<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1996
Registration No. 33-45850
Registration No. 811-6455
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 5 /x/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 22 /x/
___________
VA-I SEPARATE ACCOUNT
of
FIRST UNUM LIFE INSURANCE COMPANY
(Exact Name of Registrant)
FIRST UNUM LIFE INSURANCE COMPANY
(Name of Depositor)
120 White Plains Road
Tarrytown, New York 10591
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code: (914) 524-4000
ROSEMARY MOORE, ESQUIRE
First UNUM Life Insurance Company
2211 Congress Street
Portland, Maine 04122
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/ / on May 1, 1995, pursuant to paragraph (b) of Rule 485
/x/ 60 days after filing pursuant to paragraph (a)(i) of Rule 485
/ / on , pursuant to paragraph (a)(i) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on , pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
In accordance with Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite number or amount of its securities under
the Securities Act of 1933. That election was previously filed in Registrant's
Form N-4 registration statement (File No. 33-45850). The Registrant filed its
Rule 24f-2 Notice on February 29, 1996, for the most recent fiscal year ended
December 31, 1995.
<PAGE>
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION IN PROSPECTUS
FORM N-4 PROSPECTUS CAPTION
- -------- ------------------
1. Cover Page . . . . . . . . . . . . . Cover Page
2. Definitions. . . . . . . . . . . . . Definitions
3. Synopsis or Highlights . . . . . . . Summary
4. Condensed Financial Information. . . Condensed Financial Information
5. General Description of Registrant, First UNUM, the Proposed Sale,
the Variable Investment
Depositor and Portfolio companies. . Division and the Funds and Appendix
6. Deductions and Expenses. . . . . . . Deductions and Charges
7. General Description of Variable Contract Provisions; Other Contract
Annuity Contracts. . . . . . . . . . Provisions
8. Annuity Period . . . . . . . . . . . Annuity Period
9. Death Benefit. . . . . . . . . . . . Contract Provisions, Death Benefits
10. Purchases and Contract Values. . . . Contract Provisions
11. Redemptions. . . . . . . . . . . . . Contract Provisions, Withdrawals
12. Taxes. . . . . . . . . . . . . . . . Federal Income Tax Considerations
13. Legal Proceedings. . . . . . . . . . Not Applicable
14. Table of Contents of the Statement Contents of Statement of Additional
of Additional Information. . . . . . Information
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION IN STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF ADDITIONAL
FORM N-4 INFORMATION CAPTION
- -------- -----------------------
15. Cover Page . . . . . . . . . . . . . Cover Page
16. Table of Contents. . . . . . . . . . Table of Contents
17. General Information and History. . . Prospectus-First UNUM, the Proposed
Sale, the Variable Investment
Division and the Funds
18. Services . . . . . . . . . . . . . . Not Applicable
19. Purchase of Securities being Not Applicable
Offered. . . . . . . . . . . . . . .
20. Underwriters . . . . . . . . . . . . Distribution of the Contracts
21. Calculation of Yield Quotations of Not Applicable
Money Market Sub Accounts. . . . . .
22. Annuity Payments . . . . . . . . . . Determination of Variable Annuity
Payment
23. Financial Statements . . . . . . . . Financial Statements
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION IN PART C-OTHER INFORMATION
24(a) Financial Statements and Exhibits. . Not Applicable
24(b) Exhibits . . . . . . . . . . . . . . Exhibits
25. Directors and Officers of the Directors and Officers of the
Depositor. . . . . . . . . . . . . . Depositor
26. Persons Controlled by or Under . . . Organizational Chart
Common Control with the Depositor
or Registrant. . . . . . . . . . . .
27. Number of Contract Owners. . . . . . Number of Contract Owners
28. Indemnification. . . . . . . . . . . Indemnification
29. Principal Underwriters . . . . . . . Principal Underwriters
30. Location of Accounts and Records . . Location of Accounts and Records
31. Management Services. . . . . . . . . Management Services
32. Undertakings . . . . . . . . . . . . Undertakings
<PAGE>
FIRST UNUM
LIFE INSURANCE
COMPANY
Group Variable Annuity Contracts
VA-I SEPARATE ACCOUNT
120 White Plains Road
Tarrytown, New York 10591
(914) 524-4000
VARIABLE ANNUITY III
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
MAY 1, 1996
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE
ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS OF
THE APPLICABLE UNDERLYING FUNDS WHICH SHOULD BE RETAINED FOR FUTURE REFERENCE.
NY80010
This prospectus describes group annuity contracts ("Contracts") offered by
First UNUM Life Insurance Company ("First UNUM"), a subsidiary of UNUM Holding
Company and its wholly-owned parent company, UNUM Corporation. The Contracts are
designed to enable Participants and Employers to accumulate funds for retirement
programs meeting the requirements of the following Sections of the Internal
Revenue Code of 1986, as amended (the "Code"): 401(a), 403(b), 408 and 457 and
other related Sections as well as for programs offering non-qualified annuities.
A Participant is an employee or other person affiliated with the Contractholder
on whose behalf a Participant Account is maintained under the terms of the
Contract.
The Contracts permit Contributions to be deposited in the Guaranteed
Interest Division, which is part of First UNUM's General Account, and in certain
Sub-Accounts in First UNUM's VA-I Separate Account ("Variable Investment
Division"). Contributions to the Guaranteed Interest Division earn interest at a
guaranteed rate declared by First UNUM. Contributions to the Variable Investment
Division will increase or decrease in dollar value depending on the investment
performance of the underlying funds in which the Sub-Accounts invest.
Currently, the Variable Investment Division consists of the nine
Sub-Accounts listed below: Next to each listed Sub-Account is the name of the
fund (the "Fund") in which the Sub-Account invests. For more information about
the investment objectives, policies and risks of the Funds please refer to the
prospectus for each of the Funds.
<PAGE>
Index Account. . . . . . . . . . "Dreyfus Stock Index Fund"
Growth I Account . . . . . . . . Fidelity's "Variable Insurance Products Fund:
Growth Portfolio"
Asset Manager Account. . . . . . Fidelity's "Variable Insurance Products Fund
II: Asset Manager Portfolio"
Growth II Account. . . . . . . . Twentieth Century's "TCI Portfolios, Inc.: TCI
Growth"
Balanced Account . . . . . . . . Twentieth Century's "TCI Portfolios, Inc.: TCI
Balanced"
International Stock Account. . . "T. Rowe Price International Series, Inc."
Socially Responsible Account . . "Calvert Responsibly Invested Balanced
Portfolio"
Equity-Income Account. . . . . . Fidelity's "Variable Insurance Products Fund:
Equity-Income Portfolio"
Small Cap Account. . . . . . . . "Dreyfus Variable Investment Fund: Small Cap
Portfolio"
This prospectus is intended to provide information regarding the Contracts
offered by First UNUM that you should know before investing. Please read and
retain this prospectus for future reference. A Statement of Additional
Information, dated May 1, 1996, has been filed with the Securities and Exchange
Commission and is available at no charge by writing or calling First UNUM, 120
White Plains Road, Tarrytown, NY (914) 524-4000, Attention: Retirement Security
Division.
TABLE OF CONTENTS
PAGE
----
DEFINITIONS 3
SUMMARY (INCLUDING FEE TABLE AND PERFORMANCE INFORMATION) 6
CONDENSED FINANCIAL INFORMATION 12
FINANCIAL STATEMENTS 13
FIRST UNUM, THE PROPOSED SALE, THE VARIABLE INVESTMENT DIVISION
AND THE FUNDS 13
CONTRACT PROVISIONS 18
DEDUCTIONS AND CHARGES 24
ANNUITY PERIOD 25
FEDERAL INCOME TAX CONSIDERATIONS 27
VOTING RIGHTS 30
OTHER CONTRACT PROVISIONS 31
GUARANTEED INTEREST DIVISION 32
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION 34
2
<PAGE>
DEFINITIONS
ACCUMULATION UNIT: An accounting unit of measure used to record amounts of
increases to, decreases from and accumulations in each Sub-Account during the
Accumulation Period.
ACCUMULATION UNIT VALUE: The dollar value of an Accumulation Unit in each
Sub-Account on any Valuation Date.
ACCUMULATION PERIOD: The period commencing on a Participant's Participation Date
and terminating when the Participant's Account balance is reduced to zero,
either through withdrawal(s), conversion to an annuity, imposition of charges,
payment of a Death Benefit or a combination thereof.
ACQUISITION AGREEMENT: The Asset Transfer and Acquisition Agreement between
First UNUM and Lincoln Life which contemplates the sale of First UNUM's
tax-sheltered annuity business to Lincoln-NY and the assumption of First
UNUM's obligations under the Contracts by Lincoln-NY.
ANNUITANT: The person receiving annuity payments under the terms of the
Contract.
ANNUITY COMMENCEMENT DATE: The date on which First UNUM makes the first annuity
payment to the Annuitant as required by the Retired Life Certificate.
ANNUITY CONVERSION AMOUNT: The amount applied toward the purchase of an annuity.
ANNUITY PERIOD: The period concurrent with or following the Accumulation Period,
during which an Annuitant's annuity payments are made.
BENEFICIARY: The person(s) designated to receive a Participant's Account balance
in the event of the Participant's death during the Accumulation Period or the
person(s) designated to receive any applicable remainder of an annuity in the
event of the Annuitant's death during the Annuity Period.
BUSINESS DAY: A day on which First UNUM and the New York Stock Exchange are
customarily open for business.
CLOSING DATE: The date of closing as provided in the Acquisition Agreement.
CONTRIBUTIONS: All amounts deposited under a Contract, including any amount
transferred from another contract or Trustee.
CONTRACT: A Group Variable Annuity contract issued by First UNUM to the
Contractholder.
CONTRACTHOLDER: The party named as the contractholder on the group annuity
contract issued by First UNUM. The Contractholder may be an Employer, a
retirement plan trust, an association or any other entity allowed under the law.
DIVISION(S): The Guaranteed Interest Division and/or the Variable Investment
Division.
EMPLOYER: The organization specified in the Contract which offers the Plan to
its employees.
FIRST UNUM: First UNUM Life Insurance Company, at its home office in Tarrytown,
New York.
FUNDS: The underlying funds in which the Sub-Accounts invest. Funds are
investment vehicles which offer their shares only to insurance companies'
separate accounts.
GENERAL ACCOUNT: All assets of First UNUM other than those in the Variable
Investment Division or any other separate account.
GROSS WITHDRAWAL AMOUNT: The amount by which a Participant's Account is reduced
when a withdrawal occurs, including any applicable Annual Administration Charge.
3
<PAGE>
GUARANTEED ANNUITY: An annuity for which First UNUM guarantees the amount of
each payment for as long as the annuity is payable.
GUARANTEED INTEREST DIVISION: The Division maintained by First UNUM for the
Contracts and other contracts for which First UNUM guarantees the principal
amount and interest credited thereto subject to any fees and charges as set
forth in the Contract. Amounts allocated to the Guaranteed Interest Division are
part of the General Account.
LINCOLN: Lincoln Life or Lincoln-NY.
LINCOLN LIFE: The Lincoln National Life Insurance Company.
LINCOLN-NY: A New York domestic life insurance company (which may have a
different name) to be established by Lincoln Life as a subsidiary prior to
the Closing Date as contemplated by the Acquisition Agreement.
LNC: Lincoln National Corporation.
NET CONTRIBUTIONS: The sum of all Contributions credited to a Participant
Account less any Net Withdrawal Amounts, outstanding loan (including principal
and due and accrued interest) and amounts converted to a Payout Annuity.
NET WITHDRAWAL AMOUNT: The amount paid when a withdrawal occurs.
PARTICIPANT: An employee or other person affiliated with the Contractholder on
whose behalf an Account is maintained under the terms of the Contract.
PARTICIPANT ACCOUNT: An account maintained for a Participant during the
Accumulation Period the total balance of which equals the Participant's Account
balance in the Variable Investment Division plus the Participant's Account
balance in the Guaranteed Interest Division.
PARTICIPATION ANNIVERSARY: For each Participant, a date at one year intervals
from the Participant's Participation Date. If an anniversary occurs on a
non-Business Day, it is treated as occurring on the next Business Day.
PARTICIPATION DATE: A date assigned to each Participant corresponding to the
date on which the first Contribution on behalf of that Participant is received
by First UNUM. A Participant will receive a new Participation Date if such
Participant makes a Total Withdrawal, as defined in this prospectus, and
Contributions on behalf of the Participant are resumed under any Contract.
PARTICIPATION YEAR: A period beginning with one Participation Anniversary and
ending the day before the next Participation Anniversary, except for the first
Participation Year which begins with the Participation Date.
PAYOUT ANNUITY: A series of payments paid under the terms of a Contract to a
person. A Payout Annuity may be either a Guaranteed Annuity or a Variable
Annuity.
PLAN: The retirement program offered by an Employer to its employees for which a
Contract is used to accumulate funds.
SUB-ACCOUNT: An account established in the Variable Investment Division which
invests in shares of a corresponding Fund.
VALUATION DATE: A Business Day. Accumulation Units and Annuity Units are
computed as of the close of trading on the New York Stock Exchange.
VALUATION PERIOD: A period used in measuring the investment experience of each
Sub-Account. The Valuation Period begins at the close of trading on the New York
Stock Exchange on one Valuation Date and ends at the corresponding time on the
next Valuation Date.
VARIABLE ANNUITY: An annuity with payments that increase or decrease in
accordance with the investment results of the selected Sub-Accounts.
4
<PAGE>
VARIABLE INVESTMENT DIVISION: The Division which is maintained by First UNUM for
these Contracts and other First UNUM contracts for which First UNUM does not
guarantee the principal amount or investment results. The Variable Investment
Division is the VA-I Separate Account which is a group of assets segregated from
the General Account whose income, gains and losses, realized or unrealized, are
credited to or charged against the Variable Investment Division without regard
to other income, gains or losses of First UNUM. The Variable Investment Division
currently consists of nine Sub-Accounts. Additional Sub-Accounts may be added in
the future.
5
<PAGE>
SUMMARY
FIRST UNUM LIFE INSURANCE COMPANY
First UNUM is a life insurance company founded in New York in 1959. First
UNUM is a subsidiary of UNUM Holding Company and its wholly-owned parent
company, UNUM Corporation whose stock is traded on the New York Stock Exchange.
The consolidated assets of UNUM Corporation as of December 31, 1995 were $14.8
billion.
PROPOSED SALE
In January, 1996, UNUM Corporation announced the sale of First
UNUM's and UNUM Life Insurance Company of America's tax-sheltered annuity
businesses to subsidiaries of Lincoln National Corporation ("LNC"). The
Acquisition Agreement envisions the transfer of First UNUM's obligations under
these Contracts to a New York life insurance subsidiary of Lincoln Life
("Lincoln-NY") which will be established prior to the closing date. The
consummation of the transactions under the Acquisition Agreement is subject
to the receipt of certain regulatory approvals and other conditions. It is
anticipated that it will take approximately six to nine months from the date
of the Acquisition Agreement to obtain the necessary regulatory approvals and
otherwise satisfy the conditions to the consummation of the sale. There can
be no assurance that such approvals will be obtained or that such conditions
will be satisfied and, thus, there can be no assurance that the sale will
occur.
Lincoln Life is a subsidiary of LNC, which is a publicly-owned company
whose stock is traded on the New York Stock Exchange. LNC had consolidated
assets of $63.7 billion as of December 31, 1995. See "Acquisition Agreement
with The Lincoln National Life Insurance Company."
CONTRACTS OFFERED
The Group Variable Annuity Contracts offered by this prospectus are
available to Employers and other entities to provide a way to accumulate funds
for retirement and to provide Payout Annuities. First UNUM offers Contracts
designed to enable Participants and Employers to accumulate funds for retirement
programs meeting the requirements of the following Sections of the Internal
Revenue Code of 1986, as amended (the "Code"): 401(a), 403(b), 408, 457 and
other related Sections as well as for programs offering non-qualified annuities.
HOW CONTRIBUTIONS ARE MADE
Contributions under the Contract are deposited by the Contractholder.
Depending upon the type of Plan offered, Contributions may consist of salary
reduction Contributions, Employer Contributions or Participant post-tax
Contributions. Contributions are forwarded by the Contractholder to First UNUM
and allocated among the two Divisions in accordance with information provided by
the Contractholder. See "Contract Provisions, Contributions under the Contract."
DIVISIONS OFFERED
Contributions may be allocated to the Guaranteed Interest Division or to the
Variable Investment Division or to both Divisions. The Variable Investment
Division currently consists of nine Sub-Accounts. A Contractholder may choose to
offer between zero and nine of the Sub-Accounts to its Participants under a
Contract. The Sub-Accounts invest their assets in shares of a corresponding
Fund. For a full description of the Funds, see the prospectuses for the Funds.
TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
During the Accumulation Period, a Participant or a Contractholder under
certain Plans may make transfers between and among Divisions and Sub-Accounts.
Certain Plans may limit the transfers in dollar amount, type of Contribution, or
frequency. Certain Plans may require Contractholder approval for a transfer. See
"Transfers between Divisions and Sub-Accounts."
6
<PAGE>
WITHDRAWALS AND DISTRIBUTIONS
During the Accumulation Period, a Participant may withdraw any part of their
Account balance subject to the restrictions imposed by the Code and regulations
thereof and by the applicable Plan. With respect to Plans subject to Title I of
the Employee Retirement Income Security Act of 1974 (ERISA), the Contractholder
must authorize First UNUM to process a withdrawal request by a Participant.
Withdrawal requests under Section 457 Plans must also be authorized by the
Contractholder. With respect to withdrawal requests by Participants under Plans
not subject to Title I of ERISA, certain Contracts may require that the
Participants must certify to First UNUM that an eligible event under the Code
has occurred. Withdrawal and Distribution requests must be in writing and in a
form acceptable to First UNUM.
Certain Plans are also subject to the distribution requirements under
Section 401(a)(9) of the Code including the incidental death benefit
requirements of Section 401(a)(9)(G). Certain transfers from one Qualified Plan
contract to another Qualified Plan contract are not subject to withdrawal
restrictions under the Code. Certain withdrawals are subject to a 10% Federal
Excise Tax for premature distributions. See "Federal Income Tax Considerations."
DEATH BENEFITS
The Contracts provide for a Death Benefit for a Participant who dies during
the Accumulation Period. See "Contract Provisions, Death Benefits."
PAYOUT ANNUITIES
As permitted by the applicable Plan, a Contractholder or a Participant who
requests a withdrawal or a Beneficiary of a deceased Participant may elect to
convert all or part of the Participant's Account balance or the Death Benefit,
as appropriate, to a Payout Annuity. First UNUM offers both Guaranteed and
Variable Annuities. The range of annuity options available include life
annuities and annuities for a specific time period as well as others described
more fully in this prospectus. See "Annuity Period."
FREE-LOOK PROVISION
A Participant under a Section 403(b) or 408 Plan and certain Non-qualified
Plans has ten days, in most cases, from the date the Participant receives an
Active Life Certificate to notify First UNUM in writing that the Participant
does not choose to participate under the Contract and to receive a return of
funds. See "Free-Look Period."
7
<PAGE>
FEE TABLE
The following table and examples, prescribed by the SEC, are included to
assist Contractholders and Participants in understanding the transaction and
operating expenses imposed directly or indirectly under the Contracts. The
standardized tables and examples assume the highest deductions possible under
the Contracts, whether or not such deductions actually would be made from a
Participant's Account.
CONTRACT RELATED TRANSACTION EXPENSES 1/
Sales Load Imposed on Purchases: 0%
ANNUAL ADMINISTRATION CHARGE 2/ $25
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily net assets)
Mortality and Expense Risk Charge: 1.20%
Other Charges: 0.00%
Total Separate Account
Annual Expenses: 1.20%
FUND EXPENSES 6/
<TABLE>
<CAPTION>
(as a percentage of average daily net assets) TO BE PROVIDED BY AMENDMENT
Index 3/ G-I AMgr 4/ G-II Bal Int'l Soc Res Eql SmCap
-------- --- ------- ---- --- ----- ------- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees:
Other Expenses (after expense reimbursements):
Total Fund Expenses:
</TABLE>
8
<PAGE>
Example #1: Assuming total withdrawal of the Participant's Account balance
at the end of the period shown. 5/
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
<TABLE>
<CAPTION>
TO BE PROVIDED BY AMENDMENT
Index G-I AMgr G-II Bal Int'l Soc Res Eql SmCap
----- --- ---- ---- --- ----- ------- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year
3 Years
5 Years
10 Years
</TABLE>
Example #2: Assuming annuitization of the Contract at the end of the period
shown.
A $1,000 investment would be subject to the expenses shown, assuming 5% annual
return on assets.
<TABLE>
<CAPTION>
TO BE PROVIDED BY AMENDMENT
Index G-I AMgr G-II Bal Int'l Soc Res Eql SmCap
----- --- ---- ---- --- ----- ------- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year
3 Years
5 Years
10 Years
</TABLE>
Example #3: Assuming persistency of the Contracts through the periods shown.
A $1,000 investment would be subject to the expenses shown, assuming 5% annual
return on assets.
<TABLE>
<CAPTION>
TO BE PROVIDED BY AMENDMENT
Index G-I AMgr G-II Bal Int'l Soc Res Eql SmCap
----- --- ---- ---- --- ----- ------- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year
3 Years
5 Years
10 Years
</TABLE>
For purposes of these Examples, the effect of the Annual Administration
Charge has been computed based on both the (i) aggregate amount of Annual
Administration Charges collected during the most recent fiscal year and (ii) the
total average net assets attributable to the Contracts during that year.
_____
1/ Premium taxes are not shown. First UNUM deducts the amount of premium
taxes, if any, when paid.
2/ The Employer has the option of paying the Annual Administration charge on
behalf of the Participants under a Contract. In such a situation, the projected
expenses would be lower than those indicated in the examples. This charge is not
imposed during the Annuity Period. In certain situations the Annual
Administrative Charge may be reduced or eliminated. See "Deductions & Charges
Annual Administrative Charge".
3/ Total Fund Operating Expenses, excluding brokerage commissions and
transaction fees, are guaranteed not to exceed .40% of the Dreyfus Stock Index
Fund, Inc.'s average daily net assets. To the extent these Fund expenses exceed
.40% of the Fund's average daily net assets, The Dreyfus Corporation, the Fund's
administrator, will bear such excess expense. For the fiscal year ending
December 31, 1995, the excess expense was .03%.
9
<PAGE>
4/ A portion of the brokerage commissions the fund paid was used to reduce its
expenses. Without this reduction, total operating expenses would have been :
Asset Manager_0.81%
5/ The Contracts are designed for retirement planning. Withdrawals prior to
retirement or the Annuity Commencement Date are not consistent with the
long-term purposes of the Contracts and the applicable tax laws.
6/ Until complete order instructions are received, initial Contributions may
be allocated temporarily to Fidelity's Variable Insurance Products Fund: Money
Market Portfolio ("VIPF Money Market Portfolio"). Management fees for this fund
are 0.24%. Other expenses are 0.09%. Total Fund Expenses are 0.33%. The
Mortality and Expense Risk Charge is not assessed.
The fee table and examples reflect estimated expenses and charges of both
the Sub-Accounts and the applicable Fund. However, the examples should not be
considered a representation of past or future expenses and charges of the
Sub-Accounts or the Funds. Similarly, the assumed 5% annual rate of return is
not an estimate or a guarantee of future investment performance. See "Deductions
and Charges" in this prospectus and the discussion of Fund Management in the
prospectus for each of the Funds for further information.
PERFORMANCE INFORMATION
From time-to-time the Variable Investment Division may advertise or use in
sales literature information concerning the investment performance of the
various Sub-Accounts. No performance presentation should be considered as
representative of future investment results. Actual performance is a function
not only of the investment management of the underlying Funds and market forces,
but of the time and frequency of Contributions, the charges and fees imposed
under the Contract, the fees and expenses of the Funds, and transfers made by a
Participant, among other factors.
The investment performance of the Sub-Accounts may be advertised in
comparison with the performances of other variable annuities, other investment
companies (such as mutual funds), and recognized indices (such as the Dow Jones
Industrial Average, Standard & Poor's 500 Composite Stock Price Index, NASDAQ
Index, Consumer Price Index), and data published by Lipper Analytical Services,
Inc., Morningstar, and Variable Annuity Research and Data Service or comparable
services. Performance of the Sub-Accounts may also be compared with performance
of other types of investments. Some advertisements may also include published
editorial comments and performance rankings by independent organizations and
publications that monitor the performance of separate accounts and mutual funds.
The Sub-Accounts may advertise average annual total return performance
information according to the SEC standardized formula. Average annual total
return shows the average annual percentage increase, or decrease, in the value
of a hypothetical $1,000 contribution allocated to a Sub-Account from the
beginning to the end of each specified period of time. The SEC standardized
formula gives effect to all applicable charges under the Contracts. This method
of calculating performance further assumes that (i) a $1,000 contribution was
allocated to a Sub-Account, (ii) no transfers or additional payments were made
and (iii) the withdrawal of the investment occurs at the end of the period.
Premium taxes are not included in the term "charges" for purposes of this
calculation. The Sub-Accounts may also advertise this total return performance
as described above on a cumulative basis.
10
<PAGE>
The Sub-Accounts may present total return information computed on a
calendar year basis. The Sub-Accounts may also present total return
information over specified periods of time (computed on an average annual or
cumulative basis) assuming that no administrative charge will be deducted. The
Sub-Accounts may present hypothetical examples that apply the total return to
a hypothetical initial investment. The Sub-Accounts may also present total
return information based on different amounts of periodic investments. For
additional performance information, please refer to the Statement of
Additional Information.
PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contractholders, First
UNUM may reflect endorsements. Endorsements are often in the form of a list of
organizations, individuals or other parties which recommend First UNUM or the
Contracts. The endorser's name will be used only with the endorser's consent. It
should be noted that the list of endorsements may change from time to time.
Also, from time to time, the rating of First UNUM as an Insurance company
by A.M. Best may be referred to in advertisements or in reports to
Contractholders. Each year the A.M. Best Company reviews the financial status of
thousands of Insurers, culminating in the assignment of Best's Ratings. These
ratings reflect their current opinion of the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health insurance Industry. Best's ratings range from A++ to F. An A++
rating means, in the opinion of A.M. Best, that the insurer has demonstrated the
strongest ability to meet its respective policyholder and other contractual
obligations. First UNUM's A.M. Best rating is A+ (May 1995) which is defined as
"Superior."
In addition, the claims-paying ability of First UNUM as measured by the
Standard and Poor's Rating Group may be referred to in advertisements or in
reports to Contractholders. A Standard and Poor's insurance claims-paying
ability rating is an assessment of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. Standard and Poor's ratings range from AAA to CCC. First UNUM's
claims-paying rating is AA (February 1996) which is defined as "Excellent."
From time to time First UNUM may refer to Moody's Investors Service rating
of First UNUM. Moody's Investors Service financial strength ratings indicate an
insurance company's ability to discharge policyholder obligations and claims and
are based on an analysis of the insurance company and its relationship to its
parent, subsidiaries, and affiliates. Moody's Investors Service ratings range
from Aaa to C. First UNUM's financial strength rating is Aa2 (March 1995) which
is defined as "Excellent."
11
<PAGE>
CONDENSED FINANCIAL INFORMATION
The financial data included below should be read in conjunction with the
financial statements and the related data included in the Statement of
Additional Information.
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
(For an accumulation unit outstanding throughout the period)
SUB-ACCOUNT 1991 1992 1993 1994 1995
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Index Account
December 31 Commencement
Beginning of Period $10.00 $10.00 $10.5822 $11.4310 11.3938
End of Period $10.5822 $11.4310 $11.3938 15.3977
Growth I Account
December 31 Commencement $10.00
Beginning of Period $10.00 $10.8005 $12.7378 12.5830
End of Period 31 $10.8005 $12.7378 $12.5830 16.8291
Growth II Account
December 31 Commencement $10.00
Beginning of Period $10.00 $9.7477 $10.6240 10.3741
End of Period $9.7477 $10.6240 $10.3741 13.4373
Asset Manager Account
December 31 Commencement $10.00
Beginning of Period $10.00 $11.0534 $13.2196 13.2196
End of Period $11.0534 $13.2196 $13.2659 14.1740
Balanced Account
December 31 Commencement $10.00
Beginning of Period $10.00 $9.2826 $9.8749 9.8161
End of Period $9.2826 $9.8749 $9.8161 11.7484
International Stock Account
May 1 Commencement $10.00
Beginning of Period 9.8622
End of Period $9.8622 10.8333
Socially Responsible
May 1 Commencement $10.00
Beginning of Period 9.9692
End of Period $9.9692 12.7827
Equity-Income
May 1 Commencement $10.00
Beginning of Period 10.4780
End of Period $10.4780 13.9856
Small Cap
May 1 Commencement $10.00
Beginning of Period 10.3818
End of Period $10.3818 13.2713
Pending Allocation Account
October 15 Commencement $10.00
Beginning of Period 10.1054
End of Period $10.1054 10.6938
12
<PAGE>
Number of Accumulation Units Outstanding at end of Period
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Index 0 2,511 27,801 66,165 105,544
Growth I Account 0 12,365 95,252 223,160 331,478
Growth II Account 0 6,144 48,332 110,886 159,007
Asset Manager Account 0 5,901 110,437 296,240 326,001
Balanced Account 0 3,980 21,662 51,804 68,697
Socially Responsible Account 32 3,618
Equity Income Account 464 49,414
International Stock 1,752 19,805
Small Cap 577 31,534
Pending Allocation Account 79 312
<CAPTION>
Number of Fund Shares held by each of the corresponding Sub-Accounts December 31st of each year
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Dreyfus Stock Index Fund 0 1,735 24,086 58,274 94,515
Fidelity's Variable Insurance Products Fund: Growth Portfolio 0 6,761 52,593 129,496 191,106
Twentieth Century's TCI Portfolios, Inc. TCI Growth 0 7,074 55,119 124,934 177,226
Fidelity's Variable Insurance Products Fund II: Asset Manager Portfolio 0 4,891 94,721 263,569 292,730
Twentieth Century's TCI Portfolios, Inc. TCI Balanced 0 6,439 35,256 85,342 114,680,
Calvert Responsibly Invested Balanced Portfolio 222 27,163
Fidelity's Variable Insurance Products Fund: Equity-Income Portfolio 317 35,875
T. Rowe Price International Stock Portfolio 1,697 19,061
Dreyfus Variable Investment Fund: Small Cap Portfolio 164 9,075
Fidelity's Variable Insurance Products Fund: Money Market Portfolio 803 3,333
</TABLE>
FINANCIAL STATEMENTS
The financial statements of the Variable Investment Division and of First
UNUM may be found in the Statement of Additional Information.
FIRST UNUM, THE PROPOSED SALE, THE VARIABLE INVESTMENT DIVISION AND THE FUNDS
FIRST UNUM LIFE INSURANCE COMPANY
First UNUM is a life insurance company originally chartered as "Hamilton
Life Insurance Company of New York" under New York law in 1959. On November 17,
1986, First UNUM's name was changed from Unionmutual Stock Life Insurance
Company of New York to First UNUM Life Insurance Company. First UNUM's principal
executive offices are located at The Christian Building, Third Floor, 120 White
Plains Road, Tarrytown, NY 10591. First UNUM's telephone number is
(914) 524-4000. First UNUM provides a broad line of disability, health and life
insurance products, in addition to group retirement products. First UNUM is
licensed to sell variable contracts in New York. Administrative services
necessary for the operation of the Variable Investment Division and the
Contracts are currently provided by First UNUM. See "Deductions and Charges
Annual Administration Charge."
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<PAGE>
First UNUM is a subsidiary of UNUM Holding Company and its wholly-owned
parent company, UNUM Corporation. UNUM Corporation was organized under Delaware
law on January 11, 1985. UNUM Corporation is a publicly-owned company whose
stock is traded on the New York Stock Exchange. UNUM Corporation has
consolidated assets of $14.8 billion as of December 31, 1995.
ACQUISITION AGREEMENT WITH
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
In January, 1996, UNUM Corporation announced the sale of First UNUM's
and UNUM Life Insurance Company of America's tax sheltered annuity businesses
to subsidiaries of Lincoln National Corporation. The Acquisition Agreement
envisions the transfer of First UNUM's oblgiations under these Contracts to a
New York life insurance subsidiary of Lincoln Life ("Lincoln-NY") which will
be established prior to the Closing Date. The consummation of the
transactions under the Acquisition Agreement is subject to the receipt of
certain regulatory approvals and other conditions. It is anticipated that it
will take approximately six to nine months from the date of the Acquisition
Agreement to obtain the necessary regulatory approvals and otherwise satisfy
the conditions to the consummation of the sale. There can be no assurance
that such approvals will be obtained or that such conditions will be
satisfied and, thus, there can be no assurance that the sale will occur.
Lincoln Life is a subsidiary of LNC, which is a publicly-owned company
whose stock is traded on the New York Stock Exchange. LNC had consolidated
assets of $63.7 billion as of December 31, 1995.
Until the Closing Date, First UNUM will continue to offer the Contracts
described in this prospectus. Until the Closing Date, First UNUM will also
continue to administer all current Contracts, enroll new Participants, and
accept new Contributions from current Participants -- all in accordance with
the applicable Contract and this prospectus.
The Acquisition Agreement provides that, beginning on the Closing Date,
and until such time as the Contracts are assumed by Lincoln-NY, Lincoln will
administer the Contracts on behalf of First UNUM pursuant to an
administrative services agreement.
In addition, after the Closing Date, First UNUM and Lincoln intends
to notify Contractholders and/or Participants regarding the assumption of
their Contracts by Lincoln-NY. This notification process is subject to state
regulatory requirements but First UNUM and Lincoln intend, unless
otherwise required, to first notify each Contractholder regarding the
assumption. A Contractholder will be deemed to have consented to the
assumption if it does not opt out of the assumption within 30 days of the
date of the mailing of the notice thereof or, if later, prior to the first
Contribution following the date of mailing of such notice. If the
Contractholder opts out of the assumption, First UNUM will remain as the
insurer under the Contract and Participants under that Contract will not
given the opportunity to have their certificates assumed by Lincoln-NY. If
the Contractholder consents to the assumption, or is deemed to have consented
to the assumption, as applicable, First UNUM and Lincoln intend to notify
each Participant under the Contract regarding the assumption and provide each
Participant an opportunity to opt out. A Participant will be deemed to have
consented to the assumption if he or she does not opt out of the assumption
within 30 days of the date of the mailing of the notice thereof. If, under a
Contract, some Participants opt out and some do not, the Contract will be
bifuracted -- one contract will have First UNUM as the insurer and the other
will have Lincoln-NY as the insurer. As noted above, however, the notification
process is subject to regulatory requirements. Thus, the notification
procedures employed by First UNUM and Lincoln-NY may vary from those described
above. In any event, Contractholders and/or Participants will receive all
notifications and be given all consent and opt out rights required by law.
Assuming that an assumption is approved under the above procedures, the
effect of the assumption is to substitute Lincoln-NY for First UNUM as the
insurer. In addition, a Participant's Account balance in the Variable
Investment Division will be transferred to a Lincoln-NY separate
account as of the effective date of the assumption of the obligations to the
Participant under the Contract by Lincoln-NY. First UNUM and Lincoln
intend that the Lincoln-NY separate accounts will invest in the same
underlying Funds as the Sub-Accounts of First UNUM's Variable Investment
Division. Except for the substitution of Lincoln-NY for First UNUM as the
insurer under the Contracts and the transfer of Account balances to the
Lincoln-NY separate account, the rights of Contractholders
14
<PAGE>
and Participants under the Contracts will not change solely as a result of
the assumption. There will be no adverse tax consequences to Contractholders
or Participants as a result of the transfer. See "Federal Income Tax
Considerations."
UNUM SALES CORPORATION
UNUM Sales Corporation (UNUM/Sales), a subsidiary of UNUM Corporation, is
the principal underwriter of the Contracts. As such, UNUM/Sales will be offering
the Contracts and performing all duties and functions that are necessary and
proper for the distribution of the Contracts. UNUM/Sales has also entered into
sales agreements with independent broker-dealers for the sale of the Contracts.
UNUM/Sales' principal business office is at 2211 Congress Street, Portland,
Maine 04122.
Lincoln Life, a registered broker-dealer, has agreed to serve as the
principal underwriter of the Contracts as of the Closing Date. Accordingly,
it is expected that, on and after the Closing Date, Lincoln Life will be
offering the Contracts and performing all duties and functions that are
necessary and proper for the distribution of the Contracts. It is
anticipated that Lincoln Life will enter into sales agreements with
independent broker-dealers for the sale of the Contracts. Lincoln Life's
principal business address is 1300 South Clinton Street, Fort Wayne, Indiana
46802.
THE VARIABLE INVESTMENT DIVISION
On August 16, 1991, the Board of Directors of First UNUM Life Insurance
Company authorized the establishment of the Separate Account in accordance with
New York Insurance Laws. Under New York law, the funds in the Variable
Investment Division are owned by First UNUM and First UNUM is not, nor can First
UNUM be, a trustee with respect to those funds. The Variable Investment Division
is registered with the Securities and Exchange Commission ("SEC") as a unit
investment trust under the Investment Company Act of 1940 ("1940 Act").
Registration with the SEC does not involve supervision of the management or
investment practices or policies of either the Variable Investment Division or
First UNUM by the SEC.
The Variable Investment Division currently consists of nine Sub-Accounts.
The Sub-Accounts invest in shares of the Funds. Therefore, the investment
experience of the Sub-Accounts depends on the performance of the Funds.
The income, gains and losses, realized or unrealized, from assets allocated
to the Variable Investment Division are credited to or charged against the
Variable Investment Division, without regard to other income, gains or losses in
First UNUM's general account or any other separate account. The Contract
provides that the assets of the Variable Investment Division may not be charged
with liabilities arising out of any other business of First UNUM. First UNUM may
accumulate in the Variable Investment Division proceeds from charges under the
Contract and other amounts in excess of the Variable Investment Division assets
representing Contract reserves and liabilities. First UNUM is the issuer of the
Contracts and the obligations set forth therein, other than those of the
Contractholder or the Participant, are First UNUM's. As noted previously,
however, the Acquisition Agreement contemplates the assumption of First UNUM's
obligations under the Contracts by Lincoln-NY. See "Acquisition Agreement With
The Lincoln National Life Insurance Company."
15
<PAGE>
THE FUNDS
The nine Sub-Accounts invest directly in nine corresponding Funds. Each of
these Funds was formed as an investment vehicle for insurance company separate
accounts.
Information about each of the Funds, including their investment objectives
and investment management, is contained below. Additional information about the
Funds, their investment policies, risks, fees and expenses and all other aspects
of their operations, can be found in the prospectuses for the Funds, which
should be read carefully before investing. Additional copies of the Funds'
prospectuses, as well as their Statements of Additional Information, can be
obtained directly from each of the Funds without charge by writing to the
particular Funds at the addresses noted on the front of the prospectus. Shares
of the Funds are sold not only to the Sub-Accounts but also to variable annuity
and variable life separate accounts of other insurance companies. For a
disclosure of possible conflicts involved in the Sub-Accounts investing in Funds
that are so offered, see the applicable Fund prospectus.
On the effective date of a Participant's transfer to Lincoln-NY, the
Participant's Account balance in the Variable Investment Division will be
transferred to a Lincoln-NY separate account. First UNUM and Lincoln Life
intend that the Lincoln-NY separate account will have nine Sub-Accounts which
will invest in the same nine Funds currently offered by First UNUM's Variable
Investment Division. Any deletion of Funds or substitution of different
Funds would require regulatory approval. Additional Funds may nevertheless
be added or deleted in the future.
"DREYFUS STOCK INDEX FUND"
Dreyfus Stock Index Fund is an open-end, non-diversified management
investment company known as an index fund. Its goal is to provide investment
results that correspond to the price and yield performance of publicly traded
common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index. The Fund is neither sponsored by nor affiliated
with Standard & Poor's Corporation. The Fund sells its shares to the Index
Account at net asset value, without the imposition of a sales charge.
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, acts as the Fund manager and Mellon Equity Associates, an affiliate of
Dreyfus located at 500 Grant Street, Pittsburgh, Pennsylvania 15258, is the Fund
index manager.
"CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO"
The Calvert Responsibly Invested Balanced Portfolio is a series of Acacia
Capital Corporation (the "Fund"), an open-end management investment company
whose investment advisor is Calvert Asset Management Company, Inc. located at
4550 Montgomery Avenue, Suite 1000N, Bethesda, Maryland 20814.
The Calvert Responsibly Invested Balanced Portfolio seeks total return
above the rate of inflation through an actively managed, nondiversified
portfolio of common and preferred stocks, bonds, and money market instruments
which offer income and growth opportunity and which satisfy the social concern
criteria established for the Portfolio. Shares of the Fund are offered only to
insurance companies for allocation to certain of their variable accounts.
16
<PAGE>
"DREYFUS VARIABLE INVESTMENT FUND"
Dreyfus Variable Investment Fund is an open-end, diversified management
investment company that is intended to be a funding vehicle for variable annuity
contracts and variable life insurance policies to be offered by the separate
accounts of various life insurance companies.
THE SMALL CAP PORTFOLIO: The Portfolio seeks to maximize capital appreciation.
The Small Cap Portfolio seeks out companies that The Dreyfus Corporation
believes have the potential for significant growth. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in
companies with market capitalization of less than $750 million, at the time of
purchase, both domestic and foreign where there is a belief that new or
innovative products or services should enhance prospects for growth in future
earnings. The Portfolio may also invest in special situations such as corporate
restructurings, mergers or acquisitions.
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, serves as the Fund's investment adviser.
FIDELITY'S "VARIABLE INSURANCE PRODUCTS FUND"
The Variable Insurance Products Fund was designed to provide investment
vehicles for variable annuity and variable life insurance contracts of various
insurance companies.
EQUITY-INCOME PORTFOLIO: The Portfolio seeks reasonable income by normally
investing at least 65% of its total assets in income-producing common or
preferred stock and the remainder in debt securities.
GROWTH PORTFOLIO: The Portfolio seeks to achieve capital appreciation. The
Portfolio normally purchases common stocks, although its investments are not
restricted to any one type of security. Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
MONEY MARKET PORTFOLIO: The Portfolio seeks to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity. For
more information regarding the Portfolio, into which initial Contributions are
invested pending First UNUM's receipt of a complete order, please see the
"Initial Contributions" section.
Fidelity Management & Research Company ("FMR") is the manager of the
Equity-Income Portfolio, the Growth Portfolio and the Money Market Portfolio and
is located at 82 Devonshire Street, Boston, Massachusetts 02109.
FIDELITY'S "VARIABLE INSURANCE PRODUCTS FUND II"
Variable Insurance Products Fund II is designed to provide investment
vehicles for variable annuity and variable life insurance contracts.
ASSET MANAGER PORTFOLIO: The Portfolio seeks high total return with reduced risk
over the long term by allocating its assets among domestic and foreign stocks,
bonds and short-term fixed income instruments.
FMR is the manager of the Portfolio and is located at 82 Devonshire Street,
Boston, Massachusetts 02109
TWENTIETH CENTURY'S "TCI PORTFOLIOS, INC."
TCI Portfolios, Inc. is a fund which offers its shares only to insurance
companies to fund the benefits of variable annuity or variable life insurance
contracts. The Portfolios are managed by Investors Research Corporation which
also manages the Twentieth Century family of mutual funds. Investors Research
Corporation has its principal place of business at Twentieth Century Tower, 4500
Main Street, Kansas City, Missouri 64111.
17
<PAGE>
First UNUM may perform certain administrative services that would otherwise
be performed by Twentieth Century Services, Inc., and Investors Research may pay
First UNUM for such services.
TCI GROWTH: The Portfolio seeks capital growth by investing in common stocks
(including securities convertible into common stocks) and other securities that
meet certain fundamental and technical standards of selection and, in the
opinion of the fund's management, have better than average potential for
appreciation.
TCI BALANCED: The Portfolio seeks capital growth and current income. Its
investment team intends to maintain approximately 60% of the portfolio's assets
in common stocks that are considered by its manager to have better than average
prospects for appreciation and the balance in bonds and other fixed income
securities.
"T. ROWE PRICE INTERNATIONAL SERIES, INC."
T. Rowe Price International Series is a fund which offers its shares only to
insurance companies to fund the benefits of variable annuity and variable life
contracts. It is managed by Rowe Price-Fleming International, Inc., one of
America's largest international no load mutual fund managers with approximately
$20.0 billion under management as of December 31, 1995 from its offices in
Baltimore, London, Tokyo and Hong Kong.
The International Stock Portfolio seeks long-term growth of capital and
income through investments primarily in common stocks of established, non-U.S.
companies.
CONTRACT PROVISIONS
GENERAL
First UNUM has designed these Contracts for Employers and other entities to
enable Participants and Employers to accumulate funds for retirement programs
meeting the requirements of the following Sections of the Internal Revenue Code
of 1986, as amended (the "Code"): 401(a), 403(b), 408, 457 and other related
Sections as well as for programs offering non-qualified annuities. An Employer,
Association or trustee in some circumstances, may enter into a Contract with
First UNUM by filling out an application and returning it to First UNUM. Upon
First UNUM's acceptance of the application, Contractholders or an affiliated
Employer can forward Contributions on behalf of employees who then become
Participants under the Contracts. For Plans that have allocated rights to the
Participant, First UNUM will issue to each Participant a separate Active Life
Certificate that describes the basic provisions of the Contract to each
Participant.
CONTRIBUTIONS UNDER THE CONTRACT
Generally, under the Contracts, Contributions are forwarded by the
Contractholders to First UNUM for investment. Depending on the Plan, the
Contributions may consist of salary reduction Contributions, Employer
Contributions or post-tax Contributions. Lincoln will administer the
Contracts after the Closing Date. Contractholders will be notified of any
change in procedures.
Contributions may accumulate on either a guaranteed or variable basis
depending upon the Divisions available under the Contract and/or the Division in
which the Contributions are deposited. Contributions to the Guaranteed Interest
Division become part of First UNUM's General Account and are guaranteed a
minimum rate of interest. First UNUM will also declare in advance a guaranteed
interest rate which will be effective for all amounts in the Participant's
Account balance in the Guaranteed Interest Division during the designated year.
This rate will never be less than the minimum rate of interest. First UNUM may
also declare in advance separate interest rate guarantees which are in excess of
the guaranteed interest rate for some or all of the Participant's Account
balance in the Guaranteed Interest Division for specific period(s) during the
designated year. First UNUM assumes the risk of investment gain or loss on
contributions to the Guaranteed Interest Division. Contributions to the Variable
Investment Division are credited with a rate of return dependent upon the
investment experience of the Sub-Accounts in which the Contributions are
invested.
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<PAGE>
Contributions by Participants may be in any amount unless there is a
minimum amount set by the Contractholder or Plan. A Contract may require the
Contractholder to contribute a minimum annual amount on behalf of all
Participants. Annual Contributions under Qualified Plans may be subject to
maximum limits imposed by the Code. Annual Contributions under non-qualified
plans may be limited by the terms of the Contract. In the Statement of
Additional Information see "Tax Law Considerations" for a discussion of these
limits. Subject to any restrictions imposed by the Plan or the Code, transfers
from other contracts and qualified rollover Contributions will be accepted.
Contributions must be in United States funds unless First UNUM agrees in
writing to accept other currencies. Any non-US funds will be converted to U.S.
funds. All withdrawals and distributions under this Contract will be in U.S.
funds. If a bank or other financial institution does not honor the check or
other payment method constituting a Contribution, First UNUM will treat the
Contribution as invalid. All allocation and subsequent transfers resulting from
the invalid Contributions shall be reversed and the party responsible for the
invalid Contribution shall reimburse First UNUM for any losses or expenses
resulting from the invalid Contribution.
INITIAL CONTRIBUTIONS
The initial Contribution for a Participant will be credited to the
Participant's Account no later than two Business Days after it is received by
First UNUM if it is preceded or accompanied by a completed enrollment form
containing all the information necessary for processing the Participant's
Contribution. If First UNUM does not receive a complete enrollment form,
First UNUM will notify the Contractholder or the Participant that First UNUM
does not have the necessary information to process the Contribution. If the
necessary information is not provided to First UNUM within five (5) Business
Days after First UNUM first receives the initial Contribution, First UNUM
will return the initial Contribution less any withdrawal(s) by the
Participant or by the Contractholder, unless the Participant or the
Contractholder specifically consents to First UNUM retaining the
Contribution until the enrollment form is made complete.
Notwithstanding the above, where the Contract includes language
regarding the "Pending Allocation Account", the following shall apply: Where
state approval has been obtained, if First UNUM receives Contributions which
are not accompanied by a properly completed Enrollment Form, First UNUM will
notify the Contractholder of that fact and deposit the Contributions to the
Pending Allocation Account, unless such Contributions are designated to
another Account in accordance with the Plan. Within two business days of
receipt of a properly completed Enrollment Form, the Participant's Account
balance in the Pending Allocation Account will be transferred in accordance
with the allocation percentages elected on the Enrollment Form. All future
Contributions will also be allocated in accordance with these percentages
until such time as the Participant may notify First UNUM of a change. If a
properly completed Enrollment Form is not received after three monthly
notices have been sent, the Participant's Account balance in the Pending
Allocation Account will be refunded to the Contractholder within 105 days of
the date of the initial Contribution. The Pending Allocation Account invests
in Fidelity's Variable Insurance Products Fund: Money Market Portfolio and is
not available as an investment option under the group annuity contract.
Mortality & Expense Risk Charges and the Annual Administration Charge do not
apply to this Account. These charges will be applicable upon receipt of a
properly completed Enrollment Form and the Participant's contract
Participation Date will be the date money was deposited in the Pending
Allocation Account.
ALLOCATION OF CONTRIBUTIONS
A Participant must designate in writing, subject to the Plan, the percent of
their Contribution which will be allocated to each Division and to each
Sub-Account available under their Contract. The Contributions allocation
percentage to the Guaranteed Investment Division or any Sub-Account can be in
any whole percent. Participants, whose Employer offers two or more First UNUM
contracts for the same type of Qualified or Non-qualified Plans, may allocate
Contributions to a maximum of ten Sub-Accounts and Guaranteed Interest Division.
Participants, subject to the terms of the Plan, may change the allocation of
Contributions by notifying First UNUM in writing or by telephone in accordance
with procedures published by First UNUM. Telephone requests for allocation
changes follow the same verification of identity rules as for Transfers. (See
"Telephone Transfers.") When First UNUM receives a notice in writing, the form
must be acceptable to First UNUM. Upon receipt by First UNUM, the change will be
effective for all Contributions received concurrently with the allocation change
form and for all future Contributions, unless a later date is requested. Changes
in the allocation of future Contributions have no effect on amounts a
Participant may have already contributed. Such amounts, however, may
19
<PAGE>
be transferred between Divisions and Sub-Accounts pursuant to the requirements
described in "Transfers between Divisions and Sub-Accounts." Allocations of
Employer Contributions may be restricted by the applicable plan.
SUBSEQUENT CONTRIBUTIONS
The Contractholder will forward Contributions to First UNUM specifying the
amount being contributed on behalf of each Participant. The Contractholder must
send Contributions and provide such allocation information in accordance with
procedures established by First UNUM. The Contributions shall be allocated among
the Guaranteed Interest Division and the Variable Investment Division in
accordance with the Contractholder's or the Participant's written instructions
as described above in "Allocation of Contributions."
INVESTMENT OF CONTRIBUTIONS
Contributions are invested as of the date of receipt at First UNUM, provided
that they are received on a Business Day and allocation information is provided
in a form acceptable to First UNUM in accordance with procedures established by
First UNUM. Contributions on behalf of a Participant which are allocated to the
Variable Investment Division will be credited with Accumulation Units as of that
date. A Participant's interest in the Variable Investment Division during the
Accumulation Period is represented by the value of the Accumulation Units
credited to the Participant's Account balance in the Variable Investment
Division. The number of Accumulation Units credited to a Participant's Account
in a Sub-Account is calculated by dividing the Contribution allocated to the
Sub-Account by the dollar value of an Accumulation Unit next determined after
receipt of the Contribution. The number of Accumulation Units purchased will not
vary as a result of any subsequent fluctuations in the Accumulation Unit Value.
The Accumulation Unit Value, of course, fluctuates with the investment
performance of the underlying Fund and also reflects deductions and charges made
against the Variable Investment Division.
DETERMINATION OF ACCUMULATION UNIT VALUE
First UNUM determines the Accumulation Unit Value of each Sub-Account on
each Valuation Date. The Accumulation Unit Values for all Sub-Accounts were
initially set at ten dollars ($10). Subsequent Accumulation Unit Values are
determined by multiplying the Net Investment Factor for the current Valuation
Period by the Accumulation Unit Value as of the end of the immediately preceding
Valuation Period.
First UNUM uses a Net Investment Factor to measure the daily fluctuations
in value of a Sub-Account. The Net Investment Factor for any Valuation Period is
determined as follows:
(a) The net asset value per share of the underlying Fund as of the end of
a Valuation Period is added to the amount per share of any dividends or capital
gain distributions paid by the Fund during that Valuation Period;
(b) The amount in (a) above is then divided by the net asset value per
share of the underlying Fund as of the end of the immediately preceding
Valuation Period;
(c) The result of (a) divided by (b) is then multiplied by one minus the
annual mortality and expense risk charge to the n/365th power where n equals the
number of calendar days since the immediately preceding Valuation Date.
The above calculation will be adjusted by the amount per share of any taxes
which are incurred by First UNUM because of the existence of the Variable
Investment Division.
The Participant's Account balance is equal to the sum of the Participant's
Account balances in both the Variable Investment Division and the Guaranteed
Interest Division.
20
<PAGE>
TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
During the Accumulation Period, transfers may be made of all or part of a
Participant's Account balance in any Division or Sub-Account to another
Sub-Account or Division subject to the limitations described below and in the
applicable Plan. Transfers will not change the allocation of future
Contributions to the Divisions and Sub-Accounts. First UNUM does not require
that any minimum amount be transferred. To effect a transfer, First UNUM must
receive a written transfer request in a form acceptable to First UNUM. During
any one calendar year, a Participant may make one transfer or withdrawal from
the Guaranteed Interest Division to the Variable Investment Division in an
amount not to exceed 20% of the Guaranteed Interest Division Account balance.
Transfers to or from the Variable Investment Division are made using the
Accumulation Unit Value next computed following First UNUM's receipt of the
written transfer request.
TELEPHONE TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
First UNUM may accept telephone transfers from Participants when this is
allowed by the Contractholder. In order to prevent unauthorized or fraudulent
transfers, First UNUM will require a Participant to provide certain identifying
information before First UNUM will act upon their instructions. First UNUM may
also assign the Participant a Personal Identification Number (PIN) to serve as
identification. First UNUM will not be liable for following telephone
instructions it reasonably believes are genuine. Telephone transfer requests may
be recorded and written confirmation of all transfer requests will be mailed to
the Participant or Contractholder on the next Business Day. Telephone transfers
will be processed on the Business Day that they are received when they are
received at the First UNUM Home Office before 4:00 P.M. ET. If the Participant
or Contractholder determines that a transfer has been made in error, the
Participant or Contractholder must notify First UNUM within 30 days of the
confirmation notice date. See "Contract Provisions, Transfers between Divisions
and Sub-Accounts."
WITHDRAWALS
During the Accumulation Period, withdrawals may be made from either or
both Divisions of all or part of the Participant's Account balance in a
Division or Sub-Account remaining after deductions for any applicable (1)
Annual Administration Charge (imposed on Total Withdrawals), (2) premium
taxes, and (3) outstanding loan including loan security. Annuity Conversion
Amounts are not considered withdrawals. See "Annuity Period, Annuities:
General."
All withdrawal requests must indicate the amount to be withdrawn and be
submitted in a form acceptable to First UNUM. If the request does not specify
the Sub-Accounts and/or the Divisions from which the withdrawal is to be made,
the withdrawal will be made pro rata based on balances in the Sub-Accounts and
the Guaranteed Investment Division. First UNUM does not require that any minimum
amount be withdrawn. Telephone withdrawal requests are not available.
Withdrawals from the Variable Investment Division are made by reducing the
Participant's number of Accumulation Units in the applicable Sub-Account. In
determining the number of Accumulation Units to be reduced, First UNUM uses the
Accumulation Unit Value next computed after First UNUM's receipt of the written
withdrawal request.
Payment of all Variable Investment Division withdrawal amounts will be
made, within the time period allowed under current Federal law but in no case
later than seven days, after receipt by First UNUM of the withdrawal request in
a form acceptable to First UNUM. See "Market Emergencies."
During any one calendar year, a Participant may make one transfer or
withdrawal from the Guaranteed Interest Division to the Variable Investment
Division in an amount not to exceed 20% of the Guaranteed Interest Division
Account balance.
TOTAL WITHDRAWALS
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A Total Withdrawal can only be made by a Participant who has no
outstanding loans under the Contract. A Total Withdrawal of a Participant's
Account will occur when (a) the Participant or Contractholder requests the
liquidation of the Participant's entire Account balance, or (b) the amount
requested results in a remaining Participant's Account balance of less than
or equal to the Annual Administration Charge, in which case the request is
treated as if it were a request for liquidation of the Participant's entire
account balance.
Any Active Life Certificate must be surrendered to First UNUM when a Total
Withdrawal occurs. If a Contractholder resumes Contributions on behalf of a
Participant after a Total Withdrawal, the Participant will receive a new
Participation Date and Active Life Certificate.
A Participant refund under the free-look provisions is not considered a
Total Withdrawal.
PARTIAL WITHDRAWALS
A Partial Withdrawal of a Participant's Account will occur when less than a
Total Withdrawal is made from a Participant's Account.
SYSTEMATIC WITHDRAWAL OPTION
Participants who are at least age 59 1/2, are separated from service from
their employer or are disabled and certain spousal beneficiaries and alternate
payees who are former spouses may be eligible for a Systematic Withdrawal Option
("SWO") under the Contract. Under the SWO a Participant may elect to withdraw
either a monthly amount which is an approximation of the interest earned between
each payment period based upon the interest rate in effect at the beginning of
each respective payment period or a flat dollar amount withdrawn on a periodic
basis. Payments are made only from the Guaranteed Interest Account. A
Participant must have a vested pre-tax account balance of at least $10,000 in
order to select the SWO. A Participant may transfer amounts from the Variable
Investment Division to the Guaranteed Interest Division in order to support SWO
payments. These transfers, however, are subject to the transfer restrictions
described in this Prospectus and/or imposed by any applicable Plan. A one-time
fee of up to $30 may be charged to set up the SWO. This charge is waived for
total vested pre-tax account balances of $25,000 or more. More information about
SWO, including applicable fees and charges, is available in the Contracts and
Active Life Certificates as well as from First UNUM.
MAXIMUM CONSERVATION OPTION
Under certain Contracts Participants who are at least age 70 1/2 may request
that First UNUM calculate and pay to them the minimum annual distribution
required by Sections 401(a)(9), 403(b)(10), 408(a) or 457(d) of the Code. The
Participant must complete forms as required by First UNUM in order to elect this
option. First UNUM will base its calculation solely on the Participant's Account
value with First UNUM. Participants who select this option are responsible for
determining the minimum distributions amount applicable to their non-First UNUM
contracts.
WITHDRAWAL RESTRICTIONS
Withdrawals under Section 403(b) Contracts are subject to the limitations
under Section 403(b)(11) of the Code and regulations thereof and in any
applicable Plan document. That section provides that salary reduction
Contributions deposited and earnings credited on any salary reduction
Contributions after December 31, 1988 may only be withdrawn if the Participant
has (1) died; (2) become disabled; (3) attained age 591/2; (4) separated from
service; or (5) incurred a hardship. Amounts accumulated in one Section
403(b)(1) contract may be transferred to another Section 403(b)(1) contract or
Section 403(b)(7) custodial account without a penalty under the Code. If amounts
accumulated in a Section 403(b)(7) custodial account are deposited in a
Contract, such amounts will be subject to the same withdrawal restrictions as
are applicable to post-1988 salary reduction Contributions under the Contracts.
For more information on these provisions see "Federal Income Tax
Considerations."
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Withdrawal requests for a Participant under Section 457(b) Plans and Plans
subject to Title I of ERISA must be authorized by the Contractholder on behalf
of a Participant. All withdrawal requests will require the Contractholder's
written authorization and written documentation specifying the portion of the
Participant's Account balance which is available for distribution to the
Participant. Withdrawal requests for Section 457(f) Plans must be requested by
the Contractholder.
For withdrawal requests (other than transfers to other investment
vehicles), by Participants under Plans not subject to Title I of ERISA and
non-457 Plans, the Participant must certify to First UNUM that one of the events
listed in the Code has occurred (and provide supporting information, if
requested) and that First UNUM may rely on such representation in granting such
withdrawal request. See "Federal Income Tax Considerations." A Participant
should consult their tax adviser as well as review the provisions of their Plan
before requesting a withdrawal.
In addition to the restrictions noted above, a Plan may contain additional
withdrawal or transfer restrictions.
Early withdrawals, as defined under Section 72(q) and 72(t) of the Code,
may be subject to a ten percent excise tax.
DEATH BENEFITS
The payment of death benefits will be governed by the provisions of the
applicable Plan and the Code. In the event of the death of a Participant during
the Accumulation Period, First UNUM will pay the Beneficiary, if one is living,
or the Plan the greater of the following amounts:
(1) The Net Contributions, or
(2) The Participant's Account balance less any outstanding loan (including
principal and due and accrued interest), as of the date of notification.
If First UNUM is not notified of the Participant's death within six months
of such death, the Beneficiary will receive the Death Benefit amount described
in paragraph (2).
A Beneficiary may elect to have the Death Benefit (1) paid as a lump sum,
(2) converted to a Payout Annuity or (3) as a combination of a lump sum payment
and a Payout Annuity.
First UNUM will calculate the Death Benefit as of the end of the Valuation
Period during which it receives both satisfactory notification of the
Participant's death and an election of a form of Death Benefit (as described
below). Payment of a lump sum election will be made within the time period
prescribed by Federal law but in no case later than seven days following such
calculation. Payment of an annuity option will be paid in accordance with the
provisions regarding annuities. See "Annuity Period." If no election is made
within sixty days following First UNUM's receipt of satisfactory notice of the
Participant's death, the Death Benefit will be paid in the form of a lump sum
payment and will be calculated as of the end of the Valuation Period during
which that sixtieth day occurs (and payment will be made within the time period
prescribed by Federal law but in no case later than seven days after such
calculation date).
Satisfactory proof of death may consist of: a copy of a certified death
certificate; a copy of a certified decree of a court of competent jurisdiction
as to the finding of death; a written statement by a medical doctor who attended
the deceased at the time of death; or any other proof satisfactory to First
UNUM.
Notwithstanding the above, if the Beneficiary is someone other than the
spouse of the deceased Participant, the Code provides that the Beneficiary may
not elect an annuity which would commence later than December 31st of the
calendar year following the calendar year of the Participant's death. If a
non-spousal Beneficiary elects to receive payment in a single lump sum, the Code
provides that such payment must be received no later than December 31st of the
fourth calendar year following the calendar year of the Participant's death.
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If the Beneficiary is the surviving spouse of the deceased Participant,
distributions are not required under the Code to begin earlier than December
31st of the calendar year in which the Participant would have attained age 70
1/2. If the surviving spouse dies before the date distributions commence, then,
for purposes of determining the date distributions to the Beneficiary must
commence, the date of death of the surviving spouse is substituted for the date
of death of the Participant.
If there is no living named Beneficiary on file with First UNUM at the time
of a Participant's death and unless the Plan directs otherwise, First UNUM will
pay the Death Benefit to the Participant's estate in the form of a lump sum
payment, upon receipt of satisfactory proof of the Participant's death, but only
if such proof of death is received by First UNUM no later than the end of the
fourth calendar year following the year of the Participant's death. In such
case, valuation of the Death Benefit will occur as of the end of the Valuation
Period during which due proof of death is received by First UNUM, and the lump
sum Death Benefit will be paid within the time period prescribed by law but in
no case later than seven days of that date.
DEDUCTIONS AND CHARGES
CHARGES AGAINST THE VARIABLE INVESTMENT DIVISION
Certain charges will be assessed as a percentage of the value of the net
assets of the Variable Investment Division to compensate First UNUM for risks
assumed in connection with the Contracts.
MORTALITY AND EXPENSE RISK CHARGES
First UNUM deducts from the net assets of the Variable Investment Division a
daily charge of 1.20% on an annual basis.
This charge is assessed both during the Accumulation Period and the Annuity
Period although, during the Annuity Period, First UNUM will bear no mortality
risk with respect to the Annuity Options that do not involve life contingencies.
This amount is intended to compensate First UNUM for certain Mortality and
Expense Risks First UNUM assumes in operating the Variable Investment Division
and for providing services to the Participant. The 1.2% cumulative charge
consists of .25% for the Expense Risk and .95% for the Mortality Risk. The
relative proportion of these charges, consistent with industry practice, is
estimated and, therefore, may change based on First UNUM's experience in
administering the Contracts. However, the total cumulative charge may not be
altered.
The Expense Risk is the risk that First UNUM's actual expenses in issuing
and administering the Contract will be more than First UNUM estimated. The
Mortality Risk borne by First UNUM arises from the chance that First UNUM's
actuarial estimate of mortality rates during the Annuity Period, as guaranteed
in the Contract, may prove erroneous and that an Annuitant may live longer than
expected. This contractual guarantee assures that neither an Annuitant's own
longevity nor an improvement in life expectancy generally will have any adverse
effect under the Contracts. In addition, First UNUM bears the Mortality Risk
that it guarantees to pay a Death Benefit that may be higher than the
Participant's Account balance upon the death of the Participant prior to the
Annuity Period.
First UNUM may ultimately realize a profit from these charges to the extent
they are not needed to meet the actual expenses incurred.
CHARGES AGAINST THE CONTRACTS
The charges that First UNUM assesses in connection with the Contracts are
described below.
ANNUAL ADMINISTRATION CHARGE
First UNUM provides many administrative functions in connection with the
Contracts, including receiving and allocating Contributions in accordance with
the Contracts, making annuity payments when they become due, and preparing and
filing all reports required to be filed by the Variable Investment Division. In
addition, First UNUM provides Participants with
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Account statements and accounting services that keep track of pre-tax monies,
employee and Employer monies, vested Account balances and rollover or
transferred monies.
In consideration for these administrative services, First UNUM currently
deducts $25 (or the balance of the Participant's Account if less) per year from
each Participant's Account balance on the last Business Day of the month in
which a Participation Anniversary occurs. This charge is deducted only during
the Accumulation Period. This Annual Administration Charge is also withdrawn
from a Participant's Account balance if and when a Participant's Account is
totally withdrawn on any date other than the last Business Day of the month in
which the Participation Anniversary occurs.
The Annual Administrative Charge is a reasonable estimate of the costs,
without profit, of administering the Contracts. The charge may be increased
or decreased (subject to any appropriate regulatory approvals).
The Annual Administration Charge may be reduced or waived for those
Participants who are participating under another First UNUM contract which
imposes an Annual Administration Charge or where First UNUM's interest costs or
expenses are reduced due to the terms of the Contract, economies of scale or
administrative assistance provided by the Contractholder. In addition, the
Employer has the option of paying the Annual Administration charge on behalf of
the Participants under a Contract.
Under certain Contracts, the Contractholder may also choose to have the
Annual Administration Charge paid only by those Participants in the Variable
Investment Division. Contracts offering this provision will typically have a
declared interest rate in the Guaranteed Interest Division which is lower than
under contracts not offering this provision. For contracts offering this
provision, the Annual Administration Charge will be withdrawn as described in
this section.
Beginning on the Closing Date and until such time as the Contracts are
assumed by Lincoln-NY, Lincoln will administer the Contracts on
behalf of First UNUM pursuant to an administrative services agreement. See
"Acquisition Agreement with The Lincoln National Life Insurance Company."
PREMIUM TAXES
Certain states require that a premium tax be paid on contributions to a
variable annuity contract. Others assess a premium tax at the time of
annuitization. First UNUM will deduct any applicable premium tax from the
Participant's Account balance at the time required by state law.
MISCELLANEOUS
The Variable Investment Division purchases shares from the Funds at net
asset value. The net asset value reflects investment management fees and other
expenses that have already been deducted from the assets of the Funds. The
Funds' investment management fees, expenses and expense limitations, if
applicable, are more fully described in each prospectus for the Funds.
ANNUITY PERIOD
PAYOUT ANNUITIES: GENERAL
To the extent permitted by the Plan, the Participant, or the Beneficiary of
a deceased Participant, may elect to convert all or part of the Participant's
Account balance or the Death Benefit to a Payout Annuity. Payout Annuities are
available as either a Guaranteed or Variable Annuity or a combination of both.
Annuity payments from the Guaranteed Interest Division remain constant
throughout the annuity period. Annuity payments from the Variable Investment
Division fluctuate depending upon the investment experience of the applicable
Sub-Accounts. Variable Annuity payments are based upon Annuity Unit Values. See
"Annuity Payments" below and "Determination of Variable Annuity Payments" in the
Statement of Additional Information for further information.
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The Annuity Commencement Date marks the date on which First UNUM makes the
first annuity payment to an Annuitant. For Plans subject to Section 401(a)(9)(B)
of the Code, a Beneficiary must select an Annuity Commencement Date that is not
later than one year after the date of the Participant's death. A Participant or
Contractholder may select any Annuity Commencement Date for the Annuitant which
is then reflected in the Retired Life Certificate. However, since an annuity
payment is considered a distribution under the Code, selection of an Annuity
Commencement Date may be affected by the distribution restrictions under the
Code and the minimum distribution requirements under Section 401(a)(9) of the
Code. See "Federal Income Tax Considerations." The selection of an Annuity
Commencement Date, the annuity option, the amount of the Payout Annuity and
whether the amount is to be paid as a Guaranteed or a Variable Annuity must be
made by the Participant in writing, in a form satisfactory to First UNUM, and
received by First UNUM at least 30 days in advance of the Annuity Commencement
Date. After the Annuity Commencement Date an Annuitant may not change either
their annuity option or the type (i.e., variable or guaranteed) of Payout
Annuity for any amount applied toward the purchase of an annuity.
The Annuity Conversion Amount is either the Participant's Account balance,
or a portion thereof, or the Death Benefit plus interest, as of the Annuity
Payment Calculation Date. The initial Annuity Payment Calculation Date will be
the first day of the calendar month next following the Annuity Commencement
Date for a Guaranteed Annuity and 10 Business Days prior to the first day of the
calendar month next following the Annuity Commencement Date for a Variable
Annuity. For Guaranteed Annuities, the Annuity Payment Calculation Date is the
first day of a calendar month. For Variable Annuities, the Annuity Payment
Calculation Date is the date 10 Business Days prior to the first day of a
calendar month; the 10 Business Days being necessary to calculate the amount of
the Payout Annuity payments and to mail the checks in advance of their
first-of-month due dates.
If the Participant's Account balance or the Beneficiary's Death Benefit is
less than $2,000.00 or if the amount of the first scheduled payment is less than
$20.00, First UNUM may, at its option, cancel the annuity and pay the
Participant or Beneficiary the entire amount in a lump sum.
PAYOUT ANNUITY PAYMENTS
The amount of each annuity payment will depend upon the Annuity Conversion
Amount applied to an annuity option, the form of the annuity option selected and
the age of the Participant at the Annuity Commencement Date. Unless otherwise
notified, First UNUM will apply the Participant's Account balance in the
Guaranteed Interest Division toward a Guaranteed Annuity and the Participant's
Account balance in the Variable Investment Division toward a Variable Annuity.
The payment amount for a Guaranteed Annuity is determined by dividing the
Participant's Annuity Conversion Amount in the Guaranteed Interest Division as
of the initial Annuity Payment Calculation Date by the applicable Annuity
conversion Factor as defined in the Contract.
The initial payment amount for a Variable Annuity is determined by dividing
the Participant's Annuity Conversion Amount(s) in the applicable Sub-Account(s)
as of the initial Annuity Payment Calculation Date by the applicable Annuity
Conversion Factor as defined in the Contract. The amounts of subsequent payments
vary depending on the investment experience of the Sub-Account(s) and the
interest rate option selected by the Contractholder or Annuitant. The payment
amounts will not be affected by First UNUM's mortality or expense experience and
will not be reduced by an Annual Administration Charge. For additional
information on the determination of subsequent payment amounts, refer to the
Statement of Additional Information, "Determination of Variable Annuity
Payments."
PAYOUT ANNUITY OPTIONS
First UNUM offers a range of annuity options including, but not limited to,
the following:
LIFE ANNUITY
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Payments are made monthly during the lifetime of the Annuitant, and the
annuity terminates with the last payment preceding death.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10, 15 OR 20 YEARS
Payments are made monthly during the lifetime of the Annuitant with a
monthly payment guaranteed to the Beneficiary for the remainder of the selected
number of years, if the Annuitant dies before the end of the period selected.
Payments under this annuity option are smaller than a Life Annuity without a
guaranteed payment period.
JOINT AND SURVIVOR ANNUITIES
Payments are made monthly during the joint lifetime of the Annuitant and a
designated second person.
PAYMENTS GUARANTEED FOR 10, 15 OR 20 YEARS
Annuity payments are guaranteed monthly for the selected number of years.
While there is no right to make any total or partial withdrawals during the
Annuity Period, an Annuitant who has selected this annuity option as a Variable
Annuity or a surviving Beneficiary may request at any time during the payment
period that the present value of any remaining installments be paid in one lump
sum.
Under Qualified Plans, any annuity selected must be payable over a period
that does not extend beyond the life expectancy of the Participant and the
Participant's designated Beneficiary. If the Beneficiary is someone other than
the Participant's spouse, the present value of payments to be made to the
Participant must be more than 50% of the present value of the total payments to
be made to the Participant and the Beneficiary.
In the event that an Annuitant dies before the end of a designated Annuity
period, the Beneficiary, if any, or the Annuitant's estate will receive any
remaining payments due under the annuity option in effect.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion assumes that the contracts will qualify as annuity
contracts for Federal income tax purposes. The description of the Federal income
tax status of amounts received under the Contracts is not exhaustive and is not
a intended to cover all situations. Contractholders and Participants should seek
advice from their tax advisers on a regular basis as to the application of
Federal (and, where applicable, state and local) tax laws to amounts received by
them or their Beneficiaries under the Contracts. All dollar amounts and
percentages stated below are subject to change according to Federal law. With
respect to the transfer of Contracts from First UNUM to Lincoln-NY, there will
be no adverse tax consequences to Contractholders or participants as a result of
the transfer. For additional Federal Income Tax Considerations, please refer to
the Statement of Additional Information.
NON-QUALIFIED PLANS
Under a non-qualified Plan, an individual may make Contributions to the
Contract which are neither tax-deductible or tax deferred. The earnings on the
Contributions accumulate on a tax-deferred basis until withdrawn. Non-qualified
Plans investing in annuity contracts are subject to the Federal taxation rules
of Section 72 of the Code.
The Code does not limit the Participant's Contributions to a Section 72
plan. There are no Code restrictions on withdrawals or minimum age when the
Participant must begin withdrawals.
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SECTION 401(a) PLANS
Section 401(a) of the Code provides special tax treatment for pension,
profit sharing and stock bonus Plans established by Employers for their
employees. Contributions to a Section 401(a) Plan and any earnings attributable
to such Contributions are currently excluded from the Participant's income.
Section 401(a) Plans are subject to, among other things, limitations on: maximum
Contributions, minimum coverage and participation, minimum funding, minimum
vesting requirements and distribution requirements. The specific limitations are
outlined in the plan document adopted by the employer.
A Participant who makes a withdrawal from a Section 401(a) program must
include that amount in current income. In addition, Section 401(k)(2) of the
Code requires that salary reduction Contributions made and/or earnings credited
on any salary reduction Contributions may not be withdrawn from the
Participant's Section 401(k) program prior to the Participant having (1)
attained age 59 1/2, (2) separated from service, (3) become disabled (4) died or
(5) incurred a hardship. Hardship withdrawals may not include any income
credited after December 31, 1988 that is attributable to any salary reduction
Contributions. In addition, Section 402 of the Code permits tax-free rollovers
from Section 401(a) programs to individual retirement annuities or certain other
Section 401(a) programs under certain circumstances.
SECTION 403(b) PLANS
A Participant who is an employee of a hospital or other tax-exempt
organization described in Section 501(c)(3) or 501(e) of the Code may exclude
from current earnings amounts contributed to a Section 403(b) program. Under the
terms of a Section 403(b) program, an Employer may make Contributions directly
to the program on behalf of the Participant, the Participant may enter into a
salary reduction agreement with the Participant's Employer authorizing the
Employer to contribute a percentage of the Participant's salary to the program
and/or the Participant may authorize the Employer to make after tax
Contributions to the program. Currently, the Code permits employees to defer up
to $9,500 of their income through salary reduction agreements. All Contributions
made to the Section 403(b) program are subject to the limitations described in
Code Sections 402(g) regarding elective deferral amounts, 403(b)(2) regarding
the maximum exclusion allowance, and 415(a)(2) and 415(c) regarding the
limitations on annual additions.
A Participant who makes a withdrawal from their Section 403(b) program
must include that amount in current income. In addition, Section 403(b)(11) of
the Code requires that salary reduction Contributions made and/or earnings
credited on any salary reduction Contributions after December 31, 1988 may not
be withdrawn from the Participant's Section 403(b) program prior to the
Participant having (1) attained age 59 1/2, (2) separated from service, (3)
become disabled (4) died or (5) incurred a hardship. Hardship withdrawals may
not include any income credited after December 31, 1988 that is attributable
to any salary reduction Contributions. The Internal Revenue Service has ruled
(Revenue Ruling 90-24) that amounts may be transferred between Section 403(b)
investment vehicles as long as the transferred funds retain withdrawal
restrictions at least as restrictive as that of the transferring investment
vehicle. Such transferred amounts are considered withdrawals under the
Contract. In addition, Section 403(b)(8) of the Code permits tax-free
rollovers from Section 403(b) programs to individual retirement annuities or
other Section 403(b) programs under certain circumstances. Qualified
distributions eligible for rollover treatment may be subject to a 20% federal
tax withholding depending on whether or not the distribution is paid directly
to an eligible retirement plan.
SECTION 408 PLANS (IRAs)
Under current law, individuals may contribute and deduct the lesser of
$2,000 or 100% of their compensation to an IRA. In the case of a spousal IRA,
the maximum deduction is the lesser of $2,250 or 100% of compensation. The
deduction for contributions is phased out for individuals who are considered
active participants under qualified Plans and whose Adjusted Gross Income
attains a certain level. For a single person the $2,000 deduction is available
when the taxpayers Adjusted Gross Income is $25,000 or less. For each $50 that
the taxpayer's Adjusted Gross Income rises above $25,000, the taxpayer's
deductible IRA is reduced by $10. When the single taxpayer's Adjusted Gross
Income is $35,000 or greater, a tax deduction for an IRA is no longer available.
For a married couple filing jointly, the threshold level is $40,000 rather than
$25,000. For a married person filing separately, the threshold is $0.
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In addition, certain amounts distributed from Section 401(a) and 403(b)
Plans may be rolled over to an IRA on a tax-free basis if done in a timely
manner (within 60 days of the Participant's receipt of the distribution). The
limitations on contributions discussed above do not apply to amounts rolled over
to an IRA.
All Participants in an IRA receive an IRA Disclosure. This document
explains the tax rules that apply to IRAs in greater detail.
ELIGIBLE SECTION 457 PLANS
Eligible Section 457 Plans may be established by state and local governments
as well as private tax-exempt organizations (other than churches). Participants
may contribute on a before tax basis to a deferred compensation Plan of their
employer in accordance with the employer's Plan and Section 457 of the Code.
Section 457 places limitations on the amount of Contributions to these Plans.
Generally, the limitation is one-third of includable compensation or $7,500
whichever is less. In the Participant's final year of employment the $7,500
limit is increased to $15,000.
Participants in an Eligible 457 Plan may not receive a withdrawal or other
distribution from their Plan except in the event of separation of service from
the employer, attainment of age 70 1/2, or when faced with an unforeseen
emergency. The Contractholder's Plan may further restrict the Participant's
rights to a withdrawal.
An employee electing to participate in an Eligible Section 457 Plan should
understand that their rights and benefits are governed strictly by the terms of
the Plan, that they are in fact a general creditor of the Employer under the
terms of the Plan, that the Employer is legal owner of any contract issued with
respect to the Plan and that the Employer retains all rights under the contract
issued with respect to the Plan. Participants under Eligible Section 457 Plans
should look to the terms of their Plan for any charges in regard to
participation other than those disclosed in this Prospectus.
SECTION 457(f) PLANS
Section 457(f) Plans may be established by state and local governments as
well as private tax-exempt organizations. Employers and Participants may
contribute on a before-tax basis to a deferred compensation Plan of their
Employer in accordance with the Employer's Plan. Section 457(f) does not place
limitations on the amount of Contributions to these Plans; however, the Internal
Revenue Service may review these plans to determine if the deferral amount is
acceptable to the IRS based on the nature of the 457(f) Plan.
Participants in a 457(f) Plans may not receive a withdrawal or other
distribution from their 457(f) Plans until a distributable event occurs. The
Plan will define such events.
An employee electing to participate in a Section 457(f) Plan should
understand that their rights and benefits are governed strictly by the terms of
the Plan, that they are in fact a general creditor of the Employer under the
terms of the Plan, that the Employer is legal owner of any contract issued with
respect to the Plan and that the Employer retains all rights under the contract
issued with respect to the Plan. Participants under Section 457(f) Plans should
look to the terms of their Plan for any charges in regard to participating other
than those disclosed in this Prospectus.
TAXATION OF ANNUITIES: GENERAL
In Qualified Plans such as 401(a), 403(b), 408 and Eligible 457, the
Participant is not taxed on the value in their Accounts until they receive
payments from the Account. In some situations, default or forgiveness of a loan
will result in taxable income. Distributions from all these Plans are taxed
under the rules of Sections 72 and 402 of the Code.
29
<PAGE>
TAXATION PRIOR TO THE ANNUITY COMMENCEMENT DATE
Section 72 of the Code provides that a total or partial withdrawal prior to
the Annuity Commencement Date will be taxable to the extent the amount of the
income in the Participant's Account exceeds the Participant's investment in the
Participant's Account. In general, distributions from a Participant's Account
under Sections 401(a), 403(b) and 408 Plans under which the Participant made
after-tax Contributions will be taxable according to a formula based on the
ratio of the Participant's investment in the Contract to the total value of the
Participant's Account balance as of the date of the distribution. Under an
Eligible 457 Plan the Participant is taxed on the value when it is made
available to the Participant. In a 457(f) Plan the Participant is taxed when
their right to a distribution is no longer subject to a substantial risk of
forfeiture.
PENALTY TAX FOR PREMATURE DISTRIBUTIONS
Section 72(q) and 72(t) impose a 10% excise tax on certain premature
distributions for non-qualified and Section 401(a), 403(b) and 408 Plans. The
penalty tax will not apply to distributions made on account of the Participant
having (i) attained age 59 1/2; (ii) become disabled; or (iii) died. The penalty
tax will also not apply under 401(a) and 403(b) retirement plans where a
Participant separates from service after age 55. In addition, the penalty does
not apply if the distribution is received as a series of substantially equal
periodic payments made for the life (or life expectancy) of the Participant or
the joint lives (or life expectancies) of the Participant and a designated
Beneficiary. The 10% excise tax is an additional tax; it does not apply to any
money that the Participant receives as a return of their cost basis. The 10%
excise tax does not apply to Section 457 Plans.
MINIMUM DISTRIBUTIONS
Participants in Plans subject to Code Sections 401(a), 403(b), 408 and
Eligible 457 Plans are subject to Minimum Distribution Rules. For a Participant
who attains age 70 1/2 after December 31, 1987, distributions must begin by
April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2. For a Participant who attains age 70 1/2 before
January 1, 1988, distributions must begin on the April 1 of the calendar year
following the later of (1) the calendar year in which the Participant attains
age 70 1/2 or (2) the calendar year in which the Participant retires.
VOTING RIGHTS
First UNUM is the legal owner of the shares of the Funds held by the
Variable Investment Division. As such, First UNUM is entitled to vote those Fund
shares with respect to issues such as the election of a Fund's directors,
ratification of a Fund's choice of independent auditors and other matters
required by the 1940 Act to be voted on by shareholders.
In those years in which the Funds hold a shareholder meeting, First UNUM
will solicit from Contractholders voting instructions with respect to Fund
shares held by the Variable Investment Division. Each Contractholder will
receive a number of votes in proportion to the Contractholder's investment in
the corresponding Sub-Account as of the record date established by the Fund.
During the Accumulation Period, a Participant has the right to instruct
Contractholders as to the votes attributable to their Participant Account
balance in the Sub-Accounts. Annuitants have similar rights with respect to the
annuity amount attributable to the Sub-Accounts.
First UNUM will furnish Contractholders with sufficient Fund proxy material
and voting instruction forms for all Participants who have voting rights under
the Contract. First UNUM will vote those Fund shares attributable to the
Contract for which First UNUM receives no voting instructions in the same
proportion as First UNUM will vote shares for which First UNUM has received
instructions. First UNUM will vote shares attributable to amounts First UNUM may
have in the Variable Investment Division in the same proportion as votes that
First UNUM receives from Contractholders. If the federal securities laws or
regulations or any interpretation of them changes so that First UNUM is
permitted to vote shares of the Fund in First UNUM's own right or to restrict
Participant voting, First UNUM may do so.
30
<PAGE>
Fund shares may be held by separate accounts of insurance companies
unaffiliated with First UNUM. Fund shares held by those separate accounts will
be voted, in most cases, according to the instruction of owners of insurance
policies and contracts issued by those other unaffiliated insurance companies.
This will dilute the effect of the voting instructions of the Contractholders in
the Variable Investment Division. First UNUM does not foresee any disadvantage
to this. Pursuant to conditions imposed in connection with regulatory relief,
the Fund's Board of Directors has an obligation to monitor events to identify
conflicts that may arise and to determine what action, if any, should be taken.
For further information, see the prospectuses for the Funds.
OTHER CONTRACT PROVISIONS
RIGHTS RESERVED BY FIRST UNUM
First UNUM reserves the right, subject to compliance with applicable law,
including approval by the Contractholder or the Participants if required by law,
(1) to create additional Sub-Accounts in the Variable Investment Division,
(2) to combine or eliminate Sub-Accounts in the Variable Investment Division,
(3) to transfer assets from one Sub-Account in the Variable Investment Division
to another, (4) to transfer assets to the General Account and other separate
accounts, (5) to cause the deregistration and subsequent re-registration of the
Variable Investment Division under the Investment Company Act of 1940, (6) to
operate the Variable Investment Division under a committee and to discharge such
committee at any time, and (7) to eliminate any voting rights which the
Contractholder or the Participants may have with respect to the Variable
Investment Division, (8) to amend the Contract to meet the requirements of the
Investment Company Act of 1940 or other federal securities laws and regulations,
(9) to operate the Variable Investment Division in any form permitted by law,
(10) to substitute shares of another fund for the shares held by a Sub-Account,
and (11) to make any change required by the Internal Revenue Code, ERISA or the
Securities Act of 1933. Participants will be notified if any changes are made
that result in a material change in the underlying investments of the Variable
Investment Division.
ASSIGNABILITY
The Contracts are not assignable without First UNUM's prior written consent.
In addition, a Participant, a Beneficiary or an Annuitant may not, unless
permitted by law, assign or encumber any payment due under the Contract.
MARKET EMERGENCIES
While First UNUM may not suspend the right of redemption or delay payment
from the Variable Investment Division for more than the time period allowed
under Federal law but in no case later than seven days, the following events may
delay payment for more than seven days: (1) any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings); (2) any
period when trading in the markets normally utilized is restricted, or an
emergency exists as determined by the Securities and Exchange Commission, so
that disposal of investments or determination of the Accumulation Unit Value or
Variable Annuity payment value is not reasonably practicable; or (3) for such
other periods as the Securities and Exchange Commission by order may permit for
the protection of the Participants.
CONTRACT DEACTIVATION
Under certain Contracts, First UNUM may deactivate a Contract by
prohibiting new contributions and/or new Participants after the date of
deactivation. First UNUM will give the Contractholder and the Participants not
less than 90 days notice of the date of deactivation.
FREE-LOOK PERIOD
Participants under Sections 403(b), 408 and certain Non-qualified Plans will
receive an Active Life Certificate upon First UNUM's receipt of a duly completed
participation enrollment form. If the Participant chooses not to participate
under the Contract, the Participant may exercise the free-look right by sending
a written notice to First UNUM that the Participant does not wish to participate
under the Contract, within 10 days after the date the Active Life Certificate is
received by the
31
<PAGE>
Participant. For purposes of determining the date on which the Participant has
sent written notice, the postmark date will be used.
If a Participant exercises the free-look right in accordance with the
foregoing procedure, First UNUM will refund in full the Participant's aggregate
Contributions less aggregate withdrawals made on behalf of the Participant or,
if greater, with respect to Contributions to the Variable Investment Division,
the Participant's Account balance in the Variable Investment Division on the
date the Participant's written notice is received by First UNUM.
GUARANTEED INTEREST DIVISION
GENERAL
Contributions to the Guaranteed Interest Division become part of First
UNUM's General Account. The General Account is subject to regulation and
supervision by the Maine Insurance Department as well as the insurance laws and
regulations of the jurisdictions in which the Contracts are distributed. In
reliance on certain exemptions, exclusions and rules, First UNUM has not
registered the interests in the General Account as a security under the
Securities Act of 1933 and has not registered the General Account as an
investment company under the 1940 Act.
Accordingly, neither the General Account nor any interests therein are
subject to regulation under the 1933 Act or the 1940 Act. First UNUM has been
advised that the staff of the SEC has not made a review of the disclosures which
are included in this prospectus which relate to the General Account and the
Guaranteed Interest Division. These disclosures, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. This
prospectus is generally intended to serve as a disclosure document only for
aspects of the Contract involving the Variable Investment Division and contains
only selected information regarding the Guaranteed Interest Division. Complete
details regarding the Guaranteed Interest Division are in the Contract.
Amounts contributed to the Guaranteed Interest Division are guaranteed a
minimum interest rate of at least 3.0%. First UNUM will also declare in advance
a guaranteed interest rate which will be effective for all amounts in the
Participant's Account balance in the Guaranteed Interest Division during the
designated year. This rate will never be less than the minimum rate of interest.
First UNUM may also declare in advance separate interest rate guarantees which
are in excess of the guaranteed interest rate for some or all of the
Participant's Account balance in the Guaranteed Interest Division for specific
period(s) during the designated year. A Participant who makes a Contribution to
the Guaranteed Interest Division is credited with interest from the day of
deposit in the Guaranteed Interest Division.
PARTICIPANT'S ACCOUNT BALANCE IN THE GUARANTEED INTEREST DIVISION
The Participant's Account balance in the Guaranteed Interest Division on
any Valuation Date will reflect the amount and frequency of any Contributions
allocated to the Guaranteed Interest Division, plus any transfers from the
Variable Investment Division and interest credited to the Guaranteed Interest
Division, less any withdrawals, Annual Administration Charges and loan-related
charges allocated to the Guaranteed Interest Division and any transfers to the
Variable Investment Division.
32
<PAGE>
TRANSFERS, TOTAL AND PARTIAL WITHDRAWALS
During any one calendar year a Participant may make one withdrawal or transfer
from the Guaranteed Interest Division in any amount not to exceed 20% of the
Guaranteed Interest Division Account balance. Any Participant stating their
intention to liquidate their Guaranteed Interest Division Account balance,
however, may make one withdrawal request for five consecutive calendar years
from their Guaranteed Interest Division Account balance in the following
percentage:
YEAR REQUEST PERCENTAGE OF GUARANTEED
RECEIVED BY FIRST UNUM INTEREST DIVISION AVAILABLE
---------------------- ---------------------------
1 20%
2 25%
3 33.33%
4 50%
5 100%
The five consecutive withdrawals may not be submitted more frequently than
twelve months apart. First UNUM also reserves the right to require that any
Participant stating their intention to liquidate their Guaranteed Interest
Divsion Account balance stop Contributions to the Contract.
In addition, a Participant may withdraw 100% of their Guaranteed Interest
Division Account balance at any time provided that First UNUM receives
satisfactory proof of the following events: (a) the Participant has attained age
59 1/2; (b) the Participant has died; (c) the Participant has incurred a
disability as defined under the Contract; (d) the Participant has separated from
service from their Employer, and (e) the Participant has incurred a financial
hardship. A Contractholder has the option of choosing to eliminate financial
hardship as an event entitling the Participant to a 100% withdrawal from the
Contract and also to add a requirement that the Participant at least age 55 upon
separation from service to be entitled to a 100% withdrawal from the Guaranteed
Interest Division. Contractholders choosing one or both of these optional
provisions will receive a higher declared interest rate on the Guaranteed
Interest Division than will Contracts without these provisions.
LOANS
During a Participant's Accumulation Period, a Participant, whose Plan
permits loans, may apply for a loan under the Contract by completing a loan
application available from First UNUM. Loans are secured by the Participant's
Account balance in the Guaranteed Interest Division. The amounts and terms of a
Participant loan may be subject to the restrictions imposed under Section 72(p)
of the Code, Title I of ERISA, and any applicable Plans. With respect to Plans
subject to Title I of ERISA, the initial amount of a Participant loan may not
exceed the lesser of 50% of the Participant's vested Account balance in the
Guaranteed Interest Division or $50,000 and must be at least $1,000.00. A
Participant in a Plan that is not subject to ERISA may borrow up to $10,000 of
their vested Account balance without regard to the 50% limitation stated above.
A Participant may have only one loan outstanding at any time and may not
establish more than one loan in any six month period. More information about
loans, including interest rates and applicable fees and charges, is available in
the Contracts, Active Life Certificates, and Annuity Loan Agreement as well as
from First UNUM.
DEFERRAL PERIODS
If a payment is to be made from the Guaranteed Interest Division, First UNUM
may defer the payment for the period permitted by the law of the jurisdiction in
which the Contract is distributed, but in no event, for more than 6 months after
a written election is received by First UNUM. During the period of deferral,
interest at the then current interest rate will continue to be credited to a
Participant's Account in the Guaranteed Interest Division.
33
<PAGE>
TABLE OF CONTENTS FOR
STATEMENT OF ADDITIONAL INFORMATION
PAGE
----
DEFINITIONS 2
DETERMINATION OF ACCUMULATION UNIT VALUES 2
DETERMINATION OF VARIABLE ANNUITY PAYMENTS 3
PERFORMANCE CALCULATIONS 4
TAX LAW CONSIDERATIONS 8
DISTRIBUTION OF CONTRACTS 11
CUSTODIAN 11
INDEPENDENT AUDITORS/ACCOUNTANTS 11
FINANCIAL STATEMENTS 11
Financial Statements of Variable Investment Division
Financial Statements of First UNUM
34
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
GROUP ANNUITY CONTRACTS
FUNDED THROUGH THE INVESTMENT DIVISIONS OF
VA-I SEPARATE ACCOUNT
OF
FIRST UNUM LIFE INSURANCE COMPANY
VARIABLE ANNUITY III
TABLE OF CONTENTS
PAGE
----
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Determination of Accumulation Unit Values. . . . . . . . . . . . . . . 2
Determination of Variable Annuity Payments . . . . . . . . . . . . . . 3
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . 4
Tax Law Considerations . . . . . . . . . . . . . . . . . . . . . . . . 8
Distribution of Contracts. . . . . . . . . . . . . . . . . . . . . . . 11
Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Independent Auditors/Accountants . . . . . . . . . . . . . . . . . . . 11
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 11
Financial Statements of Variable Investment Division
Financial Statements of First UNUM
This Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the prospectus for the Group Annuity Contracts (the
"Contracts"), dated May 1, 1996.
A copy of the prospectus to which this SAI relates is available at no charge by
writing to First UNUM at the First UNUM Life Insurance Company, 120 White Plains
Road, Tarrytown, New York 10591. Attention: Retirement Security Division or by
calling First UNUM at (914) 524-4000.
NY80027
<PAGE>
DEFINITIONS
ANNUITANT: The person receiving annuity payments under the terms of this
Contract.
ANNUITY COMMENCEMENT DATE: The date on which First UNUM makes the first annuity
payment to the Annuitant as required by the Retired Life Certificate. This date,
as well as the date each subsequent annuity payment is made, will be the first
day of a calendar month.
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.
DETERMINATION OF ACCUMULATION UNIT VALUES
As described more fully in the prospectus, Contributions are allocated to the
Divisions in accordance with directions from the Employer. A Participant who
makes Contributions which are allocated to the Variable Investment Division is
credited with Accumulation Units. The following examples illustrate the method
by which First UNUM determines the Net Investment Factor (NIF) for the current
Valuation Period and the Accumulation Unit Value as of the end of the current
Valuation Period.
Determination of NIF:
(a) Assumed Fund net asset value as of the close of the New York Stock Exchange
on June 1 = 10.45
(b) Assumed Fund net asset value as of the close of the New York Stock Exchange
on June 2 = 10.56 (no capital gains or dividend distributions or deductions for
taxes)
(c) The NIF for the current Valuation Period = (b) divided by (a) times (1-
annual M & E) to the 1/365th power
(d) 1.010526 x .999966 = 1.0104916
2
<PAGE>
Determination of Accumulation Unit Value:
The Accumulation Unit Value as of the end of the current Valuation Period is
determined by multiplying the NIF for the current Valuation Period by the
Accumulation Unit Value as of the end of the immediately preceding Valuation
Period.
(a) Assumed Accumulation Unit Value as of the end of the immediately preceding
Valuation Period = 11.125674.
(b) Accumulation Unit Value as of the end of the current Valuation Period =
11.125674 x 1.0104916 (NIF) = 11.2424.
The number of Accumulation Units which are credited to the Participant's Account
for each Sub-Account on each Valuation Date equals the amount of Contributions
allocated to the Sub-Account on each Valuation Date divided by the Accumulation
Unit Value rounded to four decimal places. For example,
(a) Participant's assumed Contribution allocated to a Sub-Account on June 2 =
$150.
(b) Number of Accumulation Units credited to Participant = $150 divided by
11.2424 = 13.3423.
DETERMINATION OF VARIABLE ANNUITY PAYMENTS
As stated in the prospectus, the amount of each Variable Annuity payment will
vary depending on the investment experience of the selected Sub-Accounts.
The initial payment amount of the Annuitant's Variable Annuity for each Sub-
Account is determined by dividing his Annuity Conversion Amount in each Sub-
Account as of the initial Annuity Payment Calculation Date by the Applicable
Annuity Conversion Factor as defined as follows:
The Annuity Conversion Factors which are used to determine the initial payments
are based on the [ 1983 Individual Annuity Mortality Table, set back four (4)
years, and an interest rate in an integral percentage ranging from zero to six
percent (0 to 6.00%) as selected by the Annuitant.
The amount of the Annuitant's subsequent Variable Annuity payment for each Sub-
Account is determined by:
(a) Dividing the Annuitant's initial Variable Annuity payment amount by the
Annuity Unit Value for that Sub-Account selected for his interest rate
option as described above as of his initial annuity Payment Calculation
Date; and
(b) Multiplying the resultant number of annuity units by the Annuity Unit
Values for the Sub-Account selected for his interest rate option for his
respective subsequent Annuity Payment Calculation Dates.
The Annuity Unit Value for all Sub-Accounts for all interest rate options will
initially be set at ten dollars ($10). Each subsequent Annuity Unit Value for a
Sub-Account for an interest rate option is determined by:
Dividing the Accumulation Unit Value for the Sub-Account as of subsequent
Annuity Payment Calculation Date (APCD) by the Accumulation Unit Value for
the Sub-Account as of the immediately preceding APCD;
Dividing the resultant factor by one (1.00) plus the interest rate option
to the n/365 power where n is the number of days from the immediately
preceding APCD to the subsequent APCD; and
Multiplying this factor times the Annuity Unit Value as of the immediately
preceding APCD.
3
<PAGE>
<TABLE>
<CAPTION>
Illustration of Calculation of Annuity Unit Value
<S> <C>
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
<CAPTION>
Illustration of Annuity Payments
<S> <C>
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 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 Variable Investment Division may advertise average annual total return
information calculated according to a formula prescribed by the Securities and
Exchange Commission ("SEC"). Average annual total return shows the average
annual percentage increase, or decrease, in the value of a hypothetical
Contribution allocated to a Sub-Account from the beginning to the end of each
specified period of time. The SEC standardized version of this performance
information is based on an assumed Contribution of $1,000 allocated to a
Sub-Account at the beginning of each period and surrender or withdrawal of the
value of that amount at the end of each specified period, giving effect to any
charges and fees applicable under the Contract. This method of calculating
performance further assumes that (i) a $1,000 Contribution was allocated to a
Sub-Account and (ii) no transfers or additional payments were made. Premium
taxes are not included in the terms "charges" for purposes of this calculation.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical Contribution that would compare the
Accumulation Unit value on the first day of the specified period to the ending
redeemable value at the end of the period according to the following formula:
T = (ERV/C) 1/n - 1
Where T equals average annual total return, where ERV (the ending redeemable
value) is the value at the end of the applicable period of a hypothetical
Contribution of $1,000 made at the beginning of the applicable period, where C
equals a hypothetical Contribution of $1,000, and where n equals the number of
years.
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. The Variable Investment Division may
present total return information computed on the same basis as the standardized
method except that charges deducted from the hypothetical Contribution will not
include any Annual Administration Charge. The total return percentage under
this method will be higher than the 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.
4
<PAGE>
This method of calculating performance does not take into account the Contract
annual Administration charge and premium taxes, and assumes no transfers. Such
percentages would be lower if these charges were included in the calculation.
In addition, the Variable Investment Division may present actual aggregate total
return figures for various periods, reflecting the cumulative change in value of
an investment in the Variable Investment Division for the specified period.
PERFORMANCE INFORMATION
The tables below provide performance information for each Sub-Account for
specified periods ending December 31, 1995. The performance information is
based on historical performance of the underlying Funds adjusted for charges
applicable to the Variable Annuity I Separate Account. This information does
not indicate or represent future performance.
Total Return
Total returns quoted in sales literature or advertisements reflect all aspects
of a Sub-Account's return. Average annual returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in the
Sub-Account over a stated period of time, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline had been constant over the period. Contractholders and
participants should recognize that average annual returns represent averaged
returns rather than actual year-to-year performance.
VA-I Sub-Accounts have inception dates as follows: Index Account,; Balanced
Account, Asset Manager Account, Growth I Account and Growth II Account -
12/31/91; and Equity-Income Account, Socially Responsible Account, International
Stock Account, and Small Cap Account - 5/2/94. However, the respective
underlying funds in which the Sub-Accounts invest had performance history
prior to the Sub-Accounts' inception. Performance information covering those
periods reflects a hypothetical return as if the funds were part of the VA-I
Separate Account at that time, using the charges applicable to the Contracts.
THE TABLES BELOW WILL BE FILED BY AMENDMENT
5
<PAGE>
Table 1A below assumes a hypothetical investment of $1,000 at the beginning of
the period via the Sub-Account investing in the applicable fund and withdrawal
of the investment on 12/31/95. The rates thus reflect the mortality and expense
risk charge and a pro rata portion of the Annual Administrative Charge.
Table 1B shows the cumulative total return on the same basis .
TABLE 1A -- STANDARD AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
LIFE
1 YEAR 3 YEARS 5 YEARS OF ACCT
INCEPTION ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89
(Asset Manager)
Calvert Responsibly Invested Balanced Portfolio 09/02/86
(Socially Responsible)
TCI Balanced 05/01/91
(Balanced)
VIP Equity-Income 10/09/86
(Equity-Income)
Dreyfus Stock Index 09/29/89
(Index Account)
Fund VIP Growth 10/09/86
(Growth I)
TCI Growth 11/20/87
(Growth II)
T. Rowe Price International Stock 03/31/94
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90
(Small Cap)
<CAPTION>
TABLE 1B -- CUMULATIVE TOTAL RETURN
LIFE
YEAR TO 1 YEAR 3 YEARS 5 YEARS OF ACCT
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89
(Asset Manager)
Calvert Responsibly Invested Balanced Portfolio 09/02/86
(Socially Responsible)
TCI Balanced 05/01/91
(Balanced)
VIP Equity-Income 10/09/86
(Equity-Income)
Dreyfus Stock Index 09/29/89
(Index)
Fund VIP Growth 10/09/86
(Growth I)
TCI Growth 11/20/87
(Growth II)
T. Rowe Price International Stock 03/31/94
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90
(Small Cap)
</TABLE>
6
<PAGE>
Tables 2A and 2B show performance information on the same assumptions as Tables
1A and 1B except that Tables 2A and 2B do not reflect deductions of the pro rata
portion of the Annual Administrative Charge because certain Contract and
Participants are not assessed such a charge.
TABLE 2A -- AVERAGE ANNUAL TOTAL RETURN ASSUMING NO ANNUAL ADMINISTRATIVE
CHARGE
<TABLE>
<CAPTION>
LIFE
1 YEAR 3 YEARS 5 YEARS OF ACCT
INCEPTION ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89
(Asset Manager)
Calvert Responsibly Invested Balanced Portfolio 09/02/86
(Socially Responsible)
TCI Balanced 05/01/91
(Balanced)
VIP Equity-Income 10/09/86
(Equity-Income)
Dreyfus Stock Index 09/29/89
(Index Account)
Fund VIP Growth 10/09/86
(Growth I)
TCI Growth 11/20/87
(Growth II)
T. Rowe Price International Stock 03/31/94
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90
(Small Cap)
TABLE 2B -- CUMULATIVE TOTAL RETURN ASSUMING NO ANNUAL ADMINISTRATIVE CHARGE
LIFE
YEAR TO 1 YEAR 3 YEARS 5 YEARS OF ACCT
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING
DATE 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C> <C> <C>
Fund VIP II: Asset Manager 09/06/89
(Asset Manager)
Calvert Responsibly Invested Balanced Portfolio 09/02/86
(Socially Responsible)
TCI Balanced 05/01/91
(Balanced)
VIP Equity-Income 10/09/86
(Equity-Income)
Dreyfus Stock Index 09/29/89
(Index)
Fund VIP Growth 10/09/86
(Growth I)
TCI Growth 11/20/87
(Growth II)
T. Rowe Price International Stock 03/31/94
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90
(Small Cap)
</TABLE>
7
<PAGE>
Table 3 below shows total return information on a calendar year basis using the
same assumptions as Tables 2A and 2B. The rates of return shown reflect the
mortality and expense risk charge. Similar to Tables 2A and 2B, Table 3 does
not reflect deduction of the pro rata portion of the Annual Administrative
Charge because certain Contracts and Participants are not assessed such a
charge.
TABLE 3 -- CALENDAR YEAR ANNUAL RETURN ASSUMING NO WITHDRAWAL AND NO ANNUAL
ADMINISTRATIVE CHARGE*
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager na na na 5.45 21.11 10.53 19.60 -7.20
Socially Responsible 5.51 10.42 19.53 2.94 15.02 6.33 6.72 -4.39
Balanced na na na na na -7.17 6.38 -0.58
Equity-Income -2.30 21.25 15.95 -16.29 29.88 15.50 16.89 5.80
Index na na na -4.69 28.29 5.82 8.02 -0.32
Growth I 2.43 14.21 29.95 -12.78 43.78 8.00 17.94 -1.21
Growth II na -3.41 27.17 -2.40 40.18 -2.52 8.99 -2.34
International Stock na na na na na na na na
Small Cap na na na na 156.65 69.25 66.31 6.47
</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. 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 Administrative
Charge.
TAX LAW CONSIDERATIONS
Retirement Programs:
Participants are urged to discuss the income taxes considerations of their
retirement plan with their tax advisors. In many situations special rules may
apply to the plans and/or to the participants.
Contributions to retirement programs subjects to Sections 401(a), 403(a),
403(b), 408 and 457(b) may be excludable from a Participant's reportable gross
income if the Contributions do not exceed the limitations imposed under the e
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 the important federal tax
considerations that apply to retirement plans.. The Code requires that 401(a)
Plans and certain 403(b) Plans be in writing and that the Employer communicate
the provisions of the Plans to employees. When there is a written Plan, often
the Contribution limits, withdrawal rights and other provisions of the Plan may
be more restrictive than those allowed by the Code.
Elective Salary Deferral Contributions
For calendar year 1996 the maximum elective salary deferral contributions to a
401(k) Plan which is a type of 401(a) Plan is limited to $9,500; For a 403(b)
plan the limit is $9,500 unless the employee is a qualified employees; For a
Eligible 457 Plan the limit is $7,500. When an employee is covered by two or
more of these Plans, the elective salary deferral contribution limits for all
the Plans must be coordinated.
8
<PAGE>
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 $9500 a year, the
employee's elective deferrals plus any other employer Contributions cannot
exceed this lesser amount.
Section 415 of the Code imposes limitations with respect to annual contributions
to all Section 403(b) programs, qualified plans and simplified employee pensions
maintained by the Employer. A Participant's annual contributions to these
programs and defined contribution plans cannot exceed the lesser of $30,000 or
25 percent of the employee's compensation. This amount is subject to the maximum
exclusion allowance and the salary deferral amount limitations.
ELIGIBLE 457 PLAN - 457(b) PLAN
For a 457(b) plan the contribution is the lesser of $7,500 or 33% of the
employee's compensation.
SECTION 457(f) PLANS
These are non-qualified deferred compensation arrangements between an Employer
and its employees. There are no stated limits in the Code regarding this type
of Plan.
INDIVIDUAL RETIREMENT ACCOUNT - IRA OR 408 PLAN
For IRA's the maximum deductible contribution is the lesser of $2,000 or 100% of
taxable income. The $2,000 is increased to $2,250 when the IRA covers the
taxpayer and a non-working spouse.
Transfers and Rollovers
Participants who receive distributions from their 401(a) or 403(b) contract
may transfer the amount not representing employee contributions to an
Individual Retirement Account or Annuity (IRA) or another Section 401(a) or
403(b) program without including that amount in gross income for the taxable
year in which paid. Note 401(a) distributions may not be transferred to a
403(b) plan or vice versa. If the rollover amount is paid directly to the
Participant, the amount distributed may be subject to a 20% federal tax
withholding. If the amount is paid directly to an acceptable rollover
account, First UNUM 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.
9
<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. First UNUM considers any total or partial
transfer from a First UNUM investment vehicle to a non-First UNUM investment
vehicle to be a withdrawal.
Once every twelve months a participant in an IRA may roll the money from one IRA
to another IRA.
In Eligible 457 Plans and in Section 457(f) Plans, the Employer controls the
movement of assets from one funding vehicle to another.
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.
Minimum Distribution Rules
The value in a contract under Sections 401(a), 403(b) and 408 are subject to the
distribution rules provided in Section 401(a)(9) of the Code. Generally, that
section requires that an employee must begin receiving distributions of his
post-1986 balance by April 1 of the calendar year following the calendar year in
which the employee attains age 70 1/2. Such distributions must not exceed the
life expectancy of the employee or the life expectancy of such employee and the
designated beneficiary (as defined under the plan). An employee who attained age
70 1/2 before January 1, 1988 must begin receiving distributions by April 1 of
the calendar year following the later of (a) the calendar year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. There are special rules for Section 403(b) Plans.
Amounts contributed to an Eligible 457 contract must be distributed not earlier
than the earliest of : 1) calendar year in which the Participant attains age 70
1/2, 2) the Participant separates from service with the Employer, or 3) when
the Participant has an unforeseen emergency. However, in no event may the
distribution begin any later than described in Sections 401(a)(9) and 457(d) of
the Code.
Additionally, distribution of an employee's entire account balance (including
pre-1987 funds) must satisfy the minimum distribution incidental benefit
requirement. In general, this requires that death and other non-retirement
benefits payable under the above plans be incidental to the primary purpose of
the program which is to provide deferred compensation to the employee. A payee
is subject to a penalty for failing to receive the required minimum annual
distribution. Section 4974(a) of the Code provides that a payee will be subject
to a penalty equal to 50 percent of the amount by which the required minimum
distribution exceeds the actual amount distributed during the taxable year.
Additional information on federal income taxation is included in the prospectus.
10
<PAGE>
DISTRIBUTION OF CONTRACTS
UNUM Sales Corporation (UNUM Sales), a subsidiary of UNUM Corporation, is
registered with the Securities and Exchange Commission as a broker-dealer under
The Securities Exchange Act of 1934 and is a member of the National Association
of Securities Dealers, Inc. UNUM Sales is the Variable Investment Division's
principal underwriter and also enters into selling agreements with other
unaffiliated broker-dealers authorizing them to offer the Contracts. UNUM Sales
will pay these unaffiliated broker-dealers a distribution allowance which will
be used to pay commissions to their registered representatives. This
distribution allowance will not be deducted from Participant Contributions or
Account balances but will be paid from First UNUM's General Account assets
(including any charges collected). Lincoln Life has agreed to serve as the
principal underwriter of the Contracts as of the Closing Date. The principal
underwriter is registered as a broker-dealer with the Securities and Exchange
Commission and is a member of the National Association of Securities Dealers,
Inc. It is anticipated that Lincoln Life will enter into sales agreements with
unaffiliated broker-dealers for the sale of the Contracts.
CUSTODIAN
First UNUM is the custodian for the Fund's shares owned by the Variable
Investment Division. The Fund's shares are held in uncertificated form separate
and apart from First UNUM's other assets.
INDEPENDENT AUDITORS/ACCOUNTANTS
On August 2, 1993, UNUM Corporation determined not to appoint Ernst & Young as
UNUM Corporations independent auditors for 1993. Also on August 2, 1993, UNUM
Corporation engaged Coopers & Lybrand as UNUM Corporation's independent
accountant for 1993 and 1994.
Ernst & Young, 200 Clarendon Street, Boston, Massachusetts 02116, independent
auditors, performed certain accounting and auditing services for UNUM/America
and have performed the same services for the Variable Investment Division. The
financial statements included in this SAI have been audited to the extent and
for the periods indicated in their reports thereon. Those financial statements
have been included herein in reliance upon such reports given upon the authority
of such firm as experts in auditing and accounting.
Coopers & Lybrand, L.L.P., 130 Middle Street, Portland, Maine 04104-5059,
independent accountants, performs certain accounting services for UNUM/America
and have performed the same services for the Variable Investment Division. The
financial statements included in this SAI have been audited to the extent and
for the periods indicated in their reports thereon. Those financial statements
have been included herein in reliance reports given upon the authority of such
firm as experts in auditing and accounting.
FINANCIAL STATEMENTS
This SAI contains financial statements for the Variable Investment Division, as
of December 31, 1995 and for the two years then ended.
The financial statements of First UNUM which are included in this SAI, should be
considered only as bearing on the ability of First UNUM to meet its obligations
under the Contracts. The financial statements of First UNUM are presented in
accordance with generally accepted accounting principles.
FINANCIAL STATEMENTS WILL BE PROVIDED BY AMENDMENT.
11
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial statements and Exhibits
The following financial statements are included in Part B:
Financial Statements of Registrant - VA-I Separate Account of First UNUM Life
Insurance Company.
Audited statement of assets and liabilities as of December 31, 1995 and the
statement of operations and changes in net assets for the year ended
December 31, 1995.
Financial Statements of Depositor - First UNUM Life Insurance Company:
Audited balance sheets as of December 31, 1995, and 1994 and audited
statements of income, stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1995.
(b) Exhibits
* 1. Resolution adopted by the Board of Directors of FirstUNUM Life
Insurance Company on August 16, 1991 establishing the VA-I
Separate Account of First UNUM Life Insurance Company.
2. Not applicable.
* 3(a) Distribution agreement between First UNUM Life Insurance Company
and UNUM Sales Corporation.
* 3(b) Broker-dealer sales agreement
4. Forms of Group Annuity Contracts.
* 5(a) Form of application for Group Annuity Contract.
* 5(b) Form of Participant enrollment form (including acknowledgement of
restrictions on redemption imposed by I.R.C. Section 403(b)).
* 6. Copy of certificate of incorporation and by-laws of First UNUM
Life Insurance Company.
#### 7(a) Form of Assumption Reinsurance Agreement by and between First
UNUM Life Insurance Company and Lincoln-NY.
#### 7(b) Form of Coinsurance and Assumption Agreement by and between First
UNUM Life Insurance Company and Lincoln-NY.
<PAGE>
** 8(a) Participation Agreement between First UNUM Life Insurance Company
and Dreyfus Life & Annuity Index Fund, Inc.
** 8(b) Participation Agreement between First UNUM Life Insurance Company
and Variable Insurance Products Fund I and Fidelity Distributors
Corporation.
** 8(c) Participation Agreement between First UNUM Life Insurance Company
and Variable Insurance Products Fund II and Fidelity Distributors
Corporation.
** 8(d) Participation Agreement between First UNUM Life Insurance Company
and Twentieth Century Management Company.
* 8(e) Service Agreement and Amendments between First UNUM Life
Insurance Company and UNUM Sales Corporation.
* 8(f) Participation Agreement between First UNUM Life Insurance Company
and Acacia Capital Corporation.
* 8(g) Participation Agreement between First UNUM Life Insurance Company
and T. Rowe Price.
* 8(h) Participation Agreement between First UNUM Life Insurance Company
and Dreyfus Variable Investment Fund and Dreyfus Corporation.
#### 8(i) Form of Administrative Services Agreement by and between First
UNUM Life Insurance Company and The Lincoln National Life
Insurance Company.
### 9 Consent and opinion of Kevin J. Tierney, General Counsel of First
UNUM Life Insurance Company, as to the legality of the securities
being registered.
### 10(a) Consent of Coopers & Lybrand, Independent Auditors.
* 10(b) Powers of Attorney.
*** Power of Attorney for Robert E. Cash
## 10(c) Power of Attorney for Edith Weiner.
11. No financial statements are omitted from Item 23.
12. Not Applicable.
## 13. Schedule for Computation of Performance Quotations.
### 14. Financial Data Schedule
<PAGE>
* Incorporated herein by reference to initial Registration
Statement on Form N-4 filed with Securities and Exchange
Commission on November 1, 1991. (33-43763 and 811-6455)
** Incorporated herein by reference to pre-effective amendment No. 1
to Registration Statement on Form N-4 filed with Securities and
Exchange Commission on December 31, 1991 (33-43763 and 811-6455).
*** Incorporated herein by reference to initial Registration
Statement under the Securities Act of 1933 and Amendment No. 2
under the Investment Company Act of 1940 on Form N-4 filed with
the Securities and Exchange Commission on February 14, 1992.
(33-45845 and 811-6455)
+ Incorporated herein by reference to Amendment No. 8 filed by the
VA-I Separate Account of First UNUM Life Insurance Company on May
3, 1993
++ Incorporated herein by reference to Amendment No. 11 filed by the
VA-I Separate Account of First UNUM Life Insurance Company on
March 2, 1994
# Incorporated herein by reference to Amendment No. 14 filed by the
VA-I Separate Account of First UNUM Life Insurance Company on
May 2, 1994
## Incorporated herein by reference to Amendment No. 19 filed by the
VA-I Separate Account of First UNUM Life Insurance Company on May
1, 1995
### To be filed by Post Effective Amendment, May, 1996.
#### Text to be filed by Post-Effective Amendment, May, 1996.
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following list contains the officers and directors of First UNUM Life
Insurance Company who are engaged directly or indirectly in activities relating
to the VA-I Separate Account as well as the Contracts. The list also shows
First UNUM Life Insurance Company's executive officers.
NAME AND ADDRESS POSITIONS AND OFFICES WITH FIRST UNUM
James F. Orr III Chairman of the Board of Directors
2211 Congress Street
Portland, Maine 04122
Stephen B. Center Director and President
120 White Plains Road
Tarrytown, New York 10591
John D. Gaertner Director and Executive Vice President
Commercial Life Insurance Company
15 Corporate Place, South
Piscataway, New Jersey 08855
<PAGE>
Kevin P. O'Connell Director and Executive Vice President
2211 Congress Street
Portland, Maine 04122
Elaine D. Rosen Executive Vice President
2211 Congress Street
Portland, Maine 04122
Anthony P. Battiloro Senior Vice President
Commercial Life Insurance Company
15 Corporate Place, South
Piscataway, New Jersey 08855
Peter J. Moynihan Director and Senior Vice President
2211 Congress Street
Portland, Maine 04122
Robert G. Ostrander Director and Senior Vice President
2211 Congress Street
Portland, Maine 04122
Kevin J. Tierney Director, Senior Vice President,
2211 Congress Street General Counsel and Secretary
Portland, Maine 04122
Edward R. Hillman Director, Vice President and
2211 Congress Street Chief Administrative Officer
Portland, Maine 04122
Peter S. Adams Vice President
2211 Congress Street
Portland, Maine 04122
Item 26. Persons Controlled by or Under Common Control with First UNUM Life
Insurance Company or the VA-I Separate Account
The VA-I Separate Account of First UNUM Life Insurance Company ("First UNUM") is
a separate account of First UNUM and may be deemed to be controlled by First
UNUM although First UNUM will follow voting instructions of Contractholders with
respect to voting on certain important matters requiring a vote of
Contractholders.
The following chart indicates the persons controlled or under common control
with First UNUM and the VA-I Separate Account:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
1 UNUM
CORPORATE STRUCTURE CORPORATION DECEMBER 26, 1995
(DELAWARE)
----------
|
- ------------------------------------------------------------------------------------------------------------------------------------
| | | | | | | |
| UNUM Holding Commercial Life UNUM European Mindtask Limited Duncanson & Holt, Colonial Companies, UNUM Japan
| Company Insurance Holding (United Kingdom) Inc. Inc. Accident
| (Delaware) Company Company (New York) (Delaware) Insurance
| (Wisconsin) Limited Company
| (United Limited
| Kingdom) (Japan)
| ------------ --------------- ------------- ---------------- ---------------- ---------------- -----------
| | | | | |
| | First UNUM | Continental | UNUM Life | Duncanson | Colonial Life
| |- Life |- National |- Insurance |- & Holt |- & Accident
| | Insurance | Life | Company | Services, | Insurance
| | Company | Insurance | Limited | Inc. | Company
| | (New York) | Company | (United | (Maine) | (South
| | ---------- | (Delaware) | Kingdom) | ---------- | Carolina)
| | | | ------------ | --------- | | -------------
| | | NY Holdings | | | Group | |
| | | 1994-1 | Continental | UNUM |- Management | | CLA Holdings
| | | NY Holdings | International | Management | Services, | | 1994-1
| | | 1994-2 |- Life |- Company | Inc. | |- CLA Holdings
| | |- NY Holdings | Insurance | Limited | (Washington) | | 1994-2
| | | 1994-3 | Company | (United | ------------ | | (Maine)
| | | NY Holdings | (Delaware) | Kingdom) | | | ------------
| | | 1994-4 | ------------- | --------- | Duncanson |
| | | (Maine) | |- & Holt | BenefitAmerica,
| | | ----------- | UNUM | Europe Ltd. |- Inc.
| | |- Limited | (United | (South
| | UNUM Sales | (United | Kingdom) | Carolina)
| |- Corporation | Kingdom) | ----------- | ------------
| | (Delaware) | --------- | |
| | ----------- | | | | Duncanson
| | | | N.E.L. | |- & Holt
| | Claims | | Permanent | | (Contingency),
| |- Service | |- Health | | Ltd.
| | International, | | Insurances | | (United
| | Inc. | | Limited | | Kingdom)
| | (Delaware) | | (United | | ------------
| | -------------- | | Kingdom) | |
| | | | ----------- | | Duncanson
| | UNUM | | |- & Holt
| |- Development | Claims | | Underwriters
| | Corporation |- Services | | Ltd.
| | (Maine) | International | | (United
| | ----------- | Limited | | Kingdom)
| | | (United | | -------------
| | UNUM | Kingdom) | |
| |- International | ------------- | | Duncanson
| | Underwriters | | & Holt
| | Inc. | |- Agencies Ltd.
| | (Delaware) | | (United
| | ------------ | | Kingdom)
| | | | --------------
| | UNUM | |
| | Life | | Duncanson
| 2 |- Insurance | | & Holt
| Company | |- Syndicate
| of America | | Management
| (Maine) | | Ltd.
| ------------ | | (United
| UA Holdings | | Kingdom)
| 1994-1 | | -------------
| UA Holdings | |
| 1994-2 | | Trafalgar
|- UA Holdings | | Underwriting
| 1994-3 | |- Agencies Ltd.
| UA Holdings | | (United
| 1994-4 | | Kingdom)
| (Maine) | | -------------
| ----------- |
| |- Duncanson
| SP | & Holt
| Administrator, | Canada Ltd.
3 | LLC | (Canada)
| (California) | -------------
| ----------- |
|- Duncanson
| & Holt
| Asia
| PTE Ltd.
| (Singapore)
| -----------
|4 |
| | MediScreen
|- Sdn. Bhd.
| (Malaysia)
| -------------
</TABLE>
1 Percentage of ownership is 100% unless otherwise indicated.
2 Reflects split ownership: 87.5% by UNUM Holding Company and 12.5% by UNUM
Corporation.
3 50% owned by UNUM Life Insurance Company of America; 50% owned by an entity
outside of UNUM Corporation's holding company structure.
4 14.95% owned by Duncanson & Holt, Inc.; 14.95% owned by Duncanson & Holt
Asia PTE Ltd.
<PAGE>
Item 27. Number of Contractholders
As of March 31, 1996, Registrant had __ Contractholders.
Item 28. Indemnification
Under the Participation Agreements entered into between First UNUM and the
Dreyfus Life & Annuity Index Fund, Inc., Dreyfus Variable Investment Fund and
Dreyfus Corporation, Variable Insurance Products Funds I and II and Fidelity
Distributors Corporation, Twentieth Century Management Company, and T. Rowe
Price (the "Funds"), First UNUM and its directors, officers, employees, agents
and control persons have been indemnified by the Funds against any losses,
claims or liabilities that arise out of any untrue statement or alleged untrue
statement or omission of a material fact in the Funds' registration statements,
prospectuses or sales literature. In addition, the Funds will indemnify First
UNUM against any liability, loss, damages, costs or expenses which First UNUM
may incur as a result of the Funds' incorrect calculations, incorrect reporting
and/or untimely reporting of the Funds' net asset values, dividend rates or
capital gain distribution rates.
First UNUM's by-laws provide that First UNUM "shall indemnify any and all of its
present, former and future Directors and Officers and any person who at any time
may serve or have served, at its request, as a Director or Officer of another
Corporation in which it owns shares of capital stock, or of which it is a
creditor, and the heirs, executors, and administrators of any such Director,
Officer or other person, against the reasonable expenses, including attorneys'
fees, actually and necessarily incurred by them in connection with the defense
of any action, suit or proceeding in which they, or any of them are made
parties, or in connection with an appeal therein, by reason of being or having
been Directors or Officers of the Corporation or of such other Corporation,
except in relation to matters as to which any such Director, Officer or other
person shall be adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of duty. In the event of a
settlement of any such action, suit or proceeding, indemnification shall be
provided (subject to any court approval thereof required by Section 67 of the
General Corporation Law) only in connection with such matters covered by the
settlement as to which the Corporation was advised by its counsel that the
person to be indemnified did not commit such a breach of duty."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to Directors, Officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
<PAGE>
Item 29. Principal Underwriter
(a) Not Applicable
(b) The following table sets forth certain information regarding the officers
and directors of UNUM Sales Corporation:
Name and Principal Business Position and Offices
Address with Underwriters
Peter S. Adams President
2211 Congress Street
Portland, Maine 04122
Lawrence Kolkhorst Vice President
2211 Congress Street
Portland, Maine 04122
Clifford Murch Treasurer
2211 Congress Street
Portland, Maine 04122
Ann C. Madigan Secretary
2211 Congress Street
Portland, Maine 04122
Stephen B. Center Director
2211 Congress Street
Portland, Maine 04122
Gary E. Kirkner Director
2211 Congress Street
Portland, Maine 04122
<PAGE>
(c)
Name of Net Underwriting
Principal Discounts and Compensation Brokerage
Underwriter Commissions on Redemption Commission Compensation
- ----------- ----------- ------------- ---------- ------------
UNUM Sales TO BE FILED BY AMENDMENT N/A N/A N/A
Corporation
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 thereunder are maintained by First UNUM at
120 White Plains Road, Third Floor, Tarrytown, New York 10591 and by UNUM Life
Insurance Company of America at 2211 Congress Street, Portland, Maine 04122.
Item 31. Management Services
None
<PAGE>
Item 32. Undertakings
The Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial statements
in this registration statement are never more than 16 months old for so
long as payments under the variable annuity contracts may be accepted,
unless otherwise permitted.
(b) to include either (1) as part of any application to purchase a contract
offered by the prospectus, a space thatan applicant can check to request a
Statement of Additional Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that the applicant
can remove to send for a Statement of Additional Information.
(c) To deliver any Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
(d) The Registrant intends to rely on the no-action response dated November 28,
1988, from Ms. Angela C. Goelzer of the Commission staff to the American
Council of Life Insurance concerning the redeemability of Section 403(b)
annuity contracts and the Registrant has complied with the provisions of
paragraphs (1)-(4) thereof.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant and the Depositor have caused this Post-effective Amendment
to the Registration Statement to be signed on their behalf, in the City of
Portland, and State of Maine on this 28th day of February, 1996, and the
Registrant certifies that this Amendment is filed solely for one or more of the
purposes specified in Rule 485(b)(1) under the Securities Act of 1933 and that
no material event requiring disclosure in the prospectus, other than one listed
in Rule 485(b)(1), has occurred since the effective date of the most recent
Post-Effective Amendment to the Registration Statement which included a
prospectus.
VA-I Separate Account of First
UNUM Life Insurance Company
(Registrant)
By: /s/ Stephen B. Center
_________________________________
Stephen B. Center
President
First UNUM Life Insurance Company
(Depositor)
By: /s/ Stephen B. Center
_________________________________
Stephen B. Center
President
As required by the Securities Act of 1933 this Post-effective Amendment to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Stephen B. Center
_________________________ February 28, 1996
Stephen B. Center President
(Principal Executive Officer)
/s/ Nicholas J. Desiderio
_________________________ February 28, 1996
Nicholas J. Desiderio Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Jane S. Grosso
______________________ February 28, 1996
Jane S. Grosso 2nd Vice President and
Controller
(Principal Accounting Officer)
<PAGE>
*
______________________ February 28, 1996
Robert E. Cash Director
W
*
______________________ February 28, 1996
Stephen B. Center Director
*
______________________ February 28, 1996
John D. Gaertner Director
*
______________________ February 28, 1996
Nicholas J. Desiderio Director
*
______________________ February 28, 1996
Peter J. Moynihan Director
*
______________________ February 28, 1996
Peter P. Mullen Director
*
______________________ February 28, 1996
James F. Orr III Director
*
_______________________ February 28, 1996
Lorne H. Price Director
*
_______________________ February 28, 1996
Henry M. White, Jr. Director
*
_______________________ February 28, 1996
Samuel H. Woolley Director
*
_______________________ February 28, 1996
Edith Weiner Director
/s/ Edward R. Hillman
_______________________ February 28, 1996
Edward R. Hillman Director
/s/ Kevin P. O'Connell
_______________________ February 28, 1996
Kevin P. O'Connell Director
/s/ Kevin J. Tierney
______________________ February 28, 1996
Kevin J. Tierney Director
/s/ Kevin J. Tierney
*By: _________________________________ February 28, 1996
Kevin J. Tierney
Attorney-in-fact
