<PAGE>
UNUM
LIFE INSURANCE
COMPANY OF AMERICA
Group Variable Annuity Contracts
VA-I SEPARATE ACCOUNT
2211 Congress Street
Portland, Maine 04122
(800) 341-0441
VARIABLE ANNUITY I
-----------------------------------------
PROSPECTUS
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MAY 1, 1997
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS OF THE
APPLICABLE UNDERLYING FUNDS WHICH SHOULD BE RETAINED FOR FUTURE REFERENCE.
INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISK, INCLUDING MARKET
FLUCTUATION AND POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
This prospectus describes group annuity contracts ("Contracts") offered by UNUM
Life Insurance Company of America ("UNUM/America"), a subsidiary of UNUM Holding
Company and its wholly-owned parent company, UNUM Corporation. The Contracts are
designed to enable Participants and Employers to accumulate funds for retirement
programs meeting the requirements of the following Sections of the Internal
Revenue Code of 1986, as amended (the "Code"): 401(a), 403(b), 408 and 457 and
other related Sections as well as for programs offering non-qualified annuities.
A Participant is an employee or other person affiliated with the Contractholder
on whose behalf a Participant Account is maintained under the terms of the
Contract.
The Contracts permit Contributions to be deposited in the Guaranteed Interest
Division, which is part of UNUM/America's General Account, and in certain Sub-
Accounts in UNUM/America's VA-I Separate Account ("Variable Investment
Division"). Contributions to the Guaranteed Interest Division earn interest at a
guaranteed rate declared by UNUM/America. Contributions to the Variable
Investment Division will increase or decrease in dollar value depending on the
investment performance of the underlying funds in which the Sub-Accounts invest.
Currently, the Variable Investment Division consists of the nine Sub-Accounts
listed below: Next to each listed Sub-Account is the name of the fund (the
"Fund") in which the Sub-Account invests. For more information about the
investment objectives, policies and risks of the Funds please refer to the
prospectus for each of the Funds.
<TABLE>
<S> <C>
Index Account............................... Dreyfus Stock Index Fund
Growth I Account............................ Fidelity's Variable Insurance
Products Fund: Growth
Portfolio
Asset Manager Account....................... Fidelity's Variable Insurance
Products Fund II:
Asset Manager Portfolio
Growth II Account........................... American Century Variable
Portfolios, Inc.:
VP Capital
Appreciation
Balanced Account............................ American Century Variable
Portfolios, Inc.:
VP Balanced
International Stock Account................. T. Rowe Price International
Series, Inc.
Socially Responsible Account................ Calvert Responsibly Invested
Balanced Portfolio
Equity-Income Account....................... Fidelity's Variable Insurance
Products Fund: Equity-Income
Portfolio
Small Cap Account........................... Dreyfus Variable Investment
Fund: Small Cap Portfolio
</TABLE>
This prospectus is intended to provide information regarding the Contracts
offered by UNUM/America that you should know before investing. Please read and
retain this prospectus for future reference. A Statement of Additional
Information, dated May 1, 1997, has been filed with the Securities and Exchange
Commission and is available at no charge by writing or calling P.O. Box 9740,
Portland, Maine 04104, (800) 341-0441, Attention: Tax Deferred Annuities.
1
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DEFINITIONS 3
SUMMARY (Including Fee Table and Performance Information) 6
CONDENSED FINANCIAL INFORMATION 12
FINANCIAL STATEMENTS 14
UNUM/AMERICA, LINCOLN LIFE, THE VARIABLE INVESTMENT DIVISION
AND THE FUNDS 14
CONTRACT PROVISIONS 18
DEDUCTIONS AND CHARGES 25
ANNUITY PERIOD 27
FEDERAL INCOME TAX CONSIDERATIONS 29
VOTING RIGHTS 32
OTHER CONTRACT PROVISIONS 33
GUARANTEED INTEREST DIVISION 34
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION 36
</TABLE>
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DEFINITIONS
ACCUMULATION UNIT: An accounting unit of measure used to record amounts of
increases to, decreases from and accumulations in each Sub-Account during the
Accumulation Period.
ACCUMULATION UNIT VALUE: The dollar value of an Accumulation Unit in each Sub-
Account on any Valuation Date.
ACCUMULATION PERIOD: The period commencing on a Participant's Participation
Date and terminating when the Participant's Account balance is reduced to zero,
either through withdrawal(s), conversion to an annuity, imposition of charges,
payment of a Death Benefit or a combination thereof.
ACQUISITION AGREEMENT: The Asset Transfer and Acquisition Agreement between
UNUM/America and Lincoln Life which provides for the sale of UNUM/America's tax
sheltered annuity business to Lincoln Life, the assumption of UNUM/America's
obligations under the Contracts (other than the New York Contracts) by Lincoln
Life, and the assumption of UNUM/America's obligations under the New York
Contracts by Lincoln-NY.
ANNUITANT: The person receiving annuity payments under the terms of the
Contract.
ANNUITY COMMENCEMENT DATE: The date on which UNUM/America makes the first
annuity payment to the Annuitant as required by the Retired Life Certificate.
ANNUITY CONVERSION AMOUNT: The amount applied toward the purchase of an
annuity.
ANNUITY PERIOD: The period concurrent with or following the Accumulation
Period, during which an Annuitant's annuity payments are made.
BENEFICIARY: The person(s) designated to receive a Participant's Account
balance in the event of the Participant's death during the Accumulation Period
or the person(s) designated to receive any applicable remainder of an annuity in
the event of the Annuitant's death during the Annuity Period.
BUSINESS DAY: A day on which the New York Stock Exchange is customarily open
for business except for the following local business holidays: Veterans Day
(November 11) and the day after Thanksgiving.
CLOSING DATE: The date of closing as provided in the Acquisition Agreement.
CONTRIBUTIONS: All amounts deposited under a Contract, including any amount
transferred from another Contract or Trustee.
CONTRACT: A Group Variable Annuity Contract issued by UNUM/America to the
Contractholder.
CONTRACTHOLDER: The party named as the Contractholder on the group annuity
Contract issued by UNUM/America. The Contractholder may be an Employer, a
retirement plan trust, an association or any other entity allowed under the law.
DIVISION(S): The Guaranteed Interest Division and/or the Variable Investment
Division.
EMPLOYER: The organization specified in the Contract which offers the Plan to
its employees.
FUNDS: The underlying funds in which the Sub-Accounts invest. Funds are
investment vehicles which offer their shares only to insurance companies'
separate accounts and other qualifying investors.
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GENERAL ACCOUNT: All assets of UNUM/America other than those in the Variable
Investment Division or any other separate account.
GROSS WITHDRAWAL AMOUNT: The amount by which a Participant's Account is reduced
when a withdrawal occurs, including any applicable contingent deferred sales
charge and Annual Administration Charge.
GUARANTEED ANNUITY: An annuity for which UNUM/America guarantees the amount of
each payment for as long as the annuity is payable.
GUARANTEED INTEREST DIVISION: The Division maintained by UNUM/America for the
Contracts and other contracts for which UNUM/America guarantees the principal
amount and interest credited thereto subject to any fees and charges as set
forth in the Contract. Amounts allocated to the Guaranteed Interest Division
are part of the General Account.
LINCOLN LIFE: The Lincoln National Life Insurance Company.
LINCOLN-NY: Lincoln Life & Annuity Company of New York, a New York domestic
life insurance company established by Lincoln Life as a subsidiary.
LNC: Lincoln National Corporation.
NET CONTRIBUTIONS: The sum of all Contributions credited to a Participant
Account less any Net Withdrawal Amounts, outstanding loan (including principal
and due and accrued interest) and amounts converted to a Payout Annuity.
NET WITHDRAWAL AMOUNT: The amount paid when a withdrawal occurs.
NEW YORK CONTRACTS: Contracts originally issued in New York by UNUM Life
Insurance Company and subsequently through UNUM/America.
PARTICIPANT: An employee or other person affiliated with the Contractholder on
whose behalf an Account is maintained under the terms of the Contract.
PARTICIPANT ACCOUNT: An account maintained for a Participant during the
Accumulation Period the total balance of which equals the Participant's Account
balance in the Variable Investment Division plus the Participant's Account
balance in the Guaranteed Interest Division.
PARTICIPATION ANNIVERSARY: For each Participant, a date at one year intervals
from the Participant's Participation Date. If an anniversary occurs on a non-
Business Day, it is treated as occurring on the next Business Day.
PARTICIPATION DATE: A date assigned to each Participant corresponding to the
date on which the first Contribution on behalf of that Participant is received
by UNUM/America. A Participant will receive a new Participation Date if such
Participant makes a Total Withdrawal, as defined in this prospectus, and
Contributions on behalf of the Participant are resumed under any Contract.
PARTICIPATION YEAR: A period beginning with one Participation Anniversary and
ending the day before the next Participation Anniversary, except for the first
Participation Year which begins with the Participation Date.
PAYOUT ANNUITY: A series of payments paid under the terms of a Contract to a
person. A Payout Annuity may be either a Guaranteed Annuity or a Variable
Annuity.
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PLAN: The retirement program offered by an Employer to its employees for which
a Contract is used to accumulate funds.
SUB-ACCOUNT: An account established in the Variable Investment Division which
invests in shares of a corresponding Fund.
UNUM/AMERICA: UNUM Life Insurance Company of America, at its home office in
Portland, Maine.
VALUATION DATE: A Business Day. Accumulation Units and Annuity Units are
computed as of the close of trading on the New York Stock Exchange.
VALUATION PERIOD: A period used in measuring the investment experience of each
Sub-Account. The Valuation Period begins at the close of trading on the New
York Stock Exchange on one Valuation Date and ends at the corresponding time on
the next Valuation Date.
VARIABLE ANNUITY: An annuity with payments that increase or decrease in
accordance with the investment results of the selected Sub-Accounts.
VARIABLE INVESTMENT DIVISION: The Division which is maintained by UNUM/America
for these Contracts and certain other UNUM/America Contracts for which
UNUM/America does not guarantee the principal amount or investment results. The
Variable Investment Division is the VA-I Separate Account which is a group of
assets segregated from the General Account whose income, gains and losses,
realized or unrealized, are credited to or charged against the Variable
Investment Division without regard to other income, gains or losses of
UNUM/America. The Variable Investment Division currently consists of nine Sub-
Accounts. Additional Sub-Accounts may be added in the future.
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SUMMARY
UNUM LIFE INSURANCE COMPANY OF AMERICA
UNUM/America is a life insurance company founded in Maine in 1966.
UNUM/America is a subsidiary of UNUM Holding Company and its wholly-owned parent
company, UNUM Corporation whose stock is traded on the New York Stock Exchange.
The consolidated assets of UNUM Corporation as of December 31, 1996 were $15.5
billion.
LINCOLN LIFE
On October 1, 1996 (the "Closing Date"), UNUM/America completed the sale
of its tax-sheltered annuity business to The Lincoln National Life Insurance
Company ("Lincoln Life"), pursuant to an acquisition agreement with Lincoln Life
(the "Acquisition Agreement"). Under the Acquisition Agreement, Lincoln Life
assumed UNUM/America's obligations under the Contracts and Lincoln Life &
Annuity Company of New York ("Lincoln-NY") assumed UNUM/America's obligations
under Contracts originally issued in New York by UNUM Life Insurance Company
(the "New York Contracts") (other than those obligations to Contractholders
and/or Participants who neither consented nor were deemed to have consented to
the assumption).
Lincoln Life is a subsidiary of LNC, which is a publicly-owned company
whose stock is traded on the New York Stock Exchange. LNC had consolidated
assets of $71.7 billion as of December 31, 1996. See "Acquisition Agreement with
The Lincoln National Life Insurance Company."
CONTRACTS OFFERED
The Group Variable Annuity Contracts offered by this prospectus are
available to Employers and other entities to provide a way to accumulate funds
for retirement and to provide Payout Annuities. UNUM/America offers Contracts
designed to enable Participants and Employers to accumulate funds for retirement
programs meeting the requirements of the following Sections of the Internal
Revenue Code of 1986, as amended (the "Code"): 401(a), 403(b), 408, 457 and
other related Sections as well as for programs offering non-qualified annuities.
HOW CONTRIBUTIONS ARE MADE
Contributions under the Contract are deposited by the Contractholder.
Depending upon the type of Plan offered, Contributions may consist of salary
reduction Contributions, Employer Contributions or Participant post-tax
Contributions. Contributions are forwarded by the Contractholder to
UNUM/America and allocated among the two Divisions in accordance with
information provided by the Contractholder. See "Contract Provisions,
Contributions under the Contract".
DIVISIONS OFFERED
Contributions may be allocated to the Guaranteed Interest Division or to
the Variable Investment Division or to both Divisions. The Variable Investment
Division currently consists of nine Sub-Accounts. A Contractholder may choose
to offer between zero and nine of the Sub-Accounts to its Participants under a
Contract. The Sub-Accounts invest their assets in shares of a corresponding
Fund. For a full description of the Funds, see the prospectuses for the
Funds.
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TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
During the Accumulation Period, a Participant or a Contractholder under
certain Plans may make transfers between and among Divisions and Sub-Accounts.
Certain Plans may limit the transfers in dollar amount, type of Contribution, or
frequency. Certain Plans may require Contractholder approval for a transfer.
See "Transfers between Divisions and Sub-Accounts".
WITHDRAWALS
During the Accumulation Period, a Participant may withdraw any part of
their account balance subject to the restrictions imposed by the Code and
regulations thereof and by the applicable Plan. With respect to Plans subject
to Title I of the Employee Retirement Income Security Act of 1974 (ERISA), the
Contractholder must authorize UNUM/America to process a withdrawal request by a
Participant. Withdrawal requests under Section 457 Plans must also be
authorized by the Contractholder. With respect to withdrawal requests by
Participants under Plans not subject to Title I of ERISA, certain Contracts may
require that the Participants must certify to UNUM/America that an eligible
event under the Code has occurred. Withdrawal requests must be in writing and
in a form acceptable to UNUM/America.
Certain Plans are also subject to distribution requirements under Section
401(a)(9) of the Code including the incidental death benefit requirements of
Section 401(a)(9)(G). Certain transfers from one Qualified Plan contract to
another Qualified Plan contract are not subject to withdrawal restrictions under
the Code. Certain withdrawals are subject to a 10% Federal Excise Tax for
premature distributions.
Certain types of withdrawals are subject to a contingent deferred sales
charge if taken within the first ten years of participation. See "Contract
Provisions, Deductions and Charges."
See "Federal Income Tax Considerations."
DEATH BENEFITS
The Contracts provide for a Death Benefit for a Participant who dies during
the Accumulation Period. See "Contract Provisions, Death Benefits."
PAYOUT ANNUITIES
As permitted by the applicable Plan, a Participant or a Beneficiary of a
deceased Participant may elect to convert all or part of the Participant's
Account balance or the Death Benefit, as appropriate, to a Payout Annuity.
UNUM/America offers both Guaranteed and Variable Annuities. The range of annuity
options available include life annuities and annuities for a specific time
period as well as others described more fully in this prospectus. See "Annuity
Period."
FREE-LOOK PROVISION
A Participant under a Section 403(b) or 408 Plan and certain Non-Qualified
Plans has ten days, in most cases, from the date the Participant receives an
Active Life Certificate to notify UNUM/America in writing that the Participant
does not choose to participate under the Contract and to receive a return of
funds. See "Free-Look Period."
FEE TABLE
The following table and examples, prescribed by the SEC, are included to
assist Contractholders and Participants in understanding the transaction and
operating expenses imposed directly or indirectly under the
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Contracts. The standardized tables and examples assume the highest deductions
possible under the Contracts, whether or not such deductions actually would be
made from a Participant's Account. Contingent deferred sales charges ("CDSC")
are deducted from a Participant's Account balance only if a total or partial
withdrawal is made, and then only if one of the exceptions does not apply.
CONTRACT RELATED TRANSACTION EXPENSES/1/
SALES LOAD IMPOSED ON PURCHASES: 0%
MAXIMUM CDSC
(as a percentage of the Gross Withdrawal Amount): 5%
<TABLE>
<CAPTION>
PARTICIPATION YEAR CDSC
------------------ ----
<S> <C>
1-6 5%
7 4%
8 3%
9 2%
10 1%
11 and later 0%
</TABLE>
ANNUAL ADMINISTRATION CHARGE/2/ $25
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily net assets)
Mortality and Expense Risk Charge: 1.20%
Other Charges: 0.00%
Total Separate Account
Annual Expenses: 1.20%
FUND EXPENSES/4/
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
SOC
INDEX G-I/5/ AMGR/5/ G-II BAL INT'L RES/6/ EQI/5/ SMCAP
------- ------ ------- ---- ---- ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees: 0.245 0.61 0.64 1.00 1.00 1.05 0.71 0.51 0.75
Other Expenses: 0.055 0.08 0.10 0 0 0 0.13 0.07 0.04
------- ------ ------- ---- ---- ----- ------ ------ -----
Total Fund Expenses: 0.300 0.69 0.74 1.00 1.00 1.05 0.84 0.58 0.79
</TABLE>
Example #1: Assuming total withdrawal of the Participant's Account balance
at the end of the period shown./3/
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
<TABLE>
<CAPTION>
SOC
INDEX G-I/5/ AMGR/5/ G-II BAL INT'L RES/6/ EQI/5/ SMCAP
----- ------ ------- ---- ---- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 67.36 71.07 71.57 74.04 74.04 74.52 72.52 70.04 72.04
3 Years 103.88 115.21 116.65 124.12 124.12 125.55 119.53 112.03 118.09
5 Years 142.95 162.06 164.48 176.97 176.97 179.35 169.30 156.71 166.89
10 Years 196.94 238.25 243.43 269.89 269.89 274.89 253.69 226.77 248.57
</TABLE>
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Example #2: Assuming annuitization of the Contract at the end of the period
shown.
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
<TABLE>
<CAPTION>
SOC
INDEX G-I/5/ AMGR/5/ G-II BAL INT'L RES/6/ EQI/5/ SMCAP
----- ------ ------- ---- ---- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 15.64 19.57 20.07 22.68 22.68 23.18 21.07 18.46 20.57
3 Years 48.55 60.50 62.03 69.91 69.91 71.42 65.07 57.15 63.55
5 Years 83.75 103.97 106.53 119.76 119.76 122.28 111.64 98.31 109.09
10 Years 182.92 224.76 330.00 256.79 256.79 261.86 240.39 213.13 235.21
</TABLE>
Example #3: Assuming persistency of the Contracts through the periods
shown.
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
<TABLE>
<CAPTION>
SOC
INDEX G-I/5/ AMGR/5/ G-II BAL INT'L RES/6/ EQI/5/ SMCAP
----- ------ ------- ---- ---- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 15.64 19.57 20.07 22.68 22.68 23.18 21.07 18.46 20.57
3 Years 48.55 60.50 62.03 69.91 69.91 71.42 65.07 57.15 63.55
5 Years 83.75 103.97 106.53 119.76 119.76 122.28 111.64 98.31 109.09
10 Years 182.92 224.76 330.00 256.79 256.79 261.86 240.39 213.13 235.21
</TABLE>
The effect of the Annual Administration Charge for a period is determined
by dividing the total amount of such charges collected in the previous year by
the total average net assets of the accounts for the previous year, as of the
previous month ended; accounts include accounts available under Variable Annuity
I of UNUM/America and under corresponding accounts of Lincoln Life, pending
assumption reinsurance by Lincoln Life of Variable Annuity I contracts issued
through such UNUM/America accounts.
_________________
1/ Premium taxes are not shown. UNUM/America deducts the amount of premium
taxes, if any, when paid. Loans taken by a Participant with respect to the
Participant's Account balance in the Guaranteed Interest Division may be
subject to a charge for establishing the loan.
2/ The Employer has the option of paying the Annual Administration Charge on
behalf of the Participants under a Contract. In such a situation, the
projected expenses would be lower than those indicated in the examples.
This charge is not imposed during the Annuity Period. In certain situations
the Annual Administration Charge may be reduced or eliminated. See
"Deductions & Charges--Annual Administration Charge."
3/ The Contracts are designed for retirement planning. Withdrawals prior to
retirement or the Annuity Commencement Date are not consistent with the
long-term purposes of the Contracts and the applicable tax laws.
Withdrawals may also be subject to federal income tax and a 10% Federal tax
penalty.
4/ Until complete order instructions are received, initial Contributions may
be allocated temporarily to Fidelity's Variable Insurance Products Fund:
Money Market Portfolio ("VIPF Money Market portfolio"). Management fees for
this fund are 0.21%. Other expenses are 0.09%. Total Fund Expenses are
0.30%. See "Initial Contributions."
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5/ A portion of the brokerage commissions that certain funds pay was used to
reduce fund 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 Equity-Income
Portfolio, 0.67% for Growth Portfolio, and 0.73% for Asset Manager
Portfolio.
6/ The figures above are based on expenses for fiscal year 1996, and have been
restated to reflect an increase in transfer agency expenses of 0.03%
expected to be incurred in 1997. "Management Fees" includes a performance
adjustment, which could cause the fee to be as high as 0.85% or as low as
0.55%, depending on performance. "Other Expenses" reflects an indirect fee
of 0.03%. Net fund operating expenses after reductions for fees paid
indirectly (again, restated) would be 0.81%.
The fee table and examples reflect expenses and charges of the Sub-Accounts
and the expenses of the applicable Fund for the year ended December 31, 1996.
HOWEVER, THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES AND CHARGES OF THE SUB-ACCOUNTS OR THE FUNDS. SIMILARLY, THE
ASSUMED 5% ANNUAL RATE OF RETURN IS NOT AN ESTIMATE OR A GUARANTEE OF FUTURE
INVESTMENT PERFORMANCE. See "Deductions and Charges" in this prospectus and the
discussion of Fund Management in the prospectus for each of the Funds for
further information.
PERFORMANCE INFORMATION
From time-to-time the Variable Investment Division may advertise or use in
sales literature information concerning the investment performance of the
various Sub-Accounts. No performance presentation should be considered as
representative of future investment results. Actual performance is a function
not only of the investment management of the underlying Funds and market forces,
but of the time and frequency of Contributions, the charges and fees imposed
under the Contract, the fees and expenses of the Funds, and transfers made by a
Participant, among other factors.
The investment performance of the Sub-Accounts may be advertised in
comparison with the performances of other variable annuities, other investment
companies (such as mutual funds), and recognized indices (such as the Dow Jones
Industrial Average, Standard & Poor's 500 Composite Stock Price Index, NASDAQ
Index, Consumer Price Index), and data published by Lipper Analytical Services,
Inc., Morningstar, and Variable Annuity Research and Data Service or comparable
services. Performance of the Sub-Accounts may also be compared with performance
of other types of investments. Some advertisements may also include published
editorial comments and performance rankings by independent organizations and
publications that monitor the performance of separate accounts and mutual funds.
The Sub-Accounts may advertise average annual total return performance
information according to the SEC standardized formula. Average annual total
return shows the average annual percentage increase, or decrease, in the value
of a hypothetical $1,000 contribution allocated to a Sub-Account from the
beginning to the end of each specified period of time. The SEC standardized
formula gives effect to all applicable charges under the Contracts. This method
of calculating performance further assumes that (i) a $1,000 contribution was
allocated to a Sub-Account, (ii) no transfers or additional payments were made
and (iii) the withdrawal of the investment occurs at the end of the period.
Premium taxes are not included in the term "charges" for purposes of this
calculation. The Sub-Accounts may also advertise this total return performance
as described above on a cumulative basis.
The Sub-Accounts may present total return information computed on a
calendar year basis. The Sub-Accounts may also present total return information
over specified periods of time (computed on an average annual or cumulative
basis) either assuming that no CDSC will be deducted or assuming that no CDSC or
administrative charge will be deducted. The Sub-Accounts may present
hypothetical examples that apply the total return to a hypothetical initial
investment. The Sub-Accounts may also present total return information based on
different amounts of periodic investments. For additional performance
information, please refer to the Statement of Additional Information.
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PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contractholders,
UNUM/America may reflect endorsements. Endorsements are often in the form of a
list of organizations, individuals or other parties which recommend UNUM/America
or the Contracts. The endorser's name will be used only with the endorser's
consent. It should be noted that the list of endorsements may change from time
to time.
Also, from time to time, the rating of UNUM/America as an insurance company
by A.M. Best may be referred to in advertisements or in reports to
Contractholders. Each year the A.M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect Best's opinion of the relative financial strength and operating
performance of an insurance company in comparison to the norms of the
life/health insurance Industry. Best's ratings range from A++ to F.
In addition, the claims-paying ability of UNUM/America as measured by the
Standard and Poor's Rating Group may be referred to in advertisements or in
reports to Contractholders. A Standard and Poor's insurance claims-paying
ability rating is an assessment of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. Standard and Poor's ratings range from AAA to CCC.
From time to time UNUM/America may refer to Moody's Investors Service
rating of UNUM/America. Moody's Investors Service financial strength ratings
indicate an insurance company's ability to discharge policyholder obligations
and claims and are based on an analysis of the insurance company and its
relationship to its parent, subsidiaries, and affiliates. Moody's Investors
Service ratings range from Aaa to C.
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CONDENSED FINANCIAL INFORMATION
The financial data included below should be read in conjunction with the
financial statements and the related data included in the Statement of
Additional Information.
ACCUMULATION UNIT VALUES
(For an accumulation unit outstanding throughout the period)
<TABLE>
<CAPTION>
SUB-ACCOUNT 1989 1990 1991 1992 1993 1994 1995 1996
- ----------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index Account
December 12 Commencement $9.9060
Beginning of Period $9.9629 $ 9.4953 $12.1814 $12.8906 $13.9245 $13.8792 $18.7565
End of Period $9.9629 $9.4953 $12.1814 $12.8906 $13.9245 $13.8792 $18.7565 $22.7054
Growth I Account
May 1 Commencement $10.00
Beginning of Period $12.1759 $13.1505 $15.5094 $15.3208 $20.4909
End of Period $12.1759 $13.1505 $15.5094 $15.3208 $20.4909 $23.2198
Growth II Account
May 1 Commencement $10.00
Beginning of Period $11.5975 $11.3049 $12.3212 $12.0313 $15.5840
End of Period $11.5975 $11.3049 $12.3212 $12.0313 $15.5840 $14.7133
Asset Manager Account
May 1 Commencement $10.00
Beginning of Period $10.7598 $11.8933 $14.2241 $13.1979 $15.2510
End of Period $10.7598 $11.8933 $14.2241 $13.1979 $15.2510 $17.2668
Balanced Account
May 1 Commencement $10.00
Beginning of Period $12.4515 $11.5582 $12.2957 $12.2225 $14.6286
End of Period $12.4515 $11.5582 $12.2957 $12.2225 $14.6286 $16.2128
International Stock Account
May 1 Commencement $10.00
Beginning of Period $ 9.8622 $10.8333
End of Period $ 9.8622 $10.8333 $12.2756
Socially Responsible Account
May 1 Commencement $10.00
Beginning of Period $9.9692 $12.7827
End of Period $ 9.9692 $12.7827 $14.2222
Equity-Income Account
May 1 Commencement $10.00
Beginning of Period $10.4780 $13.9856
End of Period $10.4780 $13.9856 $15.7898
Small Cap Account
May 1 Commencement $10.00
Beginning of Period $10.3818 $13.2713
End of Period $10.3818 $13.2713 $15.2861
Pending Allocation Account
October 15 Commencement $10.00
Beginning of Period $10.1054 $10.6938
End of Period $10.1054 $10.6938 $11.2772
</TABLE>
-12-
<PAGE>
Number of Accumulation Units Outstanding at end of Period
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index Account 0 72,405 296,075 836,187 1,526,878 1,929,447 2,395,545 3,057,792
Growth I Account 5,166 317,275 1,340,146 3,071,862 4,459,417 5,843,047
Growth II Account 53,904 566,562 1,242,216 1,733,360 2,191,475 2,541,938
Asset Manager Account 36,645 462,405 2,232,731 4,369,937 4,882,920 5,447,414
Balanced Account 13,453 282,439 673,424 1,041,814 1,294,883 1,545,581
Socially Responsible Account 26,073 133,871 328,168
Equity-Income Account 320,659 1,529,172 2,997,007
International Stock Account 354,936 803,485 1,588,914
Small Cap Account 400,376 1,461,575 3,032,803
Pending Allocation Account 11,980 21,372 35,465
</TABLE>
Number of Fund Shares held by each of the corresponding Sub-Accounts as of
December 31st of each year
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dreyfus Stock Index Fund 0 58,271 241,984 703,885 1,611,415 2,070,026 2,613,187 3,424,850
Fidelity's Variable Insurance
Products Fund: Growth Portfolio 0 0 3,399 211,238 900,965 2,170,399 3,130,382 4,358,634
American Century Variable
Portfolios, Inc.: VP Capital
Appreciation 0 0 72,384 756,506 1,642,987 2,264,937 2,832,766 3,653,828
Fidelity's Variable Insurance
Products Fund II: Asset Manager's
Portfolio 0 0 31,429 412,427 2,060,497 4,183,403 4,717,794 5,557,982
American Century Variable
Portfolios, Inc. : VP Balanced 0 0 27,075 568,960 1,364,740 2,137,066 2,691,551 3,324,693
Calvert Responsibly Invested
Balanced Portfolio 0 0 0 0 0 180,421 1,005,155 2,631,922
Fidelity's Variable Insurance
Products Fund: Equity-Income
Portfolio 0 0 0 0 0 218,939 1,110,190 2,251,100
T. Rowe Price International Stock
Portfolio 0 0 0 0 0 343,942 773,288 1,543,703
Dreyfus Variable Investment Fund:
Small Cap Portfolio 0 0 0 0 0 113,847 420,623 890,516
Fidelity's Variable Insurance
Products Fund: Money Market
Portfolio 0 0 0 0 0 121,067 228,610 399,944
</TABLE>
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<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Variable Investment Division and of
UNUM/America may be found in the Statement of Additional Information.
UNUM/AMERICA, LINCOLN LIFE,
THE VARIABLE INVESTMENT DIVISION AND THE FUNDS
UNUM LIFE INSURANCE COMPANY OF AMERICA
UNUM/America is a life insurance company originally chartered under
Maine law in 1966 as Unionmutual Stock Life Insurance Company of America. On
November 18, 1986, its name was changed to UNUM Life Insurance Company of
America. On December 31, 1991, it was merged with UNUM Life Insurance Company
and UNUM Pension and Insurance Company, with the surviving company being UNUM
Life Insurance Company of America ("UNUM/America"). UNUM/America's principal
executive offices are located at 2211 Congress Street, Portland, Maine 04122.
UNUM/America's telephone number is (207)770-2211. UNUM/America provides a broad
line of disability, health and life insurance products, in addition to group
retirement products. UNUM/America is currently licensed to issue variable
contracts in 47 states and the District of Columbia. Administrative services
necessary for the operation of the Variable Investment Division and the
Contracts are provided by The Lincoln National Life Insurance Company. See
"Deductions and Charges--Annual Administration Charge."
UNUM/America is a subsidiary of UNUM Holding Company and its wholly-
owned parent company, UNUM Corporation. UNUM Corporation was organized under
Delaware law on January 11, 1985. UNUM Corporation is a publicly-owned company
whose stock is traded on the New York Stock Exchange. UNUM Corporation has
consolidated assets of $15.5 billion as of December 31, 1996.
ACQUISITION AGREEMENT WITH THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
On October 1, 1996 (the "Closing Date"), UNUM/America completed the
sale of its tax-sheltered annuity business to The Lincoln National Life
Insurance Company ("Lincoln Life"), pursuant to an acquisition agreement with
Lincoln Life (the "Acquisition Agreement"). Under the Acquisition Agreement,
Lincoln Life assumed UNUM/America's obligations under the Contracts and Lincoln
Life & Annuity Company of New York ("Lincoln-NY") assumed UNUM/America's
obligations under the New York Contracts (other than those obligations to
Contractholders and/or Participants who neither consented nor were deemed to
have consented to the assumption).
Lincoln Life is a stock life insurance company incorporated under the
laws of Indiana on June 12, 1905. Lincoln Life is principally engaged in
offering life insurance policies and annuity policies, and ranks among the
largest United States stock life insurance companies in terms of assets and life
insurance in force. Lincoln Life is also one of the leading life reinsurers in
the United States. Lincoln Life is licensed in all states (except New York) and
the District of Columbia, Guam, and the Virgin Islands.
Lincoln-NY is a life insurance company chartered under New York law on
June 6, 1996. Lincoln-NY is licensed to sell variable contracts in New York.
Lincoln-NY is a subsidiary of Lincoln Life.
Lincoln Life is wholly owned by Lincoln National Corporation ("LNC"),
a publicly held insurance holding company incorporated under Indiana law on
January 5, 1968. The principal office of Lincoln Life is located at 1300 South
Clinton Street, Fort Wayne, Indiana 46801. The principal office of LNC is
located at 200 East Berry Street, Fort Wayne, Indiana 46802. Through
subsidiaries, LNC engages primarily in the issuance of life insurance and
annuities, property-casualty insurance, and other financial services.
-14-
<PAGE>
UNUM/America and Lincoln Life have notified or will notify
Contractholders and/or Participants regarding the assumption of their Contracts
(other than New York Contracts) by Lincoln Life or, in the case of the New York
Contracts, by Lincoln-NY. In some states the Contractholder will be deemed to
have consented to the assumption if it does not opt out within a certain time
period. In other states affirmative consent will be sought. If the
Contractholder opts out of the assumption (or refuses to consent where
affirmative consent is required), UNUM/America will remain as the insurer of the
Contract and Participants under that Contract will not be given the opportunity
to have their certificates assumed by Lincoln Life. Whether or not a Contract is
assumed by Lincoln Life, it will be administered by Lincoln Life. If the
Contractholder consents to the assumption or is deemed to have consented to the
assumption, as applicable, UNUM/America and Lincoln Life will notify each
Participant under the Contract regarding the assumption and provide each
Participant an opportunity to opt out. (If required, affirmative Participant
consent will be sought.) If, under a Contract some Participants opt out and some
do not, the Contract will be bifurcated--one Contract will have UNUM/America as
the insurer and the other will have Lincoln Life as the insurer (or, for the New
York Contracts, Lincoln-NY). Both Contracts, however, will be administered by
Lincoln Life. As noted above, the notification process is subject to regulatory
requirements which vary from state to state. Thus the notification procedures
employed by UNUM/America and Lincoln Life may vary from those described above.
In any event, Contractholders and/or Participants will receive all notifications
and be given all consent and opt out rights required by law.
Assuming that an assumption is approved under the above procedures,
the effect of the assumption is to substitute Lincoln Life for UNUM/America as
the insurer. (For the New York Contracts, Lincoln-NY will be the insurer.) In
addition, a Participant's Account balance in the Variable Investment Division
will be transferred to a Lincoln Life or Lincoln-NY separate account as of the
effective date of the assumption of the obligations to the Participant under the
Contract by Lincoln Life or Lincoln-NY. The assumption will result in the
substitution of Lincoln Life or Lincoln-NY for UNUM/America as the insurer
under the Contracts (thus, Lincoln Life or Lincoln-NY will back the guarantees
of the Guaranteed Interest Division), and the transfer of Account balances to
the Lincoln Life or Lincoln-NY separate account. Otherwise, the rights of
Contractholders and Participants under the Contracts will not change solely as a
result of the assumption. There will be no adverse tax consequences to
Contractholders or Participants as a result of the transfer. See "Federal Income
Tax Considerations."
UNUM/America and Lincoln Life currently expect that UNUM/America will
continue to offer the Contracts after the Closing Date in those states where
Lincoln Life has not yet received all the approvals necessary to sell its own
group annuity Contracts. While such Contracts would be issued by UNUM/America,
Contractholders and/or Participants will be required to agree, at the time such
Contracts are issued, to an automatic transfer of such Contracts to Lincoln Life
at such time as Lincoln Life receives the necessary approvals to sell its own
Contracts. UNUM/America anticipates that it will continue to sell Contracts on
this basis for no more than eighteen months after the Closing Date.
In the event that, after the Closing Date, UNUM/America offers
Contracts that will be automatically assumed by Lincoln Life, Contractholders
and Participants will receive, at the time the Contract is offered or sold to
them, a prospectus or other disclosures pertaining to Lincoln Life. It is
currently anticipated that the Lincoln Life and Lincoln-NY separate accounts
will continue to invest in the underlying Funds that are currently available
through the Sub-Accounts of UNUM/America's Variable Investment Division, but
there can be no assurance that such Funds will always be made available through
the Lincoln Life and Lincoln-NY separate accounts.
LNC EQUITY SALES CORPORATION
LNC Equity Sales Corporation ("LNC Equity"), a registered broker-
dealer, is the principal underwriter of the Contracts. As such, LNC Equity will
be offering the Contracts and performing all duties and functions that are
necessary and proper for distribution of the Contracts. LNC Equity has also
entered into sales agreements with independent broker-dealers for the sale of
the Contracts. LNC Equity may pay sales commissions to broker-dealers up to an
amount equivalent to 3.5% of Contributions under a Contract. LNC Equity's
principal business office is at 3811 Illinois Road, Suite 205 , Fort Wayne,
Indiana 46804.
-15-
<PAGE>
THE VARIABLE INVESTMENT DIVISION
On December 31, 1991, pursuant to the merger of UNUM Life Insurance Company
and UNUM Pension and Insurance Company into UNUM/America, the Variable
Investment Division was transferred intact to UNUM/America. Prior to that, on
July 8, 1988, the Board of Directors of UNUM Life Insurance Company authorized
the establishment of the Variable Investment Division called the TSAVA Separate
Account in accordance with the Maine Insurance Code. On February 7, 1991, the
Board of Directors of UNUM Life Insurance Company expanded the scope of the
Variable Investment Division and changed its name to the VA-I Separate Account.
Under Maine law, the funds in the Variable Investment Division are owned by
UNUM/America and UNUM/America is not, nor can UNUM/America be, a trustee with
respect to those funds. The Variable Investment Division is registered with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act"). Registration with the SEC does not
involve supervision of the management or investment practices or policies of
either the Variable Investment Division or UNUM/America by the SEC.
The Variable Investment Division currently consists of nine Sub-Accounts.
The Sub-Accounts invest in shares of the Funds. Therefore, the investment
experience of the Sub-Accounts depends on the performance of the Funds.
The income, gains and losses, realized or unrealized, from assets allocated
to the Variable Investment Division are credited to or charged against the
Variable Investment Division, without regard to other income, gains or losses in
UNUM/America's general account or any other separate account. The Contract
provides that the assets of the Variable Investment Division may not be charged
with liabilities arising out of any other business of UNUM/America. UNUM/America
may accumulate in the Variable Investment Division proceeds from charges under
the Contract and other amounts in excess of the Variable Investment Division
assets representing Contract reserves and liabilities. UNUM/America is the
issuer of the Contracts and the obligations set forth therein, other than those
of the Contractholder or the Participant, are UNUM/America's. As noted
previously, however, UNUM/America has entered into an agreement providing for
the assumption of UNUM/America's obligations under the Contracts by Lincoln
Life. See "Acquisition Agreement With The Lincoln National Life Insurance
Company."
THE FUNDS
The nine Sub-Accounts invest directly in nine corresponding Funds. Each of
these Funds was formed as an investment vehicle for insurance company separate
accounts.
Information about each of the Funds, including their investment objectives
and investment management, is contained below. Additional information about the
Funds, their investment policies, risks, fees and expenses and all other aspects
of their operations, can be found in the prospectuses for the Funds, which
should be read carefully before investing. There is no assurance that any Fund
will achieve its stated objective. Additional copies of the Funds' prospectuses,
as well as their Statements of Additional Information, can be obtained directly
from each of the Funds without charge by writing to the particular Funds at the
addresses noted on the front of the Fund prospectus. Shares of the Funds are
sold not only to the Sub-Accounts but also to variable annuity and variable life
separate accounts of other insurance companies. For a disclosure of possible
conflicts involved in the Sub-Accounts investing in Funds that are so offered,
see the applicable Fund prospectus.
On the effective date of a Participant's transfer to Lincoln Life, the
Participant's Account balance in the Variable Investment Division will be
transferred to a Lincoln Life separate account. For Participants under the New
York Contracts, the Account balances will be transferred to a Lincoln-NY
separate account. UNUM/America and Lincoln Life intend that the Lincoln Life
separate account and the Lincoln-NY separate account will each have nine Sub-
Accounts which will invest in the same nine Funds currently offered by
UNUM/America's Variable Investment Division. Any deletion of Funds or
substitution of different Funds would require regulatory approval. Additional
Funds may nevertheless be added or deleted in the future.
-16-
<PAGE>
DREYFUS STOCK INDEX FUND
Dreyfus Stock Index Fund is an open-end, non-diversified management
investment company known as an index fund. Its goal is to provide investment
results that correspond to the price and yield performance of publicly traded
common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index. The Fund is neither sponsored by nor affiliated
with Standard & Poor's Corporation.
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, acts as the Fund manager and Mellon Equity Associates, an affiliate of
Dreyfus located at 500 Grant Street, Pittsburgh, Pennsylvania 15258, is the Fund
index manager.
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO OF ACACIA CAPITAL
CORPORATION
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO: The Calvert Responsibly
Invested Balanced Portfolio seeks total return above the rate of inflation
through an actively managed, nondiversified portfolio of common and preferred
stocks, bonds, and money market instruments which offer income and growth
opportunity and which satisfy the social concern criteria established for the
Portfolio. Shares of the Portfolio are offered only to insurance companies for
allocation to certain of their variable accounts.
The Calvert Asset Management Company, Inc., located at 4550 Montgomery
Avenue, Suite 1000N, Bethesda, Maryland 20814 serves as the Portfolio's
investment advisor.
THE SMALL CAP PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end, diversified management
investment company.
THE SMALL CAP PORTFOLIO: The Portfolio seeks to maximize capital appreciation.
The Small Cap Portfolio seeks out companies that The Dreyfus Corporation
believes have the potential for significant growth. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in
companies with market capitalization of less than $1.5 billion, at the time of
purchase, both domestic and foreign , which the Portfolio believes to be
characterized by new or innovative products or services which should enhance
prospects for growth in future earnings. The Portfolio may also invest in
special situations such as corporate restructurings, mergers or
acquisitions.
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, serves as the Fund's investment adviser.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO, GROWTH
PORTFOLIO, AND MONEY MARKET PORTFOLIO
EQUITY-INCOME PORTFOLIO: The Portfolio seeks reasonable income by normally
investing at least 65% of its total assets in income-producing common or
preferred stock and the remainder in debt securities.
GROWTH PORTFOLIO: The Portfolio seeks to achieve capital appreciation. The
Portfolio normally purchases common stocks, although its investments are not
restricted to any one type of security. Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
MONEY MARKET PORTFOLIO: The Portfolio seeks to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity. For
more information regarding the Portfolio, into which initial Contributions are
invested pending UNUM/America's receipt of a complete order, please see the
"Initial Contributions" section.
-17-
<PAGE>
Fidelity Management & Research Company ("FMR") is the manager of the
Equity-Income Portfolio, the Growth Portfolio and the Money Market Portfolio and
is located at 82 Devonshire Street, Boston, Massachusetts 02109.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
ASSET MANAGER PORTFOLIO: The Portfolio 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.
FMR is the manager of the Portfolio and is located at 82 Devonshire Street,
Boston, Massachusetts 02109. FMR or its affiliate may compensate Lincoln Life or
its affiliate for administrative, distribution, or other services. Such
compensation would be based on assets of the Fidelity Funds attributable to the
Contracts and certain other contracts issued by Lincoln Life and its
affiliates.
VP Capital Appreciation and VP Balanced of American Century Variable
Portfolios, Inc.
VP CAPITAL APPRECIATION: The Portfolio seeks capital growth by investing
primarily in common stocks that are considered by management to have better-
than-average prospects for appreciation.
VP BALANCED: The Portfolio seeks capital growth and current income. Its
investment team intends to maintain approximately 60% of the portfolio's assets
in common stocks that are considered by its manager to have better than average
prospects for appreciation and the balance in bonds and other fixed income
securities.
American Century Variable Portfolios, Inc. is managed by American Century
Investment Management, Inc. (formerly Investors Research Corporation), which
also manages the American Century family of mutual funds. American Century
Investment Management, Inc. has its principal place of business at 4500 Main
Street, Kansas City, Missouri 64111.
Lincoln Life or its affiliate may perform certain administrative or other
services that would otherwise be performed by American Century Services
Corporation, and American Century Investment Management, Inc. may pay Lincoln
Life or its affiliate for such services. Such compensation would be based on
assets of the American Century Funds attributable to the Contracts and certain
other contracts issued by Lincoln Life and its affiliates.
INTERNATIONAL STOCK PORTFOLIO OF T. ROWE PRICE INTERNATIONAL SERIES, INC.
INTERNATIONAL STOCK PORTFOLIO: The International Stock Portfolio seeks long-
term growth of capital through investments primarily in common stocks of
established, non-U.S. companies.
The Series is managed by Rowe Price-Fleming International, Inc., one of
America's largest international no load mutual fund managers with approximately
$25 billion under management as of December 31, 1996, from its offices in
Baltimore, London, Tokyo, Hong Kong and Singapore.
CONTRACT PROVISIONS
GENERAL
UNUM/America has designed these Contracts for Employers and other entities
to enable Participants and Employers to accumulate funds for retirement programs
meeting the requirements of the following Sections of the Internal Revenue Code
of 1986, as amended (the "Code"): 401(a), 403(b), 408, 457 and other related
Sections as well as for programs offering non-qualified annuities. An Employer,
Association or trustee in some circumstances, may enter into a Contract with
UNUM/America by filling out an application and returning it to UNUM/America.
Upon UNUM/America's acceptance of the application, Contractholders or an
affiliated Employer can forward Contributions on behalf of employees who then
become Participants under the Contracts. For Plans that have allocated rights to
the Participant, UNUM/America will issue to each Participant a separate Active
Life Certificate that describes the basic provisions of the Contract to each
Participant.
-18-
<PAGE>
CONTRIBUTIONS UNDER THE CONTRACT
Generally, under the Contracts, Contributions are forwarded by the
Contractholders to UNUM/America for investment. Depending on the Plan, the
Contributions may consist of salary reduction Contributions, Employer
Contributions or post-tax Contributions. Lincoln Life will administer the
Contracts after the Closing Date. Contractholders will be notified of any change
in procedures.
Contributions may accumulate on either a guaranteed or variable basis
depending upon the Divisions available under the Contract and/or the Division in
which the Contributions are deposited. Contributions to the Guaranteed Interest
Division become part of UNUM/America's General Account and are guaranteed a
minimum rate of interest.
UNUM/America will also declare in advance a guaranteed interest rate which
will be effective for all amounts in the Participant's Account balance in the
Guaranteed Interest Division during the designated year. This rate will never be
less than the minimum rate of interest. UNUM/America may also declare in advance
separate interest rate guarantees which are in excess of the guaranteed interest
rate for some or all of the Participant's Account balance in the Guaranteed
Interest Division for specific period(s) during the designated year.
UNUM/America assumes the risk of investment gain or loss on contributions to the
Guaranteed Interest Division. See "Guaranteed Interest Division." Contributions
to the Variable Investment Division are credited with a rate of return dependent
upon the investment experience of the Sub-Accounts in which the Contributions
are invested.
Contributions by Participants may be in any amount unless there is a
minimum amount set by the Contractholder or Plan. A Contract may require the
Contractholder to contribute a minimum annual amount on behalf of all
Participants. Annual Contributions under Qualified Plans may be subject to
maximum limits imposed by the Code. Annual Contributions under non-qualified
plans may be limited by the terms of the Contract. In the Statement of
Additional Information see "Tax Law Considerations" for a discussion of these
limits. Subject to any restrictions imposed by the Plan or the Code, transfers
from other Contracts and qualified rollover Contributions will be accepted.
Section 830.205 of the Texas Education Code provides that Employer or state
Contributions (other than salary reduction Contributions) on behalf of
Participants in the Texas Optional Retirement Program ("ORP") vest after one
year of participation in the program. UNUM/America will return Employer
Contributions to the Contractholder for those employees who terminate employment
in all Texas institutions of higher education before becoming vested. During
this first participation year in the ORP, ORP Participants may only direct
Employer and state Contributions to the Guaranteed Interest Division.
Contributions must be in United States funds unless UNUM/America agrees in
writing to accept other currencies. Any non-US funds will be converted to U.S.
funds. All withdrawals and distributions under this Contract will be in U.S.
funds. If a bank or other financial institution does not honor the check or
other payment method constituting a Contribution, UNUM/America will treat the
Contribution as invalid. All allocation and subsequent transfers resulting from
the invalid Contributions shall be reversed and the party responsible for the
invalid Contribution shall reimburse UNUM/America for any losses or expenses
resulting from the invalid Contribution.
Initial Contributions
The initial Contribution for a Participant will be credited to the
Participant's Account no later than two Business Days after it is received by
UNUM/America if it is preceded or accompanied by a completed enrollment form
containing all the information necessary for processing the Participant's
Contribution. If UNUM/America does not receive a complete enrollment form,
UNUM/America will notify the Contractholder or the Participant that UNUM/America
does not have the necessary information to process the Contribution. If the
necessary information is not provided to UNUM/America within five (5) Business
Days after UNUM/America first receives the initial Contribution, UNUM/America
will return the initial Contribution less any withdrawal(s) by the Participant
or by the
-19-
<PAGE>
Contractholder, unless the Participant or the Contractholder specifically
consents to UNUM/America retaining the Contribution until the enrollment form is
made complete.
Notwithstanding the above, when the Contract includes language regarding
the "Pending Allocation Account", the following shall apply: Where state
approval has been obtained, if UNUM/America receives Contributions which are not
accompanied by a properly completed Enrollment Form, UNUM/America will notify
the Contractholder of that fact and deposit the Contributions to the Pending
Allocation Account, unless such Contributions are designated to another Account
in accordance with the Plan. Within two business days of receipt of a properly
completed Enrollment Form, the Participant's Account balance in the Pending
Allocation Account will be transferred in accordance with the allocation
percentages elected on the Enrollment Form. All future Contributions will also
be allocated in accordance with these percentages until such time as the
Participant may notify UNUM/America of a change. If a properly completed
Enrollment Form is not received after three monthly notices have been sent, the
Participant's Account balance in the Pending Allocation Account will be refunded
to the Contractholder within 105 days of the date of the initial Contribution.
The Pending Allocation Account invests in Fidelity's Variable Insurance Products
Fund: Money Market Portfolio and is not available as an investment option under
the group annuity Contract. Mortality & Expense Risk Charges and the Annual
Administration Charge do not apply to this Account. These charges will be
applicable upon receipt of a properly completed Enrollment Form and the
Participant's Contract Participation Date will be the date money was deposited
in the Pending Allocation Account.
Allocation of Contributions
A Participant must designate in writing, subject to the Plan, the percent
of their Contribution which will be allocated to each Division and to each Sub-
Account available under their Contract. The Contributions allocation percentage
to the Guaranteed Investment Division or any Sub-Account can be in any whole
percent. A participant whose Employer offers two or more UNUM/America Contracts
for the same type of Qualified or Non- Qualified Plans may allocate
Contributions to a maximum of ten Sub-Accounts and the Guaranteed Interest
Division. Participants, subject to the terms of the Plan, may change the
allocation of Contributions by notifying UNUM/America in writing or by telephone
in accordance with procedures published by UNUM/America. Telephone requests for
allocation changes follow the same verification of identity rules as for
Transfers. (See "Telephone Transfers.") When UNUM/America receives a notice in
writing, the form must be acceptable to UNUM/America. Upon receipt by
UNUM/America, the change will be effective for all Contributions received
concurrently with the allocation change form and for all future Contributions,
unless a later date is requested. Changes in the allocation of future
Contributions have no effect on amounts a Participant may have already
contributed. Such amounts, however, may be transferred between Divisions and
Sub-Accounts pursuant to the requirements described in "Transfers between
Divisions and Sub-Accounts." Allocations of employer contributions may be
restricted by the applicable plan.
Subsequent Contributions
The Contractholder will forward Contributions to UNUM/America specifying
the amount being contributed on behalf of each Participant. The Contractholder
must send Contributions and provide such allocation information in accordance
with procedures established by UNUM/America. The Contributions shall be
allocated among the Guaranteed Interest Division and the Variable Investment
Division in accordance with the Contractholder's or the Participant's written
instructions as described above in "Allocation of Contributions."
Investment of Contributions
Contributions are invested as of the date of receipt at UNUM/America,
provided that they are received on a Business Day and allocation information is
provided in a form acceptable to UNUM/America in accordance with procedures
established by UNUM/America. Contributions on behalf of a Participant which are
allocated to the Variable Investment Division will be credited with Accumulation
Units as of that date. A Participant's interest in the Variable Investment
Division during the Accumulation Period is the value of the Participant's
Accumulation Units
-20-
<PAGE>
in the Variable Investment Division. Upon payment of a Contribution, the number
of Accumulation Units credited to a Participant's Account in a Sub-Account is
calculated by dividing the Contribution allocated to the Sub-Account by the
dollar value of an Accumulation Unit next determined after receipt of the
Contribution. The number of Accumulation Units purchased will not vary as a
result of any subsequent fluctuations in the Accumulation Unit Value. The
Accumulation Unit Value, of course, fluctuates with the investment performance
of the underlying Fund and also reflects deductions and charges made against the
Variable Investment Division.
Determination of Accumulation Unit Value
UNUM/America determines the Accumulation Unit Value of each Sub-Account on
each Valuation Date. The Accumulation Unit Values for all Sub-Accounts other
than the Index Account were initially set at ten dollars ($10). The Accumulation
Unit Value was initially set at $9.9060 for the Index Account. Subsequent
Accumulation Unit Values are determined by multiplying the Net Investment Factor
for the current Valuation Period by the Accumulation Unit Value as of the end of
the immediately preceding Valuation Period.
UNUM/America uses a Net Investment Factor to measure the daily fluctuations
in value of a Sub-Account. The Net Investment Factor for any Valuation Period is
determined as follows:
(a) The net asset value per share of the underlying Fund as of the
end of a Valuation Period is added to the amount per share of any dividends
or capital gain distributions paid by the Fund during that Valuation
Period;
(b) The amount in (a) above is then divided by the net asset value
per share of the underlying Fund as of the end of the immediately preceding
Valuation Period;
(c) The result of (a) divided by (b) is then multiplied by one minus
the annual mortality and expense risk charge to the n/365th power where n
equals the number of calendar days since the immediately preceding
Valuation Date.
The above calculation will be adjusted by the amount per share of any taxes
which are incurred by UNUM/America because of the existence of the Variable
Investment Division.
The Participant's Account balance is equal to the sum of the Participant's
Account balances in both the Variable Investment Division and the Guaranteed
Interest Division.
TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
During the Accumulation Period and subject to the terms of the Plan,
transfers may be made of all or part of a Participant's Account balance in any
Division or Sub-Account to another Sub-Account or Division. Transfers will not
change the allocation of future Contributions to the Divisions and Sub-Accounts.
UNUM/America does not require that any minimum amount be transferred. To effect
a transfer, UNUM/America must receive a written transfer request in a form
acceptable to UNUM/America.
Transfers to or from the Variable Investment Division are made using the
Accumulation Unit Value next computed following UNUM/America's receipt of the
written transfer request.
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Telephone Transfers between Divisions and Sub-Accounts
UNUM/America may accept telephone transfers from Participants when this is
allowed by the Contractholder. In order to prevent unauthorized or fraudulent
transfers, UNUM/America will require a Participant to provide certain
identifying information before UNUM/America will act upon their instructions.
UNUM/America may also assign the Participant a Personal Identification Number
(PIN) to serve as identification. UNUM/America will not be liable for following
telephone instructions it reasonably believes are genuine. Telephone transfer
requests may be recorded and written confirmation of all transfer requests will
be mailed to the Participant or Contractholder on the next Business Day.
Telephone transfers will be processed on the Business Day that they are received
when they are received at the UNUM/America Home Office before 4:00 P.M. ET. If
the Participant or Contractholder determines that a transfer has been made in
error, the Participant or Contractholder must notify UNUM/America within 30 days
of the confirmation notice date. See "Contract Provisions, Transfers between
Divisions and Sub-Accounts."
WITHDRAWALS
During the Accumulation Period and subject to the terms of the Plan,
withdrawals may be made from either or both Divisions of all or part of the
Participant's Account balance in a Division or Sub-Account remaining after
deductions for any applicable (1) CDSC; (2) Annual Administration Charge
(imposed on Total Withdrawals), (3) premium taxes, and (4) outstanding loan
including loan security. Annuity Conversion Amounts are not considered
withdrawals. See "Annuity Period, Annuities: General."
All withdrawal requests must indicate the amount to be withdrawn and be
submitted in a form acceptable to UNUM/America. If the request does not specify
the Sub-Accounts and/or the Divisions from which the withdrawal is to be made,
the withdrawal will be made pro rata based on balances in the Sub-Accounts and
the Guaranteed Interest Division. UNUM/America does not require that any minimum
amount be withdrawn. Telephone withdrawal requests are not available.
Withdrawals from the Variable Investment Division are made by reducing the
Participant's number of Accumulation Units in the applicable Sub-Account. In
determining the number of Accumulation Units to be reduced, UNUM/America uses
the Accumulation Unit Value next computed after UNUM/America's receipt of the
written withdrawal request.
Payment of all Variable Investment Division withdrawal amounts will be
made, within the time period allowed under current Federal law but in no case
later than seven days, after receipt by UNUM/America of the withdrawal request
in a form acceptable to UNUM/America. See "Market Emergencies."
Total Withdrawals
A Total Withdrawal can only be made by a Participant who has no outstanding
loans under the Contract. A Total Withdrawal of a Participant's Account will
occur when (a) the Participant or Contractholder requests the liquidation of the
Participant's entire Account balance, or (b) the amount requested plus any CDSC
results in a remaining Participant's Account balance of less than or equal to
the Annual Administration Charge, in which case the request is treated as if it
were a request for liquidation of the Participant's entire account balance.
Any Active Life Certificate must be surrendered to UNUM/America when a
Total Withdrawal occurs. If a Contractholder resumes Contributions on behalf of
a Participant after a Total Withdrawal, the Participant will receive a new
Participation Date and Active Life Certificate.
A Participant refund under the free-look provisions is not considered a
Total Withdrawal.
Partial Withdrawals
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A Partial Withdrawal of a Participant's Account will occur when less than a
Total Withdrawal is made from a Participant's Account.
Systematic Withdrawal Option
Participants who are at least age 59 1/2, are separated from service from
their employer or are disabled and certain spousal beneficiaries and alternate
payees who are former spouses may be eligible for a Systematic Withdrawal Option
("SWO") under the Contract. Under the SWO a Participant may elect to withdraw
either a monthly amount which is an approximation of the interest earned between
each payment period based upon the interest rate in effect at the beginning of
each respective payment period or a flat dollar amount withdrawn on a periodic
basis. Payments are made only from the Guaranteed Interest Account. A
Participant must have a vested pre-tax account balance of at least $10,000 in
order to select the SWO. A Participant may transfer amounts from the Variable
Investment Division to the Guaranteed Interest Division in order to support SWO
payments. These transfers, however, are subject to the transfer restrictions
described in this Prospectus and/or imposed by any applicable Plan. A one-time
fee of up to $30 may be charged to set up the SWO. This charge is waived for
total vested pre-tax account balances of $25,000 or more. More information about
SWO, including applicable fees and charges, is available in the Contracts and
Active Life Certificates as well as from UNUM/America.
Maximum Conservation Option
Under certain Contracts participants who are at least age 70 1/2 may
request that UNUM/America calculate and pay to them the minimum annual
distribution required by Sections 401(a)(9), 403(b)(10), 408(a) or 457(d) of the
Code. The Participant must complete forms as required by UNUM/America in order
to elect this option. UNUM/America will base its calculation solely on the
Participant's Account Value with UNUM/America. Participants who select this
option are responsible for determining the minimum distributions amount
applicable to their non-UNUM/America Contract.
Withdrawal Restrictions
Withdrawals under Section 403(b) Contracts are subject to the limitations
under Section 403(b)(11) of the Code and regulations thereof and in any
applicable Plan document. That section provides that salary reduction
Contributions deposited and earnings credited on any salary reduction
Contributions after December 31, 1988 may only be withdrawn if the Participant
has (1) died; (2) become disabled; (3) attained age 59 1/2; (4) separated from
service; or (5) incurred a hardship. Amounts accumulated in one Section
403(b)(1) Contract may be transferred to another Section 403(b)(1) Contract or
Section 403(b)(7) custodial account without a penalty under the Code. If amounts
accumulated in a Section 403(b)(7) custodial account are deposited in a
Contract, such amounts will be subject to the same withdrawal restrictions as
are applicable to post-1988 salary reduction Contributions under the Contracts.
For more information on these provisions see "Federal Income Tax
Considerations."
Withdrawal requests for a Participant under Section 457(b) Plans and Plans
subject to Title I of ERISA must be authorized by the Contractholder on behalf
of a Participant. All withdrawal requests will require the Contractholder's
written authorization and written documentation specifying the portion of the
Participant's Account balance which is available for distribution to the
Participant. Withdrawal requests for Section 457(f) Plans must be requested by
the Contractholder.
As required by Section 830.105 of the Texas Education Code, withdrawal
requests by Participants in the Texas Optional Retirement Program ("ORP") are
only permitted in the event of (1) death; (2) retirement; (3) termination of
employment in all Texas institutions of higher education; or (4) attainment of
age 70 1/2. A Participant in an ORP Contract is required to obtain a
certificate of termination from the Participant's Employer before a withdrawal
request can be granted.
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For withdrawal requests (other than transfers to other investment
vehicles), by Participants under Plans not subject to Title I of ERISA and non-
457 Plans, the Participant must certify to UNUM/America that one of the events
listed in the Code has occurred (and provide supporting information, if
requested) and that UNUM/America may rely on such representation in granting
such withdrawal request. See "Federal Income Tax Considerations." A Participant
should consult their tax adviser as well as review the provisions of their Plan
before requesting a withdrawal.
In addition to the restrictions noted above, a Plan may contain additional
withdrawal or transfer restrictions.
Early withdrawals, as defined under Section 72(q) and 72(t) of the Code,
may be subject to a ten percent excise tax.
DEATH BENEFITS
The payment of death benefits will be governed by the provisions of the
applicable Plan and the Code. In the event of the death of a Participant during
the Accumulation Period, UNUM/America will pay the Beneficiary, if one is
living, or the Plan the greater of the following amounts:
(1) The Net Contributions, or
(2) The Participant's Account balance less any outstanding loan (including
principal and due and accrued interest), as of the date of notification.
If UNUM/America is not notified of the Participant's death within six
months of such death, the Beneficiary will receive the Death Benefit amount
described in paragraph (2).
A Beneficiary may elect to have the Death Benefit (1) paid as a lump sum,
(2) converted to a Payout Annuity or (3) as a combination of a lump sum payment
and a Payout Annuity.
UNUM/America will calculate the Death Benefit as of the end of the
Valuation Period during which it receives both satisfactory notification of the
Participant's death and an election of a form of Death Benefit (as described
below). Payment of a lump sum election will be made within the time period
prescribed by Federal law but in no case later than seven days following such
calculation. Payment of an annuity option will be paid in accordance with the
provisions regarding annuities. See "Annuity Period." If no election is made
within sixty days following UNUM/America's receipt of satisfactory notice of the
Participant's death, the Death Benefit will be paid in the form of a lump sum
payment and will be calculated as of the end of the Valuation Period during
which that sixtieth day occurs (and payment will be made within the time period
prescribed by Federal law but in no case later than seven days after such
calculation date).
Satisfactory proof of death may consist of: a copy of a certified death
certificate; a copy of a certified decree of a court of competent jurisdiction
as to the finding of death; a written statement by a medical doctor who attended
the deceased at the time of death; or any other proof satisfactory to
UNUM/America.
Notwithstanding the above, if the Beneficiary is someone other than the
spouse of the deceased Participant, the Code provides that the Beneficiary may
not elect an annuity which would commence later than December 31st of the
calendar year following the calendar year of the Participant's death. If a non-
spousal Beneficiary elects to receive payment in a single lump sum, the Code
provides that such payment must be received no later than December 31st of the
fourth calendar year following the calendar year of the Participant's death.
If the Beneficiary is the surviving spouse of the deceased Participant,
distributions are not required under the Code to begin earlier than December
31st of the calendar year in which the Participant would have attained age
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70 1/2. If the surviving spouse dies before the date distributions commence,
then, for purposes of determining the date distributions to the Beneficiary must
commence, the date of death of the surviving spouse is substituted for the date
of death of the Participant.
If there is no living named Beneficiary on file with UNUM/America at the
time of a Participant's death and unless the Plan directs otherwise,
UNUM/America will pay the Death Benefit to the Participant's estate in the form
of a lump sum payment, upon receipt of satisfactory proof of the Participant's
death, but only if such proof of death is received by UNUM/America no later than
the end of the fourth calendar year following the year of the Participant's
death. In such case, valuation of the Death Benefit will occur as of the end of
the Valuation Period during which due proof of death is received by
UNUM/America, and the lump sum Death Benefit will be paid within the time period
prescribed by Federal law but in no case later than seven days of that date.
DEDUCTIONS AND CHARGES
CHARGES AGAINST THE VARIABLE INVESTMENT DIVISION
Mortality and Expense Risk Charges
Certain charges will be assessed as a percentage of the value of the net
assets of the Variable Investment Division to compensate UNUM/America for risks
assumed in connection with the Contracts.
UNUM/America deducts from the net assets of the Variable Investment
Division a daily charge of 1.20% on an annual basis.
This charge is assessed both during the Accumulation Period and the Annuity
Period although, during the Annuity Period, UNUM/America will bear no mortality
risk with respect to the Annuity Options that do not involve life contingencies.
This amount is intended to compensate UNUM/America for certain Mortality and
Expense Risks UNUM/America assumes in operating the Variable Investment Division
and for providing services to the Participant. The total charge may not be
altered.
The Expense Risk is the risk that UNUM/America's actual expenses in issuing
and administering the Contract will be more than UNUM/America estimated. The
Mortality Risk borne by UNUM/America arises from the chance that UNUM/America's
actuarial estimate of mortality rates during the Annuity Period, as guaranteed
in the Contract, may prove erroneous and that an Annuitant may live longer than
expected. This contractual guarantee assures that neither an Annuitant's own
longevity nor an improvement in life expectancy generally will have any adverse
effect under the Contracts. In addition, UNUM/America bears the Mortality Risk
that it guarantees to pay a Death Benefit that may be higher than the
Participant's Account balance upon the death of the Participant prior to the
Annuity Period.
CHARGES AGAINST THE CONTRACTS
The charges that UNUM/America assesses in connection with the Contracts are
described below.
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Annual Administration Charge
UNUM/America provides many administrative functions in connection with the
Contracts, including receiving and allocating Contributions in accordance with
the Contracts, making annuity payments when they become due, and preparing and
filing all reports required to be filed by the Variable Investment Division. In
addition, UNUM/America provides Participants with Account statements and
accounting services that keep track of pre-tax monies, employee and Employer
monies, vested Account balances and rollover or transferred monies.
In consideration for these administrative services, UNUM/America currently
deducts $25 (or the balance of the Participant's Account if less) per year from
each Participant's Account balance on the last Business Day of the month in
which a Participation Anniversary occurs. This charge is deducted only during
the Accumulation Period. This Annual Administration Charge is also withdrawn
from a Participant's Account balance if and when a Participant's Account is
totally withdrawn on any date other than the last Business Day of the month in
which the Participation Anniversary occurs.
The Annual Administration Charge may be reduced or waived for those
Participants who are participating under another UNUM/America Contract which
imposes an Annual Administration Charge or where UNUM/America's interest costs
or expenses are reduced due to the terms of the Contract, economies of scale or
administrative assistance provided by the Contractholder. In addition, the
Employer has the option of paying the Annual Administration charge on behalf of
the Participants under a Contract.
Under certain Contracts, the Contractholder may also choose to have the
Annual Administration Charge paid only by those Participants in the Variable
Investment Division. Contracts offering this provision will typically have a
declared interest rate in the Guaranteed Interest Division which is lower than
under Contracts not offering this provision. For Contracts offering this
provision, the Annual Administration Charge will be withdrawn as described in
this section.
Since the Closing Date, Lincoln Life has administered the Contracts on
behalf of UNUM/America pursuant to an administrative services agreement. See
"Acquisition Agreement with The Lincoln National Life Insurance Company."
Premium Taxes
Certain states require that a premium tax be paid on contributions to a
variable annuity Contract. Others assess a premium tax at the time of
annuitization. UNUM/America will deduct any applicable premium tax from the
Participant's Account balance at the time required by state law.
Contingent Deferred Sales Charge
UNUM/America does not impose a sales charge at the time a Contribution is
made to a Participant's Account under the Contract. During the Accumulation
Period and prior to the 11th Participation Year, UNUM/America charges a CDSC on
all Withdrawals of a Participant's Account balance unless UNUM/America
receives at the time of the withdrawal request reasonable proof necessary to
verify that: (a) the Participant has attained age 59 1/2; (b) the Participant
has died; (c) the Participant has incurred a disability as defined under the
Contract; or (d) the Participant has terminated employment with the
Employer.
The CDSC reimburses UNUM/America for part or all of its expenses related to
distributing the Contracts. If the revenues generated by the CDSC are not
sufficient to cover UNUM/America's actual costs of distribution, such costs will
be paid from UNUM/America's General Account assets, which may include any
ultimate profit derived from the mortality and expense risk charge.
Amounts subject to a CDSC are charged in accordance with the following
schedule:
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<TABLE>
<CAPTION>
DURING
PARTICIPATION YEAR CDSC
------------------ ----
<S> <C>
1-6 5%
7 4%
8 3%
9 2%
10 1%
11 and later 0%
</TABLE>
Under certain Contracts, the Contractholder may choose to require that the
Participant be age 55 or older and have terminated employment in order to be
entitled to a withdrawal without a CDSC. Contracts containing this additional
restriction may receive a higher declared interest rate in the Guaranteed
Interest Division than the Contracts not containing this restriction. A
Contractholder has the option of adding financial hardship as an event entitling
the Participant to a withdrawal from the Contract without the imposition of a
CDSC. A Contractholder can also choose a provision under the Contract permitting
Participants to make a withdrawal, once in each calendar year, of up to 20% of
their Account balance without the imposition of a CDSC. Contractholders choosing
these additional benefits may receive a lower declared interest rate under the
Guaranteed Interest Division of their Contract than under Contracts not offering
these benefits.
The CDSC on any withdrawal may be reduced or eliminated but only to the
extent that UNUM/America anticipates that it will incur lower sales expenses or
perform fewer sales services due to economies arising from (a) the size of the
particular group, (b) an existing relationship with the Contractholder or
Employer, (c) the utilization of mass enrollment procedures, or (d) the
performance of sales functions by the Contractholder or an Employer which
UNUM/America would otherwise be required to perform.
The CDSC is imposed on the Gross Withdrawal Amount. A Participant may
request to receive a specific Net Withdrawal Amount. If the Participant requests
a specific Net Withdrawal Amount, the CDSC will be imposed on a Gross Withdrawal
Amount, which after deducting the CDSC, gives the Participant the Net Withdrawal
Amount requested. The following example illustrates the formula:
Participant requests a Net Withdrawal Amount of $100 in their tenth
Participation Year. UNUM/America will impose the 1% CDSC on a Gross Withdrawal
Amount of $101.01 and the Participant will receive $100. This is the standard
procedure for withdrawals.
The CDSC will be deducted from the Divisions and Sub-Accounts in proportion
to amounts withdrawn therefrom. Death Benefit payments and amounts converted to
an annuity are not subject to a CDSC. In no event will the CDSC, when added to
any CDSC previously imposed due to a Participant withdrawal, exceed 8.5% of the
cumulative Contributions to a Participant's Account.
MISCELLANEOUS
The Variable Investment Division purchases shares from the Funds at net
asset value. The net asset value reflects investment management fees and other
expenses that have already been deducted from the assets of the Funds. The
Funds' investment management fees, expenses and expense limitations, if
applicable, are more fully described in each prospectus for the Funds.
ANNUITY PERIOD
PAYOUT ANNUITIES: GENERAL
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To the extent permitted by the Plan, the Participant, or the Beneficiary of
a deceased Participant, may elect to convert all or part of the Participant's
Account balance or the Death Benefit to a Payout Annuity. Payout Annuities are
available as either a Guaranteed or Variable Annuity or a combination of both.
Annuity payments from the Guaranteed Interest Division remain constant
throughout the annuity period. Annuity payments from the Variable Investment
Division fluctuate depending upon the investment experience of the applicable
Sub-Accounts. Variable Annuity payments are based upon Annuity Unit Values. See
"Annuity Payments" below and "Determination of Variable Annuity Payments" in the
Statement of Additional Information for further information.
The Annuity Commencement Date marks the date on which the first annuity
payment is made to an Annuitant. For Plans subject to Section 401(a)(9)(B) of
the Code, a Beneficiary must select an Annuity Commencement Date that is not
later than one year after the date of the Participant's death. A Participant or
Contractholder may select any Annuity Commencement Date for the Annuitant which
is then reflected in the Retired Life Certificate. However, since an annuity
payment is considered a distribution under the Code, selection of an Annuity
Commencement Date may be affected by the distribution restrictions under the
Code and the minimum distribution requirements under Section 401(a)(9) of the
Code. See "Federal Income Tax Considerations." The selection of an Annuity
Commencement Date, the annuity option, the amount of the Payout Annuity and
whether the amount is to be paid as a Guaranteed or a Variable Annuity must be
made by the Participant in writing, in a satisfactory form, and received at
least 30 days in advance of the Annuity Commencement Date. After the Annuity
Commencement Date an Annuitant may not change either the annuity option or the
type (i.e., variable or guaranteed) of Payout Annuity for any amount applied
toward the purchase of an annuity.
The Annuity Conversion Amount is either the Participant's Account balance,
or a portion thereof, or the Death Benefit plus interest, as of the Annuity
Payment Calculation Date. For a Guaranteed Annuity, the Annuity Commencement
Date is typically one month after the Annuity Payment Calculation Date;
subsequent payments are at one month intervals from the Annuity Commencement
Date. For a Variable Annuity, the Annuity Commencement Date is 10 Business Days
after the initial Annuity Payment Calculation Date; subsequent monthly payments
have Annuity Payment Calculation Dates which are 10 business days prior. The 10
Business Days are necessary to calculate the amount of the Payout Annuity
payments and to mail the checks in advance of their monthly due dates.
If the Participant's Account balance or the Beneficiary's Death Benefit is
less than $2,000 or if the amount of the first scheduled payment is less than
$20, the annuity may be cancelled and the Participant or Beneficiary required to
accept payment of the entire amount in a lump sum.
PAYOUT ANNUITY PAYMENTS
The amount of each annuity payment will depend upon the Annuity Conversion
Amount, the annuity option, the age of the Participant(s) on the initial Annuity
Payment Calculation Date, and the length of time from the initial Annuity
Payment Calculation Date to the Annuity Commencement Date. Unless otherwise
notified, the Participant's Account balance in the Guaranteed Interest Division
will be applied toward a Guaranteed Annuity and the Participant's Account
balance in the Variable Investment Division toward a Variable Annuity.
The payment amount for a Guaranteed Annuity is determined by dividing the
Participant's Annuity Conversion Amount in the Guaranteed Interest Division as
of the initial Annuity Payment Calculation Date by the applicable Annuity
Conversion Factor.
The initial payment amount for a Variable Annuity is determined by dividing
the Participant's Annuity Conversion Amount(s) in the applicable Sub-Account(s)
as of the initial Annuity Payment Calculation Date by the applicable Annuity
Conversion Factor as defined in the Contract. The amounts of subsequent payments
vary depending on the investment experience of the Sub-Account(s) and the
interest rate option selected by the Participant. The payment amounts will not
be affected by mortality or expense experience and will not be reduced
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by an Annual Administration Charge. For additional information on the
determination of subsequent payment amounts, refer to the Statement of
Additional Information, "Determination of Variable Annuity Payments."
PAYOUT ANNUITY OPTIONS
Participants are offered a range of annuity options including, but not
limited to, the following:
Single Life Annuity
Payments are made monthly during the lifetime of the Annuitant, and the
annuity terminates with the last payment preceding death.
Life Annuity with Payments Guaranteed for 10, 15 or 20 Years
Payments are made monthly during the lifetime of the Annuitant with a
monthly payment guaranteed to the Beneficiary for the remainder of the selected
number of years, if the Annuitant dies before the end of the period selected.
Payments under this annuity option are smaller than a Single Life Annuity
without a guaranteed payment period.
Joint Life Annuities
Payments are made monthly during the joint lifetime of the Annuitant and a
designated second person.
Non-Life Annuities
Annuity payments are guaranteed monthly for the selected number of years.
While there is no right to make any total or partial withdrawals during the
Annuity Period, an Annuitant who has selected this annuity option as a Variable
Annuity or a surviving Beneficiary may request at any time during the payment
period that the present value of any remaining installments be paid in one lump
sum. Such lump sum payment will be treated as a Total Withdrawal during the
Accumulation Period and may be subject to a CDSC. See, "Deductions and Charges"
and "Federal Income Tax Considerations."
Under Qualified Plans, any annuity selected must be payable over a period
that does not extend beyond the life expectancy of the Participant and the
Participant's designated Beneficiary. If the Beneficiary is someone other than
the Participant's spouse, the present value of payments to be made to the
Participant must be more than 50% of the present value of the total payments to
be made to the Participant and the Beneficiary.
In the event that an Annuitant dies before the end of a designated Annuity
period, the Beneficiary, if any, or the Annuitant's estate will receive any
remaining payments due under the annuity option in effect.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion assumes that the Contracts will qualify as annuity
Contracts for Federal income tax purposes. The description of the Federal income
tax status of amounts received under the Contracts is not exhaustive and is not
intended to cover all situations. Contractholders and Participants should seek
advice from their tax advisers on a regular basis as to the application of
Federal (and, where applicable, state and local) tax laws to amounts received by
them or their Beneficiaries under the Contracts. All dollar amounts and
percentages stated below are subject to change according to Federal law. With
respect to the transfer of Contracts from UNUM/America to Lincoln Life or
Lincoln-NY, there will be no adverse tax consequences to Contractholders or
participants as a result of the transfer. For additional Federal Income Tax
Considerations, please refer to the Statement of Additional Information.
NON-QUALIFIED PLANS
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Under a Non-Qualified Plan, an individual may make Contributions to the
Contract which are neither tax-deductible or tax deferred. The earnings on the
Contributions accumulate on a tax-deferred basis until withdrawn. Non-Qualified
Plans investing in annuity Contracts are subject to the Federal taxation rules
of Section 72 of the Code.
The Code does not limit the Participant's contributions to a Section 72
plan. There are no Code restrictions on withdrawals or minimum age when the
Participant must begin withdrawals.
SECTION 401(a) PLANS
Section 401(a) of the Code provides special tax treatment for pension,
profit sharing and stock bonus Plans established by employers for their
employees. Contributions to a Section 401(a) Plan and any earnings attributable
to such Contributions are currently excluded from the Participant's income.
Section 401(a) Plans are subject to, among other things, limitations on: maximum
contributions, minimum coverage and participation, minimum funding, minimum
vesting requirements and distribution requirements. The specific limitations are
outlined in the plan document adopted by the employer.
A Participant who makes a withdrawal from a Section 401(a) program must
include that amount in current income. In addition, Section 401(k)(2) of the
Code requires that salary reduction Contributions made and/or earnings credited
on any salary reduction Contributions may not be withdrawn from the
Participant's Section 401(k) program prior to the Participant having (1)
attained age 59 1/2, (2) separated from service, (3) become disabled, (4) died
or (5) incurred a hardship. Hardship withdrawals may not include any income
credited after December 31, 1988 that is attributable to any salary reduction
Contributions. In addition, Section 402 of the Code permits tax-free rollovers
from Section 401(a) programs to individual retirement annuities or certain other
Section 401(a) programs under certain circumstances.
SECTION 403(b) PLANS
A Participant who is an employee of a hospital or other tax-exempt
organization described in Section 501(c)(3) or 501(e) of the Code may exclude
from current earnings amounts contributed to a Section 403(b) program. Under the
terms of a Section 403(b) program, an Employer may make Contributions directly
to the program on behalf of the Participant, the Participant may enter into a
salary reduction agreement with the Participant's Employer authorizing the
Employer to contribute a percentage of the Participant's salary to the program
and/or the Participant may authorize the Employer to make after tax
Contributions to the program. Currently, the Code permits employees to defer up
to $9,500 of their income through salary agreements. All Contributions made to
the Section 403(b) program are subject to the limitations described in Code
Sections 402(g) regarding elective deferral amounts, 403(b)(2) regarding the
maximum exclusion allowance, and 415(a)(2) and 415(c) regarding the limitations
on annual additions.
A Participant who makes a withdrawal from their Section 403(b) program must
include that amount in current income. In addition, Section 403(b)(11) of the
Code requires that salary reduction Contributions made and/or earnings credited
on any salary reduction Contributions after December 31, 1988 may not be
withdrawn from the Participant's Section 403(b) program prior to the Participant
having (1) attained age 59 1/2, (2) separated from service, (3) become
disabled, (4) died or (5) incurred a hardship. Hardship withdrawals may not
include any income credited after December 31, 1988 that is attributable to any
salary reduction Contributions. The Internal Revenue Service has ruled (Revenue
Ruling 90-24) that amounts may be transferred between Section 403(b) investment
vehicles as long as the transferred funds retain withdrawal restrictions at
least as restrictive as that of the transferring investment vehicle. Such
transferred amounts are considered withdrawals under the Contract and will be
subject to a CDSC, if applicable. See "Deductions and Charges--Contingent
Deferred Sales Charges." In addition, Section 403(b)(8) of the Code permits tax-
free rollovers from Section 403(b) programs to individual retirement annuities
or other Section 403(b) programs under certain circumstances. Qualified
distributions eligible for rollover treatment may be subject to a 20% federal
tax withholding depending on whether or not the distribution is paid directly to
an eligible retirement plan.
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SECTION 408 PLANS (IRAS)
Under current law, individuals may contribute and deduct the lesser of
$2,000 or 100% of their compensation to an IRA. The $2,000 is increased to
$4,000 when the IRA covers the taxpayer and a non-working spouse. The deduction
for Contributions is phased out for individuals who are considered active
participants under qualified Plans and whose Adjusted Gross Income attains a
certain level. For a single person the $2,000 deduction is available when the
taxpayers Adjusted Gross Income is $25,000 or less. For each $50 that the
taxpayer's Adjusted Gross Income rises above $25,000, the taxpayer's deductible
IRA is reduced by $10. When the single taxpayer's Adjusted Gross Income is
$35,000 or greater, a tax deduction for an IRA is no longer available. For a
married couple filing jointly, the threshold level is $40,000 rather than
$25,000. For a married person filing separately, the threshold is $0.
In addition, certain amounts distributed from Section 401(a) and 403(b)
Plans may be rolled over to an IRA on a tax-free basis if done in a timely
manner (within 60 days of the Participant's receipt of the distribution). The
limitations on contributions discussed above do not apply to amounts rolled over
to an IRA.
All Participants in an IRA receive an IRA Disclosure. This document
explains the tax rules that apply to IRAs in greater detail.
ELIGIBLE SECTION 457 PLANS
Eligible Section 457 Plans may be established by state and local
governments as well as private tax-exempt organizations (other than churches).
Participants may contribute on a before tax basis to a deferred compensation
Plan of their employer in accordance with the employer's Plan and Section 457 of
the Code. Section 457 places limitations on the amount of Contributions to
these Plans. Generally, the limitation is one-third of includable compensation
or $7,500 whichever is less. In the Participant's final year of employment the
$7,500 limit is increased to $15,000.
Participants in an Eligible 457 Plan may not receive a withdrawal or other
distribution from their Plan except in the event of separation of service from
the employer, attainment of age 70 1/2, or when faced with an unforeseen
emergency. The Contractholder's Plan may further restrict the Participant's
rights to a withdrawal.
An employee electing to participate in an Eligible Section 457 Plan should
understand that their rights and benefits are governed strictly by the terms of
the Plan, that they are in fact a general creditor of the Employer under the
terms of the Plan, that the Employer is legal owner of any Contract issued with
respect to the Plan and that the Employer retains all rights under the Contract
issued with respect to the Plan. Participants under Eligible Section 457 Plans
should look to the terms of their Plan for any charges in regard to
participation other than those disclosed in this Prospectus.
SECTION 457(f) PLANS
Section 457(f) Plans may be established by state and local governments as
well as private tax-exempt organizations. Employers and Participants may
contribute on a before-tax basis to a deferred compensation Plan of their
employer in accordance with the employer's Plan. Section 457(f) does not place
limitations on the amount of Contributions to these Plans; however, the Internal
Revenue Service may review these plans to determine if the deferral amount is
acceptable to the IRS based on the nature of the 457(f) Plan.
Participants in 457(f) Plans may not receive a withdrawal or other
distribution from their 457(f) Plans until a distributable event occurs. The
Plan will define such events.
An employee electing to participate in a Section 457(f) Plan should
understand that their rights and benefits are governed strictly by the terms of
the Plan, that they are in fact a general creditor of the Employer under the
terms
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of the Plan, that the Employer is legal owner of any Contract issued with
respect to the Plan and that the Employer retains all rights under the Contract
issued with respect to the Plan. Participants under Section 457(f) Plans should
look to the terms of their Plan for any charges in regard to participating other
than those disclosed in this Prospectus.
TAXATION OF ANNUITIES: GENERAL
In Qualified Plans such as 401(a), 403(b), 408 and Eligible 457 Plans, the
Participant is not taxed on the value in their accounts until they receive
payments from the account. In some situations, default or forgiveness of a loan
will result in taxable income. Distributions from all these Plans are taxed
under the rules of Sections 72 and 402 of the Code.
TAXATION PRIOR TO THE ANNUITY COMMENCEMENT DATE
Section 72 of the Code provides that a total or partial withdrawal prior to
the Annuity Commencement Date will be taxable to the extent the amount of the
income in the Participant's account exceeds the Participant's investment in the
Participant's account. In general, distributions from a Participant's account
under Sections 401(a), 403(b) and 408 Plans under which the Participant made
after-tax contributions will be taxable according to a formula based on the
ratio of the Participant's investment in the Contract to the total value of the
Participant's Account balance as of the date of the distribution. Under an
Eligible 457 Plan the Participant is taxed on the value when it is made
available to the Participant. In a 457(f) Plan the Participant is taxed when
their right to a distribution is no longer subject to a substantial risk of
forfeiture.
PENALTY TAX FOR PREMATURE DISTRIBUTIONS
Sections 72(q) and 72(t) impose a 10% excise tax on certain premature
distributions for non-qualified and Section 401(a), 403(b) and 408 Plans. The
penalty tax will not apply to distributions made on account of the Participant
having (i) attained age 59 1/2; (ii) become disabled; or (iii) died. The
penalty tax will also not apply under 401(a) and 403(b) retirement plans where a
Participant separates from service after age 55. In addition, the penalty does
not apply if the distribution is received as a series of substantially equal
periodic payments made for the life (or life expectancy) of the Participant or
the joint lives (or life expectancies) of the Participant and a designated
Beneficiary. The 10% excise tax is an additional tax; it does not apply to any
money that the Participant receives as a return of their cost basis. The 10%
excise tax does not apply to Section 457 Plans.
MINIMUM DISTRIBUTIONS
Participants in Plans subject to Code Sections 401(a), 403(b), 408 and
Eligible 457 Plans are subject to Minimum Distribution Rules. For a Participant
who attains age 70 1/2 after December 31, 1987, distributions must begin by
April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2. For a Participant who attains age 70 1/2
before January 1, 1988, distributions must begin on the April 1 of the calendar
year following the later of (1) the calendar year in which the Participant
attains age 70 1/2 or (2) the calendar year in which the Participant retires.
VOTING RIGHTS
UNUM/America is the legal owner of the shares of the Funds held by the
Variable Investment Division. As such, UNUM/America is entitled to vote those
Fund shares with respect to issues such as the election of a Fund's directors,
ratification of a Fund's choice of independent auditors and other matters
required by the 1940 Act to be voted on by shareholders.
In those years in which the Funds hold a shareholder meeting, UNUM/America
will solicit from Contractholders voting instructions with respect to Fund
shares held by the Variable Investment Division. Each Contractholder will
receive a number of votes in proportion to the Contractholder's investment in
the corresponding Sub-Account as of the record date established by the Fund.
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During the Accumulation Period, a Participant has the right to instruct
Contractholders as to the votes attributable to their Participant Account
balance in the Sub-Accounts. Annuitants have similar rights with respect to the
annuity amount attributable to the Sub-Accounts.
UNUM/America will furnish Contractholders with sufficient Fund proxy
material and voting instruction forms for all Participants who have voting
rights under the Contract. UNUM/America will vote those Fund shares attributable
to the Contract for which UNUM/America receives no voting instructions in the
same proportion as UNUM/America will vote shares for which UNUM/America has
received instructions. UNUM/America will vote shares attributable to amounts
UNUM/America may have in the Variable Investment Division in the same proportion
as votes that UNUM/America receives from Contractholders. If the federal
securities laws or regulations or any interpretation of them changes so that
UNUM/America is permitted to vote shares of the Fund in UNUM/America's own right
or to restrict Participant voting, UNUM/America may do so.
Fund shares may be held by separate accounts of insurance companies
unaffiliated with UNUM/America. Fund shares held by those separate accounts will
be voted, in most cases, according to the instruction of owners of insurance
policies and Contracts issued by those other unaffiliated insurance companies.
This will dilute the effect of the voting instructions of the Contractholders in
the Variable Investment Division. UNUM/America does not foresee any disadvantage
to this. Pursuant to conditions imposed in connection with regulatory relief,
the Fund's Board of Directors has an obligation to monitor events to identify
conflicts that may arise and to determine what action, if any, should be taken.
For further information, see the prospectuses for the Funds.
OTHER CONTRACT PROVISIONS
RIGHTS RESERVED BY UNUM/AMERICA
UNUM/America reserves the right, subject to compliance with applicable law,
including approval by the Contractholder or the Participants if required by law,
(1) to create additional Sub-Accounts in the Variable Investment Division, (2)
to combine or eliminate Sub-Accounts in the Variable Investment Division, (3) to
transfer assets from one Sub-Account in the Variable Investment Division to
another, (4) to transfer assets to the General Account and other separate
accounts, (5) to cause the deregistration and subsequent re-registration of the
Variable Investment Division under the Investment Company Act of 1940, (6) to
operate the Variable Investment Division under a committee and to discharge such
committee at any time, and (7) to eliminate any voting rights which the
Contractholder or the Participants may have with respect to the Variable
Investment Division, (8) to amend the Contract to meet the requirements of the
Investment Company Act of 1940 or other federal securities laws and regulations,
(9) to operate the Variable Investment Division in any form permitted by law,
(10) to substitute shares of another fund for the shares held by a Sub-Account,
and (11) to make any change required by the Internal Revenue Code, ERISA or the
Securities Act of 1933. Participants will be notified if any changes are made
that result in a material change in the underlying investments of the Variable
Investment Division.
ASSIGNABILITY
The Contracts are not assignable without UNUM/America's prior written
consent. In addition, a Participant, a Beneficiary or an Annuitant may not,
unless permitted by law, assign or encumber any payment due under the Contract.
MARKET EMERGENCIES
While UNUM/America may not suspend the right of redemption or delay payment
from the Variable Investment Division for more than the time period allowed
under Federal law but in no case longer than seven days, the following events
may delay payment for more than seven days: (1) any period when the New York
Stock Exchange is closed (other than customary weekend and holiday closings);
(2) any period when trading in the markets
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normally utilized is restricted, or an emergency exists as determined by the
Securities and Exchange Commission, so that disposal of investments or
determination of the Accumulation Unit Value or Variable Annuity payment value
is not reasonably practicable; or (3) for such other periods as the Securities
and Exchange Commission by order may permit for the protection of the
Participants.
CONTRACT DEACTIVATION
Under certain Contracts, UNUM/America may deactivate a Contract by
prohibiting new contributions and/or new Participants after the date of
deactivation. UNUM/America will give the Contractholder and the Participants not
less than 90 days notice of the date of deactivation.
FREE-LOOK PERIOD
Participants under Sections 403(b), 408 and certain Non-Qualified Plans
will receive an Active Life Certificate upon UNUM/America's receipt of a duly
completed participation enrollment form. If the Participant chooses not to
participate under the Contract, the Participant may exercise the free-look right
by sending a written notice to UNUM/America that the Participant does not wish
to participate under the Contract, within 10 days after the date the Active Life
Certificate is received by the Participant. For purposes of determining the date
on which the Participant has sent written notice, the postmark date will be
used.
If a Participant exercises the free-look right in accordance with the
foregoing procedure, UNUM/America will refund in full the Participant's
aggregate Contributions less aggregate withdrawals made on behalf of the
Participant or, if greater, with respect to Contributions to the Variable
Investment Division, the Participant's Account balance in the Variable
Investment Division on the date the Participant's written notice is received by
UNUM/America.
GUARANTEED INTEREST DIVISION
GENERAL
Contributions to the Guaranteed Interest Division become part of
UNUM/America's General Account. The General Account is subject to regulation and
supervision by the Maine Insurance Department as well as the insurance laws and
regulations of the jurisdictions in which the Contracts are distributed. In
reliance on certain exemptions, exclusions and rules, UNUM/America has not
registered the interests in the General Account as a security under the
Securities Act of 1933 and has not registered the General Account as an
investment company under the 1940 Act.
Accordingly, neither the General Account nor any interests therein are
subject to regulation under the 1933 Act or the 1940 Act. UNUM/America has been
advised that the staff of the SEC has not made a review of the disclosures which
are included in this prospectus which relate to the General Account and the
Guaranteed Interest Division. These disclosures, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. This
prospectus is generally intended to serve as a disclosure document only for
aspects of the Contract involving the Variable Investment Division and contains
only selected information regarding the Guaranteed Interest Division. Complete
details regarding the Guaranteed Interest Division are in the Contract.
Amounts contributed to the Guaranteed Interest Division are guaranteed a
minimum interest rate according to contract minimums of at least 3.0%.
UNUM/America will also declare in advance a guaranteed interest rate which will
be effective for all amounts in the Participant's Account balance in the
Guaranteed Interest Division during the designated year. This rate will never be
less than the minimum rate of interest. UNUM/America may also declare in advance
separate interest rate guarantees which are in excess of the guaranteed interest
rate for some or all of the Participant's Account balance in the Guaranteed
Interest Division for specific period(s) during the designated year. A
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Participant who makes a Contribution to the Guaranteed Interest Division is
credited with interest beginning on the next calendar day following the date
of receipt if all Participant data is complete.
PARTICIPANT'S ACCOUNT BALANCE IN THE GUARANTEED INTEREST DIVISION
The Participant's Account balance in the Guaranteed Interest Division on
any Valuation Date will reflect the amount and frequency of any Contributions
allocated to the Guaranteed Interest Division, plus any transfers from the
Variable Investment Division and interest credited to the Guaranteed Interest
Division, less any withdrawals, CDSC, Annual Administration Charges and loan-
related charges allocated to the Guaranteed Interest Division and any transfers
to the Variable Investment Division.
TRANSFERS, TOTAL AND PARTIAL WITHDRAWALS
Amounts in the Guaranteed Interest Division are generally subject to the
same rights and limitations and will be subject to the same charges as are
amounts allocated to the Variable Investment Division with respect to Total or
Partial Withdrawals. See "Deferral Periods."
LOANS
During a Participant's Accumulation Period, a Participant, whose Plan
permits loans, may apply for a loan under the Contract by completing a loan
application available from UNUM/America. Loans are secured by the Participant's
Account balance in the Guaranteed Interest Division. The amounts and terms of a
Participant loan may be subject to the restrictions imposed under Section 72(p)
of the Code, Title I of ERISA, and any applicable Plans. With respect to Plans
subject to Title I of ERISA, the initial amount of a Participant loan may not
exceed the lesser of 50% of the Participant's vested Account balance in the
Guaranteed Interest Division or $50,000 and must be at least $1,000. A
Participant in a Plan that is not subject to ERISA may borrow up to $10,000 of
their vested Account balance without regard to the 50% limitation stated above.
A Participant may have only one loan outstanding at any time and may not
establish more than one loan in any six month period. Amounts serving as
collateral for the loan are not subject to the minimum interest rate under the
Contract and will accrue interest at a rate which is below the loan interest
rate as provided in the Contract. Under certain Contracts, a one-time fee of up
to $50 may be charged to set up a loan. More information about loans, including
interest rates and applicable fees and charges, is available in the Contracts,
Active Life Certificates, and the Annuity Loan Agreement as well as from
UNUM/America.
DEFERRAL PERIODS
If a payment is to be made from the Guaranteed Interest Division,
UNUM/America may defer the payment for the period permitted by the law of the
jurisdiction in which the Contract is distributed, but in no event, for more
than 6 months after a written election is received by UNUM/America. During the
period of deferral, interest at the then current interest rate will continue to
be credited to a Participant's Account in the Guaranteed Interest Division.
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TABLE OF CONTENTS FOR
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DEFINITIONS 2
DETERMINATION OF ACCUMULATION UNIT VALUES 2
DETERMINATION OF VARIABLE ANNUITY PAYMENTS 3
PERFORMANCE CALCULATIONS 4
TAX LAW CONSIDERATIONS 9
DISTRIBUTION OF CONTRACTS 12
CUSTODIAN 12
INDEPENDENT AUDITORS/ACCOUNTANTS 12
FINANCIAL STATEMENTS 12
Financial Statements of UNUM/America
Financial Statements of Variable Investment Division
</TABLE>
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