<PAGE>
Variable Annuity I
UNUM Life Insurance Company of America
VA-I Separate Account
group variable annuity contracts
Servicing Office:
UNUM Life Insurance Company of America
P.O. Box 9740
Portland, ME 04104
Attn: Tax Deferred Annuities
(800) 341-0441
This Prospectus describes group annuity contracts and individual certificates
issued by UNUM Life Insurance Company of America (UNUM/America). They are for
use with qualified and non-qualified retirement plans. Generally, neither the
contractowner nor the individual participant pays federal income tax on the
contract's growth until it is paid out. The contract is designed to accumulate
account value and, as permitted by the plan for which the contractowner pur-
chases the contract, to provide retirement income that a participant cannot
outlive or for an agreed upon time. These benefits may be a variable or fixed
amount or a combination of both. If a participant dies before the annuity com-
mencement date, we pay the beneficiary or the plan a death benefit.
If the contractowner gives certain rights to plan participants, we issue ac-
tive life certificates to them. Participants choose whether account value ac-
cumulates on a variable or a fixed (guaranteed) basis or both. If a partici-
pant allocates contributions to the fixed account, we guarantee principal and
a minimum interest rate.
All contributions for benefits on a variable basis will be placed in
UNUM/America's VA-1 Separate Account (variable annuity account [VAA]). The VAA
is a segregated investment account of UNUM/America. If a participant puts all
or some contributions into one or more of the contract's subaccounts, the par-
ticipant takes all the investment risk on the account value and the retirement
income. If the selected subaccounts make money, account value goes up; if they
do not, it goes down. How much it goes up or down depends on the performance
of the selected subaccounts. We do not guarantee how any of the subaccounts or
their funds will perform. Also, neither the U.S. Government nor any federal
agency insures or guarantees the investment in the contract.
The available subaccounts, and the funds in which they invest, are listed be-
low. The contractowner decides which of these subaccounts are available under
the contract for participant allocations. For more information about the in-
vestment objectives, policies and risks of the funds, please refer to the Pro-
spectuses for the funds.
Balanced Account--American Century Portfolios, Inc.: VP Balanced
Growth II Account--American Century Portfolios, Inc.: VP Capital Appreciation
Socially Responsible Account--Calvert
Variable Series: Calvert Social Balanced Account
Index Account--Dreyfus Stock Index Fund
Small Cap Account--Dreyfus Variable Investment Fund: Small Cap Portfolio
Growth I Account--Fidelity Variable Insurance
Products Fund: Growth Portfolio Initial Class
Equity-Income Account--Fidelity Variable Insurance Products Fund: Equity-In-
come Portfolio Initial Class
Asset Manager Account--Fidelity Variable Insurance Products Fund II: Asset
Manager Portfolio Initial Class
International Stock Account--T. Rowe Price
International Series, Inc.
On or about August 6, 1999, we anticipate (i) closing the Growth II Account
and replacing the VP Capital Appreciation with Fidelity VIP--Growth Portfolio
and (ii) closing the Socially Responsible Account and replacing the Calvert
Social Balanced Portfolio with Fidelity VIP II--Asset Manager.
This Prospectus gives you information about the contracts and certificates
that contractowners and participants should know before investing. Please re-
view the Prospectuses for the funds, and keep them for reference.
Neither the SEC nor any state securities commission has approved the contracts
or determined that this Prospectus is accurate and complete. Any representa-
tion to the contrary is a criminal offense.
A Statement of Additional Information (SAI) has more information about the
contracts and certificates. Its terms are made part of this Prospectus. For a
free copy, write: UNUM Life Insurance Company of America, P.O. Box 9740, Port-
land, ME 04104, attn: Tax Deferred Annuities, or call 1-800-341-0441. The SAI
and other information about UNUM/America and VA-I Separate Account are also
available on the SEC's web site (http://www.sec.gov). There is a table of con-
tents for the SAI on the last page of this Prospectus.
May 1, 1999
1
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Table of contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Special terms 2
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Expense tables 3
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Summary 5
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Condensed financial information 7
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Investment results 8
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Financial statements 8
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UNUM Life Insurance Company of America 8
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Fixed side of the contract 8
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Variable account (VAA) 9
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Investments of the VAA 9
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Charges and other deductions 11
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The contracts 12
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</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Annuity payouts 16
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Federal tax matters 17
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Voting rights 19
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Distribution of the contracts 20
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Return privilege 20
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State regulation 20
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Records and reports 20
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Other information 20
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Statement of additional information table of contents for VA-I Separate
Account Variable Annuity I 21
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</TABLE>
Special terms
Account or variable account (VAA) -- The segregated investment account, VA-I
Separate Account, into which UNUM/America sets aside and invests the assets for
the variable side of the contract offered in this Prospectus.
Account value -- At a given time before the annuity commencement date, the to-
tal value of all accumulation units for a contract plus the value of the fixed
side of contract.
Accumulation unit -- A measure used to calculate account value for the variable
side of the contract.
Annuitant -- The person on whose life the annuity benefit payments are based
and made after the annuity commencement date.
Annuity commencement date -- The date on which Unum/America makes the first an-
nuity payout to the annuitant.
Annuity payout -- An amount paid at regular intervals after the annuity com-
mencement date under one of several options available to the annuitant and/or
any other payee. This amount may be paid on a variable or fixed basis, or a
combination of both.
Annuity unit -- A measure used to calculate the amount of each annuity payout
for the variable side of the contract after an annuity commencement date.
Beneficiary -- The person the participant chooses to receive any death benefit
paid if the participant dies before the annuity commencement date.
Contractowner -- The party named on the group annuity contract (for example, an
employer, a retirement plan trust, an association, or other entity allowed by
law).
Contributions -- Amounts paid into the contract.
Death benefit -- An amount payable to a designated beneficiary if a participant
dies before his or her annuity commencement date.
Participant -- An employee or other person affiliated with the contractowner on
whose behalf we maintain an account under the 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.
Plan -- The retirement program that an employer offers to its employees for
which a contract is used to accumulate funds.
Subaccount -- The portion of the VAA that reflects investments in accumulation
and annuity units of a class of a particular fund available under the con-
tracts. There is a separate subaccount which corresponds to each fund.
UNUM/America (we, us our) -- UNUM Life Insurance Company of America.
Valuation date -- Each day the New York Stock Exchange (NYSE) is open for trad-
ing.
Valuation period -- The period starting at the close of trading (currently 4:00
p.m. New York time) on each day that the NYSE is open for trading (valuation
date) and ending at the close of such trading on the next valuation date.
2
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Expense tables
Contractowner Transaction Expenses:
The maximum surrender charge (contingent deferred sales charge)
(as a percentage of the gross withdrawal amount): 5%
Contract Fee:
Annual administration charge (per participant): $25
The surrender charge percentage is reduced over time. The later the redemption
occurs, the lower the surrender charge with respect to that surrender or with-
drawal.
The annual administration charge may be paid by an employer on behalf of par-
ticipants. It is not charged during the annuity period.
We may reduce or waive these charges in certain situations. See Charges and
other deductions.
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VA-I Separate Account annual expenses for Variable Annuity I subaccounts:
(as a percentage of average account value):
<TABLE>
<S> <C>
Mortality and expense risk charge 1.20%
</TABLE>
Annual expenses of the funds for the year ended December 31, 1998:
(as a percentage of each fund's average net assets):
<TABLE>
<CAPTION>
Management Other Total
fees + expenses = expenses
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<S> <C> <C> <C> <C> <C>
1. American Century--VP Balanced/1/ 0.97% 0.00% 0.97%
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2. American Century--VP Capital
Appreciation 1.00 0.00 1.00
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3. Calvert Social Balanced/2/ 0.70 0.18 0.88
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4. Dreyfus Stock Index Fund 0.25 0.01 0.26
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5. Dreyfus VIF: Small Cap Portfolio 0.75 0.02 0.77
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6. Fidelity VIP--Growth Portfolio
(initial class)/3/ 0.59 0.09 0.68
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7. Fidelity VIP--Equity Income Portfolio
(initial class)/3/ 0.49 0.09 0.58
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8. Fidelity VIP II--Asset Manager
(initial class)/3/ 0.54 0.10 0.64
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9. T. Rowe Price International Series 1.05 0.00 1.05
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</TABLE>
/1/American Century Investment Management, Inc. voluntarily waived a portion of
its management fee from October 1, 1998 through November 16, 1998. In the ab-
sence of the waiver, the average ratio of operating expenses to average net
assets would have been 1.48% for the year ended December 31, 1998. The
annualized fee schedule for the fund, effective November 17, 1998, is as fol-
lows: 1.50% on the first $250 million; 1.20% on the next $250 million; and
1.10% thereafter.
/2/The figures above are based on expenses for fiscal year 1998, and have been
restated to reflect the elimination of the performance adjustment in Social
Balanced as of March 1, 1999 (pursuant to shareholder approval on February
24, 1999). The restatement includes the addition of 0.01% to both portfolios.
/3/A portion of the brokerage commissions that certain funds pay was to reduce
fund expenses. In addition, certain funds of FMR on behalf of certain funds
have entered into arrangements with their custodian whereby credits realized
as a result of uninvested cash balances were used to reduce custodian ex-
penses including these reductions. The total operating expenses, presented in
the table would have been: VIP Equity-Income Portfolio Initial Class 0.57%,
VIP Growth Portfolio Initial Class 0.66% and VIP II Asset Manager Portfolio
Initial Class 0.63%.
3
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Examples
(expenses of the subaccounts and the funds):
If you surrender your contract at the end of the time period shown, you would
pay the following expenses on a $1,000 investment, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C>
1. American Century--VP Balanced $77 $133 $192 $301
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2. American Century--VP Capital Appreciation 78 134 194 304
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3. Calvert Social Balanced 76 131 188 293
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4. Dreyfus Stock Index Fund 70 113 158 229
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5. Dreyfus VIF: Small Cap Portfolio 75 128 183 282
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6. Fidelity VIP--Growth Portfolio 74 125 178 273
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7. Fidelity VIP--Equity Income Portfolio 74 122 174 263
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8. Fidelity VIP II--Asset Manager 74 124 177 269
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9. T. Rowe Price International Series 78 136 196 309
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</TABLE>
If you do not surrender your contract, you would pay the following expenses on
a $1,000 investment, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C>
1. American Century--VP Balanced $26 $79 $136 $289
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2. American Century--VP Capital Appreciation 26 80 137 292
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3. Calvert Social Balanced 25 77 131 280
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4. Dreyfus Stock Index Fund 19 58 99 216
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5. Dreyfus VIF: Small Cap Portfolio 24 73 126 269
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6. Fidelity VIP--Growth Portfolio 23 71 121 259
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7. Fidelity VIP--Equity Income Portfolio 22 68 116 249
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8. Fidelity VIP II--Asset Manager 23 69 119 255
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9. T. Rowe Price International Series 27 82 140 296
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</TABLE>
We provide these examples to show the direct and indirect costs and expenses of
the contract.
For more information, see Charges and other deductions in this Prospectus, and
in the Prospectuses for the funds. Premium taxes may also apply, although they
do not appear in the examples. These examples should not be considered a repre-
sentation of past or future expenses. Actual expenses may be more or less than
those shown.
4
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Summary
What kind of contract is this? It is a group variable annuity contract between
the contractowner and UNUM/America. It may provide for a fixed annuity and/or
a variable annuity. This Prospectus describes the variable side of the con-
tract. See The contracts.
What is the variable annuity account (VAA)? It is a separate account we estab-
lished under Maine insurance law, and registered with the SEC as a unit in-
vestment trust. VAA assets are allocated to one or more subaccounts, according
to your investment choices. VAA assets are not chargeable with liabilities
arising out of any other business which UNUM/America may conduct. See The
variable annuity account.
What are the contract's investment choices? Based on instructions, the VAA ap-
plies contributions to buy fund shares in one or more of the investment funds
of the subaccounts: American Century Variable Portfolios, Inc.: VP Balanced,
VP Capital Appreciation; Calvert Social Balanced Portfolio; Dreyfus Stock In-
dex Fund; Dreyfus Variable Investment Fund: Small Cap Portfolio; Fidelity
Variable Insurance Products Fund: Growth Portfolio; Fidelity Variable Insur-
ance Products Fund: Equity-Income Portfolio; Fidelity Variable Insurance Prod-
ucts Fund II: Asset Manager Portfolio; and T. Rowe Price International Series,
Inc. In turn, each fund holds a portfolio of securities consistent with its
investment policy. On or about August 6, 1999 we anticipate (i) closing the
Growth II Account and replacing the VP Capital Appreciation with Fidelity
VIP--Growth Portfolio and (ii) closing the Socially Responsible Account and
replacing the Calvert Social Balanced Portfolio with Fidelity VIP II--Asset
Manager. See The variable annuity account and The funds for a description of
the subaccounts.
Who invests contributions? American Century Investment Management, Inc. is the
investment adviser of American Century VP Balanced and VP Capital Apprecia-
tion. The investment adviser of the Calvert Social Balanced Portfolio is The
Calvert Asset Management Company, Inc. The investment adviser of the Dreyfus
funds is The Dreyfus Corporation, New York, NY. The investment adviser of the
Fidelity funds is Fidelity Management & Research Company, Boston, MA. Rowe
Price-Fleming International, Inc. is investment adviser of the T. Rowe Price
International Series. See The funds.
How does the contract work? If we approve the application, we will send the
contractowner a contract. When participants make contributions, they buy accu-
mulation units. If the participant decides to purchase retirement income pay-
ments, we convert accumulation units to annuity units. Retirement income pay-
ments will be based on the number of annuity units received and the value of
each annuity unit on payout days. See The contracts.
What are the charges under the contract? If participants withdraw account val-
ue, a surrender charge applies of from 0% to 5%, depending upon how many par-
ticipation years the participant has been in the contract. We may reduce or
waive surrender charges in certain situations. See Surrender charges.
We charge an annual administration charge of $25 per participant account.
We will deduct any applicable premium tax from contributions or account value
at the time the tax is incurred or at another time we choose.
We apply an annual charge totaling 1.20% to the daily net asset value of the
VAA. See Charges and other deductions.
We may charge additional fees to set up a participant loan or establish a sys-
tematic withdrawal option.
We may waive these charges in certain situations.
The funds' investment management fees, expenses and expense limitations, if
applicable, are more fully described in the Prospectuses for the funds.
What contributions are necessary, and how often? Contributions by or on behalf
of participants may be in any amount unless the contractowner or the plan has
a minimum amount. See The Contracts.
How will annuity payouts be calculated? If a participant decides to annuitize,
the participant selects an annuity option and starts receiving retirement in-
come payments from the contract as a fixed option or variable option or a com-
bination of both. See Annuity payout options. Remember that participants in
the VAA benefit from any gain, and take a risk of any loss, in the value of
the securities in the funds' portfolios.
What happens if a participant dies before he or she annuitizes? The benefi-
ciary has options as to how any death benefit is paid. See Death benefits and
annuity period.
May participants transfer account value between subaccounts, and between the
VAA and the fixed account? Before the annuity commencement date, yes, subject
to the terms of the contract and the plan. See The fixed account and The con-
tracts--Transfers between subaccounts on or before the annuity commencement
date.
May a participant withdraw account value? Yes, during the accumulation period,
subject to contract requirements and to the restrictions of any plan. See Sur-
renders and withdrawals. The contractowner must also ap-
5
<PAGE>
prove participant withdrawals under plans subject to Title I of ERISA, and Sec-
tion 457 plans. Certain charges may apply. See Charges and other deductions. A
portion of withdrawal proceeds may be taxable. In addition, a 10% Internal Rev-
enue Service (IRS) tax penalty may apply to distributions before age 59 1/2. A
withdrawal also may be subject to 20% withholding. See Federal tax matters.
Do participants get a free look at their certificates? A participant under a
Section 403(b) or 408 plan and certain non-qualified plans can cancel the ac-
tive life certificate within ten days (in some states longer) of the date the
participant receives the certificate. The participant needs to give notice to
our home office. We will refund the participant's contributions less withdraw-
als, or for the variable side of the contract if greater, the participant's ac-
count balance on the day we receive the written notice. See Return privilege.
6
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Condensed financial information
The financial data included below should be read along with the financial
statements and the related data included in the Statement of Additional Infor-
mation.
Accumulation unit values
(For an accumulation unit outstanding throughout the period)
<TABLE>
<CAPTION>
Sub-Account 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
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<S> <C> <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 $29.8265
. End of Period $9.9629 $9.4953 $12.1814 $12.8906 $13.9245 $13.8792 $18.7565 $22.7054 $29.8265 $37.7853
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Growth I Account
. May 1 Commencement $ 10.00
. Beginning of Period $12.1759 $13.1505 $15.5094 $15.3208 $20.4909 $23.2198 $28.3281
. End of Period $12.1759 $13.1508 $15.3208 $15.3208 $20.4909 $23.2196 $25.3281 $39.0440
- --------------------------------------------------------------------------------------------------------------
Growth II Account
. May 1 Commencement $ 10.00
. Beginning of Period $11.5975 $11.3049 $12.3212 $12.0313 $15.5840 $14.7133 $14.0633
. End of Period $11.5975 $11.3049 $12.3212 $12.0313 $15.5840 $14.7133 $14.0633 $13.5959
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Asset Manager Account
. May 1 Commencement $ 10.00
. Beginning of Period $10.7598 $11.8933 $14.2241 $13.1979 $15.2510 $17.2668 $20.5827
. End of Period $10.7598 $11.8933 $14.2241 $13.1979 $15.2510 $17.2668 $20.5827 $23.3982
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Balanced Account
. May 1 Commencement $ 10.00
. Beginning of Period $12.4515 $11.5882 $12.2957 $12.2225 $14.6286 $16.2128 $18.5504
. End of Period $12.4515 $11.5582 $12.2957 $12.2225 $14.6286 $16.2128 $18.5504 $21.2201
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International Stock
Account
. May 1 Commencement $ 10.00
. Beginning of Period $ 9.8622 $10.8333 $12.2756 $12.5034
. End of Period $ 9.8622 $10.8333 $12.2756 $12.5034 $14.3134
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Socially Responsible
Account
. May 1 Commencement $ 10.00
. Beginning of Period $ 9.9692 $12.7827 $14.2222 $16.8728
. End of Period $ 9.9692 $12.7827 $14.2222 $16.8728 $19.3844
- --------------------------------------------------------------------------------------------------------------
Equity-Income Account
. May 1 Commencement $ 10.00
. Beginning of Period $10.4780 $13.9856 $15.7898 $19.9854
. End of Period $10.4780 $13.9856 $15.7898 $19.9854 $22.0431
- --------------------------------------------------------------------------------------------------------------
Small Cap Account
. May 1 Commencement $ 10.00
. Beginning of Period $10.3818 $13.2713 $15.2861 $17.6322
. End of Period $10.3818 $13.2713 $15.2861 $17.6322 $16.8223
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Pending Allocation
Account
. October 15
Commencement $ 10.00
. Beginning of Period $10.1054 $10.6938 $11.2772 $11.8940
. End of Period $10.1054 $10.6938 $11.2772 $11.8940 $12.4522
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</TABLE>
Number of Accumulation Units Outstanding at end of period
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <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 3,057,792 138,498 149,332
Growth I Account 5,166 317,275 1,340,146 3,071,862 4,459,417 5,843,047 244,513 245,139
Growth II Account 53,904 566,562 1,242,216 1,733,360 2,191,475 2,541,938 97,067 74,873
Asset Manager Account 36,645 462,405 2,232,731 4,369,937 4,882,920 5,447,414 205,657 202,386
Balanced Account 13,453 282,439 673,424 1,041,814 1,294,883 1,545,581 58,259 48,736
Socially Responsible
Account 26,073 133,871 328,168 8,750 14,160
Equity-Income Account 320,659 1,529,172 2,997,007 133,230 150,004
International Stock
Account 354,936 803,485 1,588,914 80,413 71,388
Small Cap Account 400,376 1,461,575 3,032,803 166,025 162,973
Pending Allocation
Account 11,980 21,372 35,465 485 23
</TABLE>
7
<PAGE>
Investment results
At times, the VAA may compare its investment results to various unmanaged indi-
ces or other variable annuities in reports to shareholders, sales literature
and advertisements. The results will be calculated on a total return basis for
various periods, with or without surrender charges. Results calculated without
surrender charges will be higher. Total returns include the reinvestment of all
distributions, which are reflected in changes in unit value. See the SAI for
further information.
Financial statements
The financial statements for the VAA and UNUM/America are located in the SAI.
For a free copy of the SAI, complete and mail the enclosed card, or call 1-800-
341-0441.
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. UNUM Corporation was organized under Delaware law, and is a
publicly owned corporation whose stock is traded on the New York Stock Ex-
change.
On October 1, 1996, UNUM/America sold its tax-sheltered annuity business to The
Lincoln National Life Insurance Company (Lincoln Life). Pursuant to the acqui-
sition agreement, Lincoln Life assumed UNUM/Ameri-ca's obligations under the
contracts, and Lincoln Life & Annuity Company of New York (LLANY) assumed
UNUM/America's obligations under contracts originally issued in New York (the
New York Contracts), other than those obligations to contractowners and/or par-
ticipants who neither consented nor were deemed to have consented to the as-
sumption. Whether or not a contract was assumed by Lincoln Life, it is adminis-
tered 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, LLANY). Both contracts, however, are administered by Lincoln Life.
Lincoln Life was founded in 1905 and is organized under Indiana law. It is one
of the largest stock life insurance companies in the United States. It is owned
by Lincoln National Corp. (LNC) which is also organized under Indiana law.
LNC's primary businesses are insurance and financial services.
Fixed side of the contract
Contributions allocated to the fixed account become part of UNUM/America's gen-
eral account, and do not participate in the investment experience of the VAA.
The general account is subject to regulation and supervision by the Maine In-
surance Department as well as the insurance laws and regulations of the juris-
dictions in which the contracts are distributed.
In reliance on certain exemptions, exclusions and rules, UNUM/America has not
registered 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
in it 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 our
general account and to the fixed side of the contract. These disclosures, how-
ever, may be subject to certain provisions of the federal securities laws re-
lating to the accuracy and completeness of statements made in the Prospectus.
This Prospectus is generally intended to serve as a disclosure document only
for aspects of the contract involving the VAA, and therefore contains only se-
lected information regarding the fixed side of the contract. Complete details
regarding the fixed side of the contract can be found in the contract.
Contributions allocated to the fixed account are guaranteed to be credited with
a minimum interest rate, specified in the contract, of at least 3.0%. A contri-
bution allocated to the fixed side of the contract is credited with interest
beginning on the next calendar day following the date of receipt if all partic-
ipant data is complete. UNUM/America may vary the way in which it credits in-
terest to the fixed side of the contract from time to time.
UNUM/America will also declare in advance a guaranteed interest rate which will
be effective for all amounts in the participant's account value in the fixed
account during the designated year. This rate will never be less than the mini-
mum rate of interest. UNUM/America may also declare in advance separate inter-
est rate guarantees which are in excess of the guaranteed interest rate for
some or all of the participant's account value in the fixed account for spe-
cific period(s) during the designated year.
ANY INTEREST IN EXCESS OF 3.0% WILL BE DECLARED IN ADVANCE AT UNUM/AMERICA'S
SOLE DISCRETION. PARTICIPANTS BEAR THE RISK THAT NO INTEREST IN EXCESS OF 3.0%
WILL BE DECLARED.
If a participant's plan permits loans, then during the participant's accumula-
tion period, the participant may apply for a loan by completing a loan applica-
tion that we provide. The participant's account balance in the fixed
8
<PAGE>
account secures the loan. Loans are subject to restrictions imposed by the tax
code, Title I of the Employee Retirement Income Security Act of 1974 (ERISA),
and the participant's plan. For plans subject to Title I of ERISA, the initial
amount of a participant loan cannot exceed the lesser of 50% of the partici-
pant's vested account balance in the fixed account or $50,000 and must be at
least $1,000. For plans not subject to Title I of ERISA, a participant may bor-
row up to $10,000 of his or her vested account balance. A participant may have
only one loan outstanding at a time and may not take 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
below the loan interest rate provided in the contract. Under certain contracts,
a fee of up to $50 may be charged for a loan. More information about loans,
loan interest rates, and fees and charges are in the contract, the active life
certificates, the annuity loan agreement and is available from us.
Variable annuity account (VAA)
On July 8, 1988, the VAA was established as an insurance company separate ac-
count under Maine law. It is registered with the SEC as a unit investment trust
under the provisions of the 1940 Act. The SEC does not supervise the VAA or
UNUM/America. The VAA is a segregated investment account, meaning that its as-
sets may not be charged with liabilities resulting from any other business that
we may conduct. Income, gains and losses, whether realized or not, from assets
allocated to the VAA are, in accordance with the applicable annuity contracts,
credited to or charged against the VAA. They are credited or charged without
regard to any other income, gains or losses of UNUM/America. The VAA satisfies
the definition of separate account under the federal securities laws. We do not
guarantee the investment performance of the VAA. Any investment gain or loss
depends on the investment performance of the funds. You assume the full invest-
ment risk for all amounts placed in the VAA.
The VAA is used to support other annuity contracts offered by UNUM/America in
addition to the contracts described in this Prospectus. The other annuity con-
tracts supported by the VAA invest in the same funds as the contracts described
in this Prospectus. These other annuity contracts may have different charges
that could affect the performance of the subaccount.
Investments of the variable annuity account
The contractowner decides which subaccounts will be available for participant
allocations. There is a separate subaccount, which corresponds to each fund.
Participant allocations may be changed without penalty or charges. Shares of
the funds will be sold at net asset value with no initial sales charge to the
VAA in order to fund the contracts. The funds are required to redeem fund
shares at net asset value on our request. We reserve the right to add, delete,
or substitute funds.
Each fund, described below, is an investment vehicle for insurance company sep-
arate accounts. Certain funds offered as part of this contract have similar in-
vestment objectives and policies to other portfolios managed by the advisor.
The investment results of the funds, however, may be higher or lower than the
results of other portfolios that are managed by the advisor. 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
managed by the advisor.
Following are brief summaries of the investment objectives and policies of the
funds, and a description of their managers. Each fund is subject to certain in-
vestment policies and restrictions which may not be changed without a majority
vote of shareholders of that fund. More detailed information can be obtained
from the current Prospectus for the funds. There is no assurance that any of
the funds will achieve its stated objective.
1. American Century Variable Portfolios, Inc.--American Century VP Balanced
seeks capital growth and current income. Its investment team intends to
maintain approximately 60% of the portfolio's assets in common stocks that
are considered by its manager to have better than average prospects for ap-
preciation and the balance in bonds and other fixed income securities. Amer-
ican Century Investment Management, Inc. is the investment manager of this
portfolio.
2. American Century Variable Portfolios, Inc--American Century VP Capital Ap-
preciation seeks capital growth by investing primarily in common stocks that
are considered by management to have better-than-average prospects for ap-
preciation. American Century Investment Management, Inc. is the investment
manager of this portfolio.
3. Calvert Variable Series--The Calvert Social Balanced Portfolio seek to
achieve a competitive total return through actively managed portfolio of
stock, bonds and money market instruments which offers income and capital
growth opportunity and which satisfy the investment and social criteria.
Calvert Asset Management Company, Inc. serves as the Portfolio's Investment
Adviser.
9
<PAGE>
4. Dreyfus Stock Index Fund is a non-diversified index fund that seeks to pro-
vide 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 acts as the Fund manager and Mellon Equity Associates, an af-
filiate of Dreyfus located at 500 Grant Street, Pittsburgh, Pennsylvania
15258, is the Fund index manager.
5. Dreyfus Variable Investment Fund--Small Cap Portfolio seeks to maximize
capital appreciation. The Small Cap Portfolio seeks out companies that have
the potential for significant growth. Under normal market conditions, the
Portfolio will invest at least 65% of its total assets in domestic and for-
eign companies with market capitalization of less than $1.5 billion, at the
time of purchase. The manager seeks companies believed 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 serves as the Funds investment adviser.
6. Fidelity Variable Insurance Products Fund (VIP)--Growth Portfolio seeks to
achieve long-term capital appreciation. The Portfolio normally purchases
common stocks. FMR is the investment manager of this portfolio.
7. Fidelity Variable Insurance Products Fund (VIP)--Equity-Income Portfolio
seeks reasonable income by investing primarily in income-producing securi-
ties, with some potential for capital appreciation, seeking a yield that
exceeds the composite yield on the securities comprising the Standard and
Poor's 500 Index (S&P 500). Fidelity Management & Research Company ("FMR")
is the manager of this portfolio.
8. Fidelity Variable Insurance Products Fund II (VIP II)--Asset Manager Port-
folio seeks high total return with reduced risk over the long term by allo-
cating its assets among domestic and foreign stocks, bonds and short-term
money market instruments. FMR is the investment manager of this portfolio.
9. T. Rowe Price International Series, Inc.--T. Rowe Price International Stock
Portfolio seeks long-term growth of capital through investments primarily
in common stocks of established, non-U.S. companies. Rowe Price-Fleming In-
ternational, Inc. is the investment manager of this portfolio.
Fidelity VIP--Money Market Portfolio seeks to obtain as high a level of cur-
rent income as is consistent with preserving capital and providing liquidity.
For more information about the Portfolio, into which initial contributions are
invested pending UNUM/America's receipt of a complete order, see The con-
tracts--purchase of contracts.
On or about August 6, 1999 we anticipate (i) closing the Growth II Account and
replacing the VP Capital Appreciation with Fidelity VIP--Growth Portfolio and
(ii) closing the Socially Responsible Account and replacing the Calvert Social
Balanced Portfolio with Fidelity VIP II--Asset Manager.
With respect to a fund, the advisor and/or distributor, or an affiliate there-
of, may compensate Lincoln Life (or an affiliate) for administrative, distri-
bution, or other services. It is anticipated that such compensation will be
based on assets of the particular fund attributable to the contracts along
with certain other variable contracts issued or administered by Lincoln Life
(or an affiliate).
Sale of shares by the funds
We will purchase shares of the funds at net asset value and direct them to the
appropriate subaccounts of the VAA. We will redeem shares of the appropriate
funds to pay annuity payouts, death benefits, surrender/withdrawal proceeds or
for other purposes described in the contract. If a participant wants to trans-
fer all or part of his or her account balance from one subaccount to another,
we redeem shares held in the first and purchase shares of the other. The
shares are retired, but they may be reissued later.
Shares of the funds are not sold directly to the general public. They are sold
to UNUM/America and may be sold to other insurance companies for investment of
assets of the subaccounts established by those insurance companies to fund
variable annuity and variable life insurance contracts.
When a fund sells shares both to variable annuity and to variable life insur-
ance separate accounts, it is engaging in mixed funding. When a fund sells
shares to separate accounts of unaffiliated life insurance companies, it is
engaging in shared funding.
The funds may engage in mixed and shared funding. Due to differences in re-
demption rates or tax treatment, or other considerations, the interests of
various contractowners participating in a fund could conflict. The funds' Di-
rectors or Trustees will monitor for the existence of any material conflicts,
and determine what action, if any, should be taken. See the Prospectuses for
the funds.
Reinvestment of dividends and capital gain distributions
All dividend and capital gain distributions of the funds are automatically re-
invested in shares of the distributing funds at their net asset value on the
date of distribution. Dividends are not paid out to contractowners as addi-
tional units, but are reflected as changes in unit values.
10
<PAGE>
Addition, deletion or substitution of investments
We reserve the right, within the law, to make additions, deletions and substi-
tutions for the funds in which the VAA participates. (We may substitute shares
of other funds for shares already purchased, or to be purchased in the future,
under the contract. This substitution might occur if shares of a fund should no
longer be available, or if investment in any fund's shares should become inap-
propriate, in the judgment of our management, for the purposes of the con-
tract.) We cannot substitute shares without approval by the SEC. We will also
notify contractowners and participants.
Charges and other deductions
We will deduct the charges described below to cover costs and expenses, serv-
ices provided, and risks assumed under the contracts. Certain costs and ex-
penses will be incurred for distribution and administration of the contracts
and for providing the benefits payable thereunder. More particularly, the ad-
ministrative services provided include: processing applications and enrollment
forms and issuing the contracts and active life certificates, processing pur-
chases and redemptions of fund shares as required, maintaining records, admin-
istering payout annuity options, furnishing accounting and valuation services
(including the calculation and monitoring of daily subaccount values), recon-
ciling and depositing cash receipts, providing contract confirmations, provid-
ing toll-free inquiry services and furnishing telephone fund transfer services.
The risks assumed include: the risk that annuitants receiving payout annuities
under the contract will live longer than we assumed when we calculated our
guaranteed rates (these rates cannot be changed); the risk that death benefits
paid will exceed actual participant account balances (less outstanding loans);
the risk that more participants than expected will qualify for waiver of the
surrender charge; and the risk that our costs in providing the services will
exceed our revenues from contract charges which we cannot change. The amount of
a charge may not necessarily correspond to the costs associated with providing
the services or benefits indicated by the description of the charge. For exam-
ple, the surrender charge (contingent deferred sales charge) collected may not
fully cover all of the sales and distribution expenses actually incurred by us.
As noted above, Lincoln Life now administers the contracts on our behalf.
Deductions from the VAA for Variable Annuity I
We deduct from the VAA an amount, computed daily, which is equal to a maximum
rate of 1.20% of the daily net asset value. The charge is a mortality and ex-
pense risk charge. It is assessed during the accumulation period and during the
annuity period, even though during the annuity period we bear no mortality risk
on annuity options that do not have life contingencies.
Annual administration charge
During the accumulation period, we currently deduct $25 (or the balance of the
participant's account, if less) per year from each participant's account bal-
ance on the last business day of the month in which a participant anniversary
occurs. We also deduct the charge from a participant's account balance if the
participant's account is totally withdrawn. The charge may be increased or
decreased.
Surrender charge
A surrender charge applies (except as described below) to total or partial
withdrawals of a participant's account balance during the accumulation period
and prior to the 11th participation year, as follows:
<TABLE>
<CAPTION>
During Participation Year Surrender Charge
- ------------------------- ----------------
<S> <C>
1-6 5%
7 4%
8 3%
9 2%
10 1%
11 and later 0%
</TABLE>
The surrender charge is imposed on the gross withdrawal amount, and is deducted
from the subaccounts and the fixed account in proportion to the amount with-
drawn from each. We do not impose a surrender charge on death benefits, or on
account balances converted to a payout annuity option. For any participant, the
surrender charge will never exceed 8.5% of the cumulative contributions to the
participant's account.
We will not impose a surrender charge on a withdrawal if we receive with the
withdrawal request reasonable proof that (i) the participant has attained age
59 1/2; (ii) the participant has died; (iii) the participant has incurred a
disability as defined under the contract; or (iv) the participant has termi-
nated employment with the employer. At the contractowner's option, the contract
may waive the surrender charge if the participant is experiencing financial
hardship. A contractowner may also choose to add the requirement that a partic-
ipant be 55 years of age when terminating employment in order for the contract
to waive the surrender charge. A contractowner may also elect a contract provi-
sion that permits participants to make a withdrawal once each contract year of
up to 20% of the participant's account balance without a surrender charge. If
the contractowner makes these elections, then we may adjust the interest cred-
iting rate under the fixed account of that contract.
We impose the surrender charge to compensate us for the loss experienced on
distribution costs when a participant withdraws account value before distribu-
tion costs have been recovered. We may also recover distribution costs from
other contract charges, including the mortality and expense risk charge.
11
<PAGE>
Deductions for premium taxes
Any premium tax or other tax levied by any governmental entity as a result of
the existence of the contracts or the VAA will be deducted from account value
when incurred, or at another time of our choosing.
The applicable premium tax rates that states and other governmental entities
impose on the purchase of an annuity are subject to change by legislation, by
administrative interpretation or by judicial action. The tax ranges from 0.5%
to 4.0%.
Other charges and deductions
There are deductions from and expenses paid out of the assets of the underlying
funds that are more fully described in the Prospectuses for the funds.
We impose a $50 fee under certain conditions to establish a participant loan
from the fixed account, and loans are subject to loan interest charges. In ad-
dition, we impose a $30 fee to set up a systematic withdrawal option for a par-
ticipant.
Additional information
The annual administration charge and surrender charge described previously may
be reduced or eliminated under a particular contract. However, these charges
will be reduced only to the extent that we anticipate lower distribution and/or
administrative expenses, or that we perform fewer sales or administrative serv-
ices than those originally contemplated in establishing the levels of those
charges. Lower distribution and/or administrative expenses may be the result of
economies associated with (i) the size of a particular group; (ii) an existing
relationship with the contractowner or employer; (iii) the use of mass enroll-
ment procedures; (iv) the performance of administrative or sales functions by
the employer; or (v) the use by an employer of automated techniques in submit-
ting contributions or information relating to contributions on behalf of its
employees. In addition, an employer may pay the annual administration charge on
behalf of participants under a contract, or by election impose this charge only
on participants with account balances in the VAA.
The contracts
Purchase of the Contracts
We designed the contracts for employers and other entities to enable partici-
pants and employers to accumulate funds for retirement programs meeting the re-
quirements of the following Sections of the Internal Revenue Code of 1986, as
amended (tax code): 401(a), 403(b), 408 and other related sections, as well as
for programs offering non-qualified annuities. For plans that have allocated
rights to the participant, we will issue to each participant a separate active
life certificate that describes the basic provisions of the contract to each
participant.
Contributions
Contractowners generally forward contributions to us 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 selected
from those subaccounts available by the contractowner.
Contributions by participants may be in any amount unless there is a minimum
amount set by the contractowner or plan. A contract may require the
contractowner to contribute a minimum annual amount on behalf of all partici-
pants. Annual contributions under qualified plans may be subject to maximum
limits imposed by the tax code. Annual contributions under non-qualified plans
may be limited by the terms of the contract. In the Statement of Additional In-
formation see "Tax Law Considerations" for a discussion of these limits.
Subject to any restrictions imposed by the plan or the tax code, we will accept
transfers from other contracts and qualified rollover contributions.
Section 830.205 of the Texas Education Code provides that employer or state
contributions (other than salary reduction contributions) on behalf of partici-
pants in the Texas Optional Retirement Program ("ORP") vest after one year of
participation in the program. We will return employer contributions to the
contractowner for those employees who terminate employment in all Texas insti-
tutions of higher education before becoming vested. During this first partici-
pation year in the ORP, ORP Participants may only direct employer and state
contributions to the fixed account.
Contributions must be in U.S. funds, and all withdrawals and distributions un-
der the contract will be in U.S. funds. If a bank or other financial institu-
tion does not honor the check or other payment method used for a contribution,
we will treat the contribution as invalid. All allocation and subsequent trans-
fers resulting from the invalid contributions will be reversed and the party
responsible for the invalid contribution must reimburse us for any losses or
expenses resulting from the invalid contribution.
Initial contributions
When we receive a completed enrollment form and all other information necessary
for processing a contribution, we will price the initial contribution for a
participant to his or her account no later than two business days after we re-
ceive the contribution.
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<PAGE>
If we receive contributions without a properly complete enrollment form, we
will notify the contractowner and deposit the contributions to the pending al-
location account. Within two business days of receipt of a properly completed
enrollment form, we will transfer the participant's account balance in the
pending allocation account in accordance with the allocation percentages
elected on the enrollment form. We will allocate all future contributions in
accordance with these percentages until the participant notifies us of a
change. If we do not receive a properly completed enrollment form after we
send three monthly notices, then we will refund the participant's account bal-
ance in the pending allocation account within 105 days of the date of the ini-
tial contribution. The pending allocation account invests in Fidelity VIP--
Money Market Portfolio, which is not available as an investment option under
the contract. We do not impose the mortality and expense risk charges or the
annual administration charge on the pending allocation account. We begin im-
posing these charges when we receive a properly completed enrollment form. The
participant's participation date will be the date we deposited the partici-
pant's contribution into the pending allocation account.
Valuation date
Accumulation units and annuity units will be valued once daily at the close of
trading (currently 4:00 p.m., New York time) on each day the New York Stock
Exchange is open (valuation date), on any date other than a valuation date,
the accumulation unit value and the annuity unit value will not change.
Allocation of contributions
The contractowner forwards contributions to us, specifying the amount being
contributed on behalf of each participant and allocation information in accor-
dance with our procedures. Contributions are placed into the VAA's
subaccounts, each of which invests in shares of a fund, and/or the fixed ac-
count, according to written participant instructions and subject to the plan.
The contribution allocation percentage to the subaccounts or the fixed account
can be in any whole percent. A participant may allocate contributions to a
maximum of nine subaccounts or the fixed account.
Upon allocation to the appropriate subaccount, contributions are converted to
accumulation units. The number of accumulation units credited is determined by
dividing the amount allocated to each subaccount by the value of an accumula-
tion unit for that subaccount on the valuation date on which the contribution
is received by us if received before 4:00 p.m., New York time. If the contri-
bution is received at or after 4:00 p.m., New York time, we will use the accu-
mulation unit value computed on the next valuation date. The number of accumu-
lation units determined in this way is not changed by any subsequent change in
the value of an accumulation unit. However, the dollar value of an accumula-
tion unit will vary depending not only upon how well the underlying fund's in-
vestments perform, but also upon the expenses of the VAA and the underlying
funds.
Subject to the terms of the plan, a participant may change the allocation of
contributions by notifying us in writing or by telephone in accordance with
our published procedures. The change is effective for all contributions re-
ceived concurrently with the allocation change form and for all future contri-
butions, unless the participant specifies a later date. Changes in the alloca-
tion of future contributions have no effect on amounts a participant may have
already contributed. Such amounts, however, may be transferred between
subaccounts and the fixed account pursuant to the requirements described in
"Transfers on or before the annuity commencement date." Allocations of em-
ployer contributions may be restricted by the applicable plan.
Valuation of accumulation units
Contributions allocated to the VAA 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 VAA.
The accumulation unit value for each subaccount was or will be established at
the inception of the subaccount. It may increase or decrease from valuation
period to valuation period. The accumulation unit value for a subaccount for a
later valuation period is determined as follows:
(1) The total value of the fund shares held in the subaccount is calculated by
multiplying the number of fund shares owned by the subaccount at the be-
ginning of the valuation period by the net asset value per share of the
fund at end of the valuation period, and adding any dividend or other dis-
tribution of the fund if an ex-dividend date occurs during the valuation
period; minus
(2) The liabilities of the subaccount at the end of the valuation period;
these liabilities include daily charges imposed on the subaccount, and may
include a charge or credit with respect to any taxes paid or reserved for
by us that we determine result from the operations of the VAA; and
(3) The result of (2) is divided by the number of subaccount units outstanding
at the beginning of the valuation period.
The daily charges imposed on a subaccount for any valuation period are equal
to the mortality and expense risk charge multiplied by the number of calendar
days in the valuation period.
Transfers on or before the annuity commencement date
Subject to the terms of a plan, a participant may transfer all or a portion of
the participant's account balance from one subaccount to another, and between
the VAA and the fixed account.
13
<PAGE>
A transfer from a subaccount involves the surrender of accumulation units in
that subaccount, and a transfer to a subaccount involves the purchase of accu-
mulation units in that subaccount. Subaccount transfers will be done using ac-
cumulation unit values determined at the end of the valuation date on which we
receive the transfer request. There is no charge for a transfer. We do not re-
quire any minimum transfer amount, and do not limit the number of transfers.
A transfer may be made by writing to us or, if a Telephone Exchange Authoriza-
tion form (available from us) is on file with us, by a toll-free telephone
call. In order to prevent unauthorized or fraudulent telephone transfers, we
may require the caller to provide certain identifying information before we
will act upon their instructions. We may also assign the participant a Personal
Identification Number (PIN) to serve as identification. We will not be liable
for following telephone instructions we reasonably believe are genuine. Tele-
phone requests may be recorded and written confirmation of all transfer re-
quests will be mailed to the participant on the next valuation date. If the
participant or contractowner determines that a transfer was made in error, the
contractowner or participant must notify us within 30 days of the confirmation
date. Telephone transfers will be processed on the valuation date that they are
received when they are received by us before 4:00 p.m. New York time.
When thinking about a transfer of account value, the participant should con-
sider the inherent risk involved. Frequent transfers based on short-term expec-
tations may increase the risk that a transfer will be made at an inopportune
time.
Transfers after the annuity commencement date
We do not permit transfers of a participant's account balance after the annuity
commencement date.
Death benefit before the annuity commencement date
The payment of death benefits is governed by the applicable plan and the tax
code. The participant may designate a beneficiary during the participant's
lifetime and change the beneficiary by filing a written request with us. Each
change of beneficiary revokes any previous designation.
If the participant dies before the annuity commencement date, the death benefit
paid to the participant's designated beneficiary will be the greater of: (1)
the net contributions; or (2) the participant's account balance less any out-
standing loan (including principal and due and accrued interest), provided
that, if we are not notified of the participant's death within six months of
such death, we pay the beneficiary the amount in (2).
We determine the value of the death benefit as of the date on which the death
claim is approved for payment. This payment will occur when we receive (1)
proof, satisfactory to us, of the death of the participant; (2) written autho-
rization for payment; and (3) all required claim forms, fully completed.
If a death benefit is payable, the beneficiary may elect to receive payment of
the death benefit either in the form of a lump sum settlement or a payout annu-
ity, or as a combination of these two.
If a lump sum settlement is requested, the proceeds will be mailed within seven
days of receipt of satisfactory claim documentation as discussed previously,
subject to the laws and regulations governing payment of death benefits. If no
election is made within 60 days after we receive satisfactory notice of the
participant's death, we will pay a lump sum settlement to the beneficiary at
that time. This payment may be postponed as permitted by the 1940 Act.
Payment will be made in accordance with applicable laws and regulations gov-
erning payment of death benefits.
Under qualified contracts, if the beneficiary is someone other than the spouse
of the deceased participant, the tax 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 tax code pro-
vides 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, distri-
butions generally are not required under the tax code to begin earlier than De-
cember 31st of the calendar year in which the participant would have attained
age 70. 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 us at the time of a par-
ticipant's death and unless the plan directs otherwise, we will pay the death
benefit to the participant's estate in the form of a lump sum payment, upon re-
ceipt of satisfactory proof of the participant's death, but only if we receive
proof of death no later than the end of the fourth calendar year following the
year of the participant's death. The value of the death benefit will be deter-
mined as of the end of the valuation period during which we receive due proof
of death, and the lump sum death benefit generally will be paid within seven
days of that date.
14
<PAGE>
Withdrawals
Before the annuity commencement date and subject to the terms of the plan,
withdrawals may be made from the subaccounts or the fixed account of all or
part of the participant's account balance remaining after deductions for any
applicable (1) surrender charge; (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.
The account balance available for withdrawal is determined at the end of the
valuation period during which we receive the written withdrawal request. Un-
less a request for withdrawal specifies otherwise, withdrawals will be made
from all subaccounts within the VAA and from the fixed account in the same
proportion that the amount of withdrawal bears to the total participant ac-
count balance. Unless prohibited, withdrawal payments will be mailed within
seven days after we receive a valid written request. The payment may be post-
poned as permitted by the 1940 Act.
There are charges associated with withdrawals of account value. See charges
and other deductions.
The tax consequences of a withdrawal are discussed later in this booklet. See
Federal tax matters.
Total Withdrawals. Only participants with no outstanding loans can make a to-
tal withdrawal. A total withdrawal of a participant's account will occur when
(a) the participant or contractowner requests the liquidation of the partici-
pant's entire account balance, or (b) the amount requested plus any surrender
charge results in a remaining participant account balance of an amount less
than or equal to the annual administration charge, in which case we treat the
request as a request for liquidation of the participant's entire account
balance.
Any active life certificate must be surrendered to us when a total withdrawal
occurs. If the contractowner resumes contributions on behalf of a participant
after a total withdrawal, the participant will receive a new participation
date and active life certificate.
Partial Withdrawals. A partial withdrawal of a participant's account balance
will occur when less than a total withdrawal is made from a participant's ac-
count.
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 eli-
gible for a Systematic Withdrawal Option ("SWO") under the contract. Payments
are made only from the fixed account. 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 with-
drawn on a periodic basis. A participant must have a vested pre-tax account
balance of at least $10,000 in the fixed account in order to select the SWO. A
participant may transfer amounts from the VAA to the fixed account in order to
support SWO payments. These transfers, however, are subject to the transfer
restrictions imposed by any applicable plan. A one-time fee of up to $30 will
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 ap-
plicable fees and charges, is available in the contracts and active life cer-
tificates and from us.
Maximum conservation option. Under certain contracts participants who are at
least age 70 1/2 may ask us to calculate and pay to them the minimum annual
distribution required by Sections 401(a)(9), 403(b)(10), or 408 of the tax
code. The participant must complete the forms we require to elect this option.
We will base our calculation solely on the participant's account value with
us. 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 sub-
ject to the limitations under Section 403(b)(11) of the tax code and regula-
tions thereof and in any applicable plan document. That section provides that
withdrawals of salary reduction contributions deposited and earnings credited
on any salary reduction contributions after December 31, 1988 can only be made
if the participant has (1) died; (2) become disabled; (3) attained age 59 1/2;
(4) separated from service; or (5) incurred a hardship. If amounts accumulated
in a Section 403(b)(7) custodial account are deposited in a contract, these
amounts will be subject to the same withdrawal restrictions as are applicable
to post-1988 salary reduction contributions under the contracts. For more in-
formation on these provisions see Federal tax matters.
Withdrawal requests for a participant under Section 401(a) plans and plans
subject to Title I of ERISA must be authorized by the contractowner on behalf
of a participant. All withdrawal requests will require the contractowner's
written authorization and written documentation specifying the portion of the
participant's account balance which is available for distribution to the par-
ticipant.
As required by Section 830.105 of the Texas Education Code, withdrawal re-
quests 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 certifi-
cate of termination from the participant's employer before a withdrawal re-
quest can be granted.
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For withdrawal requests (other than transfers to other investment vehicles) by
participants under plans not subject to Title I of ERISA and non-401(a) Plans,
the participant must certify to us that one of the permitted distribution
events listed in the tax code has occurred (and provide supporting informa-
tion, if requested) and that we may rely on this representation in granting
the withdrawal request. See Federal tax matters. A participant should consult
his or her tax adviser as well as review the provisions of their plan before
requesting a withdrawal.
A plan and applicable law may contain additional withdrawal or transfer re-
strictions.
Withdrawals may have Federal tax consequences. In addition, early withdrawals,
as defined under Section 72(q) and 72(t) of the tax code, may be subject to a
ten-percent excise tax.
Amendment of the contract
We reserve the right to amend the contract to meet the requirements of the
1940 Act or other applicable federal or state laws or regulations. The
contractowner will be notified in writing of any changes, modifications or
waivers.
Commissions
We pay commissions of up to 3.5% of contributions to dealers. In some instanc-
es, we may lower commissions on contributions by as much as 3.5% and include a
commission of up to .50% of annual contract values (or an equivalent sched-
ule). These commissions are not deducted from contributions or account value;
they are paid by us.
Ownership
Contractowners have all rights under the contract except those allocated to
participants. According to Maine law, the assets of the VAA are held for the
exclusive benefit of all contractowners, participants, and their designated
beneficiaries; and the assets of the VAA are not chargeable with liabilities
arising from any other business that we may conduct. Qualified contracts and
active life certificates may not be assigned or transferred except as permit-
ted by ERISA and on written notification to us. In addition, a participant,
beneficiary, or annuitant may not, unless permitted by law, assign or encumber
any payment due under the contract.
Contractowner questions
The obligations to purchasers under the contracts are those of UNUM/America.
Questions about the contract should be directed to us at 1-800-341-0441.
Annuity payouts
As 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 an annuity payout. The contract provides op-
tional forms of payouts of annuities (annuity payout options), each of which
is payable on a variable basis, a fixed basis or a combination of both as
specified. If the contractowner does not give us instructions, we will apply
the participant's account value in the fixed account to a fixed annuity, and
account balance in the VAA to a variable annuity.
If the participant's account balance or the beneficiary's death benefit is
less than $2,000 or if the amount of the first payout is less than $20, we
have the right to cancel the annuity and pay the participant or beneficiary
the entire amount in a lump sum.
We may maintain variable payout annuities in the VAA in a separate account of
Lincoln Life (the variable payout division). We do not impose a charge when
the annuity conversion amount is applied to a variable payout on a variable
basis. The contract benefits and charges for an annuity payout option, whether
maintained in the VAA or in a variable payout division, are as described in
this Prospectus. The selection of funds available through a variable payout
division may be different from the funds available through the VAA. If we
maintain a participant's variable annuity payout in a variable payout divi-
sion, we will provide a Prospectus for the variable payout division before the
annuity commencement date.
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 benefi-
ciary. If the beneficiary is not 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 payout to be made to the participant and the beneficiary.
If an annuitant dies before the end of a designated annuity period, the bene-
ficiary, if any, or the annuitant's estate will receive any remaining payments
due under the annuity option in effect.
Annuity payout options
Note Carefully: Under the Single Life Annuity and Joint Life Annuity options
it would be possible for only one annuity payout to be made if the
annuitant(s) were to die before the due date of the second annuity payout;
only two annuity payouts if the annuitant(s) were to die before the due date
of the third annuity payout; and so forth.
Single Life Annuity. Payouts are made monthly during the lifetime of the annu-
itant, and the annuity terminates with the last payout preceding death.
Life Annuity With Guaranteed Periods of 10, 15 or 20 Years. Payouts are made
monthly during the lifetime of the annuitant with a monthly payout guaranteed
to the beneficiary for the remainder of the selected number of years, if the
annuitant dies before the end of the period selected. Payouts under this annu-
ity option are smaller than a single life annuity without a guaranteed payout
period.
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Joint Life Annuity. Payouts are made monthly during the joint lifetime of the
annuitant and a designated second person.
Non-Life Annuities. Annuity payouts are guaranteed monthly for the selected
number of years. While there is no right to make any total or partial with-
drawals during the annuity period, an annuitant or beneficiary who has se-
lected this annuity option as a variable annuity may request at any time dur-
ing the payout period that the present value of any remaining installments be
paid in one lump sum. This lump sum payout will be treated as a total with-
drawal during the accumulation period and may be subject to a surrender
charge. See Charges and deductions and Federal tax matters.
Additional information
Annuity payout options are only available if consistent with the contract, the
plan, the tax code, and ERISA.
The annuity commencement date is the date on which we make the first annuity
payout to an annuitant. For plans subject to Section 401(a)(9)(B) of the tax
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
contractowner may select an annuity commencement date for the annuitant, which
is shown in the retired life certificate. Selection of an annuity commencement
date may be affected by the distribution restrictions under the tax code and
the minimum distribution requirements under Section 401(a)(9) of the tax code.
See Federal tax matters.
You must send us written notice of the selected annuity commencement date, the
annuity payout option (including whether fixed or variable), and the annuity
conversion amount to be converted on behalf of a participant or beneficiary,
at least 30 days before the selected annuity commencement date. If proceeds
become available to a beneficiary in a lump sum, the beneficiary may choose
any annuity payout option.
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 payout
calculation date. For a fixed annuity, the annuity commencement date is usu-
ally one month after the annuity payout calculation date; subsequent payout
annuity payments are at one-month intervals from the annuity commencement
date. For a variable annuity, the annuity commencement date is ten business
days after the initial annuity payout calculation date; subsequent monthly
payouts have annuity payout calculation dates which are ten business days pri-
or.
Annuity payout calculation
Fixed annuity payouts are determined by dividing the participant's annuity
conversion amount in the fixed account as of the initial annuity payout calcu-
lation date by the applicable annuity conversion factor (in the contract) for
the annuity payout option selected.
Variable annuity payouts will be determined using:
1. The participant's annuity conversion amount in the VAA as of the initial
annuity payout calculation date;
2. The annuity conversion factor in the contract;
3. The annuity payout option selected; and
4. The investment performance of the funds selected.
To determine the amount of annuity payouts, we make this calculation:
1. Determine the dollar amount of the first payout; then
2. Credit the retired life certificate with a specific number of annuity units
equal to the first payout divided by the annuity unit value; and
3. Calculate the value of the annuity units each period thereafter.
We assume an investment return of a specified percentage per year, as applied
to the applicable mortality table. The amount of each annuity payout after the
initial payout will depend upon how the underlying fund(s) perform, relative
to the assumed rate. If the actual net investment rate (annualized) exceeds
the specified percentage, the payment will increase at a rate equal to the
amount of such excess. Conversely, if the actual rate is less than the speci-
fied percentage, annuity payouts will decrease. There is a more complete ex-
planation of this calculation in the SAI.
Federal tax matters
Introduction
The Federal income tax treatment of the contract is complex and sometimes un-
certain. The Federal income tax rules may vary with your particular circum-
stances. This discussion does not include all the Federal income tax rules
that may affect the contractowner, participant and contract. This discussion
also does not address other consequences, or state or local tax consequences,
associated with the contract. As a result, contractowners and participants
should always consult a tax advisor about the application of tax rules to
their individual situation.
Qualified retirement plans
We have designed the contracts for use in connection with certain types of re-
tirement plans that receive favorable treatment under the tax code. Contracts
issued to or in connection with a qualified retirement plan are called "quali-
fied contracts." We issue contracts for use with different types of qualified
plans. The Federal income tax rules applicable to those plans are complex and
varied. As a result, this Prospectus does not attempt to provide more than
general information about use of the contract with the various types of quali-
fied
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plans. Persons planning to use the contract in connection with a qualified
plan should obtain advice from a competent tax advisor.
Types of qualified contracts and terms of contracts
Contracts may be used in connection with the following types of qualified
plans:
. Individual Retirement Accounts and Annuities ("Traditional IRAs")
. Public school system and tax-exempt organization annuity plans ("403(b)")
. Qualified corporate employee pension and profit-sharing plans ("401(a)
plans") and qualified annuity plans ("403(a) plans")
We will amend contracts to be used with a qualified plan as generally neces-
sary to conform to tax law requirements for the type of plan. However, the
rights of a person to any qualified plan benefits may be subject to the plan's
terms and conditions, regardless of the contract's terms and conditions. In
addition, we are not bound by the terms and conditions of qualified plans to
the extent such terms and conditions contradict the contract, unless we con-
sent.
Tax deferral on earnings
The Federal income tax law generally does not tax any increase in the contract
value until the contractowner or participant receives a contract distribution.
However, for this general rule to apply, certain requirements must be satis-
fied:
. The investments of the VAA must be "adequately diversified" in accordance
with the IRS regulations;
. The right to choose particular investments for a contract must be limited.
Investments in the VAA must be diversified
For a contract to be treated as an annuity for Federal income tax purposes,
the investments of the VAA must be "adequately diversified." IRS regulations
define standards for determining whether the investments of the VAA are ade-
quately diversified. If the VAA fails to comply with the diversification stan-
dards, the participant could be required to pay tax currently on the excess of
the contract value over the contract contributions. Although we do not control
the investments of the underlying investment options, we expect that the un-
derlying investment options will comply with the IRS regulations so that the
VAA will be considered "adequately diversified."
Restrictions
Federal income tax limits the contractowner's and participant's rights to
choose particular investments for the contract. Because the IRS has not issued
guidance specifying those limits, the limits are uncertain and your right to
allocate contract values among the subaccounts may exceed those limits. If so,
contractowner and/or participant would be treated as the owner of the assets
of the VAA and thus subject to current taxation on the income and gains from
those assets. We do not know what limits may be set by the I.R.S. in any guid-
ance that it may issue and whether any such limits will apply to existing con-
tracts. We reserve the right to modify the contract without contractowner's or
participant's consent to try to prevent the tax law from considering them as
the owner of the assets of the VAA.
Taxation of withdrawals and surrenders
Contractowner and/or participant will pay tax on withdrawals to the extent
their contract value exceeds contributions in the contract. This income (and
all other income from the contract) is considered ordinary income. A higher
rate of tax is paid on ordinary income than on capital gains. Contractowner
and/or participant will pay tax on a surrender to the extent the amount re-
ceived exceeds contributions. In certain circumstances contributions are re-
duced by amounts received from the contract that were not included in income.
Tax treatment of qualified plans
The Federal income tax rules applicable to qualified plans and qualified con-
tracts vary with the type of plan and contract. For example,
. Federal tax rules limit the amount of contributions that can be made, and
the tax deduction or exclusion that may be allowed for the contributions.
These limits vary depending on the type of qualified plan and the plan par-
ticipant's specific circumstances, e.g., the participant's compensation.
. Under most qualified plans, e.g., 403(b) plans and Traditional IRAs, the
participant must begin receiving payments from the contract in certain mini-
mum amounts by a certain age, typically age 70 1/2. However, these "minimum
distribution rules" do not apply to a Roth IRA.
. Loans are allowed under certain types of qualified plans but Federal income
tax rules prohibit loans under other types of qualified plans. For example,
Federal income tax rules permit loans under some section 403(b) loans, but
prohibit loans under Traditional and Roth IRAs. If allowed, loans are sub-
ject to a variety of limitations, including restrictions as to the loan
amount, the loan's duration, and the manner of repayment. Your contract or
plan may not permit loans.
Tax treatment of payments
Federal income tax rules generally include distributions from a qualified con-
tract in the participant's income as ordinary income. These taxable distribu-
tions will include contributions that were deductible or excludible from in-
come. Thus, under many qualified contracts the
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<PAGE>
total amount received is included in income since a deduction or exclusion from
income was taken for contributions. There are exceptions. For example, the par-
ticipant does not include amounts received from a Roth IRA in income if certain
conditions are satisfied.
Failure to comply with the minimum distribution rules applicable to certain
qualified plans, such as Traditional IRAs, will result in the imposition of an
excise tax. This excise tax generally equals 50% of the amount by which a mini-
mum required distribution exceeds the actual distribution from the qualified
plan.
Federal penalty taxes on distributions
The tax code may impose a 10% penalty tax on the amount received from the qual-
ified contract that must be included in income. The tax code does not impose
the penalty tax if one of several exceptions applies. The exceptions vary de-
pending on the type of qualified contract purchased. For example, in the case
of an IRA, exceptions provide that the penalty tax does not apply to a with-
drawal, surrender, or annuity payout:
. received on or after the participant reaches age 59 1/2,
. received on or after the participant's death or because of participant's dis-
ability (as defined in the tax law),
. received as a series of substantially equal periodic payments for the partic-
ipant's life (or life expectancy), or
. received as reimbursement for certain amounts paid for medical care.
These exceptions, as well as certain others not described here, generally apply
to taxable distributions from other qualified plans. However, the specific re-
quirements of the exception may vary.
Transfers and direct rollovers
In many circumstances, money may be moved between qualified contracts and qual-
ified plans by means of a rollover or a transfer. Special rules apply to such
rollovers and transfers. If the applicable rules are not followed, participant
may suffer adverse Federal income tax consequences, including paying taxes
which might not otherwise have had to be paid. A qualified advisor should al-
ways be consulted before contractowner or participant move or attempt to move
funds between any qualified plan or contract and another qualified plan or con-
tract.
The direct rollover rules apply to certain payments (called "eligible rollover
distributions") from section 410(a) plans, section 403(a) or (b) plans, HR 10
plans, and contracts used in connection with these types of plans. (The direct
rollover rules do not apply to distributions from IRAs). The direct rollover
rules require that we withhold Federal income tax equal to 20% of the eligible
rollover distribution from the distribution amount, unless participant elects
to have the amount directly transferred to certain qualified plans or con-
tracts. Before we send a rollover distribution, we will provide the participant
with a notice explaining these requirements and how the 20% withholding can be
avoided by electing a direct rollover.
Federal income tax withholding
We will withhold and remit to the IRS a part of the taxable portion of each
distribution made under a contract unless the participant notifies us at or be-
fore the time of the distribution that tax is not to be withheld. In certain
circumstances, Federal income tax rules may require us to withhold tax. At the
time a withdrawal, surrender, or annuity payout is requested, we will give the
participant an explanation of the withholding requirements.
Tax status of UNUM/America
Under existing Federal income tax laws, UNUM/America does not pay tax on in-
vestment income and realized capital gains of the VAA. UNUM/America does not
expect that it will incur any Federal income tax liability on the income and
gains earned by the VAA. We, therefore, do not impose a charge for Federal in-
come taxes. If Federal income tax law changes and we must pay tax on some or
all of the income and gains earned by the VAA, we may impose a charge against
the VAA to pay the taxes.
Changes in the law
The above discussion is based on the tax code, IRS regulations, and interpreta-
tions existing on the date of this Prospectus. However, Congress, the IRS, and
the courts may modify these authorities, sometimes retroactively.
Voting rights
As required by law, we will vote the fund shares held in the VAA at meetings of
shareholders of the funds. The voting will be done according to the instruc-
tions of participants that have interests in any subaccounts which invest in
the funds. If the 1940 Act or any regulation under it should be amended or if
present interpretations should change, and if as a result we determine that we
are permitted to vote the fund shares in our own right, we may elect to do so.
The number of votes which the participant has the right to cast will be deter-
mined by applying the participants percentage interest in a subaccount to the
total number of votes attributable to the subaccount. In determining the number
of votes, fractional shares will be recognized.
Shares held in a subaccount for which no timely instructions are received will
be voted by us in proportion to the voting instructions which are received for
all contracts participating in that subaccount. Voting instructions to abstain
on any item to be voted on will be applied on a pro-rata basis to reduce the
number of votes eligible to be cast.
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Whenever a shareholders meeting is called, we will furnish participants with a
voting interest in a subaccount with proxy voting materials, reports, and vot-
ing instruction forms. Since the funds engage in shared funding, other persons
or entities besides UNUM/America may vote fund shares. See Sale of fund
shares.
Distribution of the contracts
Lincoln Financial Advisors Corporation (LFA), 1300 South Clinton Street, Fort
Wayne, Indiana 46802, is the distributor and principal underwriter of the con-
tracts. LFA in turn has entered into selling agreements with independent bro-
ker-dealers licensed by state insurance departments to represent us. LFA is
registered with the SEC under the Securities Exchange Act of 1934 as a broker-
dealer and is a member of the National Association of Securities Dealers
(NASD). UNUM/America no longer offers new contracts.
Return privilege
Participants under Sections 403(b), 408 and certain non-qualified plans will
receive an active life certificate. Within the free-look period (ten days) af-
ter the participant receives the active life certificate, the participant may
cancel it for any reason by giving us written notice. The postmark date of the
notice is the date of notice for these purposes. An active life certificate
canceled under this provision will be void. With respect to the fixed side of
the contract, we will return the participant's contributions less withdrawals
made on behalf of the participant. With respect to the VAA, we will return the
greater of the participant's contributions less withdrawals made on behalf of
the participant, or the participant's account balance in the VAA on the date
we receive the written notice. No surrender charge applies.
State regulation
As a life insurance company organized and operated under Maine law, we are
subject to provisions governing life insurers and to regulation by the Maine
Commissioner of Insurance.
Our books and accounts are subject to review and examination by the Maine In-
surance Department at all times. A full examination of our operations is con-
ducted by that department at least every five years.
Records and reports
As presently required by the 1940 Act and applicable regulations, Lincoln Life
is responsible for maintaining all records and accounts relating to the VAA.
Lincoln Life has entered into an agreement with the Delaware Management Compa-
ny, 2005 Market Street, Philadelphia, PA 19203, to provide accounting services
to the VAA. We will mail to the contractowner, at its last known address of
record at our offices, at least semiannually after the first contract year,
reports containing information required by that Act or any other applicable
law or regulation.
Other information
Contract deactivation. Under certain contracts, we may deactivate a contract
by prohibiting new contributions and/or new participants after the date of de-
activation. We will give the contractowner and participants at least ninety
days notice of the deactivation date.
Delay in payments. We may delay payments from the fixed account for up to six
months. During this period, we will continue to credit the current declared
interest rate to a participant's account in the fixed account. Contract pro-
ceeds from the VAA will be paid within seven days, except (i) when the NYSE is
closed (except weekends and holidays); (ii) times when the market trading is
restricted or the SEC declares an emergency, and we cannot value units or the
funds cannot redeem shares; or (iii) when the SEC so orders to protect
contractowners.
IMSA. We are a member of the Insurance Marketplace Standards Association
("IMSA") and may include IMSA logo and information about IMSA membership in
our advertisements. Companies that belong to IMSA subscribe to a set of ethi-
cal standards covering the various aspects of sales and services for individu-
ally sold life insurance and annuities.
Preparing for Year 2000
Lincoln Life, as noted above, is responsible for administering the contracts
and the VAA on behalf of UNUM/America. Lincoln Life's responsibilities include
the operation of the computer systems related to the VAA, which are distinct
from those used by UNUM/America in its other operations. Many existing com-
puter programs use only two digits in the date filed to identify the year. If
left uncorrected, these programs, which were designed and developed without
considering the impact of the upcoming change in the century, could fail to
operate or could produce erroneous results when processing dates after Decem-
ber 31, 1999. For example, for a bond with a stated maturity date of July 1,
2000, a computer program could read and store the maturity date as July 1,
1900. This problem is known by many names, such as the "Year 2000 Problem",
"Y2K", and the "Millennium Bug".
The Year 2000 Problem affects virtually all computer programs worldwide. It
can cause a computer system to suddenly stop operating. It can also result in
a com-
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puter corrupting vital company records, and the problem could go undetected for
a long time. For our products, if left unchecked it could cause such problems
as purchase payment collection and deposit errors; claim payment difficulties;
accounting errors; erroneous unit values; and difficulties or delays in
processing transfers, surrenders and withdrawals. In a worst case scenario,
this could result in a material disruption to the operations both of Lincoln
Life and of Delaware Service Company, Inc. (Delaware), the provider of the ac-
counting and valuation services for the VAA.
However, both companies are wholly owned by Lincoln National Corporation (LNC),
which has had Year 2000 processes in place since 1996. LNC projects aggregate
expenditures in excess of $92 million for its Y2K efforts through the year
2000. Both Lincoln Life and Delaware have dedicated Year 2000 teams and steer-
ing committees that are answerable to their counterparts in LNC.
In light of the potential problems discussed above, Lincoln Life, as part of
its Year 2000 updating process, has assumed responsibility for correcting all
high-priority Information Technology (IT) systems which service the VAA. Dela-
ware is responsible for updating all its high-priority IT systems to support
these vital services. The Year 2000 effort, for both IT and non-IT systems, is
organized in four phases:
. awareness-raising and inventory of all assets (including third-party agent
and vendor relationships)
. assessment and high-level planning and strategy
. remediation of affected systems and equipment; and
. testing to verify Year 2000 readiness.
Both companies are currently on schedule to have their high-priority IT systems
remediated and tested to demonstrate readiness by June 30, 1999. During the
third and fourth quarters of 1999, additional testing of the environment will
continue. Both companies are currently on schedule to have their high-priority
non-IT systems (elevators, heating and ventilation, security systems, etc.)
remediated and tested by October 31, 1999.
The work on Year 2000 issues has not suffered significant delays; however, some
uncertainty remains. Specific factors that give rise to this uncertainty in-
clude (but are certainly not limited to) a possible loss of technical resources
to perform the work; failure to identify all susceptible systems; and non-com-
pliance by third parties whose systems and operations impact Lincoln Life. In a
report dated February 26, 1999, entitled, Investigating the Impact of Year 2000
Technology Problem, S. Prt. 106-10, the U.S. Senate Special Committee on the
Year 2000 Technology Problem expressed its concern that "Financial services
firms...are particularly vulnerable to...the risk that a material customer or
business partner will fail, as a result of the computer problems, to meet its
obligations".
One important key source of uncertainty is the extent to which the key trading
partners of Lincoln Life and Delaware will be successful in their own
remediation and testing efforts. Lincoln Life and Delaware have been monitoring
the process of their partners; however, the efforts of these partners are be-
yond our control.
Lincoln Life and Delaware expect to have completed their necessary remediation
and testing efforts prior to December 31, 1999. However, given the nature and
complexity of the problem, there can be no guarantee by either company that
there will not be significant computer problems after December 31, 1999.
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 7
- ------------------------------------------------
Distribution of Contracts 9
- ------------------------------------------------
Custodian 10
- ------------------------------------------------
Experts 10
- ------------------------------------------------
Financial Statements 10
</TABLE>
- --------------------------------------------------------------------------------
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STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
GROUP ANNUITY CONTRACTS
FUNDED THROUGH THE INVESTMENT DIVISIONS OF
VA-I SEPARATE ACCOUNT
OF
UNUM LIFE INSURANCE COMPANY OF AMERICA
VARIABLE ANNUITY I
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions................................................................ 2
Determination of Variable Annuity Payments................................. 3
Performance Calculations................................................... 4
Tax Law Considerations..................................................... 7
Distribution of Contracts.................................................. 9
Custodian.................................................................. 10
Experts.................................................................... 10
Financial Statements....................................................... 10
</TABLE>
This Statement of Additional Information (SAI) is not a prospectus. It should
be read along with the prospectus for the Group Annuity Contracts (the
"Contracts"), dated May 1, 1999.
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.
80020
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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 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.
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.
3
<PAGE>
Illustration of Calculation of Annuity Unit Value
<TABLE>
<C> <S>
1. Annuity Unit Value as of immediately preceding Annuity Payment
Calculation Date................................................$11.0000
2. Accumulation Unit Value as of Annuity Payment Calculation 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>
1. Annuity Conversion Amount as of Participant's initial Annuity 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 Annuity 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>
PERFORMANCE CALCULATIONS
Standard Total Return Calculation
The VAA 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 I of UNUM/America and under
corresponding accounts of Lincoln Life, pending assumption reinsurance by
Lincoln Life of Variable Annuity I contracts issued through such corresponding
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 term
"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.
4
<PAGE>
The VAA 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 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 VAA 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 Annual
Administration Charge or premium taxes, and assumes no transfers. Such
percentages would be lower if these charges were included in the calculation.
In addition, the VAA may present actual aggregate total return figures for
various periods, reflecting the cumulative change in value of an investment in
the VAA 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 Annuity Account and Contract Fees and Charges."
Performance Information
The tables below provide performance information for each Sub-Account for
specified periods ending December 31, 1998. 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.
5
<PAGE>
Sub-Account Performance
Table A 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 12/31/98. The rates reflect the mortality and expense risk
charge, the withdrawal charge and a pro rata portion of the Annual
Administration Charge. Table A shows Sub-Account average annual total return
information calculated according to the formula prescribed by the SEC. This
information does not indicate or represent future performance.
TABLE A -- SUB-ACCOUNT STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
LIFE OF
SUB- SUB-
ACCOUNT 1 YEAR 3 YEARS 5 YEARS ACCOUNT
INCEPTION ENDING ENDING ENDING ENDING
DATE 12/31/98 12/31/98 12/31/98 12/31/98
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Asset Manager 05/01/91 7.96% 13.34% 9.29% 11.22%
(Fidelity VIP II: Asset Manager)
Socially Responsible 05/02/94 9.10 12.90 N/A 13.92
(Calvert Social Balanced
Portfolio)
Balanced 05/01/91 8.63 11.24 10.35 9.81
(American Century VP Balanced)
Equity-Income 05/02/94 4.74 14.36 N/A 17.10
(Fidelity VIP Equity-Income)
Index Account 12/12/89 20.31 24.11 20.81 15.73
(Dreyfus Stock Index)
Growth I 05/01/91 30.89 21.83 19.01 18.89
(Fidelity VIP Growth)
Growth II 05/01/91 -8.19 -6.10 .91 3.62
(American Century VP Capital
Appreciation)
International Stock 05/02/94 8.71 7.83 N/A 6.76
(T. Rowe Price International
Stock Portfolio)
Small Cap 05/02/94 -9.40 6.35 N/A 10.52
(Dreyfus Small Cap)
</TABLE>
Historical Fund Performance Adjusted for Variable Annuity Account 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.
Table B 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 12/31/98. The rates reflect the mortality and expense risk
charge but does not reflect the withdrawal charge or deduction of the pro rata
portion of the Annual Administration Charge because certain contracts and
participants are not assessed such a charge.
6
<PAGE>
TABLE B -- SUB-ACCOUNT 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 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Asset Manager 09/06/89 13.68% 15.34% 10.47% N/A 11.58%
(Fidelity VIP II: Asset
Manager)
Socially Responsible 09/02/86 14.89 14.89 13.20 11.52 10.27
(Calvert Social Balanced
Portfolio)
Balanced 05/01/91 14.39 13.20 11.53 N/A 10.30
(American Century VP
Balanced)
Equity-Income 10/09/86 10.30 16.38 17.35 14.24 13.04
(Fidelity VIP Equity-
Income)
Index Account 09/29/89 26.68 26.30 22.10 N/A 15.67
(Dreyfus Stock Index)
Growth I 10/09/86 37.83 23.97 20.28 17.98 15.94
(Fidelity VIP Growth)
Growth II 11/20/87 -3.32 -4.45 1.99 7.37 6.93
(American Century VP
Capital Appreciation)
International Stock 03/31/94 14.48 9.73 N/A N/A 8.35
(T. Rowe Price
International Stock
Portfolio)
Small Cap 08/31/90 -4.59 8.22 11.52 N/A 35.59
(Dreyfus Small Cap)
</TABLE>
Table C below shows total return information on a calendar year basis. The
rates of return shown reflect the mortality and expense risk charge but do not
reflect the withdrawal charge or deduction of the pro rata portion of the
Annual Administration Charge because certain contracts and participants are not
assessed such a charge.
TABLE C -- ADJUSTED CALENDAR YEAR ANNUAL RETURN ASSUMING NO WITHDRAWAL AND NO
ANNUAL ADMINISTRATION CHARGE*
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----- ------ ------ ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager N/A 5.45 21.11 10.53 19.60 -7.20 15.57 13.24 19.20 13.68
Socially Responsible 19.53 2.94 15.02 6.33 6.72 -4.39 28.24 11.28 18.64 14.89
Balanced N/A N/A N/A -7.17 6.38 -0.58 19.68 10.81 14.42 14.39
Equity-Income 15.95 -16.29 29.88 15.50 16.89 5.80 33.49 12.92 26.57 10.30
Index N/A -4.69 28.29 5.82 8.02 -0.32 35.16 21.09 31.36 26.68
Growth I 29.95 -12.78 43.78 8.00 17.94 -1.21 33.75 13.35 22.00 37.83
Growth II 27.17 -2.40 40.18 -2.52 8.99 -2.34 29.55 -5.43 -4.42 -3.32
International Stock N/A N/A N/A N/A N/A N/A 9.86 13.34 1.86 14.48
Small Cap N/A N/A 156.65 69.25 66.31 6.47 27.85 15.22 15.35 -4.59
</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.
SEC regulations require that any product performance data be accompanied by
standard performance data.
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. See the Prospectus for a more
complete discussion of tax considerations and for limitations on the following
discussion.
7
<PAGE>
Contributions to retirement programs subject to Sections 401(a), 403(b) and 408
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. 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 years 1998 and 1999 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.
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.
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 generally 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.
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 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 to avoid taxation.
8
<PAGE>
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.
If the rollover amount is paid directly to the Participant, the amount
distributed may be subject to a 20% federal tax withholding.
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). For 403(b)
and 401(a) Plans, an employee 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 (other than a more-than-5% owner).
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 LNC, 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 VAA's principal underwriter.
9
<PAGE>
UNUM Sales Corporation, which served as the principal underwriter to the VAA
prior to October 1, 1996, received underwriting commissions from UNUM/America
of $4,223,000 in 1996. LFA, which became principal underwriter on October 1,
1996, received no underwriting commissions from UNUM/America prior to December
31, 1998.
CUSTODIAN
UNUM/America is the custodian for the Fund's shares owned by the VAA. The
Fund's shares are held in uncertificated form separate and apart from
UNUM/America's other assets.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998 of UNUM/America and the
financial statements as of December 31, 1998 and for each of the two years in
the period ended December 31, 1998 of VAA included in this SAI have been
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
FINANCIAL STATEMENTS
This SAI contains financial statements for the VAA, as of December 31, 1998 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.
10
<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
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and changes in net assets present fairly, in
all material respects, the financial position of UNUM Life Insurance Company of
America VA-1 Separate Account at December 31, 1998, and the results of their
operations for each of the years in the two year period then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers, LLP
Portland, Maine
April , 1999
S-1
