<PAGE>
PROSPECTUS
for
SAGE LIFE INVESTMENT TRUST
EAFE(R) EQUITY INDEX FUND
S&P 500(R) EQUITY INDEX FUND
Nasdaq-100 INDEX(R) FUND
MONEY MARKET FUND
ALL-CAP GROWTH FUND
September 1, 2000
EAFE(R) 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(R) Index is a capitalization weighted index of
stocks of companies outside the United States.
S&P 500(R) 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.
NASDAQ-100 INDEX(R) FUND
Seeks to provide investment returns that correspond to the performance of the
Nasdaq-100 Index(R) before the deduction of Fund expenses. The Nasdaq-100
Index(R) is a modified capitalization weighted index composed of 100 of the
largest non-financial domestic and international companies listed on the
National Market tier of The Nasdaq Stock Market(SM) (Nasdaq).
ALL-CAP GROWTH FUND
Seeks to provide long-term capital appreciation.
MONEY MARKET FUND
Seeks to provide high current income consistent with the preservation of capital
and liquidity through investment in short-term money market securities.
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.
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TABLE OF CONTENTS
<TABLE>
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<S> <C>
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...................................... A - 1
</TABLE>
<PAGE>
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(R) 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 Nasdaq-100 Index Fund (the "Nasdaq-100 Fund") Nasdaq seeks to provide
investment returns that correspond to the performance of the Nasdaq 100
Index/SM/ before the deduction of Fund expenses.
The All-Cap Growth Fund seeks to provide long-term capital appreciation.
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 EAFE 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.
To the extent that all 500 stocks cannot be purchased, the Fund will purchase a
representative sample of the stocks listed in the index.
The Nasdaq-100 Fund will invest in stocks of companies included in the Nasdaq-
100 Index(R), selected on the basis of computer-generated statistical data. The
Nasdaq-100 Index/SM/ is a modified capitalization weighted index composed of 100
of the largest non-financial domestic and international companies listed on the
National Market tier of The Nasdaq Stock Market (Nasdaq). All companies listed
on the index have a minimum market capitalization of $500 million and an average
daily trading volume of at least 100,000 shares.
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The All-Cap Growth Fund seeks to achieve its objective by investing primarily in
a diversified portfolio of common stocks of companies which have one or more of
the following characteristics: projected earnings growth and return on equity
greater than those of the Standard & Poors 500 average; dominance in their
industries or market niches; the ability to create and sustain a competitive
advantage; superior management teams and high profit margins.
The All-Cap Growth Fund portfolio manager will implement this strategy by
generally investing at least 80% of the Fund's common stock assets in companies
with market capitalizations greater than $2 billion. The Fund also may contain
stocks of some companies with market capitalizations as low as $100 million.
Thus, while the Fund primarily will own mid cap and large cap stocks, the Fund
may have some representation from small market capitalization companies as well.
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, the S&P 500 Fund or the Nasdaq-100 Fund (the "Index
Funds") and the All-Cap Growth Fund 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.
. EAFE Fund, S&P 500 Fund and Nasdaq - 100 Fund
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
2
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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 - Additional Risks
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 an 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 its 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.
. All-Cap Growth Fund
An investment in the Fund is not guaranteed. As with any mutual fund, the value
of the Fund's shares will change and you could lose money by investing in the
Fund. A variety of factors may influence its investment performance, such as:
. Market risk. Because the Fund invests primarily in stocks it is subject
to stock market risk. Stock prices typically fluctuate more than the values
of other types of securities, typically in response to changes in the
particular company's financial condition and factors affecting the market in
general. For example, unfavorable or unanticipated poor earnings performance
of the company may result in a decline in its stock's price, and a broad-
based market drop may also cause a stock's price to fall.
3
<PAGE>
. Mid Cap and Small Cap Companies. Investing in mid cap and small cap
companies generally involves greater risks than investing in larger, more
established companies. Mid cap and small cap companies often have narrower
markets and more limited managerial and financial resources than larger,
more established companies. As a result, their performance can be more
volatile and they face greater risk of business failure, which could
increase the volatility of the Fund's portfolio. Generally, the smaller the
company size, the greater these risks.
In addition, the performance of the Fund depends on the portfolio manager's
ability to effectively implement the investment strategies of the Fund.
. 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.
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
4
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. 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 Nasdaq-100 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 relatively medium to 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 Nasdaq-100 Index over time
You may not want to invest in the Nasdaq-100 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
. you are unwilling to accept the heightened risks of investing in
foreign markets
The All-Cap Growth 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 may not want to invest in the All-Cap Growth Fund if:
. you are seeking a high level of current income
. you are conservative in your investment approach
5
<PAGE>
. 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 Money Market Fund and the S&P 500 Fund commenced operations on February 19,
1999 and the EAFE Fund commenced operations on March 22, 1999. As of the date
of this Prospectus the All-Cap Growth Fund and the Nasdaq-100 Fund had not yet
commenced operations. Because the Funds have been in existence for such a short
period of time, no performance information is being presented to you at this
time 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&P Money All-Cap Nasdaq
Annual Fund Operating Expenses: EAFE 500 Market Growth 100
(Expenses that are deducted from Fund assets) Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Management Fees* 0.90% 0.55% 0.65% 1.10% 0.85%
12b-1 Fees** 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses*** 0.17% 0.17% 0.17% 0.11% 0.05%
---- ---- ---- ---- -----
Total Fund Operating Expenses 1.32% 0.97% 1.07% 1.46% 1.15%
Less Fee Waiver 0.17% 0.17% 0.17% 0.11% 0.05%
Net Fund Operating Expenses 1.15% 0.80% 0.90% 1.35% 1.10%
==== ==== ==== ==== =====
</TABLE>
* Sage Advisors, Inc., ("Sage") the Funds' investment manager, has entered
into a written agreement with the Funds pursuant to which Sage has agreed
to waive a portion of its management fees for the Funds until April 30,
2001. Without fee waivers, and taking into account the fact that no 12b-1
Fees were paid by the Funds, total expenses for each of the following Funds
during 1999 would have been: EAFE Fund, 1.07%; S&P 500 Fund, 0.72%; and
Money Market Fund, 0.82%.
** A Rule 12b-1 Plan (the "Plan") has been adopted by each Fund, pursuant to
which up to 0.25% may be deducted from Fund assets. However, no Plan
payments accrued or were made during the fiscal year ended December 31,
1999 and none will be made for the fiscal year ending December 31, 2000.
*** "Other Expenses" for the All-Cap Growth Fund and the Nasdaq-100 Fund are
based on the estimated expenses that the Funds expect to incur in their
initial fiscal year.
6
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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 reflects the fee waivers for its contractual period,
and 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>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ -------
<S> <C> <C> <C> <C>
EAFE Fund $118 $404 $726 $1,682
S&P 500 Fund $ 82 $291 $527 $1,229
Nasdaq-100 Fund $115 $369 $649 $1,482
All-Cap Growth Fund $143 $465 $821 $1,878
Money Market Fund $ 92 $323 $584 $1,359
</TABLE>
A Note on Fees
As an indirect investor in the Funds, you would incur various operating costs,
including investment management fees and operating expenses as indicated in the
fee table. 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 prospectus for your Contract 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 generally expected to track that of the
target index (less Fund expenses); 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
7
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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 sub-advises 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 sub-advises the Fund using advanced statistical techniques to
determine which stocks are to be purchased or sold to replicate the S&P 500
Index. To the extent that all 500 stocks cannot be purchased, the Fund will
purchase a representative sample of the stocks listed in the index. State Street
selects stocks for inclusion in the Fund based on:
. market capitalization
. yield
. volatility
. industry sector
8
<PAGE>
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).
Nasdaq-100 Fund. In seeking to replicate the performance of the Nasdaq-100
Index(SM), 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 Nasdaq-100 Index(SM). Under normal circumstances, the
Fund will invest at least 80% of its assets in securities of companies included
in the Nasdaq-100 Index(SM).
The Nasdaq-100 Index(TM) is modified capitalization-weighted index composed of
100 of the largest non-financial domestic and international companies listed on
the National Market tier of The Nasdaq Stock Market (Nasdaq). All companies
listed on the index have a minimum market capitalization of $500 million and an
average daily trading volume of at least 100,000 shares.
State Street sub-advises the Fund using advanced statistical techniques to
determine which stocks are to be purchased or sold to replicate the Nasdaq-100
Index(SM). To the extent that all 100 stocks cannot be purchased, the Fund will
purchase a representative sample of the stocks listed in the index. State Street
selects stocks for inclusion in the Fund Based on:
. market capitalization
. yield
. volatility
. industry sector
Nasdaq-100 Index(SM) determines the composition of the Nasdaq-100 Index(SM) and
may change the composition from time to time. The Fund may make adjustments
because of changes in the composition of the Nasdaq-100 Index(SM).
Nasdaq-100 Index(SM) does not sponsor, endorse, sell or promote the Nasdaq-100
Fund. Nasdaq-100 Index(SM) makes no representation regarding the advisability of
investing in funds generally or in this Fund (see "Appendix A" for an additional
discussion).
All-Cap Growth Fund. Eagle Asset Management, Inc. ("Eagle"), sub-advises the
Fund by selecting common stocks in part based on its opinions regarding the
sustainability of the company's competitive advantage in the market place and
the company's management team. The portfolio manager looks for securities of
companies which have an exceptional management team and which have the potential
to increase market share and drive earnings per share growth. The portfolio
manager uses a "bottom up" approach to identifying the companies in which it
invests. This approach includes fundamental financial research, and, frequently,
contact with company management to help identify investment opportunities.
Generally, the portfolio manager will sell a stock if its price appreciates to a
level that the portfolio manager views as not sustainable or to purchase stock
that the portfolio manager believes presents a better investment opportunity.
Under normal market conditions, the Fund invests at least 65% of its assets in
the common stock of U.S. companies and may invest the balance in other
securities, such as common stock of foreign issuers, corporate debt obligations,
U.S. Government securities, preferred stock, convertible stock, warrants and
rights to buy common stock, real estate investment trusts, repurchase agreements
and money market instruments. Investing in foreign securities presents
additional risks, such as those related to currently fluctuations and adverse
political or economic conditions affecting a foreign country with respect to its
fixed income investments. Although the Fund emphasizes investment-grade
securities (or unrated securities that the Fund manager deems to be of
comparable quality), the Fund may invest in non-investment-grade securities. A
non-investment grade security may fluctuate more in value, and present a greater
risk of default, than a higher-rated security.
The Fund may also use derivative instruments, such as options, futures contracts
and indexed securities, which are subject to transaction costs and certain
risks, such as unanticipated changes in securities prices.
For temporary defensive purposes during actual or anticipated periods of general
market decline, the Fund may invest up to 100% of its assets in high-grade money
market instruments, including U.S. Government securities, and repurchase
agreements secured by such instruments, as well as other high-quality debt
securities. Taking a defensive position may reduce the potential for
appreciation in the Fund and prevent the Fund from achieving its objective.
The SAI has more information about the Fund's authorized investments and
strategies, as well as the risks and restrictions that may apply to them.
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")
9
<PAGE>
. 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,
options, or foreign currency forwards, 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
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.
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<PAGE>
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 and the All-Cap Growth 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,
options and foreign currency forwards, 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 and the All-Cap Growth 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
11
<PAGE>
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 ("Moody's"). When following a defensive strategy, an
Index Fund will be less likely to achieve its investment objective.
Portfolio Turnover
The annual portfolio turnovers 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 Funds' 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 PFPC Inc. ("PFPC"), the sub-administrator of the
Funds (the "Sub-Administrator"). 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 contractual fee waivers, that
will remain in effect until April 30, 2001 for 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)
. 0.80% for the Nasdaq-100 Fund (0.85% without fee waivers and expense
limitations)
. 0.99% for the All-Cap Growth Fund ( 1.10% without fee waivers and expense
limitations)
. 0.48% for the Money Market Fund (0.65% without fee waivers and expense
limitations)
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<PAGE>
Sage pays the fees of the Advisers. Sage may also 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 State Street to serve as the investment adviser to the S&P 500
Fund, the EAFE Fund and the Nasdaq-100 Fund; Eagle to serve as the investment
adviser for the All-Cap Growth Fund; and 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 Nasdaq-100 Fund: 0.10% 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.
. the All-Cap Growth Fund: 0.45% of the first $50 million of assets under
management, 0.40% on the next $250 million of assets under management, and
0.30% on amounts in excess of $300 million of assets under management
. 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 December 31, 1999, State Street served as investment adviser
to various institutional clients with aggregate assets under management over
$672 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 December 31, 1999, Conning
manages assets of over $73.1 billion. Conning is an indirect majority-owned
subsidiary of Metropolitan Life Insurance Company.
Eagle, adviser for the All-Cap Growth Fund, located at 880 Carillon Parkway, St.
Petersburg, Florida 33716, is a wholly owned subsidiary of Raymond James
Financial, Inc. Eagle and its affiliates provide a wide range of financial
services to retail and institutional clients.
DISTRIBUTION PLAN
The initial shareholder of each Fund has 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 did not make any payments under the Distribution
Plans for the fiscal year ended December 31, 1999. Shareholders will be given
prior notice if such payments are to commence at a future date.
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<PAGE>
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 The NAV for the
Money Market Fund will not be calculated on national bank holidays.
For the Index Funds and the All-Cap Growth Fund's, 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 and All-Cap Growth 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 Index Funds and the All-Cap Growth Fund 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.
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<PAGE>
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 and the All-Cap Growth Fund distribute
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 additional diversification
requirements to preserve the tax-deferral benefits provided by the variable
contracts. The Advisers intend to diversify each Fund's 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.
15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Funds'
financial performance for the period ended December 31, 1999. As of the period
ended December 31, 1999, the All-Cap Growth Fund and the Nasdaq-100 Fund had not
yet commenced operations. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Funds assuming
reinvestment of all dividends and distributions. This information has been
audited by Ernst & Young LLP independent auditors, whose report along with the
Funds' financial statements is included in the Annual Report, which is available
from the Fund upon request.
<TABLE>
<CAPTION>
EAFE S&P 500 Money Market
Equity Index Equity Fund*
Fund** Index Fund*
--------------- ------------- --------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.00 $ 10.00 $ 1.00
----------- ----------- -----------
Operations:
Net investment income 0.08 0.08 0.04
Net realized and unrealized gain on 2.25 1.79 -
investments and foreign currency transactions
Total from Investment Operations 2.33 1.87 0.04
----------- ----------- -----------
Distributions to Shareholders:
Dividends from net investment income (0.07) (0.08) (0.04)
Distributions from net realized gain on (0.02) (0.03) -
investments
Total Distributions (0.09) (0.11) (0.04)
----------- ----------- -----------
Net Asset Value, End of Period $ 12.24 $ 11.76 $ 1.00
=========== =========== ===========
Total Return++ 23.30% 18.72% 4.03%
Ratios/Supplemental Data:+
Net Assets, end of period (in thousands) $ 24,667 $ 5,967 $ 2,086
Ratio of Net Investment Income to Average Net Assets
Before waiver/reimbursement of investment advisory fees 0.86% 0.66% 4.43%
After waiver/reimbursement of investment advisory fees 1.03% 0.83% 4.60%
Ratio of Expenses to Average Net Assets
Before waiver/reimbursement of investment advisory fees 1.07% 0.72% 0.82%
After waiver/reimbursement of investment advisory fees 0.90% 0.55% 0.65%
Portfolio Turnover 10% 3% N/A
</TABLE>
* The S&P 500 Equity Index Fund and Money Market Fund commenced operations on
February 19, 1999.
** The EAFE Equity Index Fund commenced operations on March 22, 1999.
+ All ratios have been annualized.
++ Total investment return is calculated assuming an initial investment made at
net asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period and redemption on the last
day of the period. Total investment return is not annualized.
16
<PAGE>
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.
<PAGE>
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "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.
The Nasdaq-100 Index
The Nasdaq-100 Index(SM) is a capitalization-weighted index composed of 100 of
the largest non-financial domestic companies listed on the National Market tier
of the Nasdaq Stock Market (Nasdaq). All companies listed on the index have a
minimum market capitalization of $500 million and an average daily trading
volume of at least 100,000 shares.
The Nasdaq-100 Fund is not sponsored, endorsed, sold or promoted by The Nasdaq
Stock Market, Inc. (including its affiliates) (Nasdaq, with its affiliates, are
referred to as the "Corporations"). The Corporations have not passed on the
legality or suitability of , or the accuracy or adequacy of descriptions and
disclosures relating to, the Fund. The Corporations make 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 Nasdaq-100 Index(R). to track general
stock market performance. The Corporations' only relationship to Sage Advisors,
Inc., (Licensee) is in the licensing of the Nasdaq-100, Nasdaq -100 Index(R),
the Nasdaq(R) trademarks or service marks, the certain trade names of the
Corporations and the use of the Nasdaq-100 Index(R) which is determined,
composed and calculated by Nasdaq without regard to Licensee or the Fund. Nasdaq
has no obligation to take needs of the Licensee or the owners of the Fund into
consideration in determining, composing or calculating the Nasdaq-100 Index(R).
The Corporations are 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 to be converted into cash. The Corporations have no liability in connection
with the administration, marketing or trading of the Fund.
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION
OF THE NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE
NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE,
OWNERS OF THE PRODUCT(S), OR ANY OTHER PERSON OR ENTITY FORM THE USE OF THE
NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED THERIN. THE CORPORATIONS MAKE NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF
MERCHANTABLITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED THERIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST
PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES,
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
<PAGE>
Additional information about the Funds' investments will be available in the
Funds' annual and semi-annual 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 September 1, 2000, 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
semi-annual report, or if you have questions about investing in the Fund, write
to or call us at:
Sage Life Investment Trust
Customer Service Center
P.O. Box 290680
Wethersfield, Connecticut 06129
1-877-835-7243 (collect)
You can find reports and other information about the Funds online at
www.sageusa.com or on the SEC website (http://www.sec.gov). In addition 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 Funds, including the 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 1-202-942-
8090. 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.
<PAGE>
SAGE LIFE INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
for
EAFE Equity Index Fund
S&P 500 Equity Index Fund
Nasdaq-100 Index Fund
All-Cap Growth Fund
Money Market Fund
September 1, 2000
Sage Life Investment Trust (the "Trust") is currently comprised of five
series: EAFE Equity Index Fund ("EAFE Fund") S&P 500 Equity Index Fund ("S&P 500
Fund") and the Nasdaq-100 Index Fund (together, the "Index Funds"), the All-Cap
Growth Fund ("All-Cap Fund") (together with the Index Funds, the "Equity Funds")
and the Money Market Fund (together with the Equity 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 Funds' 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. The investment adviser of the All-Cap Fund is Eagle Asset Management,
Inc. ("Eagle"). The investment adviser of the Money Market Fund is Conning
Asset Management Company ("Conning" and, together with State Street and Eagle,
the "Advisers"). The Trust's distributor is Sage Distributors, Inc. (the
"Distributor").
The Prospectus for the Funds is dated September 1, 2000. 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............................................
Financial Statements...............................................
<PAGE>
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 Equity 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 Equity
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.
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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 days 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
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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
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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 Equity 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 Equity 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").
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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 and
AllCap 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 Funds
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
Funds 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
Funds' 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.
The Advisers endeavor 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 Funds change investments from
one country to another or when proceeds of the sale of Funds shares in U.S.
dollars are used for the purchase of securities in foreign countries. Also,
some
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countries may adopt policies which may prevent or restrict the Funds 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 Funds 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 Funds 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 Funds. 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 Funds' 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 Equity 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
redemption's 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.
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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
7
<PAGE>
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 Equity 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 Equity 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 Equity
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 Equity Funds may buy or sell fewer futures contracts if the
volatility over a particular time period of the value of the stock index
8
<PAGE>
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
offsetting 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
offsetting 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 Equity
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 Equity Funds may purchase and
write call and put options on stock index futures contracts. The Equity 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 Equity 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.
9
<PAGE>
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 Equity 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 Equity Fund's
portfolio securities to meet settlement obligations.
Asset Coverage. In order to assure that futures and related options are not used
by an Equity 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 Equity Funds, to serve
as collateral for the obligations underlying the Funds' investments
10
<PAGE>
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.
11
<PAGE>
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.
Temporary Defensive Investments. For temporary defensive purposes, the
All-Cap Growth Fund may, at times, choose to hold some portion of its net assets
in cash, or to invest that cash in a variety of debt securities. This maybe done
as a defensive measure at times when desirable risk/reward characteristics are
not available in stocks or to earn income from otherwise uninvested cash. When
the Fund increases its cash or debt investment position, its income may increase
while its ability to participate in stock market advances or declines decreases.
Furthermore, when the Fund assumes a temporary defensive position it may not be
able to achieve its investment objective.
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
12
<PAGE>
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
13
<PAGE>
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 will be allocated among
clients in a manner deemed fair and reasonable by the respective Adviser. There
is no specific formula for allocating such transactions. 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.
For the period ended December 31, 1999 the total brokerage commissions
attributable to each Fund are set forth below.
<TABLE>
<CAPTION>
Period ended
FUND 12/31/99
=========================================================
<S> <C>
EAFE Fund** $ 13,735
---------------------------------------------------------
S&P 500 Fund* $ 1,550
---------------------------------------------------------
Money Market Fund* $ 0
---------------------------------------------------------
TOTALS $ 15,285
---------------------------------------------------------
</TABLE>
* Commenced operations February 19, 1999.
** Commenced operations March 22, 1999.
14
<PAGE>
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
15
<PAGE>
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. For the
seven-day period ended December 31, 1999, the Money Market Fund had a yield of
5.53% and an effective yield of 5.69%.
Total Returns of the Equity Funds. The Equity 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
Based upon the foregoing calculations, the average annual total return for
the S&P 500 Fund for the period February 19, 1999 (commencement of operations),
through December 31, 1999 was 18.72%. The average annuals total return for the
EAFE Fund for the period March 22, 1999 (commencement of operations), through
December 31, 1999 was 23.30%.
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
16
<PAGE>
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.
Equity Funds. In the calculation of each Equity 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.
17
<PAGE>
Trustees and Officers
<TABLE>
<CAPTION>
Position Held Principal Occupations
Name, Address and Age with the Trust During Past 5 Years
--------------------- -------------- -------------------
<S> <C> <C>
Ronald S. Scowby, * Trustee and Chairman of Sheldon, Scowby Associates, Inc.,
300 Atlantic Street, Suite 302 Chairman of consulting firm (January 2000 - Present);
Stamford, CT 06901 the Board President (July 1997 - January 1998) and Director
DOB - 01/39 (July 1997 - present), Sage Insurance Group, Inc.,
financial services holding company; President
(January 1997 - February 1998) and Chairman
(February 1998 - January 2000); Sage Life
Assurance of America, Inc., insurance company;
President and CEO, Sage Management Services USA,
Inc., management services company (June 1996 -
January 2000); 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, * Trustee and Director (since January 1997), President and CEO
300 Atlantic Street, Suite 302 President (since February 1998), Sage Insurance Group, Inc.,
Stamford, CT 06901 financial services holding company; Director
DOB - 10/65 (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, Trustee Managing Director, Partner and Director, Philo
10 Field Road Smith & Co., investment management company (July
Cos Cob, CT 06807 1988 - present).
DOB - 06/60
Rosemary L. Hendrickson, Trustee Executive Vice President, Independent Financial
3911 S.W. ViewPoint Terrace Marketing Group, Inc., financial services company
Portland, OR 97201 (January 1989 - April 1998).
DOB - 12/38
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupations
Name, Address and Age with the Trust During Past 5 Years
--------------------- -------------- -------------------
<S> <C> <C>
Geoffrey A. Thompson, Trustee Formerly Principal, Kohlberg & Co., investment
279 Old Black Point Road management company (November 1996 - April 1999);
Niantic, CT 06357 Partner, Norman Broadbent, executive recruiting
DOB - 10/40 firm (May 1995 - February 1996); President,
Nordman Grimm, executive recruiting firm (January
1994 - May 1995).
Mitchell R. Katcher, Vice President Senior Executive Vice President, Sage Investment
300 Atlantic Street, Suite 302 Group, Inc., financial services holding company
Stamford, CT 06901 (December 1997 - present); Director, Chief Actuary
DOB - 08/53 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).
George Graner, Treasurer Section Manager of PFPC Inc. (12/99 - Present);
3200 Horizon Drive Section Manager of First Data Investor Services
King Of Prussia, PA 19406 Group, financial reporting unit (6/99 - 12/99);
DOB - 11/69 Section Manager of FPS Services, Inc., accounting
services unit (6/92 - 6/99).
James F. Renz, Assistant Vice President, Sage Life Assurance of America,
300 Atlantic Street, Suite 301 Treasurer Inc., insurance company (September 1997 -
Stamford, CT 06901 present); Treasurer and CFO, Sage Distributors,
DOB - 12/62 Inc., broker-dealer (January 1998 - present);
Manager, Swiss Re Life and Health Insurance
Company, reinsurance company (October 1987 -
August 1997).
Kelly O'Neill Secretary Regulatory Administrator of PFPC Inc. (12/99 -
3200 Horizon Drive Present); Compliance Administrator of First Data
King of Prussia, PA 19406 Investor Services Group (6/99 - 12/99); Compliance
DOB - 10/69 Administrator of FPS Services, Inc. (5/95 - 6-99).
Maureen M. Murphy Assistant Securities Attorney, Sage Life Assurance of
300 Atlantic Street, Suite 302 Secretary America, Inc., insurance company (October 1999 -
Stamford, CT 06901 Present; Attorney Update Legal Staffing, November
DOB - 8/59. 1998 - October 1999; Associate, Blazzard, Grodd &
Hasenauer, P.C., law firm (September 1995 -
September 1998); Senior Counsel, Chancellor
Capital Management, Inc., investment management
firm, (May 1983 - January 1995).
</TABLE>
19
<PAGE>
The following table shows the amount of compensation paid by the Trust
during the period ended December 31, 1999 to the persons who served as Trustees
during such period:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Estimated Compensation
Accrued as Annual from Fund
Name of Person and Compensation Part of Fund Benefits upon Complex Paid
Position from the Trust Expenses Retirement to Trustee*
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James A. Amen $9,000 None None $9,000
Trustee
Rosemary L. Hendrickson $9,000 None None $9,000
Trustee
Geoffrey A. Thompson $9,000 None None $9,000
Trustee
</TABLE>
________________
* No Trustee receives any compensation from any mutual fund affiliated with the
Manager other than the Trust.
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, PFPC Inc. ("PFPC ") or one of their affiliates receive no
compensation or expense reimbursement from the Trust.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of May 31, 2000 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).
Listed below are the names and addresses of those shareholders and accounts
who, as of May 31, 2000, owned of record or beneficially 5% or more of the
shares of any Fund.
Persons or organizations owning 25% or more of the outstanding shares of a
Fund may be presumed to "control" (as that term is defined in the 1940 Act) a
Fund. As a result, these persons or organizations could have the ability to
approve or reject those matters submitted to the shareholders of such Fund for
their approval.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Percentage
Fund Name Shareholder Address Ownership
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EAFE Fund Sage Life Limited Sage Centre, 10 Fraser St. 99.97%
Johannesburg, 2001
Republic of South Africa
--------------------------------------------------------------------------------------------------
S&P 500 Fund Sage Life Limited Sage Centre, 10 Fraser St. 99.00%
Johannesburg, 2001
Republic of South Africa
--------------------------------------------------------------------------------------------------
Money Market Fund Finplan Holdings, Inc. c/o McCarthy, Fingar et al. 11 99.80%
Martine Ave., 12/th/ Floor
White Plains, NY 10606
--------------------------------------------------------------------------------------------------
</TABLE>
As of the date of this SAI, the All-Cap Growth Fund and the Nasdaq-100 Fund had
not commenced operations.
20
<PAGE>
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. 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 supervises the provisions of services by third parties such
as the Funds' custodian and transfer agent. Pursuant to a sub-administration
agreement, PFPC, the sub-administrator to the Funds, assists the Manager in the
performance of its administrative responsibilities to the Funds. The Manager
compensates PFPC 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 before any fee waiver
at the following rates: EAFE Fund 0.90%; S&P 500 Fund 0.55%, Nasdaq-100 Fund -
0.85%, All-Cap Growth Fund 1.10%, and Money Market Fund 0.65%. Sage has agreed
to waive a portion of its management fees for the Funds until April 30, 2001.
With such waivers, the Funds will pay the following management fees to Sage:
EAFE Fund -0.73%, S&P 500 Fund - 0.38%, Nasdaq - 100 Fund - 0.80% All-Cap Growth
Fund - 0.99%, and Money Market Fund - 0.48%.
For the period ended December 31, 1999, Sage earned and voluntarily waived
the amounts indicated below with respect to its management services to the EAFE
Fund, S&P 500 Fund and Money Market Fund.
21
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
Gross Management Net
Management Fees Management
FUND Fees Earned Waived Fees Received
================================================================================================
<S> <C> <C> <C>
EAFE Fund** $147,509 $27,371 $120,138
------------------------------------------------------------------------------------------------
S&P 500 Fund* $ 25,731 $ 7,813 $ 17,918
------------------------------------------------------------------------------------------------
Money Market Fund* $ 11,635 $ 2,989 $ 8,646
------------------------------------------------------------------------------------------------
TOTALS $184,875 $38,173 $146,702
------------------------------------------------------------------------------------------------
</TABLE>
* Commenced operations February 19, 1999.
** Commenced operations March 22, 1999
As of the date of this SAI, the All-Cap Growth Fund and the Nasdaq-100 Index
Fund had not commenced operations.
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.
22
<PAGE>
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 All-Cap Growth Fund is Eagle Asset Management,
Inc., with principal offices at 880 Carillon Parkway, P.O. Box 10520, St.
Petersburg, Florida 33733-0520. Eagle is a wholly owned subsidiary of Raymond
James Financial, Inc. 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 S&P 500 Fund, the EAFE Fund and the Nasdaq-100 Fund; Eagle manages
the All-Cap Growth Fund 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.
In its capacity as Advisor, Eagle supervises and manages the investment
activity of the All-Cap Growth Fund. Day-to-day management of the Fund is the
responsibility of Eagle's Growth Equity team, managed by senior portfolio
management staff, and assisted by research analysts and equity traders.
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 at the following rate:
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.
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.
Nasdaq-100 Fund: 0.10% 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.
All-Cap Fund: 0.45% of the first $50 million of assets under management,
0.40% of the next $250 million of assets under management, and 0.30% on
amounts in excess of $300 million of assets under management.
23
<PAGE>
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.
24
<PAGE>
For the period ended December 31, 1999, the Manager paid the applicable
Adviser the amounts indicated below pursuant to the relevant Sub-Advisory
Agreements:
<TABLE>
<CAPTION>
===========================================================================
Advisory
FUND Sub-Adviser Fees Paid
===========================================================================
<S> <C> <C>
EAFE Fund** State Street Global Advisors $52,580
---------------------------------------------------------------------------
S&P 500 Fund* State Street Global Advisors $42,329
---------------------------------------------------------------------------
Money Market Fund* Conning Asset Management Company $ 2,673
---------------------------------------------------------------------------
</TABLE>
* Commenced operations February 19, 1999.
** Commenced operations March 22, 1999.
As of the date of this SAI, the All-Cap Growth Fund and the Nasdaq-100 Fund had
not commenced operations.
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.
25
<PAGE>
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, and 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 were made by the Funds under the 12b-1 Plans for the period
ended 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
PFPC Inc., located at 3200 Horizon Drive, King of Prussia, PA 19406, serves
as each Fund's sub-administrator pursuant to a Sub-Administration Agreement with
the Manager.
As the sub-administrator, PFPC 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. PFPC will
generally assist in all aspects of the Funds' operations; supply and maintain
office facilities (which may be in PFPC'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.
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Custodian and Transfer Agent
The Bank of New York, One Wall Street, New York, New York 10286, serves as
custodian for the EAFE Fund, the S&P 500 Fund and the Money Market Fund. PFPC
Trust Company, 400 Bellevoe Parkway, Wilmington, Delaware 19809, serves as
custodian for the Nasdaq-100 Fund and the All-Cap Growth Fund. As custodian, The
Bank of New York and PFPC Trust Company hold the Funds' assets.
PFPC located at 4400 Computer Drive, Westborough, Massachusetts 01581,
serves as transfer agent of the Trust. Under its transfer agency agreement with
the Trust, PFPC 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 LLP, Two Commerce Square, 2001 Market Street, Suite 4000,
Philadelphia, Pennsylvania 19103, serves as independent auditors of the Trust
and the Funds. The financial statements of the Trust, as of December 31, 1999,
incorporated by reference into the Prospectus and in this SAI, have been audited
by Ernst & Young LLP.
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 five 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. 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
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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.
Code of Ethics
The Trust, the Manager and the Distributor are each governed by a Code
of Ethics that has been approved and adopted by the Board of Trustees of the
Trust. This Code is subject to periodic review by the Board of Trustees in order
to remain compliant with the requirements under Rule 17j-1 of the 1940 Act. The
Code significantly restricts the personal investing activities of directors and
officers of the Manager, the Investment Adviser and the Distributor and
employees of the Manager, the Investment Adviser and the Distributor with access
to information about recent portfolio transactions. Among other provisions, the
Code requires that such directors, officers and employees with access to
information about the purchase or sale of portfolio securities obtain
preclearance before executing personal trades. Each of the Advisers has also
adopted a Code of Ethics that is subject to periodic review by the Board of
Trustees.
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 Equity 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.
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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 qualifies 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.
To qualify as a regulated investment company, a Fund must meet several
requirements. These requirements include the following: (1) at least 90% of the
Fund's gross income must be derived from dividends, interest, payments with
respect to securities loans, gains from the sale or disposition of stock,
securities or foreign currencies or other income (including gains from the sale
or disposition of stock, securities or foreign currencies or other income
(including gain from options, futures or forward contracts) derived in
connection with the Fund's investment business, (2) at the close of each quarter
of the Fund's taxable year, (a) at least 50% of the value of the Fund's assets
must consist of cash, United States Government securities, securities of other
regulated investment companies and other securities (limited generally with
respect to any one issuer to not more that 5% of the total assets of the Fund
and not more than 10% of the outstanding voting securities of such issuer) (b)
not more than 25% of the value of the Fund's assets may be invested in the
securities of any one issuer (other than United States Government securities or
securities of other regulated investment companies) or of two or more issuers
which the Fund controls and which are determined to be engaged in similar or
related trade or businesses and (3) at least 90% of the Fund's net income
(consisting) of net investment income and net short-term capital gain) must be
distributed to its shareholders. If a Fund fails to qualify as a regulated
investment company, the Fund will be subject to federal, and possibly state,
corporate taxes on its taxable income and gains, distributions to its
shareholders will be taxed as ordinary income to the extent of the Fund's
available earnings and profits and Contract Owners could lose the benefit of tax
deferral on distributions made to the separate accounts.
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.
Because the Funds are offered through insurance company separate accounts,
each Fund intends to also comply with the diversification requirements impose by
section 817(h) of the Code and the regulations thereunder. These requirements,
which are in addition to the diversification requirements, mentioned above,
place certain limitations on the proportion of each Fund's assets that may be
represented by any single investment (which includes all securities of the same
issuer). For the purposes of section 817(h), all securities of the same issuer,
all interests in the same real property project, and all interest 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 governments and its agencies, instrumentality's and
political subdivisions all will be considered securities issued by the same
issuer, If a Fund failed to comply with the diversification requirements of
section 817(h) of the Code and the regulations thereunder Contract Owners could
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be subject to current tax on distributions made to separate accounts of
participating insurance companies.
Generally, a regulated investment company must distribute substantially all
of its ordinary income and capital gains in accordance with a calendar year
distribution requirement in order to avoid a nondeductible 4% excise tax.
However, the excise tax does not apply to a fund whose only shareholders are
certain tax exempt trusts or segregated asset accounts of life insurance
companies held in connection with variable contracts. In order to avoid this
excise tax, the Funds intend to qualify for this exemption or to make its
distributions in accordance with the calendar year.
Foreign Investments - The EAFE Fund and the All-Cap Growth Fund are
authorized to invest in foreign securities and may be required to pay
withholdings, income or other taxes to foreign governments or U.S. possessions.
Foreign tax withholdings from dividends and interest, if any, is generally at a
rate between 10% and 35%. The investment return of any Fund that invests in
foreign securities of currencies is reduced by these foreign taxes. The Contract
Owners effectively bear the cost of any foreign taxes but will not be able to
claim a foreign tax credit or deduction for these foreign taxes. Tax conventions
between certain countries and the United States may reduce or eliminate these
foreign taxes, however, and foreign countries generally do not impose taxes on
capital gains in respect of investments by foreign investors.
The EAFE Fund and the All-Cap Growth Fund may invest in securities of
"passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of passive income. A fund
investing in securities of PFICs may be subject to U.S. Federal income taxes and
interest charges, which would reduce the investment return of a Fund making such
investments. The Contract Owners would effectively bear the cost of these taxes
and interest changes. In certain cases, a Fund may be eligible to make certain
elections with respect to securities of PFICs, which could reduce taxes and
interest charges payable by the Fund. However, a Fund's intention to qualify
annually as a regulated investment company may limit a Funds elections with
respect to PFIC securities and no assurance can be given that such elections can
or will be made.
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.
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.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto for each Fund,
contained in the Annual Report to Shareholders dated December 31, 1999, are
incorporated by reference into this Statement of Additional Information and have
been audited by Ernst & Young LLP, independent auditors, whose report also
appears in the Annual Report and is also incorporated by reference herein.
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Investment Manager and Administrator of the Funds
SAGE ADVISORS, INC.
Investment Sub-Adviser to the Index Funds
STATE STREET GLOBAL ADVISERS
Investment Sub-Adviser to All-Cap Growth Fund
EAGLE ASSET MANAGEMENT, INC.
Investment Sub-Adviser of the Money Market Fund
CONNING ASSET MANAGEMENT COMPANY
Sub-Administrator and Transfer Agent
PFPC INC.
Distributor
SAGE DISTRIBUTORS, INC.
Custodians
THE BANK OF NEW YORK
PFPC TRUST COMPANY
Independent Accountants
ERNST & YOUNG LLP
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.
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