<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. 6 /x/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 25 /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 A. 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
/X / on May 1, 1995, pursuant to paragraph (b) of Rule 485
/ / 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
<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
[LOGO]
- ------------------------------------
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.
<TABLE>
<S> <C>
Index Account................ "Dreyfus Stock Index Fund"
Growth I Account............. Fidelity's "Variable Insurance
Products Fund: Growth
Portfolio"
Asset Manager Account........ Fidelity's "Variable Insurance
Products Fund II: Asset
Manager Portfolio"
Growth II Account............ Twentieth Century's "TCI
Portfolios, Inc.: TCI Growth"
Balanced Account............. Twentieth Century's "TCI
Portfolios, Inc.: TCI
Balanced"
International Stock "T. Rowe Price International
Account..................... Series, Inc."
Socially Responsible "Calvert Responsibly Invested
Account..................... Balanced Portfolio"
Equity-Income Account........ Fidelity's "Variable Insurance
Products Fund: Equity-Income
Portfolio"
Small Cap Account............ "Dreyfus Variable Investment
Fund: Small Cap Portfolio"
</TABLE>
This prospectus is intended to provide information regarding the Contracts
offered by 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DEFINITIONS 3
SUMMARY (INCLUDING FEE TABLE AND PERFORMANCE INFORMATION) 5
CONDENSED FINANCIAL INFORMATION 10
FINANCIAL STATEMENTS 11
FIRST UNUM, THE PROPOSED SALE, THE VARIABLE INVESTMENT DIVISION
AND THE FUNDS 11
CONTRACT PROVISIONS 16
DEDUCTIONS AND CHARGES 23
ANNUITY PERIOD 24
FEDERAL INCOME TAX CONSIDERATIONS 26
VOTING RIGHTS 29
OTHER CONTRACT PROVISIONS 30
GUARANTEED INTEREST DIVISION 31
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION 34
</TABLE>
2
<PAGE>
DEFINITIONS
ACCUMULATION UNIT: An accounting unit of measure used to record amounts of
increases to, decreases from and accumulations in each Sub-Account during the
Accumulation Period.
ACCUMULATION UNIT VALUE: The dollar value of an Accumulation Unit in each
Sub-Account on any Valuation Date.
ACCUMULATION PERIOD: The period commencing on a Participant's Participation Date
and terminating when the Participant's Account balance is reduced to zero,
either through withdrawal(s), conversion to an annuity, imposition of charges,
payment of a Death Benefit or a combination thereof.
ACQUISITION AGREEMENT: The Asset Transfer and Acquisition Agreement between
First UNUM and Lincoln Life which provides for 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.
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.
3
<PAGE>
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.
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.
4
<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
provides for 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.
5
<PAGE>
TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
During the Accumulation Period, a Participant or a Contractholder under
certain Plans may make transfers between and among Divisions and Sub-Accounts.
Certain Plans may limit the transfers in dollar amount, type of Contribution, or
frequency. Certain Plans may require Contractholder approval for a transfer. See
"Transfers between Divisions and Sub-Accounts."
WITHDRAWALS 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."
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.
6
<PAGE>
CONTRACT RELATED TRANSACTION EXPENSES1/
Sales Load Imposed on Purchases: 0%
ANNUAL ADMINISTRATION CHARGE2/ $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 EXPENSES7/
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
SOC
INDEX3/ G-I AMGR4/ G-II BAL INT'L RES5/ EQL SMCAP
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees: .27 .61 .71 1.0 1.0 1.05 .70 .51 .75
Other Expenses (after
expense reimbursements): .12 .09 .08 .13 .10 .08
Total Fund Expenses: .39 .70 .81 1.0 1.0 1.05 .83 .61 .83
</TABLE>
Example #1: Assuming total withdrawal of the Participant's Account balance
at the end of the period shown.6/
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
<TABLE>
<CAPTION>
SOC
INDEX G-I AMGR G-II BAL INT'L RES EQL SMCAP
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 16.87 19.99 21.10 23.00 23.00 23.51 21.30 19.09 21.30
3 Years 52.32 61.80 65.14 70.89 70.89 72.40 65.75 59.06 65.75
5 Years 90.15 106.16 111.77 121.40 121.40 123.92 112.79 101.54 112.79
10 Years 196.26 229.22 240.66 260.10 260.10 265.15 242.72 219.76 242.72
</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>
SOC
INDEX G-I AMGR G-II BAL INT'L RES EQL SMCAP
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 16.87 19.99 21.10 23.00 23.00 23.51 21.30 19.09 21.30
3 Years 52.32 61.80 65.14 70.89 70.89 72.40 65.75 59.06 65.75
5 Years 90.15 106.16 111.77 121.40 121.40 123.92 112.79 101.54 112.79
10 Years 196.26 229.22 240.66 260.10 260.10 265.15 242.72 219.76 242.72
</TABLE>
Example #3: Assuming persistency of the Contracts through the periods shown.
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
<TABLE>
<CAPTION>
SOC
INDEX G-I AMGR G-II BAL INT'L RES EQL SMCAP
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 16.87 19.99 21.10 23.00 23.00 23.51 21.30 19.09 21.30
3 Years 52.32 61.80 65.14 70.89 70.89 72.40 65.75 59.06 65.75
5 Years 90.15 106.16 111.77 121.40 121.40 123.92 112.79 101.54 112.79
10 Years 196.26 229.22 240.66 260.10 260.10 265.15 242.72 219.76 242.72
</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.
7
<PAGE>
- ---------
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 Administration Charge may be reduced or eliminated. See "Deductions &
Charges--Annual Administration 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%.
4/ A portion of the brokerage commissions the fund paid was used to reduce its
expenses. With this reduction, total operating expenses were 0.79%.
5/ "Other Expenses" reflect an indirect fee of 0.02%. Net fund operating
expenses after reduction for fees paid indirectly would be 0.81%.
6/ 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.
7/ 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.
8
<PAGE>
The Sub-Accounts may advertise average annual total return performance
information according to the SEC standardized formula. Average annual total
return shows the average annual percentage increase, or decrease, in the value
of a hypothetical $1,000 contribution allocated to a Sub-Account from the
beginning to the end of each specified period of time. The SEC standardized
formula gives effect to all applicable charges under the Contracts. This method
of calculating performance further assumes that (i) a $1,000 contribution was
allocated to a Sub-Account, (ii) no transfers or additional payments were made
and (iii) the withdrawal of the investment occurs at the end of the period.
Premium taxes are not included in the term "charges" for purposes of this
calculation. The Sub-Accounts may also advertise this total return performance
as described above on a cumulative basis.
The Sub-Accounts may present total return information computed on a calendar
year basis. The Sub-Accounts may also present total return information over
specified periods of time (computed on an average annual or cumulative basis)
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."
9
<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>
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 $ 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 13.2659
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 2 Commencement $ 10.00
Beginning of Period 9.8622
End of Period $ 9.8622 10.8333
Socially Responsible
May 2 Commencement $ 10.00
Beginning of Period 9.9692
End of Period $ 9.9692 12.7827
Equity-Income
May 2 Commencement $ 10.00
Beginning of Period 10.4780
End of Period $ 10.4780 13.9856
Small Cap
May 2 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
</TABLE>
10
<PAGE>
Number of Accumulation Units Outstanding at end of Period
<TABLE>
<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
</TABLE>
Number of Fund Shares held by each of the corresponding Sub-Accounts
December 31st of each year
<TABLE>
<CAPTION>
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."
11
<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 provides
for 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 be 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
12
<PAGE>
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 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."
First UNUM and Lincoln currently expect that First UNUM will continue to
offer the contracts after the closing date in New York if Lincoln-NY has not yet
received all the approvals necessary to its own group annuity contracts. While
such contracts would be issued by First UNUM, contractholders and/or
participants will be required to agree, at the time such contracts are issued,
to an automatic transfer of such contracts to Lincoln-NY at such time as
Lincoln-NY receives the neccessary approvals to sell its own contracts. First
UNUM anticipates that it will continue to sell contracts on this basis for no
more than eighteen months after the closing date.
In the event that, after the closing date, First UNUM offers contracts that
will be automatically assumed by Lincoln-NY, contractholders and participants
will receive, at the time the contract is offered or sold to them, a prospectus
or other disclosures pertaining to Lincoln-NY.
UNUM SALES CORPORATION
UNUM Sales Corporation (UNUM/Sales), a subsidiary of UNUM Holding Company
which is a wholly owned 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 that it or a registered
broker-dealer affiliate will 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 or its affiliate 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 or its
affiliate 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
13
<PAGE>
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."
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.
14
<PAGE>
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.
"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.
15
<PAGE>
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.
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 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.
16
<PAGE>
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.
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
17
<PAGE>
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 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.
18
<PAGE>
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.
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."
19
<PAGE>
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 Interest 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
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
20
<PAGE>
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 59 1/2; (4) separated from
service; or (5) incurred a hardship. Amounts accumulated in one Section
403(b)(1) contract may be transferred to another Section 403(b)(1) contract or
Section 403(b)(7) custodial account without a penalty under the Code. If amounts
accumulated in a Section 403(b)(7) custodial account are deposited in a
Contract, such amounts will be subject to the same withdrawal restrictions as
are applicable to post-1988 salary reduction Contributions under the Contracts.
For more information on these provisions see "Federal Income Tax
Considerations."
Withdrawal requests for a Participant under Section 457(b) Plans and Plans
subject to Title I of ERISA must be authorized by the Contractholder on behalf
of a Participant. All withdrawal requests will require the Contractholder's
written authorization and written documentation specifying the portion of the
Participant's Account balance which is available for distribution to the
Participant. Withdrawal requests for Section 457(f) Plans must be requested by
the Contractholder.
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.
21
<PAGE>
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.
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.
22
<PAGE>
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 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.
23
<PAGE>
The Annual Administration 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.
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
24
<PAGE>
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
Payments are made monthly during the lifetime of the Annuitant, and the
annuity terminates with the last payment preceding death.
25
<PAGE>
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.
26
<PAGE>
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
27
<PAGE>
$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.
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
28
<PAGE>
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.
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.
29
<PAGE>
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.
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.
30
<PAGE>
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 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.
31
<PAGE>
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.
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:
<TABLE>
<CAPTION>
PERCENTAGE OF
YEAR REQUEST GUARANTEED INTEREST
RECEIVED BY UNUM DIVISION AVAILABLE
- ------------------- ---------------------
<S> <C>
1 20%
2 25%
3 33.33%
4 50%
5 100%
</TABLE>
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
32
<PAGE>
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
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
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 First UNUM
Financial Statements of Variable Investment Division
</TABLE>
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 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.
1
<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
</TABLE>
Illustration of Annuity Payments
<TABLE>
<CAPTION>
<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 that resulting from the standardized method.
The Sub-Accounts also may present total return information calculated by
subtracting a Sub-Account's Accumulation Unit Value at the beginning of a period
from the Accumulation Unit Value of that Sub-Account at the end of the period
and dividing that difference (in that Sub-Account's Accumulation Unit Value) by
the Accumulation Unit Value of that Sub-Account at the beginning of the period.
This computation results in a total growth rate for the specified period which
we annualize in order to obtain the average annual percentage change in the
Accumulation Unit Value for the period used.
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.
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 Administration 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>
Fidelity VIP Fund II: Asset Manager 09/06/89 15.39 8.55 11.30 9.80
(Asset Manager)
Calvert Responsibly Invested Balanced
Portfolio 09/02/86 27.99 9.17 9.67 8.71
(Socially Responsible)
TCI Balanced 05/01/91 19.58 8.11 N/A 8.44
(Balanced)
Fidelity VIP Fund Equity-Income 10/09/86 33.07 17.88 19.68 11.81
(Equity-Income)
Dreyfus Stock Index Fund 09/29/89 35.00 13.21 14.47 10.88
(Index)
Fidelity VIP Fund Growth 10/09/86 33.49 15.75 19.22 13.37
(Growth I)
TCI Growth 11/20/87 29.39 11.21 13.43 11.43
(Growth II)
T. Rowe Price International Stock 03/31/94 9.60 N/A N/A 5.75
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 27.46 31.08 57.75 53.85
(Small Cap)
</TABLE>
TABLE 1B -- CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
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>
Fidelity VIP Fund II: Asset Manager 09/06/89 3.32 15.39 15.39 27.91 70.83 80.55
(Asset Manager)
Calvert Responsibly Invested Balanced
Portfolio 09/02/86 3.10 27.99 27.99 30.10 58.65 118.01
(Socially Responsible)
TCI Balanced 05/01/91 1.89 19.58 19.58 26.37 N/A 45.99
(Balanced)
Fidelity VIP Fund Equity-Income 10/09/86 5.40 33.07 33.07 63.80 145.50 180.11
(Equity-Income)
Dreyfus Stock Index Fund 09/29/89 5.35 35.00 35.00 45.08 96.57 90.79
(Index)
Fidelity VIP Fund Growth 10/09/86 -4.72 33.49 33.49 55.10 140.84 218.38
(Growth I)
TCI Growth 11/20/87 -4.20 29.39 29.39 37.52 87.79 140.68
(Growth II)
T. Rowe Price International Stock 03/31/94 2.07 9.60 9.60 N/A N/A 10.30
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 0.25 27.46 27.46 125.22 877.01 896.50
(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 Administration Charge because certain Contract and
Participants are not assessed such a charge.
TABLE 2A -- AVERAGE ANNUAL TOTAL RETURN ASSUMING NO ANNUAL ADMINISTRATION
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>
Fidelity VIP Fund II: Asset Manager 09/06/89 15.57 8.71 11.42 9.92
(Asset Manager)
Calvert Responsibly Invested Balanced
Portfolio 09/02/86 28.24 9.38 9.84 8.84
(Socially Responsible)
TCI Balanced 05/01/91 19.68 8.20 N/A 8.52
(Balanced)
Fidelity VIP Fund Equity-Income 10/09/86 33.49 18.18 19.88 11.99
(Equity-Income)
Dreyfus Stock Index Fund 09/29/89 35.16 13.33 14.57 10.98
(Index)
Fidelity VIP Fund Growth 10/09/86 33.75 15.95 19.35 13.47
(Growth I)
TCI Growth 11/20/87 29.55 11.33 13.53 11.51
(Growth II)
T. Rowe Price International Stock 03/31/94 9.86 N/A N/A 6.04
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 27.85 31.30 57.82 53.91
(Small Cap)
</TABLE>
TABLE 2B -- CUMULATIVE TOTAL RETURN ASSUMING NO ANNUAL ADMINISTRATION
CHARGE
<TABLE>
<CAPTION>
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>
Fidelity VIP Fund II: Asset Manager 09/06/89 3.50 15.57 15.57 28.46 71.74 81.82
(Asset Manager)
Calvert Responsibly Invested Balanced
Portfolio 09/02/86 3.35 28.24 28.24 30.85 59.90 120.51
(Socially Responsible)
TCI Balanced 05/01/91 1.99 19.68 19.68 26.68 N/A 46.50
(Balanced)
Fidelity VIP Fund Equity-Income 10/09/86 5.82 33.49 33.49 65.06 147.61 184.31
(Equity-Income)
Dreyfus Stock Index Fund 09/29/89 5.51 35.16 35.16 45.56 97.36 91.90
(Index)
Fidelity VIP Fund Growth 10/09/86 -4.46 33.75 33.75 55.88 142.14 221.00
(Growth I)
TCI Growth 11/20/87 -4.04 29.55 29.55 38.00 88.59 142.11
(Growth II)
T. Rowe Price International Stock 03/31/94 2.33 9.86 9.86 N/A N/A 10.83
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 0.64 27.85 27.85 126.38 878.94 898.82
(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 Administration
Charge because certain Contracts and Participants are not assessed such a
charge.
TABLE 3 -- CALENDAR YEAR ANNUAL RETURN ASSUMING NO WITHDRAWAL AND NO ANNUAL
ADMINISTRATION CHARGE*
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995
----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity VIP Fund II: Asset Manager
(Asset Manager) na na na 5.45 21.11 10.53 19.60 -7.20 15.57
Calvert Responsibly Invested Balanced
Portfolio
(Socially Responsible) 5.51 10.42 19.53 2.94 15.02 6.33 6.72 -4.39 28.24
TCI Balanced
(Balanced) na na na na na -7.17 6.38 -0.58 19.68
Fidelity VIP Fund Equity-Income
(Equity-Income) -2.30 21.25 15.95 -16.29 29.88 15.50 16.89 5.80 33.49
Dreyfus Stock Index Fund
(Index) na na na -4.69 28.29 5.82 8.02 -0.32 35.16
Fidelity VIP Fund Growth
(Growth I) 2.43 14.21 29.95 -12.78 43.78 8.00 17.94 -1.21 33.75
TCI Growth
(Growth II) na -3.41 27.17 -2.40 40.18 -2.52 8.99 -2.34 29.55
T. Rowe Price International Stock
Portfolio (International Stock) na na na na na na na na 9.86
Dreyfus Small Cap
(small cap) na na na na 156.65 69.25 66.31 6.47 27.85
</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 Administration
Charge.
TAX LAW CONSIDERATIONS
Retirement Programs:
Participants are urged to discuss the income tax considerations of their
retirement plan with their tax advisors. In many situations special rules may
apply to the plans and/or to the participants.
Contributions to retirement programs subject to Sections 401(a), 403(a),
403(b), 408 and 457(b) may be excludable from a Participant's reportable gross
income if the Contributions do not exceed the limitations imposed under the
Code. Certain plans allow employees to make Elective Salary Deferral
Contributions. Certain Plans allow Employers to make Contributions. The
information below is a brief summary of some 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 employee; For an
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 $9,500 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 Holding Company
which is a wholly owned 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, a registered
broker-dealer, has agreed that it or a registered broker-dealer affiliate
will 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 the Lincoln
broker-dealer will enter into sales agreements with unaffiliated
broker-dealers for the sale of the Contracts. In the last three fiscal years,
UNUM Sales received underwriting commissions from First UNUM of $77,600 in
1993, $157,600 in 1994, and $293,500 in 1995. UNUM Sales retained $10,600 in
1993, $10,900 in 1994, and $21,100 in 1995.
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 ACCOUNTANTS
Coopers & Lybrand, L.L.P., 130 Middle Street, Portland, Maine 04104-5059,
independent accountants, performs certain accounting services for First UNUM
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.
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 with generally accepted accounting principles.
11
<PAGE>
FIRST UNUM LIFE INSURANCE COMPANY
FINANCIAL STATEMENT INDEX
COMPANY FINANCIAL STATEMENTS Page
- ---------------------------- ----
Report of Independent Accountants F-1
Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993 F-2
Balance Sheets as of December 31, 1995 and 1994 F-3
Statements of Stockholder's Equity for the Years Ended
December 31, 1995, 1994 and 1993 F-4
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 F-5
Notes to Financial Statements F-6 - F-32
SEPARATE ACCOUNT FINANCIAL STATEMENTS
- -------------------------------------
Report of Independent Accountants SA-1
Statement of Assets and Liabilities as of December 31, 1995 SA-2
Statements of Operations and changes in Net Assets for
the Years Ended December 31, 1995 and 1994 SA-3 - SA-5
Notes to Financial Statements SA-6 - SA-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
First UNUM Life Insurance Company
We have audited the accompanying balance sheets of First UNUM Life Insurance
Company as of December 31, 1995 and 1994, and the related statements of income,
stockholder's equity, and cash flows for each of the two years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1995 and 1994 financial statements referred to above present
fairly, in all material respects, the financial position of First UNUM Life
Insurance Company as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for certain investments in debt securities in 1994.
Coopers & Lybrand, L.L.P.
Portland, Maine
February 6, 1996
F-1
<PAGE>
FIRST UNUM LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums $211.0 $198.2 $184.3
Investment income 52.4 46.2 46.8
Net realized investment gains 28.8 6.6 3.8
Fees and other income 0.4 0.2 0.5
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues 292.6 251.2 235.4
BENEFITS AND EXPENSES
Benefits to policyholders 199.6 187.6 146.3
Interest credited 3.0 1.8 1.3
Operating expenses 41.7 40.3 35.9
Commissions 19.7 19.8 18.6
Increase in deferred policy acquisition costs (7.8) (10.1) (6.7)
- -----------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 256.2 239.4 195.4
- -----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECTS
OF ACCOUNTING CHANGES 36.4 11.8 40.0
INCOME TAXES
Current 15.5 (1.8) 13.0
Deferred (3.9) 3.8 1.1
- -----------------------------------------------------------------------------------------------------------------------------
Total income taxes 11.6 2.0 14.1
- -----------------------------------------------------------------------------------------------------------------------------
Income before cumulative effects of accounting changes 24.8 9.8 25.9
CUMULATIVE EFFECTS OF ACCOUNTING CHANGES
Income taxes -- -- 1.9
Postretirement benefits other than pensions, net of tax -- -- (0.7)
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 24.8 $ 9.8 $ 27.1
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-2
<PAGE>
FIRST UNUM LIFE INSURANCE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------
(DOLLARS IN MILLIONS) 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities:
Available for sale - at fair value (amortized
cost: 1995-$635.2; 1994-$119.4) $675.5 $113.9
Held to maturity - principally at amortized
cost (fair value: 1994-$371.9) -- 378.1
Equity securities available for sale - at fair value
(cost: 1995-$1.4; 1994-$55.5) 1.2 73.8
Mortgage loans 56.8 65.1
Real estate, net 7.2 8.5
Policy loans 1.7 1.3
Other long-term investments 2.8 3.6
Short-term investments 8.7 7.6
- -----------------------------------------------------------------------------------------------------------------------------
Total investments 753.9 651.9
Cash 2.2 3.7
Accrued investment income 13.5 10.9
Premiums due 24.0 20.5
Deferred policy acquisition costs 65.2 57.4
Property and equipment, net 2.9 2.1
Other assets 25.7 24.5
Separate account assets 16.0 8.9
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $903.4 $779.9
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Future policy benefits $ 66.8 $ 68.6
Unpaid claims and claim expenses 465.1 386.7
Other policyholder funds 70.1 53.7
Income taxes
Current 2.2 0.8
Deferred 29.1 34.0
Amounts payable to affiliates 4.3 --
Other liabilities 28.4 29.0
Separate account liabilities 16.0 8.9
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 682.0 581.7
Stockholder's Equity
Common stock, par value $1 per share,
authorized and issued 2,000,000 shares 2.0 2.0
Additional paid-in capital 15.0 14.9
Unrealized gains on available for sale securities, net 8.8 5.7
Retained earnings 195.6 175.6
- -----------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 221.4 198.2
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $903.4 $779.9
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE>
FIRST UNUM LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Unrealized
Common Gains (Losses)
Stock Additional on Available
$1 Par Paid-in for Sale Retained
(DOLLARS IN MILLIONS) Value Capital Securities, Net Earnings Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993 $ 2.0 $ 14.7 $ 13.5 $160.9 $191.1
1993 Transactions:
Net income 27.1 27.1
Unrealized gains on equity
securities, net 3.6 3.6
Dividend to stockholder (12.0) (12.0)
Other Transactions 0.1 0.1
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 2.0 14.8 17.1 176.0 209.9
1994 Transactions:
Net income 9.8 9.8
Unrealized gains on available for sale
securities, net (11.4) (11.4)
Dividend to stockholder (10.0) (10.0)
Other Transactions 0.1 (0.2) (0.1)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 2.0 14.9 5.7 175.6 198.2
1995 Transactions:
Net income 24.8 24.8
Unrealized gains on available for sale
securities, net 3.1 3.1
Dividend to stockholder (5.0) (5.0)
Other Transactions 0.1 0.2 0.3
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $ 2.0 $ 15.0 $ 8.8 $195.6 $221.4
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
FIRST UNUM LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 24.8 $ 9.8 $ 27.1
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effects of accounting changes, net of tax -- -- (1.2)
Increase in future policy benefits and unpaid
claims and claim expenses 51.6 45.1 21.9
Increase (decrease) in amounts receivable under
reinsurance agreements 0.5 (1.8) (14.4)
Increase (decrease) in income tax liability (2.6) 3.6 (0.3)
Increase in deferred policy acquisition costs (7.8) (10.1) (5.7)
Realized investment gains (29.7) (6.6) (5.2)
Other (2.2) (1.7) 4.6
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 34.6 38.3 26.8
- -----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Maturities of fixed maturities -- -- 36.0
Maturities of fixed maturities held to maturity 47.9 40.3 --
Maturities of fixed maturities available for sale 3.7 1.6 --
Sales of fixed maturities available for sale 48.7 30.1 11.2
Sales of equity securities available for sale 99.3 34.9 --
Sales and maturities of other investments 14.4 15.7 37.4
Purchases of investments -- -- (104.9)
Purchases of fixed maturities held to maturity (22.5) (55.0) --
Purchases of fixed maturities available for sale (215.4) (81.8) --
Purchases of equity securities available for sale (15.6) (26.3) --
Purchases of other investments (5.8) (3.1) --
Net (increase) decrease in short-term investments (1.1) (4.8) 11.4
Net additions to property and equipment (1.3) (1.0) (1.4)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (47.7) (49.4) (10.3)
- -----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Deposits and interest credited to investment contracts 36.1 32.0 11.4
Maturities and withdrawals from investment contracts (19.7) (10.3) (12.7)
Dividends to stockholder (5.0) (10.0) (12.0)
Other 0.2 (0.1) --
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 11.6 11.6 (13.3)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (1.5) 0.5 3.2
Cash at beginning of year 3.7 3.2 --
- -----------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 2.2 $ 3.7 $ 3.2
- -----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash (received) paid during the year for:
Income taxes $ 9.4 $ (0.1) $ 14.2
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
FIRST UNUM LIFE INSURANCE COMPANY
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements of First UNUM Life Insurance Company
("First UNUM") have been prepared on the basis of generally accepted accounting
principles. First UNUM is a wholly-owned subsidiary of UNUM Holding Company,
which is wholly-owned by UNUM Corporation. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATION
Certain 1994 and 1993 amounts have been reclassified in 1995 for comparative
purposes.
INVESTMENTS
Investments are reported as follows:
- - Fixed maturities available for sale (certain bonds and redeemable preferred
stocks) - at fair value.
- - Fixed maturities held to maturity (certain bonds and redeemable preferred
stocks) - principally at amortized cost.
- - Equity securities available for sale (common stocks and non-redeemable
preferred stocks) - at fair value.
- - Mortgage loans - at amortized cost less an allowance for probable losses.
- - Real estate - at cost less accumulated depreciation.
- - Policy loans - at unpaid principal balance.
- - Other long-term investments - at cost plus First UNUM's equity in
undistributed net earnings since acquisition.
- - Short-term investments - are considered available for sale and are carried
at cost which approximates fair value.
F-6
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVESTMENTS (Continued)
Fixed maturities and equity securities are classified as available for sale as
they may be sold in response to changes in interest rates, resultant prepayment
risk, liquidity and capital needs, or other similar economic factors.
Unrealized gains and losses related to securities classified as available for
sale are excluded from net income and reported in a separate component of
stockholder's equity, net of applicable deferred taxes and related adjustments
to unpaid claims. The unrealized gains and losses are determined based on
estimated market values at the balance sheet date and are not necessarily the
amounts which would be realized upon sale of the securities or representative of
future market values. Changing interest rates affect the level of unrealized
gains and losses related to securities classified as available for sale. While
rising interest rates are beneficial when investing current cash flows, they can
also reduce the fair value of existing fixed rate long-term investments. In
addition, lower interest rates can lead to early payoffs and refinancing of some
of First UNUM's fixed rate investments. Management generally invests in fixed
rate instruments that are structured to limit the exposure to such reinvestment
risk.
Fixed maturities that First UNUM has the positive intent and ability to hold to
maturity are classified as held to maturity.
Realized investment gains and losses, which are determined on the basis of
specific identification and include adjustments for allowances for probable
losses, are reported separately in the Statements of Income.
If a decline in fair value of an invested asset is considered to be other than
temporary, the investment is reduced to its net realizable value and the
reduction is accounted for as a realized investment loss.
First UNUM discontinues the accrual of investment income on invested assets when
it is determined that collectability is doubtful. First UNUM recognizes
investment income on impaired loans when the income is received.
Real estate held for sale, which is included in other assets in the Balance
Sheets, is valued at the lower of fair value less estimated costs to sell, or
cost. First UNUM has provided an allowance for probable losses on real estate
held for sale that reduces the carrying value of the asset to fair value.
Purchases and sales of short-term financial instruments are part of investing
activities and not necessarily a part of the cash management program.
Therefore, short-term financial instruments are classified as investments in the
Balance Sheets and are included as investing activities in the Statements of
Cash Flows.
F-7
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
DERIVATIVE FINANCIAL INSTRUMENTS
Gains or losses on hedges of existing assets or liabilities are deferred and
included in the carrying amounts of those assets or liabilities. Gains or
losses related to qualifying hedges of firm commitments or anticipated
transactions are also deferred and recognized in the carrying amount of the
underlying asset or liability when the hedged transaction occurs.
RECOGNITION OF PREMIUM REVENUES AND RELATED EXPENSES
Group insurance premiums are recognized as income over the period to which the
premiums relate. Individual disability premiums are recognized as income when
due. Benefits and expenses are associated with earned premiums to result in
recognition of profits over the life of the contracts. This association is
accomplished by recording a provision for future policy benefits and unpaid
claims and claim expenses, and by amortizing deferred policy acquisition costs.
For retirement and universal life products, premium and other policy fee revenue
consists of charges for the cost of insurance, policy administration, and
surrenders assessed during the period. Charges related to services to be
performed in the future are deferred until earned. The amounts received in
excess of premium and fees are recorded as deposits and included in other
policyholder funds in the Balance Sheets. Benefits and expenses include benefit
claims in excess of related account balances, interest credited at various rates
and amortization of deferred policy acquisition costs.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business that vary with and are related primarily to
the production of new business have been deferred to the extent such costs are
deemed recoverable from future profits. Such costs include commissions, certain
costs of policy issue and underwriting, and certain variable field office
expenses.
For individual disability, group disability, and group life and health business,
the costs are amortized in proportion to expected future premiums. For
universal life and certain retirement products, the costs are amortized in
proportion to estimated gross profits from interest margins, mortality and other
elements of performance under the contracts. Amortization is adjusted
periodically to reflect differences between actual experience and original
assumptions, with any resulting changes reflected in current operating results.
The amounts deferred and amortized were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred $ 14.7 $ 16.6 $ 14.0
Less amortized (6.9) (6.5) (7.3)
- ------------------------------------------------------------------------------
Increase in deferred policy acquisition costs $ 7.8 $ 10.1 $ 6.7
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RESERVES FOR FUTURE POLICY BENEFITS
Reserves for future policy benefits are calculated by the net-level premium
method, and are based on First UNUM's expected morbidity, mortality and interest
rate assumptions at the time a policy is issued. These reserves represent the
portion of premiums received, accumulated with interest and held to provide for
claims that have not yet been incurred. The reserve assumptions are
periodically reviewed and compared to actual experience and are revised if it is
determined that future expected experience is different from the reserve
assumptions. Reserves for group insurance policies consist primarily of
unearned premiums.
The interest rates used in the calculation of reserves for future policy
benefits at December 31, 1995, and 1994, principally ranged from:
Individual disability 5.5% to 9.5%
Group annuities 5.0% to 9.0%
Certain reserve calculations are based on interest rates within these ranges
graded down over periods from 15 to 20 years.
RESERVES FOR UNPAID CLAIMS AND CLAIM EXPENSES
Unpaid claims and claim expense reserves represent the amount estimated to fund
claims that have been reported but not settled and claims incurred but not
reported. Reserves for unpaid claims are estimated based on First UNUM's
historical experience and other actuarial assumptions that consider the effects
of current developments, anticipated trends, risk management programs and
renewal actions. Many factors affect actuarial calculations of claim reserves,
including but not limited to interest rates and current and anticipated
incidence rates, recovery rates, and economic and societal conditions. Reserve
estimates and assumptions are periodically reviewed and updated with any
resulting adjustments to reserves reflected in current operating results. Given
the complexity of the reserving process, the ultimate liability may be more or
less than such estimates indicate.
The interest rates used in the calculation of disability product reserves at
December 31, 1995, and 1994, were principally as follows:
1995 1994
- ------------------------------------------------------------------------------
Group long term disability 7.94% 9.18%
Individual disability 6.75% to 7.75% 6.75% to 8.6%
- ------------------------------------------------------------------------------
F-9
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RESERVES FOR UNPAID CLAIMS AND CLAIM EXPENSES (Continued)
The interest rate used to discount the disability reserves is a composite of the
yields on assets specifically matched with each block of business. Management
expects the reserve discount rate for certain disability products will further
decline, since current cash flows are invested in high quality assets at current
yields, which are below the composite yield of the existing assets purchased in
prior years. First UNUM periodically adjusts prices on both existing and new
business in an effort to mitigate the impact of the current interest rate
environment.
For other accident and health business, reserves are based on projections of
historical claims run-out patterns.
Activity in the liability for unpaid claims and claim expenses is summarized as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $386.7 $354.2 $349.1
Less reinsurance recoverables (1.7) (1.3) --
- ---------------------------------------------------------------------------
Net Balance at January 1 385.0 352.9 349.1
Incurred related to:
Current year 138.5 149.3 140.9
Prior years 58.6 44.9 19.7
- ---------------------------------------------------------------------------
Total incurred 197.1 194.2 160.6
Paid related to:
Current year 38.0 50.4 51.3
Prior years 106.3 111.7 105.5
- ---------------------------------------------------------------------------
Total paid 144.3 162.1 156.8
Net Balance at December 31 437.8 385.0 352.9
Plus reinsurance recoverables 2.3 1.7 1.3
Effect of unrealized gains on fixed maturities 25.0 -- --
- ---------------------------------------------------------------------------
Balance at December 31 $465.1 $386.7 $354.2
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
The increase in incurrals related to prior years was $58.6 million, $44.9
million, and $19.7 million (net of reinsurance), for 1995, 1994 and 1993,
respectively. These increases were primarily the result of interest accrued on
reserves, changes in reserve estimates and assumptions of interest rates,
morbidity, mortality and expense costs. Due to the long-term claims payment
pattern of some of First UNUM's businesses, certain reserves, particularly
disability, are discounted for interest. Changes in reserve estimates and
assumptions were primarily a result of increase reserves from lower discount
rates for certain disability products following the sale of the common stock
portfolio in 1995, and adjustments to strengthen certain disability reserves in
1995 and 1994.
F-10
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RESERVES FOR UNPAID CLAIMS AND CLAIM EXPENSES (Continued)
The components of the increase in unpaid claims and claims expenses incurred and
related to prior years were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Interest accrued on reserves $ 27.3 $ 28.0 $ 28.0
Changes in reserve estimates and assumptions 31.3 16.9 (8.3)
- ---------------------------------------------------------------------------
Increase in incurrals related to prior years $ 58.6 $ 44.9 $ 19.7
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
In connection with the transfer of all fixed maturities previously classified as
held to maturity to available for sale, explained in Note 2, unpaid claims were
adjusted by $25.0 million on December 31, 1995. Unpaid claims are adjusted to
reflect changes that would have been necessary if the unrealized gains and
losses related to fixed maturities classified as available for sale had been
realized. Where applicable, First UNUM has reflected those adjustments in the
liability balances with corresponding credits or charges, net of related
deferred taxes, reported as a component of unrealized gains on available for
sale securities in stockholder's equity.
Effective January 1, 1993, First UNUM adopted Financial Accounting Standard
("FAS") No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts," which eliminated the practice by insurance enterprises
of reporting assets and liabilities relating to reinsured contracts net of the
effects of reinsurance. Since First UNUM did not restate its financial
statements upon adoption of FAS 113, reserve balances prior to December 31,
1993, are shown net of reinsurance recoverables.
CHANGE IN ACCOUNTING ESTIMATE
During 1995, First UNUM sold virtually all of its common stock portfolio. The
sale of the common stock portfolio, which partially supported certain disability
reserves, and the reinvestment of the proceeds primarily in investment grade
fixed income assets at yields below the average portfolio yield, resulted in
lower reserve discount rates for certain disability products in the Disability
Insurance segment. This change in accounting estimate to lower certain discount
rates resulted in an increase of $14.5 million to benefits to policyholders in
the Statement of Income, and a decrease to net income of $9.4 million.
During 1995, First UNUM increased the group long term disability reserves for
incurred but not reported ("IBNR") claims, as reported in the Disability
Insurance segment. The increased IBNR reserves were based on management's
judgment that claims currently incurred but not yet reported will reflect
increased levels of claims incidence and severity. This change in accounting
estimate resulted in an increase to benefits to policyholders in the Statement
of Income of $4.1 million, and a decrease to net income of $2.7 million.
F-11
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CHANGE IN ACCOUNTING ESTIMATE (Continued)
During 1995, First UNUM increased reserves for unpaid claims related to the
association group disability business by $4.5 million to reflect management's
expectations of slower than expected claim recoveries. This change in
accounting estimate, which was reflected in the Disability Insurance segment,
decreased net income by $2.9 million.
During 1994, First UNUM increased reserves for existing claims by $5.3 million
and strengthened reserves for estimated future losses by $7.6 million. These
increased reserves reflected management's expectations of morbidity trends for
the non-cancellable individual disability business, as reported in the
Disability Insurance segment. This change in accounting estimate resulted in an
increase to benefits to policyholders in the Statement of Income of $12.9
million, and a decrease to net income of $8.4 million.
OTHER POLICYHOLDER FUNDS
Other policyholder funds are liabilities for investment-type contracts and
represent customer deposits plus interest credited to those deposits at various
rates.
LIABILITIES FOR RESTRUCTURING ACTIVITIES
Liabilities for restructuring activities are recorded when management, prior to
the balance sheet date, commits to execute an exit plan that will result in the
incurral of costs that have no future economic benefit, or approves a plan of
termination and communicates sufficient detail of the plan to employees.
SEPARATE ACCOUNTS
Certain assets of First UNUM's tax sheltered annuity contracts are in a separate
account that is a pooled investment fund of securities. Investment income and
realized gains and losses on these accounts accrue directly to the
contractholders. Assets, carried at market value, and liabilities of the
separate account are shown separately in the Balance Sheets. The assets of the
separate account are legally segregated and are not subject to claims which
arise out of any other business of First UNUM.
INCOME TAXES
The provision for income taxes includes amounts currently payable and deferred
income taxes, which result from differences between financial reporting and tax
bases of assets and liabilities, and are measured using enacted tax rates and
laws.
F-12
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NEW ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. First UNUM will adopt FAS 121 effective January 1, 1996. The
adoption of FAS 121 is not expected to have a material effect on First UNUM's
results of operations or financial position.
NOTE 2. INVESTMENTS
Effective January 1, 1994, First UNUM adopted FAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," which specified the accounting and
reporting for certain investments in equity securities and for all investments
in debt securities. First UNUM adopted the provisions of FAS 115 for these
investments held as of or acquired after January 1, 1994. Upon the adoption of
FAS 115, First UNUM increased unrealized gains on available for sale securities
included in stockholder's equity on January 1, 1994, by $2.1 million (net of
deferred taxes of $1.2 million) to reflect the unrealized holding gains on fixed
maturities classified as available for sale that were previously carried at
amortized cost. In addition, First UNUM reclassified certain fixed maturities
from held to maturity to available for sale on January 1, 1994, in connection
with the adoption of FAS 115.
In November 1995, the FASB issued "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities," which
provided a one-time opportunity to reassess the appropriateness of the
classifications of securities described in FAS 115, and to reclassify fixed
maturities from the held to maturity category without calling into question the
intent to hold other debt securities to maturity in the future. On December 31,
1995, First UNUM reassessed its fixed maturity portfolio and as allowed under
the implementation guidance, reclassified fixed maturities with an amortized
cost of $352.9 million and a related net unrealized gain of $27.8 million from
the held to maturity category to available for sale. In connection with the
reclassification of the held to maturity fixed maturities to available for sale,
on December 31, 1995, First UNUM adjusted its unpaid claims by $25.0 million to
reflect the changes that would have been necessary if the unrealized gains and
losses related to fixed maturities classified as available for sale had been
realized.
F-13
<PAGE>
NOTE 2. INVESTMENTS (Continued)
The following tables summarize the components of investment income, net realized
investment gains and changes in unrealized investment gains (losses):
INVESTMENT INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Held to maturity $ 30.8 $ 32.2 $ 33.1
Available for sale 13.6 5.5 3.2
Equity securities available for sale 0.6 1.2 1.1
Mortgage loans 6.5 7.5 9.4
Real estate 0.5 0.6 0.4
Policy loans -- 0.1 0.1
Other long-term investments -- -- 0.3
Short-term investments 1.4 0.4 0.5
- ---------------------------------------------------------------------------
Gross investment income 53.4 47.5 48.1
Less investment expenses (1.0) (1.3) (1.3)
- ---------------------------------------------------------------------------
Investment income $ 52.4 $ 46.2 $ 46.8
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
NET REALIZED INVESTMENT GAINS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized investment gains:
Fixed maturities:
Available for sale $ 1.2 $ 1.1 $ 0.8
Equity securities available for sale 31.8 9.0 5.7
Mortgage loans, real estate and other 0.4 0.9 0.5
- ---------------------------------------------------------------------------
Gross realized investment gains $ 33.4 $ 11.0 $ 7.0
- ---------------------------------------------------------------------------
Gross realized investment losses:
Fixed maturities:
Held to maturity $ 0.1 $ -- $ 0.1
Available for sale (1.1) (1.4) --
Equity securities available for sale (2.2) (1.2) (1.4)
Mortgage loans, real estate and other (1.4) (1.8) (1.9
- ---------------------------------------------------------------------------)
Gross realized investment losses $ (4.6) $ (4.4) $ (3.2)
- ---------------------------------------------------------------------------
Net realized investment gains $ 28.8 $ 6.6 $ 3.8
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
NOTE 2. INVESTMENTS (Continued)
CHANGE IN UNREALIZED GAINS ON AVAILABLE FOR SALE SECURITIES
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities available for sale $ 45.8 $ (5.5) $ --
Equity securities available for sale (18.5) (8.5) 6.3
Unpaid claims adjustment (25.0) -- --
Deferred taxes 0.8 2.6 (2.7)
- ---------------------------------------------------------------------------
Total change in unrealized gains
on available for sale securities,
as included in stockholder's equity $ 3.1 $(11.4) $ 3.6
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
NOTE 2. INVESTMENTS (Continued)
FIXED MATURITIES
The amortized cost and estimated fair values of fixed maturities at December 31,
1995, were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(DOLLARS IN MILLIONS) Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U. S. Government $ 33.9 $ 0.6 $ -- $ 34.5
States and municipalities 39.1 1.1 -- 40.2
Public utilities 118.9 9.8 -- 128.7
Corporate bonds 437.5 28.8 (0.1) 466.2
Redeemable preferred stocks 3.3 0.1 (0.2) 3.2
Mortgage-backed securities 2.5 0.2 -- 2.7
- -------------------------------------------------------------------------------
Total available for sale $635.2 $ 40.6 $ (0.3) $675.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
FIXED MATURITIES
The amortized cost and estimated fair values of fixed maturities at December 31,
1994, were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(DOLLARS IN MILLIONS) Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity:
States and municipalities $ 45.4 $ 0.9 $ (1.0) $ 45.3
Public utilities 98.6 0.9 (3.7) 95.8
Corporate bonds 231.1 3.8 (7.3) 227.6
Mortgage-backed securities 3.0 0.2 -- 3.2
- -------------------------------------------------------------------------------
Total held to maturity $ 378.1 $ 5.8 $ (12.0) $ 371.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Available for sale:
U. S. Government $ 20.5 $ -- $ (0.5) $ 20.0
States and municipalities 40.9 0.1 (1.3) 39.7
Public utilities 13.2 -- (0.9) 12.3
Corporate bonds 37.2 -- (2.4) 34.8
Redeemable preferred stocks 7.6 0.4 (0.9) 7.1
- -------------------------------------------------------------------------------
Total available for sale $ 119.4 $ 0.5 $ (6.0) $ 113.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
NOTE 2. INVESTMENTS (Continued)
FIXED MATURITIES (Continued)
The amortized cost and estimated fair value of fixed maturities at December 31,
1995, by contractual maturity date, are shown below. Expected maturities will
differ from contractual maturities since certain borrowers have the right to
call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
(DOLLARS IN MILLIONS) Cost Fair Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Available for sale:
Due in one year or less $ 40.6 $ 41.2
Due after one year through five years 190.2 200.4
Due after five years through ten years 353.2 377.2
Due after ten years 48.7 54.0
- -------------------------------------------------------------------------------
632.7 672.8
Mortgage-backed securities
(primarily due after 10 years) 2.5 2.7
- -------------------------------------------------------------------------------
Total available for sale $635.2 $675.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
EQUITY SECURITIES
The fair values, which also represent carrying amounts, and the cost of equity
securities available for sale were as follows at December 31, 1995:
Fair
(DOLLARS IN MILLIONS) Cost Value
- -------------------------------------------------------------------------------
Common stocks:
Industrial, miscellaneous and all other $ 1.4 $ 1.2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
There were no gross unrealized investment gains on equity securities available
for sale at December 31, 1995. Gross unrealized investment gains on equity
securities available for sale totaled $21.6 million at December 31, 1994. Gross
unrealized investment losses totaled $0.2 million and $3.3 million at December
31, 1995, and 1994, respectively.
F-17
<PAGE>
NOTE 2. INVESTMENTS (Continued)
MORTGAGE LOANS
Effective January 1, 1995, First UNUM adopted Financial Accounting Standard
("FAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and FAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures," which defined the principles to measure and record an impaired
loan. When it is probable that First UNUM will be unable to collect all amounts
of principal and interest due according to the contractual terms of a loan
agreement, the loan is deemed impaired. Once a loan is determined to be
impaired, an allowance for probable losses is established for the difference
between the carrying amount of the loan and its estimated value. The estimated
value is based on either the present value of expected future cash flows
discounted using the loan's effective interest rate, the loan's observable
market price or the fair value of the collateral. The adoption of FAS 114 and
FAS 118 did not have a material effect on First UNUM's results of operations or
financial position.
At December 31, 1995, the recorded investment in impaired loans amounted to $2.1
million, which had a related allowance for probable losses of $0.3 million.
Mortgage loans that were restructured prior to the adoption of FAS 114 amounted
to $4.9 million and $5.9 million at December 31, 1995, and 1994, respectively.
Troubled debt restructurings represent loans that are refinanced with terms more
favorable to the borrower. Interest foregone on these loans was not material
for the years ended December 31, 1995, 1994, and 1993.
OTHER
Real estate acquired in satisfaction of debt cumulatively amounts to $3.9
million at December 31, 1995. Real estate held for sale amounted to $1.3
million and $0.8 million at December 31, 1995 and 1994, respectively.
There were no non-income producing bonds, mortgages, or real estate for the
twelve months ended December 31, 1995.
First UNUM was committed at December 31, 1995, to purchase fixed maturities and
other invested assets in the amount of $13.3 million.
F-18
<PAGE>
NOTE 3. ALLOWANCE FOR PROBABLE LOSSES ON INVESTED ASSETS AND
REAL ESTATE HELD FOR SALE
Changes in the allowance for probable losses on invested assets and real estate
held for sale were as follows:
<TABLE>
<CAPTION>
Balance at Balance
beginning Addi- Deduc- at end
(DOLLARS IN MILLIONS) of year tions tions of year
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Mortgage loans $ 1.7 $ 0.3 $ (0.1) $ 1.9
Real estate held for sale 0.5 0.6 -- 1.1
- -------------------------------------------------------------------------------
Total $ 2.2 $ 0.9 $ (0.1) $ 3.0
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Year Ended December 31, 1994
Mortgage loans $ 1.9 $ 0.1 $ (0.3) $ 1.7
Real estate held for sale 1.5 (0.1) (0.9) 0.5
- -------------------------------------------------------------------------------
Total $ 3.4 $ -- $ (1.2) $ 2.2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Year Ended December 31, 1993
Fixed maturities held to maturity $ 0.2 $ (0.2) $ -- $ --
Mortgage loans 2.2 0.1 (0.4) 1.9
Real estate held for sale 0.5 1.5 (0.5) 1.5
- -------------------------------------------------------------------------------
Total $ 2.9 $ 1.4 $ (0.9) $ 3.4
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Additions represent charges to net realized investment gains less recoveries,
and deductions represent reserves released upon disposal or restructuring of the
related asset.
Subsequent to January 1, 1994, adjustments for other than temporary declines in
value of all fixed maturities are recorded as a direct adjustment to the
securities' carrying value.
NOTE 4. DERIVATIVE FINANCIAL INSTRUMENTS
First UNUM periodically uses common derivative financial instruments such as
options and futures to hedge certain risks associated with future investments.
These derivative financial instruments are used to protect First UNUM from the
effect of market fluctuations in interest rates between the contract date and
the date on which the hedged transaction occurs. In using these instruments,
First UNUM is subject to the off-balance-sheet risk that the counterparties to
the transactions will fail to completely perform as contracted. First UNUM
manages this risk by only entering into contracts with highly rated institutions
and listed exchanges. First UNUM does not intend to hold derivative financial
instruments for the purpose of trading. At December 31, 1995, and 1994, First
UNUM had no open derivative financial instruments.
F-19
<PAGE>
NOTE 5. REINSURANCE
First UNUM is involved in both the cession and assumption of reinsurance with
other companies. Risks are reinsured with other companies to reduce First
UNUM's exposure to large losses and permit recovery of a portion of direct
losses. First UNUM remains liable to the insured for the payment of policy
benefits if the reinsurers cannot meet their obligations under the reinsurance
agreements. Deferred policy acquisition costs, premiums and expenses are stated
net of reinsurance ceded to other companies.
The effect of reinsurance on premiums earned for the years ended December 31,
1995, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
Ceded to
(DOLLARS IN MILLIONS) other companies
- ---------------------------------------------------------------------------
<S> <C>
Year Ended December 31, 1995
Life insurance and individual annuities $ 1.3
Accident and health insurance 2.0
- ---------------------------------------------------------------------------
Total premiums $ 3.3
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Year Ended December 31, 1994
Life insurance and individual annuities $ 1.5
Accident and health insurance 1.9
- ---------------------------------------------------------------------------
Total premiums $ 3.4
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Year Ended December 31, 1993
Life insurance and individual annuities $ 1.0
Accident and health insurance 1.4
- ---------------------------------------------------------------------------
Total premiums $ 2.4
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
Premiums assumed from other companies are not material for the years ended
December 31, 1995, 1994 or 1993.
F-20
<PAGE>
NOTE 5. REINSURANCE (Continued)
The effect of reinsurance on premiums earned and written for the years ended
December 31, 1995, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums earned:
Direct $214.3 $201.6 $186.7
Ceded (3.3) (3.4) (2.4)
- ---------------------------------------------------------------------------
Premium earned $211.0 $198.2 $184.3
Premiums written:
Direct $214.9 $202.5 $187.6
Ceded (3.3) (3.4) (2.4)
- ---------------------------------------------------------------------------
Premium written $211.6 $199.1 $185.2
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, recoveries recognized
under reinsurance agreements reduced benefits to policyholders by $1.5 million,
$1.3 million, and $1.0 million, respectively.
NOTE 6. BUSINESS RESTRUCTURING
During 1994, First UNUM recorded charges totaling $0.8 million related to the
decision to discontinue the individual disability non-cancellable product. Of
this total, $0.3 million related to severance costs for 20 field employees and
$0.5 million related to exit costs of certain leased facilities and equipment,
all of which was paid in 1995.
NOTE 7. EMPLOYEE BENEFIT PLANS
PENSION PLANS
First UNUM participates in UNUM Corporation and subsidiaries' noncontributory
defined benefit pension plan covering substantially all employees. The plan
provides benefits based on the employee's years of service and compensation
during the highest five consecutive years out of the last ten years of
employment. First UNUM funds the plan in accordance with the requirements of
the Employee Retirement Income Security Act of 1974, as amended. Plan assets
consist primarily of group annuity contracts and include approximately 224,392
shares of UNUM Corporation common stock. Net pension cost was $0.2 million for
1995, and $0.3 million for 1994 and 1993.
Eligible employees and officers of First UNUM participate in certain
supplemental retirement plans of UNUM Corporation. The cost of these plans was
not significant for the years ended December 31, 1995, 1994 and 1993.
F-21
<PAGE>
NOTE 7. EMPLOYEE BENEFIT PLANS (Continued)
RETIREMENT SAVINGS PLAN
First UNUM participates in UNUM Corporation and subsidiaries' retirement
savings plan for substantially all full-time and part-time employees who work
1,000 hours a year and have been employed for at least one year. Dependent
upon which plan the employee participates in, eligible employees may
contribute primarily up to 10% of their annual base salary, and First UNUM
matches a portion of each employee's contribution up to 4% of the employee's
bi-weekly compensation. Participants may become 100% vested immediately upon
becoming eligible to participate. In 1995, 1994 and 1993, expense for this
plan amounted to $0.3 million.
UNUM Corporation intends to introduce single pension and retirement savings
plans for all employees effective January 1, 1997.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
First UNUM provides certain health care and life insurance benefits for retired
employees and covered dependents. Substantially all employees of First UNUM may
become eligible for these benefits if they meet minimum age and service
requirements, if they are eligible for retirement benefits and if they agree to
contribute a portion of the cost. First UNUM has the right to modify or
terminate these benefits. The underlying plans are not currently funded.
Effective January 1, 1993, First UNUM adopted Financial Accounting Standard
("FAS") No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," which changed the method for recognition of the cost of these
benefits from a cash basis to an accrual basis over the years in which the
employees render the related services. First UNUM elected to immediately
recognize the FAS 106 liability at January 1, 1993, of $1.2 million as a
cumulative effect of an accounting change, which decreased net income by $0.7
million during 1993.
F-22
<PAGE>
NOTE 7. EMPLOYEE BENEFIT PLANS (Continued)
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (Continued)
Postretirement benefits expense included the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
(DOLLARS IN MILLIONS) 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Service cost $ 0.1 $ 0.1
Interest cost 0.1 0.1
- ---------------------------------------------------------------------------
Postretirement benefits expense $ 0.2 $ 0.2
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
The following represents the unfunded accumulated postretirement benefits
obligation as determined by the plans' actuaries:
<TABLE>
<CAPTION>
December 31,
--------------------------
(DOLLARS IN MILLIONS) 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Retirees $ 0.1 $ --
Active employees fully eligible 0.4 0.3
Other active participants 1.2 1.3
- ---------------------------------------------------------------------------
Accumulated postretirement benefits obligation 1.7 1.6
Unrecognized other amounts 0.2 --
- ---------------------------------------------------------------------------
Accrued postretirement benefits cost $ 1.9 $ 1.6
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
Under First UNUM's plans, the cost of covered health care benefits is assumed
to increase 8.75% for retirees less than 65 years old, and 6.67% for retirees
65 years and older for 1996. These rates are assumed to decrease
incrementally to 5.00% by 2001, and remain at that level thereafter. The
weighted average discount rates used in determining the accumulated
postretirement benefits obligation were 7.25%, at December 31, 1995, and
8.25%, at December 31, 1994. The rates of increase in future compensation
levels used in determining the accumulated postretirement benefits obligation
were 4.7% and 5.2%, at December 31, 1995 and 1994, respectively.
At December 31, 1995, a 1% increase in the trend rate for health care costs
would increase the accumulated postretirement benefits obligation by $0.3
million and postretirement benefits expense by $0.1 million.
ANNUAL INCENTIVE PLANS
First UNUM has annual incentive plans for certain employees and executive
officers, which provide additional compensation based on achievement of
predetermined annual corporate financial and non-financial goals. In 1995, 1994
and 1993, expense for these plans was $0.5 million, $0.2 million and $0.7
million, respectively.
F-23
<PAGE>
NOTE 8. INCOME TAXES
Effective January 1, 1993, First UNUM adopted Financial Accounting Standard No.
109, "Accounting for Income Taxes," which changed the method for calculating and
reporting deferred income taxes in the financial statements from the deferred
method to the liability method. The liability method of accounting for income
taxes requires that deferred tax liabilities or assets at the end of each period
be determined using the tax rate expected to be in effect when taxes are
actually paid or recovered. Under this method, income tax will increase or
decrease in the same period in which a change in tax rate is enacted. The
cumulative effect of this accounting change amounted to a $1.9 million increase
in net income for the year ended December 31, 1993.
A reconciliation of income taxes computed by applying the federal income tax
rate to income before income taxes and the consolidated income tax expense
charged to operations follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at federal statutory rate of 35% $ 12.7 $ 4.1 $ 14.0
Tax-exempt income (2.5) (3.2) (3.5)
State income tax 2.5 1.3 2.8
Adjustment to deferred tax liability due to
tax rate increase -- -- 0.7
Realized investment gains (1.3) (0.4) --
Other 0.2 0.2 0.1
- ---------------------------------------------------------------------------
Income taxes $ 11.6 $ 2.0 $ 14.1
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
On August 10, 1993, legislation was enacted to increase the federal income tax
rate of 34% to 35%, retroactive to January 1, 1993. The tax rate increase
resulted in a charge to net income totaling $1.0 million.
F-24
<PAGE>
NOTE 8. INCOME TAXES (Continued)
Deferred income tax liabilities and assets consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
(DOLLARS IN MILLIONS) 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $ 23.2 $ 21.2
Policy reserve adjustments 0.6 7.1
Net unrealized gains 16.5 5.3
Invested assets -- 8.8
- ---------------------------------------------------------------------------
Total deferred tax liabilities 40.3 42.4
- ---------------------------------------------------------------------------
Deferred tax assets:
Alternative minimum tax credit carryforwards 4.9 6.7
Policy Reserve adjustments 2.0 --
Net realized losses 2.5 0.7
Postretirement benefits 0.7 0.7
Other 1.1 0.3
- ---------------------------------------------------------------------------
Total deferred tax assets 11.2 8.4
- ---------------------------------------------------------------------------
Net deferred tax liability $ 29.1 $ 34.0
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
Deferred income taxes relating to cumulative net unrealized gains on available
for sale securities were $16.5 million, $5.3 million and $11.4 million at
December 31, 1995, 1994 and 1993, respectively.
First UNUM had alternative minimum tax ("AMT") credit carryforwards totaling
$4.9 million as of December 31, 1995. The AMT credits can be carried forward
indefinitely.
NOTE 9. DIVIDEND RESTRICTIONS
First UNUM is subject to New York state insurance regulatory restrictions that
limit the maximum amount of dividends available to UNUM Corporation without
prior approval. Under current law, during 1996 no amount will be available for
payment of dividends to UNUM Corporation without state insurance regulatory
approval. The statutory capital and surplus of First UNUM was approximately
$122 million and $103 million, at December 31, 1995, and 1994, respectively.
The statutory net income of First UNUM was approximately $13 million, $5 million
and $20 million for 1995, 1994 and 1993, respectively. State insurance
regulatory authorities prescribe statutory accounting practices that differ in
certain respects from generally accepted accounting principles. The significant
differences relate to deferred acquisition costs, deferred income taxes, non-
admitted asset balances, required investment risk reserves and reserve
calculation assumptions.
F-25
<PAGE>
NOTE 10. AFFILIATED COMPANIES AND RELATED PARTY TRANSACTIONS
First UNUM receives management and administrative services from affiliates,
which are wholly-owned by UNUM Corporation. First UNUM is allocated,
principally at cost, the related expenses based on direct association whenever
possible. If, however, expenses cannot be readily associated, the costs are
allocated based on ratios of the relative time spent, extent of usage or varying
volume of work performed.
NOTE 11. LITIGATION
In the normal course of its business operations, First UNUM is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of lawsuits were pending at December 31, 1995. In the opinion of
management, the ultimate liability, if any, arising from this litigation is not
expected to have a material adverse effect on the financial position or the
operating results of First UNUM.
NOTE 12. SUBSEQUENT EVENT
On March 20, 1996, First UNUM Life Insurance Company entered into an agreement
for the sale of its group tax-sheltered annuity ("TSA") business to a New York
insurance subsidiary of the Lincoln National Life Insurance Company ("Lincoln
Life"), a part of Lincoln National Corporation. The sale, which is subject to
regulatory approvals, involves approximately 40 group contractholders and assets
under management of approximately $65 million. The agreement initially
contemplates the reinsurance of these contracts under an indemnity reinsurance
arrangement. These contracts will then be reinsured pursuant to an assumption
reinsurance arrangement upon consent of the TSA contractholders and/or
participants. The First UNUM purchase price (ceding commission) at closing is
expected to be approximately $1 million. It is anticipated that it will take
several months (perhaps six to nine months) to obtain the necessary approvals
and otherwise close the sale. There is no guarantee that the sale will close.
Historical results of the TSA business included in First UNUM's Statements of
Income were as follows:
Year Ended December 31,
--------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
- ---------------------------------------------------------------------------
Revenues $ 2.9 $ 1.3 $ 0.4
Net income $ (0.1) $ (0.3) $ (0.5)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
F-26
<PAGE>
NOTE 13. FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values are based on quoted market prices, when available. In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. These valuation techniques require
management to develop a significant number of assumptions, including discount
rates and estimates of future cash flow. Derived fair value estimates cannot be
substantiated by comparison to independent markets or to disclosures by other
companies with similar financial instruments. These fair value disclosures do
not purport to be the amount which could be realized in immediate settlement of
the financial instrument.
The following table summarizes the carrying amounts and fair values of First
UNUM's financial instruments at December 31, 1995, and 1994:
1995 1994
----------------- -----------------
Carrying Fair Carrying Fair
(DOLLARS IN MILLIONS) Amount Value Amount Value
- ------------------------------------------------------------------------------
Financial assets:
Fixed maturities:
Available for sale $675.5 $675.5 $113.9 $113.9
Held to maturity -- -- 378.1 371.9
Equity securities available for sale 1.2 1.2 73.8 73.8
Mortgage loans 56.8 63.0 65.1 69.1
Policy loans 1.7 1.7 1.3 1.3
Short-term investments 8.7 8.7 7.6 7.6
Cash 2.2 2.2 3.7 3.7
Accrued investment income 13.5 13.5 10.9 10.9
Financial liabilities:
Other policyholder funds:
Investment-type insurance contracts:
With no defined maturities $ 49.0 $ 48.0 $ 32.0 $ 31.0
Individual annuities and
supplementary contracts not
involving life contingencies 7.0 7.0 7.2 7.2
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
F-27
<PAGE>
NOTE 13. FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
FIXED MATURITIES: Fair values for fixed maturities are based on quoted market
prices, where available. If quoted market prices are not available, fair values
are estimated using values obtained from independent pricing services or, in the
case of private placements, are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality and
maturity of the investments.
EQUITY SECURITIES AVAILABLE FOR SALE: Fair values for equity securities
available for sale are based on quoted market prices and are reported in the
Balance Sheets at these values.
MORTGAGE LOANS: Fair values for mortgage loans are estimated based on
discounted cash flow analyses using interest rates currently being offered for
similar mortgage loans to borrowers with similar credit ratings and maturities.
Mortgage loans with similar characteristics are aggregated for purposes of the
calculations.
POLICY LOANS, SHORT-TERM INVESTMENTS, CASH AND ACCRUED INVESTMENT INCOME: Fair
values for these instruments approximate the carrying amounts reported in the
Balance Sheets.
INVESTMENT-TYPE INSURANCE CONTRACTS: Fair values for liabilities under
investment-type insurance contracts with no defined maturities are the amounts
payable on demand after surrender charges at the balance sheet date.
The estimated fair values of liabilities under all insurance contracts
(investment-type and other than investment-type) are taken into consideration in
First UNUM's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
INDIVIDUAL ANNUITIES AND SUPPLEMENTARY CONTRACTS NOT INVOLVING LIFE
CONTINGENCIES: Fair values approximate the carrying amounts reported in other
policyholder funds in the Balance Sheets.
F-28
<PAGE>
NOTE 14. SEGMENT INFORMATION
First UNUM's market for its insurance, special risk and retirement income
products is the State of New York. First UNUM targets sales of its disability
products to executive, administrative and management personnel, and other
professionals such as doctors, attorneys, accountants and engineers. First
UNUM's products are marketed through sales personnel, brokers, and specialty
agents.
To more clearly reflect First UNUM's management of its businesses and to more
appropriately group its product portfolios, First UNUM began reporting its
operations, effective January 1, 1995, principally in three business segments:
Disability Insurance, Special Risk Insurance, and Retirement Products. For
comparative purposes, prior period information has been restated to reflect
reporting in these segments.
The Disability Insurance segment includes group long term disability, individual
disability, group short term disability, association group disability, and long
term care insurance. The Special Risk Insurance segment includes group life,
special risk accident insurance, and other special risk insurance products. The
Retirement Products segment includes tax sheltered annuities and products no
longer actively marketed by First UNUM. Corporate includes transactions which
are generally non-insurance related.
Investment income and net realized investment gains are allocated to the
segments based on designation of ownership of assets identified to the segments.
Operating expenses are allocated to the segments based on direct association
with a product whenever possible. If, however, the expense cannot be readily
associated with a particular product, the costs are allocated based on ratios of
the relative time spent, extent of usage or varying volume of work performed for
each segment.
F-29
<PAGE>
NOTE 14. SEGMENT INFORMATION (Continued)
Summarized financial information for the three business segments and Corporate
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Disability Insurance $241.6 $204.2 $189.6
Special Risk Insurance 40.8 41.6 37.8
Retirement Products 4.9 2.9 3.9
Corporate 5.3 2.5 4.1
- ------------------------------------------------------------------------------
Total revenues $292.6 $251.2 $235.4
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Income (loss) before income taxes and
cumulative effects of accounting changes:
Disability Insurance $ 27.3 $ 7.3 $ 33.6
Special Risk Insurance 5.1 2.5 0.8
Retirement Products (0.8) (0.6) 0.3
Corporate 4.8 2.6 5.3
- ------------------------------------------------------------------------------
Income before income taxes and
cumulative effects of accounting changes 36.4 11.8 40.0
Income taxes 11.6 2.0 14.1
- ------------------------------------------------------------------------------
Income before cumulative effects of accounting
changes 24.8 9.8 25.9
Cumulative effects of accounting changes -- -- 1.2
- ------------------------------------------------------------------------------
Net income $ 24.8 $ 9.8 $ 27.1
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<CAPTION>
December 31,
--------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Identifiable Assets:
Disability Insurance $702.4 $601.8 $571.6
Special Risk Insurance 56.6 56.9 47.9
Retirement Products 91.9 66.1 39.1
Corporate 52.5 55.1 62.0
- ------------------------------------------------------------------------------
Total assets $903.4 $779.9 $720.6
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
F-30
<PAGE>
FIRST UNUM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 15. SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
(1) (2)
Future
policy Amortization
benefits of
Deferred and unpaid (4)(5) Benefits to deferred (5)
policy claims (3) Net policyholders policy Other (6)
Segment acquisition and claim Premium investment and interest acquisition operating Premiums
(DOLLARS IN MILLIONS) costs expenses revenue income credited costs expenses written
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
Disability Insurance $ 59.3 $ 501.7 $ 173.5 $ 68.2 $ 171.6 $ 5.3 $ 37.4 $ 173.8
Special Risk Insurance 5.8 24.7 37.1 3.7 26.6 1.6 7.5 10.1
Retirement Products 0.1 5.5 0.8 4.0 4.4 -- 1.3 --
Corporate -- -- -- 5.3 -- -- 0.5 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total $ 65.2 $ 531.9 $ 211.4 $ 81.2 $ 202.6 $ 6.9 $ 46.7 $ 183.9
Year Ended December 31, 1994
Disability Insurance $ 51.9 $ 422.5 $ 159.0 $ 45.2 $ 156.4 $ 5.5 $ 35.1 $ 159.4
Special Risk Insurance 5.4 27.4 38.7 2.9 30.5 1.0 7.5 14.4
Retirement Products 0.1 5.4 0.7 2.2 2.5 -- 1.0 --
Corporate -- -- -- 2.5 -- -- (0.1) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total $ 57.4 $ 455.3 $ 198.4 $ 52.8 $ 189.4 $ 6.5 $ 43.5 $ 173.8
Year Ended December 31, 1993
Disability Insurance $ 42.9 $ 378.2 $ 148.4 $ 41.2 $ 115.7 $ 6.6 $ 33.8 $ 148.3
Special Risk Insurance 4.3 26.5 35.3 2.5 29.7 0.8 6.4 14.4
Retirement Products 0.1 5.5 1.1 2.8 2.2 (0.1) 1.5 --
Corporate -- -- -- 4.1 -- -- (1.2) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total $ 47.3 $ 410.2 $ 184.8 $ 50.6 $ 147.6 $ 7.3 $ 40.5 $ 162.7
</TABLE>
F-31
<PAGE>
NOTE 15. SUPPLEMENTARY INSURANCE INFORMATION (Continued)
(1) Excludes other policyholder funds, as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Segment:
Disability Insurance $ 0.3 $ 0.4 $ 0.7
Special Risk Insurance 1.3 1.7 1.3
Retirement Products 68.5 51.6 30.0
- ---------------------------------------------------------------------------
Total $ 70.1 $ 53.7 $ 32.0
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
(2) Includes unearned premiums, other policy claims and benefits payable.
(3) Includes fees and other income.
(4) Includes investment income and net realized investment gains.
(5) Investment income and net realized investment gains are allocated to the
segments based on designation of ownership of assets identified to the
segments. Operating expenses are allocated to the segments based on direct
association with a product whenever possible. If, however, the expense
cannot be readily associated with a particular product, the costs are
allocated based on ratios of the relative time spent, extent of usage or
varying volume of work performed for each segment.
(6) Premiums written for health and disability income policies.
F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
First UNUM Life Insurance Company and
Contract owners of First UNUM Life Insurance
Company VA-1 Separate Account
We have audited the accompanying statement of assets and liabilities of First
UNUM Life Insurance Company VA-1 Separate Account as of December 31, 1995, and
the related statements of operations and changes in net assets for each of the
two years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of investments held by the custodian as
of December 31, 1995. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 5 to the financial statements, First UNUM Life Insurance
Company has entered into an agreement for the sale of its group tax sheltered
annuity business.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First UNUM Life Insurance
Company VA-1 Separate Account at December 31, 1995, and the results of its
operations and changes in net assets for each of the two years in the period
then ended in conformity with generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
Portland, Maine
April 9, 1996
SA-1
<PAGE>
VA-1 SEPARATE ACCOUNT OF FIRST UNUM LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
Dreyfus Dreyfus TCI TCI VIPF
Stock Small Cap Growth Balanced Growth
Index Fund Portfolio Portfolio Portfolio Portfolio
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Investments at market $1,609,758 $415,562 $2,129,117 $800,718 $5,541,672
Receivable/(payable)
from/(to) First UNUM
Life Insurance Company
for units sold/(redeemed) 15,900 3,067 8,225 6,625 38,634
---------- -------- ---------- -------- ----------
Total assets 1,625,658 418,629 2,137,342 807,343 5,580,306
Liabilities
Contract charges
payable to First UNUM
Life Insurance Company 528 136 718 266 1,824
---------- -------- ---------- -------- ----------
Net assets $1,625,130 $418,493 $2,136,624 $807,077 $5,578,482
---------- -------- ---------- -------- ----------
---------- -------- ---------- -------- ----------
<CAPTION>
VIPF II VIPF VIPF Calvert T. Rowe
Asset Equity Money Socially Price
Manager Income Market Responsible International
Portfolio Portfolio Portfolio Series Series Total
--------- --------- --------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments at market $4,591,366 $689,821 $3,674 $46,243 $213,212 $16,041,143
Receivable/(payable)
from/(to) First UNUM
Life Insurance Company
for units sold/(redeemed) 30,840 1,483 (341) 14 1,414 105,861
---------- -------- ------ ------- -------- -----------
Total assets 4,622,206 691,304 3,333 46,257 214,626 16,147,004
Liabilities
Contract charges
payable to First UNUM
Life Insurance Company 1,474 226 - 15 69 5,256
---------- -------- ------ ------- -------- -----------
Net assets $4,620,732 $691,078 $3,333 $46,242 $214,557 $16,141,748
---------- -------- ------ ------- -------- -----------
---------- -------- ------ ------- -------- -----------
</TABLE>
See notes to financial statements.
SA-2
<PAGE>
VA-1 SEPARATE ACCOUNT OF FIRST UNUM LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Dreyfus Small Cap
Portfolio
---------
Dreyfus Stock From Inception
Index Fund Date of May 2,
---------- Year Ended 1994 to
Year Ended December 31, December 31, December 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income
Investment income - dividends $38,428 $17,878 $9,435 $41
Less contract charges - mortality
and expense fees to First UNUM
Life Insurance Company 14,488 6,520 1,989 4
---------- -------- -------- ------
Net investment income (loss) 23,940 11,358 7,446 37
Realized and unrealized gains
(losses) on investments
Realized gains (losses) 55,164 (4,442) 905 -
Change in unrealized gains (losses) 262,728 (1,292) 32,033 80
---------- -------- -------- ------
317,892 (5,734) 32,938 80
---------- -------- -------- ------
Net increase (decrease) in net assets 341,832 5,624 40,384 117
from operations
Net increase in net assets from 529,431 430,446 372,115 5,877
principal transactions ---------- -------- -------- ------
Net increase in net assets 871,263 436,070 412,499 5,994
Net assets at beginning of period 753,867 317,797 5,994 -
---------- -------- -------- ------
Net assets at end of period $1,625,130 $753,867 $418,493 $5,994
---------- -------- -------- ------
---------- -------- -------- ------
<CAPTION>
TCI Growth Portfolio TCI Balanced Portfolio
-------------------- ----------------------
Year Ended December 31, Year Ended December 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income
Investment income - dividends $1,329 $76 $17,271 $10,255
Less contract charges - mortality
and expense fees to First UNUM
Life Insurance Company 20,128 10,050 7,961 4,868
---------- ---------- -------- --------
Net investment income (loss) (18,799) (9,974) 9,310 5,387
Realized and unrealized gains
(losses) on investments
Realized gains (losses) 41,083 1,361 23,672 449
Change in unrealized gains (losses) 355,005 2,388 86,899 (6,524)
---------- ---------- -------- --------
396,088 3,749 10,571 (6,075)
---------- ---------- -------- --------
Net increase (decrease) in net assets 377,289 (6,225) 119,881 (688)
from operations
Net increase in net assets from 608,993 643,089 178,690 295,284
principal transactions ---------- ---------- -------- --------
Net increase in net assets 986,282 636,864 298,571 294,596
Net assets at beginning of period 1,150,342 513,478 508,506 213,910
---------- ---------- -------- --------
Net assets at end of period $2,136,624 $1,150,342 $807,077 $508,506
---------- ---------- -------- --------
---------- ---------- -------- --------
</TABLE>
See notes to financial statements.
SA-3
<PAGE>
VA-1 SEPARATE ACCOUNT OF FIRST UNUM LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
VIPF VIPF II Asset
Growth Portfolio Manager Portfolio
---------------- -----------------
Year Ended December 31, Year Ended December 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income
Investment income - dividends $15,747 $78,421 $72,735 $77,408
Less contract charges - mortality
and expense fees to First UNUM
Life Insurance Company 53,181 24,964 48,531 37,419
---------- ---------- ---------- ----------
Net investment income (loss) (37,434) 53,457 24,204 39,989
Realized and unrealized gains
(losses) on investments
Realized gains (losses) 401,894 (9,745) 30,443 (9,314)
Change in unrealized gains (losses) 723,438 (16,183) 526,709 (212,025)
---------- ---------- ---------- ----------
1,125,332 (25,928) 557,152 (221,339)
---------- ---------- ---------- ----------
Net increase (decrease) in net assets 1,087,898 27,529 581,356 (181,350)
from operations
Net increase in net assets from 1,682,555 1,567,194 405,730 2,355,064
principal transactions ---------- ---------- ---------- ----------
Net increase in net assets 2,770,453 1,594,723 987,086 2,173,714
Net assets at beginning of period 2,808,029 1,213,306 3,633,646 1,459,932
---------- ---------- ---------- ----------
Net assets at end of period $5,578,482 $2,808,029 $4,620,732 $3,633,646
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<CAPTION>
VIPF Equity VIPF Money
Income Portfolio Market Portfolio
---------------- ----------------
From Inception From Inception
Date of May 2, Date of October 15,
Year Ended 1994 to Year Ended 1994 to
December 31, December 31, December 31, December 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income
Investment income - dividends $7,148 $5 $89 $4
Less contract charges - mortality
and expense fees to First UNUM
Life Insurance Company 2,959 3 - -
-------- ------ ------ ----
Net investment income (loss) 4,189 2 89 4
Realized and unrealized gains
(losses) on investments
Realized gains (losses) 251 - - -
Change in unrealized gains (losses) 59,330 2 - -
-------- ------ ------ ----
59,581 2 - -
-------- ------ ------ ----
Net increase (decrease) in net assets 63,770 4 89 4
from operations
Net increase in net assets from 622,446 4,858 2,441 799
principal transactions -------- ------ ------ ----
Net increase in net assets 686,216 4,862 2,530 803
Net assets at beginning of period 4,862 - 803 -
-------- ------ ------ ----
Net assets at end of period $691,078 $4,862 $3,333 $803
-------- ------ ------ ----
-------- ------ ------ ----
</TABLE>
See notes to financial statements.
SA-4
<PAGE>
VA-1 SEPARATE ACCOUNT OF FIRST UNUM LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Calvert Socially T. Rowe Price
Responsible Series International Series
------------------ --------------------
From Inception From Inception
Date of May 2, Date of May 2, Total
Year Ended 1994 to Year Ended 1994 to -----
December 31, December 31, December 31, December 31, Year Ended December 31,
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Net investment income
Investment income - dividends $4,131 $10 $92 $ - $166,405 $184,098
Less contract charges - mortality
and expense fees to First UNUM
Life Insurance Company 185 - 1,097 26 150,519 83,854
------- ---- -------- ------- ----------- ----------
Net investment income (loss) 3,946 10 (1,005) (26) 15,886 100,244
Realized and unrealized gains
(losses) on investments
Realized gains (losses) 430 - 195 (1) 554,037 (21,692)
Change in unrealized gains (losses) (1,147) - 10,636 (406) 2,055,631 (233,960)
------- ---- -------- ------- ----------- ----------
(717) - 10,831 (407) 2,609,668 (255,652)
------- ---- -------- ------- ----------- ----------
Net increase (decrease) in net assets
from operations 3,229 10 9,826 (433) 2,625,554 (155,408)
Net increase in net assets from
principal transactions 42,684 319 187,457 17,707 4,632,542 5,320,637
------- ---- -------- ------- ----------- ----------
Net increase in net assets 45,913 329 197,283 17,274 7,258,096 5,165,229
Net assets at beginning of period 329 - 17,274 - 8,883,652 3,718,423
------- ---- -------- ------- ----------- ----------
Net assets at end of period $46,242 $329 $214,557 $17,274 $16,141,748 $8,883,652
------- ---- -------- ------- ----------- ----------
------- ---- -------- ------- ----------- ----------
</TABLE>
See notes to financial statements.
SA-5
<PAGE>
VA-1 SEPARATE ACCOUNT OF FIRST UNUM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND OPERATIONS
VA-1 Separate Account of First UNUM Life Insurance Company ("First UNUM") is a
registered investment company under the Investment Company Act of 1940. The
Separate Account was established in accordance with the laws of the State of New
York. Its registration statement became effective in August, 1991. The assets
are held for the exclusive benefit of the variable annuity contract owners and
may not be used to satisfy any obligations that may arise from any other
business conducted by First UNUM. Any excess of assets over reserves and other
contract liabilities may be transferred to First UNUM's General Account.
Principal markets are hospitals and not-for-profit organizations located in the
State of New York.
In accordance with the terms of the variable annuity contracts, all payments
transferred to the Separate Account by the contract owners are allocated to
purchase shares of either the Dreyfus Stock Index Fund, Inc. ("Dreyfus Stock
Index Fund"), the Dreyfus Variable Investment Fund: Small Cap Portfolio
("Dreyfus Small Cap Portfolio"), the Twentieth Century's TCI Portfolios, Inc.:
TCI Growth Portfolio ("TCI Growth Portfolio") and TCI Balanced Portfolio ("TCI
Balanced Portfolio"), the Fidelity's Variable Insurance Products Fund: Growth
Portfolio ("VIPF Growth Portfolio"), the Fidelity's Variable Insurance Products
Fund II: Asset Manager Portfolio ("VIPF II Asset Manager Portfolio"), the
Fidelity's Variable Insurance Products Fund: Equity Income Portfolio ("VIPF
Equity Income Portfolio"), the Calvert Socially Responsible Series ("Calvert
Socially Responsible Series"), or the T. Rowe Price International Series, Inc.
("T. Rowe Price International Series"). Fidelity's Variable Insurance Products
Funds: Money Market Portfolio ("VIPF Money Market Portfolio") is used only for
investment of initial contributions for which First UNUM has not received
complete order instructions. Upon receipt of complete order instructions, the
payments transferred to the VIPF Money Market Portfolio are allocated to
purchase shares of one of the above funds.
All contracts participating in the Separate Account are in the accumulation
phase.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
The Separate Account is fully invested in shares of the Dreyfus Stock Index
Fund, the Dreyfus Small Cap Portfolio, the TCI Growth Portfolio, the TCI
Balanced Portfolio, the VIPF Growth Portfolio, the VIPF II Asset Manager
Portfolio, the VIPF Equity Income Portfolio, the VIPF Money Market Portfolio,
the Calvert Socially Responsible Series and the T. Rowe Price International
Series, which are carried at market value. Security transactions are
recorded on the trade date. Dividends are fully reinvested and immediately
credited to participant accounts with the exception of the VIPF Money Market
Portfolio which is invested monthly. Unrealized gains and losses represent
the difference between the cost and market value of invested assets. Realized
gains and losses are reported on an average cost basis. Gross unrealized
gains for all investments were $1,933,290 and $53,537 as of December 31, 1995
and 1994, respectively. Gross unrealized losses for all investments were
$1,150 and $177,028 as of December 31, 1995 and 1994, respectively.
SA-6
<PAGE>
VA-1 SEPARATE ACCOUNT OF FIRST UNUM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED):
The market value and cost of investments at December 31, 1995, was distributed
as follows:
Market Value
------------
Shares Share Price Cost
----- ---------- ----
Dreyfus Stock Index Fund 93,590.5071 $17.20 $1,395,352
Dreyfus Small Cap Portfolio 9,008.4978 46.13 383,449
TCI Growth Portfolio 176,543.6570 12.06 1,753,417
TCI Balance Portfolio 113,738.7508 7.04 716,815
VIPF Growth Portfolio 189,783.2465 29.20 4,785,472
VIPF II Asset Manager Portfolio 290,776.8837 15.79 4,189,960
VIPF Equity Income Portfolio 35,797.6767 19.27 630,489
VIPF Money Market Portfolio 3,674.4500 1.00 3,674
Calvert Socially Responsible Series 27,154.6121 1.703 47,391
T. Rowe Price International Series 18,935.3604 11.26 202,982
CONTRACT CHARGES:
First UNUM is the depositor for the Separate Account. Administrative services
necessary for the operation of the Separate Account and the Variable Annuity
contracts are provided by First UNUM. Although First UNUM deducts for sales and
administrative expenses under the contracts, First UNUM assumes an expense risk
that these deductions may prove insufficient to cover the cost of those
expenses.
In addition, First UNUM assumes a mortality risk under the contracts in that it
agrees to make annuity payments regardless of how long a particular annuitant or
their payee lives and how long all annuitants or other payees in a class live,
if payment options involving life contingencies are chosen. Those annuity
payments are determined in accordance with annuity purchase rate provisions
established at the time the contracts are issued. First UNUM also assumes a
mortality risk in providing a death benefit under the contracts.
To compensate First UNUM for assuming these mortality and expense risks, an
effective annual mortality and expense risk charge of 1.20% of each portfolio's
average daily net assets is imposed on each portfolio within the Separate
Account with the exception of the VIPF Money Market Portfolio. For 1995 and
1994, the mortality and expense risk charges totaled $150,519 and $83,854,
respectively.
SA-7
<PAGE>
VA-1 SEPARATE ACCOUNT OF FIRST UNUM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES:
For purposes of federal income taxes, the Separate Account is considered to be
part of First UNUM for the years ended December 31, 1995 and 1994, and its
operations are not taxed separately. The liability for any federal income taxes
generated by the Separate Account is attributable to First UNUM. First UNUM is
taxed as a property and casualty insurance company under the applicable
provisions of the Internal Revenue Code.
PREMIUM TAXES:
Applicable state premium taxes are paid by First UNUM and deducted from the
account balances of contract owners at the time of an annuity purchase.
NOTE 3. CAPITAL SHARE TRANSACTIONS
During 1995 and 1994, the following transactions in capital stock occurred:
The Separate Account funds that invest in the Dreyfus Stock Index Fund held
105,543.6183 units at a net asset value of $15.3977 and 66,164.6228 units at a
net asset value of $11.3938 at December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
1995 1994
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 75,055.3208 $1,039,822 42,790.8708 $480,916
Units redeemed 35,676.3253 510,391 4,427.5838 50,470
----------- ---------- ----------- --------
Net increase 39,378.9955 $529,431 38,363.2870 $430,446
----------- ---------- ----------- --------
----------- ---------- ----------- --------
</TABLE>
SA-8
<PAGE>
VA-1 SEPARATE ACCOUNT OF FIRST UNUM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 3. CAPITAL SHARE TRANSACTIONS (CONTINUED)
The Separate Account funds that invest in the Dreyfus Small Cap Portfolio held
31,533.6456 units at a net asset value of $13.2713 and 577.3856 units at a net
asset value of $10.3818 at December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
1995 1994
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 31,858.6865 $382,922 615.9810 $6,272
Units redeemed 902.4265 10,807 38.5954 395
----------- -------- -------- ------
Net increase 30,956.2600 $372,115 577.3856 $5,877
----------- -------- -------- ------
----------- -------- -------- ------
</TABLE>
The Separate Account funds that invest in the TCI Growth Portfolio held
159,006.9105 units at a net asset value of $13.4373 and 110,885.8880 units at a
net asset value of $10.3741 at December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
1995 1994
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 65,896.1098 $837,295 68,212.1495 $702,285
Units redeemed 17,775.0873 228,302 5,658.1811 59,196
----------- -------- ----------- --------
Net increase 48,121.0225 $608,993 62,553.9684 $643,089
----------- -------- ----------- --------
----------- -------- ----------- --------
</TABLE>
The Separate Account funds that invest in the TCI Balanced Portfolio held
68,697.0213 units at a net asset value of $11.7484 and 51,803.6503 units at a
net asset value of $9.8161 at December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
1995 1994
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 36,578.6531 $402,796 39,549.0873 $387,858
Units redeemed 19,685.2821 224,106 9,407.4640 92,574
----------- -------- ----------- --------
Net increase 16,893.3710 $178,690 30,141.6233 $295,284
----------- -------- ----------- --------
----------- -------- ----------- --------
</TABLE>
SA-9
<PAGE>
VA-1 SEPARATE ACCOUNT OF FIRST UNUM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 3. CAPITAL SHARE TRANSACTIONS (CONTINUED)
The Separate Account funds that invest in the VIPF Growth Portfolio held
331,478.2209 units at a net asset value of $16.8291 and 223,160.4088 units at a
net asset value of $12.583 at December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
1995 1994
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 235,533.9268 $3,810,558 143,963.5014 $1,760,470
Units redeemed 127,216.1147 2,128,003 16,055.4696 193,276
------------ ---------- ------------ ----------
Net increase 108,317.8121 $1,682,555 127,908.0318 $1,567,194
------------ ---------- ------------ ----------
------------ ---------- ------------ ----------
</TABLE>
The Separate Account funds that invest in the VIPF II Asset Manager Portfolio
held 326,000.6157 units at a net asset value of $14.1740 and 296,239.8037 units
at a net asset value of $12.2659 at December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
1995 1994
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 144,555.0131 $1,906,976 240,524.1468 $3,044,839
Units redeemed 114,794.2011 1,501,246 54,721.2766 689,775
------------ ---------- ------------ ----------
Net increase 29,760.8120 $405,730 185,802.8702 $2,355,064
------------ ---------- ------------ ----------
------------ ---------- ------------ ----------
</TABLE>
The Separate Account funds that invest in the VIPF Equity Income Portfolio held
49,413.5521 units at a net asset value of $13.9856 and 464.0597 units at a net
asset value of $10.4780 at December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
1995 1994
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 49,178.5264 $625,557 464.0607 $4,858
Units redeemed 229.0340 3,111 .0010 -
----------- -------- -------- ------
Net increase 48,949.4924 $622,446 464.0597 $4,858
----------- -------- -------- ------
----------- -------- -------- ------
</TABLE>
SA-10
<PAGE>
VA-1 SEPARATE ACCOUNT OF FIRST UNUM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 3. CAPITAL SHARE TRANSACTIONS (CONTINUED)
The Separate Account funds that invest in the VIPF Money Market Portfolio held
311.5217 units at a net asset value of $10.6987 and 79.4770 units at a net asset
value of $10.1054 at December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
1995 1994
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 3,870.1513 $40,648 125.0181 $1,257
Units redeemed 3,638.1066 38,207 45.5411 458
---------- ------- -------- ------
Net increase 232.0447 $2,441 79.4770 $799
---------- ------- -------- ------
---------- ------- -------- ------
</TABLE>
The Separate Account funds that invest in the Calvert Socially Responsible
Series held 3,617.6251 units at a net asset value of $12.7827 and 32.0156 units
at a net asset value of $9.9692 at December 31, 1995
and 1994, respectively.
<TABLE>
<CAPTION>
1995 1994
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 4,167.8179 $49,826 32.0156 $319
Units redeemed 582.2084 7,142 - -
---------- ------- ------- ----
Net increase 3,585.6095 $42,684 32.0156 $319
---------- ------- ------- ----
---------- ------- ------- ----
</TABLE>
The Separate Account funds that invest in the T. Rowe Price International Series
held 19,805.3575 units at a net asset value of $10.8333 and 1751.5232 units at a
net asset value of $9.8622 at December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
1995 1994
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 18,972.1001 $196,905 1,751.5232 $17,707
Units redeemed 918.2658 9,448 - -
----------- -------- ---------- -------
Net increase 18,053.8343 $187,457 1,751.5232 $17,707
----------- -------- ---------- -------
----------- -------- ---------- -------
</TABLE>
NOTE 4. RELATED PARTY TRANSACTIONS
UNUM Sales Corporation, an affiliate, acts as a distributor and principal
underwriter of the Separate Account.
SA-11
<PAGE>
VA-1 SEPARATE ACCOUNT OF FIRST UNUM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 5. SUBSEQUENT EVENT
On March 20, 1996, First UNUM Life Insurance Company entered into an agreement
for the sale of its group tax-sheltered annuity ("TSA") business to a New York
insurance subsidiary of the Lincoln National Life Insurance Company ("Lincoln
Life"). It is anticipated that it will take several months (perhaps six to nine
months) to obtain necessary regulatory approvals and otherwise close the sale.
There is no guarantee that the sale will close. The contracts of participants in
the Separate Account with respect to which consent is obtained from TSA
contractholders and/or participants will be reinsured pursuant to an assumption
reinsurance arrangement. Assets attributable to such participants' contracts
will be transferred to separate accounts of the reinsurer. Assets attributable
to the contracts of participants with respect to which such consent is not
obtained will remain in the Separate Account. Net assets of the Separate
Account all relate to the TSA business and may be affected by the completion of
the sale and implementation of the details of the transaction.
SA-12
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial statements and Exhibits
(a) The following financial statements are included in Part B:
Financial Statements of Registrant - VA-I Separate Account of 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 First UNUM 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(a) Forms of Group Annuity Contracts.
### 4(b) Form of Contract Rider providing for automatic assumption of
certain contracts by The Lincoln-NY (NEWCO).
* 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 (NEWCO).
7(b) Form of Coinsurance and Assumption Agreement by and between First
UNUM Life Insurance Company and Lincoln-NY (NEWCO).
<PAGE>
7(c) Form of Indemnity Reinsurance by and between First UNUM Life
Insurance Company and Lincoln-NY (NEWCO).
** 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 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.
10(d) Powers of Attorney for Kevin P. O'Connell, Robert G. Ostrander,
Edward R. Hillman
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
### Incorporated herein by reference to Exhibits A1 and A2 of Exhibit 7(b)
hereto.
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>
UNUM
CORPORATE STRUCTURE 1 CORPORATION MARCH 5, 1996
(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
| | | | Open Door | |- & Holt
| | Claims | | VAC | | (Contingency),
| |- Service | |- Limited | | Ltd.
| | International, | | (United | | (United
| | Inc. | | Kingdom) | | Kingdom)
| | (Delaware) | ----------- | | ------------
| | ------------- | | |
| | | Claims | | Duncanson
| | UNUM |- Services | |- & Holt
| |- Development | International | | Underwriters
| | Corporation | Limited | | Ltd.
| | (Maine) | (United | | (United
| | ----------- | Kingdom) | | Kingdom)
| | | ------------- | | -------------
| | UNUM | |
| |- 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)
| -------------
<CAPTION>
<S> <C>
UNUM
CORPORATE STRUCTURE 1 CORPORATION MARCH 5, 1996
(DELAWARE)
----------
|
- ------------------------------------------------------------------------------------------------------------------------------------
|
UNUM
International
Ltd.
(Bermuda)
</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 1 Contractholder.
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
<PAGE>
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) UNUM Sales Corporation also acts as the principal underwriter for the
VA-I Separate Account of UNUM Life Insurance Company of America
(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 $293,500 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 that an applicant can check to request a
Statement of Additional Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that the applicant
can remove to send for a Statement of Additional Information.
(c) To deliver any Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
(d) The Registrant intends to rely on the no-action response dated November 28,
1988, from Ms. Angela C. Goelzer of the Commission staff to the American
Council of Life Insurance concerning the redeemability of Section 403(b)
annuity contracts and the Registrant has complied with the provisions of
paragraphs (1)-(4) thereof.
<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 29th day of April, 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
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
- ------------------------- April 29, 1996
Stephen B. Center President
(Principal Executive Officer)
/s/ Nicholas J. Desiderio
- ------------------------- April 29, 1996
Nicholas J. Desiderio Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Jane S. Grosso
- ---------------------- April 29, 1996
Jane S. Grosso 2nd Vice President and
Controller
(Principal Accounting Officer)
<PAGE>
*
- ---------------------- April 29, 1996
Robert E. Cash Director
W
*
- ---------------------- April 29, 1996
Stephen B. Center Director
*
- ---------------------- April 29, 1996
John D. Gaertner Director
*
- ---------------------- April 29, 1996
Nicholas J. Desiderio Director
*
- ---------------------- April 29, 1996
Peter J. Moynihan Director
*
- ---------------------- April 29, 1996
Peter P. Mullen Director
*
- ---------------------- April 29, 1996
James F. Orr III Director
*
- ----------------------- April 29, 1996
Lorne H. Price Director
*
- ----------------------- April 29, 1996
Henry M. White, Jr. Director
*
- ----------------------- April 29, 1996
Edith Weiner Director
/s/ Edward R. Hillman
- ----------------------- April 29, 1996
Edward R. Hillman Director
/s/ Kevin P. O'Connell
- ----------------------- April 29, 1996
Kevin P. O'Connell Director
/s/ Kevin J. Tierney
- ---------------------- April 29, 1996
Kevin J. Tierney Director
/s/ Kevin J. Tierney
*By: --------------------------------- April 29, 1996
Kevin J. Tierney
Attorney-in-fact
<PAGE>
EXHIBIT 7(A)
<PAGE>
- --------------------------------------------------------------------------------
ASSUMPTION REINSURANCE AGREEMENT
by and between
FIRST UNUM LIFE INSURANCE COMPANY
and
NEWCO
Dated as of , 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . 1
ARTICLE II BUSINESS ASSUMED . . . . . . . . . . . . . . . . 3
ARTICLE III NOTICES; ASSUMPTION CERTIFICATES; NOVATIONS. . . 4
ARTICLE IV TERRITORY. . . . . . . . . . . . . . . . . . . . 5
ARTICLE V CONTRACT ADMINISTRATION. . . . . . . . . . . . . 6
ARTICLE VI PREMIUMS; RECOVERIES . . . . . . . . . . . . . . 6
ARTICLE VII TRANSFER OF ASSETS . . . . . . . . . . . . . . . 6
ARTICLE VIII OFFSETS . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IX ERRORS AND OMISSIONS . . . . . . . . . . . . . . 7
ARTICLE X DUTY OF COOPERATION. . . . . . . . . . . . . . . 7
ARTICLE XI ARBITRATION. . . . . . . . . . . . . . . . . . . 7
ARTICLE XII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . 8
Section 12.01. Notices. . . . . . . . . . . . . . . . . 8
Section 12.02. Amendment. . . . . . . . . . . . . . . . 9
Section 12.03. Counterparts . . . . . . . . . . . . . . 10
Section 12.04. No Third Party Beneficiaries . . . . . . 10
Section 12.05. Assignment . . . . . . . . . . . . . . . 10
Section 12.06. Governing Law. . . . . . . . . . . . . . 10
<PAGE>
EXHIBITS
EXHIBIT A Option Letters
EXHIBIT B Certificates of Assumption
SCHEDULES
SCHEDULE 1.01 Insurance Contracts
SCHEDULE 1.02 Newco Separate Accounts
SCHEDULE 1.03 Seller Separate Account
-ii-
<PAGE>
ASSUMPTION REINSURANCE AGREEMENT
THIS ASSUMPTION REINSURANCE AGREEMENT (this "Agreement"), dated as of
___________ __, 1996, is made by and between First UNUM Life Insurance Company,
a New York domiciled stock life insurance company ("Seller"), and Newco, a New
York domiciled stock life insurance company ("Newco").
WHEREAS, Seller has agreed to cede and transfer to Newco the Insurance
Contracts (as defined below) and Newco has agreed to assume the rights,
obligations and liabilities of Seller under the Insurance Contracts; and
WHEREAS, Seller and Newco are, concurrently with the execution of this
Agreement, entering into an Indemnity Reinsurance Agreement (the "Indemnity
Reinsurance Agreement") whereby Seller will cede and Newco will reinsure, on an
indemnity reinsurance basis, the general account obligations of Seller under the
Insurance Contracts pending the assumption of the Insurance Contracts by Newco
under this Agreement;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and upon the terms and conditions set forth herein, the parties
hereto agree as follows:
I
DEFINITIONS
The following terms shall have the respective meanings set forth below
throughout the Agreement:
"ACQUISITION AGREEMENT" means the Asset Transfer and Acquisition
Agreement entered into by and between Purchaser (as defined below) and Seller
dated as of March ___, 1996, to which Newco has been added as a party.
"ADMINISTRATIVE SERVICES AGREEMENT" means the Administrative Services
Agreement entered into by and between Purchaser and Seller dated as of the date
hereof.
"AFFILIATE" means, with respect to any Person, at the time in
question, any other Person controlling, controlled by or under common control
with such Person.
"AGREEMENT" means this Assumption Reinsurance Agreement.
"CERTIFICATEHOLDERS" means the certificateholders under the group
annuity contracts included within the Insurance Contracts.
<PAGE>
"CERTIFICATES OF ASSUMPTION" shall have the meaning set forth in
Article III.
"CONTRACTHOLDERS" means the holders of the group annuity contracts
included within the Insurance Contracts.
"EFFECTIVE DATE" means ___________________________ ________, 1996.
"EXTRA CONTRACTUAL OBLIGATIONS" means all liabilities for
consequential, exemplary, punitive or similar damages which relate to or arise
in connection with any alleged or actual act, error or omission by Seller or any
of its Affiliates prior to the date hereof, whether intentional or otherwise, or
from any reckless conduct or bad faith by Seller or any of its Affiliates, in
connection with the handling of any claim under any of the Insurance Contracts
or in connection with the issuance, delivery, cancellation or administration of
any of the Insurance Contracts (provided that no liability with respect to which
Purchaser or Newco shall be entitled to indemnification under Section
10.01(a)(ii) of the Asset Transfer and Acquisition Agreement shall be deemed to
be an Extra Contractual Obligation).
"GENERAL ACCOUNT LIABILITIES" means those Insurance Liabilities which
are general account obligations of Seller, excluding any general account
liabilities which relate to (i) amounts transferred from the Seller Separate
Account to the general account of Seller pending distribution to holders of the
Insurance Contracts and (ii) amounts held in the general account of Seller
pending transfer to the Seller Separate Account.
"INDEMNITY REINSURANCE AGREEMENT" shall have the meaning set forth in
the second recital of this Agreement.
"INSURANCE CONTRACTS" means all group annuity contracts issued by
Seller that are listed on Schedule 1.01 hereto and in effect on the Effective
Date and all certificates and participation agreements in effect as of the
Effective Date issued in accordance with the terms of such group annuity
contracts (including all supplements, endorsements, riders and ancillary
agreements in connection therewith).
"INSURANCE LIABILITIES" means all liabilities and obligations arising
under the Insurance Contracts (including, without limitation, the Seller
Separate Account Liabilities, but excluding any Extra Contractual Obligations),
including, without limitation: (i) all liability for premium taxes arising on
account of premiums paid or annuities purchased on or after the Effective Date,
(ii) all amounts payable on or after the Effective Date for returns or refunds
of premiums under the Insurance Contracts, (iii) all liability for commission
payments and other fees or compensation payable with respect to the Insurance
Contracts to or for the benefit of brokers and service providers, to the extent
that such amounts are or become payable on or after the Effective Date, (iv) all
guaranty fund assessments and similar charges imposed with respect to the
Insurance Contracts based on premiums paid on or after the Effective Date.
-2-
<PAGE>
"NEWCO SEPARATE ACCOUNTS" means those separate accounts of Newco
described on Schedule 1.02 hereto.
"NOTICE" means a Contractholder Notice or a Certificateholder Notice.
"NOVATED CONTRACTS" shall have the meaning set forth in Article III.
"NOVATION REPORT" means the weekly report prepared by Purchaser and
delivered to Seller pursuant to the Administrative Services Agreement, which
report lists all Insurance Contracts assumed by novation by Newco during the
prior week.
"PERSON" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division or other
entity.
"PURCHASER" means The Lincoln National Life Insurance Company, an
Affiliate of Newco.
"SELLER" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"SELLER SEPARATE ACCOUNT" means the separate account of Seller
described on Schedule 1.03 hereto.
"SELLER SEPARATE ACCOUNT LIABILITIES" means those insurance
liabilities that are reflected in the Seller Separate Account and that relate to
Insurance Contracts.
"TRUST AGREEMENT" means the Trust Agreement entered into by and among
Newco, Seller and Trustee dated as of the date hereof.
"TRUSTEE" means the trustee named as such in the Trust Agreement and
any successor trustee appointed as such pursuant to the terms of the Trust
Agreement.
-3-
<PAGE>
II
BUSINESS ASSUMED
Upon the terms and subject to the conditions and other provisions of
this Agreement and any required governmental and regulatory consents and
approvals, Seller hereby agrees to cede to Newco and Newco hereby agrees to
accept and assume the Insurance Contracts. Newco agrees to indemnify, defend
and hold harmless Seller (and its directors, officers, employees, Affiliates,
successors and permitted assigns), in accordance with the procedures set forth
in Article X of the Acquisition Agreement, from and against all Insurance
Liabilities assumed by Newco pursuant to this Agreement.
III
NOTICES; ASSUMPTION CERTIFICATES; NOVATIONS
Newco shall prepare for mailing to each Contractholder an option
letter, including a rejection form, substantially in the form attached hereto as
Exhibit A-1 (such option letters are hereinafter referred to as the
"Contractholder Notices"). The Contractholder Notices shall be mailed by Newco
to each such Contractholder, at the sole expense of Newco, on the date when all
required regulatory approvals have been obtained for the assumption of each such
Insurance Contract by Newco or as soon as practicable thereafter. Each
Contractholder Notice shall be dated the date upon which it is mailed.
Seller and Newco agree that a Contractholder will remain a
Contractholder of Seller if a rejection of the assumption is delivered by such
Contractholder to Seller or Newco prior to the later of (i) the expiration of
the 30-day period which will commence on the date that the Contractholder Notice
is sent to such Contractholder or (ii) with respect to active Insurance
Contracts, the date of the next deposit under the relevant Insurance Contract.
In the event of such rejection, Certificateholder Notices will not be sent to
Certificateholders under the Insurance Contracts held by such Contractholder (as
otherwise provided for below) and such Certificateholders will remain as
Certificateholders of Seller.
Following the expiration of the rejection period referred to above
(or, if earlier, following the receipt of any affirmative consent from a
Contractholder), Newco shall prepare for mailing to each Certificateholder under
the applicable Insurance Contracts who are residents of New York at the time of
mailing an option letter, including a rejection form, substantially in the form
attached hereto as Exhibit A-2. Newco shall also prepare for mailing to each
Certificateholder under the applicable Insurance Contracts who are not residents
of New York at the time of the mailing an option letter, including an
affirmative consent form, substantially in the form attached hereto as Exhibit
A-3. The option letters, rejection forms and affirmative consent forms to be
mailed to Certificateholders in accordance with the foregoing are referred to
herein as
-4-
<PAGE>
the "Certificateholder Notices." The Certificateholder Notices shall be mailed
promptly by Newco to each such Certificateholder, at the sole expense of Newco.
Each Certificateholder will be dated the date upon which it is mailed.
Seller and Newco agree that a Certificateholder will remain a
Certificateholder of Seller if a rejection of the assumption is delivered by
such Certificateholder to Seller or Newco prior to the later of (i) the
expiration of the 30-day period which will commence on the date that the
Certificateholder Notice is sent to such Certificateholder or (ii) with respect
to active Insurance Contracts under which regular periodic deposits are being
made, the date of the next deposit under the relevant Insurance Contract.
Newco shall also prepare and mail certificates of assumption in the
form attached hereto as Exhibit B-1 or B-2, as applicable (the "Certificates of
Assumption").
Insurance Contracts assumed by Newco hereunder as provided for above
shall be deemed to have been assumed by novation and shall be defined herein as
"Novated Contracts." Except as set forth below in this Article III, the
effective date of novation of an Insurance Contract shall be the effective date
of novation specified in the Certificateholder Notice sent in respect of such
Insurance Contract, which date shall be (i) if the Certificateholder Notices are
mailed on or prior to the 25th day of any month, the first day of the second
month following the month in which such Certificateholder Notices are mailed,
and (ii) if the Certificateholder Notices are mailed after the 25th day of any
month, the first day of the third month following the month in which such
Certificateholder Notices are mailed. Notwithstanding the foregoing, the
effective date of novation of an Insurance Contract that has Seller Separate
Account Liabilities related thereto shall be no earlier than the date upon which
the assets supporting such Seller Separate Account Liabilities are transferred
to the Newco Separate Accounts.
Newco shall be the successor to Seller under the Novated Contracts as
if the Novated Contracts were direct obligations originally issued by Newco.
Newco shall be substituted in the place and stead of Seller, and each
Contractholder and Certificateholder under a Novated Contract shall be entitled
to disregard Seller as a party thereto and treat Newco as if it had been
originally obligated thereunder. Each such Contractholder and Certificateholder
shall have the right to file claims arising under the Novated Contracts on or
after the effective date of such novation directly with Newco and shall have a
direct right of action for Insurance Liabilities reinsured thereunder against
Newco, and Newco hereby consents to be subject to direct action taken by any
Contractholder or Certificateholder under a Novated Contract. Newco accepts and
assumes the Novated Contracts subject to any and all defenses, setoffs and
counterclaims to which Seller would be entitled in relation to the Insurance
Liabilities, it being expressly understood and agreed by the parties hereto that
no such defenses, setoffs or counterclaims are waived by the execution of this
Agreement or the consummation of the transactions contemplated hereby and that
Newco shall be fully subrogated to all such defenses, setoffs and counterclaims.
-5-
<PAGE>
IV
TERRITORY
This Agreement shall apply to Insurance Contracts covering lives and
risks wherever resident or situated.
V
CONTRACT ADMINISTRATION
Following the respective effective dates of novation of the Novated
Contracts, Newco shall have sole direct responsibility for the administration
and servicing of the Novated Contracts. Seller agrees that, after the
respective effective dates of novation of the Novated Contracts, it will forward
to Newco immediately upon receipt all notices and other written communications
received by it relating to Novated Contracts (including, without limitation, all
inquiries or complaints from state insurance regulators, agents, brokers and
insureds and all notices of claims, suits and actions for which it receives
service of process).
VI
PREMIUMS; RECOVERIES
Seller shall remit to Newco or Newco shall retain, as applicable, 100%
of all premiums, contract loan repayments and other amounts received by Seller
or Newco with respect to the Novated Contracts on or after the respective dates
of novation including, but not limited to, all administrative expense and
deposit charges deducted from the remittance of premiums or other amounts billed
separately, asset charges collected, market value adjustments collected and
back-end loadings collected under the Novated Contracts.
Effective on the respective effective dates of novation, Newco shall
have sole direct responsibility for billing and collecting premiums in respect
of, and principal and interest payments on contract loans under, the Novated
Contracts.
VII
TRANSFER OF ASSETS
On the respective dates of novation, Seller shall transfer and assign
to Newco all contract loans under the Novated Contracts. In addition, Seller
shall, on the effective date of
-6-
<PAGE>
novation specified in the Notice sent in respect of an Insurance Contract which
has Seller Separate Account Liabilities related thereto, transfer to the
appropriate Newco Separate Accounts the assets of the Seller Separate Account
which support the Seller Separate Account Liabilities arising under each
Insurance Contract so novated.
In the event that contract loans are transferred by Seller to Newco or
assets are transferred from the Trust Account to Newco with respect to a Novated
Contract which is subsequently finally determined in a judicial proceeding or by
regulatory action not to have been novated, Newco shall transfer any contract
loans under such Insurance Contract to Seller and shall transfer to the Trust
Account assets with a market value on the date of transfer in an amount at least
equal to the General Account Liabilities (less any contract loans) arising under
such Insurance Contract on the date of transfer. In the event that assets are
transferred to the Newco Separate Accounts with respect to a Novated Contract
which is subsequently deemed not to have been novated, Newco shall transfer to
the Seller Separate Account the assets in the Newco Separate Account relating to
the Newco separate account liabilities arising under such Insurance Contract on
the date of transfer.
VIII
OFFSETS
Any debts or credits between Seller and Newco arising under this
Agreement are deemed mutual debts or credits, as the case may be, and shall be
netted or set off, as the case may be, and only the balance shall be allowed or
paid hereunder.
IX
ERRORS AND OMISSIONS
Inadvertent delays, errors or omissions made by either Seller or Newco
in connection with this Agreement or any transaction hereunder shall not relieve
the other party from any liability which would have attached to such party had
such delay, error or omission not occurred, provided that the party causing such
delay error or omission rectifies the same as soon as possible after its
discovery thereof.
-7-
<PAGE>
X
DUTY OF COOPERATION
Each party hereto shall cooperate fully with the other in all
reasonable respects in order to accomplish the objectives of this Agreement.
This duty to cooperate shall include obtaining the governmental and regulatory
consents and approvals and taking the other steps necessary for the assumption
of the Insurance Contracts, as described in Article III.
XI
ARBITRATION
It is the intention of the parties hereto that customs and usages of
the business of indemnity reinsurance and assumption reinsurance shall be given
full effect in the interpretation of this Agreement other than to the extent
that the unique aspects of the transaction render such customs and usages
inapplicable. The parties hereto shall act in all things with the highest good
faith. Any dispute or difference with respect to the operation or
interpretation of this Agreement on which an amicable understanding cannot be
reached shall be submitted to arbitration, which shall be mandatory and binding;
provided, however, that this Article XI shall not apply in the event Newco shall
become subject to a delinquency proceeding as defined in Section 7408 of the New
York Insurance Law. The arbitrators shall be free to reach their decision from
the standpoint of equity and customary practices of the insurance and
reinsurance industry rather than from that of strict legal principles.
The arbitration shall be held in New York, New York, and shall consist
of three arbitrators who must be active or retired executive officers of life
insurance companies other than the parties to this Agreement, their Affiliates
or subsidiaries. Seller shall appoint one arbitrator and Newco the second.
Such arbitrators shall then select the third arbitrator before arbitration
commences. Should one of the parties decline to appoint an arbitrator or should
the two arbitrators be unable to agree upon the choice of a third, such
appointment shall be left to the President of the American Academy of Actuaries.
Decisions of the arbitrators shall be by majority vote. The cost of
arbitration, including the fees of the arbitrators, shall be borne as the
arbitrators shall decide.
Judgment upon any award granted by the arbitrators may be entered in a
Federal court of competent jurisdiction in New York, New York.
-8-
<PAGE>
XII
MISCELLANEOUS PROVISIONS
Section 12.01. NOTICES. Any notice required or permitted hereunder
shall be in writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mails, as follows:
(1) If to Newco to:
Newco
-------------------
-------------------
Attention:
Telecopier No.:
With concurrent copies to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(2) If to Seller to:
First UNUM Life Insurance Company
120 White Plains Road, 3rd Floor
Tarrytown, New York 10591-5532
Attention: Edward R. Hillman
Telecopier No.: 914-524-4058
-9-
<PAGE>
With concurrent copies to:
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
Attention: Kevin J. Tierney
Telecopier No.: (207) 770-4377
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Donald B. Henderson, Jr.
Telecopier No.: (212) 425-8500
Any party may, by notice given in accordance with this Agreement to
the other party, designate another address or person for receipt of notices
hereunder.
Section 12.02. AMENDMENT. This Agreement may not be modified,
changed, discharged or terminated, except by an instrument in writing signed by
an authorized officer of each of the parties hereto.
Section 12.03. COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies hereof each signed by less than all, but together signed by all
of the parties hereto.
Section 12.04. NO THIRD PARTY BENEFICIARIES. Except as otherwise
specifically provided for herein, nothing in this Agreement is intended or shall
be construed to give any Person, other than the parties hereto, their successors
and permitted assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
Section 12.05. ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. Neither this Agreement, nor any
right hereunder, may be assigned by either party (in whole or in part) without
the prior written consent of the other party hereto. Seller acknowledges that,
to the extent permitted by the New York Insurance Department, some or all of the
administrative obligations of Newco hereunder may be performed by Purchaser as
Newco's agent pursuant to an administrative services agreement by and between
Purchaser and Newco.
Section 12.06. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
-10-
<PAGE>
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.
IN WITNESS WHEREOF, Seller and Newco have executed this Agreement as
of the Effective Date.
FIRST UNUM LIFE INSURANCE
COMPANY
By: ______________________
Name:
Title:
NEWCO
By: _______________________
Name:
Title:
-11-
<PAGE>
EXHIBIT A-1
FIRST UNUM LIFE INSURANCE COMPANY
NEWCO
____________, 1996
Dear Contractholder:
This notifies you of an agreement reached between FIRST UNUM LIFE INSURANCE
COMPANY ("UNUM") and NEWCO ("Newco") for the assumption of your contract by
Newco. Newco will become your insurer and will assume all of the rights,
obligations and liabilities of UNUM under your contract.
THE ASSUMPTION HAS BEEN APPROVED BY THE INSURANCE DEPARTMENT OF THE STATE
OF NEW YORK, THE INSURANCE DEPARTMENT OF THE DOMICILIARY STATE OF BOTH UNUM AND
NEWCO.
To introduce you to Newco, attached is a summary of essential information
about Newco.
You have the following options with regard to the assumption of your
contract:
Option 1. Accept the transfer of your contract from UNUM to Newco.
Option 2. Reject the proposed transfer of your contract from UNUM to Newco.
If you choose this option, UNUM will remain as your insurer and
you will have no rights to claim any payments from Newco.
If you wish to choose option 1, simply do not return the Rejection Form and
you will automatically be deemed to have accepted this option upon [(i) the
later of]* the expiration of thirty (30) days from the date of this Notice [or
(ii) the date of the next deposit under your contract]*. You should then attach
the enclosed Certificate of Assumption to your contract.
If you wish to choose option 2 you MUST complete the enclosed Rejection
Form, sign it and return it within thirty (30) days of the date of this Notice
[or, if later, the date of the next deposit under your contract,]* along with
the enclosed Certificate of Assumption.
If you choose option 1, each certificateholder under your contract who
resides in New York will also be given the choice to reject the assumption of
his/her certificate by Newco. In order to accommodate any certificateholders
who wish to exercise such choice, UNUM will issue to you a new group insurance
contract, identical in terms to your contract, which will be the actual contract
assumed by Newco. Certificateholders who do not reject the assumption by
- --------------------------
* To be included where regular periodic deposits are being made under the
contract.
<PAGE>
Newco will become certificateholders under this new group annuity contract. The
assumption of your contract will be effective as of the date specified in the
notices that will be sent to the certificateholders. We anticipate that this
date will be on or about [ ].
Except for the substitution of Newco for UNUM as your insurer, your rights
under your contract will not change as a result of the assumption of your
contract.
UNUM has appointed The Lincoln National Life Insurance Company, an
affiliate of Newco ("Lincoln"), to act as its administrator in connection with
your contract and others similar to it. Thus, until the transfer of your
contract becomes effective, your deposits and any contract loan payments should
be sent to Lincoln at [address]. Thereafter, deposits and any contract loan
payments should be sent to Newco at [address].
If you have any questions about the assumption of your contract or about
Newco, please feel free to call ( ) - . Written inquiries may be mailed
to:
Newco
[address]
Sincerely,
FIRST UNUM LIFE INSURANCE
COMPANY
By:______________________________
NEWCO
By:______________________________
<PAGE>
REJECTION FORM
To: First UNUM Life Insurance Company
c/o Newco
[address]
Re: CONTRACT NUMBER ____________ ("Contract")
We reject the proposed transfer of the group annuity Contract from First
UNUM Life Insurance Company ("UNUM") to Newco. Enclosed is the Certificate
of Assumption that was sent to us by UNUM.
DATE: _______________ ______________________________
CONTRACTHOLDER SIGNATURE
______________________________
PRINT OR TYPE NAME
<PAGE>
EXHIBIT A-2
FIRST UNUM LIFE INSURANCE COMPANY
NEWCO
____________, 1996
Dear Certificateholder:
This notifies you of an agreement reached between FIRST UNUM LIFE INSURANCE
COMPANY ("UNUM") and NEWCO ("Newco") for the assumption of your certificate
under group contract [____________] by Newco. Newco will become your insurer
and will assume all of the rights, obligations and liabilities of UNUM under
your certificate. This assumption will be effective as of 12:01 a.m., Eastern
Time, on _________, 1996.
THE ASSUMPTION OF THE GROUP CONTRACT BY NEWCO HAS BEEN ACCEPTED BY YOUR
EMPLOYER.
THE ASSUMPTION HAS BEEN APPROVED BY THE INSURANCE DEPARTMENT OF THE STATE
OF NEW YORK, THE INSURANCE DEPARTMENT OF THE DOMICILIARY STATE OF BOTH UNUM AND
NEWCO.
To introduce you to Newco, attached is a summary of essential information
about Newco.
You have the following options with regard to the assumption of your
certificate:
Option 1. Accept the transfer of your certificate from UNUM to Newco.
Option 2. Reject the proposed transfer of your certificate from UNUM to
Newco. If you choose this option, UNUM will remain as your
insurer and you will have no rights to claim any payments from
Newco.
If you wish to choose option 1, simply do not return the Rejection Form and
you will automatically be deemed to have accepted this option upon [the later of
(i)]* the expiration of thirty (30) days from the date of this Notice [or (ii)
the date of the next deposit under your certificate]*. You should then attach
the enclosed Certificate of Assumption to your certificate.
If you wish to choose option 2, you MUST complete the enclosed Rejection
Form, sign it and return it within thirty (30) days of the date of this Notice
[or, if later, the date of the next deposit under your certificate]*, along with
the enclosed Certificate of Assumption.
- ---------------------------
* To be included where regular periodic deposits are being made under the
certificate.
<PAGE>
Except for the substitution of Newco for UNUM as your insurer, your rights
under your certificate will not change as a result of the assumption of your
certificate.
UNUM has appointed The Lincoln National Life Insurance Company, an
affiliate of Newco ("Lincoln"), to act as its administrator in connection with
your certificate and others similar to it. Thus, until the transfer of your
certificate becomes effective, your deposits and any contract loan payments
will be sent by your employer to Lincoln at [address]. Thereafter, deposits
and any contract loan payments will be sent by your employer to Newco at
[address].
If you have any questions about the assumption of your certificate or about
Newco, please feel free to call ( ) - . Written inquiries may be mailed
to:
Newco
[address]
Sincerely,
FIRST UNUM LIFE INSURANCE
COMPANY
By:______________________________
NEWCO
By:______________________________
-2-
<PAGE>
REJECTION FORM
To: First UNUM Life Insurance Company
c/o Newco
[address]
Re: CONTRACT NUMBER ____________ ("Contract")
I reject the proposed transfer of my certificate under the group annuity
Contract from First UNUM Life Insurance Company ("UNUM") to Newco.
Enclosed is the Certificate of Assumption that was sent to me by UNUM.
DATE: _______________ __________________________________
CERTIFICATEHOLDER SIGNATURE
__________________________________
PRINT OR TYPE NAME
-3-
<PAGE>
EXHIBIT A-3
FIRST UNUM LIFE INSURANCE COMPANY
NEWCO
__________, 1996
Dear Certificateholder:
This notifies you of an agreement reached between FIRST UNUM LIFE INSURANCE
COMPANY ("UNUM") and NEWCO ("Newco") for the assumption of your certificate
under group contract [__________] by Newco if you were NOT a resident of the
State of New York at the time your certificate was issued. If you were a
resident of New York at such time you will not, due to regulatory restrictions,
be given the opportunity to have your certificate assumed by Newco. In those
instances, UNUM will remain as your insurer.
If you are eligible to have your certificate assumed by Newco and wish
for Newco to assume your certificate, you must sign and return the enclosed
Consent Form on or prior to __________, 1996. Newco will thereafter become your
insurer and will assume all of the rights, obligations and liabilities of UNUM
under your certificate, effective as of 12:01 a.m., Eastern Time, on __________,
1996.
THE ASSUMPTION OF THE GROUP CONTRACT BY NEWCO HAS BEEN ACCEPTED BY
YOUR EMPLOYER.
THE ASSUMPTION HAS BEEN APPROVED BY THE INSURANCE DEPARTMENT OF THE
STATE OF NEW YORK, THE INSURANCE DEPARTMENT OF THE DOMICILIARY STATE OF BOTH
UNUM AND NEWCO.
To introduce you to Newco, attached is a summary of essential
information about Newco.
If you sign and return the enclosed Consent Form, Newco will then
provide you with a Certificate of Assumption to attach to your certificate.
Except for the substitution of Newco for UNUM as your insurer, your rights under
your certificate will not change as a result of the assumption of your
certificate. UNUM has appointed The Lincoln National Life Insurance Company, an
affiliate of Newco ("Lincoln"), to act as its administrator in connection with
your
-4-
<PAGE>
certificate and others similar to it. Thus, until the transfer of your
certificate becomes effective, your deposits and any contract loan payments will
be sent by your employer to Lincoln at [address]. Thereafter, deposits and any
contract loan payments will be sent by your employer to Newco at [address].
If you were a resident of the State of New York at the time your
Certificate was issued or otherwise wish for UNUM to remain as your insurer, you
do not need to take any action; UNUM will remain as your insurer and you will
have no rights to claim any payments from Newco.
If you have any questions about the assumption of your certificate or
about Newco, please feel free to call ( ) ___ - ____. Written inquiries may
be mailed to:
Newco
[address]
Sincerely,
FIRST UNUM LIFE INSURANCE
COMPANY
By:
-------------------------------------
NEWCO
By:
-------------------------------------
-5-
<PAGE>
CONSENT FORM
To: First UNUM Life Insurance Company
c/o Newco
[address]
Re: CONTRACT NUMBER __________ ("Contract")
I accept the proposed transfer of my certificate under the group annuity
Contract from First UNUM Life Insurance Company ("UNUM") to Newco. By
signing and returning this Consent Form, I certify that I was not a
resident of the State of New York at the time my certificate was issued.
DATE: __________ __________________________________
CERTIFICATEHOLDER SIGNATURE
_________________________________
PRINT OR TYPE NAME
-6-
<PAGE>
[For use with all Option Letters]
INFORMATION SUMMARY
[description of Newco]
<PAGE>
EXHIBIT B-1
NEWCO
A Stock Company
[address]
CERTIFICATE OF ASSUMPTION
[Contract Number]
You are hereby notified that NEWCO ("Newco") has, effective as of 12:01
a.m. on __________, 1996 (the "Effective Date"), assumed liability for your
contract of insurance with FIRST UNUM LIFE INSURANCE COMPANY ("UNUM").
From and after the Effective Date, all references in the contract to UNUM
are hereby changed to Newco. Newco has assumed all rights and duties under your
contract.
Except for the substitution of Newco for UNUM as your insurer, your rights
under your contract will not change as a result of the assumption of your
contract.
All correspondence and inquiries such as deposits, contract changes, and
notices of claims should be submitted to Newco at the following address:
Newco
[ADDRESS]
This Certificate of Assumption, as of the Effective Date, forms a part of
and should be attached to your insurance contract issued to you by UNUM.
IN WITNESS WHEREOF, Newco has caused this Certificate of Assumption to be
duly signed and issued.
____________________ ____________________
Secretary President
<PAGE>
EXHIBIT B-2
[For use with custodial contracts]
NEWCO
A Stock Company
[address]
CERTIFICATE OF ASSUMPTION
[Contact Number]
You are hereby notified that NEWCO ("Newco") has, effective as of 12:01
a.m. on __________, 1996 (the "Effective Date"), assumed liability for your
certificate of insurance with FIRST UNUM LIFE INSURANCE COMPANY ("UNUM").
From and after the Effective Date, all references in the certificate to
UNUM are hereby changed to Newco. Newco has assumed all rights and duties under
your certificate.
Except for the substitution of Newco for UNUM as your insurer, your rights
under your certificate will not change as a result of the assumption of your
certificate.
All correspondence and inquiries such as deposits, certificate changes, and
notices of claims should be submitted to Newco at the following address:
Newco
[ADDRESS]
This Certificate of Assumption, as of the Effective Date, forms a part of
and should be attached to your insurance certificate issued to you by UNUM.
IN WITNESS WHEREOF, Newco has caused this Certificate of Assumption to be
duly signed and issued.
____________________ ____________________
Secretary President
<PAGE>
EXHIBIT 7(B)
<PAGE>
- --------------------------------------------------------------------------------
COINSURANCE AND ASSUMPTION AGREEMENT
by and between
FIRST UNUM LIFE INSURANCE COMPANY
and
NEWCO
Dated as of ___________ __, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II BUSINESS REINSURED. . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III ASSUMPTION OF DIRECT LIABILITY. . . . . . . . . . . . . . . . . 4
ARTICLE IV TERRITORY . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V ADMINISTRATION; CHANGES; CREDITING RATES. . . . . . . . . . . . 6
Section 5.01. Administration. . . . . . . . . . . . . . . . . . . . . . 6
Section 5.02. Contract Changes or Reserve Assumption Changes. . . . . . 6
Section 5.03. Crediting Rates . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6.01. Obligation to Indemnify . . . . . . . . . . . . . . . . . 7
Section 6.02. Notice of Asserted Liability. . . . . . . . . . . . . . . 7
Section 6.03. Right to Contest Claims of Third Parties. . . . . . . . . 7
Section 6.04. Indemnification Payments. . . . . . . . . . . . . . . . . 8
ARTICLE VII PREMIUMS; RECOVERIES . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VIII EXPENSE ALLOWANCE . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IX ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE X TRANSFER OF ASSETS . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE XI TRUST ACCOUNT. . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 11.01. General Account Reserves . . . . . . . . . . . . . . . . 10
Section 11.02. Trust Fund . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE XII INSOLVENCY . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE XIII OFFSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE XIV RIGHTS WITH RESPECT TO COINSURED LIABILITIES . . . . . . . . . 13
ARTICLE XV ERRORS AND OMISSIONS . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE XVI DUTY OF COOPERATION. . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
ARTICLE XVII ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE XVIII TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE XIX MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . 14
SCHEDULES
SCHEDULE 1.01 Coinsured Contracts
SCHEDULE 1.02 Newco Separate Accounts
SCHEDULE 1.03 UNUM Separate Account
SCHEDULE 11.02 Authorized Investments
EXHIBITS
EXHIBIT A - 1 Endorsement - Contractholder
EXHIBIT A - 2 Endorsement - Certificateholder
EXHIBIT B - 1 Certificate of Assumption - Contractholder
EXHIBIT B - 2 Certificate of Assumption - Certificateholder
-ii-
<PAGE>
COINSURANCE AND ASSUMPTION AGREEMENT
THIS COINSURANCE AND ASSUMPTION AGREEMENT (this "Agreement"), dated as
of [__________ __, 1996], is made by and between First UNUM Life Insurance
Company, a New York domiciled stock life insurance company ("UNUM"), and Newco,
a New York domiciled stock life insurance company ("Newco").
WHEREAS, UNUM has agreed to issue certain group annuity contracts upon
the written request of Newco; and
WHEREAS, Newco has agreed to reinsure the general account obligations
of UNUM under the group annuity contracts referred to above on the terms and
conditions set forth herein; and
WHEREAS, Newco has agreed to assume such group annuity contracts upon
the receipt of applicable regulatory approvals; and
WHEREAS, UNUM desires that The Lincoln National Life Insurance
Company, an Affiliate of Newco ("Lincoln"), perform all administrative functions
on behalf of UNUM with respect to such group annuity contracts and Lincoln has
agreed to provide such services pursuant to the terms of the Administrative
Services Agreement (as defined below);
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and upon the terms and conditions set forth herein, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the respective meanings set forth below
throughout the Agreement:
"ADMINISTRATIVE SERVICES AGREEMENT" means the Administrative Services
Agreement entered into by and between UNUM and Lincoln, dated as of the date
hereof.
"AFFILIATE" means, with respect to any Person, at the time in
question, any other Person controlling, controlled by or under common control
with such Person.
"AGREEMENT" means this Coinsurance and Assumption Agreement.
"ASSERTED LIABILITY" shall have the meaning set forth in Section 6.03
hereof.
<PAGE>
"ASSUMPTION DATE" shall have the meaning set forth in Article III.
"BUSINESS DAY" means any day other than a Saturday, Sunday, a day on
which banking institutions in any of the States of Maine, New York or Indiana
are permitted or obligated by law to be closed or a day on which the New York
Stock Exchange is closed for trading.
"CALCULATED ASSET VALUE" shall have the meaning set forth in
Section 11.01 hereof.
"CERTIFICATE OF ASSUMPTION" shall have the meaning set forth in
Article III.
"CLAIMS NOTICE" shall have the meaning set forth in Section 6.02
hereof.
"COINSURED CONTRACTS" means all group annuity contracts of the types
which are described on Schedule 1.01 hereto and issued by UNUM in New York
pursuant to the written request of Newco prior to the date which is 18 months
from the date hereof (unless extended by the written consent of the parties
hereto), and all certificates and participation agreements issued in accordance
with the terms of such group annuity contracts (including all supplements,
endorsements, riders and ancillary agreements in connection therewith).
"COINSURED LIABILITIES" means those Insurance Liabilities which are
general account obligations of UNUM, excluding any general account liabilities
that relate to (i) amounts transferred from the UNUM Separate Account to the
general account of UNUM pending distribution to holders of the Coinsured
Contracts, (ii) amounts held in the general account of UNUM pending transfer to
the UNUM Separate Account and (iii) guaranteed death benefits under the UNUM
Separate Account in excess of account values.
"CONTRACTHOLDERS" means the holders of the Coinsured Contracts and the
certificateholders under the Coinsured Contracts.
"EXPENSE ALLOWANCE" shall have the meaning set forth in Article VIII
of this Agreement.
"EXTRA CONTRACTUAL OBLIGATIONS" means all liabilities for
consequential, exemplary, punitive or similar damages which relate to or arise
in connection with any alleged or actual act, error or omission by Newco or any
of its Affiliates, whether intentional or otherwise, or from any reckless
conduct or bad faith, in connection with the handling of any claim under any of
the Coinsured Contracts or in connection with the issuance, delivery,
cancellation or administration of any of the Coinsured Contracts.
"GENERAL ACCOUNT RESERVES" means the general account statutory
reserves of UNUM (without regard to this Agreement) with respect to the
Coinsured Contracts that are not Novated Contracts determined pursuant to New
York SAP, as such reserves would be included in lines 1, 10.2 or 10.3 of the
Liabilities, Surplus and Other Funds page of the NAIC Annual
-2-
<PAGE>
Statement Blank (1994 format), including (for the avoidance of doubt) any
general account statutory reserve adjustments in relation to UNUM Separate
Account Liabilities.
"GENERAL ACCOUNT RESERVES STATEMENT" shall have the meaning set forth
in Section 11.01 hereof.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 6.02
hereof.
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 6.02
hereof.
"INDEMNITY REINSURANCE AGREEMENT" means the Indemnity Reinsurance
Agreement entered into by and between UNUM and Newco dated as of the date
hereof.
"INSURANCE LIABILITIES" means all liabilities and obligations arising
under the Coinsured Contracts (including, without limitation, UNUM Separate
Account Liabilities) including without limitation: (i) all liability for
premium taxes, (ii) all liability for returns or refunds of premiums under the
Coinsured Contracts, (iii) all liability for commission payments and other fees
or compensation payable with respect to the Coinsured Contracts to or for the
benefit of agents and brokers, (iv) Extra Contractual Obligations and (v) all
guaranty fund assessments and similar charges imposed with respect to the
Coinsured Contracts based on premiums paid.
"LINCOLN" shall have the meaning set forth in the fourth recital
hereof.
"NEWCO CERTIFICATE" means a certificate substantially in the form of
Exhibit B-2 to the Trust Agreement.
"NEWCO SEPARATE ACCOUNTS" means the separate accounts of Newco
described on Schedule 1.02 hereto.
"LOSS" shall have the meaning set forth in Section 6.01 hereof.
"NEW YORK SAP" means the statutory accounting principles and practices
prescribed or permitted by the New York Insurance Department.
"NEWCO" shall have the meaning set forth in the introductory paragraph
hereof.
"NOVATED CONTRACTS" shall have the meaning set forth in Article III.
"PERSON" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division or other
entity.
"REQUIRED AMOUNT" shall have the meaning set forth in Section 11.02
hereof.
-3-
<PAGE>
"TERMINATION CERTIFICATE" means a certificate substantially in the
form of Exhibit C to the Trust Agreement.
"THIRD PARTY CLAIMANTS" shall have the meaning set forth in Section
6.03 hereof.
"TRUST ACCOUNT" shall have the meaning set forth in Section 11.02
hereof.
"TRUST AGREEMENT" means the Trust Agreement entered into by and among
Newco, UNUM and Trustee dated as of the date hereof.
"TRUSTEE" means the trustee named in the Trust Agreement and any
successor trustee appointed as such pursuant to the terms of the Trust
Agreement.
"UNUM" shall have the meaning set forth in the introductory paragraph
hereof.
"UNUM SEPARATE ACCOUNT" means the separate account of UNUM described
on Schedule 1.03 hereto.
"UNUM SEPARATE ACCOUNT LIABILITIES" means the insurance liabilities
that are reflected in the UNUM Separate Account and that relate to the Coinsured
Contracts.
ARTICLE II
BUSINESS REINSURED
Upon the terms and subject to the conditions and other provisions of
this Agreement and any required governmental and regulatory consents and
approvals, UNUM hereby agrees to cede and transfer to Newco, and Newco hereby
agrees to accept and indemnity reinsure, on a coinsurance basis, 100% of the
Coinsured Liabilities.
ARTICLE III
ASSUMPTION OF DIRECT LIABILITY
Notwithstanding any other provision in this Agreement to the contrary,
Newco agrees to assume the Insurance Liabilities under a Coinsured Contract at
such time as it receives approval from the New York Insurance Department for a
group annuity contract policy form which is substantially similar to the form of
such Coinsured Contract and obtains any other regulatory approvals which are
required for it to assume such Coinsured Contract. A rider substantially in the
form attached hereto as Exhibit A-1 or A-2, as applicable, shall be issued with
the original issuance of every Coinsured Contract covered hereunder. Upon Newco
receiving approval for a group annuity contract policy form from the New York
Insurance Department and
-4-
<PAGE>
obtaining any other required regulatory approvals, it shall promptly provide
notice to UNUM of the receipt of such approvals. Newco shall thereafter assume
the applicable Coinsured Contracts as of (i) if such notice is given on or prior
to the 25th day of any month, the first day of the second month following the
month in which such notice is given, and (ii) if such notice is given after the
25th day of any month, the first day of the third month following the month in
which such notice is given (each such date hereinafter being referred to as the
"Assumption Date" and the Coinsured Contracts so assumed hereinafter being
referred to as the "Novated Contracts"). Newco shall issue to the insureds
under the Coinsured Contracts a Certificate of Assumption substantially in the
form attached hereto as Exhibit B-1 or B-2, as applicable (the "Certificate of
Assumption").
Newco shall be the successor to UNUM under the Novated Contracts as if
the Novated Contracts were direct obligations originally issued by Newco. Newco
shall be substituted in the place and stead of UNUM, and each Contractholder
under a Novated Contract shall be entitled to disregard UNUM as a party thereto
and treat Newco as if it had been originally obligated thereunder. The
Contractholders shall have the right to file claims arising under the Novated
Contracts on or after the effective date of such novation, directly with Newco
and shall have a direct right of action for Insurance Liabilities reinsured
thereunder against Newco, and Newco hereby consents to be subject to direct
action taken by any Contractholder under a Novated Contract. Newco accepts and
assumes the Novated Contracts subject to any and all defenses, setoffs and
counterclaims to which UNUM would be entitled in relation to the Insurance
Liabilities, it being expressly understood and agreed by the parties hereto that
no such defenses, setoffs or counterclaims are waived by the execution of this
Agreement or the consummation of the transactions contemplated hereby and that
Newco shall be fully subrogated to all such defenses, setoffs and counterclaims.
ARTICLE IV
TERRITORY
This Agreement shall apply to Coinsured Contracts covering lives and
risks wherever resident or situated.
-5-
<PAGE>
ARTICLE V
ADMINISTRATION; CHANGES; CREDITING RATES
Section 5.01. ADMINISTRATION. Pursuant to the Administrative
Services Agreement, UNUM has appointed Lincoln to perform all administrative
services with respect to the Coinsured Contracts and Lincoln has agreed to
perform such services on behalf of UNUM, including, but not limited to, the
collection of premiums and other amounts due from Contractholders, the direct
payment of all Coinsured Liabilities and the administration of claims. In the
event of the termination of the Administrative Services Agreement pursuant to
Section 8.02(a) thereof, UNUM will assume all administrative services with
respect to the Coinsured Contracts that have not been novated pursuant to the
terms of this Agreement and Lincoln will pay to UNUM a monthly expense allowance
in accordance with the terms of the Administrative Services Agreement. In
addition, in the event of such termination, UNUM will indemnify and hold Lincoln
harmless against all liabilities for consequential, exemplary, punitive or
similar damages which relate to or arise in connection with any alleged or
actual act, error or omission by UNUM or any of its Affiliates subsequent to the
date of termination, whether intentional or otherwise, or from any reckless
conduct or bad faith by UNUM or any of its Affiliates, in connection with the
handling of any claim under any of the Coinsurance Contracts or in connection
with the issuance, delivery, cancellation or administration of any of the
Coinsured Contracts.
Section 5.02. CONTRACT CHANGES OR RESERVE ASSUMPTION CHANGES. UNUM,
on its own initiative, shall not change (a) the terms and conditions of any
Coinsured Contracts or (b) the assumptions and methods used by UNUM to establish
the General Account Reserves. Newco shall share proportionately, on a 100%
coinsurance basis, in any contract changes or changes in the assumptions and
methods used to establish the General Account Reserves that are required by any
regulatory authority having jurisdiction over UNUM in the ordinary course of
such authority's exercise of its powers or otherwise required by law, provided
that prior to effectuating any such change UNUM shall promptly notify Newco of
such proposed change and afford Newco the opportunity, to the extent practical
under applicable law, to object to such change under applicable administrative
procedures (both formal and informal).
Section 5.03. CREDITING RATES. Prior to their novation to Newco,
UNUM shall set crediting rates with respect to the Coinsured Contracts as
directed by Newco after consultation with UNUM.
-6-
<PAGE>
ARTICLE VI
INDEMNIFICATION
Section 6.01. OBLIGATION TO INDEMNIFY. Newco agrees, subject to the
terms and conditions set forth below in this Article VI, to indemnify, defend
and hold harmless UNUM (and its directors, officers, employees, affiliates,
successors and permitted assigns) from and against all Losses (as hereinafter
defined) arising from Insurance Liabilities assumed by Newco pursuant to this
Agreement.
As used in this Article VI, Loss and/or Losses shall mean claims,
losses, liabilities, damages, deficiencies, costs, expenses (including
attorneys' fees), interest, taxes and penalties.
Section 6.02. NOTICE OF ASSERTED LIABILITY. Subject to Section 6.03,
in the event that any party hereto wishes to assert a claim for indemnification
hereunder, such party seeking indemnification (the "Indemnified Party") shall
deliver written notice (a "Claims Notice") to the other party (the "Indemnifying
Party") no later than 45 days after such claim becomes known to the Indemnified
Party, specifying the facts constituting the basis for, and the amount (if
known) of, the claim asserted.
Section 6.03. RIGHT TO CONTEST CLAIMS OF THIRD PARTIES. (a) If an
Indemnified Party asserts a claim for indemnification hereunder because of a
claim or demand made, or an action, proceeding or investigation instituted, by
any Person not a party to this Agreement (a "Third Party Claimant") that may
result in a Loss with respect to which the Indemnified Party is entitled to
indemnification pursuant to this Article VI (an "Asserted Liability"), the
Indemnified Party shall deliver to the Indemnifying Party a Claims Notice with
respect thereto, which Claims Notice shall, in accordance with the provisions of
Section 6.02 hereof, be delivered no later than 45 days after such Asserted
Liability is actually known to the Indemnified Party. Failure to deliver a
Claims Notice with respect to an Asserted Liability in a timely manner shall not
be deemed a waiver of the Indemnified Party's right to indemnification for
Losses in connection with such Asserted Liability but the amount of
reimbursement to which the Indemnified Party is entitled shall be reduced by the
amount , if any, by which the Indemnified Party's Losses would have been less
had such Claims Notice been timely delivered.
(b) The Indemnifying Party shall have the right, upon written notice
to the Indemnified Party, to investigate, contest, defend or settle the Asserted
Liability; provided, that the Indemnified Party may, at its option and at its
own expense, participate in the investigation, contesting, defense or settlement
of any such Asserted Liability through representatives and counsel of its own
choosing; and provided, further, that the Indemnifying Party shall not settle
any Asserted Liability unless (i) such settlement is on exclusively monetary
terms or (ii) the Indemnified Party shall have consented to the terms of such
settlement, which consent shall not unreasonably be withheld. The failure of
the Indemnifying Party to provide the above-mentioned written notice of an
Asserted Liability within 30 days after receipt of a Claims Notice with respect
to an Asserted Liability shall be deemed an election not to defend the same.
Unless and until the
-7-
<PAGE>
Indemnifying Party elects to defend the Asserted Liability, the Indemnified
Party shall have the right, at its option and at the Indemnifying Party's
expense, to do so in such manner as it deems appropriate; provided, however,
that the Indemnified Party shall not settle or compromise any Asserted Liability
for which its seeks indemnification hereunder during such 30 day period without
the prior written consent of the Indemnifying Party (which shall not be
unreasonably withheld).
(c) The Indemnifying Party shall be entitled to participate in (but
not to control) the defense of any Asserted Liability which it has elected, or
is deemed to have elected, not to defend, with its own counsel and at its own
expense. If the Indemnifying Party seeks to question (i) the manner in which
the Indemnified Party defended an Asserted Liability with respect to which the
Indemnifying Party elected, or is deemed to have elected, not to defend or (ii)
the amount or nature of any settlement entered into by the Indemnified Party in
connection with such Asserted Liability, the Indemnifying Party shall have the
burden to prove by a preponderance of the evidence that the Indemnified Party
did not defend or settle such Asserted Liability in a reasonably prudent manner.
(d) Except as provided in the first sentence of paragraph (b) of this
Section 6.03, the Indemnifying Party shall bear all costs of defending any
Asserted Liability and shall indemnify and hold the Indemnified Party harmless
against and from all costs, fees and expenses incurred in connection therewith.
(e) Newco and UNUM shall make mutually available to each other all
relevant information in their possession relating to any Asserted Liability and
shall cooperate with each other in the defense thereof.
-8-
<PAGE>
Section 6.04. INDEMNIFICATION PAYMENTS. Subject to a party's right
to defend pursuant to Section 6.03 hereof, an Indemnifying Party hereunder shall
make an indemnification payment with respect to a Loss promptly after a Claims
Notice is received. All such payments shall be made by wire transfer of
immediately available funds to such account or accounts as the Indemnified Party
shall designate to the Indemnifying Party in writing.
ARTICLE VII
PREMIUMS; RECOVERIES
As consideration for the indemnity reinsurance of the Coinsured
Liabilities, all premiums, contract loan repayments (including both principal
and interest) and other amounts payable with respect to the general account
portion of the Coinsured Contracts will, pursuant to the Administrative Services
Agreement, be collected by Lincoln and remitted to Newco. UNUM shall promptly
pay to Newco any such amounts actually received by UNUM. However, as security
for the payment of Newco's obligations hereunder, UNUM shall be entitled to
withhold actual ownership of contract loans under the non-novated Coinsured
Contracts. In addition, UNUM shall have the right to retain contract loan
repayments under the non-novated Coinsured Contracts, and to direct Lincoln to
pay UNUM all such contract loan repayment amounts collected by Lincoln pursuant
to the Administrative Services Agreement, upon the occurrence of any of the
events specified in Section 11.02 hereof that would entitle UNUM to withdraw
amounts from the Trust Account, subject to the limitations specified therein on
the use of funds withdrawn from the Trust Account.
ARTICLE VIII
EXPENSE ALLOWANCE
Newco shall pay UNUM a monthly expense allowance (the "Expense
Allowance") equal to the product of (x) and (y), where (x) is .0001666 and (y)
is the mean level of General Account Reserves with respect to the Coinsured
Contracts for such month; provided, however, that, for purposes of calculating
the Expense Allowance, General Account Reserves shall not be included during the
first six months after the date hereof with respect to Coinsured Contracts for
which either (i) all necessary contract filings have been made by June 1, 1996
or (ii) all necessary contract filings are made at the earliest date permitted
by the Securities and Exchange Commission and/or the New York Insurance
Department (as the case may be) if such earliest date permitted is later than
June 1, 1996.
-9-
<PAGE>
ARTICLE IX
ACCOUNTING
Pursuant to and in accordance with the terms of the Administrative
Services Agreement, Lincoln will provide to UNUM accounting and settlement
reports as to the Coinsured Contracts.
ARTICLE X
TRANSFER OF ASSETS
In consideration of the assumption of the UNUM Separate Account
Liabilities under the Novated Contracts, UNUM shall, on the Assumption Date of
each Coinsured Contract which has UNUM Separate Account Liabilities related
thereto, transfer to the appropriate Newco Separate Accounts the assets of the
UNUM Separate Account which relate to the UNUM Separate Account Liabilities
arising under each Coinsured Contract so novated. In addition, on the
respective Assumption Dates of the Coinsured Contracts, UNUM shall transfer and
assign to Newco all contract loans under the Novated Contracts.
ARTICLE XI
TRUST ACCOUNT
Section 11.01. GENERAL ACCOUNT RESERVES. UNUM agrees that it will
establish General Account Reserves as of the last day of each month during the
term of this Agreement and will forward to Newco a statement showing such
General Account Reserves and the aggregate amount of contract loans under the
Coinsured Contracts (the "General Account Reserves Statement") within five
Business Days after receipt from Lincoln of the monthly accounting statement for
such month pursuant to the terms of the Administrative Services Agreement.
Section 11.02. TRUST FUND. (a) Newco has entered into the Trust
Agreement and has established a trust account (the "Trust Account") thereunder
for the benefit of UNUM with respect to the General Account Reserves. Newco
agrees that it will maintain in the Trust Account (in addition to any assets
required to be maintained in the Trust Account under the Indemnity Reinsurance
Agreement) assets having a market value not less than an amount equal to the
General Account Reserves less the aggregate amount of contract loans under the
non-novated Coinsured Contracts (the "Required Amount"), to be held in trust by
Trustee for the benefit of UNUM as security for the payment of Newco's
obligations to UNUM under this Agreement. Following the receipt of each General
Account Reserves Statement, Newco shall, to the extent that the market value of
the assets held in the Trust Account on the last day of the month just ended
(the "Calculated Asset Value") is less than the Required Amount so calculated,
within five Business Days of its receipt of such General Account Reserves
Statement, transfer to the Trust
-10-
<PAGE>
Account assets with a market value on the date of transfer at least equal to the
difference between the Required Amount and the Calculated Asset Value.
(b) Newco agrees that the assets so deposited shall be valued
according to their current fair market value and shall consist only of
investments of the type specified on Schedule 11.02 hereto and that the
investment and reinvestment thereof shall be consistent with Newco's investment
strategy in connection with its general account.
(c) Newco and UNUM, prior to depositing assets with Trustee, shall
execute all assignments, endorsements in blank, or transfer legal title to
Trustee of all shares, obligations or any other assets requiring assignments, in
order that Trustee may whenever necessary negotiate any such assets without
consent or signature from Newco, UNUM or any other Person.
(d) Newco and UNUM agree that the assets in the Trust Account may be
withdrawn by UNUM in accordance with the procedures set forth in the Trust
Agreement; PROVIDED such assets are applied and utilized by UNUM (or any
successor of UNUM by operation of law, including, without limitation, any
liquidator, rehabilitator, receiver or conservator of UNUM) solely on the basis
of the liability of UNUM under the Coinsured Contracts, without diminution
because of the insolvency of UNUM or Newco, under the following circumstances
and for the following purposes:
(i) in the event that (A) the Standard & Poor's Corporation
Claims- Paying Ability rating of Lincoln becomes less than A+ or the
Moody's Investors Service, Inc. Financial Strength rating of Lincoln
becomes less than A1 or (B) Lincoln becomes the subject of a
delinquency proceeding within the meaning of Section 27-9-1-2 of the
Indiana Insurance Law, in each case:
(x) to reimburse UNUM for Newco's share of surrenders,
contract loans and benefits paid by UNUM pursuant to the provisions of the
Coinsured Contracts, to the extent not paid directly by Lincoln when due
pursuant to the terms of the Administrative Services Agreement;
(y) to pay UNUM the expense allowance described in
Section 5.01 hereof, to the extent not paid directly to UNUM
by Lincoln when due; and
(z) to pay any other amounts due UNUM under this Agreement,
to the extent not paid directly to UNUM by Newco when due.
(ii) in the event that the Standard & Poor's Corporation Claims-
Paying Ability rating of Lincoln becomes less than A or the Moody's
Investors Service, Inc. Financial Strength rating of Lincoln becomes
less than A2, in addition to the purposes set forth above, to fund
accounts specifically established by UNUM to
-11-
<PAGE>
cover loss exposures of UNUM in an amount at least equal to the
deduction from UNUM's liabilities for the reinsurance ceded under this
Agreement.
In the event that UNUM withdraws assets from the Trust Account in excess of
actual amounts required to meet Newco's obligations to UNUM, UNUM will return
such excess to the Trust Account, plus interest in an amount equal to the actual
earnings on the assets withdrawn from the Trust Account during the period that
the amounts were withdrawn.
(e) Newco and UNUM agree that the assets of the Trust Account may be
withdrawn by Newco in accordance with the procedures set forth in the Trust
Agreement, provided that either:
(i) Newco shall, at the time of any such withdrawal and
transfer, replace the withdrawn assets with other assets of a type
permitted in Section 11.02 (b) above, having a market value at least
equal to the market value of the assets so withdrawn, in order to
maintain in the Trust Account assets having a market value at least
equal to the Required Amount, or
(ii) after such withdrawal and transfer, the market value of the
assets remaining in the Trust Account is not less than the Required
Amount;
PROVIDED, HOWEVER, that Newco may make withdrawals pursuant to subsection
(e)(ii) of this Section 11.02(e) only once in any month and only after the
receipt of the General Account Reserves Statement showing General Account
Reserves and contract loans under the Coinsured Contracts, each as of the end of
the previous month.
(f) UNUM hereby agrees to execute each Newco Certificate presented to
it for execution, as contemplated by Section 2.09(b) of the Trust Agreement,
which is executed by a duly authorized officer of Newco and accompanied by
evidence reasonably satisfactory to UNUM that the withdrawal requested therein
is permitted under Section 11.02(e). UNUM hereby also agrees to execute a
Termination Certificate presented to it for execution which is executed by a
duly authorized officer of Newco and accompanied by evidence reasonably
satisfactory to UNUM of the validity of the statements set forth therein.
-12-
<PAGE>
ARTICLE XII
INSOLVENCY
Newco hereby agrees that, as to all reinsurance made, ceded, renewed
or otherwise becoming effective hereunder, the reinsurance shall be payable by
Newco on the basis of the liability of UNUM under the Coinsured Contract or
Contracts reinsured on an indemnity basis, without diminution because of the
insolvency, liquidation or rehabilitation of UNUM or the appointment of a
conservator, receiver, liquidator or statutory successor of UNUM, directly to
UNUM or to its conservator, receiver, liquidator or other statutory successor.
It is agreed that any conservator, receiver, liquidator or statutory successor
of UNUM shall give prompt written notice to Newco of the pendency or submission
of a claim under any such Coinsured Contract or Contracts. During the pendency
of such claim, Newco may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any defense
available to UNUM or its conservator, receiver, liquidator or statutory
successor. The expense thus incurred by Newco is chargeable against UNUM as a
part of the expense of insolvency, liquidation or rehabilitation to the extent
of a proportionate share of the benefit which accrues to UNUM solely as a result
of the defense undertaken by Newco.
ARTICLE XIII
OFFSETS
Any debts or credits between UNUM and Newco arising under this
Agreement are deemed mutual debts or credits, as the case may be, and shall be
netted or set off, as the case may be, and only the balance shall be allowed or
paid hereunder.
ARTICLE XIV
RIGHTS WITH RESPECT TO COINSURED LIABILITIES
Newco's coinsurance of 100% of the Coinsured Liabilities is intended
for the sole benefit of the parties to this Agreement and shall not create any
right on the part of any other party, including, without limit, any
Contractholder, insured, claimant or beneficiary, against Newco or any legal
relation between any Contractholders, insureds, claimants or beneficiaries and
Newco.
-13-
<PAGE>
ARTICLE XV
ERRORS AND OMISSIONS
Inadvertent delays, errors or omissions made by either Newco or UNUM
in connection with this Agreement or any transaction hereunder shall not relieve
the other party from any liability which would have attached to such party had
such delay, error or omission not occurred, provided that the party causing such
error or omission rectifies the same as soon as possible after discovery
thereof. If, as a result of any such delay, error or omission, there is a delay
in the transfer of funds to be transferred pursuant hereto, the party
responsible for such delay, error or omission shall pay, to the party to whom
such funds are to be transferred, interest on the amount of funds to be
transferred from the date of such delay, error or omission to and including the
date of such transfer of funds at a rate equal to the average rate of earnings
on assets held in the Trust Account during such period.
ARTICLE XVI
DUTY OF COOPERATION
Each party hereto shall cooperate fully with the other in all
reasonable respects in order to accomplish the objectives of this Agreement.
This duty to cooperate shall include obtaining the governmental and regulatory
consents and approvals and taking the other steps necessary for the assumption
of the Coinsured Contracts, as described in Article III.
ARTICLE XVII
ARBITRATION
It is the intention of the parties hereto that customs and usages of
the business of indemnity reinsurance and assumption reinsurance shall be given
full effect in the interpretation of this Agreement other than to the extent the
unique aspects of the transaction render such customs and usages inapplicable.
The parties hereto shall act in all things with the highest good faith. Any
dispute or difference with respect to the operation or interpretation of this
Agreement on which an amicable understanding cannot be reached shall be
submitted to arbitration, which shall be mandatory and binding; provided,
however, that this Article shall not apply in the event Newco shall become
subject to a delinquency proceeding as defined in Section 7408 of the New York
Insurance Law. The arbitrators shall be free to reach their decision from the
standpoint of equity and customary practices of the insurance and reinsurance
industry rather than from that of strict legal principles.
-14-
<PAGE>
The arbitration shall be held in New York, New York, and the
arbitration panel shall consist of three arbitrators who must be active or
retired executive officers of life insurance companies other than the parties to
this Agreement, their affiliates or subsidiaries. UNUM shall appoint one
arbitrator and Newco the second. Such arbitrators shall then select the third
arbitrator before arbitration commences. Should one of the parties decline to
appoint an arbitrator or should the two arbitrators be unable to agree upon the
choice of a third, such appointment shall be left to the President of the
American Academy of Actuaries.
Decisions of the arbitrators shall be by majority vote. The cost of
arbitration, including the fees of the arbitrators, shall be borne as the
arbitrators shall decide. Judgment on any award granted by the arbitrators may
be entered in a Federal court of competent jurisdiction located in New York, New
York.
ARTICLE XVIII
TERMINATION
Unless extended by written consent of each of the parties hereto, this
Agreement shall terminate automatically with respect to the issuance of new
insurance contracts 18 months after the date hereof and as to each Coinsured
Contract on the effective date of novation of such Coinsured Contract pursuant
to Article III hereof.
ARTICLE XIX
MISCELLANEOUS PROVISIONS
Section 19.01. NOTICES. Any notice required or permitted hereunder
shall be in writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mails, as follows:
-15-
<PAGE>
(1) If to Newco to:
Newco
[Address]
Attention: [______________]
Telecopier No.: [______________]
With concurrent copies to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(2) If to UNUM to:
First UNUM Life Insurance Company
120 White Plains Road, 3rd Floor
Tarrytown, New York 10591-5532
Attention: Edward R. Hillman
Telecopier No.: 914-524-4058
With concurrent copies to:
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
Attention: Kevin J. Tierney
Telecopier No.: (207) 770-4377
LeBoeuf, Lamb, Greene & MacRae, L.L.P
125 West 55th Street
New York, New York 10019
Attention: Donald B. Henderson, Jr.
Telecopier No.: (212) 424-8500
-16-
<PAGE>
Any party may, by notice given in accordance with this Agreement to
the other party, designate another address or person for receipt of notices
hereunder.
Section 19.02. AMENDMENT. This Agreement may not be modified,
changed, discharged or terminated, except by an instrument in writing signed by
an authorized officer of each of the parties hereto.
Section 19.03. COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies hereof each signed by less than all, but together signed by all
of the parties hereto.
Section 19.04. NO THIRD PARTY BENEFICIARIES. Nothing in this
Agreement is intended or shall be construed to give any Person, other than the
parties hereto, their successors and permitted assigns, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
contained herein.
Section 19.05. ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. Neither this Agreement, nor any
right hereunder, may be assigned by either party (in whole or in part) without
the prior written consent of the other party hereto.
Section 19.06. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
-17-
<PAGE>
IN WITNESS WHEREOF, UNUM and Newco have executed this Agreement as of
the date first above written
FIRST UNUM LIFE INSURANCE COMPANY
By:
------------------------------------------
Name:
Title:
NEWCO
By:
------------------------------------------
Name:
Title:
-18-
<PAGE>
EXHIBIT A-1
RIDER
Contract issued to:
Effective Date of Rider:
Attached to and forming part of Contract No. ____
(herein called the "Contract")
issued by
FIRST UNUM LIFE INSURANCE COMPANY
(herein called "UNUM")
The Contract will be assumed by NEWCO (herein called "Newco") shortly
after it receives approval for its group annuity contract policy form in the
State of New York and obtains any other required regulatory approvals for such
assumption. Thereafter Newco will be the insurer and promptly after the
effectiveness of such assumption it will issue a Certificate of Assumption in
the form attached hereto.
IN THE EVENT THAT NEWCO DOES NOT OBTAIN ALL SUCH APPROVALS, UNUM WILL
REMAIN AS THE INSURER AND THE CONTRACT WILL REMAIN WITH UNUM.
Nothing herein contained shall be held to vary, alter, waive or extend
any of the terms, conditions, provisions, agreements or limitations of the
Contract other than as above stated.
<PAGE>
IN WITNESS WHEREOF, UNUM and Newco have each executed this
endorsement.
FIRST UNUM LIFE INSURANCE
COMPANY
__________________________ ______________________________
Secretary President
NEWCO
__________________________ ______________________________
Secretary President
-2-
<PAGE>
EXHIBIT A-2
RIDER
Contract issued to:
Effective Date of Rider:
Attached to and forming part of your certificate of insurance
under Contract No. ____ (herein called the "Contract")
issued by
FIRST UNUM LIFE INSURANCE COMPANY
(herein called "UNUM")
Your certificate of insurance under the group contract referred to
above will be assumed by NEWCO (herein called "Newco") shortly after it receives
approval for its group annuity contract policy form in the State of New York and
obtains any other required regulatory approvals for such assumption. Thereafter
Newco will be the insurer and promptly after the effectiveness of such
assumption it will issue a Certificate of Assumption in the form attached
hereto.
IN THE EVENT THAT NEWCO DOES NOT OBTAIN ALL SUCH APPROVALS, UNUM WILL
REMAIN AS YOUR INSURER AND YOUR CERTIFICATE WILL REMAIN WITH UNUM.
Nothing herein contained shall be held to vary, alter, waive or extend
any of the terms, conditions, provisions, agreements or limitations of the
Contract and your certificate other than as above stated.
<PAGE>
IN WITNESS WHEREOF, UNUM and Newco have each executed this
endorsement.
FIRST UNUM LIFE INSURANCE
COMPANY
__________________________ ______________________________
Secretary President
NEWCO
__________________________ ______________________________
Secretary President
-2-
<PAGE>
EXHIBIT B-1
NEWCO
[Address]
CERTIFICATE OF ASSUMPTION
[Contract Number]
This is to certify that NEWCO has, effective as of __________ __,
199__ (the "Effective Date"), assumed liability for your contract of insurance
with FIRST UNUM LIFE INSURANCE COMPANY.
From and after the Effective Date, all references in the contract to
First UNUM Life Insurance Company are hereby changed to Newco. Newco has
assumed all rights and duties under your contract.
All correspondence and inquiries such as premium payments, contract
changes, and notices of claims should be submitted to:
NEWCO
[Address]
Except for the substitution of Newco as your insurer, your rights
under your contract will not change as a result of the assumption of your
contract.
This Certificate of Assumption, as of the Effective Date, forms a part
of and should be attached to your insurance contract issued to you by First UNUM
Life Insurance Company.
IN WITNESS WHEREOF, Newco has caused this Certificate of Assumption to
be duly signed and issued.
____________________ ____________________
Secretary President
<PAGE>
EXHIBIT B-2
NEWCO
[Address]
CERTIFICATE OF ASSUMPTION
[Certificate Number]
This is to certify that Newco has, effective as of __________ __, 199__
(the "Effective Date"), assumed liability for your certificate of insurance with
First UNUM Life Insurance Company issued under Group Contract No. _____.
From and after the Effective Date, all references in the certificate to
First UNUM Life Insurance Company are hereby changed to Newco. Newco has
assumed all rights and duties under your certificate.
All correspondence and inquiries such as premium payments, certificate
changes, and notices of claims should be submitted to:
NEWCO
[Address]
Except for the substitution of Newco as your insurer, your rights under
your certificate will not change as a result of the assumption of your
certificate.
This Certificate of Assumption, as of the Effective Date, forms a part of
and should be attached to the insurance certificate issued to you by First UNUM
Life Insurance Company.
IN WITNESS WHEREOF, Newco has caused this Certificate of Assumption to be
duly signed and issued.
____________________ ____________________
Secretary President
<PAGE>
EXHIBIT 7(C)
<PAGE>
- --------------------------------------------------------------------------------
INDEMNITY REINSURANCE AGREEMENT
by and between
FIRST UNUM LIFE INSURANCE COMPANY
and
NEWCO
Dated as of __________ ___, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II BUSINESS REINSURED. . . . . . . . . . . . . . . . . . . . 5
ARTICLE III NOVATED CONTRACTS . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV TERMINATION AND RECAPTURE . . . . . . . . . . . . . . . . 6
Section 4.01. Termination. . . . . . . . . . . . . . . . . . . . . 6
Section 4.02. Recapture. . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE V TERRITORY . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VI ADMINISTRATION; CHANGES; CREDITING RATES. . . . . . . . . 9
Section 6.01. Administration . . . . . . . . . . . . . . . . . . . 9
Section 6.02. Contract Changes or Reserve Assumption Changes . . . 9
Section 6.03. Crediting Rates. . . . . . . . . . . . . . . . . . . 9
ARTICLE VII TRANSFER OF CASH AND CASH EQUIVALENTS; CONTRACT LOANS . . 9
Section 7.01. Cash and Cash Equivalents. . . . . . . . . . . . . . 9
Section 7.02. Contracts Loans. . . . . . . . . . . . . . . . . . . 10
ARTICLE VIII PREMIUMS; RECOVERIES. . . . . . . . . . . . . . . . . . . 10
ARTICLE IX ACCOUNTING. . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE X TRUST ACCOUNT . . . . . . . . . . . . . . . . . . . . . . 11
Section 10.01. General Account Reserves. . . . . . . . . . . . . . 11
Section 10.02. Trust Fund. . . . . . . . . . . . . . . . . . . . . 11
ARTICLE XI INSOLVENCY. . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE XII OFFSETS . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE XIII RIGHTS WITH RESPECT TO GENERAL ACCOUNT LIABILITIES. . . . 14
ARTICLE XIV ERRORS AND OMISSIONS. . . . . . . . . . . . . . . . . . . 14
ARTICLE XV DUTY OF COOPERATION . . . . . . . . . . . . . . . . . . . 15
ARTICLE XVI ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
ARTICLE XVII MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . 16
Section 17.01. Notices . . . . . . . . . . . . . . . . . . . . . . 16
Section 17.02. Amendment . . . . . . . . . . . . . . . . . . . . . 17
Section 17.03. Counterparts. . . . . . . . . . . . . . . . . . . . 17
Section 17.04. No Third Party Beneficiaries. . . . . . . . . . . . 17
Section 17.05. Assignment. . . . . . . . . . . . . . . . . . . . . 17
Section 17.06. Governing Law . . . . . . . . . . . . . . . . . . . 18
SCHEDULES
Schedule 1.01 Insurance Contracts
Schedule 1.02 Seller Separate Account
Schedule 10.02 Authorized Investments
-ii-
<PAGE>
INDEMNITY REINSURANCE AGREEMENT
THIS INDEMNITY REINSURANCE AGREEMENT (this "Agreement"), dated as of
[__________ __, 1996], is made by and between First Unum Life Insurance Company,
a New York domiciled stock life insurance company ("Seller"), and Newco, a
New York domiciled stock life insurance company ("Newco").
WHEREAS, Seller has agreed to cede and transfer to Newco the Insurance
Contracts (as defined below) and Newco has agreed to reinsure the rights,
obligations and liabilities of Seller under the Insurance Contracts; and
WHEREAS, Seller and Newco are, concurrently with the execution of this
Agreement, entering into an Assumption Reinsurance Agreement (the "Assumption
Reinsurance Agreement") whereby Newco agrees to assume the Insurance Contracts
on an assumption reinsurance basis; and
WHEREAS, Seller and Newco are entering into this Agreement whereby
Newco will reinsure the general account obligations of Seller under the
Insurance Contracts on the terms and conditions set forth herein pending
assumption of the Insurance Contracts by Newco on a novation basis pursuant to
the Assumption Reinsurance Agreement; and
WHEREAS, Seller desires that The Lincoln National Life Insurance
Company, an Affiliate (as defined below) ("Purchaser") of Newco, perform all
administrative functions on behalf of Seller after the date hereof with respect
to the Insurance Contracts and the Seller Separate Account (as defined below),
and Purchaser has agreed to provide such services pursuant to the terms of the
Administrative Services Agreement (as defined below);
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and upon the terms and conditions set forth herein, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the respective meanings set forth below
throughout the Agreement:
"ACQUISITION AGREEMENT" means the Asset Transfer and Acquisition
Agreement entered into by and between Purchaser and Seller dated as of
March ___, 1996, to which Newco has been added as a party.
<PAGE>
"ADMINISTRATIVE SERVICES AGREEMENT" means the Administrative Services
Agreement entered into by and between Purchaser and Seller dated as of the date
hereof.
"AFFILIATE" means, with respect to any Person, at the time in
question, any other Person controlling, controlled by or under common control
with such Person.
"AGREEMENT" means this Indemnity Reinsurance Agreement.
"ANNUAL RATE" means the value of r in the expression (1 + r)n/365 - 1,
where "n" is equal to the number of days for which interest is to be computed
and the result of the expression is the interest factor for computing the
applicable interest amounts.
"ASSUMPTION REINSURANCE AGREEMENT" shall have the meaning set forth in
the second recital hereof.
"BASELINE BALANCE SHEET" shall have the meaning set forth in the
Acquisition Agreement.
"BUSINESS DAY" means any day other than a Saturday, Sunday, a day on
which banking institutions in any of the States of Maine, New York or Indiana
are permitted or obligated by law to be closed or a day on which the New York
Stock Exchange is closed for trading.
"CALCULATED ASSET VALUE" shall have the meaning set forth in Section
10.02 hereof.
"CASH AMOUNT" means an amount equal to the result of 2.1824%
multiplied by the Customer Asset Value calculated as of a particular date.
"CASH EQUIVALENTS" means, as of any particular date, money market
funds, marketable obligations issued or guaranteed by the United States
Government, certificates of deposit, bankers' acceptances and other similar
liquid investments, in each case , with a maturity date of not more than 90 days
from the date on which any such instrument is transferred pursuant to the terms
of this Agreement, the market value of which on the date of transfer will be
counted as equivalent to cash for purposes of satisfying the aggregate amount of
cash and Cash Equivalents required to be transferred as described in Article IV
and/or Article VII hereof.
"CERTIFICATEHOLDERS" means the certificateholders under the group
annuity contracts included within the Insurance Contracts.
-2-
<PAGE>
"COINSURANCE AND ASSUMPTION AGREEMENT" means the Coinsurance and
Assumption Agreement entered into by and between Seller and Newco dated as of
the date hereof.
"CONTRACTHOLDERS" shall have the meaning set forth in Article III
hereof.
"CUSTOMER ASSET VALUE" means, at any time, an amount equal to the
aggregate reserves with respect to the Non-Novated Contracts in effect at such
time that would be shown on a balance sheet of Seller as at such time prepared
in accordance with GAAP applied in the same manner as applied in the preparation
of the Baseline Balance Sheet.
"EFFECTIVE DATE" shall have the meaning set forth in Article II
hereof.
"EXTRA CONTRACTUAL OBLIGATIONS" means all liabilities for
consequential, exemplary, punitive or similar damages which relate to or arise
in connection with any alleged or actual act, error or omission by Seller or any
of its Affiliates prior to the date hereof, whether intentional or otherwise, or
from any reckless conduct or bad faith by Seller or any of its Affiliates, in
connection with the handling of any claim under any of the Insurance Contracts
or in connection with the issuance, delivery, cancellation or administration of
any of the Insurance Contracts (provided that no liability with respect to
which Purchaser or Newco shall be entitled to indemnification under Section
10.01(a)(ii) of the Acquisition Agreement shall be deemed to be an Extra
Contractual Obligation).
"FINAL RECAPTURE STATEMENT" shall have the meaning set forth in
Section 4.02 hereof.
"GENERAL ACCOUNT LIABILITIES" means all general account liabilities
and obligations arising under the Insurance Contracts, including, without
limitation: (i) all liability for premium taxes arising on account of premiums
paid or annuities purchased on or after the Effective Date, (ii) all amounts
payable on or after the Effective Date for returns or refunds of premiums under
the Insurance Contracts, (iii) all liability for commission payments and other
fees or compensation payable with respect to the Insurance Contracts to or for
the benefit of brokers and service providers, to the extent that such amounts
are or become payable on or after the Effective Date and (iv) all guaranty fund
assessments and similar charges imposed with respect to the Insurance Contracts
based on premiums paid on or after the Effective Date; excluding (i) the Seller
Separate Account Liabilities, (ii) any Extra Contractual Obligations and (iii)
any general account liabilities which relate to (A) amounts transferred from the
Seller Separate Account to the general account of Seller pending distribution to
holders of the Insurance Contracts, (B) amounts held in the general account of
Seller pending transfer to the Seller Separate Account and (C) guaranteed death
benefits under the Seller Separate Account in excess of account values.
-3-
<PAGE>
"GENERAL ACCOUNT RESERVES" means the general account statutory
reserves of Seller (without regard to this Agreement) with respect to the Non-
Novated Contracts determined pursuant to New York SAP, as such reserves would
have been included in lines 1, 10.2 or 10.3 of the Liabilities, Surplus and
Other Funds page of the NAIC Annual Statement Blank (1994 format), including
(for the avoidance of doubt) any general account statutory reserve adjustments
in relation to Seller Separate Account Liabilities.
"GENERAL ACCOUNT RESERVES STATEMENT" shall have the meaning set forth
in Section 10.01 hereof.
"INSURANCE CONTRACTS" means all group annuity contracts issued by
Seller that are listed on Schedule 1.01 hereto and in effect on the Effective
Date and all certificates and participation agreements in effect as of the
Effective Date issued in accordance with the terms of such group annuity
contracts (including all supplements, endorsements, riders and ancillary
agreements in connection therewith).
"NAIC" means the National Association of Insurance Commissioners.
"NEW YORK SAP" means the statutory accounting principles and practices
prescribed or permitted by the Insurance Department of the State of New York.
"NEWCO" shall have the meaning set forth in the introductory paragraph
hereof.
"NEWCO CERTIFICATE" means a certificate substantially in the form of
Exhibit B-1 to the Trust Agreement.
"90-DAY TREASURY RATE" means the annual yield rate, on the date to
which 90-Day Treasury Rate relates, of actively traded U.S. Treasury securities
having a remaining duration to maturity of three months, as such rate is
published under "Treasury Constant Maturities" in Federal Reserve Statistical
Release H.15(519).
"NON-NOVATED CONTRACTS" means Insurance Contracts that are not Novated
Contracts.
"NOVATED CONTRACT" shall have the meaning set forth in Article III.
"PERSON" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division or other
entity.
"PRELIMINARY RECAPTURE STATEMENT" shall have the meaning set forth in
Section 4.02 hereof.
-4-
<PAGE>
"PROPOSED RECAPTURE STATEMENT" shall have the meaning set forth in
Section 4.02 hereof.
"PURCHASER" shall have the meaning set forth in the fourth recital
hereof.
"RECAPTURE DATE" shall have the meaning set forth in Section 4.02
hereof.
"REQUIRED AMOUNT" shall have the meaning set forth in Section 10.02
hereof.
"SELLER" shall have the meaning set forth in the introductory
paragraph hereof.
"SELLER SEPARATE ACCOUNT" means the separate account of Seller
described on Schedule 1.02 hereto.
"SELLER SEPARATE ACCOUNT LIABILITIES" means those insurance
liabilities that are reflected in the Seller Separate Account and that relate to
the Insurance Contracts.
"TERMINATION CERTIFICATE" means a certificate substantially in the
form of Exhibit C to the Trust Agreement.
"THIRD PARTY ACCOUNTANT" shall have the meaning set forth in Section
4.02 hereof.
"TRUST ACCOUNT" shall have the meaning set forth in Section 10.02
hereof.
"TRUST AGREEMENT" means the Trust Agreement entered into by and among
Newco, Seller and Trustee dated as of the date hereof.
"TRUSTEE" means the trustee named in the Trust Agreement and any
successor trustee appointed as such pursuant to the terms of the Trust
Agreement.
ARTICLE II
BUSINESS REINSURED
Upon the terms and subject to the conditions and other provisions of
this Agreement and any required governmental and regulatory consents and
approvals, effective as of 12:01 a.m., Eastern Time, on _____________ ___, 1996
[such date to be the Closing Date or, if the Closing Date is not the first day
of the month, then such date to be the first day of the month in which the
Closing Date occurs] (the "Effective Date"), Seller hereby
-5-
<PAGE>
cedes to Newco and Newco hereby accepts and indemnity reinsures, on a
coinsurance basis, 100% of the General Account Liabilities.
ARTICLE III
NOVATED CONTRACTS
Pursuant to and in accordance with the terms of the Assumption
Reinsurance Agreement, Newco will prepare and mail Notices (as defined in the
Assumption Reinsurance Agreement) and certificates of assumption to the holders
of the Insurance Contracts (the "Contractholders") in order to attempt to
effectuate novations of the Insurance Contracts (each Insurance Contract which
is so novated being referred to herein as a "Novated Contract"). To the extent
Newco does not assume by novation any Insurance Contracts, whether due to
rejection of assumption by Contractholders, the existence of Certificateholders
who are not residents of New York, or otherwise, or if any attempted novation is
subsequently finally determined in a judicial proceeding or by regulatory action
or otherwise agreed by Newco and Seller to be ineffective or reversed for any
reason, such Insurance Contracts shall not be regarded as Novated Contracts and
Newco shall continue to reinsure the General Account Liabilities associated with
such Insurance Contracts, on an indemnity basis, in accordance with the terms
and conditions of this Agreement.
ARTICLE IV
TERMINATION AND RECAPTURE
Section 4.01. TERMINATION. The reinsurance provided under this
Agreement shall terminate as to each Insurance Contract on the earlier of the
effective date of the novation of such Insurance Contract pursuant to the
Assumption Reinsurance Agreement or the date as of which such Insurance
Contract, if a Non-Novated Contract, is recaptured as provided below in this
Article IV.
Section 4.02. RECAPTURE. (a) In the event that (i) the Standard &
Poor's Corporation Claims-Paying Ability rating of Purchaser becomes less than A
or the Moody's Investors Service, Inc. Financial Strength rating of Purchaser
becomes less than A2, or (ii) Purchaser files an RBC report with the
Commissioner of Insurance of the State of Indiana which indicates that its
Total Adjusted Capital is less than 160 percent of its Company Action Level RBC
(as such capitalized terms are defined in the NAIC Life Risk-Based Capital
Report Including Overview and Instructions for Companies, dated as of December
31, 1994), Seller shall have the right, on 10 days' written notice to Newco, to
recapture the Non-Novated Contracts, effective as of the first day of the month
following the month in which the notice period ends (the "Recapture Date"). In
the event that the Non-Novated Contracts
-6-
<PAGE>
are recaptured pursuant to this Article IV, a net accounting and settlement with
respect to the General Account Liabilities relating to Non-Novated Contracts
shall be undertaken by the parties hereto pursuant to the provisions set forth
below in this Section 4.02.
(b) On the Recapture Date, Newco will deliver to Seller a statement
of the General Account Reserves, the amount of any contract loans under the Non-
Novated Contracts and the amount of the Cash Amount, each as of the end of the
second month preceding the month in which the Recapture Date falls (the
"Preliminary Recapture Statement"), together with a certification of the chief
financial officer of Newco that (i) the Preliminary Recapture Statement was
prepared in accordance with New York SAP, and (ii) the General Account Reserves
set forth therein (A) were determined in accordance with generally accepted
actuarial standards consistently applied, (B) were fairly stated in accordance
with sound actuarial principles, (C) were based on actuarial assumptions that
were appropriate for Seller's obligations under the related Insurance Contracts,
and (D) met the requirements of New York SAP.
(c) On the Recapture Date, Newco shall transfer to Seller cash and
Cash Equivalents in an amount equal to the General Account Reserves less (i) the
amount of any contract loans under the Non-Novated Contracts and (ii) the Cash
Amount, each as determined by Newco and set forth on the Preliminary Recapture
Statement. Cash shall be transferred by Newco to Seller by wire transfer of
immediately available funds in U.S. Dollars. Cash Equivalents shall be
transferred by such instruments of transfer as are reasonably acceptable to
Seller. In addition, as specified in Section 7.02 hereof, Seller shall, from
and after the Recapture Date, be entitled to receive and retain all contract
loan repayments under the Non-Novated Contracts. Recapture shall be deemed to
occur upon the receipt by Seller of such cash and Cash Equivalents, free of all
liens or other encumbrances.
(d) Newco shall, on or before the date that is 30 days after the
Recapture Date, prepare a statement of the General Account Reserves, the amount
of any contract loans under the Non-Novated Contracts and the Cash Amount, each
as of the close of business on the last day of the month preceding the month in
which the Recapture Date falls (the "Proposed Recapture Statement"), together
with a certification of the chief financial officer of Newco to the same effect
with respect to the Proposed Recapture Statement as of the date thereof as the
certification provided by such officer with respect to the Preliminary Recapture
Statement as of the date thereof pursuant to Section 4.02(b). Promptly after
its preparation, Newco shall deliver copies of the Proposed Recapture Statement
to Seller. Seller shall have the right to review the Proposed Recapture
Statement and comment thereon for a period of 45 days after receipt thereof.
Newco agrees that Seller and its accountants may have access to the accounting
records of Newco relating to its preparation of the Proposed Recapture Statement
for the purpose of conducting its review. Any changes in the Proposed Recapture
Statement that are agreed to by Newco and Seller within 45 days of the
aforementioned delivery of such statement by Newco shall be incorporated into a
final recapture statement as of the close of business on the last day of the
month preceding the
-7-
<PAGE>
month in which the Recapture Date falls (the "Final Recapture Statement"). In
the event that Newco and Seller are unable to agree on the manner in which any
item or items should be treated in the preparation of the Final Recapture
Statement within such 45-day period, separate written reports of such item or
items shall be made in concise form and shall be referred to KMPG Peat Marwick
(the "Third Party Accountant"). The Third Party Accountant shall determine
within 14 days the manner in which such item or items shall be treated on the
Final Recapture Statement; PROVIDED, HOWEVER, that the dollar amount of each
item in dispute shall be determined between the range of dollar amounts proposed
by Seller and Newco, respectively. The determinations by the Third Party
Accountant as to the items in dispute shall be in writing and shall be binding
and conclusive on the parties and shall be so reflected in the Final Recapture
Statement. The fees, costs and expenses of retaining the Third Party Accountant
shall be allocated by the Third Party Accountant between the parties, in
accordance with the Third Party Accountant's judgment as to the relative merits
of the parties' proposals in respect of the disputed items. Such determination
shall be binding and conclusive on the parties. Following the resolution of all
disputed items, Newco shall prepare the Final Recapture Statement and shall
deliver copies of such statement to Seller.
(e) In the event the aggregate amount of cash and Cash Equivalents
reflected on the Preliminary Recapture Statement and transferred to the Seller
on the Recapture Date is less than an amount equal to the General Account
Reserves less (i) the amount of any contract loans under the Non-Novated
Contracts and (ii) the Cash Amount, each as reflected on the Final Recapture
Statement, Newco shall transfer to Seller additional cash or Cash Equivalents
equal to the amount of such difference, together with interest thereon from and
including the Recapture Date to but not including the date of such transfer
computed at an Annual Rate equal to the 90-Day Treasury Rate in effect as of the
Recapture Date. In the event the aggregate amount of cash and Cash Equivalents
reflected on the Preliminary Recapture Statement and transferred to Seller on
the Recapture Date is more than an amount equal to the General Account Reserves
less (i) the amount of any contract loans under the Non-Novated Contracts and
(ii) the Cash Amount, each as reflected on the Final Recapture Statement, Seller
shall transfer to Newco cash or Cash Equivalents in the amount of such
difference, together with interest thereon computed at an Annual Rate as
specified above from and including the Recapture Date to but not including the
date of such transfer.
ARTICLE V
TERRITORY
This Agreement shall apply to Insurance Contracts covering lives and
risks wherever resident or situated.
-8-
<PAGE>
ARTICLE VI
ADMINISTRATION; CHANGES; CREDITING RATES
Section 6.01. ADMINISTRATION. Pursuant to the Administrative
Services Agreement, Seller has appointed Purchaser to perform all administrative
services with respect to the Insurance Contracts and the Seller Separate Account
and Purchaser has agreed to perform such services on behalf of Seller,
including, but not limited to, the collection of premiums and other amounts due
from Contractholders, the direct payment of all General Account Liabilities, the
direct disbursement of all contract loans and the administration of claims. In
the event of the termination of the Administrative Services Agreement pursuant
to Section 8.02(a) thereof, Seller will re-assume all administrative services
with respect to the Non-Novated Contracts and the Seller Separate Account and
Purchaser will pay to Seller a monthly expense allowance on behalf of Purchaser
and Newco in accordance with the terms of the Administrative Services Agreement
in respect of the Non-Novated Contracts that have not been recaptured pursuant
to Article IV hereof. Newco will reimburse Purchaser with respect to all
General Account Liabilities and all contract loan amounts under the Insurance
Contracts paid by Purchaser under the terms of the Administrative Services
Agreement and Newco's proportionate share of the expense allowance paid by
Purchaser to Seller.
Section 6.02. CONTRACT CHANGES OR RESERVE ASSUMPTION CHANGES.
Seller, on its own initiative, shall not change (a) the terms and conditions of
any Insurance Contracts or (b) the assumptions and methods used by Seller to
establish the General Account Reserves. Newco shall share proportionately, on a
100% coinsurance basis, in any contract changes or changes in the assumptions
and methods used to establish the General Account Reserves that are required by
any regulatory authority having jurisdiction over Seller in the ordinary course
of such authority's exercise of its powers or otherwise required by law,
provided that prior to effectuating any such change Seller shall promptly notify
Newco of such proposed change and afford Newco the opportunity, to the extent
practical under applicable law, to object to such change under applicable
administrative procedures (both formal and informal).
Section 6.03. CREDITING RATES. Seller shall set crediting rates with
respect to the Non-Novated Contracts from and after the Effective Date as
directed by Newco after consultation with Seller.
ARTICLE VII
TRANSFER OF CASH AND CASH EQUIVALENTS; CONTRACT LOANS
Section 7.01. CASH AND CASH EQUIVALENTS. As consideration for the
indemnity reinsurance of the General Account Liabilities by Newco hereunder and
in
-9-
<PAGE>
accordance with the terms of the Acquisition Agreement and the Trust Agreement,
Seller hereby agrees to transfer to the Trust Account cash and Cash Equivalents
in an amount equal to (a) the General Account Reserves as of the close of
business on the last day of the month preceding the month in which the Effective
Date falls less (b) the amount of any contract loans under the Insurance
Contracts as of such date.
Section 7.02. CONTRACTS LOANS. (a) As further consideration for the
indemnity reinsurance of the General Account Liabilities hereunder, Newco shall,
subject to the provisions of this Section 7.02, be entitled to all contract loan
repayments (including both principal and interest) under the Non-Novated
Contracts, payable in accordance with Article VIII hereof. However, as security
for the payment of Newco's obligations hereunder, Seller shall be entitled to
withhold actual ownership of such contract loans.
(b) Seller shall have the right to retain contract loan repayments
under the Non-Novated Contracts, and to direct Purchaser to pay to Seller all
such contract loan repayment amounts collected by Purchaser pursuant to the
Administrative Services Agreement, upon the occurrence of any of the events
specified in Section 10.02 hereof that would entitle Seller to withdraw amounts
from the Trust Account, subject to the limitations specified therein on the use
of funds withdrawn from the Trust Account.
(c) In addition, Seller shall, from and after the Recapture Date,
have the right to retain all contract loan repayments under the Non-Novated
Contracts, and to direct Purchaser to pay to Seller all such contract loan
repayment amounts collected by Purchaser pursuant to the Administrative Services
Agreement.
ARTICLE VIII
PREMIUMS; RECOVERIES
Subject to the provisions of Section 7.02 hereof, as further
consideration for the indemnity reinsurance of the General Account Liabilities,
Purchaser will, pursuant to the Administrative Services Agreement, collect and
remit to Newco all premiums, contract loan repayments and other amounts payable
on and after the Effective Date with respect to the general account portion of
the Non-Novated Contracts. Seller shall promptly pay to Newco any such amounts
actually received by Seller.
-10-
<PAGE>
ARTICLE IX
ACCOUNTING
Pursuant to and in accordance with the terms of the Administrative
Services Agreement, Purchaser will provide to Seller accounting and settlement
reports as to the Insurance Contracts.
ARTICLE X
TRUST ACCOUNT
Section 10.01. GENERAL ACCOUNT RESERVES. Seller agrees that it will
establish General Account Reserves as of the last day of each month during the
term of this Agreement and will forward to Newco a statement showing such
General Account Reserves and the aggregate amount of contract loans under the
Non-Novated Contracts (the "General Account Reserves Statement") within five
Business Days after receipt from Purchaser of the monthly accounting statement
for such month pursuant to the terms of the Administrative Services Agreement.
Section 10.02. TRUST FUND. (a) Newco has entered into the Trust
Agreement and has established a trust account (the "Trust Account") thereunder
for the benefit of Seller with respect to the General Account Reserves. Newco
agrees that, subsequent to Seller's transfer of cash and Cash Equivalents to the
Trust Account as described in Article VII above, Newco will thereafter maintain
in the Trust Account (in addition to any assets required to be maintained in the
Trust Account under the Coinsurance and Assumption Agreement) assets having a
market value not less than an amount equal to the General Account Reserves, less
the aggregate amount of contract loans under the Non-Novated Contracts (the
"Required Amount"), to be held in trust by Trustee for the benefit of Seller as
security for the payment of Newco's obligations to Seller under this Agreement.
Following the receipt of each General Account Reserves Statement, Newco shall,
to the extent that the market value of the assets held in the Trust Account on
the last day of the month just ended (the "Calculated Asset Value") is less than
the Required Amount so calculated, within five Business Days of its receipt of
such General Account Reserves Statement, transfer to the Trust Account assets
with a market value on the date of transfer at least equal to the difference
between the Required Amount and the Calculated Asset Value.
(b) Newco agrees that the assets so deposited shall be valued
according to their current fair market value and shall consist only of
investments of the type specified on Schedule 10.02 hereto and that the
investment and reinvestment thereof shall be consistent with Newco's investment
strategy in connection with its general account.
-11-
<PAGE>
(c) Newco and Seller, prior to depositing assets with Trustee, shall
execute all assignments, endorsements in blank, or transfer legal title to
Trustee of all shares, obligations or any other assets requiring assignments, in
order that Trustee may whenever necessary negotiate any such assets without
consent or signature from Newco, Seller or any other Person.
(d) Newco and Seller agree that the assets in the Trust Account may
be withdrawn by Seller in accordance with the procedures set forth in the Trust
Agreement, PROVIDED such assets are applied and utilized by Seller (or any
successor of Seller by operation of law, including, without limitation, any
liquidator, rehabilitator, receiver or conservator of Seller) solely on the
basis of the liability of Seller under the Non-Novated Contracts, without
diminution because of the insolvency of Seller or Newco, under the following
circumstances and for the following purposes:
(i) in the event the Non-Novated Contracts are recaptured
pursuant to Article IV, to pay Seller the recapture amounts determined
in accordance with Article IV, to the extent such recapture amounts
are not paid directly to Seller by Newco; and
(ii) in the event that (A) the Standard & Poor's Corporation
Claims-Paying Ability rating of Purchaser becomes less than A+ or the
Moody's Investors Service, Inc. Financial Strength rating of Purchaser
becomes less than A1 or (B) Purchaser becomes the subject of a
delinquency proceeding within the meaning of Section 27-9-1-2 of the
Indiana Insurance Law, in each case:
(x) to reimburse Seller for Newco's share of surrenders,
contract loans and benefits paid by Seller pursuant to the
provisions of the Insurance Contracts, to the extent not
paid directly by Purchaser when due pursuant to the terms of
the Administrative Services Agreement;
(y) to pay Seller the expense allowance described in
Section 6.01 hereof, to the extent not paid directly to
Seller by Purchaser when due; and
(z) to pay any other amounts due Seller under this
Agreement to the extent not paid directly to Seller by Newco
when due; and
(iii) in the event that the Standard & Poor's Corporation Claims-
Paying Ability rating of Purchaser becomes less than A or the Moody's
Investors Service, Inc. Financial Strength rating of Purchaser becomes
less than A2, in addition to the purposes set forth above, to fund
accounts specifically
-12-
<PAGE>
established by Seller to cover loss exposures of Seller in an amount
at least equal to the deduction from Seller's liabilities for the
reinsurance ceded under this Agreement.
In the event that Seller withdraws assets from the Trust Account in excess of
actual amounts required to meet Newco's obligations to Seller, Seller will
return such excess to the Trust Account, plus interest in an amount equal to the
actual earnings on the assets withdrawn from the Trust Account during the period
that the amounts were withdrawn.
(e) Newco and Seller agree that the assets of the Trust Account may
be withdrawn by Newco in accordance with the procedures set forth in the Trust
Agreement, provided that either:
(i) Newco shall, at the time of any such withdrawal and
transfer, replace the withdrawn assets with other assets of a type
permitted in Section 10.02 (b) above, having a market value at least
equal to the market value of the assets so withdrawn, in order to
maintain in the Trust Account assets having a market value at least
equal to the Required Amount, or
(ii) after such withdrawal and transfer, the market value of the
assets remaining in the Trust Account is not less than the Required
Amount;
PROVIDED, HOWEVER, that Newco may make withdrawals pursuant to subsection
(e)(ii) of this Section 10.02(e) only once in any month and only after the
receipt of the General Account Reserves Statement showing General Account
Reserves and contract loans under the Non-Novated Contracts, each as of the end
of the previous month.
(f) Seller hereby agrees to execute each Newco Certificate presented
to it for execution, as contemplated by Section 2.09(b) of the Trust Agreement,
which is executed by a duly authorized officer of Newco and accompanied by
evidence reasonably satisfactory to Seller that the withdrawal requested therein
is permitted under Section 10.02(e). Seller hereby also agrees to execute a
Termination Certificate presented to it for execution which is executed by a
duly authorized officer of Newco and accompanied by evidence reasonably
satisfactory to Seller of the validity of the statements set forth therein.
ARTICLE XI
INSOLVENCY
Newco hereby agrees that, as to all reinsurance made, ceded, renewed
or otherwise becoming effective hereunder, the reinsurance shall be payable by
Newco on the
-13-
<PAGE>
basis of the liability of Seller under the Insurance Contract or Contracts
reinsured on an indemnity basis, without diminution because of the insolvency,
liquidation or rehabilitation of Seller or the appointment of a conservator,
receiver, liquidator or statutory successor of Seller, directly to Seller or to
its conservator, liquidator, receiver or other statutory successor. It is
agreed that any conservator, receiver, liquidator or statutory successor of
Seller shall give prompt written notice to Newco of the pendency or submission
of a claim under any such Insurance Contract or Contracts. During the pendency
of such claim, Newco may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any defense
available to Seller or its conservator, receiver, liquidator or statutory
successor. The expense thus incurred by Newco is chargeable against Seller as a
part of the expense of insolvency, liquidation or rehabilitation to the extent
of a proportionate share of the benefit which accrues to Seller solely as a
result of the defense undertaken by Newco.
ARTICLE XII
OFFSETS
Any debts or credits between Seller and Newco arising under this
Agreement are deemed mutual debts or credits, as the case may be, and shall be
netted or set off, as the case may be, and only the balance shall be allowed or
paid hereunder.
ARTICLE XIII
RIGHTS WITH RESPECT TO GENERAL ACCOUNT LIABILITIES
Newco's reinsurance of the General Account Liabilities is intended for
the sole benefit of the parties to this Agreement and shall not create any right
on the part of any other party, including, without limit, any Contractholder,
insured, claimant or beneficiary, against Newco or any legal relation between
any Contractholders, insureds, claimants or beneficiaries and Newco.
ARTICLE XIV
ERRORS AND OMISSIONS
Inadvertent delays, errors or omissions made by either Seller or Newco
in connection with this Agreement or any transaction hereunder shall not relieve
the other party from any liability which would have attached to such party had
such delay, error or omission not occurred, provided that the party causing such
delay, error or omission rectifies
-14-
<PAGE>
the same as soon as possible after its discovery thereof. If, as a result of
any such delay, error or omission, there is a delay in the transfer of funds to
be transferred pursuant hereto, the party responsible for such delay, error or
omission shall pay, to the party to whom such funds are to be transferred,
interest on the amount of funds to be transferred from the date of such delay,
error or omission to and including the date of such transfer of funds at a rate
equal to the average rate of earnings on assets held in the Trust Account during
such period.
ARTICLE XV
DUTY OF COOPERATION
Each party hereto shall cooperate fully with the other in all
reasonable respects in order to accomplish the objectives of this Agreement.
The duty of cooperation shall apply, but not be limited, to regulatory and
litigation matters.
ARTICLE XVI
ARBITRATION
It is the intention of the parties hereto that customs and usages of
the business of indemnity reinsurance and assumption reinsurance shall be given
full effect in the interpretation of this Agreement other than to the extent
that the unique aspects of the transaction render such customs and usages
inapplicable. The parties hereto shall act in all things with the highest good
faith. Any dispute or difference with respect to the operation or
interpretation of this Agreement on which an amicable understanding cannot be
reached shall be submitted to arbitration, which shall be mandatory and binding;
provided, however, that this Article XV shall not apply in the event Newco shall
become subject to a delinquency proceeding as defined in Section 7408 of the New
York Insurance Law. The arbitrators shall be free to reach their decision from
the standpoint of equity and customary practices of the insurance and
reinsurance industry rather than from that of strict legal principles.
The arbitration shall be held in New York, New York, and shall consist
of three arbitrators who must be active or retired executive officers of life
insurance companies other than the parties to this Agreement, their Affiliates
or subsidiaries. Seller shall appoint one arbitrator and Newco the second.
Such arbitrators shall then select the third arbitrator before arbitration
commences. Should one of the parties decline to appoint an arbitrator or should
the two arbitrators be unable to agree upon the choice of a third, such
appointment shall be left to the President of the American Academy of Actuaries.
Decisions of the arbitrators shall be by majority vote. The cost of
arbitration, including the fees of the arbitrators, shall be borne as the
arbitrators shall decide.
-15-
<PAGE>
Judgment on any award granted by the arbitrators may be entered in a Federal
court of competent jurisdiction located in New York, New York.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
Section 17.01. NOTICES. Any notice required or permitted hereunder
shall be in writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mails, as follows:
(1) If to Newco to:
Newco
Attention:
Telecopier No.:
With concurrent copies to:
The Lincoln National Life Insurance Company
1300 Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
-16-
<PAGE>
(2) If to Seller to:
First UNUM Life Insurance Company
120 White Plains Road, 3rd Floor
Tarrytown, New York 10591-5532
Attention: Edward R. Hillman
Telecopier No.: 914-524-4058
With concurrent copies to:
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
Attention: Kevin J. Tierney
Telecopier No.: (207) 770-4377
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Donald B. Henderson, Jr.
Telecopier No.: (212) 424-8500
Any party may, by notice given in accordance with this Agreement to
the other party, designate another address or person for receipt of notices
hereunder.
Section 17.02. AMENDMENT. This Agreement may not be modified,
changed, discharged or terminated, except by an instrument in writing signed by
an authorized officer of each of the parties hereto.
Section 17.03. COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies hereof each signed by less than all, but together signed by
all, of the parties hereto.
Section 17.04. NO THIRD PARTY BENEFICIARIES. Nothing in this
Agreement is intended or shall be construed to give any Person, other than the
parties hereto, their successors and permitted assigns, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
contained herein.
Section 17.05. ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. Neither this Agreement, nor any
right hereunder, may be
-17-
<PAGE>
assigned by either party (in whole or in part) without the prior written consent
of the other party hereto. Seller acknowledges that, to the extent permitted by
the New York Insurance Department, some or all of the administrative obligations
of Newco hereunder may be performed by Purchaser as Newco's agent pursuant to an
administrative services agreement by and between Purchaser and Newco.
Section 17.06. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
IN WITNESS WHEREOF, Seller and Newco have executed this Agreement as
of the date first above written.
FIRST UNUM LIFE INSURANCE
COMPANY
By: ______________________
Name:
Title:
NEWCO
By: _______________________
Name:
Title:
-18-
<PAGE>
EXHIBIT 8(I)
<PAGE>
Exhibit C
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES AGREEMENT
by and between
FIRST UNUM LIFE INSURANCE COMPANY
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Dated as of __________ __, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II APPOINTMENT; STANDARDS; NOTIFICATION OF
CONTRACTHOLDERS. . . . . . . . . . . . . . . . . . . . 4
Section 2.01. Appointment and Acceptance of Appointment. . . 4
Section 2.02. Standards. . . . . . . . . . . . . . . . . . . 4
Section 2.03. Notification of Contractholders. . . . . . . . 5
Section 2.04. Service Standards for Novated Contracts;
Access to Records Relating to Novated
Contracts . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III COLLECTIONS; DISBURSEMENTS . . . . . . . . . . . . . . 5
Section 3.01. Collection Services. . . . . . . . . . . . . . 5
Section 3.02. Processing of Disbursements. . . . . . . . . . 6
Section 3.03. Payment of Disbursements . . . . . . . . . . . 6
Section 3.04. Denied Disbursements . . . . . . . . . . . . . 6
ARTICLE IV BOOKS AND RECORDS; REPORTS . . . . . . . . . . . . . . 7
Section 4.01. Maintenance of Books and Records . . . . . . . 7
Section 4.02. Exchange Act Undertaking . . . . . . . . . . . 8
Section 4.03. Transaction Report . . . . . . . . . . . . . . 8
Section 4.04. Novation Data. . . . . . . . . . . . . . . . . 8
Section 4.05. Novation Report. . . . . . . . . . . . . . . . 8
Section 4.06. Final Balance Sheet. . . . . . . . . . . . . . 8
ARTICLE V INABILITY TO PERFORM SERVICES; ERRORS. . . . . . . . . 9
Section 5.01. Inability to Perform Services. . . . . . . . . 9
Section 5.02. Errors . . . . . . . . . . . . . . . . . . . . 9
ARTICLE VI REGULATORY MATTERS; REPRESENTATIONS. . . . . . . . . . 9
Section 6.01. Corporate Power of Purchaser . . . . . . . . . 9
Section 6.02. Responsibilities of Purchaser. . . . . . . . . 9
Section 6.03. Representation of Seller . . . . . . . . . . . 9
ARTICLE VII INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 10
Section 7.01. Indemnification. . . . . . . . . . . . . . . . 10
Section 7.02. Notice of Asserted Liability . . . . . . . . . 10
Section 7.03. Right to Contest Claims of Third Parties . . . 10
Section 7.04. Indemnification Payments . . . . . . . . . . . 11
ARTICLE VIII DURATION; TERMINATION. . . . . . . . . . . . . . . . 12
Section 8.01. Duration . . . . . . . . . . . . . . . . . . . 12
Section 8.02. Termination. . . . . . . . . . . . . . . . . . 12
<PAGE>
Section 8.03. Monthly Expense Allowance. . . . . . . . . . . 13
ARTICLE IX ARBITRATION. . . . . . . . . . . . . . . . . . . . . . 13
Section 9.01. Agreement to Arbitrate . . . . . . . . . . . . 13
Section 9.02. Location . . . . . . . . . . . . . . . . . . . 13
Section 9.03. Appointment of Arbitrators . . . . . . . . . . 13
Section 9.04. Decision . . . . . . . . . . . . . . . . . . . 13
Section 9.05. Costs of Arbitration . . . . . . . . . . . . . 13
Section 9.06. Survival of Article. . . . . . . . . . . . . . 14
Section 9.07. Enforcement. . . . . . . . . . . . . . . . . . 14
ARTICLE X INSURANCE. . . . . . . . . . . . . . . . . . . . . . . 14
Section 10.01. Liability Insurance . . . . . . . . . . . . . 14
Section 10.02. Fidelity Bond . . . . . . . . . . . . . . . . 14
ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . 14
Section 11.01. Headings, Schedules and Exhibits. . . . . . . 14
Section 11.02. Notices . . . . . . . . . . . . . . . . . . . 14
Section 11.03. Amendments. . . . . . . . . . . . . . . . . . 15
Section 11.04. Execution in Counterpart. . . . . . . . . . . 15
Section 11.05. Limited Authority . . . . . . . . . . . . . . 16
Section 11.06. Assignment. . . . . . . . . . . . . . . . . . 16
Section 11.07. No Third Party Beneficiaries. . . . . . . . . 16
Section 11.08. Subcontracting. . . . . . . . . . . . . . . . 16
Section 11.09. Change in Status. . . . . . . . . . . . . . . 16
Section 11.10. Survival. . . . . . . . . . . . . . . . . . . 16
Section 11.11. Further Assurances. . . . . . . . . . . . . . 16
-ii-
<PAGE>
SCHEDULES
SCHEDULE 1.01 INSURANCE CONTRACTS
SCHEDULE 1.02 SELLER SEPARATE ACCOUNT
SCHEDULE 1.03 ADMINISTRATIVE SERVICES
SCHEDULE 1.04 TIMING STANDARDS
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement"), dated as of
[_________ __, 1996], is made by and between First UNUM Life Insurance Company,
a New York domiciled stock life insurance company ("Seller"), and The Lincoln
National Life Insurance Company, an Indiana domiciled stock life insurance
company ("Purchaser").
WHEREAS, pursuant to an indemnity reinsurance agreement between Seller
and Newco ("Newco") that is being executed concurrently with this Agreement (the
"Indemnity Reinsurance Agreement"), Newco has agreed to indemnify Seller for
100% of the general account insurance liabilities under the Insurance Contracts
(as defined below) in effect as of the date hereof (such general account
insurance liabilities are referred to herein as the "General Account
Liabilities") until such time (if ever) that each such Insurance Contract shall
be transferred to Newco through assumption reinsurance and become a novated
contract pursuant to the Assumption Reinsurance Agreement (as defined below);
and
WHEREAS, pursuant to an assumption reinsurance agreement between
Seller and Newco that is being executed concurrently with this Agreement (the
"Assumption Reinsurance Agreement"), Newco has agreed to assume by novation the
General Account Liabilities and the separate account liabilities under each
Insurance Contract in effect as of the date hereof (the "Separate Account
Liabilities"); and
WHEREAS, pursuant to a coinsurance and assumption agreement that is
being executed concurrently with this Agreement (the "Coinsurance and Assumption
Agreement"), Seller has agreed to issue additional Insurance Contracts to be
initially indemnity reinsured by Newco and subsequently assumed by Newco by
novation; and
WHEREAS, Seller wishes to appoint Purchaser to provide all
administrative services with respect to the Insurance Contracts and the Seller
Separate Account (as defined below) pending the assumption by Newco of such
liabilities pursuant to the Assumption Reinsurance Agreement or the Coinsurance
and Assumption Agreement, as applicable, and Purchaser desires to provide such
administrative services in consideration for Seller entering into the Asset
Transfer and Acquisition Agreement;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and upon the terms and conditions set forth herein, the parties
to this Agreement agree as follows:
<PAGE>
I
DEFINITIONS
The following terms shall have
the respective meaning set forth below throughout the Agreement:
"ADMINISTRATIVE SERVICES" shall
have the meaning set forth in Section 2.01 hereof.
"ASSET TRANSFER AND ACQUISITION
AGREEMENT" means the Asset Transfer and Acquisition Agreement entered into by
and between Seller and Purchaser dated as of March __, 1996, to which Newco has
been added as a party.
"ASSERTED LIABILITY" shall
have the meaning set forth in Section 7.03 hereof.
"ASSUMPTION REINSURANCE
AGREEMENT" shall have the meaning set forth in the second recital hereof.
"BUSINESS" means the issuance
and administration of the Insurance Contracts and the other business activities
of Seller related thereto.
"BUSINESS DAY" means any day
on which the unit value of the Seller Separate Account is required to be
calculated.
"COINSURANCE AND ASSUMPTION
AGREEMENT" shall have the meaning set forth in the third recital hereof.
"COMMISSION" means the
Securities and Exchange Commission.
"EFFECTIVE DATE" means the
Effective Date as defined in the Indemnity Reinsurance Agreement.
"EXCHANGE ACT" means the
Securities Exchange Act of 1934, as amended.
"GENERAL ACCOUNT
LIABILITIES" shall have the meaning set forth in the first recital hereof.
"INDEMNIFIED PARTY" shall
have the meaning set forth in Section 7.02 hereof.
-2-
<PAGE>
"INDEMNIFYING PARTY" shall
have the meaning set forth in Section 7.02 hereof.
"INDEMNITY REINSURANCE
AGREEMENT" shall have the meaning set forth in the first recital hereof.
"INSURANCE CONTRACTS" means
all group annuity contracts issued by Seller that are listed on Schedule 1.01
hereto and all additional group annuity contracts issued by Seller pursuant
to the terms of the Coinsurance and Assumption Agreement and all certificates
and participation agreements issued in accordance with the terms of such
group annuity contracts (including all supplements, endorsements, riders and
ancillary agreements in connection therewith).
"INTERMEDIARY" means an
individual or entity designated by a contractholder as its broker of record
or as the individual or entity that will act on such contractholder's behalf,
in some or all respects, in connection with such contractholder's Insurance
Contract.
"LICENSE AGREEMENTS" shall
have the meaning set forth in the UNUM America Agreement.
"MONTHLY RATE" shall have
the meaning set forth in Section 8.03 hereof.
"NAIC" means the National
Association of Insurance Commissioners.
"NASD" means the National
Association of Securities Dealers, Inc.
"NEWCO" shall have the
meaning set forth in the first recital hereof.
"NON-NOVATED CONTRACTS"
means the Insurance Contracts that are not Novated Contracts.
"NOVATED CONTRACTS" means
the Insurance Contracts assumed by Newco under the Assumption Reinsurance
Agreement or the Coinsurance and Assumption Agreement, as applicable.
"PERSON" means any
individual, corporation, partnership, firm, joint venture, association,
joint-stock company, trust, unincorporated organization, governmental,
judicial or regulatory body, business unit, division or other entity.
-3-
<PAGE>
"PURCHASER LOSSES" shall
have the meaning set forth in Section 7.01 hereof.
"RESERVES" means the general
account statutory reserves with respect to the Insurance Contracts (without
regard to the Indemnity Reinsurance Agreements) reported by Seller on its
NAIC Convention Blanks (annual and quarterly) filed with the Insurance
Department of the State of New York.
"SELLER LOSSES" shall have
the meaning set forth in Section 7.01 hereof.
"SELLER SEPARATE ACCOUNT"
means the separate account of Seller described on Schedule 1.02 hereto.
"SEPARATE ACCOUNT
LIABILITIES" shall have the meaning set forth in the second recital hereof.
"SERVICE PROVIDER" means an
individual or entity, other than an Intermediary, that provides services to
holders of Insurance Contracts or certificateholders thereunder.
"THIRD PARTY CLAIMANT" shall
have the meaning set forth in Section 7.03 hereof.
"TRANSITION SERVICES
AGREEMENT" shall have the meaning set forth in the UNUM America Agreement.
"UNUM AMERICA" means UNUM
Life Insurance Company of America, an affiliate of Seller.
"UNUM AMERICA AGREEMENT"
means the Asset Transfer and Acquisition Agreement entered into by and
between UNUM America and Purchaser dated as of January 24, 1996.
II
APPOINTMENT; STANDARDS; NOTIFICATION OF CONTRACTHOLDERS
-4-
<PAGE>
Section 2.01. APPOINTMENT
AND ACCEPTANCE OF APPOINTMENT. Seller hereby appoints Purchaser to provide,
with respect to the Insurance Contracts and the Seller Separate Account, the
administrative services specified herein and in Schedule 1.03 hereto and any
other administrative services specified in or necessary to administer the
provisions of the Insurance Contracts (collectively, the "Administrative
Services") for the period specified in Section 8.01 of this Agreement, and
Purchaser hereby accepts such appointment.
Section 2.02. STANDARDS.
Purchaser acknowledges that the performance of the Administrative Services in
an accurate and timely manner is of paramount importance to Seller.
Purchaser agrees to perform the Administrative Services with the skill,
diligence and expertise commonly expected from experienced and qualified
personnel performing such duties and in accordance with (i) the timing
standards set forth on Schedule 1.04 hereto, (ii) industry standards in
effect as of the Effective Date, to the extent not superseded by the timing
standards set forth on Schedule 1.04 hereto, and (iii) all relevant federal,
state and local laws, rules and regulations (as reasonably interpreted by
Seller during the first 12 months after the Effective Date, and as
interpreted by Purchaser thereafter).
Notwithstanding the
foregoing obligations, in recognition of the fact that Purchaser is taking
over the administrative procedures used prior to the Effective Date by
Seller, Purchaser shall not be obligated by this Agreement or any schedule
hereto to perform during the first 12 months after the Effective Date the
services required by this Agreement in a manner different from the manner in
which such services are being provided by Seller immediately prior to the
Effective Date; PROVIDED, HOWEVER, that after the Effective Date Purchaser
shall make any changes required by changes in law (or the interpretation
thereof) subsequent to the Effective Date and any changes required by changes
in industry standards; and PROVIDED, FURTHER, that Purchaser shall administer
the Non-Novated Contracts utilizing standards of service that are no lower
than those utilized by Purchaser in providing administrative services to UNUM
America under the administrative services agreement dated as of the date
hereof entered into by and between Purchaser and UNUM America. In addition,
Purchaser shall not be required to fulfill the timing standards set forth on
Schedule 1.04 hereto to the extent that, from time to time, UNUM America is
in breach of its obligations under the License Agreements or the Transition
Services Agreement, if Purchaser has notified Seller and UNUM America within
three Business Days of such breach.
Section 2.03. NOTIFICATION
OF CONTRACTHOLDERS. Purchaser agrees to send to (i) contractholders of the
Insurance Contracts, (ii) Intermediaries, and (iii) Service Providers, a
written notice prepared by Seller and reasonably acceptable to Purchaser to
the effect that Purchaser has been appointed by Seller to provide
Administrative Services. Purchaser shall send such notice promptly after
receipt thereof, but in no event more than 10 Business Days thereafter, by
first class U.S. mail.
Section 2.04. SERVICE
STANDARDS FOR NOVATED CONTRACTS; ACCESS TO RECORDS RELATING TO NOVATED
CONTRACTS. (a) To the extent that Purchaser provides administrative services
to Newco with respect to the Novated Contracts, Purchaser
-5-
<PAGE>
hereby agrees that it will provide the same level and quality of service with
respect to the Novated Contracts as it provides hereunder with respect to the
Insurance Contracts prior to their assumption by novation.
(b) To the extent that
Purchaser maintains Newco's books, records and operations pertaining to the
Novated Contracts, Purchaser agrees that Seller will be entitled to conduct
examinations of such books, records and operations and, to the extent that
Newco's books, records and operations pertaining to the Novated Contracts are
in the possession of Newco, Purchaser shall cause Newco to make the same
available to Seller for Seller's examination, in each case, if such
examination is reasonably necessary in connection with fulfilling any of
Seller's legal obligations, at reasonable times and upon reasonable notice,
for so long as any Novated Contracts shall be in effect. This Section 2.04
shall survive the termination of this Agreement.
ARTICLE III
COLLECTIONS; DISBURSEMENTS
Section 3.01. COLLECTION
SERVICES. Purchaser agrees to perform the following services with respect to
amounts due from contractholders under the Insurance Contracts:
(i) Collect deposits and other remittances from contractholders
(including payments of principal or interest on contract loans) and from any
collection facility, including Intermediaries and other persons or
institutions that receive remittances with respect to the Insurance
Contracts, and process the remittances in a manner reasonably acceptable to
Seller taking into account, among other factors, that the remittances may
include monies with respect to both Novated Contracts and Non-Novated
Contracts.
(ii) Remit to Newco amounts due Newco pursuant to the terms of
Article VIII of the Indemnity Reinsurance Agreement.
(iii) Maintain records pertaining to the collection and processing of
deposits or other remittances in the format utilized by Seller on the
Effective Date or as otherwise agreed by the parties.
(iv) Promptly invest in the Seller Separate Account deposits
collected which relate to the separate account portions of Insurance
Contracts (including transfers from fixed options under the Insurance
Contracts), and forward funds and required information to the underlying
investment management companies in accordance with any applicable agreements.
Section 3.02. PROCESSING OF
DISBURSEMENTS. Purchaser agrees to perform the following services with
respect to disbursements made in respect
-6-
<PAGE>
of the Insurance Contracts for payment of death benefits, annuity benefits,
withdrawals, surrenders, transfers, policy loans, returns of deposits, and
any other disbursement.
(a) Receive and process
requests for disbursements.
(b) Evaluate requests for
disbursements and either pay any such request for disbursement, in accordance
with Section 3.03, or propose to deny any such request for disbursement in
full or in part, in accordance with Section 3.04, (i) within five Business
Days after receipt of all documentation required to process any such
disbursement, with respect to any request for a disbursement relating to the
general account portion of an Insurance Contract, and (ii) within the time
period specified in the applicable contract, with respect to any request for
a disbursement relating to the separate account portion of an Insurance
Contract, or, in the case of either clause (i) and clause (ii) above, within
any shorter time provided by applicable statute, rule or regulation. In the
event that Purchaser is unable to make a determination as to whether any such
request for disbursement should be paid or denied within the specified
period, it shall notify Seller immediately in writing and shall state in such
notice the reasons for such delay.
Section 3.03. PAYMENT OF
DISBURSEMENTS. Purchaser agrees to pay all disbursements from its own funds
under the Non-Novated Contracts in the name of Seller. Purchaser's
disbursements payment authority under this Agreement will terminate
immediately upon written notice from Seller, in which case Purchaser's
obligations as to payment of disbursements shall be limited to notifying
Seller of amounts payable and the identities of the relevant payees.
Section 3.04. DENIED
DISBURSEMENTS. (a) Purchaser agrees to promptly notify Seller if it
proposes to deny any disbursement request. The notice required under this
Section 3.04 will contain the basis for Purchaser's decision to deny such
disbursement request. Purchaser may not deny a disbursement request if
Seller objects to such denial in writing within 10 Business Days of Seller's
receipt of the notice required under this Section 3.04 (or within such
shorter period as may be required to permit the relevant disbursement to be
made within the time period required by any applicable law or regulation).
In the event that Purchaser notifies Seller of a proposed denial on the
Business Day that the disbursement would be required to be made and Seller
objects to such proposed denial, then the disbursement shall be made as soon
as practicable thereafter, and Seller acknowledges that such disbursement may
be made later than the date otherwise required by this Agreement.
(b) Purchaser agrees to
immediately notify Seller of any litigation that has been instituted or
threatened, or of any complaint which any person has filed or has threatened
to file with any state insurance department or other regulatory agency, with
respect to any denied disbursement request or any disbursement
request-handling procedure in connection with an Insurance Contract,
regardless of whether the disbursement request was paid or denied, or with
respect to any other matter relating to an Insurance Contract. Such notice
shall contain a report summarizing the nature of the litigation or complaint,
the
-7-
<PAGE>
alleged actions or omissions giving rise to the litigation or complaint and
copies of any files that Seller may require to respond to the litigation or
complaint.
(c) Purchaser shall pay the
expenses of any litigation or regulatory proceeding with respect to the
Insurance Contracts (subject to any indemnification rights of Purchaser under
this Agreement or any other agreement between Purchaser and Seller).
ARTICLE IV
BOOKS AND RECORDS; REPORTS
Section 4.01. MAINTENANCE
OF BOOKS AND RECORDS. (a) For the duration of this Agreement, Purchaser
shall maintain, at a location to be agreed upon by Purchaser and Seller,
books and records of all transactions pertaining to the Insurance Contracts,
including, but not limited to, any disbursement requests submitted in respect
of the Insurance Contracts and any documents relating thereto, any
communications relating to any Insurance Contract, any communication with any
regulatory authority, complaint logs and all data used by Purchaser in the
performance of services required under this Agreement. These books and
records shall be maintained (i) in accordance with any and all applicable
statutes, rules and regulations and (ii) in a format no less accessible than
the format in which such books and records are maintained on the date hereof.
All such books and records pertaining to an Insurance Contract shall be the
property of Seller until such Insurance Contract is novated pursuant to the
Assumption Reinsurance Agreement or the Coinsurance and Assumption Agreement,
as applicable, and shall be made available to Seller, its auditors or other
designees, and regulatory agencies, during normal business hours and at any
other time on reasonable notice, for review, inspection, examination and
reproduction. Upon termination of this Agreement, all books and records
pertaining to Insurance Contracts which have not been novated shall be
delivered promptly to Seller or such other person or entity as Seller shall
designate in writing.
(b) Purchaser shall back up
all of its computer files used in the performance of services under this
Agreement on a daily basis and shall maintain back-up files in an off-site
location.
(c) Purchaser shall
maintain facilities and procedures reasonably acceptable to Seller for
safekeeping all records used in the performance of services under this
Agreement.
Section 4.02. EXCHANGE ACT
UNDERTAKING. Purchaser or its affiliated broker-dealer shall file with the
Commission the undertaking required by Rule 17a-4(i) under the Exchange Act
with respect to any records that either Purchaser or such affiliated
broker-dealer maintains that are required to be maintained under the
provisions of the Exchange Act by UNUM Sales Corporation or by any other
broker-dealers that are authorized to sell the Insurance Contracts.
-8-
<PAGE>
Section 4.03. TRANSACTION
REPORT. Within five Business Days of the end of each calendar month during
the term of this Agreement, Purchaser shall provide Seller with a summary
report and accounting of all transactions, including receipts, payments,
policy loans, surrenders and other matters, that have occurred during that
month, in a form acceptable to Seller. Purchaser shall provide a final
accounting to Seller within five Business Days following the end of the month
during which the termination of this Agreement occurs.
Section 4.04. NOVATION
DATA. Within five Business Days after the end of each week during the term of
this Agreement, Purchaser shall provide to Seller data, in electronic format
compatible with Seller's systems, indicating all Insurance Contracts assumed
by novation by Purchaser during the prior week.
Section 4.05. NOVATION
REPORT. Within five Business Days after the end of each month during the term
of this Agreement, Purchaser shall provide to Seller a report, in a form
reasonably acceptable to Seller, showing all contractholders of the Insurance
Contracts and certificateholders under the Insurance Contracts and their
current novation status.
Section 4.06. FINAL BALANCE
SHEET. Purchaser shall assist Seller, as reasonably requested by Seller, in
the preparation of the Proposed Balance Sheet and the Final Balance Sheet, as
such terms are defined in the Asset Transfer and Acquisition Agreement.
ARTICLE V
INABILITY TO PERFORM SERVICES; ERRORS
Section 5.01. INABILITY TO
PERFORM SERVICES. Purchaser shall notify Seller of any interruption in
Purchaser's performance of any of the services required under this Agreement
for a period of more than one day. In the event that Purchaser shall be
unable to perform services as required by this Agreement for any reason for a
period that can reasonably be expected to exceed one day, Purchaser shall
cooperate with Seller in obtaining an alternative means of providing such
services. Purchaser will be responsible for all costs incurred in either
restoring services or obtaining an alternative source of services.
-9-
<PAGE>
Section 5.02. ERRORS.
Purchaser shall, at its own expense, immediately correct any errors in
Administrative Services (including, without limitation, failure to comply
with any of the timing standards specified in Schedule 1.04 hereto) caused by
it upon receiving notice thereof from Seller or otherwise. This obligation
includes, without limitation, reimbursement to the Seller Separate Account
and the management investment companies underlying that account for any
dilution or other adverse effect due to transactions made effective as of an
earlier date, commonly referred to as "breakage."
ARTICLE VI
REGULATORY MATTERS; REPRESENTATIONS
Section 6.01. CORPORATE
POWER OF PURCHASER. Purchaser represents and warrants that it has the
corporate power to perform the services required under this Agreement.
Section 6.02.
RESPONSIBILITIES OF PURCHASER. Purchaser, on behalf of Seller, shall be
responsible for all state insurance department filings (including, but not
limited to, filings of riders and amendments) and for any and all licensing
requirements (other than Seller's licenses) with respect to or in connection
with the Non-Novated Contracts.
Section 6.03.
REPRESENTATION OF SELLER. Seller represents and warrants that, immediately
prior to the Effective Date, Seller is providing (through UNUM America) the
services required by this Agreement and the Schedules hereto, except those
services which arise as a result of the consummation and implementation of
the Asset Transfer and Acquisition Agreement.
-10-
<PAGE>
ARTICLE VII
INDEMNIFICATION
Section 7.01.
INDEMNIFICATION. (a) Purchaser agrees to indemnify and hold harmless Seller
and any of its directors, officers, employees, agents or affiliates from any
and all losses, costs, claims, demands, compensatory, extracontractual and/or
punitive damages, fines and penalties (collectively, "Seller Losses")
arising out of or caused by: (i) fraud, theft or embezzlement by officers,
employees or agents of Purchaser during the term of this Agreement; (ii) the
failure, either intentional or unintentional, of Purchaser to properly
perform the services required by this Agreement, including, without
limitation, the failure to properly process, evaluate and pay disbursement
requests in accordance with the terms of this Agreement; (iii) any other act
of negligence or willful misconduct committed by officers, agents or
employees of Purchaser during the term of this Agreement; (iv) the breach of
any representation or warranty of Purchaser; or (v) any failure of Purchaser
to comply with applicable laws, rules and regulations during the term of this
Agreement other than, during the first 12 months after the Effective Date,
Seller Losses arising out of or caused by actions or inactions of Purchaser
consistent with the manner in which such services are being provided by
Seller immediately prior to the Effective Date, except if changes are
required pursuant to Section 2.02 hereof.
(b) Seller agrees to
indemnify and hold harmless Purchaser and any of its directors, officers,
employees, agents or affiliates from any and all losses, costs, claims,
demands, compensatory, extracontractual and/or punitive damages, fines and
penalties (collectively, "Purchaser Losses") arising out of or caused by:
(i) fraud, theft or embezzlement by officers, employees or agents of Seller
during the term of this Agreement; (ii) any other act of negligence or
willful misconduct committed by officers, agents or employees of Seller
during the term of this Agreement; (iii) any breach of any representation or
warranty of Seller; or (iv) any failure of Seller to comply with applicable
laws, rules and regulations during the term of this Agreement, other than any
failure caused by the action or inaction of Purchaser not in compliance with
the terms of this Agreement.
Section 7.02. NOTICE OF
ASSERTED LIABILITY. In the event that either party hereto asserts a claim
for indemnification hereunder, such party seeking indemnification (the
"Indemnified Party") shall give written notice to the other party (the
"Indemnifying Party") specifying the facts constituting the basis for, and
the amount (if known) of, the claim asserted.
Section 7.03. RIGHT TO
CONTEST CLAIMS OF THIRD PARTIES. (a) If an Indemnified Party asserts a
claim for indemnification hereunder because of a claim or demand made, or an
action, proceeding or investigation instituted, by any Person not a party to
this Agreement (a "Third Party Claimant") that may result in a Purchaser Loss
with respect to which Purchaser is entitled to indemnification pursuant to
Section 7.01(a) hereof or a Seller Loss with respect to which Seller is
entitled to indemnification pursuant to Section 7.01(b) hereof (an "Asserted
Liability"), the Indemnified Party shall give the Indemnifying Party
-11-
<PAGE>
reasonably prompt notice thereof, but in no event shall such notice be given
later than 30 Business Days after such Asserted Liability is actually known to
the Indemnified Party. Failure to deliver notice with respect to an Asserted
Liability in a timely manner shall not be deemed a waiver of the Indemnified
Party's right to indemnification for Losses in connection with such Asserted
Liability but the amount of reimbursement to which the Indemnified Party is
entitled shall be reduced by the amount, if any, by which the Indemnified
Party's losses would have been less had such notice been timely delivered.
(b) The Indemnifying Party
shall have the right, upon written notice to the Indemnified Party, to
investigate, contest, defend or settle the Asserted Liability; provided, that
the Indemnified Party may, at its option and at its own expense, participate
in the investigation, contesting, defense or settlement of any such Asserted
Liability through representatives and counsel of its own choosing. The
failure of the Indemnifying Party to respond in writing to proper notice of
an Asserted Liability within 20 days after receipt thereof shall be deemed an
election not to defend the same. Unless and until the Indemnifying Party
elects to defend the Asserted Liability, the Indemnified Party shall have the
right, at its option and at the Indemnifying Party's expense, to do so in
such manner as it deems appropriate, including, but not limited to, settling
such Asserted Liability (after giving notice of the settlement to the
Indemnifying Party) on such terms as the Indemnified Party deems appropriate.
(c) Except as provided in
the immediately preceding sentence, the Indemnified Party shall not settle or
compromise any Asserted Liability for which it seeks indemnification
hereunder without the prior written consent of the Indemnifying Party (which
shall not be unreasonably withheld) during the twenty (20) day period
specified above.
(d) The Indemnifying Party
shall be entitled to participate in (but not to control) the defense of any
Asserted Liability which it has elected, or is deemed to have elected, not to
defend, with its own counsel and at its own expense. If the Indemnifying
Party seeks to question (i) the manner in which the Indemnified Party
defended an Asserted Liability with respect to which the Indemnifying Party
elected, or is deemed to have elected, not to defend or (ii) the amount or
nature of any settlement entered into by the Indemnified Party in connection
with such Asserted Liability, the Indemnifying Party shall have the burden to
prove by a preponderance of the evidence that the Indemnified Party did not
defend or settle such Asserted Liability in a reasonably prudent manner.
(e) Except as provided in
the first sentence of paragraph (b) of this Section 7.03, the Indemnifying
Party shall bear all costs of defending any Asserted Liability and shall
indemnify and hold the Indemnified Party harmless against and from all costs,
fees and expenses incurred in connection therewith.
(f) Purchaser and Seller
shall make mutually available to each other all relevant information in their
possession relating to any Asserted Liability and shall cooperate with each
other in the defense thereof.
-12-
<PAGE>
Section 7.04.
INDEMNIFICATION PAYMENTS. Subject to a party's right to defend pursuant to
Section 7.03 hereof, an Indemnifying Party hereunder shall make an
indemnification payment with respect to a Loss promptly after notice of such
Loss to the Indemnifying Party. All such payments shall be made by wire
transfer of immediately available funds to such account or accounts as the
Indemnified Party shall designate to the Indemnifying Party in writing.
ARTICLE VIII
DURATION; TERMINATION
Section 8.01. DURATION.
This Agreement shall commence on the date of its execution and continue until
such time as all of the liabilities under the Insurance Contracts have been
novated to Newco pursuant to the Assumption Reinsurance Agreement or the
Coinsurance and Assumption Agreement, as applicable, unless earlier
terminated pursuant to Section 8.02 below, and, except with respect to
Section 2.04 hereof, shall terminate as to each Insurance Contract on the
effective date of the novation of such Insurance Contract pursuant to the
Assumption Reinsurance Agreement or the Coinsurance and Assumption Agreement,
as applicable. Upon any termination of this Agreement pursuant to Section
8.02, the services performed by Purchaser shall be assumed by Seller or
Seller's designee. Purchaser shall cooperate fully in the transfer of
services and the books and records maintained by Purchaser pursuant to
Section 4.01 hereof to Seller or Seller's designee, so that Seller or its
designee will be able to perform the services required under this Agreement
without interruption following termination of this Agreement.
Section 8.02. TERMINATION.
(a) This Agreement is subject to immediate termination at the option of
Seller, upon written notice to Purchaser, on the occurrence of any of the
following events:
(i) A voluntary or
involuntary proceeding is commenced in any state by or against Purchaser for
the purpose of conserving, rehabilitating or liquidating Purchaser, or
Purchaser shall lose its authority to perform services hereunder;
(ii) There is a
material breach by Purchaser of any term or condition of this Agreement, or
there occurs a material act of dishonesty by any of Purchaser's officers,
employees or agents in the performance of services hereunder, that is not
cured by Purchaser within 30 days of receipt of written notice from Seller of
such breach or act;
(iii) Purchaser or its
successor is dissolved or merged or there occurs a change in control of
Purchaser or its successor requiring the permission of the Indiana Insurance
Department, other than a change of control which is
-13-
<PAGE>
preceded by a permitted assignment of this Agreement pursuant to the terms of
Section 11.06 hereof;
(iv) Any liability
policy or bond required pursuant to Article X of this Agreement is canceled,
terminated or substantially revised; or
(v) Purchaser is
unable to perform the services required under Articles III, IV and V of this
Agreement for a period of 30 days for any reason.
(b) This Agreement may be
terminated at any time upon the mutual written consent of the parties hereto,
which writing shall state the effective date of termination.
Section 8.03. MONTHLY
EXPENSE ALLOWANCE. Purchaser agrees that, in the event this Agreement is
terminated, it shall pay to Seller a monthly expense allowance in an amount
equal to the Monthly Rate multiplied by the mean level of (i) Reserves with
respect to the Non-Novated Contracts and (ii) Separate Account Liabilities
for each month, as reimbursement for the costs which Seller will incur in
administering the Insurance Contracts following such termination. During the
first 12 months after the Effective Date, the Monthly Rate (if applicable)
will be 2.5 basis points and, commencing 12 months after the Effective Date,
the Monthly Rate will be 5.0 basis points.
ARTICLE IX
ARBITRATION
Section 9.01. AGREEMENT TO
ARBITRATE. The parties hereto shall act in all things with the highest good
faith. In the event of any disputes or differences arising hereafter between
the parties hereto with reference to any transaction under or relating in any
way to this Agreement as to which agreement between the parties hereto cannot
be reached, the same shall be submitted to arbitration, which shall be
mandatory and binding; provided, however, that this Article IX shall not
apply in the event Purchaser shall become subject to a delinquency proceeding
as defined in Section 29-9-1-2 of the Indiana Insurance Law. The arbitrators
shall be free to reach their decision from the standpoint of equity and
customary practices of the insurance and reinsurance industry rather than
from that of strict legal principles.
Section 9.02. LOCATION.
The arbitration shall be held in Portland, Maine.
Section 9.03. APPOINTMENT
OF ARBITRATORS. The arbitration panel shall consist of three arbitrators who
must be officers of life insurance companies other than the parties to this
Agreement or their respective affiliates or subsidiaries.
-14-
<PAGE>
Seller shall appoint one arbitrator and Purchaser the second. Such arbitrators
shall then select the third arbitrator before arbitration commences. Should one
of the parties decline to appoint an arbitrator, or should the two arbitrators
be unable to agree upon the choice of a third, such appointment shall be left to
the President of the American Academy of Actuaries.
Section 9.04. DECISION.
Decisions of the arbitrators shall be by majority vote.
Section 9.05. COSTS OF
ARBITRATION. The costs of arbitration, including the fees of the
arbitrators, shall be borne as the arbitrators shall decide.
Section 9.06. SURVIVAL OF
ARTICLE. This Article IX shall survive the termination of this Agreement.
Section 9.07. ENFORCEMENT.
Judgment upon any award granted by the arbitrators may be entered in a
Federal court of competent jurisdiction located in Portland, Maine.
ARTICLE X
INSURANCE
Section 10.01. LIABILITY
INSURANCE. Purchaser shall maintain errors and omissions liability coverages
in commercially prudent amounts, to cover any loss arising as a result of any
real or alleged negligence, errors or omissions on the part of Purchaser's
officers, agents or employees in any aspect of the performance of services
under this Agreement.
Section 10.02. FIDELITY
BOND. Purchaser shall maintain fidelity bond coverage in commercially prudent
amounts to cover any loss due to the misdeeds of Purchaser's officers,
employees or agents.
ARTICLE XI
MISCELLANEOUS
Section 11.01. HEADINGS,
SCHEDULES AND EXHIBITS. Headings used herein are not a part of this
Agreement and shall not affect the terms hereof. The attached Schedules and
Exhibits are a part of this Agreement.
Section 11.02. NOTICES.
Any notice required or permitted hereunder shall be in writing and shall be
delivered personally (by courier or
-15-
<PAGE>
otherwise), telegraphed, telexed, sent by facsimile transmission or sent by
certified, registered or express mail, postage prepaid. Any such notice shall
be deemed given when so delivered personally, telegraphed, telexed or sent by
facsimile transmission or, if mailed, three days after the date of deposit in
the United States mails, as follows:
(a) If to Purchaser to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
With concurrent copies to:
Newco
[Address]
Attention: [________________]
Telecopier No.: [____________]
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(b) If to Seller to:
First UNUM Life Insurance Company
120 White Plains Road, 3rd Floor
Tarrytown, New York 10591-5532
Attention: Edward R. Hillman
Telecopier No.: 914-524-4058
-16-
<PAGE>
With concurrent copies to:
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
Attention: Kevin J. Tierney
Telecopier No.: (207) 770-4377
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Donald B. Henderson, Jr.
Telecopier No.: (212) 424-8500
Any party may, by notice
given in accordance with this Agreement to the other parties, designate
another address or person for receipt of notices hereunder.
Section 11.03. AMENDMENTS.
This Agreement cannot be modified, changed, discharged or terminated, except
by an instrument in writing signed by an authorized officer of each of the
parties hereto.
Section 11.04. EXECUTION IN
COUNTERPART. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all of the parties
hereto.
Section 11.05. LIMITED
AUTHORITY. Seller and Purchaser are not partners or joint venturers, and no
employee or agent of either party shall be considered an employee or agent of
the other. Purchaser's authority shall be limited to that which is expressly
stated in this Agreement.
Section 11.06. ASSIGNMENT.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, permitted assigns and legal
representatives. Neither this Agreement, nor any right hereunder, may be
assigned by either party (in whole or in part) without the prior written
consent of the other party hereto, which consent shall not be unreasonably
withheld.
Section 11.07. NO THIRD
PARTY BENEFICIARIES. Except as otherwise specifically provided for herein,
nothing in this Agreement is intended or shall be construed to give any
person, other than the parties hereto, their successors and permitted
-17-
<PAGE>
assigns, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
Section 11.08.
SUBCONTRACTING. Purchaser may not subcontract for the performance of any
services which Purchaser is to provide hereunder, except as permitted in
writing by Seller, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing sentence, Purchaser shall be permitted to
subcontract for the performance of any of such services with any Person that
is performing such services as a subcontractor for Seller or UNUM America as
of the date hereof, in each case without the consent of Seller so long as
Purchaser notifies Seller of such subcontract on or prior to the effective
date thereof.
Section 11.09. CHANGE IN
STATUS. Purchaser shall notify Seller immediately of any "change of control"
filing, the adoption of any plan to liquidate, merge or dissolve Purchaser,
or of any proceeding or lawsuit which effects Purchaser's ability to perform
this Agreement, including, but not limited to, insolvency or rehabilitation
proceedings.
Section 11.10. SURVIVAL.
The provisions of Section 2.04 and Article IX shall survive the termination
of this Agreement.
Section 11.11. FURTHER
ASSURANCES. Each of the parties hereto shall execute such documents and other
papers and perform such further acts as may be reasonably required to carry
out the provisions of this Agreement. Without limiting the generality of the
foregoing, Seller shall execute (a) all documents necessary to grant
Purchaser the disbursement payment authority contemplated by Section 3.03 of
this Agreement and (b) any Seller regulatory filings or broker appointments
that Purchaser is required to make on behalf of Seller hereunder.
-18-
<PAGE>
IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed by their duly
authorized representatives as of the date first above written.
FIRST UNUM LIFE INSURANCE COMPANY
By: ______________________________________
Name:
Title:
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: ______________________________________
Name:
Title:
<PAGE>
SCHEDULE 1.01
[Insurance Contracts]
<PAGE>
SCHEDULE 1.02
SELLER SEPARATE ACCOUNT
VA-1 SEPARATE ACCOUNT
OF
FIRST UNUM LIFE INSURANCE COMPANY
On August 16, 1991, the Board of Directors of First UNUM Life Insurance Company
authorized the establishment of a Variable Investment Division, also called the
VA-I Separate Account, in accordance with New York Insurance Law. The Variable
Investment Division is registered with the Securities and Exchange Commission as
a unit investment trust under the Investment Company Act of 1940, Reg. No. 811-
6455.
<PAGE>
SCHEDULE 1.03
ADMINISTRATIVE SERVICES
A. Deposit Processing
1. Deposit accounting, including
processing and updating of contractholder and participant records,
to reflect receipt of payments.
2. Processing of returned checks
including reversal of payment transactions.
3. Preparation and distribution of
contract level general account deposit confirmation.
B. Contract Service
1. Receipt and processing of
employer and broker service requests.
2. Updating of computer records
and other files as needed to reflect requested contract changes.
3. Preparation and mailing of
quarterly statements to contractholders and certificateholders,
enclosing with such statements such notices as employers or
Intermediaries have requested be included.
4. Maintenance of toll free
telephone lines.
5. Preparation of annual census
reports and broker activity reports and ad hoc reports that are
reasonably requested (including MEA calculations).
C. Policy Loan and Disbursement Processing; Complaints
1. Receipt and processing of
contract loan and disbursement requests and contract loan repayments.
2. Updating of computer record and
other files as needed to reflect changes.
3. Preparation and mailing of
checks or other forms of disbursement to contractholders and
beneficiaries.
4. Generation and mailing of Form
1099 to contractholders, when applicable.
5. Performance of required state
and federal tax withholding (i.e., computation of tax and timely
remittances thereof on behalf of Seller)
6. Adherence to applicable state
fair claims settlement regulations.
<PAGE>
7. Receipt, review, and processing
of all complaints filed with respect to the Insurance Contracts with
the various insurance departments.
8. Overseeing of appropriate
action to be taken with regard to complaints.
9. Processing of qualified
domestic relations orders.
D. Commission and Fee Payment Processing
1. Calculation of commissions
payable to Intermediaries and fees payable to Service Providers.
2. Preparation and mailing of
commission and fee payment statements and checks.
3. Receipt and processing of
Intermediary and Service Provider inquiries regarding commission and
fee payments.
E. Accounting/Banking/Auditing
1. Providing of all accounting
functions related to contract administration for the contracts being
serviced.
2. Processing of all receipts,
disbursements, and associated contract-related accounting
transactions.
3. Preparation of daily accounting
reports reflecting monetary transactions (checks received, checks
paid, monies deposited, etc.).
4. Management of bank accounts,
including balancing and editing of daily bank deposits.
5. Retention of system-generated
accounting and contract transaction data and reports on a mutually
agreed upon schedule.
6. Provision of access to
contract, deposit and payment information as needed to support Seller
and regulatory audits.
7. Preparation of cash trial
balances and on business assumed.
8. Submission of data to support
preparation of premium tax returns and payment of all premium taxes
due.
F. Financial Reporting
1. Performance of all functions
necessary to support statutory accounting reporting.
2. Preparation of accounting
reports on Insurance Contracts in blue book and green book format to
be used by Seller.
3. Preparation of Seller Reserves
Report (as defined in the Indemnity Reinsurance Agreement).
-2-
<PAGE>
4. Performance of all functions
necessary to support other regulatory reporting requirements on the
Insurance Contracts, including:
-- IRS Form 1099 (contract related and
commissions).
-- Other contractholder IRS reporting
requirements.
-- State tax reporting.
5. Performance of all reasonable
analyses to assure accuracy of reported information at monthly,
quarterly, and year-end periods.
6. Provision of assistance to
Seller in interfacing with Purchaser systems and processing to allow
Seller to consolidate reported results.
7. Provision of necessary support
for GAAP reporting purposes.
G. Actuarial
1. Determination of Seller's (a)
statutory reserves for the Insurance Contracts on a monthly basis and
(b) GAAP reserves for the Insurance Contracts on at least a quarterly
basis.
2. Determination of tax reserves
on a quarterly basis.
3. Provision on an annual basis
of the required reserve reporting with appropriate reserve schedules
summarized for tax returns.
H. Compliance
1. Monitoring of statutes and
regulations of the insurance departments in the various states in
which the contractholders or certificateholders under the Insurance
Contracts are located to
-3-
<PAGE>
ensure compliance therewith and to ensure that any actions or
communications required by such regulations or statutes are properly
made.
2. Monitoring of the federal
securities statutes and the rules, regulations and orders thereunder
and the securities statutes and rules, regulations, and orders
thereunder of the various states in which contractholders or
certificateholders under the Insurance Contracts are located to
ensure compliance therewith and to ensure that any actions or
communications required thereby are properly made.
3. Monitoring of the federal tax
and labor statutes and the rules, regulations and orders thereunder
and the tax and labor statutes and rules, regulations, and orders
thereunder of the various states in which contractholders or
certificateholders under the Insurance Contracts are located to ensure
compliance therewith and to ensure that any actions or communications
required thereby are properly made.
4. Such services as Seller may
require under its direction in connection with responding to inquiries
from the Commission, NASD, NAIC or the insurance or securities
departments of the various states in which the contractholders or
certificateholders under the Insurance Contracts are located.
5. Under the direction of Seller,
provision of information in Purchaser's possession which is necessary
or useful in the defense by Seller of any action relating to the
Insurance Contracts, including any information necessary to respond to
discovery requests in any such action.
6. Provision of ERISA and 403(b)
compliance services as provided by Seller as of the date hereof and
set forth on Appendix A attached hereto and additional services
required by changes to applicable law or industry standards.
I. Seller Separate Account Services
1. Preparation and maintenance
of all records concerning contractholders' interest in the subaccounts
of the Seller Separate Account which are funding options for the
Insurance Contracts, including records reflecting all purchases,
redemptions, and transfers of such interest and transmission of
periodic account statements reflecting such interests to
contractholders and certificateholders.
2. Calculation of the net asset
value of units of each subaccount of the Seller Separate Account
which are funding options for the Insurance Contract on any day when
such calculation is required by the Investment Company Act of 1940
and the rules and regulations thereunder.
3. Preparation and transmission to
contractholders and certificateholders of all confirmations required
by the Exchange Act and the rules and regulations thereunder.
4. Transmission of orders for the
purchase or redemption of shares in the management investment
companies in which the assets of Seller Separate Account are invested
to such management investment companies or their authorized agents and
the payment and receipt of funds in connection with such purchases or
redemptions as required by any applicable agreement.
5. Such services as Seller may
require under its direction in connection with the preparation,
filing with the Commission, and distribution to contractholders and
certificateholders of any post-effective amendments or supplements to
the registration statements of Seller Separate Account that are
funding options for the Insurance Contracts or of any reports
(including, without limitation, reports on Form N-SAR and notices
pursuant to Rule 24f-2) or proxy materials in connection with the
Seller Separate Account. Seller will be responsible for providing
the necessary signatures and authorizations.
-4-
<PAGE>
6. Such services as Seller may
require in connection with the payment of commissions for the sale of
variable Insurance Contracts to registered representatives of UNUM
Sales Corp. or to other broker-dealers that are authorized to sell
such contracts.
7. Preparation and maintenance of
all records of charges with respect to interests in the Seller
Separate Account, assessment and deduction of those charges in
accordance with the Non-Novated Contracts and the Seller Separate
Account registration statement and, except where such charges are
legally permissible to be charged by and retained by Purchaser,
deposit of those charges in a bank account designated by Seller.
-5-
<PAGE>
SCHEDULE 1.04
TIMING STANDARDS
BUSINESS DAYS TASKS
Same Day Enrollments and Deposits
Same Day Address changes via phone calls
Same Day Reps return phone mail calls
Same Day Loan re-negotiations
1 Mail requested forms
5 Annuity quotes
5 Maximum Exclusion Allowance
5 Maximum Conservation Option
5 Account Projections
5 Respond to written correspondence
5 Verification of deposit
5 Research: account problems, statement
problem; Non-benefit issues:
exceptions case-by-case
5 Death benefits (after receiving all
information necessary to pay claim)
5 Gather info for audits
7 (VA) Benefits, Distributions and Loans
14 (Guaranteed)
20 Business Days Employer Valuation Reports
Census Reports
Participant Statements
-6-
<PAGE>
Appendix A
ERISA and 403(b) Compliance Services
[To be provided]
<PAGE>
First Unum Letterhead
April 25, 1996
Dear Sir or Madam:
This opinion is furnished in connection with the offering of group variable
annuity contracts (the "Contracts") by First UNUM Life Insurance Company ("First
UNUM") under a Registration Statement (the "Registration Statement") filed by
First UNUM and VA-I Separate Account (the "Variable Investment Division") under
the Securities Act of 1933 on Form N-4. The Contracts will be offered to
employers who establish a retirement program under Sections 401(a), 408, 403(a),
403(b) or 457 of the Internal Revenue Code of 1986 for their employees.
I am familiar with First UNUM's Articles of Incorporation and By-Laws and have
reviewed all statements, records, instruments, documents and such laws as I
consider appropriate in rendering this opinion. I have also examined the form
of the Registration Statement to be filed with the Securities and Exchange
Commission on Form N-4.
On the basis of such examination, I am of the opinion that:
1. First UNUM is a duly incorporated and validly existing life insurance
company under the laws of the State of New York.
2. The Variable Investment Division was duly organized under the provisions
of the New York Insurance Law.
3. Under New York law, 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.
4. The Contracts have been duly authorized by First UNUM and, when issued as
contemplated by the Registration Statement, will constitute legal, validly
issued and binding obligations of First UNUM in accordance with their
terms.
<PAGE>
- 2 -
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
Kevin J. Tierney
Senior Vice President
and General Counsel
<PAGE>
EXHIBIT 10(A)
<PAGE>
COOPERS COOPERS & LYBRAND L.L.P.
& LYBRAND a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Amendment No. 25 to the Registration Statement
on Form N-4 (File No. 33-45850) of our report dated April 9, 1996, on our
audits of the statements of assets and liabilities as of December 31, 1995,
and the related statements of operations and changes in net assets for each
of the two years in the period then ended of the VA-1 Separate Account of
First UNUM Life Insurance Company and our report dated February 6, 1996, on
our audits of the financial statements as of and for the years ended December
31, 1995 and 1994, of First UNUM Life Insurance Company. We also consent to
the reference to our Firm under the caption "Independent Accounts" in the
Statement of Additional Information.
Coopers & Lybrand L.L.P.
Portland, Maine
April 29, 1996
<PAGE>
EXHIBIT 10(D)
<PAGE>
POWER OF ATTORNEY
I, an undersigned Director of First UNUM Life Insurance Company ("UNUM"),
hereby appoint Kevin J. Tierney, my true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for me and in my stead, in
any and all capacities to execute and file a registration statement on Form N-4
pursuant to the Securities Act of 1933 and the Investment Company Act of 1940
with respect to any variable annuity products funded through one or more
separate accounts of UNUM, and any and all amendments (including post-effective
amendments) and all documents relating thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
WITNESS my signature on the date set forth below:
NAME TITLE DATE
/s/ Edward R. Hillman Director April 19, 1996
- ---------------------
Edward R. Hillman
<PAGE>
POWER OF ATTORNEY
I, an undersigned Director of First UNUM Life Insurance Company ("UNUM"),
hereby appoint Kevin J. Tierney, my true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for me and in my stead, in
any and all capacities to execute and file a registration statement on Form N-4
pursuant to the Securities Act of 1933 and the Investment Company Act of 1940
with respect to any variable annuity products funded through one or more
separate accounts of UNUM, and any and all amendments (including post-effective
amendments) and all documents relating thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
WITNESS my signature on the date set forth below:
NAME TITLE DATE
/s/ Kevin P. O'Connell Director April 19, 1996
- ----------------------
Kevin P. O'Connell
<PAGE>
POWER OF ATTORNEY
I, an undersigned Director of First UNUM Life Insurance Company ("UNUM"),
hereby appoint Kevin J. Tierney, my true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for me and in my stead, in
any and all capacities to execute and file a registration statement on Form N-4
pursuant to the Securities Act of 1933 and the Investment Company Act of 1940
with respect to any variable annuity products funded through one or more
separate accounts of UNUM, and any and all amendments (including post-effective
amendments) and all documents relating thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
WITNESS my signature on the date set forth below:
NAME TITLE DATE
/s/ Robert G. Ostrander Director April 19, 1996
- -----------------------
Robert G. Ostrander
<PAGE>
EXIHIBIT 13
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
FIRST UNUM VARIABLE ANNUITY III
Initial Investment.............................$1000
Annual Mortality & Expense Risk Charge.........1.20%
VIP Equity-Income Life of Fund Average Annual
Total Return as of 12/31/95...................13.33%
(84/365)
9
1 + 13.33
$1000 ( --------------- ) = $2,843.11
1 + 1.20
Resulting Value..................................$2,843.11
Minus Pro rated Administration Charge............$ 42.05
Resulting Value..................................$2,801.06
Minus 0% CDSC....................................$ 0.00
End of Period Value............................. $2,801.06
Standard Life of Fund Total Return
with Mortality & Expense Risk Charge and pro rated
portion of the Annual Administration Charge.
End of Period Value.........................$2,801.06
Life of Fund Average Annual Total Return.... 11.81%
Life of Fund Cumulative Total Return........ 180.11%
Non-Standard Life of Fund Total Return
with Mortality & Expense Risk Charge.
End of Period Value.........................$2,843.11
Life of Fund Average Annual Total Return.... 11.99%
Life of Fund Cumulative Total Return........ 184.31%
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
FIRST UNUM VARIABLE ANNUITY III
Initial Investment...............................$1000
Annual Mortality & Expense Risk Charge............1.20%
VIP Equity-Income 5 yr. Average Annual
Total Return as of 12/31/95.....................21.32%
5
1 + 21.32
$1000 ( --------------) = $2,476.05
1 + 1.20
Resulting Value..................................$2,476.05
Minus Pro rated Administration Charge............$ 21.02
Resulting Value..................................$2,455.03
Minus 0% CDSC....................................$ 0.00
End of Period Value..............................$2,455.03
Standard 5 yr. Total Return
with Mortality & Expense Risk Charge and pro rated
portion of the Annual Administration Charge.
End of Period Value.........................$2,455.03
5 yr. Average Annual Total Return........... 19.68%
5 yr. Cumulative Total Return............... 145.50%
Non-Standard 5 yr. Total Return
with Mortality & Expense Risk Charge.
End of Period Value.........................$2,476.05
5 yr. Average Annual Total Return........... 19.88%
5 yr. Cumulative Total Return............... 147.61%
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
FIRST UNUM VARIABLE ANNUITY III
Initial Investment...............................$1000
Annual Mortality & Expense Risk Charge............1.20%
VIP Equity-Income 3 yr. Average Annual
Total Return as of 12/31/95.....................19.60%
3
1 + 19.60
$1000 ( -------------- ) = $1,650.64
1 + 1.20
Resulting Value..................................$1,650.64
Minus Pro rated Administration Charge............$ 12.61
Resulting Value..................................$1,638.03
Minus 0% CDSC....................................$ 0.00
End of Period Value..............................$1,638.03
Standard 3 yr. Total Return
with Mortality & Expense Risk Charge and pro rated
portion of the Annual Administration Charge.
End of Period Value.........................$1,638.03
3 yr. Average Annual Total Return........... 17.88%
3 yr. Cumulative Total Return............... 63.80%
Non-Standard 3 yr. Total Return
with Mortality & Expense Risk Charge.
End of Period Value.........................$1,650.64
3 yr. Average Annual Total Return........... 18.18%
3 yr. Cumulative Total Return............... 65.06%
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
FIRST UNUM VARIABLE ANNUITY III
Initial Investment...............................$1000
Annual Mortality & Expense Risk Charge............1.20%
VIP Equity-Income 1 yr. Average Annual
Total Return as of 12/31/95.....................35.09%
1 + 35.09
$1000 ( ---------------- ) = $1,334.88
1 + 1.20
Resulting Value..................................$1,334.88
Minus Pro rated Administration Charge............$ 4.20
Resulting Value..................................$1,330.68
Minus 0% CDSC....................................$ 0.00
End of Period Value..............................$1,330.68
Standard 1 yr. Total Return
with Mortality & Expense Risk Charge and pro rated
portion of the Annual Administration Charge.
End of Period Value.........................$1,330.68
1 yr. Average Annual Total Return........... 33.07%
Non-Standard 1 yr. Total Return
with Mortality & Expense Risk Charge.
End of Period Value.........................$1,334.88
1 yr. Average Annual Total Return........... 33.49%
<PAGE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
FIRST UNUM VARIABLE ANNUITY III
Initial Investment...............................$1000
Annual Mortality & Expense Risk Charge............1.20%
VIP Equity-Income Quarterly
Total Return as of 12/31/95......................6.14%
1 + 6.14
$1000 (--------------------------) = $1,058.21
(92/365)
1 + 1.20
Resulting Value..................................$1,058.21
Minus Pro rated Administration Charge............$ 4.20
Resulting Value..................................$1,054.01
Minus 0% CDSC....................................$ 0.00
End of Period Value..............................$1,054.01
Standard Quarter Total Return
with Mortality & Expense Risk Charge and pro rated
portion of the Annual Administration Charge.
End of Period Value.........................$1,054.01
Quarterly Total Return...................... 5.40%
Non-Standard Quarterly Total Return
with Mortality & Expense Risk Charge.
End of Period Value.........................$1,058.21
Quarterly Total Return...................... 5.82%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
VA.I SEPARATE ACCOUNT OF FIRST UNUM LIFE INSURANCE COMPANY, FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 16
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16
<PAYABLE-FOR-SECURITIES> 16
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 16
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
