCK-BASED COMPENSATION PLANS

In October 1995 the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). The Standard is
effective for fiscal years beginning after December 15, 1995, and requires the
company either to apply a fair value measure to any stock-based compensation
granted by the company, or continue to apply the valuation provisions of
existing accounting standards, but with pro-forma net income and earnings per
share disclosures using a fair value methodology to value the stock-based
compensation. Beginning for the year ended December 31, 1996, AFC has elected to
continue to apply the valuation provisions of existing accounting standards (APB
25). The pro-forma effect of applying SFAS 123 is not material.

Effective June 17, 1996, AFC adopted a Long Term Stock Incentive Plan for
employees of AFC (the "Employees' Plan"). Key employees of AFC and its
subsidiaries are eligible for awards pursuant to the Plan administered by the
Compensation Committee of the Board of Directors (the "Committee") of AFC. Under
the terms of the Employees' Plan, options may be granted to eligible employees
at a price not less than the market price of AFC's common stock on the date of
grant. Option shares may be exercised subject to the terms prescribed by the
Committee at the time of grant, otherwise options vest at the rate of 20%
annually for five consecutive years and must be exercised not later than ten
years from the date of grant. At June 17, 1996, 231,500 option shares were
granted at an option price of $27.50. During 1996, 22,000 option shares were
forfeited leaving 209,500 option shares outstanding at December 31, 1996. There
were no options exercised during 1996. At December 31, 1996, there were no
options exercisable and 2,140,500 option shares were available for future grant.

13. DIVIDEND RESTRICTIONS

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

Massachusetts' statute limits the dividends an insurer may pay in any twelve
month period, without the prior permission of the Commonwealth of Massachusetts
Insurance Commissioner, to the greater of (i) 10% of its statutory policyholder
surplus as of the preceding December 31 or (ii) the individual company's
statutory net gain from operations for the preceding calendar year (if such
insurer is a life company), or its net income for the preceding calendar year
(if such insurer is not a life company). In addition, under Massachusetts law,
no domestic insurer shall pay a dividend or make any distribution to its
shareholders from other than unassigned funds unless the Commissioner shall have
approved such dividend or distribution. At January 1, 1997, FAFLIC could pay
dividends of $151.8 million to AFC without prior approval of the Commissioner.

Dividends from FAFLIC to AFC will be the primary source of cash for
repayment of the debt by AFC and payment of dividends to AFC stockholders.

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

Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding December 31
or (ii) the individual company's statutory net gain from operations for the
preceding calendar year (if such insurer is a life company) or its net income
(not including realized capital gains) for the preceding calendar year (if such
insurer is not a life company). Any dividends to be paid by an insurer, whether
or not in excess of the aforementioned threshold, from a source other than
statutory earned surplus would also require the prior approval of the Delaware
Commissioner of Insurance. At January 1, 1997, AFLIAC could pay dividends of
$11.9 million to FAFLIC without prior approval.

Pursuant to New Hampshire's statute, the maximum dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the New Hampshire Insurance Commissioner, is limited to 10% of
such insurer's statutory policyholder surplus as of the preceding December 31.
At January 1, 1997, the maximum dividend and other distributions that could be
paid to Allmerica P&C by Hanover, without prior approval of the Insurance
Commissioner, was approximately $15.4 million, which considers dividends
declared to Allmerica P&C of $105.0 million during 1996, including $80.0 million
which was declared in December. On January 2, 1997, Hanover declared an
extraordinary dividend in the amount of $120.0 million, payable on or after
January 21, 1997 to Allmerica P&C. The dividend, which was approved by the New
Hampshire Department on January 9, 1997, is to be paid in a lump sum or in such
installments as Allmerica P&C in its discretion may determine.

Pursuant to Michigan's statute, the maximum dividends and other
distributions that an insurer may pay in any twelve month period, without prior
approval of the Michigan Insurance Commissioner, is limited to the greater of
10% of policyholders' surplus as of December 31 of the immediately preceding
year or the statutory net income less realized gains, for the immediately
preceding calendar year. At January 1, 1997, Citizens Insurance could pay
dividends of $39.9 million to Citizens Corporation without prior approval.

14. SEGMENT INFORMATION

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

The Risk Management group includes two segments: Regional Property and
Casualty and Corporate Risk Management Services.

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

The Retirement and Asset Management group includes three segments: Retail
Financial Services, Institutional Services and Allmerica Asset Management. The
Retail Financial Services segment includes variable annuities, variable
universal life-type, traditional and health insurance products distributed via
retail channels to individuals across the country. The Institutional Services
segment includes primarily group retirement products such as 401(k) plans,
tax-sheltered annuities and GIC contracts which are distributed to institutions
across the country via work-site marketing and other arrangements. Allmerica
Asset Management is a Registered Investment Advisor which provides investment
advisory services primarily to affiliates and to other institutions, such as
insurance companies and pension plans.

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

Summarized below is financial information with respect to business segments
for the year ended and as of December 31.

<TABLE>
<CAPTION>
(IN MILLIONS) 1996 1995 1994
-------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Risk Management
Regional Property and Casualty.......... $ 2,193.7 $ 2,095.1 $ 2,004.8
Corporate Risk Management............... 361.5 328.5 302.4
---------- ---------- ----------
Subtotal.............................. 2,555.2 2,423.6 2,307.2
---------- ---------- ----------
Retirement and Asset Management
Retail Financial Services............... 450.9 486.7 507.9
Institutional Services.................. 266.7 330.2 397.9
Allmerica Asset Management.............. 8.8 4.4 4.0
---------- ---------- ----------
Subtotal.............................. 726.4 821.3 909.8
---------- ---------- ----------
Eliminations.............................. (8.7) (4.4) (21.9)
---------- ---------- ----------
Total....................................... $ 3,272.9 $ 3,240.5 $ 3,195.1
---------- ---------- ----------
---------- ---------- ----------
Income (loss) from continuing operations
before income taxes:
Risk Management
Regional Property and Casualty.......... $ 197.7 $ 206.3 $ 113.1
Corporate Risk Management............... 20.7 18.3 19.9
---------- ---------- ----------
Subtotal.............................. 218.4 224.6 133.0
---------- ---------- ----------
Retirement and Asset Management...........
Retail Financial Services............... 76.9 35.2 14.2
Institutional Services.................. 52.8 42.8 4.4
Allmerica Asset Management.............. 1.1 2.3 1.9
---------- ---------- ----------
Subtotal.............................. 130.8 80.3 20.5
---------- ---------- ----------
Total....................................... $ 349.2 $ 304.9 $ 153.5
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
Risk Management
Regional Property and Casualty.......... $ 5,703.9 $ 5,741.8 $ 5,408.7
Corporate Risk Management............... 506.0 458.9 386.3
---------- ---------- ----------
Subtotal.............................. 6,209.9 6,200.7 5,795.0
---------- ---------- ----------
Retirement and Asset Management
Retail Financial Services............... 8,871.3 7,218.7 5,639.8
Institutional Services.................. 3,879.0 4,280.9 4,484.5
Allmerica Asset Management.............. 2.4 2.1 2.2
---------- ---------- ----------
Subtotal.............................. 12,752.7 11,501.7 10,126.5
---------- ---------- ----------
Total....................................... $18,962.6 $17,702.4 $15,921.5
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

15. LEASE COMMITMENTS

Rental expenses for operating leases, principally with respect to buildings,
amounted to $33.6 million, $36.4 million and $35.2 million in 1996, 1995 and
1994, respectively. At December 31, 1996, future minimum rental payments under
non-cancelable operating leases were approximately $71.7 million, payable as
follows: 1997 -- $26.4 million; 1998 -- $19.6 million; 1999 -- $12.8 million;
2000 -- $8.0 million; and $5.0 million thereafter.

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

It is expected that in the normal course of business, leases that expire
will be renewed or replaced by leases on other property and equipment; thus, it
is anticipated that future minimum lease commitments will not be less than the
amounts shown for 1997.
16. REINSURANCE

In the normal course of business, the Company seeks to reduce the loss that may
arise from catastrophes or other events that cause unfavorable underwriting
results by reinsuring certain levels of risk in various areas of exposure with
other insurance enterprises or reinsurers. Reinsurance transactions are
accounted for in accordance with the provisions of SFAS No. 113.

Amounts recoverable from reinsurers are estimated in a manner consistent
with the claim liability associated with the reinsured policy. Reinsurance
contracts do not relieve the Company from its obligations to policyholders.
Failure of reinsurers to honor their obligations could result in losses to the
Company; consequently, allowances are established for amounts deemed
uncollectible. The Company determines the appropriate amount of reinsurance
based on evaluation of the risks accepted and analyses prepared by consultants
and reinsurers and on market conditions (including the availability and pricing
of reinsurance). The Company also believes that the terms of its reinsurance
contracts are consistent with industry practice in that they contain standard
terms with respect to lines of business covered, limit and retention,
arbitration and occurrence. Based on its review of its reinsurers' financial
statements and reputations in the reinsurance marketplace, the Company believes
that its reinsurers are financially sound.

The Company is subject to concentration of risk with respect to reinsurance
ceded to various residual market mechanisms. As a condition to the ability to
conduct certain business in various states, the Company is required to
participate in various residual market mechanisms and pooling arrangements which
provide various insurance coverages to individuals or other entities that are
otherwise unable to purchase such coverage voluntarily provided by private
insurers.

These market mechanisms and pooling arrangements include the Massachusetts
Commonwealth Automobile Reinsurers ("CAR"), the Maine Workers' Compensation
Residual Market Pool ("MWCRP") and the Michigan Catastrophic Claims Association
("MCCA"). At December 31, 1996, the MCCA and CAR were the only two reinsurers
which represented 10% or more of the Company's reinsurance business. As a
servicing carrier in Massachusetts, the Company cedes a significant portion of
its private passenger and commercial automobile premiums to CAR. Net premiums
earned and losses and loss adjustment expenses ceded to CAR in 1996, 1995 and
1994 were $38.0 million and $21.8 million, $49.1 million and $33.7 million, and
$50.0 million and $29.8 million, respectively.

From 1988 through 1992, the Company was a servicing carrier in Maine, and
ceded a significant portion of its workers' compensation premiums to the Maine
Workers' Compensation Residual Market Pool, which is administered by The
National Council on Compensation Insurance ("NCCI"). The Company was involved in
legal proceedings regarding the MWCRP's deficit which through a legislated
settlement issued on June 23, 1995 provided for an initial funding of $220.0
million, of which the insurance carriers were responsible for $65.0 million.
Hanover paid its allocation of $4.2 million in December 1995. Some of the small
carriers are currently appealing this decision. The Company's right to recover
reinsurance balances for claims properly paid is not at issue in any such
proceedings. The Company expects to collect its reinsurance balance; however,
funding of the cash flow needs of the MWCRP may in the future be affected by
issues related to certain litigation, the outcome of which the Company cannot
predict. The Company ceded to MCCA net premiums earned and losses and loss
adjustment expenses in 1996, 1995 and 1994 of $50.5 million and $(52.9) million,
$66.8 million and $62.9 million, and $80.0 million and $24.2 million,
respectively. Because the MCCA is supported by assessments permitted by statute,
and all amounts billed by the Company to CAR, MWCRP and MCCA have been paid when
due, the Company believes that it has no significant exposure to uncollectible
reinsurance balances.

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

The effects of reinsurance were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
----------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Life insurance premiums:
Direct....................................... $ 389.1 $ 438.9 $ 447.2
Assumed...................................... 87.8 71.0 54.3
Ceded........................................ (138.9) (150.3) (111.0)
--------- --------- ---------
Net premiums................................... $ 338.0 $ 359.6 $ 390.5
--------- --------- ---------
--------- --------- ---------
Property and casualty premiums written:
Direct....................................... $2,039.7 $2,039.4 $1,992.4
Assumed...................................... 108.7 125.0 128.6
Ceded........................................ (234.0) (279.1) (298.1)
--------- --------- ---------
Net premiums................................... $1,914.4 $1,885.3 $1,822.9
--------- --------- ---------
--------- --------- ---------
Property and casualty premiums earned:
Direct....................................... $2,018.5 $2,021.7 $1,967.1
Assumed...................................... 112.4 137.7 116.1
Ceded........................................ (232.6) (296.2) (291.9)
--------- --------- ---------
Net premiums................................... $1,898.3 $1,863.2 $1,791.3
--------- --------- ---------
--------- --------- ---------
Life insurance and other individual policy
benefits, claims, losses and loss adjustment
expenses:
Direct....................................... $ 618.0 $ 749.6 $ 773.0
Assumed...................................... 44.9 38.5 28.9
Ceded........................................ (77.8) (69.5) (61.6)
--------- --------- ---------
Net policy benefits, claims, losses and loss
adjustment expenses........................... $ 585.1 $ 718.6 $ 740.3
--------- --------- ---------
--------- --------- ---------
Property and casualty benefits, claims, losses
and loss adjustment expenses:
Direct....................................... $1,288.3 $1,372.7 $1,364.4
Assumed...................................... 85.8 146.1 102.7
Ceded........................................ (2.2) (229.1) (160.4)
--------- --------- ---------
Net policy benefits, claims, losses and loss
adjustment expenses........................... $1,371.9 $1,289.7 $1,306.7
--------- --------- ---------
--------- --------- ---------
</TABLE>

17. DEFERRED POLICY ACQUISITION COSTS

The following reflects changes to the deferred policy acquisition asset:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
-------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year...................... $ 735.7 $ 802.8 $ 746.9
Acquisition expenses deferred................... 560.8 504.8 510.3
Amortized to expense during the year............ (483.5) (470.3) (475.7)
Adjustment to equity during the year............ 9.7 (50.4) 21.3
Transferred to the Closed Block................. -- (24.8) --
Adjustment for cession of term life insurance... -- (26.4) --
-------- -------- --------
Balance at end of year............................ $ 822.7 $ 735.7 $ 802.8
-------- -------- --------
-------- -------- --------
</TABLE>

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

18. LIABILITIES FOR OUTSTANDING CLAIMS, LOSSES AND LOSS ADJUSTMENT EXPENSES

The Company regularly updates its estimates of liabilities for outstanding
claims, losses and loss adjustment expenses as new information becomes available
and further events occur which may impact the resolution of unsettled claims for
its property and casualty and its accident and health lines of business. Changes
in prior estimates are reflected in results of operations in the year such
changes are determined to be needed and recorded.

The liability for future policy benefits and outstanding claims, losses and
loss adjustment expenses related to the Company's accident and health business
was $471.7 million, $446.9 million and $371.4 million at December 31, 1996, 1995
and 1994, respectively. Accident and health claim liabilities have been re-
estimated for all prior years and were increased by $0.6 million and $2.2
million in 1996 and 1994, respectively, and increased by $17.6 million in 1995.
Unfavorable development in the accident and health business during 1995 is
primarily due to reserve strengthening and adverse experience in the Company's
individual disability line of business

The following table provides a reconciliation of the beginning and ending
property and casualty reserve for unpaid losses and loss adjustment expenses
(LAE):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1996 1995 1994
----------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Reserve for losses and LAE, beginning of
year.......................................... $2,896.0 $2,821.7 $2,717.3
Incurred losses and LAE, net of reinsurance
recoverable:
Provision for insured events of the current
year....................................... 1,513.3 1,427.3 1,434.8
Decrease in provision for insured events of
prior years................................ (141.4) (137.6) (128.1)
--------- --------- ---------
Total incurred losses and LAE.................. 1,371.9 1,289.7 1,306.7
--------- --------- ---------
Payments, net of reinsurance recoverable:
Losses and LAE attributable to insured events
of current year............................ 759.6 652.2 650.2
Losses and LAE attributable to insured events
of prior years............................. 627.6 614.3 566.9
--------- --------- ---------
Total payments................................. 1,387.2 1,266.5 1,217.1
--------- --------- ---------
Change in reinsurance recoverable on unpaid
losses........................................ (136.6) 51.1 14.8
--------- --------- ---------
Reserve for losses and LAE, end of year........ $2,744.1 $2,896.0 $2,821.7
--------- --------- ---------
--------- --------- ---------
</TABLE>

As part of an ongoing process, the property and casualty reserves have been
re-estimated for all prior accident years and were decreased by $141.4 million,
$137.6 million and $128.1 million in 1996, 1995 and 1994, respectively. The
increase in favorable development on prior years' reserves of $3.8 million in
1996 results primarily from an $11.4 million increase in favorable development
at Citizens.

The increase in Citizens' favorable development of $11.4 million in 1996
reflects improved severity in the personal automobile line, where favorable
development increased $28.6 million to $33.0 million in 1996, partially offset
by less favorable development in the workers' compensation line. In 1995, the
workers' compensation line had favorable development of $32.7 million, primarily
as a result of Citizens re-estimating reserves to reflect the new claims cost
management programs and the Michigan Supreme Court ruling, which decreases the
maximum to be paid for indemnity cases on all existing and future claims. In
1996, the favorable development in the workers' compensation line of $21.8
million also reflected these developments. Hanover's favorable development,
including voluntary and involuntary pools, decreased $7.7 million in 1996 to
$82.9 million, primarily attributable to a decrease in favorable development in
the workers' compensation line of $19.8 million to favorable development of
$17.3 million in 1996. This decrease is primarily attributable to a re-estimate
of reserves with respect to certain types of workers' compensation policies
including large deductibles and excess of loss policies. In addition, during

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

1995 the Regional Property and Casualty subsidiaries refined their estimation of
unallocated loss adjustment expenses which increased favorable development in
that year. Favorable development in the personal automobile line also decreased
$4.7 million, to $42.4 million in 1996. These decreases were offset by increases
in favorable development of $1.9 million and $5.6 million, to $12.6 million and
$5.7 million, in the commercial automobile and commercial multiple peril lines,
respectively. Favorable development in other lines increased by $8.8 million,
primarily as a result of environmental reserve strengthening in 1995. Favorable
development in Hanover's voluntary and involuntary pools increased $3.7 million
to $4.1 million during 1996.

The increase in favorable development on prior years' reserves of $9.5
million in 1995 results primarily from a $34.6 million increase in favorable
development at Citizens. Favorable development in Citizens' personal automobile
and workers' compensation lines increased $16.6 million and $15.5 million, to
favorable development of $4.4 million and $32.7 million, respectively, due to
the aforementioned change in claims cost management and the Michigan Supreme
Court ruling. Hanover's favorable development, not including the effect of
voluntary and involuntary pools, was relatively unchanged at $90.2 million in
1995 compared to $91.7 million in 1994. Favorable development in Hanover's
workers' compensation line increased $27.7 million to $31.0 million during 1995.
This was offset by decreases of $14.6 million and $12.6 million, to $45.5
million and $0.1 million, in the personal automobile and commercial multiple
peril lines, respectively. Favorable development in Hanover's voluntary and
involuntary pools decreased $23.6 million to $0.4 million during 1995.

This favorable development reflects the Regional Property and Casualty
subsidiaries' reserving philosophy consistently applied over these periods.
Conditions and trends that have affected development of the loss and LAE
reserves in the past may not necessarily occur in the future.

Due to the nature of business written by the Regional Property and Casualty
subsidiaries, the exposure to environmental liabilities is relatively small, and
therefore, their reserves are relatively small compared to other types of
liabilities. Losses and LAE reserves related to environmental damage and toxic
tort liability, included in the total reserve for losses and LAE, were $50.8
million and $43.2 million, net of reinsurance of $20.2 million and $8.4 million,
at the end of 1996 and 1995, respectively. During 1995, the Regional Property
and Casualty subsidiaries redefined their environmental liabilities in
conformity with new guidelines issued by the NAIC. This had no impact on results
of operations. The Regional Property and Casualty subsidiaries do not
specifically underwrite policies that include this coverage, but as case law
expands policy provisions and insurers' liability beyond the intended coverage,
the Regional Property and Casualty subsidiaries may be required to defend such
claims. During 1995, Hanover performed an actuarial review of its environmental
reserves. This resulted in Hanover's providing additional reserves for "IBNR"
(incurred but not reported) claims, in addition to existing reserves for
reported claims. Although these claims are not material, their existence gives
rise to uncertainty and is discussed because of the possibility, however remote,
that they may become material. Management believes that, notwithstanding the
evolution of case law expanding liability in environmental claims, recorded
reserves related to these claims for environmental liability are adequate. In
addition, management is not aware of any litigation or pending claims that may
result in additional material liabilities in excess of recorded reserves. The
environmental liability could be revised in the near term if the estimates used
in determining the liability are revised.
19. MINORITY INTEREST

The Company's interest in Allmerica P&C is represented by ownership of 59.5%,
58.3% and 57.4% of the outstanding shares of common stock at December 31, 1996,
1995 and 1994, respectively. Earnings and shareholder's equity attributable to
minority shareholders are included in minority interest in the consolidated
financial statements.

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

20. 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

On June 23, 1995, the governor of Maine approved a legislative settlement
for the Maine Workers' Compensation Residual Market Pool deficit for the years
1988 through 1992. The settlement provides for an initial funding of $220.0
million toward the deficit. The insurance carriers are liable for $65.0 million,
and employers will contribute $110.0 million payable through surcharges on
premiums over the course of the next ten years. The major insurers are
responsible for 90% of the $65.0 million. Hanover's allocated share of the
settlement is approximately $4.2 million, which was paid in December 1995. The
remainder of the deficit of $45.0 million will be paid by the Maine Guaranty
Fund, payable in quarterly contributions over ten years. A group of smaller
carriers filed litigation to appeal the settlement. The Company believes that
adequate reserves have been established for any additional liability.

The Company has been named a defendant in various other legal proceedings
arising in the normal course of business. In the opinion of management, based on
the advice of legal counsel, the ultimate resolution of these proceedings will
not have a material effect on the Company's consolidated financial statements.
However, liabilities related to these proceedings could be established in the
near term if estimates of the ultimate resolution of these proceedings are
revised.

RESIDUAL MARKETS

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

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

<TABLE>
<CAPTION>
(IN MILLIONS) 1996 1995 1994
--------------------------------------------------- --------- --------- -------
<S> <C> <C> <C>
Statutory net income (Combined)
Property and Casualty Companies.................. $ 155.3 $ 155.3 $ 79.9
Life and Health Companies........................ 133.3 134.3 40.7
--------- --------- -------
Statutory Shareholder's Surplus (Combined)
Property and Casualty Companies.................. $1,201.6 $1,128.4 $974.3
Life and Health Companies........................ 1,120.1 965.6 465.3
--------- --------- -------
</TABLE>

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

22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The quarterly results of operations for 1996 and 1995 are summarized below:

<TABLE>
<CAPTION>
For the Three Months Ended
(In millions)

<S> <C> <C> <C> <C>
1996 March 31 June 30 Sept. 30 Dec. 31
Total revenues............................ $827.9 $799.4 $806.3 $839.3
-------- ------- -------- -------
Net income................................ $ 50.6 $ 45.3 $ 49.4 $ 48.2
-------- ------- -------- -------
-------- ------- -------- -------
1995
Total revenues............................ $841.4 $791.9 $822.8 $784.4
-------- ------- -------- -------
Income before extraordinary item.......... $ 39.2 $ 29.9 $ 34.8 $ 45.2
Extraordinary item -- demutualization
expense.................................. (2.5) (3.5) (4.7) (1.4)
-------- ------- -------- -------
Net income................................ $ 36.7 $ 26.4 $ 30.1 $ 43.8
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>

23. SUBSEQUENT EVENT (UNAUDITED)
On April 14, 1997, the Company entered into an agreement in principle to
transfer the Company's individual disability income business under a 100%
coinsurance arrangement to Metropolitan Life Insurance Company. The consummation
of the transaction is subject to the negotiation of definitive agreements and
regulatory approvals and is expected to occur on or before October 1, 1997. In
connection with this transaction, the Company has recorded an after-tax charge
of $35 million to net income in the first quarter of 1997 related to the
reinsurance of this business.

F-36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying statements of assets and liabilities and
the related statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of each of the
Sub-Accounts (1, 2, 3, 4, 5, 6, 7, 8, 9, 11, 12, 102, 103, 104, 105, 106, 150
and 207) constituting the Group VEL Account of First Allmerica Financial Life
Insurance Company at December 31, 1996, and the results of each of their
operations and the changes in each of their net assets for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of First Allmerica Financial Life
Insurance Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments owned at December 31, 1996 by correspondence with
the Funds, provide a reasonable basis for the opinion expressed above.

The accompanying statements of operations and of changes in net assets for the
period ended 12/31/95 of the Group VEL Account of First Allmerica Financial Life
Insurance Company were not audited by us, and accordingly, we do not express an
opinion on them.
/s/ Price Waterhouse LLP
Price Waterhouse LLP

Boston, Massachusetts
March 26, 1997

F-37
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INVESTMENT EQUITY
GROWTH GRADE INCOME MONEY MARKET INDEX GOVERNMENT BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
1 2 3 4 5
----------- ------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... $ 287 $ 230 $ 218 $ 296 $ 224
Investments in shares of Fidelity Variable
Insurance Products Funds.................. -- -- -- -- --
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- -- -- --
----------- ------------ ------------ ----------- ---------------
Total assets............................ 287 230 218 296 224

LIABILITIES: -- -- -- -- --
----------- ------------ ------------ ----------- ---------------
Net assets.............................. $ 287 $ 230 $ 218 $ 296 $ 224
----------- ------------ ------------ ----------- ---------------
----------- ------------ ------------ ----------- ---------------

Net asset distribution by category:
Value of investment by First Allmerica
Financial Life Insurance Company
(Sponsor)............................... $ 287 $ 230 $ 218 $ 296 $ 224
----------- ------------ ------------ ----------- ---------------
----------- ------------ ------------ ----------- ---------------
Units outstanding, December 31, 1996........ 200 200 200 200 200
Net asset value per unit, December 31,
1996...................................... $1.437128 $1.147997 $1.092088 $1.481061 $1.118548

<CAPTION>
SELECT SELECT SMALL CAP
AGGRESSIVE GROWTH SELECT GROWTH GROWTH AND INCOME VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
6 7 8 9
----------------- ------------- ----------------- -----------
<S> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... $ 295 $ 288 $ 293 $ 284
Investments in shares of Fidelity Variable
Insurance Products Funds.................. -- -- -- --
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- -- --
----------------- ------------- ----------------- -----------
Total assets............................ 295 288 293 284
LIABILITIES: -- -- -- --
----------------- ------------- ----------------- -----------
Net assets.............................. $ 295 $ 288 $ 293 $ 284
----------------- ------------- ----------------- -----------
----------------- ------------- ----------------- -----------
Net asset distribution by category:
Value of investment by First Allmerica
Financial Life Insurance Company
(Sponsor)............................... $ 295 $ 288 $ 293 $ 284
----------------- ------------- ----------------- -----------
----------------- ------------- ----------------- -----------
Units outstanding, December 31, 1996........ 200 200 200 200
Net asset value per unit, December 31,
1996...................................... $1.477246 $1.438919 $1.463506 $1.421440
</TABLE>

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

F-38
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SELECT SELECT VIPF VIPF VIPF
INTERNATIONAL EQUITY CAPITAL APPRECIATION HIGH INCOME EQUITY-INCOME GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
11 12 102 103 104
-------------------- -------------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... $ 276 $ 303 $ -- $ -- $ --
Investments in shares of Fidelity Variable
Insurance Products Funds.................. -- -- 252 275 286
Investment in shares of T. Rowe Price
International Series Inc.................. -- -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- -- -- --
---------- ---------- ----------- ------------- -----------
Total assets............................ 276 303 252 275 286

LIABILITIES: -- -- -- -- --
---------- ---------- ----------- ------------- -----------
Net assets.............................. $ 276 $ 303 $ 252 $ 275 $ 286
---------- ---------- ----------- ------------- -----------
---------- ---------- ----------- ------------- -----------
Net asset distribution by category:
Value of investment by First Allmerica
Financial Life Insurance Company
(Sponsor)............................... $ 276 $ 303 $ 252 $ 275 $ 286
---------- ---------- ----------- ------------- -----------
---------- ---------- ----------- ------------- -----------
Units outstanding, December 31, 1996........ 200 200 200 200 200
Net asset value per unit, December 31,
1996...................................... $1.378590 $1.515457 $1.261762 $ 1.373712 $ 1.429510

<CAPTION>
DGPF
VIPF VIPF II INTERNATIONAL
OVERSEAS ASSET MANAGER EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
105 106 207
----------- ------------- -------------------
<S> <C> <C> <C>
ASSETS (NOTES 3 AND 6):
Investments in shares of Allmerica
Investment Trust.......................... $ -- $ -- $ --
Investments in shares of Fidelity Variable
Insurance Products Funds.................. 243 258 --
Investment in shares of T. Rowe Price
International Series Inc.................. -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- 261
----------- ------------- ----------
Total assets............................ 243 258 261
LIABILITIES: -- -- --
----------- ------------- ----------
Net assets.............................. $ 243 $ 258 $ 261
----------- ------------- ----------
----------- ------------- ----------
Net asset distribution by category:
Value of investment by First Allmerica
Financial Life Insurance Company
(Sponsor)............................... $ 243 $ 258 $ 261
----------- ------------- ----------
----------- ------------- ----------
Units outstanding, December 31, 1996........ 200 200 200
Net asset value per unit, December 31,
1996...................................... $1.217051 $1.288954 $1.305897
</TABLE>

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

F-39
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
GROWTH INVESTMENT GRADE INCOME
SUB-ACCOUNT 1 SUB-ACCOUNT 2
FOR THE YEAR ENDED FOR THE PERIOD FOR THE YEAR ENDED FOR THE PERIOD
12/31/96 05/01/95* TO 12/31/95 12/31/96 05/01/95* TO 12/31/95
------------------ --------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $31 $22 $14 $11

EXPENSES (NOTE 4):
Total expenses.......... -- -- -- --
--- --- --- ---
Net investment income... 31 22 14 11
--- --- --- ---

REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain
(loss).................. -- -- -- --
Net unrealized gain
(loss).................. 17 17 (6) 11
--- --- --- ---
Net realized and
unrealized gain (loss)
on investments.......... 17 17 (6) 11
--- --- --- ---
Net increase in net assets
from operations......... $48 $39 $ 8 $22
--- --- --- ---
--- --- --- ---

<CAPTION>
MONEY MARKET
SUB-ACCOUNT 3
FOR THE YEAR ENDED FOR THE PERIOD
12/31/96 05/01/95* TO 12/31/95
------------------ ---------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends................. $11 $ 7
EXPENSES (NOTE 4):
Total expenses.......... -- --
--- ---
Net investment income... 11 7
--- ---
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain
(loss).................. -- --
Net unrealized gain
(loss).................. -- --
--- ---
Net realized and
unrealized gain (loss)
on investments.......... -- --
--- ---
Net increase in net assets
from operations......... $11 $ 7
--- ---
--- ---
</TABLE>

* Date of initial investment.

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

F-40
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
EQUITY INDEX GOVERNMENT BOND
SUB-ACCOUNT 4 SUB-ACCOUNT 5
FOR THE YEAR ENDED FOR THE PERIOD FOR THE YEAR ENDED FOR THE PERIOD
12/31/96 05/01/95* TO 12/31/95 12/31/96 05/01/95* TO 12/31/95
------------------ --------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $ 9 $17 $13 $ 9

EXPENSES (NOTE 4):
Total expenses.......... -- -- -- --
--- --- --- ---
Net investment income... 9 17 13 9
--- --- --- ---

REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain
(loss).................. -- -- -- --
Net unrealized gain
(loss).................. 45 25 (5) 7
--- --- --- ---
Net realized and
unrealized gain (loss)
on investments.......... 45 25 (5) 7
--- --- --- ---
Net increase in net assets
from operations......... $54 $42 $ 8 $16
--- --- --- ---
--- --- --- ---

<CAPTION>
SELECT AGGRESSIVE GROWTH
SUB-ACCOUNT 6
FOR THE YEAR ENDED FOR THE PERIOD
12/31/96 05/01/95* TO 12/31/95
------------------ ---------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends................. $21 $--
EXPENSES (NOTE 4):
Total expenses.......... -- --
--- ---
Net investment income... 21 --
--- ---
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain
(loss).................. -- --
Net unrealized gain
(loss).................. 25 49
--- ---
Net realized and
unrealized gain (loss)
on investments.......... 25 49
--- ---
Net increase in net assets
from operations......... $46 $49
--- ---
--- ---
</TABLE>

* Date of initial investment.

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

F-41
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
SELECT GROWTH SELECT GROWTH AND INCOME
SUB-ACCOUNT 7 SUB-ACCOUNT 8
FOR THE YEAR ENDED FOR THE PERIOD FOR THE YEAR ENDED FOR THE PERIOD
12/31/96 05/01/95* TO 12/31/95 12/31/96 05/01/95* TO 12/31/95
------------------ --------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $41 $-- $25 $12

EXPENSES (NOTE 4):
Total expenses.......... -- -- -- --
--- --- --- ---
Net investment income... 41 -- 25 12
--- --- --- ---

REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain
(loss).................. -- -- -- --
Net unrealized gain
(loss).................. 11 36 26 30
--- --- --- ---
Net realized and
unrealized gain (loss)
on investments.......... 11 36 26 30
--- --- --- ---
Net increase in net assets
from operations......... $52 $36 $51 $42
--- --- --- ---
--- --- --- ---

<CAPTION>
SMALL CAP VALUE
SUB-ACCOUNT 9
FOR THE YEAR ENDED FOR THE PERIOD
12/31/96 05/01/95* TO 12/31/95
------------------ ---------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends................. $14 $ 7
EXPENSES (NOTE 4):
Total expenses.......... -- --
--- ---
Net investment income... 14 7
--- ---
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain
(loss).................. -- --
Net unrealized gain
(loss).................. 49 14
--- ---
Net realized and
unrealized gain (loss)
on investments.......... 49 14
--- ---
Net increase in net assets
from operations......... $63 $21
--- ---
--- ---
</TABLE>

* Date of initial investment.

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

F-42
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
SELECT INTERNATIONAL EQUITY SELECT CAPITAL APPRECIATION
SUB-ACCOUNT 11 SUB-ACCOUNT 12
FOR THE YEAR ENDED FOR THE PERIOD FOR THE YEAR ENDED FOR THE PERIOD
12/31/96 05/01/95* TO 12/31/95 12/31/96 05/01/95* TO 12/31/95
------------------ --------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $ 6 $ 3 $ 1 $ 5

EXPENSES (NOTE 4):
Total expenses.......... -- -- -- --
--- --- --- ---
Net investment income... 6 3 1 5
--- --- --- ---

REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain
(loss).................. -- -- -- --
Net unrealized gain
(loss).................. 44 23 23 74
--- --- --- ---
Net realized and
unrealized gain (loss)
on investments.......... 44 23 23 74
--- --- --- ---
Net increase in net assets
from operations......... $50 $26 $24 $79
--- --- --- ---
--- --- --- ---

<CAPTION>
VIPF HIGH INCOME
SUB-ACCOUNT 102
FOR THE YEAR ENDED FOR THE PERIOD
12/31/96 05/01/95* TO 12/31/95
------------------ ---------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends................. $20 $--
EXPENSES (NOTE 4):
Total expenses.......... -- --
--- ---
Net investment income... 20 --
--- ---
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain
(loss).................. -- --
Net unrealized gain
(loss).................. 11 21
--- ---
Net realized and
unrealized gain (loss)
on investments.......... 11 21
--- ---
Net increase in net assets
from operations......... $31 $21
--- ---
--- ---
</TABLE>

* Date of initial investment.

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

F-43
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
VIPF EQUITY-INCOME VIPF GROWTH
SUB-ACCOUNT 103 SUB-ACCOUNT 104
FOR THE YEAR ENDED FOR THE PERIOD FOR THE YEAR ENDED FOR THE PERIOD
12/31/96 05/01/95* TO 12/31/95 12/31/96 05/01/95* TO 12/31/95
------------------ --------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................. $11 $ 4 $18 $--

EXPENSES (NOTE 4):
Total expenses.......... -- -- -- --
--- --- --- ---
Net investment income... 11 4 18 --
--- --- --- ---

REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain
(loss).................. -- -- -- --
Net unrealized gain
(loss).................. 23 37 19 49
--- --- --- ---
Net realized and
unrealized gain (loss)
on investments.......... 23 37 19 49
--- --- --- ---
Net increase in net assets
from operations......... $34 $41 $37 $49
--- --- --- ---
--- --- --- ---

<CAPTION>
VIPF OVERSEAS
SUB-ACCOUNT 105
FOR THE YEAR ENDED FOR THE PERIOD
12/31/96 05/01/95* TO 12/31/95
------------------ ---------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends................. $ 5 $--
EXPENSES (NOTE 4):
Total expenses.......... -- --
--- ---
Net investment income... 5 --
--- ---
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain
(loss).................. -- --
Net unrealized gain
(loss).................. 23 15
--- ---
Net realized and
unrealized gain (loss)
on investments.......... 23 15
--- ---
Net increase in net assets
from operations......... $28 $15
--- ---
--- ---
</TABLE>

* Date of initial investment.

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

F-44
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
DGPF INTERNATIONAL
VIPF II ASSET MANAGER EQUITY
SUB-ACCOUNT 106 SUB-ACCOUNT 207
FOR THE YEAR ENDED FOR THE PERIOD FOR THE YEAR ENDED
12/31/96 05/01/95* TO 12/31/95 12/31/96
------------------ --------------------- ------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................. $15 $-- $ 9

EXPENSES (NOTE 4):
Total expenses.......................... -- -- --
--- --- ---
Net investment income................... 15 -- 9
--- --- ---

REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain (loss).................. -- -- --
Net unrealized gain (loss)................ 18 25 35
--- --- ---
Net realized and unrealized gain (loss) on
investments............................. 18 25 35
--- --- ---
Net increase in net assets from
operations.............................. $33 $25 $44
--- --- ---
--- --- ---

FOR THE PERIOD
05/01/95* TO 12/31/95
---------------------
<S> <C>
INVESTMENT INCOME:
Dividends................................. $--
EXPENSES (NOTE 4):
Total expenses.......................... --
---
Net investment income................... --
---
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain (loss).................. --
Net unrealized gain (loss)................ 17
---
Net realized and unrealized gain (loss) on
investments............................. 17
---
Net increase in net assets from
operations.............................. $17
---
---
</TABLE>

* Date of initial investment.

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

F-45
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH INVESTMENT GRADE INCOME
SUB-ACCOUNT 1 SUB-ACCOUNT 2
YEAR ENDED PERIOD FROM YEAR ENDED PERIOD FROM
12/31/96 05/01/95* TO 12/31/95 12/31/96 05/01/95* TO 12/31/95
---------- --------------------- ---------- ---------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income..................... $ 31 $ 22 $ 14 $ 11
Net realized gain (loss) on investments... -- -- -- --
Net unrealized gain (loss) on
investments............................. 17 17 (6) 11
----- ----- ----- -----
Net increase in net assets from
operations.............................. 48 39 8 22

FROM CAPITAL TRANSACTIONS:
Net increase in net assets from
investments by First Allmerica Financial
Life Insurance Company (Sponsor)........ -- 200 -- 200
----- ----- ----- -----
Net increase in net assets................ 48 239 8 222

NET ASSETS:
Beginning of period....................... 239 -- 222 --
----- ----- ----- -----
End of period............................. $287 $239 $230 $222
----- ----- ----- -----
----- ----- ----- -----

<CAPTION>
MONEY MARKET
SUB-ACCOUNT 3
YEAR ENDED PERIOD FROM
12/31/96 05/01/95* TO 12/31/95
---------- ---------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income..................... $ 11 $ 7
Net realized gain (loss) on investments... -- --
Net unrealized gain (loss) on
investments............................. -- --
----- -----
Net increase in net assets from
operations.............................. 11 7
FROM CAPITAL TRANSACTIONS:
Net increase in net assets from
investments by First Allmerica Financial
Life Insurance Company (Sponsor)........ -- 200
----- -----
Net increase in net assets................ 11 207
NET ASSETS:
Beginning of period....................... 207 --
----- -----
End of period............................. $218 $207
----- -----
----- -----
</TABLE>

* Date of initial investment.

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

F-46
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
EQUITY INDEX GOVERNMENT BOND
SUB-ACCOUNT 4 SUB-ACCOUNT 5
YEAR ENDED PERIOD FROM YEAR ENDED PERIOD FROM
12/31/96 05/01/95* TO 12/31/95 12/31/96 05/01/95* TO 12/31/95
---------- --------------------- ---------- ---------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income..................... $ 9 $ 17 $ 13 $ 9
Net realized gain (loss) on investments... -- -- -- --
Net unrealized gain (loss) on
investments............................. 45 25 (5) 7
----- ----- ----- -----
Net increase in net assets from
operations.............................. 54 42 8 16

NET ASSETS:
Beginning of period....................... 242 -- 216 --
----- ----- ----- -----
End of period............................. $296 $242 $224 $216
----- ----- ----- -----
----- ----- ----- -----

<CAPTION>
SELECT AGGRESSIVE GROWTH
SUB-ACCOUNT 6
YEAR ENDED PERIOD FROM
12/31/96 05/01/95* TO 12/31/95
---------- ---------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income..................... $ 21 $ --
Net realized gain (loss) on investments... -- --
Net unrealized gain (loss) on
investments............................. 25 49
----- -----
Net increase in net assets from
operations.............................. 46 49
FROM CAPITAL TRANSACTIONS:
Net increase in net assets from
investments by First Allmerica Financial
Life Insurance Company (Sponsor)........ -- 200
----- -----
Net increase in net assets................ 46 249
NET ASSETS:
Beginning of period....................... 249 --
----- -----
End of period............................. $295 $249
----- -----
----- -----
</TABLE>

* Date of initial investment.

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

F-47
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT GROWTH SELECT GROWTH AND INCOME
SUB-ACCOUNT 7 SUB-ACCOUNT 8
YEAR ENDED PERIOD FROM YEAR ENDED PERIOD FROM
12/31/96 05/01/95* TO 12/31/95 12/31/96 05/01/95* TO 12/31/95
---------- --------------------- ---------- ---------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income..................... $ 41 $ -- $ 25 $ 12
Net realized gain (loss) on investments... -- -- -- --
Net unrealized gain (loss) on
investments............................. 11 36 26 30
----- ----- ----- -----
Net increase in net assets from
operations.............................. 52 36 51 42

NET ASSETS:
Beginning of period....................... 236 -- 242 --
----- ----- ----- -----
End of period............................. $288 $236 $293 $242
----- ----- ----- -----
----- ----- ----- -----

<CAPTION>
SMALL CAP VALUE
SUB-ACCOUNT 9
YEAR ENDED PERIOD FROM
12/31/96 05/01/95* TO 12/31/95
---------- ---------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income..................... $ 14 $ 7
Net realized gain (loss) on investments... -- --
Net unrealized gain (loss) on
investments............................. 49 14
----- -----
Net increase in net assets from
operations.............................. 63 21
FROM CAPITAL TRANSACTIONS:
Net increase in net assets from
investments by First Allmerica Financial
Life Insurance Company (Sponsor)........ -- 200
----- -----
Net increase in net assets................ 63 221
NET ASSETS:
Beginning of period....................... 221 --
----- -----
End of period............................. $284 $221
----- -----
----- -----
</TABLE>

* Date of initial investment.

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

F-48
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT INTERNATIONAL EQUITY SELECT CAPITAL APPRECIATION
SUB-ACCOUNT 11 SUB-ACCOUNT 12
YEAR ENDED PERIOD FROM YEAR ENDED PERIOD FROM
12/31/96 05/01/95* TO 12/31/95 12/31/96 05/01/95* TO 12/31/95
---------- --------------------- ---------- ---------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income..................... $ 6 $ 3 $ 1 $ 5
Net realized gain (loss) on investments... -- -- -- --
Net unrealized gain (loss) on
investments............................. 44 23 23 74
----- ----- ----- -----
Net increase in net assets from
operations.............................. 50 26 24 79

NET ASSETS:
Beginning of period....................... 226 -- 279 --
----- ----- ----- -----
End of period............................. $276 $226 $303 $279
----- ----- ----- -----
----- ----- ----- -----

<CAPTION>
VIPF HIGH INCOME
SUB-ACCOUNT 102
YEAR ENDED PERIOD FROM
12/31/96 05/01/95* TO 12/31/95
---------- ---------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income..................... $ 20 $ --
Net realized gain (loss) on investments... -- --
Net unrealized gain (loss) on
investments............................. 11 21
----- -----
Net increase in net assets from
operations.............................. 31 21
FROM CAPITAL TRANSACTIONS:
Net increase in net assets from
investments by First Allmerica Financial
Life Insurance Company (Sponsor)........ -- 200
----- -----
Net increase in net assets................ 31 221
NET ASSETS:
Beginning of period....................... 221 --
----- -----
End of period............................. $252 $221
----- -----
----- -----
</TABLE>

* Date of initial investment.

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

F-49
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
VIPF EQUITY-INCOME VIPF GROWTH
SUB-ACCOUNT 103 SUB-ACCOUNT 104
YEAR ENDED PERIOD FROM YEAR ENDED PERIOD FROM
12/31/96 05/01/95* TO 12/31/95 12/31/96 05/01/95* TO 12/31/95
---------- --------------------- ---------- ---------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income..................... $ 11 $ 4 $ 18 $ --
Net realized gain (loss) on investments... -- -- -- --
Net unrealized gain (loss) on
investments............................. 23 37 19 49
----- ----- ----- -----
Net increase in net assets from
operations.............................. 34 41 37 49

NET ASSETS:
Beginning of period....................... 241 -- 249 --
----- ----- ----- -----
End of period............................. $275 $241 $286 $249
----- ----- ----- -----
----- ----- ----- -----

<CAPTION>
VIPF OVERSEAS
SUB-ACCOUNT 105
YEAR ENDED PERIOD FROM
12/31/96 05/01/95* TO 12/31/95
---------- ---------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income..................... $ 5 $ --
Net realized gain (loss) on investments... -- --
Net unrealized gain (loss) on
investments............................. 23 15
----- -----
Net increase in net assets from
operations.............................. 28 15
FROM CAPITAL TRANSACTIONS:
Net increase in net assets from
investments by First Allmerica Financial
Life Insurance Company (Sponsor)........ -- 200
----- -----
Net increase in net assets................ 28 215
NET ASSETS:
Beginning of period....................... 215 --
----- -----
End of period............................. $243 $215
----- -----
----- -----
</TABLE>

* Date of initial investment.

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

F-50
<PAGE>
GROUP VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
VIPF II ASSET MANAGER
SUB-ACCOUNT 106
YEAR ENDED PERIOD FROM
12/31/96 05/01/95* TO 12/31/95
---------- ---------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income..................... $ 15 $ --
Net realized gain (loss) on investments... -- --
Net unrealized gain (loss) on
investments............................. 18 25
----- -----
Net increase in net assets from
operations.............................. 33 25

FROM CAPITAL TRANSACTIONS:
Net increase in net assets from
investments by First Allmerica Financial
Life Insurance Company (Sponsor)........ -- 200
----- -----
Net increase in net assets................ 33 225

NET ASSETS:
Beginning of period....................... 225 --
----- -----
End of period............................. $258 $225
----- -----
----- -----

<CAPTION>
DGPF INTERNATIONAL EQUITY
SUB-ACCOUNT 207
YEAR ENDED PERIOD FROM
12/31/96 05/01/95* TO 12/31/95
---------- ---------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income..................... $ 9 $ --
Net realized gain (loss) on investments... -- --
Net unrealized gain (loss) on
investments............................. 35 17
----- -----
Net increase in net assets from
operations.............................. 44 17
FROM CAPITAL TRANSACTIONS:
Net increase in net assets from
investments by First Allmerica Financial
Life Insurance Company (Sponsor)........ -- 200
----- -----
Net increase in net assets................ 44 217
NET ASSETS:
Beginning of period....................... 217 --
----- -----
End of period............................. $261 $217
----- -----
----- -----
</TABLE>

* Date of initial investment.

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

F-51
<PAGE>
GROUP VEL ACCOUNT

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

NOTE 1 -- ORGANIZATION

The Group VEL Account (Group VEL) is a separate investment account of First
Allmerica Financial Life Insurance Company (the Company) established on May 1,
1995 for the purpose of separating from the general assets of the Company, those
assets used to fund the variable portion of certain flexible premium variable
life policies issued by the Company. The Company is a wholly-owned subsidiary of
Allmerica Financial Corporation (AFC). Under applicable insurance law, the
assets and liabilities of 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
twenty Sub-Accounts (See Note 3). Each Sub-Account invests exclusively in a
corresponding investment portfolio of the Allmerica Investment Trust (the Trust)
managed by Allmerica Investment Management Company, Inc., a wholly-owned
subsidiary of First Allmerica, or of the Variable Insurance Products Fund (VIPF)
or the Variable Insurance Products Fund II (VIPF II) managed by Fidelity
Management & Research Company (FMR), or of the T. Rowe Price International
Series, Inc. (T. Rowe) managed by Rowe Price-Fleming International, Inc., or of
the Delaware Group Premium Fund, Inc. (DGPF) managed by Delaware International
Advisers, Ltd., or of INVESCO Variable Investment Funds, Inc. (INVESCO) managed
by INVESCO Funds Group, Inc. The Trust, VIPF, VIPF II, T. Rowe, DGPF and INVESCO
(the Funds) are open-end, diversified management investment companies registered
under the 1940 Act. INVESCO is available only to employees of INVESCO 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 Trust, VIPF, VIPF II, T. Rowe,
DGPF, or INVESCO. Net realized gains and losses on securities sold are
determined on the average cost method. Dividends and capital gain distributions
are recorded on the ex-dividend date and are reinvested in additional shares of
the respective investment portfolio of the Trust, VIPF, VIPF II, T. Rowe, DGPF,
or INVESCO at net asset value.

FEDERAL INCOME TAXES -- The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code and files a consolidated federal
income tax return. 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.

F-52
<PAGE>
GROUP VEL ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

NOTE 3 -- INVESTMENTS

The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Trust, VIPF, VIPF II, T. Rowe, DGPF and
INVESCO at December 31, 1996 were as follows:

<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
---------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
SUB-ACCOUNT INVESTMENT PORTFOLIO SHARES COST PER SHARE
----------- ----------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Allmerica Investment Trust:
1 Growth........................................................... 123 $253 $ 2.333
2 Investment Grade Income.......................................... 212 225 1.084
3 Money Market..................................................... 218 218 1.000
4 Equity Index..................................................... 137 226 2.165
5 Government Bond.................................................. 216 222 1.036
6 Select Aggressive Growth......................................... 145 221 2.037
7 Select Growth.................................................... 201 241 1.430
8 Select Growth and Income......................................... 208 237 1.405
9 Small Cap Value.................................................. 188 222 1.511
11 Select International Equity...................................... 203 209 1.356
12 Select Capital Appreciation...................................... 204 206 1.485

Fidelity Variable Insurance Products Fund:
102 High Income...................................................... 20 220 12.520
103 Equity-Income.................................................... 13 215 21.030
104 Growth........................................................... 9 218 31.140
105 Overseas......................................................... 13 205 18.840

Fidelity Variable Insurance Products Fund II:
106 Asset Manager.................................................... 15 215 16.930

T. Rowe Price International Series, Inc.:
150* International Stock.............................................. -- -- --

Delaware Group Premium Fund, Inc.:
207 International Equity............................................. 17 209 15.110

INVESCO Variable Investment Funds, Inc.:
301* Industrial Income................................................ -- -- --
302* Total Return..................................................... -- -- --
</TABLE>

* Sub-Accounts were established during 1996 and there was no selection of these
investment options by any policyowner.

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

F-53
<PAGE>
GROUP VEL ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

NOTE 4 -- RELATED PARTY TRANSACTIONS (CONTINUED)
will be deducted on a pro-rata basis of allocation which is the same proportion
that the policy value in the General Account of the Company and in each
Sub-Account bear to the total policy value. For the years ended December 31,
1996 and December 31, 1995, there were no monthly deductions from sub-account
policy values.

The Company makes a charge of up to .90% per annum based on the average
daily net assets of each Sub-Account at each valuation date for mortality and
expense risks. For the year ended December 31, 1996, there were no mortality and
expense risk charges. The mortality and expense risks annual charge may be
increased or decreased by the Board of Directors of the Company once each year,
subject to compliance with applicable state and federal requirements, but the
total charge may not exceed 1.275% per annum. For up to the first 10 policy
years, the Company also charges up to .25% per annum based on the average daily
net assets of each Sub-Account for administrative expenses.

Allmerica Investments, Inc. (Allmerica Investments), a wholly-owned
subsidiary of the Company, is principal underwriter and general distributor of
Group VEL, and does not receive any compensation for sales of Group VEL
policies. Commissions are paid to registered representatives of Allmerica
Investments by the Company. As the current series of policies have a surrender
charge, no deduction is made for sales charges at the time of the sale. For the
periods ended December 31, 1996 and December 31, 1995, there were no surrender
charges applicable to Group VEL.

NOTE 5 -- DIVERSIFICATION REQUIREMENTS

Under the provisions of Section 817(h) of the Internal Revenue Code, a
variable life insurance contract, other than a contract issued in connection
with certain types of employee benefit plans, will not be treated as a variable
life insurance contract for federal income tax purposes for any period for which
the investments of the segregated asset account on which the contract is based
are not adequately diversified. The Code provides that the "adequately
diversified" requirement may be met if the underlying investments satisfy either
a statutory safe harbor test or diversification requirements set forth in
regulations issued by the Secretary of Treasury.

The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that Group VEL satisfies the current requirements
of the regulations, and it intends that Group VEL will continue to meet such
requirements.

F-54
<PAGE>
GROUP VEL ACCOUNT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

NOTE 6 -- PURCHASES AND SALES OF SECURITIES

Cost of purchases and proceeds from sales of the Trust, VIPF, VIPF II, T.
Rowe, and DGPF shares by Group VEL during the year ended December 31, 1996 were
as follows:

<TABLE>
<CAPTION>
SUB-ACCOUNT INVESTMENT PORTFOLIO PURCHASES SALES
------------ --------------------------------------------------------------------------------- --------- -----
<C> <S> <C> <C>
Allmerica Investment Trust:
1 Growth........................................................................... $ 31 $--
2 Investment Grade Income.......................................................... 14 --
3 Money Market..................................................................... 11 --
4 Equity Index..................................................................... 9 --
5 Government Bond.................................................................. 13 --
6 Select Aggressive Growth......................................................... 21 --
7 Select Growth.................................................................... 41 --
8 Select Growth and Income......................................................... 25 --
9 Small Cap Value.................................................................. 14 --
11 Select International Equity...................................................... 6 --
12 Select Capital Appreciation...................................................... 1 --

Fidelity Variable Insurance Products Fund:
102 High Income...................................................................... 20 --
103 Equity-Income.................................................................... 11 --
104 Growth........................................................................... 18 --
105 Overseas......................................................................... 5 --

Fidelity Variable Insurance Products Fund II:
106 Asset Manager.................................................................... 15 --

T. Rowe Price International Series, Inc.:
150 International Stock.............................................................. -- --

Delaware Group Premium Fund, Inc.:
207 International Equity............................................................. 9 --
--------- -----
Totals........................................................................... $264 $--
--------- -----
--------- -----
</TABLE>

F-55
<PAGE>
APPENDIX A -- OPTIONAL BENEFITS

This Appendix is intended to provide only a very brief overview of additional
insurance benefits available by rider. The following supplemental benefits are
available for issue under the Certificates for an additional charge.

WAIVER OF PREMIUM RIDER

This rider provides that, during periods of total disability continuing for
more than the period of time specified in the rider, the Company will add to
the Certificate Value each month an amount selected by you or the amount
necessary to maintain Certificate in force, whichever is greater. This
benefit is subject to the Company's maximum issue benefits. Its cost may
change yearly.

OTHER INSURED RIDER

This rider provides a term insurance benefit for up to five Insureds. At
present this benefit is only available for the spouse and children of the
primary Insured. The rider includes a feature that allows the "Other
Insured" to convert the coverage to a flexible premium adjustable life
insurance Certificate.

CHILDREN'S INSURANCE RIDER

This rider provides coverage for eligible minor children. It also covers
future children, including adopted children and step children.

ACCIDENTAL DEATH BENEFIT RIDER

This rider pays an additional benefit for death resulting from a covered
accident prior to the Certificate anniversary nearest the Insured's Age 70.

OPTION TO ACCELERATE BENEFITS RIDER

This rider permits part of the proceeds of the Certificate to be available
before death if the Insured becomes terminally ill and, depending on the
group to which the Certificate is issued, may also pay part of the proceeds
if the Insured is permanently confined to a nursing home.

EXCHANGE OPTION RIDER

This rider allows you to use the Certificate to insure a different person,
subject to Company guidelines.

EXCHANGE TO TERM INSURANCE RIDER

This rider allows a Certificate Owner which is a corporation or corporate
grantor trust to exchange the Certificate prior to the third Certificate
anniversary for a five-year non-convertible term insurance policy. An
exchange credit will be paid to the Certificate Owner.

A-1
<PAGE>
APPENDIX B -- PAYMENT OPTIONS

PAYMENT OPTIONS

Upon written request, the Surrender Value or all or part of the Death Proceeds
may be placed under one or more of the payment options then offered by the
Company. If you do not make an election, the Company will pay the benefits in a
single sum. A certificate will be provided to the payee describing the payment
option selected.

If a payment option is selected, the Beneficiary may pay to the Company any
amount that would otherwise be deducted from the Death Benefit.

The amounts payable under a payment option are paid from the General Account.
These amounts are not based on the investment experience of the Group VEL
Account.

SELECTION OF PAYMENT OPTIONS

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

A-2
<PAGE>
APPENDIX C -- ILLUSTRATIONS OF SUM INSURED, CERTIFICATE VALUES
AND ACCUMULATED PREMIUMS

The tables illustrate the way in which a Certificate's Sum Insured and
Certificate Value could vary over an extended period of time.

ASSUMPTIONS

The tables illustrate a Certificate issued to a person, Age 30, under a standard
Premium Class and qualifying for the non-smoker discount and a Certificate
issued to a person, Age 45, under a standard Premium Class and qualifying for
the non-smoker discount. The tables illustrate the guaranteed cost of insurance
rates the current cost of insurance rates as presently in effect.

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

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

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

DEDUCTIONS FOR CHARGES

The amounts shown for the Death Proceeds and Certificate Values take into
account the deduction from premium for the premium tax charge, the Monthly
Deduction from Certificate Value, and the daily charge against the Group VEL
Account for mortality and expense risks equivalent to an effective annual rate
of 0.90%.

EXPENSES OF THE UNDERLYING FUNDS

The amounts shown in the tables also take into account the Underlying Fund
advisory fees and operating expenses, which are assumed to be at an annual rate
of 0.85% of the average daily net assets of the Underlying Fund. The actual fees
and expenses of each Underlying Fund vary, and, in 1996, ranged from an annual
rate of 0.34% to an annual rate of 1.23% of average daily net assets. The fees
and expenses associated with the Policy may be more or less than 0.85% in the
aggregate, depending upon how you make allocations of the Policy Value among the
Sub-Accounts.

Under its Management Agreement with the Trust, Allmerica Investments has
declared a voluntary expense limitation of 1.50% of average net average assets
for the Select International Equity Fund, 1.20% for the Growth Fund, 1.00% for
the Investment Grade Income Fund, 0.60% for the Money Market Fund, 0.60% for the
Equity Index Fund, 1.00% for the Government Bond Fund, 1.35% for the Select
Capital Appreciation Fund and the Select Aggressive Growth Fund, 1.20% for the
Select Growth Fund, 1.10% for the Select Growth and Income Fund, and 1.25% for
the Small Mid-Cap Value Fund. In 1996 the expenses of the Funds of the Trust did
not exceed the expense limitations.

A-3
<PAGE>
Delaware International has voluntarily agreed to waive its management fees and
reimburse the International Equity Series to limit certain expenses to 8/10 of
1% of the average daily net assets. Without the expense limitation, in 1996 the
total annual expenses of the International Equity Series would have been 1.04%.

For the Industrial Income Fund and Total Return Fund of INVESCO VIF, the ratio
of total expenses, less expenses voluntarily absorbed by the investment adviser,
were 0.95% and 0.94%, respectively. If such expenses had not been voluntarily
absorbed, the total operating expenses would have been 1.19% and 1.30%,
respectively.

NET ANNUAL RATES OF INVESTMENT

Taking into account the 0.90% charge to the Group VEL Account and the assumed
0.85% charge for Underlying Investment Company advisory fees and operating
expenses, the gross annual rates of investment return of 0%, 6% and 12%
correspond to net annual rates of -1.75%, 4.25% and 10.25%, respectively.

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

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

A-4
<PAGE>

FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
GROUP VARIABLE EXCEPTIONAL LIFE PLUS CERTIFICATE

NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT = $250,000
SUM INSURED OPTION 1

CURRENT COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ---------------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ----------- --------- ----------- ------- --------- ----------- ------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 153 3,502 250,000 382 3,731 250,000 611 3,960 250,000
2 9,040 3,565 6,914 250,000 4,242 7,591 250,000 4,948 8,297 250,000
3 13,903 6,887 10,236 250,000 8,236 11,585 250,000 9,699 13,048 250,000
4 19,008 10,249 13,464 250,000 12,500 15,715 250,000 15,039 18,254 250,000
5 24,368 13,787 16,601 250,000 17,174 19,987 250,000 21,150 23,963 250,000

6 29,996 17,232 19,644 250,000 21,993 24,405 250,000 27,814 30,225 250,000
7 35,906 20,577 22,587 250,000 26,958 28,967 250,000 35,083 37,093 250,000
8 42,112 23,823 25,431 250,000 32,074 33,682 250,000 43,024 44,632 250,000
9 48,627 26,969 28,174 250,000 37,348 38,554 250,000 51,708 52,913 250,000
10 55,469 30,010 30,814 250,000 42,783 43,587 250,000 61,212 62,015 250,000

11 62,652 33,346 33,346 250,000 48,784 48,784 250,000 72,025 72,025 250,000
12 70,195 35,735 35,735 250,000 54,122 54,122 250,000 83,014 83,014 250,000
13 78,114 37,977 37,977 250,000 59,604 59,604 250,000 95,092 95,092 250,000
14 86,430 40,076 40,076 250,000 65,244 65,244 250,000 108,393 108,393 250,000
15 95,161 42,023 42,023 250,000 71,043 71,043 250,000 123,055 123,055 250,000

16 104,330 43,806 43,806 250,000 77,002 77,002 250,000 139,237 139,237 250,000
17 113,956 45,448 45,448 250,000 83,155 83,155 250,000 157,141 157,141 250,000
18 124,064 46,935 46,935 250,000 89,504 89,504 250,000 176,973 176,973 250,000
19 134,677 48,253 48,253 250,000 96,054 96,054 250,000 198,972 198,972 250,000
20 145,820 49,388 49,388 250,000 102,813 102,813 250,000 223,320 223,320 272,451

Age 60 95,161 42,023 42,023 250,000 71,043 71,043 250,000 123,055 123,055 250,000
Age 65 145,820 49,388 49,388 250,000 102,813 102,813 250,000 223,320 223,320 272,451
Age 70 210,477 51,357 51,357 250,000 139,910 139,910 250,000 386,432 386,432 448,262
Age 75 292,995 44,916 44,916 250,000 184,624 184,624 250,000 649,170 649,170 694,611
</TABLE>

(1) Assumes a $4,200 premium is paid at the beginning of each Certificate Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.

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

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

A-5
<PAGE>

FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
GROUP VARIABLE EXCEPTIONAL LIFE PLUS CERTIFICATE

NON-SMOKER AGE 45
SPECIFIED FACE AMOUNT = $250,000
SUM INSURED OPTION 1

GUARANTEED COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ---------------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ----------- --------- ----------- ------- --------- ----------- ------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 0 3,167 250,000 36 3,385 250,000 255 3,604 250,000
2 9,040 2,879 6,228 250,000 3,514 6,863 250,000 4,177 7,526 250,000
3 13,903 5,833 9,182 250,000 7,087 10,436 250,000 8,447 11,796 250,000
4 19,008 8,807 12,022 250,000 10,884 14,099 250,000 13,231 16,446 250,000
5 24,368 11,935 14,748 250,000 15,043 17,857 250,000 18,702 21,515 250,000

6 29,996 14,947 17,358 250,000 19,298 21,709 250,000 24,635 27,046 250,000
7 35,906 17,829 19,839 250,000 23,639 25,648 250,000 31,066 33,075 250,000
8 42,112 20,574 22,182 250,000 28,061 29,669 250,000 38,044 39,651 250,000
9 48,627 23,170 24,376 250,000 32,558 33,764 250,000 45,619 46,825 250,000
10 55,469 25,603 26,407 250,000 37,119 37,923 250,000 53,849 54,652 250,000

11 62,652 28,268 28,268 250,000 42,145 42,145 250,000 63,206 63,206 250,000
12 70,195 29,950 29,950 250,000 46,426 46,426 250,000 72,568 72,568 250,000
13 78,114 31,445 31,445 250,000 50,762 50,762 250,000 82,830 82,830 250,000
14 86,430 32,744 32,744 250,000 55,154 55,154 250,000 94,103 94,103 250,000
15 95,161 33,837 33,837 250,000 59,598 59,598 250,000 106,511 106,511 250,000

16 104,330 34,697 34,697 250,000 64,077 64,077 250,000 120,186 120,186 250,000
17 113,956 35,302 35,302 250,000 68,583 68,583 250,000 135,293 135,293 250,000
18 124,064 35,617 35,617 250,000 73,094 73,094 250,000 152,015 152,015 250,000
19 134,677 35,596 35,596 250,000 77,583 77,583 250,000 170,572 170,572 250,000
20 145,820 35,194 35,194 250,000 82,028 82,028 250,000 191,230 191,230 250,000

Age 60 95,161 33,837 33,837 250,000 59,598 59,598 250,000 106,511 106,511 250,000
Age 65 145,820 35,194 35,194 250,000 82,028 82,028 250,000 191,230 191,230 250,000
Age 70 210,477 26,069 26,069 250,000 103,101 103,101 250,000 331,550 331,550 384,598
Age 75 292,995 0 0 0 119,588 119,588 250,000 555,584 555,584 594,475
</TABLE>

(1) Assumes a $4,200 premium is paid at the beginning of each Certificate Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.

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

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

A-6
<PAGE>

FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
GROUP VARIABLE EXCEPTIONAL LIFE PLUS CERTIFICATE

NON-SMOKER AGE 30
SPECIFIED FACE AMOUNT = $75,000
SUM INSURED OPTION 2

CURRENT COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ----------------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ----------- --------- ----------- ------- --------- ----------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 393 1,221 76,221 471 1,299 76,299 549 1,377 76,377
2 3,014 1,592 2,420 77,420 1,824 2,652 77,652 2,066 2,894 77,894
3 4,634 2,768 3,596 78,596 3,234 4,062 79,062 3,738 4,566 79,566
4 6,336 3,955 4,750 79,750 4,734 5,529 80,529 5,611 6,406 81,406
5 8,123 5,185 5,881 80,881 6,360 7,055 82,055 7,736 8,432 83,432

6 9,999 6,392 6,989 81,989 8,048 8,644 83,644 10,066 10,663 85,663
7 11,969 7,576 8,073 83,073 9,799 10,296 85,296 12,621 13,118 88,118
8 14,037 8,737 9,135 84,135 11,616 12,013 87,013 15,422 15,820 90,820
9 16,209 9,874 10,172 85,172 13,500 13,798 88,798 18,495 18,793 93,793
10 18,490 10,986 11,185 86,185 15,454 15,653 90,653 22,865 22,064 97,064

11 20,884 12,174 12,174 87,174 17,579 17,579 92,579 25,664 25,664 100,664
12 23,398 13,137 13,137 88,137 19,580 19,580 94,580 29,625 29,625 104,625
13 26,038 14,077 14,077 89,077 21,657 21,657 96,657 33,983 33,983 108,983
14 28,810 14,991 14,991 89,991 23,814 23,814 98,814 38,779 38,779 113,779
15 31,720 15,880 15,880 90,880 26,054 26,054 01.054 44,057 44,057 119,057

16 34,777 16,743 16,743 91,743 28,377 28,377 103,377 49,865 49,865 124,865
17 37,985 17,580 17,580 92,580 30,788 30,788 105,788 56,256 56,256 131,256
18 41,355 18,391 18,391 93,391 33,290 33,290 108,290 63,290 63,290 138,290
19 44,892 19,174 19,174 94,174 35,884 35,884 110.884 71,031 71,031 146,031
20 48,607 19,930 19,930 94,930 38,574 38,574 113,574 79,550 79,550 154,550

Age 60 97,665 25,579 25,579 100,579 71,166 71,166 146,166 229,234 229,234 307,173
Age 65 132,771 26,546 26,546 101,546 91,516 91,516 166,516 378,082 378,082 461,260
Age 70 177,576 25,537 25,537 100,537 114,403 114,403 189,403 617,137 617,137 715,879
Age 75 234,759 21,566 21,566 96,566 139,062 139,062 214,062 1,001,969 1,001,969 1,076,969
</TABLE>

(1) Assumes a $1,400 premium is paid at the beginning of each Certificate Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.

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

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

A-7
<PAGE>

FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
GROUP VARIABLE EXCEPTIONAL LIFE PLUS CERTIFICATE

NON-SMOKER AGE 30
SPECIFIED FACE AMOUNT = $75,000
SUM INSURED OPTION 2

GUARANTEED COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ---------------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ----------- --------- ----------- ------- --------- ----------- ------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 349 1,178 76,178 426 1,254 76,254 503 1,331 76,331
2 3,014 1,504 2,332 77,332 1,731 2,559 77,559 1,968 2,796 77,796
3 4,634 2,637 3,465 78,465 3,090 3,918 78,918 3,580 4,408 79,408
4 6,336 3,779 4,574 79,574 4,536 5,331 80,331 5,388 6,183 81,183
5 8,123 4,963 5,658 80,658 6,102 6,798 81,798 7,438 8,133 83,133

6 9,999 6,123 6,719 81,719 7,726 8,322 83,322 9,683 10,279 85,279
7 11,969 7,258 7,755 82,755 9,408 9,905 84,905 12,140 12,637 87,637
8 14,037 8,367 8,765 83,765 11,149 11,547 86,547 14,832 15,229 90,229
9 16,209 9,449 9,747 84,747 12,951 13,249 88,249 17,779 18,077 93,077
10 18,490 10,503 10,702 85,702 14,813 15,012 90,012 21,006 21,205 96,205

11 20,884 11,629 11,629 86,629 16,839 16,839 91,839 24,642 24,642 99,642
12 23,398 12,526 12,526 87,526 18,730 18,730 93,730 28,417 28,417 103,417
13 26,038 13,396 13,396 88,396 20,688 20,688 95,688 32,565 32,565 107,565
14 28,810 14,234 14,234 89,234 22,712 22,712 97,712 37,122 37,122 112,122
15 31,720 15,042 15,042 90,042 24,808 24,808 99,808 42,131 42,131 117,131

16 34,777 15,818 15,818 90,818 26,974 26,974 101,974 47,632 47,632 122,632
17 37,985 16,562 16,562 91,562 29,212 29,212 104,212 53,678 53,678 128,678
18 41,355 17,272 17,272 92,272 31,524 31,524 106,524 60,322 60,322 135,322
19 44,892 17,947 17,947 92,947 33,911 33,911 108,911 67,623 67,623 142,623
20 48,607 18,586 18,586 93,586 36,375 36,375 111,375 75,646 75,646 150,646

Age 60 97,665 22,267 22,267 97,267 64,992 64,992 139,992 215,170 215,170 290,170
Age 65 132,771 21,310 21,310 96,310 81,383 81,383 156,383 352,366 352,366 429,887
Age 70 177,576 16,934 16,934 91,934 97,538 97,538 172,538 570,328 570,328 661,581
Age 75 234,759 7,121 7,121 82,121 110,763 110,763 185,763 917,144 917,144 992,144
</TABLE>

(1) Assumes a $1,400 premium is paid at the beginning of each Certificate Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.

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

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

A-8
<PAGE>

FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
GROUP VARIABLE EXCEPTIONAL LIFE PLUS CERTIFICATE*

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

CURRENT COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST ------------------------------- ------------------------------- ----------------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ----------- -------- ---------- ------- -------- ---------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,818 8,752 12,101 250,000 9,506 12,855 250,000 10,261 13,610 250,000
2 28,327 20,632 23,981 250,000 22,900 26,249 250,000 25,259 28,608 250,000
3 43,561 32,294 35,643 250,000 36,857 40,206 250,000 41,795 45,144 250,000
4 59,557 43,875 47,090 250,000 51,537 54,753 250,000 60,163 63,378 250,000
5 76,353 55,515 58,328 250,000 67,105 69,918 250,000 80,683 83,496 250,000

6 93,989 66,950 69,361 250,000 83,324 85,735 250,000 103,233 105,644 283,127
7 112,506 78,181 80,190 250,000 100,190 102,199 265,718 127,918 129,927 337,811
8 131,950 89,215 90,823 250,000 117,656 119,264 300,544 154,940 156,548 394,501
9 152,365 100,055 101,260 250,000 135,742 136,947 334,151 184,522 185,728 453,176
10 173,801 111,447 111,447 264,129 155,262 155,262 367,972 217,699 217,699 515,946

11 196,309 121,382 121,382 279,179 174,227 174,227 400,722 252,719 252,719 581,254
12 219,943 131,047 131,047 292,234 193,825 193,825 432,229 291,022 291,022 648,979
13 244,758 140,442 140,442 303,355 214,070 214,070 462,390 332,901 332,901 719,067
14 270,814 149,574 149,574 314,106 234,978 234,978 493,454 378,683 378,683 795,234
15 298,173 158,441 158,441 323,220 256,560 256,560 523,382 428,707 428,707 874,562

16 326,899 167,033 167,033 332,396 278,805 278,805 554,822 483,312 483,312 961,790
17 357,062 175,391 175,391 338,505 301,791 301,791 582,457 543,016 543,016 1,048,020
18 388,733 183,504 183,504 344,987 325,511 325,511 611,960 608,234 608,234 1,143,480
19 421,988 191,372 191,372 350,211 349,977 349,977 640,458 679,453 679,453 1,243,398
20 456,905 199,000 199,000 354,221 375,207 375,207 667,868 757,208 757,208 1,347,831

Age 60 298,173 158,441 158,441 323,220 256,560 256,560 523,382 428,707 428,707 874,562
Age 65 456,905 199,000 199,000 354,221 375,207 375,207 667,868 757,208 757,208 1,347,831
Age 70 659,493 233,168 233,168 368,406 512,262 512,262 809,374 1,263,390 1,263,390 1,996,156
Age 75 918,052 261,169 261,169 370,860 668,451 668,451 949,200 2,035,582 2,035,582 2,890,526
</TABLE>

(1) Assumes a $13,160 premium is paid at the beginning of each Certificate Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.

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

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

A-9
<PAGE>

FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
GROUP VARIABLE EXCEPTIONAL LIFE PLUS CERTIFICATE*

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

GUARANTEED COST OF INSURANCE CHARGES

<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST --------------------------------- --------------------------------- ----------------------------------
CERTIFICATE AT 5% SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH SURRENDER CERTIFICATE DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------- ----------- --------- ----------- ------- --------- ----------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13,818 8,429 11,778 250,000 9,173 12,522 250,000 9,918 13,267 250,000
2 28,327 19,983 23,332 250,000 22,213 25,562 250,000 24,533 27,882 250,000
3 43,561 31,317 34,666 250,000 35,795 39,144 250,000 40,643 43,992 250,000
4 59,557 42,566 45,781 250,000 50,080 53,295 250,000 58,544 61,759 250,000
5 76,353 53,872 56,685 250,000 65,235 68,048 250,000 78,555 81,368 250,000

6 93,989 64,971 67,382 250,000 81,024 83,435 250,000 100,551 102,962 275,938
7 112,506 75,862 77,871 250,000 97,456 99,465 258,608 124,533 126,542 329,009
8 131,950 86,546 88,154 250,000 114,395 116,003 292,327 150,669 152,277 383,738
9 152,365 97,028 98,234 250,000 131,846 133,052 324,646 179,141 180,347 440,048
10 173,801 108,044 108,044 256,065 150,604 150,604 356,931 210,931 210,931 499,905

11 196,309 117,547 117,547 270,357 168,663 168,663 387,926 244,236 244,236 561,744
12 219,943 126,743 126,743 282,638 187,237 187,237 417,538 280,493 280,493 625,498
13 244,758 135,641 135,641 292,984 206,332 206,332 445,676 319,950 319,950 691,092
14 270,814 144,235 144,235 302,894 225,942 225,942 474,479 362,856 362,856 761,997
15 298,173 152,532 152,532 311,165 246,075 246,075 501,993 409,498 409,498 835,375

16 326,899 160,510 160,510 319,414 266,692 266,692 530,717 460,110 460,110 915,618
17 357,062 168,192 168,192 324,611 287,824 287,824 555,501 515,061 515,061 994,067
18 388,733 175,554 175,554 330,041 309,420 309,420 581,710 574,599 574,599 1,080,247
19 421,988 182,586 182,586 334,133 331,452 331,452 606,557 639,032 639,032 1,169,429
20 456,905 189,291 189,291 336,938 353,905 353,905 629,951 708,707 708,707 1,261,499

Age 60 298,173 152,532 152,532 311,165 246,075 246,075 501,993 409,498 409,498 835,375
Age 65 456,905 189,291 189,291 336,938 353,905 353,905 629,951 708,707 708,707 1,261,499
Age 70 659,493 217,841 217,841 344,189 471,552 471,552 745,053 1,148,569 1,148,569 1,814,739
Age 75 918,052 238,343 238,343 338,447 595,761 595,761 845,980 1,780,948 1,780,948 2,528,946
</TABLE>

(1) Assumes a $13,160 premium is paid at the beginning of each Certificate Year.
Values will be different if premiums are paid with a different frequency or
in different amounts.

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

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

A-10
<PAGE>
APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES

A separate surrender charge may be calculated upon issuance of the Certificate
and upon each increase in Face Amount. The maximum surrender charge calculated
upon issuance of the Certificate is equal to $8.50 per thousand dollars of the
initial Face Amount plus up to 50% (less any premium expense charge not
associated with state and local premium taxes) of the Guideline Annual Premium,
depending on the group to which the Certificate is issued. The maximum surrender
charge for an increase in Face Amount is $8.50 per thousand dollars of increase,
plus up to 50% (less any premium expense charge not associated with state and
local premium taxes) of the Guideline Annual Premium for the increase. The
calculation may be summarized in the following formula:

<TABLE>
<C> <C> <S>
Face Amount
Maximum Surrender Charge = (8.5 X ----------- ) + (up to 50% X Guideline Annual Premium)
1000
</TABLE>

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

The maximum surrender charge remains level for up to the first 24 Certificate
months, reduces uniformly for the balance of the surrender charge period, and is
zero thereafter. The actual surrender charge imposed may be less than the
maximum.

The Factors used in calculating the maximum surrender charges vary with the
issue Age and Underwriting Class as indicated in the table below.

A-11
<PAGE>
MAXIMUM SURRENDER CHARGE PER $1000 FACE AMOUNT

<TABLE>
<CAPTION>
Age at Age at
issue or Unisex Unisex Unisex issue or Unisex Unisex Unisex
increase Nonsmoker Smoker Unismoker increase Nonsmoker Smoker Unismoker
- ----------- ------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 14.89 14.37 41 27.74 32.73 29.39
1 14.84 14.31 42 28.55 33.79 30.27
2 15.00 14.44 43 29.41 34.91 31.19
3 15.17 14.58 44 30.31 36.08 32.17
4 15.35 14.73 45 31.26 37.31 33.19
5 15.53 14.88 46 32.27 38.60 34.27
6 15.73 15.05 47 33.33 39.95 35.40
7 15.94 15.23 48 34.46 41.38 36.59
8 16.16 15.41 49 35.64 42.89 37.86
9 16.39 15.61 50 36.90 44.48 39.19
10 16.64 15.82 51 38.24 46.17 40.60
11 16.91 16.05 52 39.66 47.95 42.10
12 17.18 16.28 53 41.17 49.84 43.68
13 17.47 16.52 54 42.76 51.82 45.36
14 17.77 16.77 55 44.46 53.91 47.12
15 18.08 17.02 56 46.25 56.11 48.98
16 18.38 17.28 57 48.16 56.87 50.95
17 18.67 17.54 58 50.18 56.76 53.03
18 17.15 18.98 17.80 59 52.34 56.65 55.24
19 17.40 19.29 18.07 60 54.64 56.54 56.71
20 17.65 19.62 18.35 61 56.54 56.44 56.59
21 17.92 19.95 18.64 62 56.41 56.34 56.47
22 18.20 20.31 18.95 63 56.29 56.26 56.36
23 18.49 20.68 19.27 64 56.16 56.18 56.25
24 18.80 21.08 19.61 65 56.03 56.10 56.13
25 19.13 21.49 19.97 66 55.90 56.01 56.00
26 19.48 21.94 20.35 67 55.74 55.90 55.85
27 19.85 22.42 20.75 68 55.58 55.76 55.70
28 20.24 22.92 21.18 69 55.41 55.63 55.53
29 20.65 23.45 21.63 70 55.27 55.49 55.37
30 21.08 24.02 22.11 71 55.12 55.38 55.22
31 21.54 24.62 22.61 72 54.96 55.29 55.10
32 22.03 25.25 23.15 73 54.85 55.23 54.99
33 22.54 25.92 23.71 74 54.75 55.19 54.89
34 23.03 26.62 24.30 75 54.64 55.16 54.80
35 23.64 27.36 24.92 76 54.52 55.10 54.69
36 24.24 28.15 25.57 77 54.36 55.01 54.53
37 24.87 28.97 26.26 78 54.18 54.86 54.35
38 25.53 29.84 26.99 79 53.97 54.68 54.14
39 26.23 30.76 27.75 80 53.75 54.49 53.91
40 26.97 31.72 28.55
</TABLE>

A-12
<PAGE>
EXAMPLES

For the purposes of these examples, assume that a unisex, Age 35, non-smoker
purchases a $100,000 Certificate. In this example the Guideline Annual Premium
("GAP") equals $944.21. The maximum surrender charge is calculated as follows:

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

(2) Deferred Sales Charge $ 472.11
(50% x GAP)
---------
$1,322.11

Maximum Surrender Charge per Table (23.64 x 100) $2,364.00
</TABLE>

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

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

(2) Deferred Sales Charge Varies
(not to exceed 30% of premiums received, up to one GAP,
plus 9% of premiums received in excess of one GAP)
---------
Sum of (1) and (2)
</TABLE>

The maximum surrender charge is $1,322.11. All premiums are associated with the
initial Face Amount unless the Face Amount is increased.

Example 1:

Assume the Certificate Owner surrenders the Certificate in the 10th
Certificate month, having paid total premiums of $900. The actual surrender
charge would be $1,120.

Example 2:

Assume the Certificate Owner surrenders the Certificate in the 120th month.
Also assume that after the 24th Certificate month, the maximum surrender charge
decreases by 1/156 per month thereby reaching zero at the end of the 15th
Certificate year. In this example, the maximum surrender charge would be
$508.50.

A-13