SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 1 X
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 4 X
SAGE LIFE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
101 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 573-1556
Name and Address of Agent for Service: With copies to:
Julie A. Tedesco, Esq. Kimberly J. Smith, Esq.
First Data Investor Services Group, Inc.Sutherland Asbill & Brennan LLP
101 Federal Street 1275 Pennsylvania Avenue, N.W.
Boston, Massachusetts 02110 Washington, D.C. 20004-2404
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of
the Registration Statement.
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (____) pursuant to paragraph (b) of Rule 485
[x] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (_____) pursuant to paragraph (a)(2) 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.
PROSPECTUS
for
SAGE LIFE INVESTMENT TRUST
EAFE EQUITY INDEX FUND
S&P 500 EQUITY INDEX FUND
MONEY MARKET FUND
[______________ , 1999]
EAFE EQUITY INDEX FUND
Seeks to replicate as closely as possible the performance of the Morgan
Stanley Capital International Europe, Australasia, Far East Index before
the deduction of fund expenses. The EAFE Index is an index of stocks of
companies outside the United States.
S&P 500 EQUITY INDEX FUND
Seeks to match as closely as possible the performance of the Standard &
Poor's 500 Composite Stock Price Index before the deduction of fund
expenses. The S&P 500 Index emphasizes stocks of large U.S. companies.
MONEY MARKET FUND
Seeks to provide high current income consistent with the preservation of
capital and liquidity.
An investment in the Funds is not a deposit of or obligation of, or
guaranteed by any financial institution or any bank, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the accuracy or adequacy of this Prospectus. Any representation to the
contrary is a criminal offense.
TABLE OF CONTENTS
Risk/Return Summary.........................................................
Fees and Expenses of the Funds................................................
Additional Investment and Risk Information..................................
Management of the Funds...................................................
Distribution Plan...........................................................
Pricing of Fund Shares
Purchase and Redemption of Shares..........................................
Dividends, Distributions and Taxes.........................................
Special Information About the Funds......................................
Financial Highlights........................................................
Appendix A Description of Indexes
RISK/RETURN SUMMARY
Investment Objectives
The EAFE Equity Index Fund (the "EAFE Fund") seeks to match, as closely as
possible, the performance of the Morgan Stanley Capital International
(MSCI) EAFE Index (the "EAFE Index") before the deduction of fund expenses.
The S&P 500 Equity Index Fund (the "S&P 500 Fund") seeks to match, as
closely as possible, the performance of the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500 Index") before the deduction of fund
expenses.
The Money Market Fund seeks to provide high current income consistent with
the preservation of capital and liquidity.
Each Fund's investment objective is not a fundamental policy and may be
changed upon notice to, but without the approval of, each Fund's
shareholders. If there is a change in a Fund's investment objective, the
Fund's shareholders should consider whether the Fund remains an appropriate
investment in light of their then-current needs.
Principal Investment Strategies of the Funds
The EAFE Fund seeks to be fully invested in a representative sample of
stocks and other equity securities of companies included in the EAFE Index.
The EAFE Index is a widely accepted benchmark of international stock
performance. It is a model, not an actual portfolio. It tracks stocks in
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. The Index is
"capitalization weighted," which means that a company whose securities have
a high market value will contribute proportionately more to the EAFE
Index's performance results than a company whose securities have a lower
market value.
The Fund generally intends to allocate its investments among stocks in
approximately the same proportions as they are represented in the EAFE
Index. For example, if a specific stock represented 2% of the EAFE Index,
the Fund would generally invest 2% of its assets in that company.
The S&P 500 Fund will invest in stocks of companies included in the S&P 500
Index, selected on the basis of computer-generated statistical data. The
Fund generally intends to allocate its investments among common stock in
approximately the same proportions as they are represented in the S&P 500
Index.
The Money Market Fund seeks to provide high current income consistent with
the preservation of capital and liquidity. The Fund also intends to
maintain a share price of $1.00. The Fund seeks to achieve its objective by
investing in high-quality short-term money market instruments, such as U.S.
Government obligations, certificates of deposit, bankers' acceptances and
commercial paper. The Fund limits its investments to those short-term
securities that it determines present minimal credit risk and meet certain
rating requirements. The Fund maintains an average dollar-weighted
portfolio maturity of 90 days or less.
Principal Risks of the Funds
There is, of course, no guarantee that any Fund will realize its goal. An
investor in the EAFE Fund or the S&P 500 Fund (the "Index Funds") should be
willing to accept greater short-term fluctuation in the value of his or her
investment than he or she would typically experience investing in certain
bond or money-market funds. A Fund by itself does not constitute a balanced
investment program. Diversifying your investments may improve your
long-term investment return and lower the volatility of your overall
investment portfolio.
Below we set forth some of the prominent risks associated with investing in
general, with investing in stocks outside the United States and with index
investing. As a passive investment aiming to match its index as closely as
possible, each Index Fund makes no effort to limit its exposure to
investment risk.
Index Funds
An investment in the Index Funds could lose money, or an Index Fund's
performance could trail that of other investments. For example:
Market Risk
Stock prices overall could decline over short or even extended periods.
What pervades all investing is the risk that the securities an investor has
selected will not perform well.
Stock markets tend to move in cycles, with periods of rising stock prices
and periods of falling stock prices.
Returns on large companies' stocks could trail the returns from stocks of
medium or small companies. Each type of stock tends to go through cycles of
outperformance and underperformance in comparison to the overall stock
market. In the past, these periods have lasted for several years.
Cash Flow
An Index Fund's ability to meet its goal depends to some extent on the cash
flow in and out of the Index Fund. This is because when a shareholder buys
or sells Index Fund shares, the Index Fund generally has to buy or sell
stocks in its portfolio. Changes in an Index Fund's cash flow affects how
closely an Index Fund's portfolio mirrors its index.
Because of the inflow and outflow of assets in an Index Fund, it may not be
able to mirror its index closely enough to track its performance.
Modeling Risk
An Index Fund runs the risk that its returns will not track its index
because the stocks its adviser has selected do not accurately reflect the
index. If the stocks an Index Fund does not own outperform those that it
does, the Index Fund's results will trail its index. In addition, unlike an
index, an Index Fund has operating expenses. Therefore, while an Index Fund
seeks to track its index as closely as possible, an Index Fund may not be
able to match the performance of its index because it pays expenses to
cover the costs of investing.
EAFE Fund
Foreign Risk
The risks of investing in foreign securities include fluctuations in
foreign exchange rates, future political and economic developments, and the
possible imposition of exchange controls or other foreign governmental laws
and restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation,
political or social instability or diplomatic developments which could
adversely affect investments in these countries.
There may be less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S. companies. Non-U.S. securities
markets, while growing in volume, have, for the most part, substantially
less volume than U.S. markets. Securities of many foreign companies are
less liquid and their prices more volatile than securities of comparable
U.S. companies. Transaction costs of investing in non-U.S. securities
markets are generally higher than in the U.S. There is generally less
government supervision and regulation of exchanges, brokers and issuers
than there is in the U.S. The Funds might have greater difficulty taking
appropriate legal action in non-U.S. courts. Non-U.S. markets also have
different clearance and settlement procedures which in some markets have at
times failed to keep pace with the volume of transactions. This may create
substantial delays and settlement failures that could adversely affect a
Fund's performance.
Adverse political, economic or social developments in the countries in
which the Fund has invested could undermine the value of the Fund's
investments or prevent the Fund from realizing their full value.
The currency of a country in which the Fund invests may fluctuate in value
relative to the U.S. dollar, which could affect the value of the investment
itself to U.S. investors.
Investments in foreign securities involve higher costs than investments in
U.S. securities, including higher transaction costs as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with the level of
currency exchange rates, less complete financial information about the
issuers, less market liquidity, and political instability. Future political
and economic developments, the possible imposition of withholding taxes on
interest income, the possible seizure or nationalization of foreign
holdings, the possible establishment of exchange controls, or the adoption
of other governmental restrictions might adversely affect the payment of
principal and interest on foreign obligations. Additionally, foreign banks
and foreign branches of domestic banks may be subject to less stringent
reserve requirements, and to different accounting, auditing and
recordkeeping requirements.
Money Market Fund
An investment in the Money Market Fund could lose money, or the Fund's
performance could trail that of other investments. For example:
Interest Rate Risks
Although the Fund seeks to preserve the value of your investment at $1.00
per share, that value is not guaranteed and it is still possible to lose
money by investing in the Fund.
The Fund invests mostly in short-term debt securities, so rises and falls
in interest rate levels will affect the Fund's performance. When interest
rates go up, the value of debt securities tends to fall. If your portfolio
invests a significant portion of its assets in debt securities and interest
rates rise, then the value of your investment may decline. Alternatively,
when interest rates go down, the value of debt securities may rise.
The value of the debt securities in which the Fund invests is affected by
the issuer's ability to pay principal and interest on time. The failure of
an issuer to timely pay an obligation may adversely affect the value of
your investment in the Fund.
An investment in the Money Market Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Who May Want to Invest in the Funds
The Funds sell their shares only to separate accounts of various insurance
companies (the "Insurer(s)") and to various pension and profit-sharing
plans ("Retirement Plans"). Shares are available through the purchase of
various Retirement Plans and certain variable annuity and variable life
insurance contracts ("Contract(s)") issued by the Insurers. If you are a
Contract owner, the Insurer will allocate your premium payments to the
Funds through separate accounts in accordance with your Contract ("Contract
owner").
The Retirement Plans and separate accounts of the Insurers are the
shareholders of record of the Funds' shares. Any reference to the
shareholder in this Prospectus technically refers to the Retirement Plans
and the Insurers' separate accounts and not to you, the Contract owner or
Retirement Plan participant.
The EAFE Fund may appeal to you if:
you are a long-term investor
you are willing to take the chance of losing a portion of your principal in
exchange for the opportunity to potentially earn higher long-term returns
you are seeking a simple way to attempt to match the performance of the
EAFE Index over time
you wish to include exposure to European, Australian and Far East markets
as a portion of your overall investment strategy
you are willing to accept the heightened risks of investing in foreign
markets
You may not want to invest in the EAFE Fund if:
you are seeking a high level of current income
you are conservative in your investment approach
you are unwilling to accept the heightened risks of investing in foreign
markets
you seek to maintain the value of your original investment more than the
potential growth of capital
The S&P 500 Fund may appeal to you if:
you are a long-term investor
you are willing to take the chance of losing a portion of your principal in
exchange for the opportunity to potentially earn higher long-term returns
you believe the market will favor large capitalization U.S. companies over
small capitalization U.S. companies over the long-term
you are seeking a simple way to attempt to match the performance of the S&P
500 Index over time
You may not want to invest in the S&P 500 Fund if:
you are seeking a high level of current income
you are conservative in your investment approach
you seek to maintain the value of your original investment more than the
potential growth of capital
The Money Market Fund may appeal to you if:
you are conservative in your investment approach
you seek stability of principal more than growth of capital
you participate in a dollar cost averaging program under a Contract
You may not wish to invest in the Money Market Fund if:
you are aggressive in your investment approach
you desire a relatively high rate of return
Bar Chart and Performance Table
The Funds commenced operations on [February___, 1999]. Because the Funds
have been in existence for such a short period of time, no performance
information is being presented to you in this Prospectus.
FEES AND EXPENSES OF THE FUNDS
This table describes the fees and expenses an investor may pay if the
investor buys and holds shares of the Funds:
<TABLE>
<S> <C> <C> <C>
S&P Money
EAFE 500 Market
Fund Fund Fund
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets)
Management Fees*............................ 0.90% 0.55% 0.65%
12b-1 Fees**................................ 0.25% 0.25% 0.25%
Other Expenses***........................... 0.17% 0.17% 0.17%
Total Fund Operating Expenses............... 1.32% 0.97% 1.07%
</TABLE>
* Sage Advisors, Inc., the Funds' investment manager, has agreed to waive
its management fees for the EAFE Fund to 0.73%; for the S&P 500 Fund to
0.38%; and for the Money Market Fund to 0.48%, until such time as notice is
given by it to the Board of Trustees of the Trust.
** A Rule 12b-1 Plan (the "Plan") has been adopted by each Fund; however,
no Plan payments will accrue or be made during the fiscal year ending
December 31, 1999.
*** Estimated for the fiscal year ending 1999.
Expense Example
This example is intended to help you compare the cost of investing in the
Funds with the costs of
investing in other mutual funds.
The example assumes that the investor invests $10,000 in a Fund for the
time periods indicated and then redeems all of its shares at the end of
those periods. The example also assumes that the investor's investment has
a 5% return each year and that the Fund's operating expenses remain the
same. Although actual costs may be higher or lower, based on these
assumptions the investor's costs would be as follows:
<TABLE>
<S> <C> <C>
1 Year 3 Years
EAFE Fund $ 9 $ 29
S&P 500 Fund $ 6 $ 18
Money Market Fund $ 7 $ 21
</TABLE>
A Note on Fees
As an indirect investor in the Funds, you would incur various operating
costs, including management expenses. If you are a Contract owner, you will
also incur fees associated with the Contracts you purchase, which are not
reflected in the table and example above. Detailed information about the
cost of investing in a Fund is presented in the accompanying prospectus for
the Contracts through which the Funds' shares are offered to you.
ADDITIONAL INVESTMENT AND RISK INFORMATION
Index Funds in General
An index is a group of securities whose overall performance is used as a
standard to measure investment performance. Index funds are passively
managed and the investment adviser tries to match, as closely as possible,
the performance of a target index by holding either all, or a
representative sample, of the securities in the index. The investment
advisers do not buy and sell securities based on research and analysis
Indexing appeals to many investors for the following reasons:
(1) indexing provides simplicity because it is a straightforward
market-matching strategy;
(2) index funds generally provide diversification by investing in a wide
variety of companies and industries;
(3) an index fund's performance is relatively predictable because the
fund's value is expected to move in the same direction, up or down, as the
target index; and
(4) index funds tend to have lower costs because they do not have many of
the expenses of actively managed funds such as research, and index funds
usually have relatively low trading activity and therefore brokerage
commissions tend to be lower.
Each Index Fund seeks to maintain a correlation between its performance and
the performance of the index it tracks of at least 0.95 (before deduction
of fund expenses). If an Index Fund's return matched that of its index
exactly, it would achieve a correlation of 1.00. Each Index Fund's ability
to track its index may be affected by:
transaction costs
expenses incurred by the Fund
changes in the composition of the index
flows of cash into and out of the Fund
Principal Investment Strategies
EAFE Fund. The EAFE Index is an index representing the stock markets in the
regions of Europe, Australia and the Far East. The EAFE Index weights
stocks according to their market capitalization, which is the number of
shares outstanding multiplied by the stock's current price. In seeking to
replicate the performance of the EAFE Index, before the deduction of fund
expenses, the Fund's investment sub-adviser, State Street Global Advisors
("State Street"), will attempt over time to allocate the Fund's investments
among stocks in approximately the same proportions as they are represented
in the EAFE Index. However, the Fund may not invest in all companies
represented in the EAFE Index at the same time. Under normal circumstances,
the Fund expects to invest at least 80% of its assets in securities of
companies in the EAFE Index. The EAFE Index currently includes the
following countries: Australia, Austria, Belgium, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand,
Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United
Kingdom.
State Street manages the Fund using advanced statistical techniques to
determine which stocks are to be purchased or sold to replicate the EAFE
Index. State Street selects stocks for inclusion in the Fund based on:
country of origin
market capitalization
yield
volatility
industry sector
Morgan Stanley Capital International, Inc. ("MSCI") determines the
composition of the EAFE Index and may change the composition from time to
time. The Fund may make adjustments to its investments because of changes
in the composition of the EAFE Index.
MSCI does not sponsor, endorse, sell or promote the Fund. MSCI makes no
representation or warranty, express or implied, to the shareholders of the
Fund or any member of the public regarding the advisability of investing in
funds generally or in this Fund particularly, or the ability of the EAFE
Index to track general stock market performance (see "Appendix A" for an
additional discussion).
S&P 500 Fund. In seeking to replicate the performance of the S&P 500 Index,
before the deduction of fund expenses, State Street, the Fund's investment
sub-adviser, will attempt over time to allocate the Fund's investments
among common stocks in approximately the same proportions as they are
represented in the S&P 500 Index. Under normal circumstances, the Fund will
invest at least 80% of its assets in securities of companies included in
the S&P 500 Index.
The S&P 500 Index is a well-known stock market index that includes common
stocks of 500 companies from several industrial sectors. These stocks
represent a significant portion of the market value of all common stocks
publicly traded in the United States, most of which are listed on the New
York Stock Exchange (the "NYSE"). The S&P 500 Index weights stocks
according to their market capitalization (i.e., the number of shares
outstanding multiplied by the stock's current price).
State Street manages the Fund using advanced statistical techniques to
determine which stocks are to be purchased or sold to replicate the S&P 500
Index. State Street selects stocks for inclusion in the Funds based on:
market capitalization
yield
volatility
industry sector
Standard & Poor's Corporation ("S&P") determines the composition of the S&P
500 Index and may change the composition from time to time. The Fund may
make adjustments because of changes in the composition of the S&P 500
Index.
S&P does not sponsor, endorse, sell or promote the S&P 500 Fund. S&P makes
no representation regarding the advisability of investing in funds
generally or in this Fund (see "Appendix A" for an additional discussion).
Money Market Fund. The Money Market Fund's investment sub-adviser, Conning
Asset Management Company ("Conning"), must follow strict rules as to the
investment quality, maturity, diversification and other features of the
securities it purchases for the Money Market Fund. The average remaining
maturity of the securities cannot be greater than 90 days. The remaining
maturity of a security is the period of time until the principal amount
must be repaid.
The Money Market Fund may invest in:
U.S. Government securities, including Treasuries and bonds and notes issued
by government agencies such as the Federal Home Loan Bank, Government
National Mortgage Association (GNMA or "Ginnie Mae"), Federal National
Mortgage Association (FNMA or "Fannie Mae") and Student Loan Marketing
Association (SLMA or "Sallie Mae")
Certificates of deposit, bankers' acceptances and other obligations issued
or guaranteed by bank holding companies and their subsidiaries
commercial paper and other short-term obligations issued by U.S. and
foreign corporations
adjustable rate securities
Eurodollar securities
shares of other investment companies
Secondary Risks of the Funds
Euro Risk
On January 1, 1999, eleven countries of the European Economic and Monetary
Union (EMU) began implementing a plan to replace their national currencies
with a new currency, the Euro. Full conversion to the Euro is slated to
occur by July 1, 2002.
Although it is impossible to predict the impact of the conversion to the
Euro on the Funds, the risks may include:
changes in the relative strength and value of the U.S. dollar or other
major currencies and
adverse effects on the business or financial condition of European issuers
that a Fund holds in its portfolio
that the systems used to purchase and sell Euro-denominated securities may
not work
uncertainty about how existing financial contracts will be treated after
Euro implementation
unpredictable effects on trade and commerce generally
These and other factors could increase volatility in financial markets
worldwide and could adversely affect the value of securities held by a
Fund.
Derivatives
The Index Funds may invest, to a limited extent, in stock index futures or
options, which are types of derivatives. The Index Funds will not use these
derivatives for speculative purposes or as leveraged investments that
magnify the gains or losses of an investment. The Index Funds may, but are
not required to, invest in derivatives to keep cash on hand to meet
shareholder redemptions or other needs while simulating full investments in
stocks and to reduce an Index Fund's transaction cost or add value when
these instruments are favorably priced. Risks associated with derivatives
include:
the risk that the derivative will not fully offset the underlying positions
derivatives used for risk management may not have the intended effects and
may result in losses or missed investment opportunities
Year 2000 Risk
As with most businesses, the Funds face the risk that the computer systems
of the Funds' investment adviser, Sage Advisors, Inc. ("Sage"), the
sub-advisers (the "Advisers") and other companies on which they rely for
service or in which they invest will not accommodate the changeover
necessary from dates in the year 1999 to dates in the year 2000. These
risks could adversely affect:
our ability to service your Fund account, including our ability to meet
your requests to buy and sell Fund shares
our ability to trade securities held by the Funds or to accurately price
securities held by a Fund
the companies in which the Funds invest, which could impact the value of a
Fund's investments
Fund management is working both internally and with the Funds' service
providers to address these potential problems. Service providers have
provided assurance to the Funds that they will be fully year 2000 compliant
by January 1, 2000. Based on information currently available, Sage and the
Advisers do not expect that the Funds will incur significant operating
expenses or be required to incur material costs to be year 2000 compliant.
The Funds cannot guarantee, however, that all year 2000 issues will be
identified and corrected by January 1, 2000.
Additional Investments and Techniques
The Funds may also invest in the following investments and use the
following investment techniques.
Bank Obligations. The Money Market Fund may purchase U.S.
dollar-denominated bank obligations, including certificates of deposit,
bankers' acceptances, bank notes, deposit notes and interest-bearing
savings and time deposits, issued by U.S. or foreign banks or savings
institutions having total assets at the time of purchase in excess of
$1 billion. For this purpose, the assets of a bank or savings institution
include the assets of both its domestic and foreign branches. The Money
Market Fund will invest in the obligations of domestic banks and savings
institutions only if their deposits are federally insured. Investments by
the Money Market Fund in obligations of foreign banks and foreign branches
of domestic banks will not exceed 25% of the Fund's total assets at the
time of investment.
With respect to the Money Market Fund, short-term securities (other than
U.S. Government securities) must be rated (generally, by at least two
Nationally Recognized Statistical Rating Organizations ("NRSROs") within
the two highest rating categories assigned to short-term debt securities.
In addition, the Money Market Fund (a) will not invest more than 5% of its
total assets in securities rated in the second highest rating category by
such NRSROs and will not invest more than 1% of its total assets in such
securities of any one issuer, and (b)intends to limit investments in the
securities of any single issuer (other than securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities) to not more than
5% of the Fund's total assets at the time of purchase, provided that the
Fund may invest up to 25% of its total assets in the securities of any one
issuer for a period of up to three (3) business days. Unrated and certain
single rated securities (other than U.S. Government securities) may be
purchased by the Money Market Fund, but are subject to a determination by
Conning, in accordance with procedures established by the Board of
Trustees, that the unrated and single rated securities are of comparable
quality to the appropriate rated securities.
Derivatives. Each Index Fund may invest in various instruments that are
commonly known as derivatives. There are, in fact, many different types of
derivatives and many different ways to use them. Those different uses
involve a range of risks. Mutual funds commonly use futures and options for
traditional hedging purposes in an effort to protect themselves from
exposure to adversely changing interest rates, securities prices or
currency exchange rates, and as a low cost method of gaining positive
exposure to a particular securities market without investing directly in
those securities. The Index Funds may, but are not required to, use
financial futures, contracts and related options for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the
Commodity Futures Trading Commission. Each Index Fund will only use
derivatives for cash management purposes and for hedging its portfolio. The
Index Funds will not use derivatives to leverage, or to increase, portfolio
risk above the level that would be achieved using only traditional
investment securities or to acquire exposure to changes in the value of
assets or indexes that by themselves would not be purchased for an Index
Fund.
Securities Index Futures and Related Options. When an Index Fund receives
cash from new investments or holds a portion of its assets in money market
instruments, it may enter into index futures or options to more quickly
invest, indirectly, in its target universe of securities. Strategies an
Index Fund could use to accomplish this include purchasing futures
contracts, writing put options and purchasing call options. When an Index
Fund wishes to sell securities, because of shareholder redemptions or
otherwise, it may use index futures or options to hedge against market risk
until the sale can be completed. These strategies could include selling
futures contracts, writing call options and purchasing put options.
Swap Agreements. The Index Funds may enter into interest rate, index,
equity and currency exchange rate swap agreements. The Index Funds would
enter into these transactions in an attempt to "lock in" a particular
return when it is considered desirable to do so, possibly at a lower cost
to the Funds than if the Funds had invested directly in the asset that
yielded the desired return. Swap agreements are two-party contracts entered
into primarily by institutional investors for periods ranging from a few
weeks to more than one year. In a standard swap transaction, two parties
agree to exchange the returns (or differentials in rates of return) earned
or realized on particular predetermined investments or instruments, which
may be adjusted for an interest factor. The gross returns to be exchanged
or "swapped" between the parties are generally calculated with respect to a
"normal amount" (i.e., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular
foreign currency, or in a "basket" of securities representing a particular
index). Forms of swap agreements include interest rate caps, under which,
in return for a premium, one party agrees to make payments to the other to
the extent that interest rates exceed a specified rate, or "cap"; interest
rate floors, under which, in return for a premium, one party agrees to make
payments to the other to the extent that interest rates fall below a
specified level, or "floor"; and interest rate collars, under which a party
sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels.
Foreign Securities. The EAFE Fund will invest in the securities of foreign
issuers and the Money Market Fund may invest in U.S. dollar-denominated
foreign securities issued by foreign banks and companies. There are certain
risks and costs involved in investing in securities of companies and
governments of foreign countries, which are in addition to the usual risks
inherent in U.S. investments. See the "Principal Risks of the Funds"
section of this Prospectus for a discussion of related risks.
Variable and Floating Rate Securities. The Money Market Fund may purchase
variable and floating rate securities which may have stated maturities in
excess of the Fund's maturity limitations but are deemed to have shorter
maturities because the Fund can demand payment of the principal of the
securities at least once within such periods on not more than 30 days'
notice (this demand feature is not required if the securities are
guaranteed by the U.S. Government or an agency or instrumentality thereof).
These securities may include variable amount master demand notes that
permit the indebtedness to vary in addition to providing for periodic
adjustments in the interest rate. The Fund will only purchase unrated
variable and floating rate securities determined to be of comparable
quality at the time of purchase to rated instruments purchasable by the
Money Market Fund. The absence of an active secondary market, however,
could make it difficult to dispose of the instruments, and the Money Market
Fund could suffer a loss if the issuer defaulted or during periods that the
Fund is not entitled to exercise its demand rights.
Defensive Instruments. When adverse market or economic conditions occur,
the Funds may invest temporarily all or a portion of their assets in
defensive investments. These include high grade debt securities,
obligations of the U.S. Government, its agencies or instrumentalities and
short-term (maturing in less than one year) money market instruments,
including commercial paper rated A-1 or better by Standard & Poor's Rating
Services ("S&P"), or P-1 or better by Moody's Investors Service, Inc
("Moodys"). When following a defensive strategy, an Index Fund will be less
likely to achieve its investment objective.
Portfolio Turnover
The annual portfolio turnover rate measures the frequency that an Index
Fund sells and replaces the value of its securities within one year. An
annual portfolio turnover rate of 100% means that an Index Fund sold and
purchased investments equal to the average value of the Index Fund for a
given year. High turnover can increase an Index Fund's transaction costs,
thereby lowering its returns. It may also increase your tax liability. An
Index Fund does not have a target portfolio turnover rate, although changes
in its portfolio will tend to track changes in an Index Fund's index.
MANAGEMENT OF THE FUNDS
Board of Trustees
The Fund' shareholders elect a Board of Trustees. The Trustees supervise
all of the Funds' activities.
Investment Manager
Sage, located at 300 Atlantic Street, Stamford, Connecticut 06901, is the
investment manager for each Fund. Sage supervises the performance of
administrative and professional services provided to the Funds by others,
including the Advisers and First Data Investor Services Group, Inc., the
sub-administrator of the Funds (the "Sub-Administrator"). Sage has no prior
experience managing mutual funds. Sage also pays the fees of the Advisers.
As compensation for its services and the related expenses borne by Sage,
each Fund pays Sage an annual fee based on average daily net assets of each
Fund. The following fees are amounts paid to Sage, that include certain
expense limitations and voluntary fee waivers, that will remain in effect
until notice is given by Sage to the Board of Trustees of Sage Life
Investment Trust (the "Trust"):
0.73% for the EAFE Fund (0.90% without fee waivers and expense limitations)
0.38% for the S&P 500 Fund (0.55% without fee waivers and expense limitations)
0.48% for the Money Market Fund (0.65% without fee waivers and expense
limitations)
Sage may compensate an Insurer for certain administrative services
performed for the Funds in connection with the Contracts, based on the
assets of the Fund attributable to Contracts issued through the separate
accounts of the Insurer.
Investment Advisers
Sage has retained the services of State Street to serve as the investment
adviser to the Index Funds, and has retained the services of Conning to
serve as the investment adviser to the Money Market Fund. As compensation
for the Advisers' services and the related expenses they incur with respect
to each Fund, Sage pays the applicable Adviser a fee, computed daily and
payable monthly (quarterly with respect to the Money Market Fund), equal on
an annual basis with respect to each Fund's average daily net assets as
follows:
the EAFE Fund: 0.15% of the first $50 million of assets under management,
0.10% of the next $50 million of assets under management, and 0.08% on
amounts in excess of $100 million of assets under management with a minimum
annual fee of $65,000
the S&P 500 Fund: 0.05% of the first $50 million of assets under
management, 0.04% of the next $50 million of assets under management, and
0.02% on amounts in excess of $100 million of assets under management with
a minimum annual fee of $50,000
the Money Market Fund: 0.15% of the first $100 million of assets under
management, 0.10% of the next $200 million of assets under management, and
0.075% on amounts in excess of $300 million of assets under management
State Street, the adviser for the Index Funds, located at Two International
Place, Boston, Massachusetts 02110 is a division of State Street Bank and
Trust Company and has been providing institutional investment management
services since 1987. As of April 1, 1999, State Street served as investment
adviser to various institutional clients with aggregate assets under
management of [$___ billion]. State Street Bank and Trust Company is a
wholly-owned subsidiary of State Street Corporation. State Street
Corporation services financial assets, including custody, pricing and asset
management, for retail and institutional clients.
Conning, the adviser for the Money Market Fund, located at City Place II,
185 Asylum Street, Hartford, CT 06103-4105, has been providing
institutional investment management services since 1982. As of April 1,
1999, Conning manages assets of [$______ billion]. Conning is a
majority-owned subsidiary of General American Life Insurance Company.
DISTRIBUTION PLAN
The shareholders of each Fund have approved a Distribution (12b-1) Plan for
the Funds which authorizes payments by the Funds in connection with the
distribution of shares at an annual rate of up to 0.25% of a Fund's average
daily net assets. The Funds will not make any payments under the
Distribution Plans for the fiscal year ending December 31, 1999.
Shareholders will be given prior notice if such payments are to commence at
a future date.
Under each Fund's Distribution Plan a Fund may pay the Funds' distributor,
Sage Distributors, Inc., for various costs actually incurred or paid in
connection with the distribution of a Fund's shares and/or servicing of
shareholder accounts. Such costs include the costs of financing activities
primarily intended to result in the sale of the Funds' shares, such as the
costs (1) of printing and mailing the Funds' prospectuses, Statements of
Additional Information and shareholder reports to prospective shareholders
and Contract owners; (2) relating to the Funds' advertisements, sales
literature and other promotional materials; (3) of obtaining information
and providing explanations to shareholders and Contract owners regarding
the Funds; (4) of training sales personnel and of personal service; and/or
(5)maintenance of shareholders' and Contract owners' accounts with respect
to each Fund's shares attributable to such accounts. The distributor, in
turn, may compensate Insurers or others for such activities.
PRICING OF FUND SHARES
Each Fund calculates the price of its shares (also known as the "Net Asset
Value" or "NAV") at the close of regular trading on the NYSE (normally 4:00
p.m., Eastern Time) every day the NYSE is open for business.
For the Index Funds, NAV reflects the deduction of each of the Index Fund's
liabilities from the total value of its assets - the market value of the
securities it holds, plus its cash reserves - and dividing the result by
the number of shares outstanding. Note that prices for securities that
trade on foreign exchanges can change significantly on days when the NYSE
is closed and a shareholder cannot buy or sell EAFE Fund shares. Such price
changes in the securities the EAFE Index owns may ultimately affect the
price of EAFE Fund shares when the NYSE reopens.
The Money Market Fund uses the amortized cost method of valuing its
portfolio securities to maintain a constant NAV of $1.00 per share. Under
this method of valuation, the Money Market Fund values its portfolio
securities at their cost at the time of purchase and not at market value,
and amortizes that price over the life of the investment thus minimizing
fluctuations in value due to interest rate changes or market conditions.
The Funds value their securities at the stated market value if price
quotations are available. When price quotations for a particular security
are not readily available, the Funds determine their value by the method
that most accurately reflects their current worth based on procedures
adopted by the Board of Trustees.
PURCHASE AND REDEMPTION OF SHARES
The Funds continuously offer their shares to Insurers and Retirement Plans
at the NAV per share next determined after the Trust or its designated
agent receives and accepts a proper purchase request. Each Insurer (or
Retirement Plan) submits purchase and redemption orders to the Trust based
on allocation instructions for premium payments, transfer instructions and
surrender or partial withdrawal requests which are furnished to the Insurer
by such Contract owners (or by participants). The Insurers and Retirement
Plans are designated agents of the Funds. The Trust, the Funds and the
Funds' distributor reserve the right to reject any purchase order from any
party for shares of any Fund.
The Funds will ordinarily make payment for redeemed shares within seven (7)
business days after the Trust or its designated agent receives and accepts
a proper redemption order. A proper redemption order will contain all the
necessary information and signatures required to process the redemption
order. The redemption price will be the NAV per share next determined after
the Trust or its designated agent receives and accepts the shareholder's
request in proper form.
Each Fund may suspend the right of redemption or postpone the date of
payment during any period when trading on the NYSE is restricted, or the
NYSE is closed for other than weekends and holidays; when an emergency
makes it not reasonably practicable for a Fund to dispose of its assets or
calculate its net asset value; or as permitted by the Securities and
Exchange Commission.
The accompanying Prospectus or disclosure documents for the Contracts or
Plan describes the allocation, transfer and withdrawal provisions of such
Contract or Plan.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund distributes substantially all of its net income and capital gains
to shareholders each year. Each Index Fund distributes capital gains and
income dividends annually and the Money Market Fund distributes income
dividends monthly and all capital gains, if any, annually. All dividends
and capital gains distributions paid by a Fund will be automatically
reinvested, at net asset value in that respective Fund. For Contract owners
the result of automatic reinvestment of distributions on a Fund's
performance, including the effect of dividends, is reflected in the cash
value of the Contracts you own. Please see the Contract prospectus
accompanying this Prospectus for more information.
Each Fund will be treated as a separate entity for federal income tax
purposes. Each Fund has qualified and intends to continue to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), in order to be relieved of federal income tax on that
part of its net investment income and realized capital gains it distributes
to shareholders. To qualify, each Fund must meet certain relatively complex
income and diversification tests. The loss of such status would result in a
Fund being subject to federal income tax on its taxable income and gains.
Federal tax regulations require that mutual funds offered through insurance
company separate accounts must meet certain diversification requirements to
preserve the tax-deferral benefits provided by the variable contracts. The
Advisers intend to diversify each Funds investments in accordance with
those requirements. The Insurers' prospectuses for variable annuities and
variable life insurance policies describe the federal income tax treatment
of distributions from such contracts to Contract owners.
The foregoing is only a summary of important federal tax law provisions
that can affect each Fund. Other federal, state, or local tax law
provisions may also affect each Fund and its operations.
Because each investor's tax circumstances are unique and because the tax
laws are subject to change, we recommend that you consult your tax advisor
about your investment.
SPECIAL INFORMATION ABOUT THE FUNDS
The Funds offer their shares to both variable annuity and variable life
insurance policy separate accounts and to various Retirement Plans. The
Trustees do not anticipate that this arrangement will disadvantage any
Contract owners. The Fund's Board of Trustees monitors events for the
existence of any material irreconcilable conflict between or among Contract
owners and Plans. If a material irreconcilable conflict arises, one or more
separate accounts may withdraw their investment in the Fund. This could
possibly force a Fund to sell portfolio securities at unfavorable prices.
Each Insurer will bear the expenses of establishing separate portfolios for
variable annuity and variable life insurance separate accounts if such
action becomes necessary; however, ongoing expenses that are ultimately
borne by Contract owners will likely increase due to the loss of the
economies of scale benefits that can be provided to mutual funds with
substantial assets.
FINANCIAL HIGHLIGHTS
After the Funds have a performance history, we will provide information
regarding each Fund's financial performance since inception. The
information selected will reflect financial results for a single Fund
share. The total returns in the table will represent the rates of return
that an investor would have earned on an investment in a Fund, assuming
reinvestment of all dividends and distributions.
APPENDIX A
DESCRIPTION OF INDEXES
The EAFE Fund
MSCI does not sponsor, endorse, sell, or promote the Fund. Neither MSCI nor
any other party makes a representation or warranty, express or implied, to
the owners of the Fund or any member of the public regarding the
advisability of investing in funds generally or in the Fund particularly or
the ability of the EAFE Index to track general stock market performance.
MSCI is the licenser of certain trademarks, service marks and trade names
of MSCI and of the EAFE Index which is determined, composed and calculated
by MSCI without regard to the issuer of the Fund or the Fund itself. MSCI
has no obligation to take the needs of the issuer of the Fund or the owners
of the Fund into consideration in determining, composing or calculating the
EAFE Index. MSCI is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of the Fund to be
issued or in the determination or calculation of the equation by which the
Fund is redeemable for cash. MSCI has no obligation or liability to owners
of the Fund in connection with the administration, marketing or trading of
the Fund.
Although MSCI shall obtain information for inclusion in or use in the
calculations of the indices from sources which MSCI considers reliable,
neither MSCI nor any other party guarantees the accuracy and/or the
completeness of the indices or any data included therein. Neither MSCI nor
any other party makes any warranty, express or implied as to results to be
obtained by the licensee, licensee's customers and counterparties, owners
of the Funds, or any other person or entity from the use of the indices or,
any data included therein in connection with the rights licensed thereunder
for any other use. Neither MSCI nor any other party makes any express or
implied warranties, and MSCI hereby expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to the
indices or any data included therein. Without limiting any of the foregoing
in no event shall MSCI or any other party have any liability for any
direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such
damages.
The EAFE Index is the exclusive property of MSCI. MSCI is a service mark of
MSCI and has been licensed for use by Sage Advisors, Inc.
The S&P 500 Fund
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("S&P") does not sponsor, endorse, sell, or promote the
Fund. S&P makes no representation or warranty, express or implied, to the
owners of the Fund or any member of the public regarding the advisability
of investing in securities generally or in the Fund particularly or the
ability of the S&P 500 Index to trace general stock market performance.
S&P's only relationship to Sage is the licensing of certain trademarks and
trade names of S&P and of the S&P 500 Index which is determined, composed
and calculated by S&P without regard to the Trust or the Fund. S&P has no
obligation to take the needs of the Trust or the owners of the Fund into
consideration in determining, composing or calculating the S&P 500 Index.
S&P is not responsible for and has not participated in the determination of
the prices and amount of the Fund or the timing of the issuance or sale of
the Fund or in the determination or calculation of the equation by which
the Fund is to be converted into cash. S&P has no obligation or liability
in connection with the administration, marketing or trading of the Fund.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein and S&P shall have no liability for any
errors, omissions or interruptions therein. S&P makes no warranty, express
or implied to results to be obtained by license, owners of the Fund, or any
other person or entity from use of the S&P 500 Index or any data included
therein. S&P makes no express or implied warranties, and expressly
disclaims all warranties of merchantability or fitness for a particular
purpose or use with respect to the S&P 500 Index or any data included
therein. Without limiting the foregoing, in no event shall S&P have any
liability for any special, punitive, indirect or consequential damages
(including lost profits), even if notified of the possibility of such
damages.
"Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500," and
"500" are trademarks of the McGraw-Hill Companies, Inc. and have been
licensed for use by Sage. S&P does not sponsor, endorse, sell or promote
the Fund and S&P makes no representation regarding the advisability of
investing in the Fund.
[BACK COVER]
Additional information about the Funds' investments will be available in
the Funds' annual and semiannual reports to shareholders. In the Funds'
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected each Index Fund's
performance during its last fiscal year.
You can find more detailed information about each Fund in the current
Statement of Additional Information, dated _______, 1999, which we have
filed electronically with the SEC and which is incorporated by reference.
To receive your free copy of the Statement of Additional Information, the
annual or semiannual report, or if you have questions about investing in
the Fund, write to or call us at:
Sage Life Investment Trust
Customer Service Center
1290 Silas Deane Highway
Wetherfield, Connecticut 06109
1-877-835-7243 (collect)
You can find reports and other information about the Funds on the SEC
website (http://www.sec.gov), or you can get copies of this information,
after payment of a duplicating fee, by writing to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009. Information about the
Fund, including its Statement of Additional Information, can be reviewed
and copied at the SEC's Public Reference Room in Washington, D.C. For
information on the Public Reference Room, call the SEC at 1-800-SEC-0330.
In order to assist you in obtaining this information, the following is the
Funds' registration number under the Investment Company Act of 1940:
811-08623.
811-08623
SAGE LIFE INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
for
EAFE Equity Index Fund
S&P 500 Equity Index Fund
Money Market Fund
Dated [_____, 1999]
Sage Life Investment Trust (the "Trust") is currently comprised of three
series: EAFE Equity Index Fund ("EAFE Fund") and S&P 500 Equity Index Fund
("S&P 500 Fund") (together, the "Index Funds") and the Money Market Fund
(together with the Index Funds, the "Funds" and each individually, a
"Fund"). The shares of the Funds are described herein. Capitalized terms
not otherwise defined herein shall have the same meaning as in the Fund's
Prospectus.
Shares of the Funds are available through the purchase of certain variable
annuity and variable life insurance contracts ("Contract(s)") issued by
various insurance companies (each, an "Insurer" or collectively, the
"Insurers") and are offered to various pension and profit-sharing plans
("Retirement Plans"). The investment manager and administrator of the Funds
is Sage Advisors, Inc. (the "Manager" or "Sage"). The investment adviser of
the Index Funds is State Street Global Advisors ("State Street"), a
division of State Street Bank and Trust Company, and the investment adviser
of the Money Market Fund is Conning Asset Management Company ("Conning"
and, together with State Street, the "Advisers"). The Trust's distributor
is Sage Distributors, Inc. (the "Distributor").
The Prospectus for the Funds is dated [_______, 1999]. The Prospectus
provides the basic information an investor should know about a Fund before
investing and may be obtained without charge by calling the Trust at
1-800-877-835-7243. This Statement of Additional Information (the "SAI") is
not a prospectus and is intended to provide additional information
regarding the activities and operations of the Funds and should be read in
conjunction with the Funds' Prospectus. This SAI is not an offer of shares
of any Fund for which an investor has not received a Fund's Prospectus.
Table of Contents
Investment Restrictions..........................................
Risk Factors and Certain Securities and Investment Practices........
Portfolio Transactions and Brokerage Commissions..................
Performance Information.............................................
Determination of Net Asset Value....................................
Management of the Trust.............................................
Organization of the Trust...........................................
Distributions and Taxes.............................................
Independent Auditor's Report........................................
INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of each
Fund and may not be changed without the approval of a "majority of the
outstanding voting securities" of each Fund. "Majority of the outstanding
voting securities" under the Investment Company Act of 1940, as amended
(the "1940 Act"), and as used in this SAI and the Prospectus, means, with
respect to a Fund, the lesser of (i) 67% or more of the outstanding voting
securities of the Fund present at a meeting, if the holders of more than
50% of the outstanding voting securities of the Fund are present or
represented by proxy or (ii) more than 50% of the outstanding voting
securities of the Fund.
As a matter of fundamental policy, no Fund may:
(1) issue senior securities, mortgage or pledge assets, or borrow money,
except (a) a Fund may borrow from banks in amounts up to 30% of its total
assets (including the amount borrowed); (b) a Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of portfolio securities; and (c) an Index Fund may engage in futures
and options transactions as permitted by the 1940 Act and enter into
collateral arrangements relating thereto;
(2) underwrite securities issued by other persons except insofar as the
Trust or a Fund may technically be deemed an underwriter under the
Securities Act of 1933, as amended (the "1933 Act"), in selling a portfolio
security;
(3) make loans to other persons except: (a) through the lending of a Fund's
portfolio securities and provided that any such loans not exceed 30% of a
Fund's total assets (taken at market value); or (b) through the use of
repurchase agreements or the purchase of short-term obligations;
(4) purchase or sell commodities or real estate (including limited
partnership interests but excluding securities secured by real estate or
interests therein) in the ordinary course of business (except that the
Index Funds may engage in futures and options transactions as permitted by
the 1940 Act and enter into collateral arrangements relating thereto, and
each Fund may hold and sell, for the Fund's portfolio, real estate acquired
as a result of a Fund's ownership of securities);
(5) concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the achievement
of a Fund's investment objective, up to 25% of its total assets may be
invested in any one industry;
(6) purchase the securities of any one issuer if as a result more than 5%
of the value of its total assets would be invested in the securities of
such issuer or a Fund would own more than 10% of the outstanding voting
securities of such issuer, except that up to 25% of the value of a Fund's
total assets may be invested without regard to these limitations, and
provided that there is no limitation with respect to investments in U.S.
Government securities.
Additional non-fundamental investment restrictions adopted by each Fund,
which may be changed by the Board of Trustees, provide that no Fund may:
(i) purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained, and except that deposits
of initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures; and
(ii)invest for the purpose of exercising control or management.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment or in net
or total assets.
RISK FACTORS AND CERTAIN SECURITIES AND INVESTMENT PRACTICES
Investment Objectives
The investment objective of each Fund is described in the Funds'
Prospectus. There can, of course, be no assurance that any Fund will
achieve its investment objective.
Investment Practices
This section contains supplemental information concerning certain types of
securities and other instruments in which one or more of the Funds may
invest, the investment policies and portfolio strategies that the Funds may
utilize, and certain risks attendant to such investments, policies and
strategies.
Money Market Fund. Rule 2a-7 under the 1940 Act provides that in order to
value its portfolio using the amortized cost method, the Money Market Fund
must maintain a dollar-weighted average portfolio maturity of 90-ays or
less, purchase securities having remaining maturities of 397 days or less
and invest only in U.S. dollar denominated eligible securities determined
by the Board of Trustees to be of minimal credit risk and which: (1)have
received one of the two highest short-term ratings by at least two
Nationally Recognized Statistical Rating Organizations ("NRSROs"), such as
"A-1" by Standard & Poor's Ratings Service ("Standard & Poor's") and "P-1"
by Moody's Investors Service, Inc. ("Moody's"); (2)are single rated and
have received the highest short-term rating by an NRSRO; or (3) are
unrated, but are determined to be of comparable quality by Conning pursuant
to guidelines approved by the Board of Trustees.
In addition, the Money Market Fund will not invest more than 5% of its
total assets in the securities (including the securities collateralizing a
repurchase agreement) of a single issuer, except that the Fund may invest
in U.S. Government securities or repurchase agreements that are
collateralized by U.S. Government securities without any such limitation.
Furthermore, the limitation does not apply with respect to conditional and
unconditional puts issued by a single issuer, provided that with respect to
75% of the Money Market Fund's assets, no more than 10% of the Fund's total
assets are invested in securities issued or guaranteed by the issuer of the
put. Investments in rated securities not rated in the highest category by
at least two rating organizations (or one rating organization if the
instrument was rated by only one such organization), and unrated securities
not determined by the Board of Trustees to be comparable to those rated in
the highest rating category, will be limited to 5% of the Fund's total
assets, with investment in any one such issuer being limited to no more
than the greater of 1% of the Fund's total assets or $1 million.
Pursuant to Rule 2a-7, the Board of Trustees has established
procedures designed to stabilize, to the extent reasonably possible,
the price per share of the Money Market Fund, as computed for the
purpose of sales and redemptions, at $1.00 per share. Such procedures
include review of the Money Market Fund's portfolio holdings by the
Board of Trustees, at such intervals as it may deem appropriate, to
determine whether the asset value of the Fund calculated by using
available market quotations deviates from $1.00 per share based on
amortized cost. The extent of any deviation will be examined by the
Board of Trustees. If such deviation exceeds 1/2 of 1%, the Board of
Trustees will promptly consider what action, if any, will be
initiated. In the event the Board of Trustees determines that a
deviation exists that may result in material dilution or other unfair
results to investors or existing shareholders, the Board of Trustees
will take such corrective action as it regards as necessary and
appropriate.
Money Market Fund Valuation. The Money Market Fund will use the amortized
cost method to determine the value of its portfolio securities pursuant to
Rule 2a-7 under the 1940 Act. The amortized cost method involves valuing a
security at its cost and amortizing any discount or premium over the period
until maturity regardless of the impact of fluctuating interest rates on
the market value of the security. While this method provides certainty in
valuation, it may result in periods during which the value, as determined
by amortized cost, is higher or lower than the price which the Money Market
Fund would receive if the security were sold. During these periods, the
yield to a shareholder may differ somewhat from that which could be
obtained from a similar fund which utilizes a method of valuation based
upon market prices. Thus, during periods of declining interest rates, if
the use of the amortized cost method resulted in lower value of the Money
Market Fund's portfolio on a particular day, a prospective investor in that
Fund would be able to obtain a somewhat higher yield than would result from
an investment in a fund utilizing solely market values and existing Fund
shareholders would receive correspondingly less income. The converse would
apply during periods of rising interest rates.
Asset-Backed Securities. Subject to applicable maturity and credit
criteria, the Money Market Fund may purchase asset-backed securities (i.e.,
securities backed by mortgages, installment sales contracts, credit card
receivables or other assets). The average life of asset-backed securities
varies with the maturities of the underlying instruments which, in the case
of mortgages, have maximum maturities of 40 years. The Fund may purchase
securities that have maturities in excess of the Money Market Fund's
maturity limitations but are deemed to have shorter maturities because the
Money Market Fund can demand payment of the principal of the securities at
least once within the maturity periods permitted on not more than 30 days'
notice (this demand feature is not required if the securities are
guaranteed by the U.S. Government or an agency or instrumentality thereof).
The average life of a mortgage-backed instrument, for example, is likely to
be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of scheduled principal payments and
mortgage prepayments. The rate of such mortgage prepayments, and hence the
life of the certificates, will be primarily a function of current market
rates and current conditions in the relevant housing markets. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-related securities less potential for growth in
value than conventional bonds with comparable maturities. In addition, in
periods of falling interest rates, the rate of mortgage prepayment tends to
increase. During such periods, the reinvestment of prepayment proceeds by
the Fund will generally be at lower rates than the rates that were carried
by the obligations that have been prepaid. Because of these and other
reasons, an asset-backed security's total return may be difficult to
predict precisely. To the extent that the Money Market Fund purchases
mortgage-related or mortgage-backed securities at a premium, mortgage
prepayments (which may be made at any time without penalty) may result in
some loss of the Money Market Fund's principal investment to the extent of
the premium paid.
Bank Obligations. Bank obligations which a Fund may purchase include, but
are not limited to, the following: certificates of deposits, time deposits,
Eurodollar and Yankee dollar obligations, bankers' acceptances, commercial
paper, bank deposit notes and other promissory notes, including floating or
variable rate obligations issued by U.S. or foreign bank holding companies
and their bank subsidiaries, branches and agencies. Certificates of deposit
are issued against funds deposited in an eligible bank (including its
domestic and foreign branches, subsidiaries and agencies), are for a
definite period of time, earn a specified rate of return and are normally
negotiable. A bankers' acceptance is a short-term draft drawn on a
commercial bank by a borrower, usually in connection with a commercial
transaction. The borrower is liable for payment, as is the bank, which
unconditionally guarantees to pay the draft at its face amount on the
maturity date. Eurodollar obligations are U.S. dollar obligations issued
outside the United States by domestic or foreign entities. Yankee dollar
obligations are U.S. dollar obligations issued inside the United States by
foreign entities. Bearer deposit notes are obligations of a bank, rather
than a bank holding company. Similar to certificates of deposit, deposit
notes represent bank level investments and, therefore, are senior to all
holding company corporate debt, except certificates of deposit. All
investments in bank obligations are limited to the obligations of financial
institutions having more than $1 billion in total assets at the time of
purchase.
Borrowing. Each Fund may borrow money in amounts up to 5% of the value of
its total assets at the time of such borrowings for temporary purposes, and
is authorized to borrow money in excess of the 5% limit as permitted by the
1940 Act (not to exceed 30% of a Fund's total assets) in order to meet
redemption requests. This borrowing may be unsecured. No Fund will make any
additional purchases of portfolio securities at any time its borrowings
exceed 5% of its assets. The 1940 Act requires each Fund to maintain
continuous asset coverage of 300% of the amount it has borrowed. If the
300% asset coverage should decline as a result of market fluctuations or
other reasons, a Fund may be required to sell some of its portfolio
holdings within three (3) days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. Borrowing may exaggerate the
effect on net asset value of any increase or decrease in the market value
of a Fund. Money borrowed will be subject to interest costs which may or
may not be recovered by an appreciation of the securities purchased. A Fund
may also be required to maintain minimum average balances in connection
with borrowing or to pay a commitment or other fees to maintain a line of
credit; either of these requirements would increase the cost of borrowing
over the stated interest rate. A Fund may, in connection with permissible
borrowings, transfer as collateral securities owned by a Fund.
Commercial Paper. Commercial paper includes short-term (usually from 1 to
270 days) unsecured promissory notes issued by corporations in order to
finance their current operations, and variable demand notes and variable
rate master demand notes issued by domestic and foreign bank holding
companies, corporations and financial institutions. A variable amount
master demand note represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between
a commercial paper issuer and an institutional lender pursuant to which the
lender may determine to invest varying amounts. Investments by a Fund in
commercial paper will consist of issues rated at the time A-1 and/or P-1 by
Standard & Poor's or Moody's. In addition, the Funds may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at
the time of purchase to be of comparable quality to rated instruments that
may be acquired by such Fund as previously described (see "Money Market
Fund" herein for a discussion of certain investment limitations).
Short-Term Instruments. When an Index Fund experiences large cash inflows
through the sale of shares, and desirable equity securities that are
consistent with the Fund's investment objective are unavailable in
sufficient quantities or at attractive prices, the Fund may hold short-term
investments for a limited time pending availability of such equity
securities. Short-term instruments consist of: (i) short-term obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities or by any U.S. state; (ii) other short-term debt
securities rated AA or higher by Standard & Poor's or Aa or higher by
Moody's or, if unrated, of comparable quality in the opinion of the
Adviser; (iii) commercial paper; (iv) bank obligations, including
negotiable certificates of deposit, time deposits and bankers' acceptances;
and (v) repurchase agreements. At the time an Index Fund invests in
commercial paper, bank obligations or repurchase agreements, the issuer or
the issuer's parent must have outstanding debt rated AA or higher by
Standard & Poor's or Aa or higher by Moody's or outstanding commercial
paper or bank obligations rated A-1 by Standard & Poor's or Prime-1 by
Moody's; or, if no such ratings are available, the instrument must be of
comparable quality in the opinion of the Adviser.
Euro-Denominated Securities. On January 1, 1999, the European Monetary
Union ("EMU") plans to implement a new currency unit, the Euro, which is
expected to reshape financial markets, banking systems and monetary
policies in Europe and other parts of the world. The countries initially
expected to convert to the Euro include Austria, Belgium, France, Germany,
Luxembourg, the Netherlands, Ireland, Finland, Italy, Portugal and Spain.
Beginning January 1, 1999, financial transactions and market information,
including share quotations and company accounts, in participating countries
will be in Euros. Approximately 46% of the stock exchange capitalization of
the total European market may be reflected in Euros, and participating
governments will issue their bonds in Euros. Monetary policy for
participating countries will be uniformly managed by a new central bank,
the European Central Bank (the "ECB").
Although it is not possible to predict the impact of the Euro on the Funds,
the transition may change the economic environment and behavior of
investors, particularly in European markets. In addition, investors may
begin to view those countries participating in the EMU as a single entity.
The Advisers may need to adapt investment strategies accordingly. The
process of implementing the Euro also may adversely affect financial
markets world-wide and may result in changes in the relative strength and
value of the U.S. dollar or other major currencies, as well as possible
adverse tax consequences as a result of currency conversions to the Euro.
Until the Euro develops its reputation and the ECB gains experience in
managing monetary policy, it will be difficult to predict the strengths and
weaknesses of the Euro.
Foreign Securities. The Money Market Fund may invest in U.S.
dollar-denominated foreign securities issued by foreign banks and companies
and the EAFE Fund may invest in foreign securities of all types and in
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") and other similar securities. These securities may not be
denominated in the same currency as the securities they represent. ADRs are
receipts typically issued by a United States bank or trust company
evidencing ownership of the underlying foreign securities. EDRs are
receipts issued by a European financial institution evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in
the United States securities markets, and EDRs, in bearer form, are
designed for use in the European securities markets. The EAFE Fund
typically will only purchase ADRs which are listed on a domestic securities
exchange or included in the NASDAQ National Market System. Certain such
institutions issuing ADRs may not be sponsored by the issuer. Issuers of
ADRs in unsponsored programs may not provide the same shareholder
information in the U.S. that a sponsored depositary is required to provide
under its contractual arrangements with the issuer. Ownership of
unsponsored ADRs may not entitle the Fund to financial or other reports
from the issuer, to which it would be entitled as the owner of the
sponsored ADRs.
Income and gains on foreign securities may be subject to foreign
withholding taxes. Investors should consider carefully the substantial
risks involved in securities of companies and governments of foreign
nations, which are in addition to the usual risks inherent in domestic
investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the
United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing
practices and requirements may not be comparable to those applicable to
United States companies. Foreign markets have substantially less volume
than the New York Stock Exchange and securities of some foreign companies
are less liquid and more volatile than securities of comparable United
States companies. Commission rates in foreign countries, which are
generally fixed rather than subject to negotiation as in the United States,
are likely to be higher. In many foreign countries there is less government
supervision and regulation of stock exchanges, brokers, and listed
companies than in the United States.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. These
risks include: (i)less social, political and economic stability; (ii) the
small current size of the markets for such securities and the currently low
or nonexistent volume of trading, which result in a lack of liquidity and
in greater price volatility; (iii)certain national policies which may
restrict the EAFE Fund's investment opportunities, including restrictions
on investment in issuers or industries deemed sensitive to national
interest; (iv)foreign taxation; and (v)the absence of developed legal
structures governing private or foreign investment or allowing for judicial
redress for injury to private property.
State Street endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread on currency exchange
(to cover service charges) may be incurred, particularly when the EAFE Fund
changes investments from one country to another or when proceeds of the
sale of Fund shares in U.S. dollars are used for the purchase of securities
in foreign countries. Also, some countries may adopt policies which may
prevent or restrict the EAFE Fund from transferring cash out of the country
or withhold portions of interest and dividends at the source. There is the
possibility of expropriation, nationalization or confiscatory taxation,
withholding and other foreign taxes on income or other amounts, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country), default in foreign government securities,
political or social instability or diplomatic developments that could
affect investments in securities of issuers in foreign nations.
The EAFE Fund may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous
economic and political developments. Changes in foreign currency exchange
rates will influence values within the EAFE Fund from the perspective of
U.S. investors, and may also affect the value of dividends and interest
earned, gains and losses realized on the sale of securities, and net
investment income and gains, if any, to be distributed to shareholders by
the EAFE Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government
intervention, speculation and other factors. State Street will attempt to
avoid unfavorable consequences and to take advantage of favorable
developments in particular nations where, from time to time, in placing the
EAFE Fund's investments.
Guaranteed Investment Contracts. The Money Market Fund may make limited
investments in guaranteed investment contracts ("GICs") issued by U.S.
insurance companies. Pursuant to such contracts, a Fund makes cash
contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund on a monthly basis interest
which is based on an index that is guaranteed not to be less than a certain
minimum rate. A GIC is normally a general obligation of the issuing
insurance company and not funded by a separate account. The purchase price
paid for a GIC becomes part of the general assets of the insurance company,
and the contract is paid from the company's general assets. The Money
Market Fund will only purchase GICs from insurance companies which, at the
time of purchase, have assets of $1 billion or more and meet quality and
credit standards established by the Adviser pursuant to guidelines approved
by the Board of Trustees. Generally, GICs are not assignable or
transferable without the permission of the issuing insurance companies, and
an active secondary market in GICs does not currently exist. Therefore,
GICs will normally be considered illiquid investments, and will be acquired
subject to the limitation on illiquid investments.
Illiquid Securities. The Funds may invest in illiquid securities which,
historically, include illiquid securities that are subject to contractual
or legal restrictions on resale because they have not been registered under
the 1933 Act, securities which are otherwise not readily marketable and
repurchase agreements and time deposits having a maturity of longer than
seven (7) days. No more than 15% of each Index Fund's net assets may be
invested in illiquid or not readily marketable securities. No more than 10%
of the Money Market Fund's net assets may be invested in illiquid or not
readily marketable securities. Securities which have not been registered
under the 1933 Act are referred to as private placements or restricted
securities and are purchased directly from the issuer or purchased in the
secondary market. Limitations on resale may have an adverse effect on the
marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions within seven (7) days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting
in additional expense and delay. If, after the time of acquisition, events
cause this limit to be exceeded, the applicable Fund will take steps to
reduce the aggregate amount of illiquid securities as soon as reasonably
practicable in accordance with the policies of the SEC.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale of such
investments to the general public or to certain institutions may not be
indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A,
which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of
the 1933 Act for resales of certain securities to qualified institutional
buyers.
The Advisers will monitor the liquidity of Rule 144A securities in the
Funds' portfolios under the supervision of the Board of Trustees. In
reaching liquidity decisions, the Advisers will consider, among other
things, the following factors: (i) the frequency of trades and quotes for
the security; (ii) the number of dealers and other potential purchasers
wishing to purchase or sell the security; (iii) dealer undertakings to make
a market in the security; and (iv) the nature of the security and of the
marketplace trades (i.e., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer).
Investment Company Securities. The Money Market Fund may invest in
securities issued by other investment companies which invest in short-term
debt securities and which seek to maintain a $1.00 net asset value per
share (i.e., money market funds). As a shareholder of another investment
company, the Money Market Fund would bear its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses
would be in addition to the expenses the Money Market Fund bears directly
in connection with its own operations. The Money Market Fund currently
intends to limit its investments in securities issued by other investment
companies so that, as determined immediately after a purchase of such
securities is made: (i)not more than 5% of the value of the Fund's total
assets will be invested in the securities of any one investment company;
(ii)not more than 10% of the value of its total assets will be invested in
the aggregate in securities of investment companies as a group; and
(iii)not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by the Trust as a whole.
Lending of Portfolio Securities. By lending its securities, a Fund can
increase its income by continuing to receive interest on the loaned
securities as well as by either investing the cash collateral in short-term
securities or obtaining yield in the form of interest paid by the borrower
when U.S. Government obligations are used as collateral. There may be risks
of delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the
borrower of the securities fail financially. A Fund will adhere to the
following conditions whenever its securities are loaned: (i)the Fund must
receive at least 100 percent cash collateral or equivalent securities from
the borrower; (ii) the borrower must increase this collateral whenever the
market value of the securities including accrued interest rises above the
level of the collateral; (iii) the Fund must be able to terminate the loan
at any time; (iv) the Fund must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions on the loaned
securities, and any increase in market value; (v) the Fund may pay only
reasonable custodian fees in connection with the loan; and (vi) voting
rights on the loaned securities may pass to the borrower; provided,
however, that if a material event adversely affecting the investment
occurs, the Board of Trustees must terminate the loan and regain the right
to vote the securities.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
"primary dealers" in U.S. Government securities and member banks of the
Federal Reserve System which furnish collateral at least equal in value or
market price to the amount of their repurchase obligations. In a repurchase
agreement, a Fund purchases a debt security from a seller which undertakes
to repurchase the security at a specified resale price on an agreed future
date (ordinarily a week or less). The resale price generally exceeds the
purchase price by an amount which reflects an agreed-upon market interest
rate for the term of the repurchase agreement. The principal risk is that,
if the seller defaults, a Fund might suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral
held by a Fund are less than the repurchase price. In determining whether
to enter into an agreement, the Advisers will consider all relevant facts
and circumstances, including the creditworthiness of the counterparty.
Stock Index Futures, Options on Stock Index Futures Contracts and Stock
Indices. The Index Funds may, but are not required to, purchase and sell
stock index futures, options on stock indices, and options on stock index
futures contracts as a hedge against movements in the equity markets. These
instruments may be considered derivatives. Derivatives are financial
instruments which derive their performance, at least in part, from the
performance of an underlying asset, index or interest rate. While
derivatives can be used effectively in furtherance of a Fund's investment
objective, under certain market conditions they can increase the volatility
of a Fund's net asset value and decrease the liquidity of a Fund's
investments.
Stock Index Futures Contracts. A stock index futures contract is an
agreement in which one party agrees to deliver to the other an amount of
cash equal to a specific dollar amount times the difference between the
value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery
of securities is made. These investments will be made by an Index Fund
solely for cash management purposes, and if they are economically
appropriate to the reduction of risks involved in the management of the
Fund.
At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and
the payment of variation margin may be required, since each day the Fund
must maintain margin that reflects any decline or increase in the
contract's value.
U.S. futures contracts have been designed by exchanges which have been
designated "contracts markets" by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission merchant, or
brokerage firm, which is a member of the relevant contract market. Futures
contracts trade on a number of exchange markets, and, through their
clearing corporations, the exchanges guarantee performance of the contracts
as between the clearing members of the exchange.
There are several risks associated with the use of futures by the Index
Funds as hedging devices. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in
the stock indices which are the subject of the hedge. The price of the
future may move more than or less than the stock index being hedged. If the
price of the futures moves less than the value of the stock indices which
are the subject of the hedge, the hedge will not be fully effective but, if
the value of the stock indices being hedged has moved in an unfavorable
direction, the Fund would be in a better position than if it had not hedged
at all. If the value of the stock index being hedged has moved in a
favorable direction, this advantage will be partially offset by the loss on
the futures. If the price of the futures moves more than the value of the
stock index, the Fund involved will experience either a loss or gain on the
futures which will not be completely offset by movements in the price of
the instruments which are the subject of the hedge. To compensate for the
imperfect correlation of movements in the value of the stock index being
hedged and movements in the price of futures contracts, the Fund may buy or
sell futures contracts in a greater dollar amount than the value of the
stock index being hedged if the volatility over a particular time period of
the prices of such instruments has been greater than the volatility over
such time period of the futures, or if otherwise deemed to be appropriate
by the Adviser. Conversely, the Index Funds may buy or sell fewer futures
contracts if the volatility over a particular time period of the value of
the stock index being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by the Adviser.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the indices
being hedged, the price of futures may not correlate perfectly with
movements in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or
taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced thus producing
distortions. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation
by speculators in the futures market may also cause temporary price
distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in
the cash market and movements in the price of futures, a correct forecast
of general market trends by the Adviser may still not result in a
successful hedging transaction over a short time frame. Successful use of
futures by the Funds is also subject to the Adviser's ability to predict
correctly movements in the direction of the market.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the
Index Funds intend to purchase or sell futures only on exchanges or boards
of trade where there appear to be active secondary markets, there is no
assurance that a liquid secondary market on any exchange or board of trade
will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures investment position, and
in the event of adverse price movements, a Fund would continue to be
required to make daily cash payments of variation margin. In such
circumstances, an increase in the value of the hedged index, if any, may
partially or completely offset losses on the futures contract. However, as
described above, there is no guarantee that the value of the hedged index
will in fact correlate with the price movements in the futures contract and
thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once
the daily limit has been reached in the contract, no trades may be entered
into at a price beyond the limit, thus preventing the liquidation of open
futures positions. The trading of futures contracts is also subject to the
risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or
clearing house or other disruptions of normal activity, which could at
times make it difficult or impossible to liquidate existing positions or to
recover excess variation margin payments.
Options on Stock Index Futures Contracts. The Index Funds may purchase
and write call and put options on stock index futures contracts. The Index
Funds may use such options on futures contracts in connection with their
hedging strategies in lieu of purchasing and selling the underlying futures
or purchasing and writing options directly on the underlying indices. For
example, the Index Funds may purchase put options or write call options on
stock index futures.
Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss. A Fund will be required to deposit initial margin
and variation margin with respect to put and call options on futures
contracts written by it pursuant to brokers' requirements similar to those
described above.
Investments in futures options involve some of the same considerations that
are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the
purchase or sale of an option also entails the risk that changes in the
value of the underlying futures contract will not correspond to changes in
the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based or value of
the specific stock index, an option may or may not be less risky than
ownership of the futures contract. In general, the market prices of options
can be expected to be more volatile than the market prices on the
underlying futures contracts. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to a Fund because the
maximum amount at risk is the premium paid for the options (plus
transaction costs).
Options on Stock Indices. An option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the
closing level of that stock index is greater than, in the case of a call
option, or less than, in the case of a put option, the exercise price of
the option. This amount of cash is equal to such difference between the
closing price of the index and the exercise price of the option expressed
in dollars times a specified multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of this
amount. All settlements of options on stock indices are in cash, and gain
or loss depends on general movements in the stocks included in the index
rather than price movements in particular stocks.
Options on securities indices entail certain risks. The absence of a liquid
secondary market to close out options positions on securities indices may
occur, although an Index Fund generally will only purchase or write such an
option if the Adviser believes the option can be closed out.
Use of options on securities indices also entails the risk that trading in
such options may be interrupted if trading in certain securities included
in the index is interrupted. A Fund will not purchase such options unless
the Adviser believes the market is sufficiently developed such that the
risk of trading in such options is no greater than the risk of trading in
options on securities.
Price movements in a Fund's portfolio may not correlate precisely with
movements in the level of an index and, therefore, the use of options on
indices cannot serve as a complete hedge. Because options on securities
indices require settlement in cash, the Adviser may be forced to liquidate
an Index Fund's portfolio securities to meet settlement obligations.
Asset Coverage. In order to assure that futures and related options are
not used by an Index Fund to achieve excessive investment leverage, the
Fund will cover such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying securities,
entering into an offsetting transaction, or by establishing a segregated
account with the Fund's custodian containing cash or liquid securities in
an amount at all times equal to or exceeding the Fund's commitment with
respect to these instruments or contracts.
Securities Lending. Each Fund may lend its investment securities to
qualified institutional investors on either a short- or long-term basis in
order to realize additional income. Loans of securities entered into by a
Fund will be collateralized by cash, letters of credit, or securities
issued or guaranteed by the U.S. Government or its agencies. The collateral
will equal at least 100% of the value of the loaned securities, and such
loans may not exceed 30% of the value of each Fund's net assets. The risks
in lending portfolio securities, as with other extensions of credit,
consist of possible loss of rights in and/or difficulties or delays in
recovering the collateral, should the borrower fail financially. In
determining whether to lend securities, the Advisers will consider all
relevant facts and circumstances, including the creditworthiness of the
borrower.
Short-Term Investments. Each Fund may invest in short-term fixed income
securities in order to invest uncommitted cash balances, to maintain
liquidity to meet shareholder redemptions, or, in the case of the Index
Funds, to serve as collateral for the obligations underlying the Funds'
investments in securities index futures or related options. The securities
each Fund may invest in include: obligations issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities, or by any U.S.
state, district or commonwealth and U.S. dollar-denominated bank
obligations, including certificates of deposit, bankers' acceptances, bank
notes, commercial paper, deposit notes, interest-bearing savings and time
deposits, issued by U.S. or foreign banks or savings institutions having
total assets at the time of purchase in excess of $1 billion. For this
purpose, the assets of a bank or savings institution include the assets of
both its domestic and foreign branches. A Fund will invest in the
obligations of domestic banks and savings institutions only if their
deposits are federally insured. Short-term obligations purchased by a Fund
will either (i) have short-term debt ratings at the time of purchase in the
top two categories by one or more unaffiliated NRSROs or be issued by
issuers with such ratings or (ii) if unrated will be of comparable quality
as determined by the Adviser.
With respect to the Money Market Fund, securities (other than U.S.
Government securities) must be rated (generally, by at least two NRSROs)
within the two highest rating categories assigned to short-term debt
securities. In addition, the Money Market Fund (a) will not invest more
than 5% of its total assets in securities rated in the second highest
rating category by such NRSROs and will not invest more than 1% of its
total assets in such securities of any one issuer, and (b)intends to limit
investments in the securities of any single issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) to not more than 5% of the Fund's total assets at the
time of purchase, provided that the Fund may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three (3)
business days. Unrated and certain single rated securities (other than U.S.
Government securities) may be purchased by the Money Market Fund, but are
subject to a determination by Conning, in accordance with procedures
established by the Board of Trustees, that the unrated and single rated
securities are of comparable quality to the appropriate rated securities.
Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or the relevant Adviser,
pursuant to guidelines established by the Board, will consider such an
event in determining whether the Fund involved should continue to hold or
should dispose of the security in accordance with the interests of the Fund
and applicable regulations of the SEC.
Stripped Securities. The Money Market Fund may acquire U.S. Government
obligations and their unmatured interest coupons that have been separated
("stripped") by their holder, typically a custodian bank or investment
brokerage firm. Having separated the interest coupons from the underlying
principal of the U.S. Government obligations, the holder will resell the
stripped securities in custodial receipt programs with a number of
different names, including "Treasury Income Growth Receipts" ("TIGRs") and
"Certificates of Accrual on Treasury Securities" ("CATS"). The stripped
interest coupons are sold separately from the underlying principal. The
Money Market Fund may purchase either stripped interest coupons or stripped
principal payments. These instruments are issued at a discount to their
"face value." Stripped principal payments are usually sold at a deep
discount because the buyer receives only the right to receive a future
fixed payment on the security and does not receive any rights to periodic
interest (cash) payments. Stripped securities may (particularly in the case
of stripped mortgage-backed securities) exhibit greater price volatility
than ordinary debt securities because of the manner in which their
principal and interest are returned to investors. The underlying U.S.
Treasury bonds and notes themselves are held in book-entry form at the
Federal Reserve Bank or, in the case of bearer securities (i.e.,
unregistered securities which are ostensibly owned by the bearer or
holder), in trust on behalf of the owners. Counsel to the underwriters of
these certificates or other evidences of ownership of U.S. Treasury
securities have stated that, in their opinion, purchasers of the stripped
securities most likely will be deemed the beneficial holders of the
underlying U.S. Government obligations for federal tax and securities
purposes. The Trust is not aware of any binding legislative, judicial or
administrative authority on this issue.
Only instruments which are stripped by the issuing agency will be
considered U.S. Government obligations. Securities such as CATS and TIGRs
which are stripped by their holder do not qualify as U.S. Government
obligations.
Within the past several years, the Treasury Department has facilitated
transfers of ownership of zero coupon securities by accounting separately
for the beneficial ownership of particular interest coupon and principal
payments or Treasury securities through the Federal Reserve book-entry
record-keeping system. The Federal Reserve program as established by the
Treasury Department is known as "STRIPS" or "Separate Trading of Registered
Interest and Principal of Securities." Under the STRIPS program, a fund is
able to have its beneficial ownership of zero coupon securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
U.S. Government Obligations. Each Fund may purchase U.S. Government
obligations, which are obligations issued by, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. Obligations issued or
guaranteed by U.S. Government agencies or instrumentalities may or may not
be backed by the "full faith and credit" of the United States. In the case
of securities not backed by the full faith and credit of the United States,
a Fund must look principally to the federal agency issuing or guaranteeing
the obligation for ultimate repayment, and may not be able to assert a
claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. U.S. Government obligations
that are not backed by the full faith and credit of the United States
include, but are not limited to, obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the U.S. Postal
Service and the Export-Import Bank of the United States, each of which has
the right to borrow from the U.S. Treasury to meet its obligations and
obligations of the Federal Farm Credit System and the Federal Home Loan
Banks, whose obligations may be satisfied only by the individual credits of
the issuing agency. Securities which are backed by the full faith and
credit of the United States include obligations of the Government National
Mortgage Association and the Farmers Home Administration.
Variable and Floating Rate Instruments. Debt instruments may be structured
to have variable or floating interest rates. Variable and floating rate
obligations purchased by the Money Market Fund may have stated maturities
in excess of the Fund's maturity limitation if the Fund can demand payment
of the principal of the instrument at least once during such period on not
more than 30 days' notice (this demand feature is not required if the
instrument is guaranteed by the U.S. Government or an agency thereof).
These instruments may include variable amount master demand notes that
permit the lender under the note to determine the amount of the credit
given (with predetermined ranges), in addition to providing for periodic
adjustments in the interest rates. The Adviser will consider the earning
power, cash flows and other liquidity ratios of the issuers and guarantors
of such instruments and, if the instrument is subject to a demand feature,
will continuously monitor their financial ability to meet payment on
demand. Where necessary to ensure that a variable or floating rate
instrument is equivalent to the quality standards applicable to the Money
Market Fund, the issuer's obligation to pay the principal of the instrument
will be backed by an unconditional bank letter or line of credit, guarantee
or commitment to lend. The Money Market Fund will invest in variable and
floating rate instruments only when the Adviser deems the investment to
involve minimal credit risk, pursuant to standards adopted by the Board of
Trustees.
When-Issued and Delayed Delivery Securities. The Funds may purchase
securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the
interest rate payable, if any, on the securities are fixed on the purchase
commitment date or at the time the settlement date is fixed. The value of
such securities is subject to market fluctuation and no interest accrues to
a Fund until settlement takes place. At the time a Fund make a commitment
to purchase securities on a when-issued or delayed delivery basis, it will
record the transaction, reflect the value each day of such securities in
determining its net asset value and, if applicable, calculate the maturity
for the purposes of average maturity from that date. At the time of
settlement a when-issued security may be valued at less than the purchase
price. To facilitate such acquisitions, a Fund will maintain with the
Fund's custodian a segregated account with liquid assets, consisting of
cash, U.S. Government securities or other appropriate securities, in an
amount at least equal to such commitments. On delivery dates for such
transactions, the Fund will meet its obligations from maturities or sales
of the securities held in the segregated account and/or from cash flows. If
a Fund chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
Fund obligation, incur a gain or loss due to market fluctuation.
Yields and Ratings. The yields on certain obligations, including the money
market instruments in which each Fund may invest (such as commercial paper
and bank obligations), are dependent on a variety of factors, including
general money market conditions, conditions in the particular market for
the obligation, the financial condition of the issuer, the size of the
offering, the maturity of the obligation and the ratings of the issue. The
ratings of Standard & Poor's, Moody's, Duff & Phelps Credit Rating Co.,
Thomson Bank Watch, Inc., and other NRSROs represent their respective
opinions as to the quality of the obligations they undertake to rate.
Ratings, however, are general and are not absolute standards of quality.
Consequently, obligations with the same rating, maturity and interest rate
may have different market prices.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Advisers are responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Funds,
the selection of brokers, dealers and futures commission merchants to
effect transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on Fund transactions,
including options, futures, and options on futures transactions, and the
purchase and sale of underlying securities upon the exercise of options.
Purchases and sales of certain portfolio securities on behalf of a Fund are
frequently placed by an Adviser with the issuer or a primary or secondary
market-maker for these securities on a net basis, without any brokerage
commission being paid by the Fund. Trading does, however, involve
transaction costs. Transactions with dealers serving as market-makers
reflect the spread between the bid and asked prices. Transaction costs may
also include fees paid to third parties for information as to potential
purchasers or sellers of securities. Purchases of underwritten issues may
be made which will include an underwriting fee paid to the underwriter.
Each Adviser seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Fund or Funds it advises, taking
into account such factors as price, commission (negotiable in the case of
national securities exchange transactions), if any, size of order,
difficulty of execution and skill required of the executing broker-dealer
through familiarity with commissions charged on comparable transactions, as
well as by comparing commissions paid by the Fund to reported commissions
paid by others. The Advisers review on a routine basis commission rates,
execution and settlement services performed, making internal and external
comparisons.
Each Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), when placing portfolio
transactions for a Fund with a broker to pay a brokerage commission (to the
extent applicable) in excess of that which another broker might have
charged for effecting the same transaction based on the receipt of
research, market or statistical information. The term "research, market or
statistical information" includes, but is not limited to, advice as to the
value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers
of securities; and furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and
the performance of accounts.
Consistent with the policy stated above, and such other policies as the
Board of Trustees may determine, an Adviser may consider sales of shares of
a Fund or a Contract as a factor in the selection of broker-dealers to
execute portfolio transactions. An Adviser may make such allocations if
commissions are comparable to those charged by nonaffiliated, qualified
broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services to
the extent permitted by law. An Adviser may use this research information
in managing a Fund's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from brokers
and dealers can be useful to the Funds and to the Advisers, it is the
opinion of the Manager that such information is only supplementary to an
Adviser's own research efforts, since the information must still be
analyzed, weighed and reviewed by the Adviser's staff. Such information may
be useful to an Adviser in providing services to clients other than the
Funds, and not all such information is used by Advisers in connection with
the Funds. Conversely, such information provided to the Advisers by brokers
and dealers through whom other clients of the Advisers effect securities
transactions may be useful to the Advisers in providing services to the
Funds.
In certain instances there may be securities which are suitable for a Fund
as well as for one or more of an Adviser's other clients. Investment
decisions for a Fund and for the relevant Adviser's other clients are made
with a view to achieving their respective investment objectives. It may
develop that a particular security is bought or sold for only one client
even though it might be held by, or bought or sold for, other clients.
Likewise, a particular security may be bought for one or more clients when
one or more clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice
from the same investment adviser, particularly when the same security is
suitable for the investment objectives of more than one client. When two or
more clients are simultaneously engaged in the purchase or sale of the same
security, the securities are allocated among clients in a manner believed
to be equitable to each. It is recognized that in some cases this system
could have a detrimental effect on the price or volume of the security as
far as a Fund is concerned. However, it is believed that the ability of a
Fund to participate in volume transactions will produce better executions
for the Funds.
PERFORMANCE INFORMATION
Standard Performance Information
Each Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications disseminated to existing or
prospective shareholders or Contract Owners. Past performance does not
indicate or project future performance. Performance information may include
a Fund's investment results and/or comparisons of its investment results to
the Fund's respective index or other various unmanaged indexes or results
of other mutual funds with similar investment objectives or investment or
savings vehicles. A Fund's investment results, as used in such
communications, will be calculated on a total return basis or yield in the
manner set forth below. From time to time, fund rankings may be quoted from
various sources, such as Lipper Analytical Services, Inc., Value Line and
Morningstar Inc.
Each Fund may provide periodic and average annualized "total return"
quotations. A Fund's "total return" refers to the change in the value of an
investment in a Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Periodic total
returns may be annualized. An annualized total return is a compounded total
return which assumes that the total return is generated over a one-year
period, and that all dividends and capital gains distributions are
reinvested. An annualized total return will be higher than a periodic total
return, if the period is shorter than one year, due to the compounding
effect.
Quotations of Fund total returns and yields will not reflect Contract
charges and expenses. The prospectus for a Contract will contain
information about performance of the relevant separate account and
Contract.
Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the total return or yield of each Fund will vary
depending upon, among other things, the current market value of the
securities held by a Fund and changes in a Fund's expenses. In addition,
during certain periods for which total return and/or yield quotations may
be provided, the Manager, the Advisers and/or the Funds' other service
providers may have voluntarily agreed to waive portions of their respective
fees, or reimburse certain Fund operating expenses, on a month-to-month
basis. Such waivers will have the effect of increasing a Fund's net income
(and therefore its total return and/or yield) during the period such
waivers are in effect.
Shareholders and Contract Owners will receive reports semi-annually and
annually that include each Fund's financial statements, including listings
of investment securities held by a Fund as of those dates. Each Fund's
annual report is audited by the Fund's independent accountants.
From time to time, quotations of the Funds' performances may be included in
advertisements, sales literature or shareholder reports. Fund performance
does not reflect Contract fees and expenses.
Yield of the Money Market Fund. The Money Market Fund will prepare a
current quotation of yield from time to time. The yield quoted will be the
simple annualized yield for an identified seven calendar day period. The
yield calculation will be based on a hypothetical account having a balance
of exactly one share at the beginning of the seven-day period. The base
period return will be the change in the value of the hypothetical account
during the seven-day period, including dividends declared on any shares
purchased with dividends on the shares but excluding any capital changes.
The Fund may also prepare an effective annual yield computed by compounding
the unannualized seven-day period return as follows: by adding 1 to the
unannualized seven-day period return, raising the sum to a power equal to
365 divided by 7, and subtracting 1 from the result.
EFFECTIVE YIELD = [(base period return + 1) 365/7] - 1
The Money Market Fund's yield will fluctuate, and annualized yield
quotations are not a representation by the Fund as to what an investment in
the Fund will actually yield for any given period. Actual yields will
depend on changes in interest rates generally during the period in which
the investment in the Money Market Fund is held, and on the quality, length
of maturity and type of instruments in the Fund's portfolio and its
operating expenses.
Total Returns of the Index Funds. The Index Funds may quote their average
annual total return figures and/or aggregate total return figures. A Fund's
"average annual total return" figures are computed according to a formula
prescribed by the SEC. The formula can be expressed as follows:
P (1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000 T = average annual
total return n = number of years ERV = Ending Redeemable Value of a
hypothetical $1,000 investment made at the beginning of a 1-, 5- or 10-year
period at the end of a 1-, 5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and distributions
A Fund's aggregate total return figures represent the cumulative change in
the value of an investment in the Fund for the specified period and are
computed according to the following formula:
AGGREGATE TOTAL RETURN = ERV - P
P
Where: P = a hypothetical initial payment of $10,000 ERV = Ending
Redeemable Value of a hypothetical $10,000 investment made at the beginning
of a 1-, 5- or 10-year period at the end of a 1-, 5- or 10-year period (or
fractional portion thereof), assuming reinvestment of all dividends and
distributions
Each Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Fund's performance for any specified period in the
future. In addition, because the performance will fluctuate, it may not
provide a basis for comparing an investment in a Fund with certain bank
deposits or other investments that pay a fixed yield for a stated period of
time.
Comparison of Fund Performance
Comparison of the quoted non-standardized performance of various
investments is valid only if performance is calculated in the same manner.
Since there are different methods of calculating performance, investors
should consider the effect of the methods used to calculate performance
when comparing performance of the Funds with performance quoted with
respect to other investment companies or types of investments.
In connection with communicating its performance to current or prospective
shareholders, each Fund also may compare these figures to the performance
of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs.
Evaluations of the Funds' performance made by independent sources may also
be used in advertisements concerning the Funds. Sources for the Funds'
performance information could include the following: Barron's, Business
Week, Changing Times, Consumer Digest, Financial Times, Financial World,
Forbes, Fortune, Investor's Daily, Lipper Analytical Services, Inc.'s
Mutual Fund Performance Analysis, Money, Morningstar Inc., New York Times,
Personal Investing News, Personal Investor, Success, The Kiplinger's
Magazine, U.S. News and World Report, Value Line, Wall Street Journal,
Weisenberger Investment Companies Services and Working Women.
DETERMINATION OF NET ASSET VALUE
A Fund's shares are purchased and redeemed at the net asset value per
share. The net asset value per share of each Fund is calculated on each
day, Monday through Friday, except days on which the NYSE is closed. The
NYSE is currently scheduled to be closed on the following holidays: New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day, and on the preceding Friday or subsequent Monday when a holiday falls
on a Saturday or Sunday, respectively.
Each Funds' net asset value per share is determined as of the close of
regular trading on the NYSE, normally 4:00 p.m., Eastern Time, by taking
the value of all assets of each Fund, subtracting its liabilities, dividing
by the number of shares outstanding and adjusting to the nearest cent.
Index Funds. In the calculation of each Index Fund's net asset value: (1)a
portfolio security listed or traded on a stock exchange or quoted by NASDAQ
is valued at its last sale price on that exchange or market (if there were
no sales that day, the security is valued at the mean of the closing bid
and asked prices; if there were no asked prices quoted on that day, the
security is valued at the closing bid price); (2)all other portfolio
securities for which over-the-counter market quotations are readily
available are valued at the mean of the current bid and asked prices (if
there were no asked prices quoted on that day, the security is valued at
the closing bid price); (3)U.S. Government obligations and other debt
instruments having 60 days or less remaining until maturity are valued at
amortized cost; (4)debt instruments having more than 60 days remaining
until maturity are valued at the highest bid price obtained from a dealer
maintaining an active market in that security or on the basis of prices
obtained from a pricing service approved as reliable by the Board of
Trustees; and (5) all other investment assets, including restricted and not
readily marketable securities, are valued by the Fund under procedures
established by and under the general supervision and responsibility of the
Board of Trustees designed to reflect in good faith the fair value of such
securities.
MANAGEMENT OF THE TRUST
The Board of Trustees is responsible for overseeing and monitoring the
management of the Funds. The Trustees meet periodically throughout the year
to oversee the Funds' operations, review contractual arrangements with
companies that provide services to the Funds and review each Fund's
performance. By virtue of the responsibilities assumed by Sage, neither the
Trust nor the Funds require employees. None of the officers of the Trust
devotes full time to the affairs of the Trust or the Funds.
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have
varied during that period. An asterisk (*) indicates those Trustees who are
"interested persons" (as defined in the 1940 Act) of the Trust.
Trustees and Officers
<TABLE>
<S> <C> <C>
Position Held Principal Occupations
Name, Address and Age with the Trust During Past 5 Years
Ronald S. Scowby, 60* Trustee and President (July 1997 - January 1998) and Director (July
300 Atlantic Street, Suite 302 Chairman of 1997 - present), Sage Insurance Group, Inc., financial
Stamford, CT 06901 the Board services holding company; President (January 1997 -
February 1998) and Chairman (February 1998 - present),
Sage Life Assurance of America, Inc., insurance company;
President and CEO, Sage Management Services USA, Inc.,
management services company (June 1996 - present);
Principal, Sheldon Scowby Resources, management
consulting (July 1995 - June 1996); Executive Vice
President, Mutual of America Life Insurance, insurance
company (June 1991 - July 1995); President and CEO,
Mutual of America Financial Services, Inc., insurance
company (June 1991 - July 1995).
Robin I. Marsden, 33* Trustee and Director (since January 1997), President and CEO (since
300 Atlantic Street, Suite 302 President February 1998), Sage Insurance Group, Inc., financial
Stamford, CT 06901 services holding company; Director (since January 1997),
President and CEO (since February 1998), Sage Life
Assurance of America, Inc., insurance company; Director,
President and CEO, Sage Advisors, Inc., investment
adviser (January 1998 - present); Investments Director,
Sage Life Holdings Limited, financial services holding
company (November 1994 - January 1998); Partner,
Deloitte & Touche, management consulting (January 1989 -
October 1994).
James A. Amen, 38 Trustee Managing Director, Partner and Director, Philo Smith &
10 Field Road Co., investment management company (July 1988 - present).
Cos Cob, CT 06807
Rosemary L. Hendrickson, 59 Trustee Executive Vice President, Independent Financial
3911 S.W. ViewPoint Terrace Marketing Group, Inc., financial services company
Portland, OR 97201 (January 1989 - April 1998).
Geoffrey A. Thompson, 57 Trustee Principal, Kohlberg & Co., investment management company
279 Old Black Point Road (November 1996 - present); Partner, Norman Broadbent,
Niantic, CT 06357 executive recruiting firm (May 1995 - February 1996);
President, Nordman Grimm, executive recruiting firm
(January 1994 - May 1995).
Mitchell R. Katcher, 45 Vice President Senior Executive Vice President, Sage Investment Group,
300 Atlantic Street, Suite 302 Inc., financial services holding company (December 1997
Stamford, CT 06901 - present); Director, Chief Actuary and CFO, Sage Life
Assurance of America, Inc., insurance company (February
1997 - present); Director, Treasurer and CFO, Sage
Advisors, Inc. (January 1998 - present); Executive Vice
President, Golden American, life insurance company (July
1993 - February 1997); Consultant, Tillinghast,
actuarial consulting firm (June 1991 - July 1993).
Richard H. Rose, 43 Treasurer Vice President - Division Manager, First Data Investor
53 State Street Services Group, Inc. (May 1994 - present); Senior Vice
Boston, MA 02109 President, The Boston Company Advisors, Inc. (February
1988 - May 1994).
James F. Renz, 35 Assistant Vice President, Sage Life Assurance of America, Inc.,
300 Atlantic Street, Suite 301 Treasurer insurance company (September 1997 - present); Treasurer
Stamford, CT 06901 and CFO, Sage Distributors, Inc., broker-dealer (January
1998 - present); Manager, Swiss Re Life and Health
Insurance Company, reinsurance company (October 1987 -
August 1997).
Julie A. Tedesco, 40 Secretary Counsel, First Data Investor Services Group, Inc. (May
53 State Street 1994 - present); Assistant Counsel, The Boston Company
Boston, MA 02109 Advisors Inc. (July 1992 - May 1994).
James F. Bronsdon, 42 Assistant Vice President Legal and Compliance, Sage Life Assurance
300 Atlantic Street, Suite 302 Secretary of America, Inc., insurance company (June 1997 -
Stamford, CT 06901 present); President and CEO, Sage Distributors, Inc.,
broker-dealer (January 1998 - present); Secretary, Sage
Advisors, Inc. (August 1998 - present); Associate
Counsel, Berkshire Life Insurance Company, insurance
company (July 1990 - June 1997).
</TABLE>
The following table estimates the amount of compensation to be paid by the
Trust during its fiscal year ending December 31, 1999 to the persons who
are to serve as Trustees during such period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMPENSATION TABLE
Pension or Total
Estimated Retirement Estimated Compensation
Name of Compensation Benefits Accrued Annual Benefits from the Trust and
Person from the as Part of upon Fund Complex
and Position Trust* Fund Expenses Retirement Paid to Trustee**
Ronald S. Scowby $ 0 None None $ 0
Trustee and
Chairman of the Board
Robin I. Marsden $ 0 None None $ 0
Trustee and President
James A. Amen $ 9,500 None None $ 9,500
Trustee
Rosemary L. Hendrickson $ 9,500 None None $ 9,500
Trustee
Geoffrey A. Thompson $ 9,500 None None $ 9,500
Trustee
</TABLE>
* The estimated compensation information is furnished for the fiscal year
ended December 31, 1999 and assumes that each Trustee attends all Board
Meetings and an Audit Committee Meeting. ** No Trustee receives any
compensation from any mutual fund affiliated with the Manager, other than
the Trust.
[As of April 1, 1999 the Trustees and officers of the Trust owned in the
aggregate less than 1% of the shares of any Fund or of the Trust (all
series taken together).]
The Trust pays each Trustee who is not an employee of the Manager or an
Adviser or one of their affiliates an annual retainer fee of $3,000 and
$1,500 for each meeting of the Board of Trustees attended, and reimburses
each Trustee for certain travel and other out-of-pocket expenses incurred
in connection with attending such meetings. In addition, each Trustee who
is a member of the Audit Committee will receive a fee of $500 for each
Audit Committee Meeting attended. Trustees and officers of the Trust who
are employed by the Manager, an Adviser, Distributor, First Data Investor
Services Group, Inc. ("Investor Service Group") or one of their affiliates
receive no compensation or expense reimbursement from the Trust.
Investment Manager
Sage is the investment manager of each Fund and has responsibility for the
management and administration of each Fund's affairs, under the supervision
of the Board of Trustees of the Trust. Each Fund's investment portfolio is
managed on a day-to-day basis by the Fund's Adviser under the general
oversight of Sage and the Board of Trustees. Sage is responsible for
providing investment management and administrative services to the Funds,
and in the exercise of such responsibility selects the investment advisers
for the Funds and monitors the Advisers' investment programs and results,
reviews brokerage matters, oversees compliance by the Funds with various
federal and state statutes, and carries out the directives of the Board of
Trustees. Sage monitors and evaluates the Advisers, to assure that the
Advisers are managing the Funds consistently with each Fund's investment
objective, policies, restrictions, applicable laws and guidelines.
Sage was organized in 1997 and has no prior experience managing mutual
funds. The address of Sage is 300 Atlantic Street, Stamford, CT 06901. It
is a wholly-owned subsidiary of Sage Insurance Group, Inc. Sage Insurance
Group, Inc., is the holding company for Sage and affiliated companies that
are in the business of underwriting, issuing and distributing the variable
insurance products of Sage Life Assurance of America, Inc. a indirect,
wholly-owned subsidiary of Sage Insurance Group, Inc.
The Manager is responsible for providing the Funds with office space,
office equipment, and personnel necessary to operate and administer the
Funds' business, and also supervise the provisions of services by third
parties such as the Funds' custodian and transfer agent. Pursuant to a
sub-administration agreement, Investor Services Group, the
sub-administrator to the Funds, assists the Manager in the performance of
its administrative responsibilities to the Funds. The Manager compensates
Investor Services Group for these services.
Pursuant to a Management Agreement with the Trust, the Manager, subject to
the supervision of the Board of Trustees, and in conformity with the stated
policies of the Funds, will provide overall management to each Fund in
accordance with each Fund's investment objective, restrictions and policies
as stated in the Funds' Prospectus and SAI filed with the SEC, as the same
may be amended from time to time. The management services provided to the
Funds are not exclusive under the terms of the Management Agreement and the
Manager is free to render management or investment advisory services to
others, but has no current plans to do so.
As compensation for its management services to the Funds, Sage is entitled
to receive a fee from each Fund, accrued daily and paid monthly, equal on
an annual basis of the average daily net assets of each Fund.
The Manager bears all expenses in connection with the services it renders
under the Management Agreement including the costs and expenses payable to
the Advisers pursuant to the Investment Sub-Advisory Agreement between the
Manager and each Adviser.
The Manager is responsible for and will bear all expenses relating to:
custodian fees; transfer agent fees; pricing costs (including the daily
calculation of net asset value); accounting and administration fees; legal
fees (except extraordinary litigation expenses); expenses of shareholders'
and/or trustees' meetings; bookkeeping expenses related to shareholder
accounts; insurance charges; cost of printing and mailing shareholder
reports and proxy statements; cost of printing and mailing registration
statements and updated prospectuses to current shareholders; index
licensing fees; and the fees of any trade association of which the Trust is
a member.
An Insurer may be compensated by the Manager for certain administrative
services for the Funds in connection with the Contracts issued through
separate accounts of such Insurer. Under these arrangements, the Manager
may pay compensation to an Insurer in an amount based on the assets of the
Funds attributable to Contracts issued through separate accounts of the
Insurer.
The Management Agreement provides that absent willful misfeasance, bad
faith, gross negligence or reckless disregard of its duty ("Disabling
Conduct"), the Manager will not be liable for any error of judgment or
mistake of law or for losses sustained by a Fund in connection with the
matters relating to the Management Agreement. However, the Management
Agreement provides that no Fund is waiving any rights it may have which
cannot be waived. The Management Agreement also provides indemnification
for the Manager and it directors, officers, employees and controlling
persons for any conduct that does not constitute Disabling Conduct.
The Management Agreement is terminable without penalty on sixty (60) days'
written notice by the Manager or by the Trust when authorized by the Board
of Trustees, as to a Fund, or a majority, as defined in the 1940 Act, of
the outstanding shares of such Fund. The Management Agreement will
automatically terminate in the event of its assignment, as defined in the
1940 Act and rules thereunder. The Management Agreement provides that,
unless terminated, it will remain in effect for two years following the
date of the Agreement and thereafter from year to year, so long as such
continuance of the Management Agreement is approved annually by the Board
of Trustees or a vote by a majority of the outstanding shares of the Trust
and in either case, by a majority vote of the Trustees who are not
interested persons of the Trust within the meaning of the 1940 Act
("Disinterested Trustees") cast in person at a meeting called specifically
for the purpose of voting on the continuance.
Investment Advisers
The investment adviser for the Index Funds is State Street Global Advisors,
a division of State Street Bank and Trust Company, with principal offices
located at Two International Place, Boston, Massachusetts 02110. State
Street Bank and Trust Company is a wholly-owned subsidiary of State Street
Corporation. The investment adviser for the Money Market Fund is Conning
Asset Management Company, with principal offices located at City Place II,
185 Asylum Street, Hartford, Connecticut 06103-4105.
Under the terms of the Investment Sub-Advisory Agreements between Sage and
each Adviser (the "Sub-Advisory Agreements"), State Street Global Advisors
manages the Index Funds and Conning manages the Money Market Fund, subject
to the supervision and direction of Sage and the Board of Trustees. Each
Adviser will: (i)act in conformity with the Trust's Declaration of Trust,
the 1940 Act and the Investment Advisers Act of 1940, as the same may from
time to time be amended; (ii) manage the relevant Fund or Funds in
accordance with the Funds' investment objectives, restrictions and
policies; (iii) make investment decisions for the relevant Fund or Funds;
and (iv) place purchase and sales orders for securities and other financial
instruments on behalf of the Fund or Funds it advises.
The Investment Sub-Advisory Agreements contain provisions relating to the
selection of securities brokers to effect the portfolio transactions of
each Fund. Under those provisions, subject to applicable law and procedures
adopted by the Trustees, an Adviser may: (1) direct Fund portfolio
brokerage to any broker-dealer affiliates of the Manager or Adviser; (2)
pay commissions to brokers which are higher than might be charged by
another qualified broker to obtain brokerage and/or research services
considered by the Adviser to be useful or desirable for its investment
management of the Funds and/or other advisory accounts of itself and any
investment adviser affiliated with it; and (3) consider the sales of
Contracts and/or shares of the Funds and any other registered investment
companies managed by the Manager or Adviser and its affiliates by brokers
and dealers as a factor in its selection of brokers and dealers to execute
portfolio transactions for the Funds.
As compensation for the Advisers' services and the related expenses they
incur with respect to each Fund, the Manager pays the applicable Adviser a
fee, computed daily and payable monthly, equal on an annual basis with
respect to each Fund's average daily net assets.
Sage and each Adviser bear all expenses in connection with the performance
of their services under the Management Agreement and the Advisory
Agreements, respectively.
The Advisory Agreements provide indemnification for the Advisers and their
trustees, officers, employees and controlling persons for any conduct that
does not constitute Disabling Conduct. The Advisory Agreements permit the
Advisers to act as investment advisers to others, provided that whenever a
Fund and one or more other portfolios of or investment companies advised by
the Advisers have available funds for investment, investments suitable and
appropriate for each will be allocated in a manner believed to be equitable
to each entity. In some cases, this procedure may adversely affect the size
of the position obtainable for a Fund.
Each Advisory Agreement is terminable without penalty on sixty (60) days'
written notice by the Manager, the Adviser or the Board of Trustees, or by
vote of a majority, as defined in the 1940 Act, of the outstanding shares
of the applicable Fund. Each Advisory Agreement will automatically
terminate in the event of its assignment, as defined in the 1940 Act, and
rules thereunder. Each Advisory Agreement provides that, unless terminated,
it will remain in effect for two years following the date of the Agreement
and thereafter from year to year, so long as such continuance of the
Advisory Agreement is approved annually by the Board of Trustees or a vote
by a majority of the outstanding shares of the applicable Fund and in
either case, by a majority vote of the Disinterested Trustees cast in
person at a meeting called specifically for the purpose of voting on the
continuance of the Advisory Agreements.
Expenses
In addition to the fees of the Manager, the Trust is responsible for the
payment of the following, including, without limitation: fees and expenses
of disinterested Trustees (including any independent counsel to the
disinterested Trustees); brokerage commissions; dealer mark-ups and other
expenses incurred in the acquisition or disposition of any securities or
other investments; costs, including the interest expense, of borrowing
money; fees and expenses for independent audits and auditors; taxes; and
extraordinary expenses (including extraordinary litigation and consulting
expenses) as approved by a majority of the disinterested Trustees. Fund
specific expenses are paid by the particular Fund. Expenses of the Trust
not attributable to a particular Fund are allocated to each Fund on the
basis of their relative net assets.
Distributor and Distribution Plan
Sage Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary of
Sage Insurance Group, Inc., serves as the distributor (principal
underwriter) of each Fund's shares. The principal business address of the
Distributor is 300 Atlantic Street, Stamford, Connecticut 06901.
The shareholders of each Fund have approved a Distribution Plan for the
Funds which authorizes payments by the Funds in connection with the
distribution of shares at an annual rate of up to 0.25% of a Fund's average
daily net assets. Under each Fund's Distribution Plan the Fund may pay the
Distributor for various costs actually incurred or paid in connection with
the distribution of the Fund's shares and/or servicing of shareholder
accounts. Such costs include the costs of financing activities primarily
intended to result in the sale of the Funds' shares, such as the costs (1)
of printing and mailing the Funds' prospectuses, SAIs and shareholder
reports to prospective shareholders and Contract Owners; (2) relating to
the Funds' advertisements, sales literature and other promotional
materials; (3) of obtaining information and providing explanations to
shareholders and Contract Owners regarding the Funds; (4) of training sales
personnel and of personal service; and/or (5)maintenance of shareholders'
and Contract Owners' accounts with respect to each Fund's shares
attributable to such accounts. The Distributor, in turn, may compensate
Insurers or others for such activities.
No payments will be made by the Funds under the 12b-1 Plans for the fiscal
year ending December 31, 1999. Shareholders will be given prior notice if
such payments are to commence at a future date.
The Distribution Plan may be terminated at any time. The Board of Trustees
will evaluate the appropriateness of the Distribution Plan and any payments
made thereunder on a continuous basis.
Sub-Administrator
Investor Services Group, a subsidiary of First Data Corporation, located at
4400 Computer Drive, Westborough, Massachusetts 01581, serves as each
Fund's sub-administrator pursuant to a Sub-Administration Agreement with
the Manager.
As the sub-administrator, Investor Services Group is obligated on a
continuous basis to provide such administrative services as the Manager and
the Board of Trustees reasonably deem necessary for the proper
administration of the Funds. Investor Services Group will generally assist
in all aspects of the Funds' operations; supply and maintain office
facilities (which may be in Investor Services Group's own offices),
statistical and research data, data processing services, clerical,
accounting, bookkeeping and recordkeeping services (including without
limitation the maintenance of such books and records as are required under
the 1940 Act and the rules thereunder, except as maintained by other
agents), internal auditing, executive and administrative services, and
stationery and office supplies; prepare reports to shareholders or
investors; prepare and file tax returns; supply financial information and
supporting data for reports to and filings with the SEC; supply supporting
documentation for meetings of the Board of Trustees; provide monitoring
reports and assistance regarding compliance with the Trust's Declaration of
Trust and By-laws, the Funds' investment objectives, restrictions and
policies and with federal securities laws; arrange for appropriate
insurance coverage; calculate net asset values, net income and realized
capital gains or losses; and negotiate arrangements with, and supervise and
coordinate the activities of, agents and others to supply services.
Under the terms of the Sub-Administration Agreement, Investor Services
Group generally assists in all aspects of the Funds' operations, other than
providing investment advice, subject to the overall authority of the Board
of Trustees. Pursuant to the terms of the Sub-Administration Agreement the
Manager has agreed to pay Investor Services Group a monthly fee at the
annual rate of 0.05 of 1% of the value of the Trust's monthly net assets up
to aggregate assets of $2 million, 0.04 of 1% of the Trust's monthly net
assets up to aggregate assets of the next $2 million, and 0.03 of 1% of the
Trust's monthly average net assets greater than $4 million. In addition,
the Manager has agreed to pay Investor Services Group for fund accounting
services an annual fee of $27,500 per Fund on Trust assets up to $50
million; $30,000 per Fund on Trust assets of the next $50 million, and
$36,000 per Fund on Trust assets greater than $100 million. Additionally,
Investor Services Group is paid certain out-of-pocket fees and other
special services fees for providing services for the operation of the
Funds.
Custodian and Transfer Agent
The Bank of New York, One Wall Street, New York, New York 10286, serves as
custodian for the Funds. As custodian, The Bank of New York holds the
Funds' assets.
Investor Services Group, located at 4400 Computer Drive, Westborough,
Massachusetts 01581, serves as transfer agent of the Trust. Under its
transfer agency agreement with the Trust, Investor Services Group maintains
the shareholder account records for the Funds, handles certain
communications between shareholders and the Funds and distributes any of
the Funds' dividends and distributions.
Counsel
Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue, N.W.,
Washington, DC 20004-2415, serves as Counsel to the Trust.
Independent Auditors
Ernst & Young, L.L.P., 1111 Summer Street, Stamford, Connecticut 06905,
serves as independent auditors of the Trust and the Funds. A statement of
assets of the Trust, as of February 18, 1999, included in this SAI and
incorporated by reference into the Prospectus, has been audited by Ernst &
Young, LLP, as stated in their report appearing herein.
ORGANIZATION OF THE TRUST
The Trust is a Delaware business trust established under a Declaration of
Trust dated January 9, 1998, and currently consists of three separately
managed portfolios. The Trust is a diversified, open-end investment
management company. The capitalization of the Trust consists solely of an
unlimited number of shares of beneficial interest with a par value of
$0.001 per share of each Fund. The Board of Trustees may establish
additional funds (with different investment objectives, restrictions and
fundamental policies) at any time in the future. The establishment and
offering of additional funds will not alter the rights of the Trust's
shareholders. When issued, shares are fully paid, non-assessable,
redeemable and freely transferable. Shares do not have preemptive rights or
subscription rights. In any liquidation of a Fund, each shareholder is
entitled to receive his pro rata share of the net assets of that Fund.
Under the Declaration of Trust, the Trust is not required to hold annual
meetings of each Fund's shareholders to elect Trustees or for other
purposes. It is not anticipated that the Trust will hold shareholder
meetings unless required by law or the Declaration of Trust. In this
regard, the Trust will be required to hold a meeting to elect Trustees to
fill any existing vacancies on the Board if, at any time, fewer than a
majority of the Trustees have been elected by the shareholders of the
Trust. In addition, the Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares of the Trust may remove
persons serving as Trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for
the purpose of considering the removal of persons serving as Trustee if
requested in writing to do so by the holders of not less than 10% of the
outstanding shares of the Trust. To the extent required by applicable law,
the Trustees shall assist shareholders who seek to remove any person
serving as Trustee.
The Insurers (or affiliates thereof) and the Retirement Plans will be the
Funds' sole shareholders of record, and pursuant to the 1940 Act, such
shareholders may be deemed to be in control of the Funds. [As of April 1,
1999, ___________ controls the Funds because it is the sole shareholder of
each Fund.] When a shareholders' meeting occurs, each Insurer (and the
Retirement Plans, to the extent required by applicable law and/or the terms
of the applicable Retirement Plans) solicits and accepts voting
instructions from its Contract Owners (or participants) who have allocated
or transferred monies for an investment in the Funds as of the record date
of the meeting. Each shareholder then votes a Fund's shares that are
attributable to its interests in the Fund, and any other Fund shares which
it is entitled to vote, in proportion to the voting instructions received.
The shares of each Fund are entitled to one vote for each dollar of net
asset value, and fractional shares are entitled to fractional votes. The
shares of each Fund have non-cumulative voting rights, so the vote of more
than 50% of a Fund's shares can elect 100% of the Trustees. Shares of each
Fund are entitled to vote separately to approve investment advisory
agreements or changes in investment restrictions, but shares of all Funds
vote together in the election of Trustees or in the selection of the
independent accountants. Each Fund is also entitled to vote separately on
any other matter that affects solely that Fund, but will otherwise vote
together with all shares of the other Funds on all other matters on which
shareholders are entitled to vote.
The Trust is not required, and does not intend, to hold regular annual
shareholder meetings, but may hold special meetings for consideration of
proposals requiring shareholder approval. It is the intention of the Trust
not to hold annual shareholder meetings. The Trustees may call a special
meeting of shareholders for action by shareholder vote as may be required
by the 1940 Act, the Declaration of Trust or the By-laws of the Trust. In
addition, the Trust will call a special meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees, if
requested to do so by the holders of at least 10% of the Trust's
outstanding shares.
The Funds are available through separate accounts relating to both variable
annuity and variable life insurance contracts and to certain Retirement
Plans, each in accordance with section 817(h) of the Internal Revenue Code
of 1986, as amended (the "Code"). The Funds do not currently foresee any
disadvantages to Contract Owners arising from offering their shares to
variable annuity and variable life insurance policy separate accounts and
Retirement Plans simultaneously, and the Board of Trustees continuously
monitors events for the existence of any material irreconcilable conflict
between or among Contract Owners and Retirement Plans. Material conflicts
could result from, for example, (i) changes in state insurance laws; (ii)
changes in federal income tax laws; or (iii) differences in voting
instructions between those given by variable life owners and by variable
annuity owners. If a material irreconcilable conflict arises, as determined
by the Board of Trustees, one or more separate accounts may withdraw their
investment in a Fund. This could possibly require a Fund to sell portfolio
securities at disadvantageous prices. Each Insurer will bear the expenses
of establishing separate portfolios for its variable annuity and variable
life insurance separate accounts if such action becomes necessary; however,
ongoing expenses that are ultimately borne by Contract Owners will likely
increase due to the loss of economies of scale benefits that can be
provided to separate accounts with substantial assets.
DISTRIBUTIONS AND TAXES
Distributions
All dividends and capital gains distributions paid by a Fund will be
automatically reinvested, at net asset value, in additional shares of the
respective Fund, unless otherwise indicated. There is no fixed dividend
rate, and there can be no assurance that any Fund will pay any dividends or
realize any capital gains. However, the Index Funds currently intend to pay
dividends and capital gains distribution, if any, on an annual basis. The
Money Market Fund currently intends to accrue dividends daily and to pay
them monthly; and to pay capital gains distributions, if any, on an annual
basis.
As a regulated investment company, each Fund will not be subject to U.S.
Federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to its shareholders, that is,
the Insurers' separate accounts. Each Fund intends to distribute, at least
annually, substantially all of its investment company taxable income and
net capital gains and, therefore, does not anticipate incurring Federal
income tax liability.
Taxation
Each Fund expects to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
As qualified under Subchapter M, a Fund is not subject to Federal income
tax on that part of its investment company taxable income that it
distributes to its Contract Owners and Retirement Plans. Taxable income
consists generally of net investment income, net gains from certain foreign
currency transactions, and net short-term capital gain, if any, and any net
capital gain (the excess of net long-term capital gain over net short-term
capital loss). It is each Fund's intention to distribute all such income
and gains to shareholders.
Shares of each Fund are offered to various insurance company separate
accounts and through various Retirement Plans. Under the Code, an insurance
company pays no tax with respect to income of a qualifying separate account
when the income is properly allocable to the value of eligible variable
annuity or variable life insurance contracts.
Section 817(h) of the Code and the regulations thereunder impose
"diversification" requirements on each Fund. Each Fund intends to comply
with the diversification requirements. These requirements are in addition
to the diversification requirements imposed on each Fund by Subchapter M
and the 1940 Act. The 817(h) requirements place certain limitations on the
assets of each separate account that may be invested in securities of a
single issuer. These limitations apply to each Fund's assets that may be
invested in securities of a single issuer. Specifically, the regulations
provide that, except as permitted by a "safe harbor" described below, as of
the end of each calendar quarter or within 30 days thereafter, no more than
55% of a Fund's total assets may be represented by any one investment, no
more than 70% by any two investments, no more than 80% by any three
investments, and no more than 90% by any investments.
Section 817(h) provides, as a safe harbor, that a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities, and
securities of other regulated investment companies. For purposes of
Section 817(h), all securities of the same issuer, all interests in the
same real property project, and all interests in the same commodity are
treated as a single investment. In addition, each U.S. Government agency or
instrumentality is treated as a separate issuer, while the securities of a
particular foreign government and its agencies, instrumentalities, and
political subdivisions will be considered securities issued by the same
issuer. Failure of a Fund to satisfy the Section 817(h) requirements would
result in taxation of the applicable separate accounts, the insurance
companies variable life policies and variable annuity contracts, and tax
consequences to the holders thereof.
The foregoing is only a brief summary of important tax law provisions that
affect the Funds. Other Federal, state or local tax law provisions may also
affect the Funds and their operations. Anyone who is considering
allocating, transferring or withdrawing monies from a Retirement Plan or
monies held under a variable contract to or from a Fund should consult a
qualified tax adviser.
For a discussion of the impact on Contract Owners of income taxes an
Insurer may owe as a result of (i) its ownership of shares of the Funds,
(ii) its receipt of dividends and distributions thereon, and (iii) its
gains from the purchase and sale thereof, reference should be made to the
Prospectus for the Contracts accompanying this Prospectus.
Backup Withholding
Each Fund may be required to withhold U.S. Federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to
provide the Fund with their correct TIN or to make required certifications,
or who have been notified by the Internal Revenue Service that they are
subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. Federal income tax
liability.
Account Services
Contract Owners should direct any inquiries to Sage by calling
1-877-835-7243 or by writing to Sage Life Assurance of America, Inc.,
Customer Service Center, 1290 Silas Deane Highway, Wethersfield,
Connecticut 06109. All shareholder inquiries should be directed to the
Trust at 1-877-835-7243 or by writing to Sage Life Investment Trust,
Customer Service, 1290 Silas Deane Highway, Wethersfield, Connecticut
06109.
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Trustees and Shareholder
Sage Life Investment Trust (the "Trust")
We have audited the accompanying statement of assets of Sage Life
Investment Trust as of February 18, 1999. This statement of assets is the
responsibility of the Trust's management. Our responsibility is to express
an opinion on this statement of assets based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of assets is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of assets.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets referred to above presents fairly,
in all material respects, the financial position of the Trust at February
18, 1999, in conformity with generally accepted accounting principles.
/s/Ernst & Young, LLP
Ernst & Young, LLP
Stamford, Connecticut
February 24, 1999
Sage Life Investment Trust
Statement of Assets
February 18, 1999
<TABLE>
<S> <C> <C>
Money Market Fund S&P 500 Equity
Index Fund
----------------------------------------
Assets
Cash $2,000,000 $5,000,000
--------------------
---------------------
Total assets $2,000,000 $5,000,000
========================================
Number of shares outstanding 2,000,000 500,000
========================================
Net asset value per share $1.00 $10.00
========================================
</TABLE>
(see accompanying notes)
Sage Life Investment Trust
Notes to Statement of Assets
Dated February 18, 1999
1. Organization
Sage Life Investment Trust (the "Trust") was organized as a Delaware
business trust on January 9, 1998 and is registered under the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, as a diversified, no-load, open-end management investment company.
The Trust is a "series type" which issues separate series (or classes) of
stock, each of which represents a separate diversified portfolio of
investments. The Trust is currently composed of three series (the "Series")
which consist of three underlying funds (S&P 500 Equity Index Fund, EAFE
Equity Index Fund (together the "Index Funds") and Money Market Fund -
collectively, the "Funds"). Shares of the Funds will be offered to separate
accounts funding certain variable annuity and variable life insurance
contracts.
Since its organization on January 9, 1998, the Trust has had no operations
except for the sale and issuance of 2,000,000 shares of the Money Market
Fund and 500,000 shares of the S&P 500 Equity Index Fund to Sage Advisors,
Inc. ("SAI"), a wholly-owned subsidiary of Sage Insurance Group, Inc.
("SIGI"), on February 18, 1999 for consideration in the amount of
$7,000,000.
Costs related to the organization and registration of the Trust have been
funded by SIGI and certain of its subsidiaries. The Trust will not
reimburse SIGI for these organizational costs.
2. Management and Advisory Agreements
The Trust has retained SAI to serve as investment manager of the Funds.
State Street Global Advisors (State Street) is the investment advisor to
the Index Funds and Conning Asset Management Company (Conning) is the
advisor to the Money Market Fund pursuant to sub-advisory agreements. The
Bank of New York serves as custodian of the assets of the Funds and First
Data Investor Services Group, Inc. ("Investor Services Group") serves as
the transfer agent and sub-administrator for the Funds. Pursuant to the
terms of the sub-advisory agreements, all sub-advisory fees will be paid by
SAI.
3. Federal Income Taxes
Each Series of the Trust intends to qualify as a regulated investment
company under the provisions of Subchapter M of the Internal Revenue Code
(the "Code"). If such qualification is met and each Series complies with
the appropriate provisions of the Code, including the required
distributions to shareholders, each Series will be relieved of all, or
substantially all, federal income taxes on the amounts distributed to
shareholders.
Investment Manager and Administrator of the Funds
SAGE ADVISORS, INC.
Investment Adviser to the Index Funds
STATE STREET GLOBAL ADVISERS
Investment Sub-Adviser of the Money Market Fund
CONNING ASSET MANAGEMENT COMPANY
Sub-Administrator and Transfer Agent
FIRST DATA INVESTOR SERVICES GROUP, INC.
Distributor
SAGE DISTRIBUTORS, INC.
Custodian
THE BANK OF NEW YORK
Independent Accountants
ERNST & YOUNG, L.L.P.
Counsel
SUTHERLAND ASBILL & BRENNAN LLP
No person has been authorized to give any information or to make any
representations other than those contained in the Funds' Prospectus, the
SAI or the Trust's approved sales literature in connection with the
offering of the Funds' shares and, if given or made, such other information
or representations must not be relied on as having been authorized by the
Trust. Neither the Prospectus nor this SAI constitutes an offer in any
state in which, or to any person to whom, such offer may not lawfully be
made.
SAGE LIFE INVESTMENT TRUST
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) ................. Declaration of Trust is incorporated herein by
reference to Exhibit 1 as filed in the Initial Registration Statement on
January 30, 1998.
(b) ................. The Registrant's By-laws are incorporated herein by
reference to Exhibit 1 as filed in the Initial Registration Statement on
January 30, 1998.
(c) ................ Not Applicable
(d) (1)..............Form of Investment Management Agreement between the
Funds and Sage Advisors, Inc. is incorporated herein as Exhibit 5(a) to
Pre-Effective Amendment No. 1 as filed on November 16, 1998.
(2)................Form of Sub-Advisory Agreement between State Street
Global Advisors and Sage Advisors, Inc. is incorporated herein as Exhibit
5(b) to Pre-Effective Amendment No. 1 as filed on November 16, 1998.
(3)...............Form of Sub-Advisory Agreement between Conning Asset
Management Company and Sage Advisors, Inc. is incorporated herein as
Exhibit 5(c) to Pre-Effective Amendment No. 3 as filed on January 29, 1999.
(e) (1) .............Form of Distribution Agreement between Registrant and
Sage Distributors, Inc. is incorporated herein as Exhibit 6(a) to
Pre-Effective No. 1 as filed on November 16, 1998.
(2)................Participation Agreement by and among the Trust, Sage
Life Assurance of America, Inc. and the Distributor is incorporated herein
as Exhibit 6(b) to Pre-Effective Amendment No. 1 as filed on November 16,
1998.
(f) ................... Not Applicable
(g) ...................Form of Custodian Agreement between Registrant and
The Bank of New York is incorporated herein as Exhibit 8 to Pre-Effective
Amendment No. 2 as filed on January 25, 1999.
(h) (1)...............Form of Transfer Agency Agreement between Registrant
and First Data Investor Services Group, Inc. is incorporated herein as
Exhibit 9(a) to Pre-Effective Amendment No. 1 as filed on November 16,
1998.
(2) Form of Administration Agreement to filed by subsequent amendment.
(3)...............Form of Sub-Administration Agreement between Registrant
and First Data Investor Services Group, Inc. is incorporated herein as
Exhibit 9(b) to Pre-Effective Amendment No. 1 as filed on November 16,
1998.
(i) (1) ..............Opinion of Counsel is incorporated herein by
reference to Pre-Effective Amendment No. 3 as filed on January 29, 1999.
(2) Consent of Counsel to be filed by subsequent amendment.
(3) Power of attorney is incorporated herein by reference to Pre-Effective
Amendment No. 3 as filed on January 29, 1999.
(j) ................. Consent of Independent Auditors is filed herein as
Exhibit (j).
(k) ................ Not Applicable
(l) ................. Purchase Agreement to filed by subsequent amendment.
(m).................. Form of 12b-1 Plan for the Funds is incorporated
herein as Exhibit 15 to Pre-Effective Amendment No. 1 as filed on November
16, 1998.
(n) ................ Not Applicable
(o) ................. Not Applicable
Item 24. Persons Controlled by or Under Common Control with Registrant
As of the date of this filing all of the shares of each portfolio are owned
by Finplan Holdings, inc.
Item 25. Indemnification
Reference is made to the following documents: Registrant's Declaration of
Trust and By-laws as filed on January 30, 1998, and the Participation
Agreement by and among Sage Life Assurance of America, Inc. and the
Distributor as filed herein as Exhibit 6(b).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act") may be permitted to Trustees, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant understands that in the opinion of
the Securities and Exchange Commission such indemnification is against
public policy as expressed in the 1933 Act 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 Trustee, officer, or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such Trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
Sage Advisors, Inc. ("Sage") serves as investment manager to each Fund of
the Trust. Sage is a wholly-owned subsidiary of Sage Insurance Group, Inc.
State Street Global Advisors serves as the investment adviser to the S&P
500 Equity Index Fund and the EAFE Equity Index Fund (the "Index Funds").
State Street Global Advisors has been providing institutional investment
management services since 1987. Conning Asset Management Company
("Conning") serves as the investment adviser to the Money Market Fund and
has been providing institutional investment services since 1982.
To the knowledge of the Trust, none of the directors or officers of State
Street Global Advisors or Conning is or has been at any time in the past
two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature. Set forth below are the names and
principal businesses of the directors and officers of Conning and State
Street Global Advisors who are or during the past two fiscal years have
been engaged in any other business, profession, vocation or employment of a
substantial nature. The individuals from Conning may be contacted at c/o
City Place II, 185 Asylum Street, Hartford, CT 06103-1131 and the
individuals from State Street Global Advisors may be contacted at c/o State
Street Corporation, 225 Franklin Street, Boston, Massachusetts 02110.
NAME, PRINCIPAL OCCUPATION AND OTHER INFORMATION
STATE STREET CORPORATION: The individuals listed below serve in a
directorship and/or executive capacity for the following entities with
their respective address at the location of the Adviser: Tenley
Albright, Director; Chairman of Western Resources, Inc. Joseph Baute,
Director; formerly Chairman of Markem Corporation.
I. MacAllister Booth, Director; retired Chairman, President and Chief
Executive Officer of the Polaroid Corporation.
James Cash, Jr., Director; The James E. Robinson Professor of Business
Administration at Harvard Business School.
Truman Casner, Director; Partner of Ropes & Gray.
Nader Dareshori, Director; Chairman, President and Chief Executive
Officer of Houghton Mifflin Company.
David Gruber, Director; Chairman and chief Executive Officer of the
Wyman-Gordon Company.
Arthur Goldstein, Director; Chairman and Chief Executive Officer of
Ionics, Incorporated.
Charles Kaye, Director; Chairman of Transportation Investments,
Incorporated.
John Kuchaski, Director; Chairman and Chief Executive Officer of EG&G, Inc.
Charles LaMantia, Director; President and Chief Executive Officer of
Arthur D. Little, Inc.
David Perini, Director; Chairman of Perini Corporation.
Dennis Picard, Director; Chairman and Chief Executive Officer of the
Rayrheon Company.
Alfred Poe, Director; Chief Executive Officer of Menu Direct.
Bernard Reznicek, Director; President, Premier Group; retired Chairman
and Chief Executive Officer of Boston Edison.
Diana Walsh, Director; President of Wellesley College.
CONNING: The individuals listed below serve in a directorship and/or
executive capacity for the following entities with their respective
address at the location of the Adviser:
John Clinton, Senior Vice President; Anderson and Anderson Insurance
Brokers, Inc.; Connecticut Surety Corporation; Environmental Warranty,
Inc.; The Galtney Group Inc.; Investors Insurance Holding Corporation;
Paradigm Health Corporation; and Paula Financial.
William Frields, Senior Vice President; General American Life
Insurance Company Employees Federal Credit Union.
Leonard Rubenstein, Chairman and Chief Executive Officer; BHIF America
Sequros de Vida S.A.; and Genral American Charitable Foundation.
Maurice Slayton, President; Cox Insurance Holdings, PLC; GAN National
Insurance Company; GAN North America Insurance Company; Medspan Inc.;
and PennCorp. Financial Group, Inc.
David Vignolo, Vice President; BHIF America Sequros de Vida S.A.
Item 27. Principal Underwriters
(a) None.
(b) The following are the Directors and officers of Sage Distributors,
Inc. with the following business address of 300 Atlantic Street, Suite
302, Stamford, CT 06901: Robin Marsden - Director; Trustee/President
of Registrant Mitchell Katcher - Director; Vice President of
Registrant Ronald Scowby - Director; Trustee/Chairman of Registrant
James F. Bronsdon - President; Assistant Treasurer of Registrant James
Renz - CFO/Treasurer/Assistant Secretary; Assistant Treasurer of
Registrant
(c) Not Applicable.
Item 28. Location of Accounts and Records
All accounts books and other documents required to be maintained by
Registrant by Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained at the offices of:
(1) State Street Global Advisors Two International Place Boston,
Massachusetts 02110 (records relating to function as investment
adviser to the Index Funds)
(2) Conning Asset Management Company City Place II 185 Asylum Street
Hartford, CT 06103-4105 (records relating to function as investment
adviser to the Money Market Fund)
(3) Sage Distributors, Inc.
300 Atlantic Street, Suite 302
Stamford, CT 06901
(records relating to function as distributor to the Funds)
(4) First Data Investor Services Group, Inc. 101 Federal Street
Boston, MA 02110 (records relating to function as Administrator and
Transfer Agent to the Funds)
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
and the Investment Company Act of 1940, as amended, the Registrant,
SAGE LIFE INVESTMENT TRUST, has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, all in the City of Stamford, in the state of
Connecticut, on the 25th day of February, 1999.
SAGE LIFE INVESTMENT TRUST
/s/ Robin I. Marsden
Robin I. Marsden
President
The undersigned hereby constitutes and appoints James Bronsdon,
Kimberly J. Smith, Stephen E. Roth, Gail A. Hanson and Julie A.
Tedesco and each of them, with full power to act without the other,
her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for her and in her name, place and
stead, in any and all capacities (until revoked in writing) to sign
any and all amendments to the Registration Statement for Sage Life
Investment Trust (including post-effective amendments and amendments
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 attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act
and thing ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue of this
power of attorney.
WITNESS our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement and the above
Power of Attorney has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/Ronald S. Scowby* Chairman and Trustee February 25, 1999
Ronald S. Scowby
/s/Robin I. Marsden President and Trustee February 25, 1999
Robin I. Marsden
/s/Richard H. Rose Treasurer February 25, 1999
Richard H. Rose
/s/ James A. Amen* Trustee February 25, 1999
James A. Amen
/s/Rosemary L. Hendrickson* Trustee February 25, 1999
Rosemary L. Hendrickson
/s/ Geoffrey A. Thompson* Trustee February 25, 1999
Geoffrey A. Thompson
</TABLE>
* Julie A. Tedesco signed on behalf of the above indicated (*)
individuals pursuant to a power of attorney dated July 15, 1998.
Exhibit Index
Exhibit No. Exhibit
(j) Consent of Independent Auditors
Exhibit (j)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent
Auditors" in the Prospectus and Statement of Additional Information
and to the use of our report dated February 24, 1999 in Post-Effective
Amendment No. 1 to the Registration Statement on Form N-1A Trust (File
No. 333-45293) and related Prospectus of Sage Life Investment Trust.
/s/ Ernst & Young LLP
Ernst & Young, LLP
Stamford, Connecticut
February 24, 1999
