<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
Registration No. 33-45846
Registration No. 811-5803
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 8 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 34 /X/
___________
VA-I SEPARATE ACCOUNT
of
UNUM LIFE INSURANCE COMPANY OF AMERICA
(Exact Name of Registrant)
UNUM LIFE INSURANCE COMPANY OF AMERICA
(Name of Depositor)
2211 Congress Street
Portland, Maine 04122
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code: 800-341-0441
ROSEMARY A. MOORE, ESQUIRE
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 1998, pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule
485
/ / on , pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Title of securities being registered:
Interests in a separate account under group variable annuity contracts.
<PAGE>
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION IN PROSPECTUS
<TABLE>
<CAPTION>
FORM N-4 PROSPECTUS CAPTION
- --------- ------------------
<S> <C>
1. Cover Page.......................................... Cover Page
2. Definitions......................................... Definitions
3. Synopsis or Highlights.............................. Summary
4. Condensed Financial Information..................... Condensed Financial
Information......................................... Information
5. General Description of.............................. UNUM/America, Lincoln Life, the
Registrant, Depositor and Portfolio Companies....... Variable Investment Division and the Funds
6. Deductions and Expenses............................. Deductions and Charges
7. General Description of Variable..................... Contract Provisions; Other Contract
Annuity Contracts................................... Provisions
8. Annuity Period...................................... Annuity Period
9. Death Benefit....................................... Contract Provisions, Death Benefits
10. Purchases and Contract Values....................... Contract Provisions
11. Redemptions......................................... Contract Provisions, Withdrawals
12. Taxes............................................... Federal Income Tax Considerations
13. Legal Proceedings................................... Not Applicable
14. Table of Contents of the............................ Contents of Statement of Additional Information
Statement of Additional Information
</TABLE>
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION IN STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
FORM N-4 INFORMATION CAPTION
- -------- -----------------------
<S> <C>
15. Cover Page.......................................... Cover Page
16. Table of Contents................................... Table of Contents
17. General Information and History..................... Prospectus-UNUM/America, Lincoln Life, the Variable
Investment Division and the Funds
18. Services............................................ Not Applicable
19. Purchase of Securities being........................ Not Applicable
Offered
20. Underwriters........................................ Distribution of the Contracts
21. Calculation of Yield Quotations..................... Not Applicable
of Money Market Sub Accounts
22. Annuity Payments.................................... Determination of Variable Annuity Payment
23. Financial Statements................................ Financial Statements
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION IN PART C-OTHER INFORMATION
<TABLE>
<S> <C>
24(a) Financial Statements and Exhibits................... Not Applicable
24(b) Exhibits............................................ Exhibits
25 Directors and Officers of the....................... Directors and Officers of the Depositor
Depositor
26 Persons Controlled by or Under
Common Control with the
Depositor or Registrant............................. Organizational Chart
27. Number of Contract Owners........................... Number of Contract Owners
28. Indemnification..................................... Indemnification
29. Principal Underwriters.............................. Principal Underwriters
30. Location of Accounts and Records.................... Location of Accounts and Records
31. Management Services................................. Management Services
32. Undertakings........................................ Undertakings
</TABLE>
<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 II
[LOGO OF UNUM APPEARS HERE]
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
MAY 1, 1998
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.
THIS 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 FLUC-
TUATION AND POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
80016
This prospectus describes group annuity contracts ("Contracts") offered by UNUM
Life Insurance Company of America ("UNUM/America"), a subsidiary of UNUM Hold-
ing Company and its wholly-owned parent company, UNUM Corporation. The Con-
tracts 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-quali-
fied 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 Divi-
sion"). Contributions to the Guaranteed Interest Division earn interest at a
guaranteed rate declared by UNUM/America. Contributions to the Variable Invest-
ment Division will increase or decrease in dollar value depending on the in-
vestment performance of the underlying funds in which the Sub-Accounts invest.
Special limits apply to withdrawals and transfers from the Guaranteed Interest
Division.
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 in-
vestment objectives, policies and risks of the Funds please refer to the pro-
spectus 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....................................... Variable Portfolios,
Inc.: VP Balanced
International Stock Account............................ T. Rowe Price
International Series,
Inc.
Socially Responsible Account........................... Calvert Social 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 of-
fered by UNUM/America that you should know before investing. Please read and
retain this prospectus for future reference. A Statement of Additional Informa-
tion, dated May 1, 1998, has been filed with the Securities and Exchange Com-
mission and is available at no charge by writing or calling (800) 341-0441,
P.O. Box 9740, Portland, Maine 04122, Attention: Tax Deferred Annuities.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS.............................................................. 3
SUMMARY (Including Fee Table and Performance Information)................ 6
CONDENSED FINANCIAL INFORMATION.......................................... 11
FINANCIAL STATEMENTS..................................................... 12
UNUM/AMERICA, LINCOLN LIFE, THE VARIABLE INVESTMENT DIVISION AND THE
FUNDS................................................................... 12
CONTRACT PROVISIONS...................................................... 17
DEDUCTIONS AND CHARGES................................................... 24
ANNUITY PERIOD........................................................... 26
FEDERAL INCOME TAX CONSIDERATIONS........................................ 28
VOTING RIGHTS............................................................ 31
OTHER CONTRACT PROVISIONS................................................ 32
GUARANTEED INTEREST DIVISION............................................. 33
OTHER INFORMATION........................................................ 34
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION................ 36
</TABLE>
2
<PAGE>
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.
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.
3
<PAGE>
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 issued 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 to a person. A Payout Annuity may be
either a Guaranteed Annuity or a Variable Annuity. See "Annuity Period."
4
<PAGE>
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. See
"Annuity Period."
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.
5
<PAGE>
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.
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. See "Acquisition Agreement with
The Lincoln National Life Insurance Company."
CONTRACTS OFFERED
The Group Variable Annuity Contracts offered by this prospectus were made
available to Employers and other entities to provide a way to accumulate funds
for retirement and to provide Payout 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.
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".
6
<PAGE>
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. See "Federal Income Tax Considerations."
Certain types of withdrawals are subject to a contingent deferred sales
charge ("CDSC"). See "Contract Provisions, Deductions and Charges."
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 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. A CDSC is 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.
7
<PAGE>
<TABLE>
<S> <C>
Contract Related Transaction Expenses/1//
Sales Load Imposed on Purchases: 0%
Maximum CDSC
(as a percentage of the Gross Withdrawal Amount): 6%
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%
</TABLE>
Fund Expenses/4//
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
G-
INDEX I/5// AMGR/5// G-II BAL INT'L SOC RES/6// EQI/5// SMCAP
----- ----- -------- ---- ---- ----- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees: 0.25 0.60 0.55 1.00 1.00 1.05 0.69 0.50 0.75
Other Expenses: 0.03 0.09 0.10 0 0 0 0.12 0.08 0.03
Total Fund Expenses: 0.28 0.69 0.65 1.00 1.00 1.05 0.81 0.58 0.78
</TABLE>
Example #1: Assuming total withdrawal of the Participant's Account balance 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>
INDEX G-I AMGR G-II BAL INT'L SOC RES EQI SMCAP
------ ------ ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 77.35 81.23 80.85 84.16 84.16 84.63 82.36 80.19 82.18
3 Years 113.87 125.66 124.52 134.48 134.48 135.89 129.09 122.51 128.52
5 Years 152.98 172.86 170.94 187.61 187.61 189.97 178.60 167.57 177.64
10 Years 263.27 304.07 300.17 333.75 333.75 338.45 315.68 293.30 313.76
</TABLE>
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>
INDEX G-I AMGR G-II BAL INT'L SOC RES EQI SMCAP
------ ------ ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 15.26 19.40 18.99 22.51 22.51 23.01 20.60 18.29 20.40
3 Years 47.40 59.98 58.76 69.39 69.39 70.90 63.64 56.62 63.03
5 Years 81.81 103.10 101.04 118.90 118.90 121.42 109.24 97.43 108.22
10 Years 178.85 222.96 218.75 255.06 255.06 260.14 235.51 211.32 233.43
</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>
INDEX G-I AMGR G-II BAL INT'L SOC RES EQI SMCAP
------ ------ ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 15.26 19.40 18.99 22.51 22.51 23.01 20.60 18.29 20.40
3 Years 47.40 59.98 58.76 69.39 69.39 70.90 63.64 56.62 63.03
5 Years 81.81 103.10 101.04 118.90 118.90 121.42 109.24 97.43 108.22
10 Years 178.85 222.96 218.75 255.06 255.06 260.14 235.51 211.32 233.43
</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
8
<PAGE>
accounts for the previous year, as of the previous month ended; accounts
include accounts available under Variable Annuity II of UNUM/America and under
corresponding accounts of Lincoln Life.
- --------
/1/Premium taxes are not shown. UNUM/America deducts the amount of premium tax-
es, if any, when paid. Loans taken by a Participant with respect to the Par-
ticipant's Account balance in the Guaranteed Interest Division may be sub-
ject 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 pro-
jected 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/Until complete order instructions are received, initial Contributions may be
allocated temporarily to Fidelity's Variable Insurance Products Fund: Money
Market Portfolio. Management fees for this fund are 0.21%. Other expenses
are 0.10%. Total Fund Expenses are 0.31%. See "Initial Contributions."
/4/A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into arrange-
ments with their custodian whereby credits realized as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses presented in the table would
have been 0.57% for VIP Equity-Income Portfolio, 0.67% for VIP Growth Port-
folio, and 0.64% for VIP II Asset Manager Portfolio.
/5/The figures above are based on expenses for fiscal year 1997, and have been
restated to reflect an increase in transfer agency expenses of 0.01% ex-
pected to be incurred in 1998. "Management Fees" includes a performance ad-
justment which, depending on performance, would cause the fee to be as high
as 0.85% or as low as 0.55%. "Other Expenses" reflects an indirect fee. Net
fund operating expenses after reductions for fees paid indirectly (again,
restated) would be 0.78%.
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.
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, 1997.
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.
9
<PAGE>
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 also present non-standard performance information based
on the history of a Fund and adjusted to reflect the fees and charges imposed
under a Contract. 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.
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.
10
<PAGE>
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>
1989 1990 1991 1992 1993 1994 1995 1996 1997
SUB-ACCOUNT ------- ------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <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 $22.7054
End of Period $9.9629 $9.4953 $12.1814 $12.8906 $13.9245 $13.8792 $18.7565 $22.7054 $29.8265
Growth I Account
May 1
Commencement $ 10.00
Beginning of Period $12.1759 $13.1505 $15.5094 $15.3208 $20.4909 $23.2198
End of Period $12.1759 $13.1505 $15.5094 $15.3208 $20.4909 $23.2198 $28.3281
Growth II Account
May 1
Commencement $ 10.00
Beginning of Period $11.5975 $11.3049 $12.3212 $12.0313 $15.5840 $14.7133
End of Period $11.5975 $11.3049 $12.3212 $12.0313 $15.5840 $14.7133 $14.0633
Asset Manager Account
May 1
Commencement $ 10.00
Beginning of Period $10.7598 $11.8933 $14.2241 $13.1979 $15.2510 $17.2668
End of Period $10.7598 $11.8933 $14.2241 $13.1979 $15.2510 $17.2668 $20.5827
Balanced Account
May 1
Commencement $ 10.00
Beginning of Period $12.4515 $11.5582 $12.2957 $12.2225 $14.6286 $16.2128
End of Period $12.4515 $11.5582 $12.2957 $12.2225 $14.6286 $16.2128 $18.5504
International Stock
Account
May 1
Commencement $ 10.00
Beginning of Period $ 9.8622 $10.8333 $12.2756
End of Period $ 9.8622 $10.8333 $12.2756 $12.5034
Socially Responsible
Account
May 1
Commencement $ 10.00
Beginning of Period $ 9.9692 $12.7827 $14.2222
End of Period $ 9.9692 $12.7827 $14.2222 $16.8728
Equity-Income Account
May 1
Commencement $ 10.00
Beginning of Period $10.4780 $13.9856 $15.7898
End of Period $10.4780 $13.9856 $15.7898 $19.9854
Small Cap Account
May 1
Commencement $ 10.00
Beginning of Period $10.3818 $13.2713 $15.2861
End of Period $10.3818 $13.2713 $15.2861 $17.6322
Pending Allocation
Account
October 15
Commencement $ 10.00
Beginning of Period $10.1054 $10.6938 $11.2772
End of Period $10.1054 $10.6938 $11.2772 $11.8940
</TABLE>
NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ------ ------- ------- --------- --------- --------- --------- -------
<S> <C> <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 3,057,792 138,498
Growth I Account 5,166 317,275 1,340,146 3,071,862 4,459,417 5,843,047 244,513
Growth II Account 53,904 566,562 1,242,216 1,733,360 2,191,475 2,541,938 97,067
Asset Manager Account 36,645 462,405 2,232,731 4,369,937 4,882,920 5,447,414 205,657
Balanced Account 13,453 282,439 673,424 1,041,814 1,294,883 1,545,581 58,259
Socially Responsible
Account 26,073 133,871 328,168 8,750
Equity-Income Account 320,659 1,529,172 2,997,007 133,230
International Stock
Account 354,936 803,485 1,588,914 80,413
Small Cap Account 400,376 1,461,575 3,032,803 166,025
Pending Allocation
Account 11,980 21,372 35,465 485
</TABLE>
11
<PAGE>
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 1997
---- ------ ------- ------- --------- --------- --------- --------- -------
<S> <C> <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 3,424,850 160,423
Fidelity's Variable In-
surance
Products Fund:
Growth Portfolio 0 0 3,399 211,238 900,965 2,170,399 3,130,382 4,358,634 186,701
American Century Vari-
able
Portfolios, Inc.:
VP Capital Appreciation 0 0 72,384 756,506 1,642,987 2,264,937 2,832,766 3,653,828 141,021
Fidelity's Variable In-
surance
Products Fund II:
Asset Manager Portfolio 0 0 31,429 412,427 2,060,497 4,183,403 4,717,794 5,557,982 235,035
American Century Vari-
able
Portfolios, Inc.:
VP Balanced 0 0 27,075 568,960 1,364,740 2,137,066 2,691,551 3,324,693 131,157
Calvert Social Balanced
Portfolio 0 0 0 0 0 180,421 1,005,155 2,631,922 74,492
Fidelity's Variable In-
surance
Products Fund:
Equity-Income Portfolio 0 0 0 0 0 218,939 1,110,190 2,251,100 109,665
T. Rowe Price Interna-
tional Stock
Portfolio 0 0 0 0 0 343,942 773,288 1,543,703 78,920
Dreyfus Variable Invest-
ment Fund:
Small Cap Portfolio 0 0 0 0 0 113,847 420,623 890,516 51,232
Fidelity's Variable In-
surance Products Fund:
Money Market Portfolio 0 0 0 0 0 121,067 228,610 399,944 5,765
</TABLE>
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 it to UNUM Life Insurance Company of America. On
December 31, 1991, 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 49
states and the District of Columbia. Administrative services necessary for the
operation of the Variable Investment Division and the Contracts are currently
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.
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
12
<PAGE>
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 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.
UNUM/America and Lincoln Life have notified 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. If the Contractholder opted out of the assumption (or refused to
consent where affirmative consent was 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 was assumed by Lincoln Life, it is administered by
Lincoln Life. If, under a Contract some Participants did opt out and some did
not, the Contract was bifurcated--one Contract has UNUM/America as the insurer
and the other has Lincoln Life as the insurer (or, for the New York Contracts,
Lincoln-NY). Both Contracts, however, are administered by Lincoln Life.
Currently, the Lincoln Life and Lincoln-NY separate accounts invest in the
underlying Funds that are 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.
LINCOLN FINANCIAL ADVISORS CORPORATION
Lincoln Financial Advisors Corporation ("LFA"), a registered broker-dealer,
is the principal underwriter of the Contracts. As such, LFA will be offering
the Contracts and performing all duties and functions that are necessary and
proper for distribution of the Contracts. LFA also may enter into sales
agreements with independent broker-dealers for the sale of the Contracts. LFA
may pay sales commissions to broker-dealers up to an amount equivalent to 3.5%
of Contributions under a Contract. LFA's principal business address is 1300
South Clinton Street, Fort Wayne, Indiana 46802. LFA, as a broker-dealer, will
do business in the state of Texas under the name LNC Equity Sales Corporation.
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
13
<PAGE>
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
New York Contracts (other than the New York Contracts) by Lincoln Life or, in
the case of the New York Contracts, by Lincoln-NY. See "Acquisition Agreement
With The Lincoln National Life Insurance Company."
14
<PAGE>
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. The investment objectives and policies of certain Funds are similar
to the investment objectives and policies of other portfolios that may be
managed by the same investment adviser or manager. The investment results of
the Funds, however, may be higher or lower than the results of such other
portfolios.There can be no assurance, and no representation is made, that the
investment results of any of the Funds will be comparable to the investment
results of any other portfolio, even if the other portfolio has the same
investment adviser or manager.
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.
All dividend and capital gain distributions of the Funds are automatically
reinvested in shares of the distributing Funds at their net asset value on the
date of distribution.
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 SOCIAL BALANCED PORTFOLIO OF CALVERT VARIABLE SERIES
CALVERT SOCIAL BALANCED PORTFOLIO: The Calvert Social 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.
Calvert Asset Management Company, Inc. located at 4550 Montgomery Avenue,
Suite 1000N, Bethesda, Maryland 20814, serves as the Portfolio's investment
advisor.
15
<PAGE>
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 (VIP): VIP EQUITY-INCOME PORTFOLIO,
VIP GROWTH PORTFOLIO AND VIP MONEY MARKET PORTFOLIO
VIP EQUITY-INCOME PORTFOLIO: The Portfolio seeks reasonable income by investing
at least 65% of its total assets in income-producing securities. The Portfolio
has the flexibility, however, to invest the balance in all types of domestic
and foreign securities, including bonds.
VIP 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.
VIP 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.
Fidelity Management & Research Company ("FMR") is the manager of the VIP
Equity-Income Portfolio, the VIP Growth Portfolio and the VIP Money Market
Portfolio and is located at 82 Devonshire Street, Boston, Massachusetts 02109.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (VIP II): VIP II ASSET MANAGER
PORTFOLIO
VIP II 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 money market 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. That
compensation would be based on assets of Fidelity Funds attributable to the
Contracts and to certain other contracts issued or administered by Lincoln Life
and its affiliates.
AMERICAN CENTURY VP CAPITAL APPRECIATION AND AMERICAN CENTURY VP BALANCED OF
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AMERICAN CENTURY 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.
AMERICAN CENTURY 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
16
<PAGE>
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. 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
$30 billion under management as of December 31, 1997, from its offices in
Baltimore, London, Tokyo, Hong Kong, Singapore, and Buenos Aires.
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. 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.
CONTRIBUTIONS UNDER THE CONTRACT
Generally, under the Contracts, Contractholders forward Contributions 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 administers the Contracts including, among other
services, processing Contributions (which may be temporarily maintained in
Lincoln Life's general account) and withdrawals.
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
17
<PAGE>
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 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
18
<PAGE>
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 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.
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DETERMINATION OF ACCUMULATION UNIT VALUE
Contributions allocated to the Variable Investment Division are converted
into Accumulation Units. This is done by dividing each Contribution by the
value of an Accumulation Unit for the Valuation Period during which the
Contribution is allocated to the Variable Investment Division. The
Accumulation Unit Value for each Sub-Account was or will be established at the
inception of the Sub-Account. It may increase or decrease from Valuation
Period to Valuation Period. The Accumulation Unit Value for a Sub-Account for
a later Valuation Period is determined as follows:
(a) The total value of Fund shares held in the Sub-Account is calculated
by multiplying the number of shares by the net asset value at end of the
Valuation Period, and adding any dividend or other distribution of the Fund
if an ex-dividend date occurs during the Valuation Period; minus
(b) The liabilities of the Sub-Account at the end of the Valuation Peri-
od; these liabilities include daily charges imposed on the Sub-Account, and
may include a charge or credit with respect to any taxes paid or reserved
for by UNUM/America that it determines result from the operations of the
Variable Investment Division; and
(c) The result of (b) is divided by the number of Accumulation Units out-
standing at the beginning of the Valuation Period.
The daily charges imposed on a Sub-Account for any Valuation Period are equal
to the mortality and expense risk charge for the number of calendar days in
the Valuation Period.
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.
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."
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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
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
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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 Contracts.
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.
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.
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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 (includ-
ing principal and due and accrued interest), as of the date of notifica-
tion.
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 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.
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DEDUCTIONS AND CHARGES
UNUM/America will deduct the charges described below to cover costs and
expenses, services provided and risks assumed under the Contracts. UNUM/America
incurs certain costs and expenses for the distribution and administration of
the Contracts and for providing the benefits payable thereunder. The amount of
a charge may not necessarily correspond to the costs associated with providing
the services or benefits indicated by the designation of the charge. For
example, the CDSC may not fully cover all of the sales and distribution
expenses actually incurred by UNUM/America, and proceeds from other charges,
including the mortality and expense risk charge, may be used in part to cover
such expenses.
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.
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
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other than the last Business Day of the month in which the Participation
Anniversary occurs. The charge may be increased or decreased (subject to any
appropriate regulatory approvals).
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 UNUM/America charges a CDSC in the amount of 6% on all Total or Partial
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 and is at least 55
years of age.
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.
Under certain Contracts, the Contractholder may choose to add "financial
hardship" as another event which is not subject to a CDSC. A Contractholder may
also choose to eliminate the requirement that a participant must be at least 55
years of age when he terminates employment. Finally, a Contractholder can add a
provision to their Contract entitling Participants to withdraw, once each
calendar year, up to 20% of their Account balance without the imposition of a
CDSC. These contracts which provide additional benefits to Participants may
receive a declared guaranteed interest rate which is lower than other contracts
not providing these additional 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
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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 6% CDSC on a Gross Withdrawal
Amount of $106.38 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
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 a Guaranteed Annuity remain constant throughout the
annuity period. Payout Annuities may be maintained in the Variable Investment
Division, or, if the Participant so agrees, in a separate account of Lincoln
Life ("Variable Payout Division"). No charge will be imposed at the time that
the Annuity Conversion Amount is applied to a Variable Payout Division in
implementing any Payout Annuity option. The Contract benefits and charges for a
Payout Annuity, whether maintained in the Variable Investment Division or in a
Variable Payout Division, are as described in this prospectus. The selection of
funds available through a Variable Payout Division may, however, differ from
the selection of Funds available through the Variable Investment Division. If a
Participant's Payout Annuity will be maintained in a Variable Payout Division,
a prospectus for the Variable Payout Division will be provided prior to the
Annuity Commencement Date. Annuity payments from a Variable Annuity 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 more 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.
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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) of
the Variable Investment Division or of a Variable Payout Division, as
applicable, 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 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
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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
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
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<PAGE>
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 $10,000 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.
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. In 1998, for a single person the $2,000
deduction is available when the taxpayer's Adjusted Gross Income is $30,000 or
less. For each $50 that the taxpayer's Adjusted Gross Income rises above
$30,000, the taxpayer's deductible IRA is reduced by $10. When the single
taxpayer's Adjusted Gross Income is $40,000 or greater, a tax deduction for an
IRA is no longer available. In 1998, for a married couple filing jointly, the
threshold level is $50,000 rather than $30,000. 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
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<PAGE>
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, as indexed,
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. Plans of state or local governments established on August 20, 1996,
or later, must hold all assets and income in trust (or custodial accounts or an
annuity contract) for the exclusive benefit of participants and their
beneficiaries. State or local government plans that were in existence before
August 20, 1996 are allowed until January 1, 1999 to meet this requirement.
Non-governmental plans are not subject to this requirement and employees of
these plans are general creditors of the Employer. Participants under Eligible
Section 457 Plans should look to the terms of their Plan for any changes 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 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
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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.
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.
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<PAGE>
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 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.
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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.
OTHER CONTRACTS
UNUM/America and the Variable Investment Division offer other group variable
annuity contracts which invest in the same Funds. These contracts may impose
different charges that could affect Sub-Account performance, and may offer
different benefits.
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 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.
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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.
OTHER INFORMATION
PREPARING FOR YEAR 2000
Lincoln Life is, as noted at page 13 above, responsible for administering the
Contracts and the Variable Investment Division on behalf of UNUM/America.
Lincoln Life's responsibilities include the operation of the computer systems
related to the Variable Investment Division, which are distinct from those used
by UNUM/America in its other operations. Many existing computer programs use
only two digits to identify a year in the date field. These programs were
designed and developed without considering the impact of the upcoming change in
the century. If not corrected, many computer applications could fail or create
erroneous results by or at the year 2000. The year 2000 issue affects virtually
all companies and organizations. Since Lincoln Life operates and is responsible
for the updating of the Variable Investment Division-related computer programs,
and the computer systems used by UNUM/America in other businesses are not
integrated with these systems, this prospectus describes the year 2000 updating
efforts of Lincoln Life for these systems, rather than those of UNUM/America
with respect to computer systems used in its other businesses. An affiliate of
Lincoln Life, Delaware Service Company (Delaware), provides substantially all
of the necessary accounting and valuation services for the Variable Investment
Division. Delaware, for its part, is responsible for updating all of its
computer systems, including those which service the Variable Investment
Division, to accommodate the year 2000. Lincoln Life and Delaware have begun
formal discussions with each other to assess the requirements for their
respective systems to interface
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properly in order to facilitate the accurate and orderly operation of the
Variable Investment Division beginning in the year 2000.
The year 2000 issue is pervasive and complex and affects virtually every
aspect of the businesses of both Lincoln Life and Delaware (the Companies). The
computer systems of the Companies and their interfaces with the computer
systems of vendors, suppliers, customers and other business partners are
particularly vulnerable. The inability to properly recognize date-sensitive
electronic information and to transfer data between systems could cause errors
or even complete failure of systems, which would result in a temporary
inability to process transactions correctly and engage in normal business
activities for the Variable Investment Division. The Companies respectively are
redirecting significant portions of their internal information technology
efforts and are contracting, as needed, with outside consultants to help update
their systems to accommodate the year 2000. Also, in addition to the
discussions with each other noted above, the Companies have respectively
initiated formal discussions with other critical parties that interface with
their systems to gain an understanding of the progress by those parties in
addressing year 2000 issues. While the Companies are making substantial efforts
to address their own systems and the systems with which they interface, it is
not possible to provide assurance that operational problems will not occur. The
Companies presently believe that, assuming the modification of existing
computer systems, updates by vendors and conversion to new software and
hardware, the year 2000 issue will not pose significant operations problems for
their respective computer systems. In addition, the Companies are incorporating
potential issues surrounding year 2000 into their contingency planning process,
in the event that, despite these substantial efforts, there are unresolved year
2000 problems. If the remediation efforts noted above are not completed timely
or properly, the year 2000 issue could have a material adverse impact on the
operation of the businesses of Lincoln Life or Delaware, or both, and/or the
processing of transactions involving the Variable Investment Division.
The cost of addressing year 2000 issues and the timeliness of completion will
be closely monitored by management of the respective Companies. Nevertheless,
there can be no guarantee that estimated costs will be achieved, and actual
results could differ significantly from those anticipated. Specific factors
that might cause such differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer problems, and other uncertainties.
35
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TABLE OF CONTENTS FOR
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS............................................................... 2
DETERMINATION OF VARIABLE ANNUITY PAYMENTS................................ 3
PERFORMANCE CALCULATIONS.................................................. 4
TAX LAW CONSIDERATIONS.................................................... 11
DISTRIBUTION OF CONTRACTS................................................. 13
CUSTODIAN................................................................. 14
INDEPENDENT ACCOUNTANTS................................................... 14
FINANCIAL STATEMENTS...................................................... 14
Financial Statements of Variable Investment Division
Financial Statements of UNUM/America
</TABLE>
36
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STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
GROUP ANNUITY CONTRACTS
FUNDED THROUGH THE INVESTMENT DIVISIONS OF
VA-I SEPARATE ACCOUNT
OF
UNUM LIFE INSURANCE COMPANY OF AMERICA
VARIABLE ANNUITY II
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions............................................................... 2
Determination of Variable Annuity Payments................................ 3
Performance Calculations.................................................. 4
Tax Law Considerations.................................................... 11
Distribution of Contracts................................................. 13
Custodian................................................................. 14
Independent Accountants................................................... 14
Financial Statements...................................................... 14
Financial Statements of Variable Investment Division
Financial Statements of UNUM/America
</TABLE>
This Statement of Additional Information (SAI) is not a prospectus. It should
be read in conjunction with the prospectus for the Group Annuity Contracts
(the "Contracts"), dated May 1, 1998.
A copy of the prospectus to which this SAI relates is available at no charge
by writing to P.O. Box 9740, Portland, Maine 04104 Attention: Tax Deferred
Annuities, or by calling (800) 341-0441.
80026
<PAGE>
DEFINITIONS
ANNUITANT: The person receiving annuity payments under the terms of this
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.
This date, as well as the date each subsequent annuity payment is made, will
be the first day of a calendar month.
ANNUITY CONVERSION AMOUNT: The amount applied toward the purchase of an
Annuity.
ANNUITY CONVERSION FACTOR: The factor applied to the Annuity Conversion Amount
in determining the dollar amount of an Annuitant's annuity payments for
Guaranteed Annuities or the initial payment for Variable Annuities.
ANNUITY PAYMENT CALCULATION DATE: For Guaranteed Annuities, this is the first
day of a calendar month. For Variable Annuities, this is the Valuation Date
ten (10) business days prior to the first day of a calendar month.
ANNUITY PERIOD: The period concurrent with or following the Accumulation
Period, during which an Annuitant's annuity payments are made.
ANNUITY UNIT: An accounting unit of measure that is used in calculating the
amounts of annuity payments to be made from a Sub-Account during the Annuity
Period.
ANNUITY UNIT VALUE: The dollar value of an Annuity Unit in a Sub-Account on
any Valuation Date.
CODE: The Internal Revenue Code of 1986, as amended.
PAYOUT ANNUITY: A series of payments paid out under the terms of the Contract
as either a Guaranteed Annuity or as a Variable Annuity.
PLAN: The retirement program offered by an Employer to its employees to
accumulate funds for retirement.
VARIABLE ANNUITY: An annuity with payments that increase or decrease in
accordance with the investment results of the selected Sub-Accounts.
2
<PAGE>
DETERMINATION OF VARIABLE ANNUITY PAYMENTS
As stated in the prospectus, the amount of each Variable Annuity payment will
vary depending on investment experience.
The initial payment amount of the Annuitant's Variable Annuity for each Sub-
Account is determined by dividing his Annuity Conversion Amount in each Sub-
Account as of the initial Annuity Payment Calculation Date by the Applicable
Annuity Conversion Factor as defined as follows:
The Annuity Conversion Factors which are used to determine the initial
payments are based on the 1983 Individual Annuity Mortality Table, set back
four (4) years, and an interest rate in an integral percentage ranging from
zero to six percent (0 to 6.00%) as selected by the Annuitant.
The amount of the Annuitant's subsequent Variable Annuity payment for each
Sub-Account is determined by:
(a) Dividing the Annuitant's initial Variable Annuity payment amount by the
Annuity Unit Value for that Sub-Account selected for his interest rate
option as described above as of his initial annuity Payment Calculation
Date; and
(b) Multiplying the resultant number of annuity units by the Annuity Unit
Values for the Sub-Account selected for his interest rate option for his
respective subsequent Annuity Payment Calculation Dates.
The Annuity Unit Value for all Sub-Accounts for all interest rate options will
initially be set at ten dollars ($10). Each subsequent Annuity Unit Value for
a Sub-Account for an interest rate option is determined by:
Dividing the Accumulation Unit Value for the Sub-Account as of
subsequent Annuity Payment Calculation Date (APCD) by the Accumulation
Unit Value for the Sub-Account as of the immediately preceding APCD;
Dividing the resultant factor by one (1.00) plus the interest rate
option to the n/365 power where n is the number of days from the
immediately preceding APCD to the subsequent APCD; and
Multiplying this factor times the Annuity Unit Value as of the
immediately preceding APCD.
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT VALUE
<TABLE>
<C> <S> <C>
Annuity Unit Value as of immediately preceding Annuity Payment
1. Calculation Date............................................. $11.0000
Accumulation Unit Value as of Annuity Payment Calculation
2. Date......................................................... $20.0000
3. Accumulation Unit Value as of immediately preceding Annuity
Payment Calculation Date..................................... $19.0000
4. Interest Rate................................................. 6.00%
5. Interest Rate Factor (30 days)................................ 1.0048
6. Annuity Unit Value as of Annuity Payment Calculation Date =
1 times 2 divided by 3 divided by 5.......................... $11.5236
</TABLE>
ILLUSTRATION OF ANNUITY PAYMENTS
<TABLE>
<C> <S> <C>
1. Annuity Conversion Amount as of Participant's initial Annu-
ity Payment Calculation Date............................... $100,000.00
2. Assumed Annuity Conversion Factor per $1 of Monthly Income
for an individual age 65
selecting a Single Life Annuity with Assumed Interest Rate
of 6%...................................................... $ 138.63
3. Participant's initial Annuity Payment = 1 divided by 2...... $ 721.34
4. Assumed Annuity Unit Value as of Participant's initial Annu-
ity Payment Calculation Date............................... $ 11.5236
5. Number of Annuity Units = 3 divided by 4.................... 62.5968
6. Assumed Annuity Unit Value as of Participant's second
Annuity Payment Calculation Date........................... $ 11.9000
7. Participant's second Annuity Payment = 5 times 6............ $ 744.90
</TABLE>
3
<PAGE>
PERFORMANCE CALCULATIONS
STANDARD TOTAL RETURN CALCULATION
The Variable Investment Division may advertise average annual total return
information calculated according to a formula prescribed by the Securities and
Exchange Commission ("SEC"). Average annual total return shows the average
annual percentage increase, or decrease, in the value of a hypothetical
Contribution allocated to a Sub-Account from the beginning to the end of each
specified period of time. The SEC standardized version of this performance
information is based on an assumed Contribution of $1,000 allocated to a Sub-
Account at the beginning of each period and surrender or withdrawal of the
value of that amount at the end of each specified period, giving effect to any
CDSC and all other charges and fees applicable under the Contract. 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 II of
UNUM/America and under corresponding accounts of Lincoln Life, pending
assumption reinsurance by Lincoln Life of Variable Annuity II contracts issued
through such UNUM/America accounts. This method of calculating performance
further assumes that (i) a $1,000 Contribution was allocated to a Sub-Account
and (ii) no transfers or additional payments were made. Premium taxes are not
included in the terms "charges" for purposes of this calculation. Average
annual total return is calculated by finding the average annual compounded
rates of return of a hypothetical Contribution that would compare the
Accumulation Unit value on the first day of the specified period to the ending
redeemable value at the end of the period according to the following formula:
T = (ERV/C) 1/n - 1
Where T equals average annual total return, where ERV (the ending redeemable
value) is the value at the end of the applicable period of a hypothetical
Contribution of $1,000 made at the beginning of the applicable period, where C
equals a hypothetical Contribution of $1,000, and where n equals the number of
years.
For Sub-Account average annual total return information calculated according
to the formula prescribed by the SEC, see "Sub-Account Performance."
NON-STANDARDIZED CALCULATION OF TOTAL RETURN PERFORMANCE
In addition to the standardized average annual total return information
described above, we may present total return information computed on bases
different from that standardized method. Such non-standard performance
information may be based on the historical performance of a Fund and adjusted
to reflect some or all of the fees and charges imposed under a Contract.
The Variable Investment Division also may present total return information
computed on the same basis as the standardized method except that charges
deducted from the hypothetical Contribution will not include any CDSC.
Consistent with the long-term investment and retirement objectives of the
Contract, this total return presentation assumes either (i) investment in the
Contract continues beyond the Accumulation Period and/or (ii) one or more of
the conditions for Total or Partial Withdrawal without incurring a CDSC are
met. The Variable Investment Division may also present total return
information computed on the same basis as the standardized method except that
charges deducted from the hypothetical Contribution will not include either
the CDSC or the Annual Administration Charge. The total return percentage
under both of these non-standardized methods will be higher than that
resulting from the standardized method.
The Sub-Accounts also may present total return information calculated by
subtracting a Sub-Account's Accumulation Unit Value at the beginning of a
period from the Accumulation Unit Value of that Sub-Account at the end of the
period and dividing that difference (in that Sub-Account's Accumulation Unit
Value) by the Accumulation Unit Value of that Sub-Account at the beginning of
the period. This computation results in a total growth rate for the specified
period which we annualize in order to obtain the average annual percentage
change in the Accumulation Unit Value for the period used. This method of
calculating performance does not take into account CDSC, the Contract Annual
Administration Charge or premium taxes, and assumes no transfers. Such
percentages would be lower if these charges were included in the calculation.
4
<PAGE>
In addition, the Variable Investment Division may present actual aggregate
total return figures for various periods, reflecting the cumulative change in
value of an investment in the Variable Investment Division for the specified
period.
For information regarding the historical performance of the Funds adjusted for
the fees and charges imposed under a Contract, see "Historical Fund
Performance Adjusted for Variable Investment Division and Contract Fees and
Charges."
PERFORMANCE INFORMATION
The tables below provide performance information for each Sub-Account for
specified periods ending December 31, 1997. The performance information is
based on historical performance of the underlying Funds adjusted for charges
applicable to the Variable Annuity I Separate Account. THIS INFORMATION DOES
NOT INDICATE OR REPRESENT FUTURE PERFORMANCE.
TOTAL RETURN
Total returns quoted in sales literature or advertisements reflect all aspects
of a Sub-Account's return. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in the Sub-Account over a stated period of time, and then
calculating the annually compounded percentage rate that would have produced
the same result if the rate of growth or decline had been constant over the
period. Contractholders and participants should recognize that average annual
returns represent averaged returns rather than actual year-to-year
performance.
SUB-ACCOUNT PERFORMANCE
The tables below assume a hypothetical investment of $1,000 at the beginning
of the period in the Sub-Account investing in the applicable Fund and
withdrawal of the investment on 12/31/97. The rates thus reflect the mortality
and expense risk charge, the withdrawal charge and a pro rata portion of the
Annual Administration Charge. The first table shows Sub-Account average annual
total return information calculated according to the formula prescribed by the
SEC. The second table shows Sub-Account cumulative total return information.
THIS INFORMATION DOES NOT INDICATE OR REPRESENT FUTURE PERFORMANCE.
SUB-ACCOUNT STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
SUB- LIFE OF SUB-
ACCOUNT 1 YEAR 3 YEARS 5 YEARS ACCOUNT
INCEPTION ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Asset Manager
(Fidelity VIP II: Asset Man-
ager) 05/01/91 12.03 13.57 10.19 10.35
Socially Responsible
(Calvert Social Balanced
Portfolio) 05/02/94 11.50 16.71 N/A 13.26
Balanced
(American Century VP Bal-
anced) 05/01/91 7.53 12.55 8.54 8.66
Equity-Income
(VIP Equity-Income) 05/02/94 18.95 21.46 N/A 18.60
Index Account
(Dreyfus Stock Index) 12/12/89 23.46 26.38 16.78 13.74
Growth I
(Fidelity VIP Growth) 05/01/91 14.66 20.21 15.13 15.73
Growth II
(American Century VP Capital
Appreciation) 05/01/91 -10.17 3.16 3.15 4.21
International Stock
(T. Rowe Price International
Stock Portfolio) 05/02/94 -4.28 6.00 N/A 4.48
Small Cap
(Dreyfus Small Cap) 05/02/94 8.40 16.85 N/A 14.66
</TABLE>
5
<PAGE>
SUB-ACCOUNT CUMULATIVE TOTAL RETURN (NONSTANDARD)
<TABLE>
<CAPTION>
LIFE OF
SUB- SUB-
ACCOUNT YEAR TO 1 YEAR 3 YEARS 5 YEARS ACCOUNT
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset Manager
(Fidelity VIP II: Asset
Manager) 05/01/91 -4.29 12.03 12.03 46.50 62.47 92.95
Socially Responsible
(Calvert Social Balanced
Portfolio) 05/02/94 -5.63 11.50 11.50 58.99 N/A 57.88
Balanced
(American Century VP
Balanced) 05/01/91 -6.76 7.53 7.53 42.57 50.67 74.05
Equity-Income
(VIP Equity-Income) 05/02/94 -4.42 18.95 18.95 79.17 N/A 86.99
Index Account
(Dreyfus Stock Index) 12/12/89 -3.70 23.46 23.46 101.87 117.22 182.27
Growth I
(Fidelity VIP Growth) 05/01/91 -7.06 14.66 14.66 73.69 102.23 165.10
Growth II
(American Century VP
Capital Appreciation) 05/01/91 -18.44 -10.17 -10.17 9.80 16.78 31.68
International Stock
(T. Rowe Price Interna-
tional Stock Portfolio) 05/02/94 -12.98 -4.28 -4.28 19.09 N/A 17.43
Small Cap
(Dreyfus Small Cap) 05/02/94 -11.46 8.40 8.40 59.54 N/A 65.18
</TABLE>
HISTORICAL FUND PERFORMANCE ADJUSTED FOR VARIABLE INVESTMENT DIVISION AND
CONTRACT FEES AND CHARGES
Performance information for the periods prior to the date the Sub-Accounts
commenced operations will be calculated based on the performance of the Funds
and the assumption that the Sub-Accounts were in existence for the same
periods as those indicated for the Funds, with the Contract charges that were
in effect during the time periods shown. This performance information is
referred to as "adjusted" performance information. THIS INFORMATION DOES NOT
INDICATE OR REPRESENT FUTURE PERFORMANCE.
6
<PAGE>
Table 1A below assumes a hypothetical investment of $1,000 at the beginning of
the period in the Sub-Account investing in the applicable fund and withdrawal
of the investment on 12/31/97. The rates thus reflect the mortality and
expense risk charge, the withdrawal charge and a pro rata portion of the
Annual Administration Charge. Table 1B shows the cumulative total return on
the same basis.
TABLE 1A -- ADJUSTED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
LIFE
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS OF FUND
INCEPTION ENDING ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Asset Manager
(Fidelity VIP II: Asset
Manager) 09/06/89 12.03 13.57 10.19 N/A 10.47
Socially Responsible
(Calvert Social
Balanced Portfolio) 09/02/86 11.50 16.71 10.14 10.34 9.23
Balanced
(American Century
VP Balanced) 05/01/91 7.53 12.55 8.54 N/A 8.66
Equity-Income
(VIP Equity-Income) 10/09/86 18.95 21.46 17.23 14.57 12.62
Index Account
(Dreyfus Stock Index) 09/29/89 23.46 26.38 16.78 N/A 13.51
Growth I
(Fidelity VIP Growth) 10/09/86 14.66 20.21 15.13 15.02 13.50
Growth II
(American Century VP
Capital Appreciation) 11/20/87 -10.17 3.16 3.15 6.66 7.31
International Stock
(T. Rowe Price
International
Stock Portfolio) 03/31/94 -4.28 6.00 N/A N/A 5.00
Small Cap
(Dreyfus Small Cap) 08/31/90 8.40 16.85 23.04 N/A 41.01
</TABLE>
TABLE 1B -- ADJUSTED CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
LIFE
FUND YEAR TO 1 YEAR 3 YEARS 5 YEARS 10 YEARS OF FUND
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager
(Fidelity VIP II:
Asset Manager) 09/06/89 -4.29 12.03 12.03 46.50 62.47 N/A 128.97
Socially Responsible
(Calvert Social
Balanced Portfolio) 09/02/86 -5.63 11.50 11.50 58.99 62.09 167.58 172.07
Balanced
(American Century
VP Balanced) 05/01/91 -6.76 7.53 7.53 42.57 50.67 N/A 74.05
</TABLE>
7
<PAGE>
TABLE 1B -- ADJUSTED CUMULATIVE TOTAL RETURN (CONTINUED)
<TABLE>
<CAPTION>
LIFE
FUND YEAR TO 1 YEAR 3 YEARS 5 YEARS 10 YEARS OF FUND
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income
(VIP Equity-income) 10/09/86 -4.42 18.95 18.95 79.17 121.39 289.69 280.05
Index Account
(Dreyfus Stock
Index) 09/29/89 -3.70 23.46 23.46 101.87 117.22 N/A 184.58
Growth I
(Fidelity VIP Growth) 10/09/86 -7.06 14.66 14.66 73.69 102.23 305.43 315.00
Growth II
(American Century VP
Capital Appreciation) 11/20/87 -18.44 -10.17 -10.17 9.80 16.78 90.50 104.15
International Stock
(T. Rowe Price
International Stock
Portfolio) 03/31/94 -12.98 -4.28 -4.28 19.09 N/A N/A 20.12
Small Cap
(Dreyfus Small Cap) 08/31/90 -11.46 8.40 8.40 59.54 182.04 N/A 1,145.52
</TABLE>
Table 2A below shows annual average total return on the same assumptions as
Table 1A except that the value in the Sub-Account is not withdrawn at the end
of the period or is withdrawn to affect an annuity. Table 2B shows the
cumulative total return on the same basis. The rates of return shown below
reflect the mortality and expense risk charge and a pro rata portion of the
Annual Administration Charge.
TABLE 2A -- ADJUSTED AVERAGE TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
LIFE
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS OF FUND
INCEPTION ENDING ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Asset Manager
(Fidelity VIP II: Asset
Manager) 09/06/89 19.18 15.94 11.57 N/A 11.29
Socially Responsible
(Calvert Social Balanced
Portfolio) 09/02/86 18.61 19.15 11.51 11.03 9.83
Balanced
(American Century VP
Balanced) 05/01/91 14.40 14.89 9.90 N/A 9.67
Equity-Income
(VIP Equity-Income) 10/09/86 26.55 23.99 18.69 15.28 13.24
Index Account
(Dreyfus Stock Index) 09/29/89 31.34 29.02 18.24 N/A 14.37
Growth I
(Fidelity VIP Growth) 10/09/86 21.98 22.71 16.56 15.74 14.13
Growth II
(American Century VP
Capital Appreciation) 11/20/87 -4.44 5.31 4.44 7.32 7.97
International Stock
(T. Rowe Price
International Stock
Portfolio) 03/31/94 1.83 8.21 N/A N/A 6.75
Small Cap
(Dreyfus Small Cap) 08/31/90 15.32 19.28 24.58 N/A 42.20
</TABLE>
8
<PAGE>
TABLE 2B -- ADJUSTED CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
LIFE
FUND YEAR TO 1 YEAR 3 YEARS 5 YEARS 10 YEARS OF FUND
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager 09/06/89 1.82 19.18 19.18 55.85 72.84 N/A 143.58
(Fidelity VIP II:
Asset Manager)
Socially Responsible 09/02/86 0.39 18.61 18.61 69.14 72.44 184.66 189.44
(Calvert Social
Balanced Portfolio)
Balanced 05/01/91 -0.81 14.40 14.40 51.67 60.29 N/A 85.16
(American Century
VP Balanced)
Equity-Income 10/09/86 1.69 26.55 26.55 90.61 135.52 314.57 304.31
(VIP Equity-Income)
Index Account 09/29/89 2.45 31.34 31.34 114.76 131.09 N/A 202.74
(Dreyfus Stock Index)
Growth I 10/09/86 -1.12 21.98 21.98 84.78 115.14 331.31 341.49
(Fidelity VIP Growth)
Growth II 11/20/87 -13.23 -4.44 -4.44 16.81 24.23 102.66 117.18
(American Century VP
Capital Appreciation)
International Stock 03/31/94 -7.42 1.83 1.83 26.69 N/A N/A 27.78
(T. Rowe Price
International Stock Portfolio)
Small Cap 08/31/90 -5.81 15.32 15.32 69.72 200.04 N/A 1,225.02
(Dreyfus Small Cap)
</TABLE>
Tables 3A and 3B show performance information on the same assumptions as
Tables 2A and 2B except that Tables 3A and 3B do not reflect deductions of the
pro rata portion of the Annual Administration Charge because certain Contracts
and Participants are not assessed such a charge.
TABLE 3A -- ADJUSTED AVERAGE ANNUAL TOTAL RETURN ASSUMING NO WITHDRAWAL AND NO
ANNUAL ADMINISTRATION CHARGE
<TABLE>
<CAPTION>
LIFE
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS OF FUND
INCEPTION ENDING ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Asset Manager 09/06/89 19.20 15.97 11.59 N/A 11.33
(Fidelity VIP II:
Asset Manager)
Socially Responsible 09/02/86 18.64 19.17 11.54 11.07 9.87
(Calvert Social
Balanced Portfolio)
Balanced 05/01/91 14.42 14.92 9.92 N/A 9.70
(American Century
VP Balanced)
Equity-Income 10/09/86 26.57 24.02 18.72 15.32 13.28
(VIP Equity-Income)
Index Account 09/29/89 31.36 29.05 18.27 N/A 14.40
(Dreyfus Stock Index)
Growth I 10/09/86 22.00 22.74 16.59 15.78 14.17
(Fidelity VIP Growth)
</TABLE>
9
<PAGE>
TABLE 3A -- ADJUSTED AVERAGE ANNUAL TOTAL RETURN ASSUMING NO WITHDRAWAL AND NO
ANNUAL ADMINISTRATION CHARGE (CONTINUED)
<TABLE>
<CAPTION>
LIFE
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS OF FUND
INCEPTION ENDING ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
American Century VP 11/20/87 -4.42 5.34 4.46 7.36 8.00
Capital Appreciation
(Growth II)
T. Rowe Price Interna- 03/31/94 1.86 8.23 N/A N/A 6.77
tional
Stock Portfolio
(International Stock)
Dreyfus Small Cap 08/31/90 15.35 19.31 24.61 N/A 42.24
(Small Cap)
</TABLE>
TABLE 3B -- ADJUSTED CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL AND NO
ANNUAL ADMINISTRATION CHARGE
<TABLE>
<CAPTION>
LIFE OF
FUND YEAR TO 1 YEAR 3 YEARS 5 YEARS 10 YEARS FUND
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING ENDING
DATE 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager 09/06/89 1.85 19.20 19.20 55.95 73.06 N/A 144.24
(Fidelity VIP II: Asset
Manager)
Socially Responsible 09/02/86 0.41 18.64 18.64 69.25 72.66 185.66 190.70
(Calvert Social Balanced
Portfolio)
Balanced 05/01/91 -0.78 14.42 14.42 51.77 60.50 N/A 85.51
(American Century VP
Balanced)
Equity-Income 10/09/86 1.71 26.57 26.57 90.74 135.82 316.01 306.06
(VIP Equity-Income)
Index Account 09/29/89 2.47 31.36 31.36 114.90 131.38 N/A 203.56
(Dreyfus Stock Index)
Growth I 10/09/86 -1.10 22.00 22.00 84.90 115.42 332.80 343.39
(Fidelity VIP Growth)
Growth II 11/20/87 -13.21 -4.42 -4.42 16.89 24.40 103.38 118.00
(American Century VP
Capital Appreciation)
International Stock 03/31/94 -7.40 1.86 1.86 26.78 N/A N/A 27.90
(T. Rowe Price
International Stock
Portfolio)
Small Cap 08/31/90 -5.78 15.35 15.35 69.84 200.41 N/A 1,227.73
(Dreyfus Small Cap)
</TABLE>
Table 4 below shows total return information on a calendar year basis using
the same assumptions as Tables 3A and 3B. The rates of return shown reflect
the mortality and expense risk charge. Similar to Tables 3A and 3B, Table 4
does not reflect deduction of the pro rata portion of the Annual
Administration Charge because certain Contracts and Participants are not
assessed such a charge.
10
<PAGE>
TABLE 4 -- ADJUSTED CALENDAR YEAR ANNUAL RETURN ASSUMING NO WITHDRAWAL AND NO
ANNUAL ADMINISTRATION CHARGE *
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
----- ----- ----- ------ ------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager na na na 5.45 21.11 10.53 19.60 -7.20 15.57 13.24 19.20
Socially Responsible 5.51 10.42 19.53 2.94 15.02 6.33 6.72 -4.39 28.24 11.28 18.64
Balanced na na na na na -7.17 6.38 -0.58 19.68 10.81 14.42
Equity-Income -2.30 21.25 15.95 -16.29 29.88 15.50 16.89 5.80 33.49 12.92 26.57
Index na na na -4.69 28.29 5.82 8.02 -0.32 35.16 21.09 31.36
Growth I 2.43 14.21 29.95 -12.78 43.78 8.00 17.94 -1.21 33.75 13.35 22.00
Growth II na -3.41 27.17 -2.40 40.18 -2.52 8.99 -2.34 29.55 -5.43 -4.42
International Stock na na na na na na na na 9.86 13.34 1.86
Small Cap na na na na 156.65 69.25 66.31 6.47 27.85 15.22 15.35
</TABLE>
*The above calendar-year returns assume a hypothetical investment of $1,000 on
January 1 of the first full calendar year that the underlying fund was in
existence. The returns assume that the money will be left on account until
retirement and thus no CDSC will be deducted. Returns are provided for years
before the fund was an available investment option under the Contract. Returns
for those periods reflect a hypothetical return as if those funds were
available under the Contract, and reflect the deduction of the mortality and
expense risk charge. The returns do not reflect deductions for the pro rata
portion of the Annual Administration Charge or the CDSC.
TAX LAW CONSIDERATIONS
RETIREMENT PROGRAMS:
Participants are urged to discuss the income tax considerations of their
retirement plan with their tax advisors. In many situations special rules may
apply to the plans and/or to the participants.
Contributions to retirement programs subject to Sections 401(a), 403(a),
403(b), 408 and 457(b) may be excludable from a Participant's reportable gross
income if the Contributions do not exceed the limitations imposed under the
Code. Certain plans allow employees to make Elective Salary Deferral
Contributions. Certain Plans allow Employers to make Contributions. The
information below is a brief summary of some of the important federal tax
considerations that apply to retirement plans. The Code requires that 401(a)
Plans and certain 403(b) Plans be in writing and that the Employer communicate
the provisions of the Plans to employees. When there is a written Plan, often
the Contribution limits, withdrawal rights and other provisions of the Plan
may be more restrictive than those allowed by the Code.
Elective Salary Deferral Contributions:
For calendar year 1998 the maximum elective salary deferral contributions to a
401(k) Plan which is a type of 401(a) Plan is limited to $10,000; for a 403(b)
plan the limit is $10,000 unless the employee is a qualified employee; for an
Eligible 457 Plan the limit is $8,000.
Total Salary Deferral & Employer Contributions:
QUALIFIED RETIREMENT PLAN -- 401(a) PLAN
The Code limits the Contributions to a defined contribution 401(a) plan to the
lesser of $30,000 or 25% of compensation.
11
<PAGE>
TAX SHELTERED ANNUITY PLAN -- 403(b) PLAN
Total Contributions which include both salary deferral Contributions and
Employer Contributions are also limited.
The combined limit is:
(a) the amount determined by multiplying 20 percent of the employee's
includable compensation by the number of years of service, over
(b) the aggregate of the amount contributed by the Employer for annuity
contracts and excludable from the gross income of the employee for the
prior taxable year.
Therefore, if the maximum exclusion allowance is less than $10,000 a year, the
employee's elective deferrals plus any other Employer Contributions cannot
exceed this lesser amount.
Section 415 of the Code imposes limitations with respect to annual
contributions to all Section 403(b) programs, qualified plans and simplified
employee pensions maintained by the Employer. A Participant's annual
Contributions to these programs and defined contribution plans cannot exceed
the lesser of $30,000 or 25 percent of the employee's compensation. This
amount is subject to the maximum exclusion allowance and the salary deferral
amount limitations.
ELIGIBLE 457 PLAN -- 457(b) PLAN
For a 457(b) plan the contribution is the lesser of $7,500, as indexed, or 33%
of the employee's compensation.
SECTION 457(f) PLANS
These are non-qualified deferred compensation arrangements between an Employer
and its employees. There are no stated limits in the Code regarding this type
of Plan.
INDIVIDUAL RETIREMENT ACCOUNT -- IRA OR 408 PLAN
For IRA's the maximum deductible contribution is the lesser of $2,000 or 100%
of taxable income. The $2,000 is increased to $4,000 when the IRA covers the
taxpayer and a non-working spouse.
TRANSFERS AND ROLLOVERS:
Participants who receive distributions from their 401(a) or 403(b) contract
may transfer the amount not representing employee Contributions to an
Individual Retirement Account or Annuity (IRA) or another Section 401(a) or
403(b) program without including that amount in gross income for the taxable
year in which paid. Note 401(a) distributions may not be transferred to a
403(b) plan or vice versa. If the rollover amount is paid directly to the
Participant, the amount distributed may be subject to a 20% federal tax
withholding. If the amount is paid directly to an acceptable rollover account,
UNUM/America is not required to withhold any amount. In order for the
distribution to qualify for rollover, the distribution must be made on account
of the employee's death, after the employee attains age 59 1/2, on account of
the employee's separation from service, or after the employee has become
disabled. The distribution cannot be part of a series of substantially equal
payments made over the life expectancy of the employee or the joint life
expectancies of the employee and his or her spouse or made for a specified
period of 10 years or more. The rollover must be made within sixty days of the
distribution. Pursuant to Revenue Ruling 90-24, a Participant, to the extent
permitted by any applicable Contract or Plan, may transfer funds between
Section 403(b) investment vehicles, including both Section 403(b)(1) annuity
contracts and Section 403(b)(7) custodial accounts. Any amount transferred
must continue to be subject to withdrawal restrictions at least as restrictive
as that of the transferring investment vehicle. UNUM/America considers any
total or partial transfer from a UNUM/America investment vehicle to a non-
UNUM/America investment vehicle to be a withdrawal.
Once every twelve months a participant in an IRA may roll the money from one
IRA to another IRA.
In Eligible 457 Plans and in Section 457(f) Plans, the Employer controls the
movement of assets from one funding vehicle to another.
12
<PAGE>
EXCISE TAX ON EARLY DISTRIBUTIONS:
Section 72(t) of the Code provides that any distribution made to a Participant
in a 401(a), 403(b) or 408 plan other than on account of the following events
will be subject to a 10 percent excise tax on the taxable amount distributed:
a) the employee has attained age 59 1/2;
b) the employee has died;
c) the employee is disabled;
d) the employee is 55 and has separated from service (Does not apply to
IRA's).
Distributions which are received as a life annuity where payment is made at
least annually will not be subject to an excise tax. Certain amounts paid for
medical care may also not be subject to an excise tax. Distributions from 408
Plans may qualify for additional exceptions.
MINIMUM DISTRIBUTION RULES:
The value in a Contract under Sections 401(a), 403(b) and 408 are subject to
the distribution rules provided in Section 401(a)(9) of the Code. Generally,
that section requires that an employee must begin receiving distributions of
his post-1986 balance by April 1 of the calendar year following the calendar
year in which the employee attains age 70 1/2. Such distributions must not
exceed the life expectancy of the employee or the life expectancy of such
employee and the designated beneficiary (as defined under the plan). An
employee who attained age 70 1/2 before January 1, 1988 must begin receiving
distributions by April 1 of the calendar year following the later of (a) the
calendar year in which the employee attains age 70 1/2 or (b) the calendar
year in which the employee retires. There are special rules for Section 403(b)
Plans.
Amounts contributed to an Eligible 457 Contract must be distributed not
earlier than the earliest of: 1) calendar year in which the Participant
attains age 70 1/2, 2) the Participant separates from service with the
Employer, or 3) when the Participant has an unforeseen emergency. However, in
no event may the distribution begin any later than described in Sections
401(a)(9) and 457(d) of the Code.
Additionally, distribution of an employee's entire Account balance (including
pre-1987 funds) must satisfy the minimum distribution incidental benefit
requirement. In general, this requires that death and other non-retirement
benefits payable under the above plans be incidental to the primary purpose of
the program which is to provide deferred compensation to the employee. A payee
is subject to a penalty for failing to receive the required minimum annual
distribution. Section 4974(a) of the Code provides that a payee will be
subject to a penalty equal to 50 percent of the amount by which the required
minimum distribution exceeds the actual amount distributed during the taxable
year.
Additional information on federal income taxation is included in the
prospectus.
DISTRIBUTION OF CONTRACTS
Lincoln Financial Advisors Corporation ("LFA"), an indirect subsidiary of
Lincoln National Corporation, is registered with the Securities and Exchange
Commission as a broker-dealer under the Securities Exchange Act of 1934 and is
a member of the National Association of Securities Dealers, Inc. LFA is the
Variable Investment Division's principal underwriter and also enters into
selling agreements with other unaffiliated broker-dealers authorizing them to
offer the Contracts. LFA will pay these unaffiliated broker-dealers a
distribution allowance which will be used to pay commissions to their
registered representatives. This distribution allowance will not be deducted
from Participant Contributions or Account balances but will be paid from
UNUM/America's General Account assets (including any charges collected).
UNUM Sales Corporation, which served as the principal underwriter to the
Variable Investment Division prior to October 1, 1996, received underwriting
commissions from UNUM/America of $4,223,000 and $6,130,700 in 1996 and 1995,
respectively. LFA, which became principal underwriter on October 1, 1996,
received no underwriting commissions from UNUM/America prior to December 31,
1997.
13
<PAGE>
CUSTODIAN
UNUM/America is the custodian for the Fund's shares owned by the Variable
Investment Division. The Fund's shares are held in uncertificated form
separate and apart from UNUM/America's other assets.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., independent accountants, performs certain accounting
services for UNUM/America and have performed the same services for the
Variable Investment Division. The financial statements included in this SAI
have been audited to the extent and for the periods indicated in their reports
thereon. Those financial statements have been included herein in reliance on
such reports given on the authority of such firm as experts in auditing and
accounting.
FINANCIAL STATEMENTS
This SAI contains financial statements for the Variable Investment Division,
as of December 31, 1997 and for the two years then ended.
The financial statements of UNUM/America which are included in this SAI,
should be considered only as bearing on the ability of UNUM/America to meet
its obligations under the Contracts. The financial statements of UNUM/America
are presented in accordance with generally accepted accounting principles.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
UNUM Life Insurance Company of America and
Contract owners of UNUM Life Insurance
Company of America VA-1 Separate Account
We have audited the accompanying statement of assets and liabilities of UNUM
Life Insurance Company of America VA-1 Separate Account as of December 31,
1997, and the related statements of operations and changes in net assets for
each of the two years in the period then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments held by the custodian as of
December 31, 1997. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UNUM Life Insurance Company
of America VA-1 Separate Account at December 31, 1997, and the results of its
operations and changes in net assets for each of the two years in the period
then ended in conformity with generally accepted accounting principles.
Coopers & Lybrand, LLP
Portland, Maine
April 10, 1998
S-1
<PAGE>
This page was intentionally left blank.
S-2
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
AMERICAN
CENTURY AMERICAN
DREYFUS DREYFUS VP CAPITAL CENTURY VP
STOCK SMALL CAP APPRECIATION BALANCED
COMBINED INDEX FUND PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Assets
Investments at market.. $24,486,042 $4,131,046 $2,927,496 $1,365,128 $1,080,767
Liabilities
Contract charges
payable to
UNUM Life Insurance
Company of America.... 832 145 102 45 37
----------- ---------- ---------- ---------- ----------
Net assets.............. $24,485,210 $4,130,901 $2,927,394 $1,365,083 $1,080,730
=========== ========== ========== ========== ==========
Percent of net assets... 100.0% 16.9% 11.9% 5.6% 4.4%
=========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
S-3
<PAGE>
<TABLE>
<CAPTION>
CALVERT
VIPF II VIPF RESPONSIBLY VIPF
VIPF ASSET EQUITY- INVESTED T. ROWE PRICE MONEY
GROWTH MANAGER INCOME BALANCED INTERNATIONAL MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES PORTFOLIO
---------- ---------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$6,926,836 $4,233,129 $2,662,756 $147,647 $1,005,475 $5,762
233 142 89 5 34 --
---------- ---------- ---------- -------- ---------- ------
$6,926,603 $4,232,987 $2,662,667 $147,642 $1,005,441 $5,762
========== ========== ========== ======== ========== ======
28.3% 17.3% 10.9% 0.6% 4.1% --%
========== ========== ========== ======== ========== ======
</TABLE>
S-4
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
COMBINED
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
Net investment income
Dividends from investment income................. $ 11,609,334 $ 22,369,654
Less contract charges--mortality and expense fees
to UNUM Life
Insurance Company of America..................... 1,460,336 4,927,857
------------- ------------
Net investment income.......................... 10,148,998 17,441,797
Net realized and unrealized gains (losses) on in-
vestments
Net realized gains............................... 84,288,163 1,584,234
Net change in unrealized gains (losses).......... (72,388,590) 27,245,960
------------- ------------
11,899,573 28,830,194
------------- ------------
Net increase (decrease) in net assets resulting
from operations.................................. 22,048,571 46,271,991
Net increase (decrease) in net assets from princi-
pal transactions................................. (477,437,974) 118,301,806
------------- ------------
Net increase (decrease) in net assets.......... (455,389,403) 164,573,797
Net assets at beginning of year................... 479,874,613 315,300,816
------------- ------------
Net assets at end of year......................... $ 24,485,210 $479,874,613
============= ============
</TABLE>
See notes to financial statements.
S-5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN CENTURY VP
DREYFUS STOCK DREYFUS SMALL CAP CAPITAL APPRECIATION
INDEX FUND PORTFOLIO PORTFOLIO
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
- -------------------------- ------------------------- -------------------------
1997 1996 1997 1996 1997 1996
- ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 400,268 $ 2,312,264 $ 172,089 $ 1,409,239 $ 298,444 $ 4,132,202
244,439 689,522 149,081 396,340 106,495 492,841
- ------------ ----------- ------------ ----------- ------------ -----------
155,829 1,622,742 23,008 1,012,899 191,949 3,639,361
21,005,485 310,151 5,584,265 102,971 961,039 195,252
(14,602,042) 8,880,241 (5,348,017) 3,324,631 (1,947,468) (5,940,416)
- ------------ ----------- ------------ ----------- ------------ -----------
6,403,443 9,190,392 236,248 3,427,602 (986,429) (5,745,164)
- ------------ ----------- ------------ ----------- ------------ -----------
6,559,272 10,813,134 259,256 4,440,501 (794,480) (2,105,803)
(71,856,754) 13,683,201 (43,691,589) 22,522,224 (35,240,733) 5,354,160
- ------------ ----------- ------------ ----------- ------------ -----------
(65,297,482) 24,496,335 (43,432,333) 26,962,725 (36,035,213) 3,248,357
69,428,383 44,932,048 46,359,727 19,397,002 37,400,296 34,151,939
- ------------ ----------- ------------ ----------- ------------ -----------
$ 4,130,901 $69,428,383 $ 2,927,394 $46,359,727 $ 1,365,083 $37,400,296
============ =========== ============ =========== ============ ===========
</TABLE>
S-6
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
AMERICAN CENTURY VP
BALANCED PORTFOLIO
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
Net investment income
Dividends from investment income................... $ 532,348 $ 976,670
Less contract charges--mortality and expense fees to
UNUM Life Insurance Company of America............. 65,726 274,016
------------ -----------
Net investment income............................ 466,622 702,654
Net realized and unrealized gains (losses) on in-
vestments
Net realized gains................................. 4,334,554 178,468
Net change in unrealized gains (losses)............ (3,828,054) 1,418,087
------------ -----------
506,500 1,596,555
------------ -----------
Net increase (decrease) in net assets resulting from
operations......................................... 973,122 2,299,209
Net increase (decrease) in net assets from principal
transactions....................................... (24,950,585) 3,816,661
------------ -----------
Net increase (decrease) in net assets............ (23,977,463) 6,115,870
Net assets at beginning of year..................... 25,058,193 18,942,323
------------ -----------
Net assets at end of year........................... $ 1,080,730 $25,058,193
============ ===========
</TABLE>
See notes to financial statements.
S-7
<PAGE>
<TABLE>
<CAPTION>
VIPF VIPF II ASSET VIPF EQUITY-
GROWTH PORTFOLIO MANAGER PORTFOLIO INCOME PORTFOLIO
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
- ---------------------------- ------------------------- -------------------------
1997 1996 1997 1996 1997 1996
- ------------- ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 2,199,358 $ 6,781,982 $ 5,413,065 $ 4,987,786 $ 2,554,416 $ 1,084,893
387,877 1,418,576 272,946 1,023,895 158,087 422,194
- ------------- ------------ ------------ ----------- ------------ -----------
1,811,481 5,363,406 5,140,119 3,963,891 2,396,329 662,699
31,805,007 376,660 11,950,401 350,985 6,413,527 38,616
(25,720,364) 8,126,147 (12,947,511) 6,245,079 (5,861,037) 3,590,870
- ------------- ------------ ------------ ----------- ------------ -----------
6,084,643 8,502,807 (997,110) 6,596,064 552,490 3,629,486
- ------------- ------------ ------------ ----------- ------------ -----------
7,896,124 13,866,213 4,143,009 10,559,955 2,948,819 4,292,185
(136,643,911) 30,430,707 (93,969,435) 9,030,051 (47,608,285) 21,643,563
- ------------- ------------ ------------ ----------- ------------ -----------
(128,747,787) 44,296,920 (89,826,426) 19,590,006 (44,659,466) 25,935,748
135,674,390 91,377,470 94,059,413 74,469,407 47,322,133 21,386,385
- ------------- ------------ ------------ ----------- ------------ -----------
$ 6,926,603 $135,674,390 $ 4,232,987 $94,059,413 $ 2,662,667 $47,322,133
============= ============ ============ =========== ============ ===========
</TABLE>
S-8
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
CALVERT RESPONSIBLY INVESTED
BALANCED PORTFOLIO
------------------------------
YEAR ENDED DECEMBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
Net investment income
Dividends from investment income............... $ 10,786 $ 348,555
Less contract charges--mortality and expense
fees to UNUM Life Insurance Company of
America........................................ 13,776 38,017
-------------- -------------
Net investment income........................ (2,990) 310,538
Net realized and unrealized gains (losses) on
investments
Net realized gains............................. 168,338 5,529
Net change in unrealized gains (losses)........ (38,059) 35,140
-------------- -------------
130,279 40,669
-------------- -------------
Net increase (decrease) in net assets resulting
from operations................................ 127,289 351,207
Net increase (decrease) in net assets from prin-
cipal transactions............................. (4,646,914) 2,604,832
-------------- -------------
Net increase (decrease) in net assets........ (4,519,625) 2,956,039
Net assets at beginning of year................. 4,667,267 1,711,228
-------------- -------------
Net assets at end of year....................... $ 147,642 $ 4,667,267
============== =============
</TABLE>
See notes to financial statements.
S-9
<PAGE>
<TABLE>
<CAPTION>
T. ROWE PRICE VIPF MONEY
INTERNATIONAL SERIES MARKET PORTFOLIO
- ---------------------------------- ------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1996 1997 1996
- ------------ ----------- ----------- -----------
<S> <C> <C> <C>
$ 23,140 $ 324,206 $ 5,420 $ 11,857
61,909 172,456 -- --
- ------------ ----------- ----------- -----------
(38,769) 151,750 5,420 11,857
2,065,547 25,602 -- --
(2,096,038) 1,566,181 -- --
- ------------ ----------- ----------- -----------
(30,491) 1,591,783 -- --
- ------------ ----------- ----------- -----------
(69,260) 1,743,533 5,420 11,857
(18,430,166) 9,056,936 (399,602) 159,471
- ------------ ----------- ----------- -----------
(18,499,426) 10,800,469 (394,182) 171,328
19,504,867 8,704,398 399,944 228,616
- ------------ ----------- ----------- -----------
$ 1,005,441 $19,504,867 $ 5,762 $ 399,944
============ =========== =========== ===========
</TABLE>
S-10
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
Organization:
VA-1 Separate Account of UNUM Life Insurance Company of America ("UNUM
America") is registered under the Investment Company Act of 1940. The Separate
Account was established in accordance with the laws of the State of Maine. Its
registration statement became effective in December 1989. The assets are held
for the exclusive benefit of the variable annuity contract owners and may not
be used to satisfy any obligations that may arise from any other business
conducted by UNUM America. Any excess of assets over reserves and other
contract liabilities may be transferred to UNUM America's General Account.
Principal markets are hospitals and non-profit organizations located
throughout the United States of America, with specific concentrations in the
states of New York and California.
On October 1, 1996, UNUM America completed the sale of its group tax-sheltered
annuity ("TSA") business to The Lincoln National Life Insurance Company
("Lincoln Life") and Lincoln Life & Annuity Company of New York ("Lincoln New
York"), a wholly owned subsidiary of Lincoln Life. At the time of the sale,
the fair value of Separate Account assets was approximately $436,590,000. The
contracts were initially reinsured on an indemnity basis. Upon consent of the
TSA contractholders and/or participants, the contracts are considered
reinsured on an assumption basis, legally releasing UNUM America from future
contractual obligation to the respective contractholders and/or participants.
Assets attributable to such participants' contracts are then transferred to
separate accounts of Lincoln Life and Lincoln New York. Assets attributable to
contracts of participants with respect to which such consent is not obtained
will remain in the Separate Account. During 1997, the net assets of the
Separate Account decreased by approximately $502,568,000 from novations of
assets to the separate accounts of Lincoln Life and Lincoln New York.
Investments:
In accordance with the terms of the variable annuity contracts, all payments
transferred to the Separate Account by the contract owners are allocated to
purchase shares of either Dreyfus Stock Index Fund, Dreyfus Variable
Investment Fund: Small Cap Portfolio ("Dreyfus Small Cap Portfolio"), the
American Century Variable Portfolios: American Century VP Capital Appreciation
("American Century VP Capital Appreciation Portfolio") and American Century VP
Balanced ("American Century VP Balanced Portfolio"), Fidelity's Variable
Insurance Products Fund: Growth Portfolio ("VIPF Growth Portfolio"),
Fidelity's Variable Insurance Products Fund II: Asset Manager Portfolio ("VIPF
II Asset Manager Portfolio"), Fidelity's Variable Insurance Products Fund:
Equity-Income Portfolio ("VIPF Equity-Income Portfolio"), Calvert Responsibly
Invested Balanced Portfolio or T. Rowe Price International Series, Inc. ("T.
Rowe Price International Series"). Fidelity's Variable Insurance Products
Funds: Money Market Portfolio ("VIPF Money Market Portfolio") is used only for
investment of initial contributions for which UNUM America has not received
complete order instructions. Upon receipt of complete order instructions, the
payments transferred to VIPF Money Market Portfolio are allocated to purchase
shares of one of the above funds.
The Separate Account is fully invested in shares of Dreyfus Stock Index Fund,
Dreyfus Small Cap Portfolio, American Century VP Capital Appreciation
Portfolio, American Century VP Balanced Portfolio, VIPF Growth Portfolio, VIPF
II Asset Manager Portfolio, VIPF Equity-Income Portfolio, Calvert Responsibly
Invested Balanced Portfolio, T. Rowe Price International Series and VIPF Money
Market Portfolio, which are carried at market value. Security transactions are
recorded on the trade date. All contracts participating in the Separate
Account are in the accumulation phase. Dividends are fully reinvested and
immediately credited to participant accounts with the exception of VIPF Money
Market Portfolio which is invested monthly. Unrealized gain and loss represent
the difference between the cost and market value of invested assets. Realized
gain and loss are reported on an average cost basis. Gross unrealized gains
for all investments were $4,936,088 as of December 31, 1997 and $77,317,207 as
of December 31, 1996. Gross unrealized losses for all investments were $7,471
as of December 31, 1997 and $0 as of December 31, 1996.
S-11
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The market value and cost of investments at December 31, 1997, was distributed
as follows:
<TABLE>
<CAPTION>
MARKET VALUE
-------------------
SHARE
SHARES PRICE COST
------------ ------ ----------
<S> <C> <C> <C>
Dreyfus Stock Index Fund....................... 160,428.9775 $25.75 $2,998,795
Dreyfus Small Cap Portfolio.................... 51,233.7531 57.14 2,562,196
American Century VP Capital Appreciation
Portfolio..................................... 141,025.6612 9.68 1,372,599
American Century VP Balanced Portfolio......... 131,161.0316 8.24 869,267
VIPF Growth Portfolio.......................... 186,707.1817 37.10 4,973,559
VIPF II Asset Manager Portfolio................ 235,043.2621 18.01 3,488,806
VIPF Equity-Income Portfolio................... 109,668.7026 24.28 2,206,007
Calvert Responsibly Invested Balanced
Portfolio..................................... 74,494.3189 1.982 139,471
T. Rowe Price International Series............. 78,922.6703 12.74 940,965
VIPF Money Market Portfolio.................... 5,761.5400 1.00 5,762
</TABLE>
Contract Charges:
UNUM America is the depositor for the Separate Account. Administrative services
necessary for the operation of the Separate Account and the variable annuity
contracts are provided by UNUM America. Although UNUM America deducts for sales
and administrative expenses under the contracts, UNUM America assumes an
expense risk that these deductions may prove insufficient to cover the cost of
those expenses.
In addition, UNUM America assumes a mortality risk under the contracts in that
it agrees to make annuity payments regardless of how long a particular
annuitant or their payee lives and how long all annuitants or other payees in a
class live, if payment options involving life contingencies are chosen. Those
annuity payments are determined in accordance with annuity purchase rate
provisions established at the time the contracts are issued. UNUM America also
assumes a mortality risk in providing a death benefit under the contracts.
To compensate UNUM America for assuming these mortality and expense risks, an
effective annual mortality and expense risk charge of 1.20% of each portfolio's
average daily net assets is imposed on each portfolio within the Separate
Account with the exception of VIPF Money Market Portfolio. For 1997 and 1996,
the mortality and expense risk charges totaled $1,460,336 and $4,927,857,
respectively.
Federal Income Taxes:
For purposes of federal income taxes, the Separate Account is considered to
be part of UNUM America for the years ended December 31, 1997 and 1996, and its
operations are not taxed separately. The liability for any federal income taxes
generated by the Separate Account is attributable to UNUM America. UNUM America
is taxed as a property and casualty insurance company under the applicable
provisions of the Internal Revenue Code.
NOTE 2. CAPITAL SHARE TRANSACTIONS
During 1997 and 1996, the total amount of units sold was $36,716,146 and
$131,045,285, respectively, and the total amount of units redeemed was
$514,154,120 and $12,743,479, respectively. The following transactions in
capital stock by fund occurred:
S-12
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Separate Account funds that invest in Dreyfus Stock Index Fund held
138,497.5977 units at a net asset value of $29.8265 and 3,057,791.6697 units at
a net asset value of $22.7054 at December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
1997 1996
----------------------------- ------------------------
UNITS AMOUNT UNITS AMOUNT
--------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Units sold.............. 306,229.6989 $ 8,293,413 729,318.8159 $15,112,646
Units redeemed.......... 3,225,523.7709 80,150,167 67,072.5868 1,429,445
--------------- ------------ ------------ -----------
Net increase (de-
crease).............. (2,919,294.0720) $(71,856,754) 662,246.2291 $13,683,201
=============== ============ ============ ===========
</TABLE>
The Separate Account funds that invest in Dreyfus Small Cap Portfolio held
166,025.1987 units at a net asset value of $17.6322 and 3,032,802.7702 units at
a net asset value of $15.2861 at December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
1997 1996
----------------------------- --------------------------
UNITS AMOUNT UNITS AMOUNT
--------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Units sold.............. 387,818.0304 $ 6,473,568 1,630,716.9673 $23,438,013
Units redeemed.......... 3,254,595.6019 50,165,157 59,489.0961 915,789
--------------- ------------ -------------- -----------
Net increase (de-
crease).............. (2,866,777.5715) $(43,691,589) 1,571,227.8712 $22,522,224
=============== ============ ============== ===========
</TABLE>
The Separate Account funds that invest in American Century VP Capital
Appreciation Portfolio held 97,066.9806 units at a net asset value of $14.0633
and 2,541,937.9972 units at a net asset value of $14.7133 at December 31, 1997
and 1996, respectively.
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------
UNITS AMOUNT UNITS AMOUNT
--------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Units sold.............. 63,187.4055 $ 992,285 444,571.1658 $6,869,563
Units redeemed.......... 2,508,058.4221 36,233,018 94,107.6964 1,515,403
--------------- ------------ ------------ ----------
Net increase (de-
crease).............. (2,444,871.0166) $(35,240,733) 350,463.4694 $5,354,160
=============== ============ ============ ==========
</TABLE>
The Separate Account funds that invest in American Century VP Balanced
Portfolio held 58,258.8611 units at a net asset value of $18.5505 and
1,545,580.8344 units at a net asset value of $16.2128 at December 31, 1997 and
1996, respectively.
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------
UNITS AMOUNT UNITS AMOUNT
--------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Units sold.............. 75,086.4366 $ 1,300,063 329,338.1231 $5,034,023
Units redeemed.......... 1,562,408.4099 26,250,648 78,640.1899 1,217,362
--------------- ------------ ------------ ----------
Net increase (de-
crease).............. (1,487,321.9733) $(24,950,585) 250,697.9332 $3,816,661
=============== ============ ============ ==========
</TABLE>
The Separate Account funds that invest in VIPF Growth Portfolio held
244,512.6893 units at a net asset value of $28.3282 and 5,843,047.2941 units at
a net asset value of $23.2198 at December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
1997 1996
------------------------------ --------------------------
UNITS AMOUNT UNITS AMOUNT
--------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Units sold.............. 227,035.7944 $ 6,391,522 1,448,572.4268 $31,961,921
Units redeemed.......... 5,825,570.3992 143,035,433 64,942.2104 1,531,214
--------------- ------------- -------------- -----------
Net increase (de-
crease).............. (5,598,534.6048) $(136,643,911) 1,383,630.2164 $30,430,707
=============== ============= ============== ===========
</TABLE>
S-13
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Separate Account funds that invest in VIPF II Asset Manager Portfolio held
205,657.4591 units at a net asset value of $20.5827 and 5,447,414.3329 units at
a net asset value of $17.2668 at December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
1997 1996
----------------------------- ------------------------
UNITS AMOUNT UNITS AMOUNT
--------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Units sold.............. 150,312.5514 $ 2,958,712 776,904.8813 $12,476,352
Units redeemed.......... 5,392,069.4252 96,928,147 212,410.2068 3,446,301
--------------- ------------ ------------ -----------
Net increase (de-
crease).............. (5,241,756.8738) $(93,969,435) 564,494.6745 $ 9,030,051
=============== ============ ============ ===========
</TABLE>
The Separate Account funds that invest in VIPF Equity-Income Portfolio held
133,230.4861 units at a net asset value of $19.9854 and 2,997,006.5180 units at
a net asset value of $15.7898 at December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
1997 1996
----------------------------- --------------------------
UNITS AMOUNT UNITS AMOUNT
--------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Units sold.............. 343,776.9440 $ 6,533,006 1,505,157.0265 $22,213,213
Units redeemed.......... 3,207,552.9759 54,141,291 37,322.2757 569,650
--------------- ------------ -------------- -----------
Net increase (de-
crease).............. (2,863,776.0319) $(47,608,285) 1,467,834.7508 $21,643,563
=============== ============ ============== ===========
</TABLE>
The Separate Account funds that invest in Calvert Responsibly Invested Balanced
Portfolio held 8,750.3198 units at a net asset value of $16.8728 and
328,167.7828 units at a net asset value of $14.2222 at December 31, 1997 and
1996, respectively.
<TABLE>
<CAPTION>
1997 1996
-------------------------- -----------------------
UNITS AMOUNT UNITS AMOUNT
------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Units sold.................. 42,602.0963 $ 690,446 207,778.4639 $2,784,761
Units redeemed.............. 362,019.5593 5,337,360 13,481.2612 179,929
------------- ----------- ------------ ----------
Net increase (decrease)... (319,417.4630) $(4,646,914) 194,297.2027 $2,604,832
============= =========== ============ ==========
</TABLE>
The Separate Account funds that invest in T. Rowe Price International Series
held 80,412.8368 units at a net asset value of $12.5035 and 1,588,913.5294
units at a net asset value of $12.2756 at December 31, 1997 and 1996,
respectively.
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------
UNITS AMOUNT UNITS AMOUNT
--------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Units sold.............. 213,162.8383 $ 2,766,405 804,268.0124 $9,291,422
Units redeemed.......... 1,721,663.5309 21,196,571 18,839.2107 234,486
--------------- ------------ ------------ ----------
Net increase (de-
crease).............. (1,508,500.6926) $(18,430,166) 785,428.8017 $9,056,936
=============== ============ ============ ==========
</TABLE>
The Separate Account funds that invest in VIPF Money Market Portfolio held
484.7800 units at a net asset value of $11.8940 and 35,464.9671 units at a net
asset value of $11.2772 at December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
UNITS AMOUNT UNITS AMOUNT
------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
Units sold..................... 27,201.2618 $ 316,726 169,399.3668 $1,863,371
Units redeemed................. 62,181.4489 716,328 155,306.3050 1,703,900
------------ --------- ------------ ----------
Net increase (decrease)...... (34,980.1871) $(399,602) 14,093.0618 $ 159,471
============ ========= ============ ==========
</TABLE>
S-14
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. RELATED PARTY TRANSACTIONS
UNUM Sales Corporation, an affiliate, acted as the distributor and principal
underwriter of the Separate Account prior to October 1, 1996. Effective October
1, 1996, Lincoln Financial Advisors Corporation, a non-affiliate, acted as a
distributor and principal underwriter of the Separate Account.
NOTE 4. SUBSEQUENT EVENT
Through April 1, 1998, the net assets of the Separate Account have decreased by
approximately $1,427,000 from novations of assets to the separate accounts of
Lincoln Life and Lincoln New York.
S-15
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENT INDEX
<TABLE>
<CAPTION>
COMPANY FINANCIAL STATEMENTS PAGE
- ---------------------------- ----
<S> <C>
Report of Independent Accountants................................. F-1
Statements of Income for the Years Ended December 31, 1997, 1996,
and 1995......................................................... F-2
Balance Sheets as of December 31, 1997 and 1996................... F-3
Statements of Stockholders' Equity for the Years Ended December
31, 1997, 1996, and 1995......................................... F-4
Statements of Cash Flows for the Years Ended December 31, 1997,
1996, and 1995................................................... F-5
Notes to Financial Statements..................................... F-6 to F-25
Separate Account Financial Statements............................. Attached
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
UNUM Life Insurance Company of America
We have audited the accompanying balance sheets of UNUM Life Insurance
Company of America as of December 31, 1997 and 1996, and the related
statements of income, stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit incudes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of UNUM Life Insurance
Company of America as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Portland, Maine
February 4, 1998
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Premiums......................................... $2,304.9 $2,293.3 $2,208.8
Investment income................................ 486.8 638.5 657.5
Net realized investment gains (losses)........... (1.5) 5.9 184.7
Fees and other income............................ 184.9 90.4 33.4
-------- -------- --------
Total revenues................................. 2,975.1 3,028.1 3,084.4
BENEFITS AND EXPENSES
Benefits to policyholders........................ 1,831.8 1,803.9 1,931.1
Interest credited................................ 70.0 189.8 217.9
Operating expenses............................... 507.8 597.4 483.9
Commissions...................................... 225.1 229.2 230.9
Increase in deferred policy acquisition costs.... (103.4) (63.6) (78.4)
Interest expense (income)........................ (1.2) 0.6 5.5
-------- -------- --------
Total benefits and expenses.................... 2,530.1 2,757.3 2,790.9
-------- -------- --------
INCOME BEFORE INCOME TAXES....................... 445.0 270.8 293.5
INCOME TAXES
Current.......................................... 35.4 92.1 65.8
Deferred......................................... 98.4 (13.8) 4.6
-------- -------- --------
Total income taxes............................. 133.8 78.3 70.4
-------- -------- --------
NET INCOME....................................... $ 311.2 $ 192.5 $ 223.1
======== ======== ========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
ASSETS
Investments
Fixed maturities available for sale--at fair value (am-
ortized cost: 1997--$4,898.2; 1996--$4,822.0)......... $ 5,174.1 $ 5,024.3
Equity securities available for sale--at fair value
(cost: 1997--$7.2; 1996--$8.5)........................ 8.7 10.4
Mortgage loans......................................... 1,023.4 1,042.7
Real estate, net....................................... 219.0 233.1
Policy loans........................................... 111.8 215.6
Other long-term investments............................ 1.2 12.2
Short-term investments................................. 63.1 82.0
--------- ---------
Total investments.................................. 6,601.3 6,620.3
Cash..................................................... 21.1 34.0
Accrued investment income................................ 107.7 116.2
Premiums due............................................. 232.7 205.1
Deferred policy acquisition costs........................ 616.8 515.9
Property and equipment, net.............................. 97.4 89.6
Reinsurance receivables.................................. 1,313.3 1,017.6
Deposit assets........................................... 670.4 2,797.4
Amounts receivable from affiliates, net.................. 17.3 9.6
Current income taxes..................................... 3.6 --
Other assets............................................. 160.8 199.2
Separate account assets.................................. 24.5 699.1
--------- ---------
Total assets....................................... $ 9,866.9 $12,304.0
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Future policy benefits................................. $ 1,636.1 $ 1,559.2
Unpaid claims and claim expenses....................... 4,514.8 4,056.6
Other policyholder funds............................... 714.3 3,302.1
Income taxes
Current.............................................. -- 27.0
Deferred............................................. 350.0 201.8
Other liabilities...................................... 615.7 683.2
Separate account liabilities........................... 24.5 699.1
--------- ---------
Total liabilities.................................. 7,855.4 10,529.0
Stockholders' equity
Common stock, par value $10 per share, authorized
1,000,000 shares, issued 500,000 shares 5.0 5.0
Additional paid-in capital............................. 359.9 350.7
Unrealized gains on available for sales securities,
net................................................... 156.2 55.9
Unrealized foreign currency translation adjustment..... (12.4) (8.3)
Retained earnings...................................... 1,502.8 1,371.7
--------- ---------
Total stockholders' equity......................... 2,011.5 1,775.0
========= =========
Total liabilities and stockholders' equity......... $ 9,866.9 $12,304.0
========= =========
</TABLE>
See notes to financial statements
F-3
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
COMMON GAINS (LOSSES) UNREALIZED
STOCK ON AVAILABLE FOREIGN
$0.10 ADDITIONAL FOR SALE CURRENCY
PAR PAID-IN SECURITIES, TRANSLATION RETAINED
VALUE CAPITAL NET ADJUSTMENT EARNINGS TOTAL
------ ---------- -------------- ----------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1995................... $5.0 $343.7 $ 46.5 $ (8.7) $1,135.2 $1,521.7
1995 Transactions:
Net income............. 223.1 223.1
Unrealized gains on
available for sale se-
curities, net......... 97.7 97.7
Unrealized foreign cur-
rency translation ad-
justment.............. 1.0 1.0
Other transactions..... 3.7 3.7
---- ------ ------ ------ -------- --------
BALANCE AT DECEMBER 31,
1995................... 5.0 347.4 144.2 (7.7) 1,358.3 1,847.2
1996 Transactions:
Net income............. 192.5 192.5
Unrealized gains on
available for sale se-
curities, net......... (88.3) (88.3)
Unrealized foreign cur-
rency translation ad-
justment.............. (0.6) (0.6)
Dividends to stockhold-
ers................... (179.1) (179.1)
Other transactions..... 3.3 3.3
---- ------ ------ ------ -------- --------
BALANCE AT DECEMBER 31,
1996................... 5.0 350.7 55.9 (8.3) 1,371.7 1,775.0
1997 Transactions:
Net income............. 311.2 311.2
Unrealized gains on
available for sale se-
curities, net......... 100.3 100.3
Unrealized foreign cur-
rency translation ad-
justment.............. (4.1) (4.1)
Dividends to stockhold-
ers................... (180.1) (180.1)
Other transactions..... 9.2 9.2
---- ------ ------ ------ -------- --------
BALANCE AT DECEMBER 31,
1997................... $5.0 $359.9 $156.2 $(12.4) $1,502.8 $2,011.5
==== ====== ====== ====== ======== ========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income..................................... $ 311.2 $ 192.5 $ 223.1
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in future policy benefits and unpaid
claims and claim expenses.................... 485.4 542.8 757.2
Increase in amounts receivable under reinsur-
ance agreements.............................. (277.4) (640.4) (61.4)
Increase in income tax liability.............. 67.0 26.0 5.7
(Increase) decrease in deferred policy acqui-
sition costs................................. (100.9) 293.4 (78.6)
Increase in deposit assets.................... (45.7) (382.9) --
Deferral (recognition) of gain on sale of
tax-sheltered annuities...................... (69.6) 77.2 --
Charge for individual disability reinsurance
fees......................................... -- 49.7 --
Realized investment (gains) losses............ 4.4 1.8 (199.3)
Other......................................... (40.0) 44.1 (25.8)
------- --------- ---------
Net cash provided by operating activities... 334.4 204.2 620.9
------- --------- ---------
INVESTING ACTIVITIES:
Maturities of fixed maturities available for
sale.......................................... 392.7 684.4 61.0
Maturities of fixed maturities held to maturi-
ty............................................ -- -- 741.0
Sales of fixed maturities available for sale... 489.7 2,124.4 453.2
Sales of fixed maturities held to maturity..... -- -- 2.8
Sales of equity securities available for sale.. 1.9 -- 682.0
Sales and maturities of other investments...... 214.0 256.3 293.6
Purchases of fixed maturities available for
sale.......................................... (947.0) (1,431.2) (1,487.4)
Purchases of fixed maturities held to maturi-
ty............................................ -- -- (169.2)
Purchases of equity securities available for
sale ......................................... -- -- (104.4)
Purchases of other investments................. (181.3) (218.1) (310.0)
Net increase (decrease) in short-term invest-
ments......................................... 18.9 (1,042.1) (607.0)
Net additions to property and equipment........ (12.0) (37.0) (15.2)
Repayment of note receivable from affiliate.... -- -- 50.0
------- --------- ---------
Net cash provided by (used in) investing ac-
tivities................................... (23.1) 336.7 (409.6)
------- --------- ---------
FINANCING ACTIVITIES:
Deposits and interest credited to investment
contracts..................................... 165.1 536.9 601.1
Maturities and withdrawals from investment con-
tracts........................................ (305.1) (877.0) (864.0)
Dividends to stockholders...................... (180.1) (179.1) --
Proceeds from notes payable to affiliate....... -- -- 100.0
Repayment of notes payable to affiliate........ -- -- (50.0)
Other.......................................... -- -- 0.8
------- --------- ---------
Net cash used in financing activities....... (320.1) (519.2) (212.1)
------- --------- ---------
Effect of exchange rate changes on cash........ (4.1) (0.5) --
------- --------- ---------
Net increase (decrease) in cash................ (12.9) 21.2 (0.8)
Cash at beginning of year...................... 34.0 12.8 13.6
------- --------- ---------
Cash at end of year............................ $ 21.1 $ 34.0 $ 12.8
======= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMA-
TION:
Cash paid during the year for:
Income taxes.................................. $ 56.5 $ 47.4 $ 64.3
Interest...................................... $ -- -- 5.5
======= ========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING AND INVESTING ACTIVITIES:
As discussed in Note 5, "Sale of Tax-Sheltered Annuity Business," consent for
assumption reinsurance has been given by contractholders and participants
owning approximately 92% of assets under management related to the tax-
sheltered annuity business UNUM America sold in 1996. In connection with the
consents received during 1997, UNUM America reduced its deposit assets by
$2,282 million, policy loan assets by $103.5 million, other policyholder fund
liabilities by $2,447.8 million and separate account assets and liabilities by
$502.6 million.
In conjunction with the sale of UNUM America's tax sheltered annuity business
during 1996, fixed maturities available for sale of $588.6 million and short-
term investments of $1,825.9 million were transferred to the buyer on October
1, 1996. Upon transfer, there was a corresponding increase in UNUM America's
deposit assets.
See notes to financial statements.
F-5
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of UNUM Life Insurance Company of
America ("UNUM America") have been prepared on the basis of generally accepted
accounting principles. UNUM America is jointly owned by UNUM Holding Company
and UNUM Corporation. UNUM Holding Company is wholly-owned by UNUM
Corporation. The 1995 financial statements have been restated to include the
accounts of Commercial Life Insurance Company ("Commercial Life") which was
merged with UNUM America effective December 31, 1996. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassification
Certain 1996 and 1995 amounts have been reclassified in 1997 for comparative
purposes.
Investments
Investments are reported as follows:
. Fixed maturities available for sale (certain bonds and redeemable
preferred stocks)--at fair value.
. Equity securities available for sale (common stocks and non-redeemable
preferred stocks)--at fair value.
. Mortgage loans--at amortized cost less an allowance for probable losses.
. Real estate--at cost less accumulated depreciation.
. Policy loans--at unpaid principal balance.
. Other long-term investments--at cost plus UNUM America's equity in
undistributed net earnings since acquisition.
. Short-term investments--are considered available for sale and are carried
at cost which approximates fair value.
Fixed maturities and equity securities are classified as available for sale as
they may be sold in response to changes in interest rates, resultant
prepayment risk, liquidity and capital needs or other similar economic
factors. Unrealized gains and losses related to securities classified as
available for sale are excluded from net income and reported in a separate
component of stockholders' equity, net of applicable deferred taxes and
related adjustments to unpaid claims and claim expenses. The unrealized gains
and losses are determined based on estimated market values at the balance
sheet date and are not necessarily the amounts which would be realized upon
sale of the securities or representative of future market values. Changing
interest rates affect the level of unrealized gains and losses related to
securities classified as available for sale. While rising interest rates are
beneficial when investing current cash flows, they can also reduce the fair
value of existing fixed rate long-term investments. In addition, lower
interest rates can lead to early payoffs and refinancing of some of UNUM
America's fixed rate investments. Management generally invests in fixed rate
instruments that are structured to limit the exposure to such reinvestment
risk.
Realized investment gains and losses, which are determined on the basis of
specific identification and include adjustments for allowances for probable
losses, are reported separately in the Statements of Income.
If a decline in fair value of an invested asset is considered to be other than
temporary or if a long-lived asset is deemed to be permanently impaired, the
investment is reduced to its net realizable value and the reduction is
accounted for as a realized investment loss.
UNUM America discontinues the accrual of investment income on invested assets
when it is determined that collectability is doubtful. UNUM America recognizes
investment income on impaired loans when the income is received.
F-6
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Real estate held for sale is included in other assets in the Balance Sheets
and is valued net of a valuation allowance which reduces the carrying value to
the lower of fair value less estimated costs to sell or cost. This valuation
allowance is periodically adjusted based on subsequent changes in UNUM
America's estimate of fair value less costs to sell.
Purchases and sales of short-term financial instruments are part of investing
activities and not necessarily a part of the cash management program.
Therefore, short-term financial instruments are classified as investments in
the Balance Sheets and are included as investing activities in the Statements
of Cash Flows.
Deferred Policy Acquisition Costs
The costs of acquiring new business that vary with and are related primarily
to the production of new business have been deferred to the extent such costs
are deemed recoverable from future profits. Such costs include commissions,
certain costs of policy issue and underwriting and certain variable field
office expenses.
For individual disability, group disability, and group life and health
business, the costs are amortized in proportion to expected future premiums.
For universal life products, the costs are amortized in proportion to
estimated gross profits from interest margins, mortality and other elements of
performance under the contracts. Amortization is adjusted periodically to
reflect differences between actual experience and original assumptions, with
any resulting changes reflected in current operating results. The amounts
deferred and amortized were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1996 1995
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Deferred................................................. $211.9 $194.7 $196.1
Less amortized........................................... (108.5) (131.1) (117.7)
------ ------ ------
Increase in deferred policy acquisition costs.......... $103.4 $ 63.6 $ 78.4
====== ====== ======
</TABLE>
Separate Accounts
Certain assets from tax-sheltered annuity ("TSA") contracts are in separate
accounts that are pooled investment funds of securities. Prior to January 1,
1997, the assets of UNUM America's defined benefit plan were held in the
separate accounts (see Note 8 "Employee Benefit and Incentive Plans").
Investment income and realized gains and losses on these accounts accrue
directly to the contractholders. Assets, carried at market value, and
liabilities of the separate accounts are shown separately in the Balance
Sheets. The assets of the separate accounts are legally segregated and are not
subject to claims that arise out of any other business of UNUM America.
On October 1, 1996, UNUM America closed the sale of its TSA business to The
Lincoln National Life Insurance Company, a subsidiary of Lincoln National
Corporation (see Note 5 "Sale of Tax-Sheltered Annuity Business"). For legal
considerations, the separate account's TSA related assets were not transferred
on October 1, 1996. TSA related assets are transferred only upon receipt of a
contractholder and participant's consent for assumption reinsurance.
Accounting for Participating Individual Life Insurance
Participating policies issued by the former Union Mutual Life Insurance
Company ("Union Mutual") prior to UNUM America's conversion to a stock life
insurance company on November 14, 1986, will remain participating as long as
they remain in force. A Participation Fund Account ("PFA") was established for
the benefit of all of Union Mutual's individual participating life and annuity
policies and contracts.
The assets of the PFA provide for the benefit, dividend and certain expense
obligations of the participating individual life insurance policies and
annuity contracts. This line of business participates in the experience of the
F-7
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PFA and its operations have been excluded from the Statements of Income. The
PFA represented approximately 3.7% and 2.9% of total assets and 4.6% and 3.4%
of total liabilities at December 31, 1997, and 1996, respectively.
Other Policyholder Funds
Other policyholder funds are liabilities for investment-type contracts and
represent customer deposits plus interest credited to those deposits at
various rates.
Liabilities for Restructuring Activities
Liabilities for restructuring activities are recorded when management, prior
to the balance sheet date, commits to execute an exit plan that will result in
the incurral of costs that have no future economic benefit or approves a plan
of termination and communicates sufficient detail of the plan to employees.
Liabilities for restructuring activities are included in other liabilities in
the Balance Sheets.
Income Taxes
The provision for income taxes includes amounts currently payable and deferred
income taxes, which result from differences between financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates
and laws. A valuation allowance is established for deferred tax assets when it
is more likely than not that an amount will not be realized.
Foreign Currency Translation
UNUM America has several branch operations located in foreign countries, the
largest being in Canada. These branches generally maintain their balance sheet
and income statement accounts in local functional currencies. These currencies
are translated to U.S. dollars using ending and quarterly average exchange
rates, respectively. The resulting translation adjustments are reported in a
separate component of stockholders' equity.
Recognition of Premium Revenues and Related Expenses
Group insurance premiums are recognized as income over the period to which the
premiums relate. Individual disability premiums are recognized as income when
due. Benefits and expenses are matched with earned premiums to result in
recognition of profits over the life of the contracts. This association is
accomplished by recording a provision for future policy benefits and unpaid
claims and claim expenses and by amortizing deferred policy acquisition costs.
For retirement and universal life products, premium and other policy fee
revenue consist of charges for the cost of insurance, policy administration
and surrenders assessed during the period. Charges related to services to be
performed in the future are deferred until earned. The amounts received in
excess of premium and fees are recorded as deposits and included in other
policyholder funds in the Balance Sheets. Benefits and expenses include
benefit claims in excess of related account balances, interest credited at
various rates and amortization of deferred policy acquisition costs.
Reinsurance
UNUM America is involved in both the cession and assumption of reinsurance
with other companies. Risks are reinsured with other companies to reduce UNUM
America's exposure to large losses and permit recovery of a portion of direct
losses. UNUM America remains liable to the insured for the payment of policy
benefits if the reinsurers cannot meet their obligations under the reinsurance
agreements. Deferred policy acquisition costs, premiums, benefits and expenses
are stated net of reinsurance ceded to other companies. UNUM America
F-8
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk to minimize exposure to significant losses from
reinsurer insolvencies.
Changes in Accounting Estimates
During fourth quarter 1997, certain reinsurance pools managed by UNUM
Corporation's wholly-owned subsidiary, Duncanson & Holt Inc., received new
claim information from ceding insurance enterprises about certain older pool
years and completed an analysis of recent claims experience deterioration. As
a result of these factors, certain pools have strengthened claim reserves. The
impact to UNUM America in fourth quarter 1997 from these pool claim reserve
increases was a $6.7 million increase in benefits to policyholders reported in
the Special Risk Insurance segment, reducing net income by $4.4 million in the
Statement of Income.
During 1995, UNUM America sold virtually all of its common stock portfolio.
The sale of the common stock portfolio, which partially supported certain
disability reserves, and the reinvestment of the proceeds primarily in
investment grade fixed income assets at yields below the average portfolio
yield, resulted in lower reserve discount rates for certain disability
products reported in the Disability Insurance segment. This change in
accounting estimate to lower certain discount rates resulted in an increase of
$114.1 million to benefits to policyholders in the Statement of Income, and a
decrease to net income of $74.2 million.
During 1995, UNUM America increased group long term disability reserves for
incurred but not reported ("IBNR") claims, as reported in the Disability
Insurance segment. The increased IBNR reserves were based on management's
judgment that claims incurred but not yet reported would reflect increased
levels of claims incidence and severity. This change in accounting estimate
resulted in an increase to benefits to policyholders in the Statement of
Income of $34.3 million, and a decrease to net income of $22.3 million.
During 1995, UNUM America increased reserves for unpaid claims related to the
association group disability business by $15.0 million to reflect management's
expectations of slower than expected claim recoveries. This change in
accounting estimate, which was reported in the Disability Insurance segment,
decreased net income by $9.8 million.
Accounting Pronouncements Adopted
Effective December 31, 1997, UNUM America adopted Financial Accounting
Standards ("FAS") No. 129, "Disclosures of Information About Capital
Structure," which consolidates disclosure requirements related to the type and
nature of securities contained in an entity's capital structure. FAS 129 does
not add to or change any of UNUM America's disclosures.
Effective January 1, 1997, UNUM America adopted FAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which established accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. The statement provides guidance for recognition or derecognition
of assets and liabilities, focusing on the concepts of control and
extinguishment. The adoption of FAS 125 did not have a material effect on UNUM
America's results of operations or financial position.
Effective January 1, 1996, UNUM America adopted FAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The adoption of FAS 121 did not have a material
effect on UNUM America's results of operations or financial position.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued FAS No.
130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its
F-9
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
components in a financial statement with the same prominence as other
financial statements. Comprehensive income is defined as net income adjusted
for changes in stockholders' equity resulting from events other than net
income or transactions related to an entity's capital instruments. UNUM
America is required to adopt FAS 130 effective January 1, 1998, with
reclassification of financial statements for earlier years required.
In June 1997, the FASB issued FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for reporting
information about operating segments. Generally, FAS 131 requires that
financial information be reported on the basis that is used internally for
evaluating performance. UNUM America is required to adopt FAS 131 effective
January 1, 1998, and comparative information for earlier years must be
restated. This statement does not need to be applied to interim financial
statements in the initial year of application. UNUM America is currently
considering what impact, if any, FAS 131 will have on its current segment
reporting structure.
In February 1998, the FASB issued FAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which revises current disclosure
requirements for employers' pension and other retiree benefits. FAS 132 does
not change the measurement or recognition of pension or other postretirement
benefit plans. UNUM America is required to adopt FAS 132 effective January 1,
1998, with restatement of disclosures for earlier years required.
In December 1997, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments," which provides guidance on
accounting for insurance-related assessments. UNUM America is required to
adopt SOP 97-3 effective January 1, 1999. Previously issued financial
statements should not be restated unless the SOP is adopted prior to the
effective date and during an interim period. The adoption of SOP 97-3 is not
expected to have a material impact on UNUM America's results of operations,
liquidity or financial position.
NOTE 2. INVESTMENTS
The following tables summarize the components of investment income, net
realized investment gains (losses) and changes in unrealized gains, net:
INVESTMENT INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1997 1996 1995
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Fixed maturities:
Available for sale................................... $386.2 $496.1 $390.3
Held to maturity..................................... -- -- 145.9
Equity securities available for sale................... -- -- 4.3
Mortgage loans......................................... 101.5 104.6 113.4
Real estate............................................ 21.7 19.0 13.8
Policy loans........................................... 5.2 9.0 7.6
Other long-term investments............................ 2.4 6.5 1.6
Short-term investments................................. 6.4 42.5 20.3
------ ------ ------
Gross investment income............................ 523.4 677.7 697.2
Less investment expenses............................... (12.2) (14.7) (15.1)
Less investment income on participating
individual life insurance policies and annuity con-
tracts................................................ (24.4) (24.5) (24.6)
------ ------ ------
Investment income.................................. $486.8 $638.5 $657.5
====== ====== ======
</TABLE>
F-10
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NET REALIZED INVESTMENT GAINS (LOSSES)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1997 1996 1995
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Gross realized investment gains:
Fixed maturities:
Available for sale.................................... $ 15.1 $ 19.1 $ 9.7
Held to maturity...................................... -- -- 0.1
Equity securities available for sale.................... 0.6 -- 210.8
Mortgage loans, real estate and other................... 6.1 17.2 17.9
------ ------ ------
Gross realized investment gains..................... 21.8 36.3 238.5
------ ------ ------
Gross realized investment losses:
Fixed maturities:
Available for sale.................................... (11.2) (23.5) (10.0)
Held to maturity...................................... -- -- (0.8)
Equity securities available for sale.................... -- -- (14.8)
Mortgage loans, real estate and other................... (12.1) (6.9) (28.2)
------ ------ ------
Gross realized investment losses.................... (23.3) (30.4) (53.8)
------ ------ ------
Net realized investment gains (losses)............ $ (1.5) $ 5.9 $184.7
====== ====== ======
</TABLE>
CHANGE IN UNREALIZED GAINS, NET
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1997 1996
------ -------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Fixed maturities available for sale.......................... $ 73.6 $(217.6)
Equity securities available for sale......................... (0.3) 3.0
Marketable securities held in trust.......................... 127.7 --
Unpaid claims adjustment..................................... (49.7) 84.1
Deferred taxes............................................... (51.0) 42.2
------ -------
Total change in unrealized gains, net, as included in stock-
holders' equity............................................. $100.3 $ (88.3)
====== =======
</TABLE>
UNUM America's fixed maturities are reported at fair value as a result of
being classified as available for sale. Accordingly, the related liability for
unpaid claims and claims expenses is adjusted to reflect the changes that
would have been necessary if the related fixed maturities were sold at their
fair value and the proceeds were reinvested at current yields. At December 31,
1997, and 1996, the unrealized gain on available for sale fixed maturities was
$275.9 million and $202.3 million, respectively, and the related unpaid claims
adjustment was $169.1 million and $119.4 million, respectively.
The marketable securities held in trust relate to the individual disability
reinsurance agreement (see Note 6 "Reinsurance"). Changes in fair value of the
assets and the related adjustment to unpaid claims are reflected in the equity
section of UNUM America's Balance Sheet.
F-11
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FIXED MATURITIES
The amortized cost and fair values of fixed maturities available for sale at
December 31, 1997, were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
-------------- ---------------- ----------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Government......... $ 25.3 $ 0.4 $ -- $ 25.7
States and municipali-
ties................... 707.5 25.7 -- 733.2
Foreign governments..... 142.2 13.7 -- 155.9
Public utilities........ 981.6 65.2 (0.1) 1,046.7
Corporate bonds......... 2,870.7 170.1 (0.9) 3,039.9
Redeemable preferred
stocks................. 2.0 -- (0.1) 1.9
Mortgage-backed securi-
ties................... 168.9 1.9 -- 170.8
-------- ------ ----- --------
Total................. $4,898.2 $277.0 $(1.1) $5,174.1
======== ====== ===== ========
</TABLE>
The amortized cost and fair values of fixed maturities available for sale at
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
-------------- ---------------- ----------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. Government......... $ 25.8 $ 1.8 $ -- $ 27.6
States and municipali-
ties................... 402.4 9.2 (0.7) 410.9
Foreign governments..... 137.9 10.5 (0.2) 148.2
Public utilities........ 983.3 47.7 (1.4) 1,029.6
Corporate bonds......... 3,267.2 147.6 (12.0) 3,402.8
Redeemable preferred
stocks................. 2.0 -- (0.4) 1.6
Mortgage-backed securi-
ties................... 3.4 0.2 -- 3.6
-------- ------ ------ --------
Total................. $4,822.0 $217.0 $(14.7) $5,024.3
======== ====== ====== ========
</TABLE>
The amortized cost and fair value of fixed maturities available for sale at
December 31, 1997, by contractual maturity date, are shown below. Expected
maturities will differ from contractual maturities since certain borrowers
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Due in one year or less.............................. $ 151.2 $ 153.2
Due after one year through five years................ 1,727.3 1,815.4
Due after five years through ten years............... 2,472.2 2,629.6
Due after ten years.................................. 378.6 405.0
-------- --------
4,729.3 5,003.2
Mortgage-backed securities (primarily due after 10
years)............................................ 168.9 170.9
-------- --------
Total............................................ $4,898.2 $5,174.1
======== ========
</TABLE>
EQUITY SECURITIES
The fair values, which also represent carrying amounts, and the cost of equity
securities available for sale were as follows at December 31, 1997:
<TABLE>
<CAPTION>
COST FAIR VALUE
---- ----------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Common stocks:
Industrial, miscellaneous and all other....................... $7.2 $8.7
==== ====
</TABLE>
F-12
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Gross unrealized investment gains on equity securities available for sale
totaled $1.5 million and $1.9 million, at December 31, 1997, and 1996,
respectively. Gross unrealized investment losses were immaterial at December
31, 1997, and 1996.
MORTGAGES
At December 31, 1997, and 1996, impaired loans totaled $40.7 million and $48.9
million, respectively. Included in the $40.7 million were $20.8 million of
loans which had a related allowance for probable losses of $3.5 million, and
loans of $19.9 million which had no related allowance for probable losses.
Included in the $48.9 million of impaired loans at December 31, 1996, were
$37.4 million of loans which had a related allowance for probable losses of
$5.5 million, and a loan of $11.5 million which had no related allowance for
probable losses.
Restructured mortgage loans amounted to $36.5 million and $50.1 million at
December 31, 1997, and 1996, respectively. Troubled debt restructurings
represent loans that are refinanced with terms more favorable to the borrower.
Interest lost on restructured loans was not material for the years ended
December 31, 1997, 1996 or 1995.
REAL ESTATE AND OTHER
Real estate acquired in satisfaction of debt cumulatively amounted to $76.1
million at December 31, 1997. Real estate held for sale amounted to $22.4
million at December 31, 1997, and $9.8 million at December 31, 1996.
Real estate with a depreciated cost of $3.5 million and no bonds or mortgages
were non-income producing for the twelve months ended December 31, 1997.
Interest lost on these investments was not material in 1997, 1996 or 1995.
UNUM America was committed at December 31, 1997, to purchase fixed maturities
and other invested assets in the amount of $39.5 million.
NOTE 3. ALLOWANCE FOR PROBABLE LOSSES ON INVESTED ASSETS AND
REAL ESTATE HELD FOR SALE
Changes in the allowance for probable losses on mortgage loans and real estate
held for sale were as follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF YEAR ADDITIONS DEDUCTIONS END OF YEAR
----------------- --------- ---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Year Ended December 31, 1997
Mortgage loans............ $36.0 $ 3.1 $ (7.1) $32.0
Real estate held for
sale..................... 14.3 2.7 -- 17.0
----- ----- ------ -----
Total................... $50.3 $ 5.8 $ (7.1) $49.0
===== ===== ====== =====
Year Ended December 31, 1996
Mortgage loans............ $37.3 $ 1.0 $ (2.3) $36.0
Real estate held for
sale..................... 18.0 (0.4) (3.3) 14.3
----- ----- ------ -----
Total................... $55.3 $ 0.6 $ (5.6) $50.3
===== ===== ====== =====
Year Ended December 31, 1995
Mortgage loans............ $41.7 $ 8.9 $(13.3) $37.3
Real estate held for
sale..................... 12.7 5.7 (0.4) 18.0
----- ----- ------ -----
Total................... $54.4 $14.6 $(13.7) $55.3
===== ===== ====== =====
</TABLE>
Additions represent charges to net realized investment gains (losses) less
recoveries and deductions represent reserves released upon disposal or
restructuring of the related asset.
F-13
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. RESERVES
Reserves for Future Policy Benefits
Reserves for future policy benefits are calculated by the net-level premium
method and are based on UNUM America's expected morbidity, mortality and
interest rate assumptions at the time a policy is issued. These reserves
represent the portion of premiums received, accumulated with interest and held
to provide for claims that have not yet been incurred. The reserve assumptions
are periodically reviewed and compared with actual experience and may be
revised if it is determined that future expected experience is different from
the reserve assumptions. Reserves for group insurance policies consist
primarily of unearned premiums. The interest rates used in the calculation of
reserves for future policy benefits at December 31, 1997, and 1996,
principally ranged from 5.0% to 9.5%. Certain reserve calculations are based
on variable interest rates within these ranges.
Reserves for Unpaid Claims and Claim Expenses
Unpaid claims and claim expense reserves represent the amount estimated to
fund claims that have been reported but not settled and claims incurred but
not reported. Reserves for unpaid claims are estimated based on UNUM America's
historical experience and other actuarial assumptions that consider the
effects of current developments, anticipated trends, risk management programs
and renewal actions. Many factors affect actuarial calculations of claim
reserves, including but not limited to interest rates and current and
anticipated incidence rates, recovery rates, and economic and societal
conditions. Management periodically performs a review of reserve estimates and
assumptions. If management determines reserve assumptions need to be updated,
any resulting adjustment to reserves are reflected in current results. Given
that insurance products contain inherent risks and uncertainties, the ultimate
liability may be more or less than such estimates indicate.
The interest rates used in the calculation of disability claims reserves at
December 31, 1997, and 1996, were principally as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Group long term disability.......................... 7.84% 7.88%
Individual disability............................... 7.0% to 9.50% 7.0% to 9.50%
</TABLE>
The interest rate used to discount the disability reserves is a composite of
the yields on assets specifically identified with each block of business. The
discount rate may decline further depending on the interest rate environment.
UNUM America periodically adjusts prices on both existing and new business in
an effort to mitigate the impact of the current interest rate environment.
For other accident and health business, reserves are based on projections of
historical claims run-out patterns.
F-14
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Activity in the liability for unpaid claims and claim expenses is summarized
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Balance at January 1.............................. $4,056.6 $3,774.0 $2,939.0
Less reinsurance receivables.................... (254.3) (87.3) (53.9)
Effect of unrealized gains........................ (119.4) (203.4) --
-------- -------- --------
Net balance at January 1.......................... 3,682.9 3,483.3 2,885.1
Incurred related to:
Current year.................................... 1,373.1 1,260.0 1,403.0
Prior years..................................... 314.3 262.1 410.4
-------- -------- --------
Total incurred.................................... 1,687.4 1,522.1 1,813.4
Paid related to:
Current year.................................... 441.3 380.6 366.5
Prior years..................................... 1,039.4 941.8 848.7
-------- -------- --------
Total paid........................................ 1,480.7 1,322.4 1,215.2
Net balance at December 31........................ 3,889.6 3,682.9 3,483.3
Plus reinsurance receivables.................... 456.1 254.3 87.3
Effect of unrealized gains........................ 169.1 119.4 203.4
-------- -------- --------
Balance at December 31............................ $4,514.8 $4,056.6 $3,774.0
======== ======== ========
</TABLE>
The components of the unpaid claims and claims expenses incurred and related
to prior years were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Interest accrued on reserves.............................. $230.1 $228.0 $214.2
Changes in reserve estimates and assumptions.............. 84.2 34.1 196.2
------ ------ ------
Incurred related to prior years......................... $314.3 $262.1 $410.4
====== ====== ======
</TABLE>
The additional reserves for amounts incurred related to prior years were
primarily the result of interest accrued on reserves, changes in reserve
estimates and assumptions of interest rates, morbidity, mortality and expense
costs. Due to the long term claims payment pattern of some of UNUM America's
businesses, certain reserves, particularly disability, are discounted for
interest.
The effects of changes in reserve estimates and assumptions were more
significant in 1995, primarily as a result of increased reserves from lower
discount rates for certain disability products following the sale of the
common stock portfolio, and adjustments to strengthen certain disability
reserves in 1995.
Beginning in 1995, as explained in Note 2 "Investments," unpaid claims are
adjusted to reflect changes that would have been necessary if the unrealized
gains and losses had been realized. Where applicable, UNUM America has
reflected those adjustments in the liability balances with corresponding
credits or charges, net of related deferred taxes, reported as a component of
unrealized gains in stockholders' equity.
NOTE 5. SALE OF TAX-SHELTERED ANNUITY BUSINESS
On October 1, 1996, UNUM America closed the sale of its group tax-sheltered
annuity ("TSA") businesses to The Lincoln National Life Insurance Company
("Lincoln"), a subsidiary of Lincoln National Corporation. The sale involved
approximately 1,650 group contractholders and assets under management of
approximately $3.2 billion. The contracts were initially reinsured on an
indemnity basis. Upon consent of the TSA contractholders and participants, the
contracts are considered reinsured on an assumption basis, legally releasing
UNUM America from future contractual obligation to the respective
contractholders and participants.
F-15
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
To effect the sale of the TSA business, UNUM America transferred into a trust
account held for the benefit of Lincoln approximately $2,641 million of
assets. UNUM America has recorded a deposit asset in its Balance Sheet
representing the assets which support the TSA contracts of those
contractholders and participants that have not given consent for assumption
reinsurance. At December 31, 1997, the deposit asset related to the TSA
transaction was approximately $252 million.
The sale resulted in a deferred pretax gain of $77.2 million, which is being
recognized in income in proportion to contractholder and participant consents
for assumption reinsurance. Through December 31, 1997, consent for assumption
reinsurance has been provided by TSA contractholders and participants owning
approximately 92% of assets under management.
Historical results of the TSA business included in UNUM America's Statements
of Income were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1996 1995
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Revenues................................................... $121.9 $203.1 $244.4
Net income................................................. $ 46.5 $ 12.2 $ 30.1
====== ====== ======
</TABLE>
The results shown above for the year ended December 31, 1997, include $69.6
million of revenues, reported as fees and other income, and $45.2 million of
net income, related to the recognition of the deferred pretax gain for those
contractholders and participants that have given consent for assumption
reinsurance.
NOTE 6. REINSURANCE
UNUM America is involved in both the cession and assumption of reinsurance
with other companies.
On October 23, 1996, UNUM America announced the execution of a definitive
reinsurance agreement between UNUM America and Centre Life Reinsurance Limited
("Centre Re"), a Bermuda-based reinsurance specialist, for reinsurance
coverage of the active life reserves of UNUM America's existing United States
non-cancelable individual disability ("ID") block of business. This agreement
does not reinsure any claims incurred prior to January 1, 1996. The agreement
follows UNUM America's announcement in late 1994 that it would no longer
market the non-cancelable form of ID coverage in the United States.
The agreement is a finite reinsurance arrangement that transfers liabilities
to Centre Re based on the level of statutory reserves. Centre Re has an
obligation to absorb losses within a defined risk layer, while UNUM America
must fund an experience layer representing the difference between reserves
related to the reinsured block, based on generally accepted accounting
principles ("GAAP"), and the bottom of Centre Re's defined risk layer. Within
this experience layer, UNUM America retains the earnings risk related to
potential adverse experience from the reinsured block. Under the agreement,
UNUM America funds a trust account, initially established in late 1996, with
assets equal to the amount of GAAP reserves related to the reinsured block
plus the amount of its experience layer. The value of UNUM America's
experience layer increases or decreases in conjunction with the underlying
operating results of the reinsured block. Additionally, realized gains or
losses on assets sold, and unrealized gains or losses on marketable securities
held in the trust and the related claim reserves, affect the valuation of the
experience layer. UNUM America reflects the carrying value of the experience
layer in its Balance Sheet as a deposit asset, which at December 31, 1997,
totaled approximately $347 million. Changes in the experience layer derived
from the underlying operating results of the reinsured block are reflected in
fees and other income and realized gains or losses from sales of trust assets
are reflected as realized investment gains (losses) in UNUM America's
Statement of Income. Changes in the experience layer resulting from unrealized
gains or losses on marketable securities held in the trust and the related
claim reserves are reflected as unrealized gains or losses in the equity
section of UNUM America's Balance Sheet.
F-16
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In fourth quarter 1996, UNUM America recognized a pretax charge of $49.7
million, which represents the present value of the anticipated minimum amount
of fees to be paid to Centre Re under the agreement. UNUM has the right, but
no obligation, to recapture the business after five years, with certain
penalties.
The effect of all reinsurance on premiums earned and written for the years
ended December 31, 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Premiums earned:
Direct.......................................... $2,366.7 $2,112.2 $2,024.3
Assumed......................................... 294.4 251.2 239.5
Ceded........................................... (356.2) (70.1) (55.0)
-------- -------- --------
Premiums earned............................... $2,304.9 $2,293.3 $2,208.8
======== ======== ========
Premiums written:
Direct.......................................... $2,365.6 $2,114.9 $2,025.0
Assumed......................................... 315.9 285.8 248.4
Ceded........................................... (367.1) (95.6) (56.1)
-------- -------- --------
Premiums written.............................. $2,314.4 $2,305.1 $2,217.3
======== ======== ========
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, recoveries recognized
under reinsurance agreements offset benefits to policyholders by $270.9
million, $65.7 million and $50.7 million, respectively.
NOTE 7. BUSINESS RESTRUCTURING AND OTHER CHARGES
Business Restructuring
Charges of $7.2 million and $8.4 million were recorded in 1996 and 1995,
respectively. The charge in 1996 was related to the merger of Commercial Life
into UNUM America. The charge in 1995 related to the acceleration of
organizational changes within UNUM America and the decision to discontinue the
individual disability non-cancelable product. Partially offsetting the charge
recorded in 1995 was a curtailment gain, related to workforce reductions in
UNUM Corporation's noncontributory defined benefit pension plan, which
includes UNUM America.
Intangible Asset Write-offs and Future Loss Reserves
In connection with the merger of Commercial Life into UNUM America, the sale
of the tax-sheltered annuity business (see Note 5 "Sale of Tax-Sheltered
Annuity Business"), as well as UNUM America's continued efforts to strengthen
its focus on its core products, the company initiated a review of certain
products, which resulted in the recognition of pretax charges totaling $37.5
million during 1996. These charges reduced income before income taxes by $13.1
million in the Disability Insurance segment, $9.4 million in the Special Risk
Insurance segment, and $15.0 million in the Retirement Products segment. On an
after-tax basis the charges reduced net income by $25.1 million.
The total charges of $37.5 million included the write-off of certain
intangible assets, primarily deferred acquisition costs, totaling $12.7
million. These intangible assets were deemed unrecoverable primarily due to
the expectation of continued losses in the association group disability
business. Additionally, in conjunction with the completion of a review of UNUM
America's discontinued product portfolio, a $22.4 million charge was taken to
establish a reserve for the present value of expected future losses on certain
discontinued products. Losses for these products are charged to the reserve at
the time realized. The products incorporated in the charge consist of certain
discontinued special risk, retirement and medical products.
F-17
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. EMPLOYEE BENEFIT AND INCENTIVE PLANS
Pension Plans
At December 31, 1997, UNUM Corporation had a noncontributory defined benefit
pension plan ("Lifecycle Plan") covering substantially all domestic employees,
including employees of UNUM America. The Lifecycle Plan provides benefits
based on the employee's age at retirement, years of service and earnings
during the highest five of the last ten years of employment. UNUM America
funds its pension plan in accordance with the requirements of the Employee
Retirement Income Security Act of 1974, as amended. Beginning in 1997, plan
assets were transferred from UNUM America's separate accounts into a trust for
the exclusive benefit of plan participants, and includes 448,784 shares of
UNUM Corporation common stock.
In 1997, UNUM Corporation changed the measurement date for the valuation of
its pension plan and postretirement benefit plan assets and actuarially
determined obligations from December 31, to September 30. The change in
measurement date had no effect on 1997 or prior years' net pension and
periodic postretirement benefit costs.
Postretirement Health Care and Life Insurance Benefits
UNUM America provides certain health care and life insurance benefits for
retired employees and covered dependents. Substantially all domestic employees
of UNUM America may become eligible for these benefits if they meet minimum
age and service requirements, if they are eligible for retirement benefits and
if they agree to contribute a portion of the cost. UNUM America has the right
to modify or terminate these benefits. The underlying plans are not currently
funded. The cost of these plans was $3.0 million, $8.0 million and $8.5
million for the years ended December 31, 1997, 1996 and 1995, respectively. At
December 31, 1997, and 1996 the liability associated with these plans was
$71.3 million and $64.8 million, respectively.
Retirement Savings Plans
UNUM America participates in UNUM Corporation's Retirement Savings Plan.
Effective January 1, 1997, UNUM Corporation introduced a single retirement
savings plan for all domestic employees who meet the eligibility requirement
of one year of service. Dependent upon the employee's annual earnings,
eligible employees may contribute up to 15% of their annual compensation,
including incentive payouts. UNUM America matches 100% of the employee's
contribution up to 3% of the employee's compensation, plus 50% of the
employee's contribution on the next 2% of the employee's compensation, to a
maximum of 4%. Employees become 100% vested immediately upon becoming eligible
to participate. Expense for this plan and the former plans amounted to $7.3
million, $5.6 million and $6.3 million in 1997, 1996 and 1995, respectively.
Annual Incentive Plans
UNUM America has several annual incentive plans for certain employees and
executive officers that provide additional compensation based on achievement
of predetermined annual corporate and affiliate financial and non-financial
goals. In 1997, 1996 and 1995, expense for these plans was $26.1 million,
$31.1 million and $14.7 million, respectively.
Stock Options
The 1996 Long-Term Stock Incentive Plan ("1996 Incentive Plan") provides for
granting options to officers, nonemployee directors of UNUM America, and key
employees to purchase UNUM Corporation common stock over ten years. The 1996
Incentive Plan also provides for granting to key officers restricted stock
awards whose vesting is contingent upon achieving prescribed financial
performance objectives or upon the grantee remaining in UNUM's employ for a
specified period of time. Options and restricted stock may be granted annually
at the discretion of the Committee.
F-18
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The 1998 Goals Stock Option Plan provides for granting to all eligible
employees up to 300 options to purchase UNUM Corporation common stock. The
options will vest to the employee nine years from the date of grant. Vesting
may be accelerated to an earlier date at the discretion of the plan
administrator.
NOTE 9. DIVIDEND RESTRICTIONS
UNUM America is subject to various state insurance regulatory restrictions
that limit the maximum amount of dividends available from its United States
domiciled insurance subsidiaries without prior approval. The amount available
under current law for payment of dividends during 1998 to UNUM Corporation
from UNUM America without state insurance regulatory approval is approximately
$182 million. Dividends in excess of this amount may only be paid with state
insurance regulatory approval. The statutory capital and surplus of UNUM
America was approximately $946 million and $961 million, at December 31, 1997,
and 1996, respectively. The statutory net operating income, which excludes
realized investment gains and losses net of tax, of UNUM America was
approximately $182 million, $113 million and $227 million for 1997, 1996 and
1995, respectively. State insurance regulatory authorities prescribe statutory
accounting practices that differ in certain respects from generally accepted
accounting principles. The significant differences relate to deferred
acquisition costs, deferred income taxes, non-admitted asset balances,
required investment risk reserves and reserve calculation assumptions.
NOTE 10. INCOME TAXES
A reconciliation of income taxes computed by applying the federal income tax
rate to income before income taxes and the consolidated income tax expense
charged to operations follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1997 1996 1995
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Tax at federal statutory rate of 35%.................... $155.8 $ 94.8 $102.7
Tax-exempt income....................................... (15.7) (15.4) (24.6)
Other................................................... (6.3) (1.1) (7.7)
------ ------ ------
Income taxes.......................................... $133.8 $ 78.3 $ 70.4
====== ====== ======
</TABLE>
Deferred income tax liabilities and assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997 1996
------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs.............................. $171.4 $146.6
Policy reserve adjustments..................................... 117.7 89.1
Net unrealized gains........................................... 94.5 70.7
Value of business acquired..................................... 1.0 1.2
Invested assets................................................ 0.6 --
Other.......................................................... 2.9 --
------ ------
Gross deferred tax liabilities............................... 388.1 307.6
------ ------
Deferred tax assets:
Net realized losses............................................ 6.0 16.8
Postretirement benefits........................................ 25.4 24.4
Deferred gains................................................. 2.0 27.0
Accrued liabilities............................................ 3.7 26.6
Other.......................................................... 1.0 11.0
------ ------
Gross deferred tax assets.................................... 38.1 105.8
------ ------
Net deferred tax liability....................................... $350.0 $201.8
====== ======
</TABLE>
F-19
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
UNUM America's operations are included with those of UNUM Corporation and
subsidiaries in a consolidated income tax return. Under provisions of a tax-
sharing agreement among the members of the consolidated tax return group, tax
is allocated based on the separate return taxable income of each company with
companies being reimbursed currently for their capital and ordinary losses.
UNUM America's Statements of Income for 1997, 1996 and 1995, included the
following amounts of foreign income and related income tax expense:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1997 1996 1995
----- ----- ----
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Foreign income............................................... $10.4 $11.5 --
===== ===== ====
Income tax expense (credit):
Current.................................................... $ 0.6 $(1.5) --
----- ----- ----
Deferred................................................... 3.1 5.6 --
----- ----- ----
Total.................................................... $ 3.7 $ 4.1 --
===== ===== ====
</TABLE>
NOTE 11. FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values are based on quoted market prices, when available. In cases where
quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. These valuation techniques
require management to develop a significant number of assumptions, including
discount rates and estimates of future cash flow. Derived fair value estimates
cannot be substantiated by comparison to independent markets or to disclosures
by other companies with similar financial instruments. These fair value
disclosures do not purport to be the amount that could be realized in
immediate settlement of the financial instrument.
The following table summarizes the carrying amounts and fair values of UNUM
America's financial instruments at December 31, 1997, and 1996:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available for sale....... $5,174.1 $5,174.1 $5,024.3 $5,024.3
Equity securities available for sale...... 8.7 8.7 10.4 10.4
Mortgage loans............................ 1,023.4 1,127.4 1,042.7 1,119.7
Policy loans.............................. 111.8 111.8 215.6 215.6
Short-term investments.................... 63.1 63.1 82.0 82.0
Cash...................................... 21.1 21.1 34.0 34.0
Accrued investment income................. 107.7 107.7 116.2 116.2
Deposit assets............................ 670.4 670.4 2,797.4 2,797.4
Financial liabilities:
Other policyholder funds:
Investment-type insurance contracts:
With defined maturities............... $ 141.6 $ 159.3 $ 191.0 $ 216.0
With no defined maturities............ 319.2 315.4 2,848.0 2,787.0
Individual annuities and
supplementary contracts not
involving life contingencies......... 63.5 63.5 69.1 69.1
======== ======== ======== ========
</TABLE>
F-20
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
Fixed Maturities Available for Sale: Fair values for fixed maturities are
based on quoted market prices, where available. If quoted market prices are
not available, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality and maturity of the investments.
Equity Securities Available for Sale: Fair values for equity securities
available for sale are based on quoted market prices and are reported in the
Balance Sheets at these values.
Mortgage Loans: Fair values for mortgage loans are estimated based on
discounted cash flow analyses using interest rates currently being offered for
similar mortgage loans to borrowers with similar credit ratings and
maturities. Mortgage loans with similar characteristics are aggregated for
purposes of the calculations.
Policy Loans, Short-term Investments, Cash, Accrued Investment Income and
Deposit Assets: Fair values for these instruments approximate the carrying
amounts reported in the Balance Sheets.
Investment-type Insurance Contracts: Fair values for liabilities under
investment-type insurance contracts with defined maturities are estimated
using discounted cash flow calculations based on interest rates that would be
offered currently for similar contracts with maturities consistent with those
remaining for the contracts being valued. Fair values for liabilities under
investment-type insurance contracts with no defined maturities are the amounts
payable on demand after surrender charges at the balance sheet date.
The estimated fair values of liabilities under all insurance contracts
(investment-type and other than investment-type) are taken into consideration
in UNUM America's overall management of interest rate risk, which minimizes
exposure to changing interest rates through the matching of investment
maturities with amounts due under insurance contracts.
Individual Annuities and Supplementary Contracts not Involving Life
Contingencies: Fair values approximate the carrying amounts reported in other
policyholder funds in the Balance Sheets.
F-21
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS
UNUM America periodically uses options, futures, and forward exchange
contracts which are common derivative financial instruments, to hedge certain
risks associated with anticipated purchases and sales of investments,
anticipated debt issuance and certain payments denominated in foreign
currencies, primarily Canadian dollars. These derivative financial instruments
are used to protect UNUM America from the effect of market fluctuations in
interest and exchange rates between the contract date and the date on which
the hedged transaction occurs.
In using these instruments, UNUM America is subject to the off-balance-sheet
credit risk that the counterparties of the transactions will fail to perform
as contracted. UNUM America manages this risk by only entering into contracts
with highly rated institutions and listed exchanges. UNUM America does not
hold or issue derivative financial instruments for the purpose of trading.
Historically, all positions UNUM America has taken in derivative contracts
have qualified for hedge accounting in accordance with the criteria
established by FAS 52, "Foreign Currency Translation," and FAS 80, "Accounting
for Futures Contracts." Upon entering a derivative contract, UNUM America uses
this criteria to evaluate the correlation of risk protection provided by a
derivative contract to the risk created by market fluctuations to ensure hedge
accounting is appropriate for the contract. Accordingly, gains or losses
related to qualifying hedges of firm commitments or anticipated transactions
involving investment purchases and debt issuance are deferred and recognized
as an adjustment to the carrying amount of the underlying asset or liability
when the hedged transaction occurs. Gains or losses related to qualifying
hedges of anticipated transactions involving the sale of investments are
deferred and recognized in income when the hedged transaction occurs. No gains
or losses related to qualifying hedges of anticipated transactions involving
payments denominated in foreign currencies are recorded if the hedged
transaction is likely to occur.
The amount of any deferred gains or losses on outstanding interest rate
futures contracts, which require daily cash settlement, are included in fixed
maturities in UNUM America's Balance Sheet. The fair values of any outstanding
forward exchange rate contracts and options which do not require daily cash
settlement, are not recognized in UNUM America's Balance Sheet.
Any resulting gains or losses from early termination of a derivative
designated as a hedge are deferred and recognized in income or as an
adjustment of the carrying amount of the underlying asset or liability when
the hedged transaction occurs. Any gains or losses that result when the
designated item is extinguished, such as maturity, sale, or termination, or
when the hedged transaction is no longer likely to occur, are included in
income in the period in which the extinguishment takes place or it is known
that the hedged anticipated transaction will not occur.
UNUM America had no open derivative financial instruments at December 31,
1997. UNUM America had open interest rate futures contracts at December 31,
1996, with notional amounts of $159.7 million to hedge anticipated sales of
investments in 1997. These futures contracts had a related net unrealized gain
of $1.3 million.
NOTE 13. LITIGATION
In the normal course of its business operations, UNUM America is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of lawsuits were pending at December 31, 1997. In some instances, these
proceedings include claims for punitive damages and similar types of relief in
unspecified or substantial amounts, in addition to amounts for alleged
contractual liability or other compensatory damages. In the opinion of
management, the ultimate liability, if any, arising from this litigation is
not expected to have a material adverse effect on the financial position,
operating results or liquidity of UNUM America.
On December 29, 1993, UNUM America filed a suit in the United States District
Court for the District of Maine, seeking a federal income tax refund. The suit
was based on a claim for a deduction in certain prior tax years for
F-22
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
$652 million in cash and stock distributed to policyholders in connection with
the 1986 conversion of Union Mutual Life Insurance Company to a stock company.
UNUM America has fully paid, and provided for in prior years' financial
statements, the tax at issue in this litigation. On May 23, 1996, the District
Court issued its decision that the distribution in question was not a
deductible expenditure. On December 2, 1997, the United States Court of
Appeals affirmed the decision of the District Court denying UNUM America's
claim for refund. UNUM America is currently considering whether to request
that the United States Supreme Court review the decision of the United States
Court of Appeals.
NOTE 14. AFFILIATED COMPANIES AND RELATED PARTY TRANSACTIONS
UNUM America provides management and administrative services to affiliates,
which are wholly-owned by UNUM Corporation. UNUM America allocates,
principally at cost, the related expenses based on direct association whenever
possible. If the expenses cannot be readily associated, the costs are
allocated based on ratios of the relative time spent, extent of usage or
varying volume of work performed.
On December 31, 1997, UNUM America entered into a 100% indemnity coinsurance
agreement with UNUM International Limited ("UNUM International"), an
affiliated company organized under the laws of the Islands of Bermuda. Under
the agreement, UNUM America transferred group long term disability ("group
LTD") claim reserves to UNUM International with respect to disabilities which
occurred prior to December 31, 1992. UNUM America will continue to transfer
group LTD claim reserves to UNUM International each quarter with respect to
disabilities which occurred during the quarter ending nineteen quarters prior
to the ceding date. Either party may terminate this agreement as to risks not
yet ceded upon ninety days notice in writing to the other party. At December
31, 1997, $56.5 million of the claim liabilities were ceded to UNUM
International under this agreement.
On February 28, 1995, UNUM Corporation borrowed $100 million under its
revolving credit facility, which was infused into UNUM America in exchange for
surplus debentures which matured on August 31, 1996, and accrued interest at
5.66% annually. Repayment of principal and interest on the surplus debentures
was subject to state insurance regulatory approval. On December 31, 1995, UNUM
America repaid $50 million of the surplus debentures, plus accrued interest of
$5.5 million to UNUM Corporation. In April, 1996, UNUM America received
approval from the Maine Bureau of Insurance to repay the remaining $50 million
in surplus debentures. The company repaid the principal and interest in April
1996.
During December 1993, UNUM America loaned $60 million to UNUM Corporation.
These notes matured on December 20, 1996, and accrued interest at 5.66%
annually. On December 31, 1995, UNUM Corporation repaid $50 million of these
notes to UNUM America. UNUM Corporation repaid the $10 million outstanding
note to UNUM America in April 1996.
NOTE 15. SEGMENT INFORMATION
UNUM America's principal markets for its insurance products are the United
States and Canada. UNUM America and First UNUM Life Insurance Company combined
are the leading provider of group long term disability insurance, their
principal product, in the United States. Products are marketed through sales
personnel, independent contractors and brokers, and specialty agents. UNUM
America targets sales of its disability products to executive, administrative
and management personnel, and other professionals such as educators,
consultants, health care providers, accountants and engineers.
The Disability Insurance segment includes disability products offered in North
America, including group long term disability, group short term disability,
individual disability, disability reinsurance operations and long term care
insurance. The Special Risk Insurance segment includes group life, special
risk accident insurance, non-disability reinsurance operations, reinsurance
underwriting management operations and other special risk insurance products.
The Retirement Products segment includes products no longer actively marketed
by UNUM America including: tax-sheltered annuities, guaranteed investment
contracts, deposit administration accounts, 401(k) plans, individual life and
group medical products. Corporate includes transactions that are generally
non-insurance related.
Investment income and net realized investment gains and losses are allocated
to the segments based on designation of ownership of assets identified to the
products in each segment. Operating expenses are allocated to the segments
F-23
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
based on direct association with a product whenever possible. If the expense
cannot be readily associated with a particular product, the costs are
allocated based on ratios of the relative time spent, extent of usage or
varying volume of work performed for each segment.
Summarized financial information for the three business segments and Corporate
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Revenues:
Disability Insurance............................ $1,951.5 $2,008.2 $2,056.7
Special Risk Insurance.......................... 840.9 732.3 671.8
Retirement Products............................. 179.5 277.8 353.0
Corporate....................................... 3.2 9.8 2.9
-------- -------- --------
Total revenues................................ $2,975.1 $3,028.1 $3,084.4
======== ======== ========
Income (loss) before income taxes:
Disability Insurance............................ $ 257.5 $ 195.7 $ 192.5
Special Risk Insurance.......................... 116.1 77.9 55.9
Retirement Products............................. 72.8 1.3 45.0
Corporate....................................... (1.4) (4.1) 0.1
-------- -------- --------
Income before income taxes.................... 445.0 270.8 293.5
Income taxes...................................... 133.8 78.3 70.4
-------- -------- --------
Net income.................................... $ 311.2 $ 192.5 $ 223.1
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1996
-------- ---------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Identifiable Assets:
Disability Insurance...................................... $6,927.5 $ 6,164.6
Special Risk Insurance.................................... 1,332.3 1,082.6
Retirement Products....................................... 1,070.7 4,427.4
Corporate................................................. 169.1 275.4
Individual Participating Life Annuity..................... 367.3 354.0
-------- ---------
Total assets............................................ $9,866.9 $12,304.0
======== =========
</TABLE>
F-24
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
(1) (2) FUTURE
POLICY AMORTIZATION
DEFERRED BENEFITS (4) (5) BENEFITS TO OF DEFERRED (5)
POLICY AND UNPAID (3) NET POLICYHOLDERS POLICY OTHER (6)
ACQUISITION CLAIMS AND PREMIUM INVESTMENT AND INTEREST ACQUISITION OPERATING PREMIUMS
SEGMENT COSTS CLAIM EXPENSES REVENUE INCOME CREDITED COSTS EXPENSES WRITTEN
------- ----------- -------------- -------- ---------- ------------- ------------ --------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Disability Insurance... $469.0 $4,834.4 $1,583.2 $368.3 $1,248.7 $ 44.2 $401.0 $1,525.6
Special Risk
Insurance............. 147.8 706.9 780.5 60.4 552.0 64.2 108.6 782.7
Retirement Products.... 0.0 609.6 126.1 53.4 101.1 0.1 5.6 6.1
Corporate.............. 0.0 0.0 0.0 3.2 0.0 0.0 5.7 0.0
------ -------- -------- ------ -------- ------ ------ --------
Total................ $616.8 $6,150.9 $2,489.8 $485.3 $1,901.8 $108.5 $520.9 $2,314.4
====== ======== ======== ====== ======== ====== ====== ========
Year Ended December 31, 1996
Disability Insurance... $396.0 $4,414.1 $1,637.4 $370.8 $1,257.4 $ 90.2 $465.1 $1,596.1
Special Risk
Insurance............. 119.0 588.7 682.3 50.0 484.6 40.9 129.0 214.0
Retirement Products.... 0.9 613.0 64.0 213.8 251.7 0.0 24.6 14.9
Corporate.............. 0.0 0.0 0.0 9.8 0.0 0.0 13.8 0.0
------ -------- -------- ------ -------- ------ ------ --------
Total................ $515.9 $5,615.8 $2,383.7 $644.4 $1,993.7 $131.1 $632.5 $1,825.0
====== ======== ======== ====== ======== ====== ====== ========
Year Ended December 31, 1995
Disability Insurance... $681.7 $4,114.8 $1,580.5 $476.1 $1,412.4 $ 83.0 $368.7 $1,554.3
Special Risk
Insurance............. 94.0 451.8 628.6 44.2 465.6 33.9 115.5 231.7
Retirement Products.... 33.6 590.5 33.3 319.7 271.0 0.8 36.3 23.3
Corporate.............. 0.0 0.0 (0.2) 2.2 0.0 0.0 3.7 0.0
------ -------- -------- ------ -------- ------ ------ --------
Total................ $809.3 $5,157.1 $2,242.2 $842.2 $2,149.0 $117.7 $524.2 $1,809.3
====== ======== ======== ====== ======== ====== ====== ========
</TABLE>
- --------
(1) Excludes other policyholder funds, as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Segment:
Disability Insurance.............................. $ 2.0 $ 5.7 $ 2.8
Special Risk Insurance............................ 12.0 10.9 13.3
Retirement Products............................... 700.3 3,285.5 3,626.1
------ -------- --------
Total........................................... $714.3 $3,302.1 $3,642.2
====== ======== ========
</TABLE>
(2) Includes unearned premiums, other policy claims and benefits payable.
(3) Includes fees and other income (expenses).
(4) Includes investment income (expense) and net realized investment gains
(losses).
(5) Investment income and net realized investment gains are allocated to the
segments based on designation of ownership of assets identified to the
segments. Operating expenses are allocated to segments based on direct
association with a product whenever possible. If, however, the expense
cannot be readily associated with a particular product, the costs are
allocated based on ratios of the relative time spent, extent of usage or
varying volume of work performed for each segment.
(6) Premiums written for health and disability income policies.
F-25
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial statements and Exhibits
(a) The following financial statements are included in Part B:
Financial Statements of Registrant - VA-I Separate Account of UNUM
Life Insurance Company of America.
Audited statement of assets and liabilities as of December 31, 1997
and statement of operations and changes in net assets for the two
years ended December 31, 1997.
Financial Statements of Depositor - UNUM Life Insurance Company of
America.
Audited balance sheets as of December 31, 1997 and 1996 and audited
statements of income, stockholder's equity and cash flows for each of
the three years in the period ended December 31, 1997.
(b) Exhibits
1(a) Resolution adopted by the Board of Directors of UNUM Life
Insurance Company on July 8, 1988 establishing the TSAVA
Separate Account of UNUM Life Insurance Company is
incorporated herein by reference to Post-effective Amendment
No. 10 on Form N-4 filed by VA-I Separate Account of UNUM
Life Insurance Company of America on May 1, 1998 (File No.
33-47786).
1(b) Resolution adopted by the Board of Directors of UNUM Life
Insurance Company on February 7, 1991 changing the name and
broadening the scope of the VA-I Separate Account is
incorporated herein by reference to Post-effective Amendment
No. 10 on Form N-4 filed by VA-I Separate Account of UNUM
Life Insurance Company of America on May 1, 1998 (File No.
33-47786).
2. Not applicable.
3(a) Principal underwriting agreement between UNUM Life Insurance
Company of America and LNC Equity Sales Corporation is
incorporated herein by reference to Post-effective Amendment
No. 9 on Form N-4 filed by VA-I Separate Account of UNUM
Life Insurance Company of America on April 30, 1997 (File
No. 33-47786).
3(b) Form of broker-dealer sales agreement is incorporated herein
by reference to Post-effective Amendment No. 9 on Form N-4
filed by VA-I Separate Account of UNUM Life Insurance
Company of America on April 30, 1997 (File No. 33-47786).
4(a) Form of Group Annuity Contracts for UNUM Life Insurance
Company of America.
4(b) Form of Contract Rider providing for automatic assumption
of certain contracts by The Lincoln National Life Insurance
Company is incorporated herein by reference to Post-
effective Amendment No. 6 on Form N-4 filed by VA-I Separate
Account of UNUM Life Insurance Company of America on May 1,
1996 (File No. 33-45846).
5(a) Form of application for Group Annuity Contract is
incorporated herein by reference to Post-effective Amendment
No. 10 on Form N-4 filed by VA-I Separate Account of UNUM
Life Insurance Company of America on May 1, 1998 (File No.
33-47786).
-1-
<PAGE>
<TABLE>
<S> <C>
5(b) Form of Participant enrollment form (including
acknowledgment of restrictions on redemption imposed by
I.R.C. Section 403(b)) is incorporated herein by reference
to Post-effective Amendment No. 10 on Form N-4 filed by VA-I
Separate Account of UNUM Life Insurance Company of America
on May 1, 1998 (File No. 33-47786).
6(a) Articles of incorporation of UNUM Life Insurance Company of
America (including Articles of Merger filed December 30,
1991, for merger of UNUM Life Insurance Company and UNUM
Pension and Insurance Company into UNUM Life Insurance
Company of America; and Articles of Merger filed November 4,
1996, for merger of Commercial Life Insurance Company into
UNUM Life Insurance Company of America) are incorporated
herein by reference to Post-effective Amendment No. 10 on
Form N-4 filed by VA-I Separate Account of UNUM Life
Insurance Company of America on May 1, 1998 (File No.
33-47786).
6(b) Bylaws of UNUM Life Insurance Company of America are
incorporated herein by reference to Post-effective Amendment
No. 10 on Form N-4 filed by VA-I Separate Account of UNUM
Life Insurance Company of America on May 1, 1998 (File
No. 33-47786).
6(c) Plan and Agreement of Merger of UNUM Life Insurance Company
and UNUM Pension and Insurance Company into UNUM Life
Insurance Company dated September 13, 1991, and certain
supporting resolutions and consents of directors and
stockholders of UNUM Life Insurance Company of America are
incorporated herein by reference to Post-effective Amendment
No. 10 on Form N-4 filed by VA-I Separate Account of UNUM
Life Insurance Company of America on May 1, 1998 (File
No. 33-47786).
7(a) Assumption Reinsurance Agreement by and between UNUM Life
Insurance Company of America and The Lincoln National Life
Insurance Company is incorporated herein by reference to
Post-effective Amendment No. 9 on Form N-4 filed by VA-I
Separate Account of UNUM Life Insurance Company of America
on April 30, 1997 (File No. 33-47786).
7(b) Assumption Reinsurance Agreement by and between UNUM Life
Insurance Company of America and Lincoln Life & Annuity
Company of New York is incorporated herein by reference to
Post-effective Amendment No. 9 on Form N-4 filed by VA-I
Separate Account of UNUM Life Insurance Company of America
on April 30, 1997 (File No. 33-47786).
7(c) Coinsurance and Assumption Agreement by and between UNUM
Life Insurance Company of America and The Lincoln National
Life Insurance Company is incorporated herein by reference
to Post-effective Amendment No. 9 on Form N-4 filed by VA-I
Separate Account of UNUM Life Insurance Company of America
on April 30, 1997 (File No. 33-47786).
7(d) Indemnity Reinsurance Agreement by and between UNUM Life
Insurance Company of America and The Lincoln National Life
Insurance Company is incorporated herein by reference to
Post-effective Amendment No. 9 on Form N-4 filed by VA-I
Separate Account of UNUM Life Insurance Company of America
on April 30, 1997 (File No. 33-47786).
7(e) Indemnity Reinsurance Agreement by and between UNUM Life
Insurance Company of America and Lincoln Life & Annuity
Company of New York is incorporated herein by reference to
Post-effective Amendment No. 9 on Form N-4 filed by VA-I
Separate Account of UNUM Life Insurance Company of America
on April 30, 1997 (File No. 33-47786).
8(a) Participation Agreement between UNUM Life Insurance Company
and Dreyfus Life & Annuity Index Fund, Inc. is incorporated
herein by reference to Post-effective Amendment No. 10 on
Form N-4 filed by VA-I Separate Account of UNUM Life
Insurance Company of America on May 1, 1998 (File No.
33-47786).
8(b) Participation Agreement between UNUM Life Insurance Company
and Variable Insurance Products Fund I and Fidelity
Distributors Corporation is incorporated herein by reference
to Post-effective Amendment No. 10 on Form N-4 filed by VA-I
Separate Account of UNUM Life Insurance Company of America
on May 1, 1998 (File No. 33-47786).
8(c) Participation Agreement between UNUM Life Insurance Company
and Variable Insurance Products Fund II and Fidelity
Distributors Corporation is incorporated herein by reference
to Post-effective Amendment No. 10 on Form N-4 filed by VA-I
Separate Account of UNUM Life Insurance Company of America
on May 1, 1998 (File No. 33-47786).
8(d) Participation Agreement between UNUM Life Insurance Company and
Twentieth Century Management Company is incorporated herein
by reference to Post-effective Amendment No. 10 on Form N-4
filed by VA-I Separate Account of UNUM Life Insurance
Company of America on May 1, 1998 (File No. 33-47786).
8(e) Participation Agreement between UNUM Life Insurance Company
of America and Dreyfus Variable Investment Fund and Dreyfus
Corporation is incorporated herein by reference to Post-
effective Amendment No. 10 on Form N-4 filed by VA-I
Separate Account of UNUM Life Insurance Company of America
on May 1, 1998 (File No. 33-47786).
8(f) Participation Agreement between UNUM Life Insurance Company
of America and Acacia Capital Corporation is incorporated
herein by reference to Post-effective Amendment No. 10 on
Form N-4 filed by VA-I Separate Account of UNUM Life
Insurance Company of America on May 1, 1998 (File No.
33-47786).
8(g) Participation Agreement between UNUM Life Insurance Company
of America and T. Rowe Price is incorporated herein by
reference to Post-effective Amendment No. 10 on Form N-4
filed by VA-I Separate Account of UNUM Life Insurance
Company of America on May 1, 1998 (File No. 33-47786).
8(i) Administrative Services Agreement by and between UNUM Life
Insurance Company of America and The Lincoln National Life
Insurance Company is incorporated herein by reference to
Post-effective Amendment No. 9 on Form N-4 filed by VA-I
Separate Account of UNUM Life Insurance Company of America
on April 30, 1997 (File No. 33-47786).
9. Consent and opinion of Kevin J. Tierney, General Counsel of
UNUM Life Insurance Company of America, as to the legality
of the securities being registered is incorporated herein by
reference to Post-effective Amendment No. 6 on Form N-4
filed by VA-I Separate Account of UNUM Life Insurance
Company of America on May 1, 1996 (File No. 33-45846).
10(a) Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
10(b) Powers of Attorney for Kevin P. O'Connell and Robert W.
Crispin are incorporated herein by reference to Amendment
No. 27 to the registration statement of the VA-I Separate
Account of UNUM Life Insurance Company on Form N-4 (File No.
33-47786), filed on May 1, 1996.
10(c) Powers of Attorney for Thomas G. Brown, Diane M. Garofalo,
Peter J. Moynihan, James F. Orr III, Elaine D. Rosen, and
Eileen C. Farrar are incorporated herein by reference to
Post-effective Amendment No. 10 on Form N-4 filed by VA-I
Separate Account of UNUM Life Insurance Company of America
on May 1, 1998 (File No. 33-47786).
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
11. No financial statements are omitted from Item 23.
12. Not Applicable.
13(a) Schedule for computation of Performance Quotations is
incorporated herein by reference to Amendment No. 7 filed by
Lincoln National Variable Annuity Account L of The Lincoln
National Life Insurance Company on April 30, 1997 (File No.
333-05827).
13(b) Supplement to Schedule for Computation of Performance
Quotations.
14. Not Applicable.
</TABLE>
-3-
<PAGE>
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following list contains the officers and directors of UNUM Life Insurance
Company of America who are engaged directly or indirectly in activities relating
to the VA-I Separate Account as well as the Contracts. The list also shows UNUM
Life Insurance Company of America's executive officers.
<TABLE>
<CAPTION>
Name and Address Positions and Offices with UNUM/America
<S> <C>
James F. Orr III* Chairman of the Board of Directors, Chief
Executive Officer
Elaine D. Rosen* Director and President
Robert W. Crispin* Director and Executive Vice President
Kevin P. O'Connell* Director and Executive Vice President
Eileen C. Farrar* Director and Senior Vice President
Peter J. Moynihan* Director and Senior Vice President
Thomas G. Brown* Executive Vice President
Diane M. Garofalo* Vice President
Nicholas J. Desiderio* Vice President and Chief Financial Officer
Kevin J. Tierney* Director, Senior Vice President, General Counsel
and Secretary
</TABLE>
*Principal business address of each person is 2211 Congress Street, Portland,
Maine 04122.
Item 26. Persons Controlled by or Under Common Control with UNUM Life
Insurance Company of America ("UNUM/America") or the VA-I
Separate Account
The VA-I Separate Account is a separate account of UNUM/America and may be
deemed to be controlled by UNUM/America although UNUM/America will follow voting
instructions of Contractholders with respect to voting on certain important
matters requiring a vote of Contractholders.
The following chart indicates the persons controlled or under common control
with UNUM/America and the VA-I Separate Account:
<PAGE>
<TABLE>
<CAPTION>
Federal I.D.# Company NAIC#
<C> <S> <C>
01-0405657 UNUM Corporation
01-0285069 UNUM Holding Company
01-0278678 UNUM Life Insurance Company of America, ME 62235
01-0490889 UA Holdings 1994-1
01-0490891 UA Holdings 1994-3
95-4526249 SP Administrator, LLC
13-1898173 First UNUM Life Insurance Company, NY 64297
01-0495196 NY Holdings 1994-1
01-0495197 NY Holdings 1994-2
01-0495198 NY Holdings 1994-3
01-0495199 NY Holdings 1994-4
01-0285776 UNUM Sales Corporation
01-0284946 Claims Service International, Inc.
01-0285617 UNUM Development Corporation
UNUM International Underwriters Inc.
UNUM European Holding Company Limited
UNUM General Insurance Company Limited
UNUM Management Company Limited
UNUM Limited
AA-1120014 Open Door VAC Limited
Claims Services International Limited
Mindtask Limited
13-2588770 Duncanson & Holt, Inc.
01-0358803 Duncanson & Holt Services, Inc.
91-1306242 Group Management Services, Inc.
Duncanson & Holt Administrative Services, Inc.
Duncanson & Holt Europe Ltd.
Duncanson & Holt Underwriters Ltd.
Duncanson & Holt Agencies, Ltd.
Duncanson & Holt Syndicate Management Ltd.
Trafalgar Underwriting Agencies Ltd.
Duncanson & Holt Canada Ltd.
TRI-CAN Reinsurance Inc.
Duncanson & Holt Asia PTE Ltd.
01-0477936 Colonial Companies, Inc.
57-0144607 Colonial Life & Accident Insurance Company, SC 62049
01-0491221 CLA Holdings 1994-1
01-0491220 CLA Holdings 1994-2
57-0856575 BenefitAmerica, Inc.
UNUM Japan Accident Insurance Company Limited
UNUM (Bermuda) Holdings Ltd.
Duncanson & Holt (Bermuda) Ltd.
UNUM International Ltd.
13-3178143 Continental National Life Insurance Company, DE 61026
13-3178146 Continental International Life Insurance Company, DE 61000
Boston Compania Argentina de Seguros S.A.
52-2060453 UNUM Partners, L.P.
52-2060461 UNUM Finance Company
52-2060454 UNUM Finance Company L.L.C.
52-2060465 UNUM Delaware Company
Options and Choices, Inc.
</TABLE>
<PAGE>
Item 27. Number of Contractholders
As of March 31, 1998, Registrant had 53 Contractholders.
Item 28. Indemnification
Under the Participation Agreements entered into between UNUM/America and the
Dreyfus Life & Annuity Index Fund, Inc., Dreyfus Variable Investment Fund and
Dreyfus Corporation, Variable Insurance Products Funds I and II and Fidelity
Distributors Corporation, Twentieth Century Management Company, Acacia Capital
Corporation, and T. Rowe Price (the "Funds"), UNUM/America and its directors,
officers, employees, agents and control persons have been indemnified by the
Fund against any losses, claims or liabilities that arise out of any untrue
statement or alleged untrue statement or omission of a material fact in the
Funds' registration statements, prospectuses or sales literature. In addition,
the Funds will indemnify UNUM/America against any liability, loss, damages,
costs or expenses which UNUM/America may incur as a result of the Funds'
incorrect calculations, incorrect reporting and/or untimely reporting of the
Funds' net asset values, dividend rates or capital gain distribution rates.
UNUM/America's by-laws provide that UNUM/America "may indemnify any person made
or threatened to be made a party of any action or proceeding, including an
action by or in the right of any other corporation of any type or kind, domestic
or foreign, which any director, officer or employee of the Corporation served in
any capacity at the request of the Corporation, by reason of the fact that he,
his testator or intestate, was a director, officer or employee of the
Corporation or served such other corporation in any capacity, against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys'
fees, actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director, officer, or employee acted,
in good faith, for a purpose which he or she reasonably believed to be in the
best interests of the corporation."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
Item 29. Principal Underwriter
(a) Lincoln Financial Advisors Corporation also acts as the principal
underwriter for the VA-I Separate Account of First UNUM Life Insurance
Company, Lincoln National Variable Annuity Account L, and Lincoln Life
& Annuity Variable Annuity Account L.
6
<PAGE>
(b)(1) The following table sets forth certain information regarding the officers
and directors of Lincoln Financial Advisors Corporation.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND ADDRESS WITH LINCOLN FINANCIAL ADVISORS CORPORATION.
- ---------------- -------------------------------------------
<S> <C>
J. Michael Hemp* President and Director
Priscilla S. Brown* Chief Operating Officer, Sales and Marketing and
Director
John M. Behrendt* Vice President and Director
Richard C. Boyles*** Chief Financial Officer and Administrative Officer
Kenneth Ehinger*** Chief Operating Officer and Director
Gary D. Giller**** Director
Janet C. Whitney** Vice President and Treasurer
C. Suzanne Womack** Secretary
</TABLE>
* Principal business address of each person is 1300 S. Clinton Street, Fort
Wayne, Indiana 46802.
** Principal business address of each person is 200 East Berry Street, Fort
Wayne, Indiana 46802-2706.
*** Principal business address of each person is 3811 Illinois Road, Suite
205, Fort Wayne, Indiana 46804-1202.
**** 7650 Rivers Edge Dr., Suite 250, Columbus, OH 43235.
c)
<TABLE>
<CAPTION>
Net Underwriting Compensation
Name of Principal Discounts and on Brokerage
Underwriter Commissions Redemption Commissions Compensation
- ----------------- ---------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Lincoln Financial Advisors Corporation $0 N/A N/A N/A
</TABLE>
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 thereunder are maintained by UNUM/America
at 2211 Congress Street, Portland, Maine 04122, and by Lincoln Life at One City
Center, Portand, Maine 04101.
Item 31. Management Services
None
Item 32. Undertakings and Representations
-7-
<PAGE>
The Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial statements
in this registration statement are never more than 16 months old for so long
as payments under the variable annuity contracts may be accepted, unless
otherwise permitted.
(b) to include either (1) as part of any application to purchase a Contract
offered by the prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that the applicant
can remove to send for a Statement of Additional Information.
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
(d) The Registrant intends to rely on the no-action response dated November 28,
1988, from Ms. Angela C. Goelzer of the Commission staff to the American
Council of Life Insurance concerning the redeemability of Section 403(b)
annuity contracts and the Registrant has complied with the provisions of
paragraphs (1)-(4) thereof.
(e) The Registrant intends to offer Contracts to Participants in the Texas
Optional Retirement Program. In connection with that offering, Rule 6c-7 of
the Investment Company Act of 1940 is being relied upon and paragraphs (a)-
(d) of that Section will be complied with.
(f) UNUM Life Insurance Company of America hereby represents that the fees and
charges deducted under the Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by UNUM Life Insurance Company of America.
-8-
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant and the Depositor have caused this Post-effective Amendment
to the Registration Statement to be signed on their behalf, in the City of
Portland and State of Maine on this 27th day of April, 1998, and the Registrant
certifies that this Amendment is filed solely for one or more of the purposes
specified in Rule 485(b)(1) under the Securities Act of 1933 and that no
material event requiring disclosure in the prospectus, other than one listed in
Rule 485(b)(1), has occurred since the effective date of the most recent Post-
effective Amendment to the Registration Statement which included a
prospectus.
VA-I Separate Account of
UNUM Life Insurance Company of America
(Registrant)
By: /s/Elaine D. Rosen
-------------------------------------
Elaine D. Rosen
President
UNUM Life Insurance Company of America
UNUM Life Insurance Company of America
(Depositor)
By: /s/Elaine D. Rosen
-----------------------------------------
Elaine D. Rosen
President
<PAGE>
As required by the Securities Act of 1933 this Post-effective Amendment to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/Elaine D. Rosen
- -------------------------- April 27, 1998
Elaine D. Rosen President
(Principal Executive Officer)
/s/Nicholas J. Desiderio April 27, 1998
- --------------------------
Nicholas J. Desiderio Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/Charles W. Tarbell April 27, 1998
- --------------------------
Charles W. Tarbell Vice President, Treasurer
and Controller
(Principal Accounting Officer)
*
- --------------------------
James F. Orr III Director April 27, 1998
*
- -------------------------- April 27, 1998
Elaine D. Rosen Director
*
- -------------------------- April 27, 1998
Robert W. Crispin Director
*
- -------------------------- April 27, 1998
Eileen C. Farrar Director
*
- -------------------------- April 27, 1998
Peter J. Moynihan Director
*
- -------------------------- April 27, 1998
Kevin P. O'Connell Director
* April 27, 1998
- --------------------------
Kevin J. Tierney Director
*By: /s/ Kevin J. Tierney April 27, 1998
---------------------
Kevin J. Tierney
Attorney-in-fact
</TABLE>
<PAGE>
GROUP VARIABLE
ANNUITY CONTRACT NO.: EFFECTIVE DATE:
CONTRACTHOLDER:
(Herein referred to as "You" or "Your")
THIS CONTRACT WAS DELIVERED IN THE State/Commonwealth of
and is subject to the laws of that jurisdiction.
UNUM by this Contract agrees to provide benefits for Participants in accordance
with the terms and conditions of the Contract. The entire Contract consists of
the provisions on the following pages, and the Application, including any
amendments, schedules, or endorsements.
IN WITNESS HEREOF, UNUM has issued this Contract at Portland, Maine on this
day of , 19 , and caused this Contract to be in full force as of
its Effective Date as set forth above.
Corporate Secretary President
Registrar
Non-Participating
PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
DOLLAR AMOUNT.
<PAGE>
TABLE OF CONTENTS
I. CONTRACT SPECIFICATIONS
II. DEFINITIONS
III. CONTRIBUTIONS
IV. GUARANTEED INTEREST DIVISION
V. VARIABLE INVESTMENT DIVISION
VI. TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
VII. WITHDRAWALS AND DISTRIBUTIONS
VIII. DEATH BENEFITS
IX. PAYOUT ANNUITIES
X. LOANS
XI. DISCONTINUANCE AND TERMINATION OF CONTRACT
XII. GENERAL PROVISIONS
2
<PAGE>
ARTICLE I - CONTRACT SPECIFICATIONS
1.1 MINIMUM CONTRIBUTION AMOUNT: Your minimum annual Contribution on behalf
of all Participants under this Contract shall be twenty thousand dollars
($20,000). This minimum figure is for aggregate annual Contributions, not
for each Participant.
1.2 SEPARATE ACCOUNT: VA-I
1.3 DIVISIONS AVAILABLE UNDER THIS CONTRACT:
A. Guaranteed Interest Division
B. Variable Investment Division
1.4 LIMITATIONS ON TRANSFERS AND WITHDRAWALS DURING THE ACCUMULATION
PERIOD:
Unlimited transfer requests may be made by a Participant each calendar
year.
1.5 ANNUAL ADMINISTRATION CHARGE:
Twenty-five dollars ($25) per Participant
Twenty-five dollars ($25) per Participant who allocates a contribution,
during the year ending on a Participation Anniversary, to any one (1) or
more of the Sub-Accounts established in the Variable Investment Division.
1.6 ANNUAL MORTALITY AND EXPENSE RISK CHARGE APPLICABLE TO VARIABLE
INVESTMENT DIVISION SUB-ACCOUNTS: Annual rate of one and two-tenths
percent (1.20%).
1.7 LOAN SET-UP CHARGE: Fifty dollars ($50) per loan
1.8 PLAN NAME:
1.9 EMPLOYER:
1.10 SYSTEMATIC WITHDRAWAL SET-UP CHARGE: Thirty dollars ($30.00). If the
total Account balance is twenty-five thousand dollars ($25,000), or
greater, such amount will be waived.
3
<PAGE>
ARTICLE II - DEFINITIONS
2.1 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.
2.2 ACCUMULATION UNIT VALUE: The dollar value of an Accumulation Unit in
each Sub-Account on any Valuation Date.
2.3 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.
2.4 ANNUITANT: The person receiving annuity payments under the terms of this
Contract.
2.5 ANNUITY COMMENCEMENT DATE: The date on which UNUM makes the first
annuity payment to the Annuitant as required by the Retired Life
Certificate. This date, as well as the date each subsequent annuity
payment is made, will be the first day of a calendar month.
2.6 ANNUITY CONVERSION AMOUNT: The amount of a Participant's Account applied
toward the purchase of an Annuity.
2.7 ANNUITY CONVERSION FACTOR: The factor applied to the Annuity Conversion
Amount in determining the dollar amount of an annuitant's annuity
payments for Guaranteed Annuities or the initial payment for Variable
Annuities.
2.8 ANNUITY PAYMENT CALCULATION DATE: For Guaranteed Annuities, this is the
first day of a calendar month. For Variable Annuities, this is the
Valuation Date ten (10) business days prior to the first day of a
calendar month.
2.9 ANNUITY PERIOD: The period concurrent with or following the Accumulation
Period, during which an Annuitant's annuity payments are made.
2.10 ANNUITY UNIT: An accounting unit of measure that is used in calculating
the amounts of annuity payments to be made from each Sub-Account during
the Annuity Period.
2.11 ANNUITY UNIT VALUE: The dollar value of an Annuity Unit in each Sub-
Account on any Valuation Date.
2.12 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.
4
<PAGE>
2.13 BUSINESS DAY: A day on which UNUM and the New York Stock Exchange are
customarily open for business.
2.14 CERTIFICATE: An Active Life Certificate is issued to each Participant
outlining the basic provisions of the Contract. A Retired Life
Certificate is issued to each Annuitant outlining the basic provisions of
his Annuity.
2.15 CONTRIBUTIONS: All amounts deposited by You or the Participant under
this Contract including any amount transferred from another contract.
2.16 DIVISION(S): The Guaranteed Interest Division and/or the Variable
Investment Division named in Section 1.3.
2.17 GENERAL ACCOUNT: All assets of UNUM other than those in the Separate
Account specified in Section 1.2 or any other separate account.
2.18 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.
2.19 GUARANTEED ANNUITY: An annuity for which UNUM guarantees the amount of
each payment as long as the annuity is payable.
2.20 GUARANTEED INTEREST DIVISION: The Division maintained by UNUM for these
and other contracts for which UNUM guarantees the principal amount and
interest credited thereto, subject to any fees and charges as set forth
in this Contract. Amounts allocated to the Guaranteed Interest Division
are part of the General Account.
2.21 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.
2.22 NET WITHDRAWAL AMOUNT: The amount paid to a Participant when a
withdrawal occurs.
2.23 PARTICIPANT: A person who has enrolled under this Contract and maintains
a Participant's Account.
2.24 PARTICIPANT'S 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.
2.25 PARTICIPATION ANNIVERSARY: For each Participant, a date at one year
intervals from that Participant's Participation Date. If an anniversary
occurs on a non-Business Day, it is treated as occurring on the next
Business Day.
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2.26 PARTICIPATION DATE: A date assigned to each Participant corresponding to
the date on which the first Contribution on behalf of that Participant
under this Contract is received by UNUM. A Participant will receive a new
Participation Date if such Participant makes a Total Withdrawal as
defined in Section 7.2 and Contributions on behalf of the Participant are
resumed under any Contract.
2.27 PARTICIPATION YEAR: A period beginning with one Participation
Anniversary and ending the day before the next Participation Anniversary,
except for the first Participation Year that begins with the
Participation Date.
2.28 PAYOUT ANNUITY: A series of payments paid under the terms of this
Contract to a person. A Payout Annuity may be either a Guaranteed Annuity
or a Variable Annuity.
2.29 PENDING ALLOCATION ACCOUNT: An account established under the Variable
Investment Division that invests unallocated contributions in shares of a
money market mutual fund. UNUM does not guarantee the principal amount or
investment results.
2.30 PLAN: The Plan named in Section 1.8 that qualifies for federal tax
benefits under Section 403(b) of the Internal Revenue Code of 1986 and
under which this Contract is authorized.
2.31 SEPARATE ACCOUNT: The VA-I Separate Account is a group of assets
segregated from UNUM's General Account whose income, gains and losses,
realized or unrealized, are credited to or charged against the Separate
Account without regard to other income, gains or losses of UNUM.
Additional information is provided in Section 12.15.
2.32 SUB-ACCOUNT(S): An account established in the Variable Investment
Division that invests in shares of a corresponding mutual fund.
2.33 UNUM: UNUM Life Insurance Company of America, at it's home office in
Portland, Maine.
2.34 VALUATION DATE: A Business Day. Accumulation and Annuity Units are
computed on each Valuation Date as of the close of trading on the New
York Stock Exchange.
2.35 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.
2.36 VARIABLE ANNUITY: An annuity with payments that increase or decrease in
accordance with the investment results of the selected Sub-Account(s).
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2.37 VARIABLE INVESTMENT DIVISION: The Division specified in Section 1.3 that
is maintained by UNUM for this and other Section 403(b) UNUM contracts
for which UNUM does not guarantee the principal amount or investment
results. Amounts allocated to the Variable Investment Division are part
of the Separate Account.
2.38 YOU or YOUR: The Contractholder named on the face page of this Contract.
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ARTICLE III - CONTRIBUTIONS
3.1 INITIAL CONTRIBUTION: The initial Contribution for a Participant will be
credited to the Participant's Account no later than two (2) Business Days
after it is received by UNUM if it is preceded or accompanied by a
completed enrollment form containing all the information necessary for
processing the Participant's Contribution.
3.2 ALLOCATION OF CONTRIBUTIONS: Participant Contributions will be allocated
to the Divisions and Sub-Accounts according to the percentages requested
by the Participant. The allocation percentage can be any whole percent
and may be changed on an unlimited basis per year. You or the Participant
shall notify UNUM in writing in a form acceptable to UNUM or by telephone
in accordance with procedures published by UNUM of such changes.
3.3 PAYMENT OF SUBSEQUENT CONTRIBUTIONS: You shall forward Contributions to
UNUM specifying the amount being contributed on behalf of each
Participant. You shall forward such Contributions and provide such
allocation information in accordance with procedures established by UNUM.
The Contributions shall be allocated among the Guaranteed Interest
Division and each Sub-Account in accordance with the percentage
information provided by the Participant subject to the terms of the Plan.
3.4 CHARACTERIZATION OF TRANSFER CONTRIBUTIONS: For all Contributions
transferred from another Contract, UNUM must be provided with the
following information in a form acceptable to UNUM:
(a) The source of the Contributions transferred (e.g., salary reduction,
employer match or post-tax Contributions). UNUM will record all such
transferred amounts where no source information is provided as
salary reduction Contributions.
(b) Identification of Contributions transferred as Contributions made or
earnings credited:
(i) prior to January 1, 1987;
(ii) during 1987 and 1988; or
(iii) subsequent to December 31, 1988.
Amounts not so identified will be treated as attributable to period
(iii) for purposes of Sections 7.4 and 7.5.
3.5 MAXIMUM CONTRIBUTION: Total and overall limitations on Contributions in
a calendar year for a Participant are subject to the limits imposed under
Sections 402(g), 403(b) and 415 of the Internal Revenue Code of 1986 (the
Code), as it may be amended from time to time. UNUM assumes no
responsibility for monitoring these limits for a Participant.
3.6 VALUATION: A Guaranteed Interest Division Contribution will be allocated
as of the Business Day that UNUM receives the Contribution and UNUM will
credit interest beginning with the next calendar day following the
Business Day that UNUM receives the Contribution.
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For a Variable Investment Division Sub-Account Contribution, UNUM will
credit a Participant's Account with the number of Accumulation Units for
each Sub-Account selected by the Participant with the number of
Accumulation Units equal to the Contribution Amount divided by the
Accumulation Unit Value which is next computed following UNUM's receipt
of the Contribution.
3.7 ANNUAL ADMINISTRATION CHARGE: UNUM will deduct the amount stated in
Section 1.5 from each Participant's Account each year on the last
Business Day of the month in which his Participation Anniversary occurs
unless the Contractholder pays the charge in a single payment. If the
Participant's Account balance is less than this amount on that day, UNUM
will deduct the entire balance from his Account.
When a Total Withdrawal of a Participant's Account, as defined in Section
7.2, occurs on a date other than the last Business Day of the month in
which his Participation Anniversary occurs, UNUM will first deduct the
amount stated in Section 1.5 from his Participant's Account.
ANNUAL ADMINISTRATION CHARGE: UNUM will deduct the amount stated in
Section 1.5 on a pro-rata basis from the Participant's Variable
Investment Division Account balance each year on the last Business Day of
the month in which his Participation Anniversary occurs unless the
Contractholder pays the charge in a single payment. If the Participant's
Variable Investment Division Account balance is less than this amount on
that day, UNUM will deduct the entire balance from his Variable
Investment Division Account.
When a Participant requests, on a date other than the last Business Day
of the month in which his Participation Anniversary occurs,
(a) a withdrawal, or
(b) a transfer,
from the Variable Investment Division, which would leave a remaining
balance of less than the Annual Administration Charge defined in Section
1.5, UNUM will first deduct the amount stated in Section 1.5 from the
Participant's Variable Investment Division Account balance prior to the
Withdrawal or Transfer.
3.8 UNALLOCATED CONTRIBUTION: If a properly completed enrollment form has
not been received for a Participant, UNUM will deposit such Contributions
to the Pending Allocation Account as described in ARTICLE II-
DEFINITIONS, unless such Contributions are designated to another Account
in accordance with the Plan.
UNUM will follow up with the Contractholder monthly for a period of
ninety (90) days for enrollment information for Participants with
deposits in the Pending Allocation Account.
Within two (2) business days of receipt of a completed enrollment form,
the Participant's Account balance in the Pending Allocation Account will
be transferred to the Divisions and/or Sub-Accounts according to the
percentages requested by the Participant. When the
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completed enrollment form is received, the Participation Date will be the
date on which the first Contribution on behalf of the Participant was
deposited into the Pending Allocation Account.
If an enrollment form is not received after the ninety (90) day notice, a
Participant's Account balance in the Pending Allocation Account will be
refunded to the Contractholder within one hundred five (105) days of the
date of the initial Contribution. Contributions received after a refund
while there is still no allocation information, will be deposited to the
Pending Allocation Account.
The Pending Allocation Account will only be used for the purpose
mentioned above; Participants may not direct a portion of their
Contributions to this Account. Contributions deposited in the Pending
Allocation Account will not be afforded the same rights as Contributions
under this Contract. The following Articles and/or Sections under this
Contract will not be applicable: (i) Section 3.7 ANNUAL ADMINISTRATION
CHARGE, (ii) ARTICLE VI - TRANSFERS BETWEEN DIVISION AND SUB-ACCOUNTS,
(iii) ARTICLE VII - WITHDRAWALS AND DISTRIBUTIONS, (iv) ARTICLE IX -
PAYOUT ANNUITIES, and (v) ARTICLE X - LOANS.
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ARTICLE IV - GUARANTEED INTEREST DIVISION
4.1 PARTICIPANT'S ACCOUNT BALANCE IN GUARANTEED INTEREST DIVISION: The
dollar value of a Participant's Account balance in the Guaranteed
Interest Division as of a date will be equal to the sum of:
(a) Contributions allocated, on behalf of the Participant, to the
Guaranteed Interest Division on or prior to that date, and
(b) Amounts transferred, on behalf of the Participant, to the Guaranteed
Interest Division from the Variable Investment Division on or prior
to that date, less any;
(c) Gross Withdrawal Amounts from the Guaranteed Interest Division, on
behalf of the Participant, on or prior to that date; and
(d) Amounts transferred, on behalf of the Participant, to the Variable
Investment Division on or prior to that date; and
(e) Applicable charges to the Participant's Account on or prior to that
date; and
(f) Annuity Conversion Amounts, on behalf of the Participant, on or
prior to that date, plus any;
(g) Interest credited to the Participant's Account balance in the
Guaranteed Interest Division on or prior to that date.
4.2 INTEREST: UNUM will credit interest each day to the portion of the
Participant's Account balance in the Guaranteed Interest Division, using
the previous day's ending balance. The rate of interest credited each
day, if compounded for three hundred sixty-five (365) days, yields the
annual interest rate in effect for the day.
UNUM will 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 three percent (3%). However, this minimum rate will
not be considered for purposes of Section 10.6 (EFFECT OF LOAN ON
PARTICIPANT'S ACCOUNT) under this Contract.
UNUM 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.
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ARTICLE V - VARIABLE INVESTMENT DIVISION
5.1 PARTICIPANT'S ACCOUNT BALANCE IN THE VARIABLE INVESTMENT DIVISION:
The Participant's Account balance in the Variable Investment Division is
equal to the sum of the dollar value of a Participant's Account balance
in each Sub-Account as of the end of a Valuation Period which will be
equal to the product of:
(a) The Participant's number of Accumulation Units as of the end of that
Valuation Period; times
(b) The Accumulation Unit Value as of the end of that Valuation Period.
5.2 ACCUMULATION UNITS: The number of Accumulation Units a Participant has
in a Sub-Account as of the end of any Valuation Period is the number of
Accumulation Units the Participant had in that Sub-Account as of the end
of the preceding Valuation Period; plus
(a) The number of Accumulation Units attributable to amounts deposited
to or transferred to that Sub-Account during the current Valuation
Period; minus
(b) The number of Accumulation Units attributable to amounts transferred
from, converted to an annuity, removed as a charge, paid as a death
benefit, or withdrawn from that Sub-Account during the current
Valuation Period.
5.3 ACCUMULATION UNIT VALUE: The Accumulation Unit Value for each Sub-
Account was set initially at ten dollars ($10), except for the Index
Account which was set at nine and nine hundred six one thousands
($9.9060) of a dollar. Subsequent Accumulation Unit Values are determined
by multiplying;
(a) The Net Investment Factor for the current Valuation Period by;
(b) The Accumulation Unit Value as of the end of the immediately
preceding Valuation Period.
5.4 NET INVESTMENT FACTOR: The Net Investment Factor is used to measure the
investment experience of a Sub-Account net of the Mortality and Expense
Risk Charge as defined in Section 5.5. The Net Investment Factor for a
Valuation Period is equal to (a) divided by (b) with the result
multiplied by (c) and adjusted by the amount per share of any taxes which
are incurred by UNUM because of the existence of the Sub-Account;
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where (a) is;
the net asset value per share of the underlying mutual fund held by
the Sub-Account as of the end of the Valuation Period, plus;
the amount per share of any dividend or capital gain distribution
from the underlying mutual fund held by the Sub-Account during the
Valuation Period,
where (b) is;
the net asset value per share of the underlying mutual fund held by
the Sub-Account as of the end of the immediately preceding Valuation
Period,
where (c) is;
one (1.00) minus the Annual Mortality and Expense Risk Charge shown
in Section 1.6 to the n/365th power where n equals the number of
calendar days since the immediately preceding Valuation Date.
5.5 MORTALITY AND EXPENSE RISK CHARGE: This charge is imposed to compensate
UNUM for its assumption of mortality and expense risks under this
Contract. This charge is shown on an annualized basis in Section 1.6 and
is deducted on a daily basis as described in Section 5.4. This charge may
not be increased without the approval of a majority of all affected UNUM
contractholders.
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ARTICLE VI - TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
6.1 TRANSFERS DURING ACCUMULATION PERIOD: Subject to the limitations stated
in Section 1.4, Participants may transfer all or part of their Account
balance in any Division or Sub-Account to another Division or Sub-
Account.
You or the Participant may make a transfer request by notifying UNUM in
writing in a form acceptable to UNUM or by telephone in accordance with
procedures published by UNUM.
6.2 TRANSFERS DURING ANNUITY PERIOD: An Annuitant may not transfer any part
of the Annuitant's Annuity Conversion Amount.
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ARTICLE VII - WITHDRAWALS AND DISTRIBUTIONS
7.1 WITHDRAWALS DURING THE ACCUMULATION PERIOD: During the Accumulation
Period, a Participant may withdraw from any or all Divisions, subject to
the restrictions stated in Section 7.4, all or part of the Participant's
Account balance in the Division or Sub-Accounts remaining after
reductions for any applicable Annual Administration Charge (imposed on
Total Withdrawals), Contingent Deferred Sales Charge (CDSC), premium
taxes and outstanding loan, including the loan security thereon. Annuity
Conversion Amounts are not considered withdrawals.
All withdrawal requests must be submitted in a form acceptable to UNUM
and must indicate the amount and the Division(s) from which the
withdrawal is to be made.
UNUM reserves the right to delay payment of Guaranteed Interest Division
withdrawal amounts per Section 12.8.
7.2 TOTAL WITHDRAWALS: A Total Withdrawal of a Participant's Account will
occur when a Participant who has no outstanding loans
(a) requests the liquidation of his entire Account balance, or
(b) requests an amount such that the amount requested plus any CDSC as
defined in Section 7.6 results in a remaining Participant's Account
balance being less than the applicable Annual Administration Charge
as defined in Section 1.5, in which case, the request is treated as
if it were a request for liquidation of the Participant's entire
Account balance.
The Participant's Active Life Certificate must be surrendered to UNUM
when a Total Withdrawal of a Participant's Account occurs.
A Participant refund under the Free-look provisions of Section 12.17 is
not considered a Total Withdrawal under this Article.
7.3 PARTIAL WITHDRAWALS: A Partial Withdrawal of a Participant's Account
will occur when:
(a) A Participant who has an outstanding loan makes a withdrawal; or
(b) A Participant who has no outstanding loans, requests an amount less
than a total withdrawal.
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7.4 WITHDRAWAL REQUIREMENTS FOR SECTION 403(b) PLANS: Withdrawals are
subject to the requirements set forth in Section 403(b) of the Code and
regulations thereof.
(a) Withdrawal Requests for Participants under Section 403(b) Plans
Subject to Title I of ERISA: You must make withdrawal requests on
behalf of Participants. All withdrawal requests will require Your
written authorization and written documentation specifying the
portion of the Participant's Account balance which is available for
distribution to the Participant.
(b) Withdrawal Requests for Participants under Section 403(b) Plans not
Subject to Title I of ERISA: Any portion of the Participant's
Account balance that has been recorded by UNUM as a salary reduction
contribution made and/or earnings credited prior to January 1, 1989,
(including transferred amounts recorded as such pursuant to Section
3.4), may be withdrawn for any reason. Any portion of the
Participant's Account balance that has been recorded by UNUM as a
salary reduction Contribution made and/or earnings credited after
December 31, 1988, (including transferred amounts recorded as such
pursuant to Section 3.4), are subject to the withdrawal restrictions
stated in Section 403(b) of the Code. Participants must certify to
UNUM (and provide supporting information, if requested), that an
event permitting withdrawal has occurred and that UNUM may rely on
such representation in granting the withdrawal request.
7.5 MINIMUM DISTRIBUTION REQUIREMENTS FOR SECTION 403(b) PLANS: Section
403(b)(10) of the Code and regulations thereunder require that
distributions be made from this Contract in a manner which satisfies
requirements similar to the requirements of Section 401(a)(9) including
the incidental death benefit requirements of Section 401(a)(9)(G).
(1) Section 401(a)(9) requires that:
(a) the Participant's Account be distributed not later than the
required beginning date; or
(b) the Participant's Account be distributed not later than the
required beginning date, over the life of the Participant or
over the lives of the Participant and a designated Beneficiary.
(2) A Participant may choose to have the Participant's Account
distributed in one of the following manners:
(a) As a lump sum payment;
(b) As an annuity meeting the requirements of Section 401(a)(9) of
the Code;
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(c) As an annual distribution where the amount distributed each
calendar year is at least an amount equal to the quotient
obtained by dividing: (a) the amount of the Participant's
Account required to be distributed as of December 31 of the
calendar year immediately preceding the calendar year for which
the distribution is being made; by (b) the life expectancy of
the Participant, or the life expectancy of the Participant and
the Beneficiary; or
(d) A combination of the above.
With respect to (c) and (d) above, the life expectancy of the Participant
and a surviving spouse Beneficiary may be recalculated, but not more
frequently than annually. A non-spouse Beneficiary's life expectancy may
not be recalculated.
7.6 CONTINGENT DEFERRED SALES CHARGE (CDSC): The following schedule of
CDSC shall apply to all Withdrawal Amounts.
(a) WHEN A WITHDRAWAL IS THE CDSC WILL
REQUESTED AND ONE OR MORE OF EQUAL:
THE FOLLOWING CONDITIONS IS MET:
The Participant has died 0%
The Participant has incurred a disability for 0%
which he is receiving Social Security
payments
The Participant has attained age fifty-nine 0%
and one-half (59 1/2)
The Participant has separated from service 0%
with the Contractholder and is age fifty-five
(55)
The Participant has separated from service 0%
with the Contractholder
The Participant has demonstrated a financial 0%
hardship need
A Participant has requested a withdrawal 0%
which will not exceed twenty percent (20%)
of his Participant's Account Balance and no
other withdrawal has been made in that
calendar year
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(b) For all other amounts subject to a CDSC,
the CDSC will equal 6%
UNUM requires reasonable proof necessary to verify that the withdrawal
meets the conditions described above in Section 7.6(a) and such proof
must be submitted with the withdrawal request. If You or the Participant
do not furnish the proof requested by UNUM, the CDSC stated in Section
7.6(b) shall apply.
The CDSC on any withdrawal may be reduced or eliminated but only to the
extent that UNUM anticipates that it will incur lower sales expenses or
perform fewer sales services due to economies arising from (i) the size
of the particular group, (ii) an existing relationship with the
Contractholder, (iii) the utilization of mass enrollment procedures, or
(iv) the performance of sales functions by the Contractholder or an
employee organization which UNUM would otherwise be required to perform.
In no event will the CDSC, when added to any CDSC previously imposed due
to a Participant withdrawal, exceed eight and one-half percent (8.5%) of
the cumulative Contributions to a Participant's Account.
7.7 SYSTEMATIC WITHDRAWAL OPTION: Any Participant who: (a) is at least age
fifty-nine and one-half (59 1/2), or (b) is disabled and receiving Social
Security disability benefits, or (c) is separated from service with the
Contractholder may elect this option. A Participant must also have a
vested Participant Account balance of at least ten thousand dollars
$10,000) of pre-tax Contributions under this Contract at the date of the
election.
Amounts held for a spousal payee under a Qualified Domestic Relations
Order (QDRO) shall be recognized as eligible for the Systematic
Withdrawal Option. Any spousal payee who wishes to elect this
distribution option must also meet the minimum ten thousand dollars
($10,000). Account balance requirement and either the age or disability
requirement as discussed above.
A Participant may elect to receive monthly, quarterly, semi-annual, or
annual payments in a flat amount or payments on a monthly basis for an
interest equivalency amount. An interest equivalency amount 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. This amount will be determined by UNUM. (See Attachment I
for illustration.) A Participant may change the frequency, payment type,
or payment amount of his Systematic Withdrawal Option by submitting a
request in writing on a form acceptable to UNUM. A Participant may make
such a change only once during each calendar year.
A Participant may at any time direct UNUM to cease payments under this
option provided the request is made in writing. A Participant who chooses
to stop receiving systematic withdrawals may not request that any
systematic withdrawal payments begin again until the next calendar year.
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Systematic withdrawals shall be withdrawn from amounts allocated to the
Guaranteed Interest Division of the Participant's Account balance. If the
balance of the Guaranteed Interest Division is not sufficient to meet the
payment amount requested, the Participant, in writing, may direct UNUM on
a form acceptable to UNUM to transfer the appropriate amount to the
Guaranteed Interest Division; otherwise, such payment will cease.
UNUM will deduct the Systematic Withdrawal Set-Up Charge indicated in
Section 1.10 from the Participant's Account balance each time a
Systematic Withdrawal Option is established. The applicable CDSC, if any,
will be assessed on each systematic withdrawal payment.
Payments under this option shall stop upon the earliest of the following
events.
(a) On the date of the Participant's death. A Beneficiary who is a
spouse may elect this option by requesting it in writing on a form
acceptable to UNUM, unless election of this form of benefit would
violate any other requirements of this contract. The spousal
Beneficiary must meet the ten thousand dollar ($10,000) minimum
Account balance requirement prior to electing the Systematic
Withdrawal Option; or
(b) When there is an insufficient Participant Account balance after
deducting the applicable CDSC and Annual Administration Charge, if
any, to pay the amount requested; or
(c) The Participant fails to meet the requirements of the Systematic
Withdrawal Option as outlined above in the first (1st) paragraph of
this Section.
If a disabled or terminated Participant, who is currently receiving a
Systematic Withdrawal Option payment, returns to service with the
Contractholder, the Contractholder or Participant must notify UNUM in
writing within thirty (30) days from the date of return to service. UNUM
reserves the right to discontinue the Systematic Withdrawal Option
payment under these circumstances.
If a Participant wishes to exercise this option under another UNUM
Annuity Contract, such request shall be considered separate from this
Contract and shall follow the Systematic Withdrawal Option rules under
that Annuity Contract, if permitted.
UNUM may, at its option, discontinue the Systematic Withdrawal Option
under this Contract at any time provided You are given at least thirty
(30) days advance written notice.
7.8 DIRECT ROLLOVER OPTION: Beginning January 1, 1993, a Participant or
Beneficiary may elect this option for any distribution that qualifies as
an Eligible Rollover Distribution as defined by Section 402(c) of the
Internal Revenue Code and that meets all the following requirements:
(1) The distribution must be paid directly to either a single Individual
Retirement Account or to a single Tax Deferred Annuity. The check,
wire, or other form of remittance shall be made payable to the
trustee, custodian, or financial institution sponsoring the
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Individual Retirement Account or Tax Deferred Annuity. The form of
remittance will not be an instrument that can be negotiated by the
Participant.
(2) The Participant must provide, in a form acceptable to UNUM, all
information necessary to make the payment to an Individual
Retirement Account or Tax Deferred Annuity.
(3) The Participant or Beneficiary may not revoke a request for payment
under this option for any payment after UNUM has received a written
request for a direct rollover.
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ARTICLE VIII - DEATH BENEFITS
8.1 DEATH BENEFIT DURING THE ACCUMULATION PERIOD: If death of the
Participant occurs during the Accumulation Period, UNUM will pay the
Beneficiary, if one is living, the greater of the following amounts:
(a) The Net Contributions, or
(b) The Participant's Account balance less any outstanding loan
(including principal and due and accrued interest).
UNUM 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, pursuant to Section 8.2, and the election of a form
of benefit pursuant to Section 8.3. If no election is made pursuant to
Section 8.3 within sixty (60) days following UNUM's receipt of
satisfactory notice of death, the Death Benefit will be calculated as of
the end of the Valuation Period during which that sixtieth (60th) day
occurs.
If UNUM makes a withdrawal payment pursuant to a Participant request
prior to receiving notice that the Participant has died, but subsequent
to the Participant's death, UNUM will deduct that payment from each of
(a) and (b) above in calculating the Death Benefit.
8.2 NOTIFICATION OF DEATH: UNUM must be notified of a Participant's death no
later than six (6) months from the Participant's date of death in order
for the Beneficiary to receive the Death Benefit amount described in
Section 8.1(a) above. Such notification must be in a form satisfactory to
UNUM. Beneficiaries for whom notification of a Participant's death is
received more than six (6) months after the Participant's date of death
shall receive the Death Benefit amount described in Section 8.1(b) above.
8.3 PAYMENT OF DEATH BENEFIT: Within sixty (60) calendar days after UNUM
receives satisfactory notification of the Participant's death, the
Beneficiary must make an election to have the Death Benefit applied in
one of the following ways:
(a) As a lump sum payment to the Beneficiary; or
(b) Towards an annuity to be distributed in substantially equal
installments over the life expectancy of the Beneficiary or a period
certain not exceeding the life expectancy of the Beneficiary; or
(c) A combination of the above.
A Beneficiary who does not make an election pursuant to this section
within sixty (60) days after UNUM receives notification of the
Participant's death will receive a lump sum payment calculated in
accordance with Section 8.1(b) above.
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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 31 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, such payment
must be received no later than December 31 of the fourth (4th) calendar
year following the calendar year of the Participant's death.
If the Beneficiary is the surviving spouse of the deceased Participant,
under the Code, distributions are not required to begin earlier than
December 31 of the calendar year in which the Participant would have
attained age seventy and one-half (70-1/2). If the surviving spouse dies
before the date on which annuity distributions commence, then, for
purposes of the Death Benefit, the surviving spouse shall be deemed to be
the Participant.
If there is no living named Beneficiary on file with UNUM at the time of
a Participant's death, UNUM will pay the Death Benefit to the
Participant's estate in a single lump sum upon receipt of satisfactory
proof of the Participant's death, but not later than December 31 of the
fourth (4th) calendar year following the calendar year of the
Participant's death. Valuation of the Death Benefit shall occur as of the
end of the Valuation Period during which due proof of the Participant's
death is received by UNUM.
8.4 DEATH DURING THE ANNUITY PERIOD: If the Annuitant dies during the
Annuity Period, the Beneficiary, if any, or the Annuitant's estate will
receive the amount payable, if any, according to the in-force annuity
options. Any remaining Participant's Account balance will be paid in
accordance with the provisions of this Article.
22
<PAGE>
ARTICLE IX - PAYOUT ANNUITIES
9.1 ELECTION OF PAYOUT ANNUITY OPTION: A Participant eligible to receive a
distribution under the Code or a Beneficiary of a deceased Participant
may notify UNUM in writing in a form acceptable to UNUM that the
Participant or the Beneficiary is electing to convert all or part of the
Participant's Account balance or Death Benefit to a Payout Annuity option
available under this Contract. Upon being notified of such an election,
UNUM shall calculate the amount to be converted to a Payout Annuity as
either the Participant's Account balance, or a portion thereof, or the
Death Benefit as of the initial Annuity Payment Calculation Date, as
appropriate, less the charge for premium taxes, if any.
If the Participant's Account balance or the Beneficiary's Death Benefit
is less than two thousand dollars ($2,000) or if the amount of the first
scheduled payment is less than twenty dollars ($20), UNUM may, at its
option, cancel the Payout Annuity and pay the Participant or Beneficiary
his entire Account balance or Death Benefit in a lump sum.
9.2 GUARANTEED ANNUITY: The payment amount is determined by dividing the
Annuitant's Annuity Conversion Amount in the Guaranteed Interest Division
as of the initial Annuity Payment Calculation Date by the applicable
Annuity Conversion Factor as defined in Section 9.4.
9.3 VARIABLE ANNUITY: The initial payment amount of the Annuitant's Variable
Annuity for each Sub-Account is determined by dividing his Annuity
Conversion Amount in each Sub-Account as of the initial Annuity Payment
Calculation Date by the applicable Annuity Conversion Factor as defined
in Section 9.4.
The amount of the Annuitant's subsequent Variable Annuity payment for
each Sub-Account is determined by:
(a) Dividing the Annuitant's initial Variable Annuity payment amount by
the Annuity Unit Value for that Sub-Account selected for his
interest rate option as described in Section 9.4 as of his initial
Annuity Payment Calculation Date; and
(b) Multiplying the resultant number of annuity units by the Annuity
Unit Values for the Sub-Account selected for his interest rate
option for his respective subsequent Annuity Payment Calculation
Dates.
The Annuity Unit Value for all Sub-Accounts for all interest rate options
will initially be set at ten dollars ($10). Each subsequent Annuity Unit
Value for a Sub-Account for an interest rate option is determined by:
Dividing the Accumulation Unit Value for the Sub-Account as of the
subsequent Annuity Payment Calculation Date (APCD) by the
Accumulation Unit Value for the Sub-Account as of the immediately
preceding APCD,
23
<PAGE>
Dividing the resultant factor by one (1.00) plus the interest rate
option to the n/365 power where n is the number of days from the
immediately preceding APCD to the subsequent APCD, and
Multiplying this factor times the Annuity Unit Value as of the
immediately preceding APCD.
9.4 BASIS OF ANNUITY CONVERSION FACTORS:
(a) Guaranteed Annuities - The maximum Annuity Conversion Factors that
may be used by UNUM under this Contract are based on the1983
Individual Annuity Mortality Table, set back four (4) years, and an
interest rate of three percent (3.0%). From time to time, lower
conversion factors may be used by UNUM. (Lowering the conversion
factor will increase the amount of the annuity payment.)
(b) Variable Annuities - The Annuity Conversion Factors which are used
to determine the initial payments are based on the1983 Individual
Annuity Mortality Table, set back four (4) years, and an interest
rate in an integral percentage ranging from zero to six percent (0
to 6.00%) as selected by the Annuitant.
9.5 PAYOUT ANNUITY OPTIONS: The following Payout Annuity options are
available:
(a) Life
(b) Life with payments guaranteed for ten (10), fifteen (15) or twenty
(20) years
(c) Joint and Survivor
(d) Payments guaranteed for ten (10), fifteen (15) or twenty (20) years
(e) Other offered by UNUM.
To the extent option (d) is elected for a Variable Annuity, the Annuitant
may request at any time during the payment period that the present value
of any remaining installments be paid in one lump sum. However, any lump
sum so elected will be treated as a withdrawal during the Accumulation
Period subject to the applicable CDSC stated in Section 7.6.
9.6 RETIRED LIFE CERTIFICATE: Once an annuity option is selected by a
Participant, or the Beneficiary of a deceased Participant, UNUM will
issue to the Annuitant an appropriate Certificate evidencing UNUM's
obligations.
24
<PAGE>
ARTICLE X - LOANS
10.1 GENERAL: During a Participant's Accumulation Period, the Participant, if
permitted by the applicable Section 403(b) Plan, may apply for a loan
under this Contract by completing a loan application available from UNUM.
Loans are secured by the Participant's Account balance in the Guaranteed
Interest Division.
10.2 RESTRICTIONS ON LOAN AMOUNT: The amount and terms of a loan are subject
to the restrictions imposed under Section 72(p) of the Code, as it may be
amended from time to time.
Additionally, the initial amount of a Participant's loan may not exceed
ninety percent (90%) of the Participant's Account balance in the
Guaranteed Interest Division.
10.3 MINIMUM LOAN AMOUNT: The initial amount of a loan must be at least one
thousand dollars ($1,000).
10.4 NUMBER OF LOANS OUTSTANDING: A Participant may have only one loan
outstanding at any time and may not establish more than one loan in any
six (6) month period. However, a Participant may renegotiate an
outstanding loan balance once during the term of the loan.
10.5 LOAN INTEREST RATE: The initial interest rate on a loan will be the
lesser of (a) the rate being credited in the Guaranteed Interest Division
as of the date of the loan and (b) the Moody's Corporate Bond Yield
Average, rounded to the nearest five basis points (0.05%) for the first
month in the calendar quarter which precedes the date of the loan. The
loan interest rate will remain fixed for the term of the loan, unless the
initial interest rate on a hypothetical new loan to the Participant would
be lower than the Participant's actual loan rate by more than fifty basis
points (0.50%). In such case, the loan interest rate will be reduced to
such lower rate as of the first day that such lower rate would
hypothetically be effective.
10.6 EFFECT OF LOAN ON PARTICIPANT'S ACCOUNT: When a Participant takes a
loan, UNUM will subdivide his Participant's Account balance in the
Guaranteed Interest Division by establishing a loan reserve account in an
amount initially equal to the initial loan amount. Funds held in the loan
reserve account are held as security for the loan and will accrue
interest at a rate which is three percent (3.0%) below the loan interest
rate. To the extent that the loan interest rate is subsequently reduced,
the rate credited to funds in the loan reserve account will also be
reduced in order to maintain the three percent (3.0%) differential.
As the Participant makes repayments to UNUM on the loan, an amount equal
to the principal component of the repayment, plus the interest accrued in
the loan reserve account, will be transferred from his loan reserve
account back to his Participant's Account balance in the Guaranteed
Interest Division.
25
<PAGE>
In addition, an amount equal to ten percent (10%) of the principal of the
loan will be held as security to cover the interest and the CDSC, should
the Participant fail to make the required quarterly payments of principal
and interest. This amount will earn interest at the interest rate in
effect in the Guaranteed Interest Division but will not be available for
withdrawals. As the principal is reduced, the amount held as security
will also be reduced.
10.7 DEFAULT IN LOAN REPAYMENT: If a Participant fails to make any quarterly
principal and interest payment within thirty (30) days of the payment due
date, his loan will be in default and UNUM will deduct from his loan
reserve account and from his Participant's Account balance in the
Guaranteed Interest Division the principal, due and accrued interest, and
any CDSC thereon, as of the default date. UNUM will also recharacterize
the principal and due and accrued interest as a withdrawal.
10.8 RESERVATION OF RIGHTS BY UNUM: UNUM reserves the right to:
(a) Delay making a loan for up to six (6) months from the date the loan
application is received; or
(b) With ninety (90) days written notice to You, amend any portion of
the loan specifications with regard to applications for new loans;
or
(c) With ninety (90) days written notice to You, discontinue making new
loans under this Contract.
10.9 LOAN SET-UP CHARGE: UNUM will charge a Participant the amount specified
in Section 1.7 each time a loan is established. The amount will be
withdrawn from the Participant's Account balance.
26
<PAGE>
ARTICLE XI - DISCONTINUANCE AND TERMINATION OF CONTRACT
11.1 CONTRACT DISCONTINUANCE BY CONTRACTHOLDER: You may discontinue this
Contract by written notice to UNUM. This contract will be deemed
discontinued on the later of the date You specify or the date the written
notice is received by UNUM.
11.2 CONTRACT DISCONTINUANCE BY UNUM: UNUM may, at its option, discontinue
this Contract in whole or in part if (a) You fail to meet the Minimum
Contribution Amount specified in Section 1.1 or (b) a modification in
this Contract is necessary in order to comply with Federal or State
requirements, including the Employee Retirement Income Security Act of
1974, and You refuse to accept a substantially similar contract offered
by UNUM that incorporates such modification. Discontinuance pursuant to
this Section shall be effective as of a date specified by UNUM, provided
You are given at least fifteen (15) days advance written notice in which
to cure any remediable defaults. Discontinuance by UNUM supersedes any
date established under Section 11.1.
11.3 EFFECT OF DISCONTINUANCE: As of the date this Contract is discontinued
under either 11.1 or 11.2 above:
(a) No further Contributions will be accepted by UNUM.
(b) Participants will be allowed to request withdrawals subject to the
restrictions set forth in Section 403(b) of the Code and regulations
thereof.
(c) Participants will be allowed to request transfers from each Sub-
Account of the Variable Investment Division to the Guaranteed
Interest Division. Transfers from the Guaranteed Interest Division
to the Variable Investment Division are not allowed. Transfers among
the Sub-Accounts of the Variable Investment Division are not
allowed.
(d) Participants will not be allowed to request loans.
(e) UNUM will send written notice to each Participant's last known
address stating that the Contract is discontinued and that the
Participant's remaining Account balance may be distributed in either
(i) a lump sum payment, (ii) a Payout Annuity conversion amount, or
(iii) some combination of (i) and (ii).
Such form of payment will be distributed at the earlier of:
(1) the Participant's attainment of age fifty-nine and one-half (59
1/2), or
(2) the Participant's separation from service and age fifty-five
(55), or
(3) the Participant has died, or
27
<PAGE>
(4) the Participant has incurred a disability for which he is
receiving Social Security payments, or
(5) the date the Participant directs UNUM to transfer the entire
value of the Participant's Account to another 403(b) funding
vehicle.
The Participant's remaining Account balance shall be the balance
remaining after (i) the repayment of any, if applicable, outstanding
loans including principal, due and accrued interest, and (ii) any
applicable CDSC or Annual Administration Charge that applies to the
Participant's Account.
11.4 Contract Termination: This Contract will terminate when there are no
Participant Account balances under this Contract.
28
<PAGE>
ARTICLE XII - GENERAL PROVISIONS
12.1 CONTRACT: This Contract, together with Your attached Application and any
riders, constitutes the entire Contract between You and UNUM. UNUM is not
a party to any Plan document, and is not responsible for the validity of
any Plan or actions taken by You under that Plan. The terms of this
Contract shall govern with respect to the rights and obligations of UNUM,
notwithstanding any contrary provisions or conditions of any trust or
plan.
UNUM may rely on any action or information provided by You under the
terms of this Contract and shall be relieved and discharged from any
further liability to any party in acting at the direction and upon the
authority of You. All statements made by You shall be deemed
representations and not warranties.
UNUM may deactivate this Contract by prohibiting new Contributions and/or
new Participants after the date of deactivation. UNUM will give You not
less than ninety (90) days notice of the date of deactivation.
12.2 CONTRACT AMENDMENTS: UNUM may amend this Contract at any time by
amendment or replacement. Such amendments will not, without Your consent,
adversely alter (a) the minimum interest rate set forth in Section 4.2,
(b) the maximum annuity conversion factors under Section 9.4, or (c) the
amount or terms of any annuity benefit already selected under Section 9.1
prior to the effective date of the change. No change in this Contract
will adversely affect the rights of a Participant with respect to
Contributions received or annuities purchased before the effective date
of the change unless:
(a) Such amendments are made in order to comply with rulings,
regulations and laws applicable to the program provided by this
Contract; or
(b) Your consent to the Amendment is obtained.
UNUM will give You not less than ninety (90) days notice prior to the
effective date of any change made in accordance with this Section.
12.3 CONTRACT INTERPRETATION: Whenever the context so requires, the plural
includes the singular, the singular the plural and the masculine the
feminine.
12.4 INFORMATION, REPORTS AND DETERMINATIONS: You shall furnish UNUM with
such facts and information as UNUM may require for the administration of
this Contract, including, upon request, the original or photocopy of any
pertinent records You keep. All information that You furnish to UNUM
pursuant to this Contract, including the information pertaining to
Contributions described in Article III, shall be legible, accurate and
satisfactory in form to UNUM. Such information shall be sent to a
location designated by UNUM.
You shall make any determination required under this Contract pursuant to
the terms of the Contract or required under ERISA and shall report that
determination in writing to UNUM.
29
<PAGE>
Such determination shall be conclusive for the purpose of this Contract.
UNUM shall be fully protected in relying on the reports and other
information furnished by You and need not inquire as to the accuracy or
completeness of such reports and information.
12.5 MISSTATEMENTS: If UNUM provides a benefit under this Contract based upon
misstated or omitted information, including but not limited to
misstatement of age, UNUM will make adjustments to the benefit to reflect
the correct information. UNUM is relieved and discharged from any
liability and responsibility with respect to benefits provided in
reliance upon information You furnish.
12.6 ASSIGNMENT: You may not assign this Contract without UNUM's prior
written consent. A Participant or Beneficiary under this Contract may
not, unless permitted by law, assign or encumber any payment due under
this Contract.
12.7 MARKET EMERGENCIES: If transactions are to be made to or from the
Variable Investment Division, UNUM may not suspend the right of
redemption or delay payment for more than seven (7) calendar days after
tender for redemption, except for (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 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 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.
12.8 DEFERRAL PERIODS: If a withdrawal is to be made from the Guaranteed
Interest Division, UNUM may defer the payment for the period permitted by
the law of the state in which this Contract was delivered but not more
than six (6) months after a written election is received by UNUM. During
the period of deferral, interest at the then current interest rate(s)
will continue to be credited to a Participant's Account in the Guaranteed
Interest Division.
12.9 DEDUCTIONS FOR PREMIUM TAXES: UNUM will deduct from Participant Account
balances any premium tax levied as a result of the existence of
Participant Accounts by any state or other governmental entity.
12.10 FACILITY OF PAYMENT: If any person is, in the judgment of UNUM,
physically or mentally incapable of personally receiving and giving a
valid receipt for any payment due him under this Contract, UNUM may,
unless and until claim shall have been made by a duly appointed legal
guardian or conservator of the person and property of such person, make
such payment or any part thereof to such other person or institution
which, in the judgment of UNUM, is then contributing toward or providing
for the care and maintenance of such person. In no event will any such
payment exceed the maximum allowed under the applicable law of the state
in which this Contract is delivered. Such payment shall fully discharge
UNUM of its obligations to the extent of the payment.
UNUM will make any payment which has become due to a Participant or an
Annuitant and has not been paid prior to his death, to the Participant's
Beneficiary or Beneficiaries, his
30
<PAGE>
executors or administrators. If no Beneficiary or personal representative
has been named, UNUM may make payment to any one or more of the surviving
members of the following classes of relatives; spouse, children,
grandchildren, brothers, sisters, and parents. Such payment shall fully
discharge UNUM for all liability to the extent of the payment.
12.11 EVIDENCE OF SURVIVAL: When a benefit payment is contingent upon the
survival of any person, evidence of such person's survival must be
furnished to UNUM, either by such person's endorsement of the check drawn
for such payment, or by other satisfactory means.
12.12 NON-WAIVER: The failure on UNUM's part to perform or insist upon the
strict performance of any provision or condition of this Contract shall
neither constitute a waiver of UNUM's rights to perform or require
performance of such provision or condition, nor stop UNUM from exercising
any other rights it may have in such provision, condition, or otherwise
in this Contract or any Plan.
12.13 RECEIPT OF NOTICE: Whenever UNUM receives information establishing any
right or conferring any benefit upon any Participant or Beneficiary, such
receipt shall be deemed to take place on any Business Day that such
information is received.
12.14 SEPARABILITY OF PROVISIONS: If any provision of this Contract is
determined to be invalid, the remainder of the provisions shall remain in
full force and effect.
12.15 THE SEPARATE ACCOUNT: The Separate Account is registered and operated as
a Unit Investment Trust under the Investment Company Act of 1940. As
such, the assets of each Sub-Account are invested in a registered
management investment company (mutual fund).
The Separate Account will be legally separated from UNUM's other
accounts. The Separate Account's assets will, at the time during the year
that adjustments in the reserves are made, have a value of at least equal
to the reserves and other contract liabilities with respect to the
Separate Account, and at all other times, will have a value approximately
equal to, or in excess of, such reserves and liabilities. The portion of
the assets having a value equal to, or approximately equal to, the
reserves and contract liabilities will not be chargeable with liabilities
arising out of any other business which UNUM may conduct.
UNUM reserves the right, subject to compliance with applicable law,
including approval by You or the Participants if required by law, (1) to
create additional Sub-Accounts, (2) to combine or eliminate Sub-Accounts,
(3) to transfer assets from one Sub-Account 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 Separate Account
under the Investment Company Act of 1940, (6) to operate the Separate
Account under a committee and to discharge such committee at any time,
and (7) to eliminate any voting rights which You or Participants may have
with respect to the Separate Account, (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 Separate Account 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
31
<PAGE>
any change required by the Internal Revenue Code, the Employee Retirement
Income Security Act of 1974, or the Securities Act of 1933, to the extent
not provided in Section 12.2.
12.16 PAYMENT OF BENEFITS: UNUM shall make payment of benefits under this
Contract directly to a Participant or Beneficiary at the last known
address on file with UNUM.
12.17 FREE-LOOK PERIOD: A Participant will receive an Active Life Certificate
upon UNUM's receipt of a duly completed participation enrollment form. If
the Participant chooses not to participate under this Contract, he may
exercise his Free-look right by sending a written notice to UNUM that he
does not wish to participate under this Contract within ten (10) days
after the date the 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 his Free-look right in accordance with the
foregoing procedure, UNUM will refund in full the Participant's aggregate
Contributions less aggregate withdrawals, 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
canceled Certificate is received by UNUM.
32
<PAGE>
SYSTEMATIC WITHDRAWAL OPTION
ATTACHMENT I
------------
The formula for the interest equivalency amount (IEA) is:
/29.5/366/
IEA = ACCT. BAL x ((1 + I ) - 1)
WHERE:
IEA is the Interest Equivalency Amount.
ACCT. BAL. is the Participant's Account balance at the later of: the
beginning of the contract year and the most recent date on
which the credited interest rate changed.
I is the interest rate currently being credited to the
contract
EXAMPLE: The Account balance at the beginning of the year is one hundred
thousand dollars ($100,000) and the interest rate credited to the contract is
six percent (6.00%). The Interest Equivalency Amount for each month of the
current year is:
/29.5/366/
IEA = $100,000 x (1.06 -1)
= $470.76
Attachment I
<PAGE>
Exhibit 10(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Amendment No. 34 to the Registration Statement on
Form N-4 (File No. 33-45846) of our report dated April 10, 1998, on our audits
of the statement of assets and liabilities as of December 31, 1997, and the
related statements of operations and changes in net assets for each of the two
years in the period then ended of the VA-I Separate Account of UNUM Life
Insurance Company of America and our report dated February 4, 1998, on our
audits of the financial statements as of and for the years ended December 31,
1997 and 1996, of UNUM Life Insurance Company of America. We also consent to the
reference to our Firm under the caption "Independent Accountants" in the
Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
Portland, Maine
May 1, 1998
<PAGE>
UNUM - VA II (SEC, subacct inception date)
<TABLE>
<CAPTION>
================================================================================================================================
One Quarter
- --------------------------------------------------------------------------------------------------------------------------------
Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fund Value $942.15
Fee $0.21
- --------------------------------------------------------------------------------------------------------------------------------
Surr Charge $56.52
Final Value $885.42
Cumulative Return -11.458%
Annualized Return -38.539%
- -------------------------------------------------------------------------------------------------------------------------------
Calculation of Previous Quarter's Return
Final Value Quarter One = 1,000 * (31-Dec-97 Unit Value/30-Sep-97 Unit Value) - Annual Fee - Surrender Charge
Cumulative Return = Final Value Quarter One/1,000 - 1
Annualized Return = (Final Value Quarter One/1,000)*4 - 1
- --------------------------------------------------------------------------------------------------------------------------------
Date Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- --------------------------------------------------------------------------------------------------------------------------------
09/30/97 18.714800
- --------------------------------------------------------------------------------------------------------------------------------
12/31/97 17.632200
- --------------------------------------------------------------------------------------------------------------------------------
================================================================================================================================
================================================================================================================================
Year To Date
- --------------------------------------------------------------------------------------------------------------------------------
Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- --------------------------------------------------------------------------------------------------------------------------------
Fund Value $1,153.48
-----------------------------------------------------------------------------------------------------------
Fee $0.21
- --------------------------------------------------------------------------------------------------------------------------------
Surr Charge $56.52
-----------------------------------------------------------------------------------------------------------
Final Value $885.42
-----------------------------------------------------------------------------------------------------------
Annualized Return -11.458%
- --------------------------------------------------------------------------------------------------------------------------------
Calculation of Year to Date Return
Final Value Year to Date = 1,000 * (31-Dec-97 Unit Value/31-Dec-96 Unit value) - Annual Fee - Surrender Charge
Annualized Return = Final Value Year to Date/1,000 - 1
- --------------------------------------------------------------------------------------------------------------------------------
Date Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- --------------------------------------------------------------------------------------------------------------------------------
12/31/96 15.286100
- --------------------------------------------------------------------------------------------------------------------------------
12/31/97 17.632200
- --------------------------------------------------------------------------------------------------------------------------------
================================================================================================================================
================================================================================================================================
Separate Account L - Standardized 1 Year Returns
One Year Returns Period Ending 12/31/97
- --------------------------------------------------------------------------------------------------------------------------------
Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- --------------------------------------------------------------------------------------------------------------------------------
Fund Value $1,153.48
-----------------------------------------------------------------------------------------------------------
Fee $0.24
- --------------------------------------------------------------------------------------------------------------------------------
Surr Charge $69.19
-----------------------------------------------------------------------------------------------------------
Final Value $1,084.05
-----------------------------------------------------------------------------------------------------------
Annualized Return 8.405%
- --------------------------------------------------------------------------------------------------------------------------------
Calculation of Annual Return
Final Value = 1,000 * (31-Dec-97 Unit Value/31-Dec-96 Unit value) - Annual Fee - Surrender Charge
Annualized Return = Final Value/1,000 - 1
- --------------------------------------------------------------------------------------------------------------------------------
Date Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- --------------------------------------------------------------------------------------------------------------------------------
12/31/96 15.286100
- --------------------------------------------------------------------------------------------------------------------------------
12/31/97 17.632200
- --------------------------------------------------------------------------------------------------------------------------------
================================================================================================================================
================================================================================================================================
Three-Year Return
- --------------------------------------------------------------------------------------------------------------------------------
Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- --------------------------------------------------------------------------------------------------------------------------------
One Year $1,278.32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
Fee $0.31
-----------------------------------------------------------------------------------------------------------
Final Value $1,278.01
- ---------------------------------------------------------------------------------------------------------------------------------
Two Year $1,472.04
-----------------------------------------------------------------------------------------------------------
Fee $0.34
-----------------------------------------------------------------------------------------------------------
Final Value $1,471.70
- ---------------------------------------------------------------------------------------------------------------------------------
Three Year $1,697.58
-----------------------------------------------------------------------------------------------------------
Fee $0.35
- ---------------------------------------------------------------------------------------------------------------------------------
Surr Charge $101.83
-----------------------------------------------------------------------------------------------------------
Final Value $1,595.39
-----------------------------------------------------------------------------------------------------------
Cumulative Return 59.539%
-----------------------------------------------------------------------------------------------------------
Annualized Return 16.848%
- ---------------------------------------------------------------------------------------------------------------------------------
Calculation of Three Year Return
Final Value Year One = 1,000 * (31-Dec-95 Unit Value/ 31-Dec-94 Unit Value) - Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-96 Unit Value/ 31-Dec-95 Unit Value) - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-97 Unit Value/ 31-Dec-96 Unit Value) - Annual Fee Year Three -
Surrender Charge
Cumulative Return = Final Value Year Five/1,000 - 1
Annualized Return = (Final Value Year Five/1000) * (1/3) - 1
- ---------------------------------------------------------------------------------------------------------------------------------
Date Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/94 10.381800
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/95 13.271300
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/96 15.286100
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/97 17.632200
- ---------------------------------------------------------------------------------------------------------------------------------
=================================================================================================================================
=================================================================================================================================
Separate Account L - Standardized Lifetime Returns
Lifetime
- ---------------------------------------------------------------------------------------------------------------------------------
Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- ---------------------------------------------------------------------------------------------------------------------------------
Four Years Prior $1,035.59
-----------------------------------------------------------------------------------------------------------
Fee $0.27
-----------------------------------------------------------------------------------------------------------
Final Value $1,035.31
- ---------------------------------------------------------------------------------------------------------------------------------
Three Years Prior $1,323.47
-----------------------------------------------------------------------------------------------------------
Fee $0.29
-----------------------------------------------------------------------------------------------------------
Final Value $1,323.18
- ---------------------------------------------------------------------------------------------------------------------------------
Two Years Prior $1,524.06
-----------------------------------------------------------------------------------------------------------
Fee $0.31
-----------------------------------------------------------------------------------------------------------
Final Value $1,523.75
- ---------------------------------------------------------------------------------------------------------------------------------
One Year Prior $1,757.61
-----------------------------------------------------------------------------------------------------------
Fee $0.33
-----------------------------------------------------------------------------------------------------------
Period (Years) 3.67
- ---------------------------------------------------------------------------------------------------------------------------------
Surr Charge $105.44
-----------------------------------------------------------------------------------------------------------
Final Value $1,651.85
-----------------------------------------------------------------------------------------------------------
Cumulative Return 65.185%
-----------------------------------------------------------------------------------------------------------
Annualized Return 14.661%
- ---------------------------------------------------------------------------------------------------------------------------------
Calculation of Lifetime Return
Final Value Year One = 1,000 * (31-Dec-94 Unit Value/02-May-94 Unit Value) - Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-95 Unit Value/31-Dec-94 Unit Value) - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-96 Unit Value/31-Dec-95 Unit Value) - Annual Fee Year Three
Final Value Year Four = 1,000 * (31-Dec-97 Unit Value/31-Dec-96 Unit Value) - Annual Fee Year Four -
Surrender Charge
Cumulative Return = Final Value for Last Year/1,000 - 1
Annualized Return = (Final Value for Last Year/1,000) * (1/Period) - 1
- ---------------------------------------------------------------------------------------------------------------------------------
Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Income Soc. Resp.
- ---------------------------------------------------------------------------------------------------------------------------------
Inception Date 05/02/94
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Inception Date Unit
Value 10.000000
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12/31/94 10.381800
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12/31/95 13/271300
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12/31/96 15.286100
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12/31/97 17.632200
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